Individual retirement accounts typically hold conventional investments such as publicly traded stocks, bonds, mutual funds and certificates of deposit. If you want it to hold something unusual, such as real estate or an interest in a business that isn’t publicly traded, you have to establish a self-directed IRA at a financial institution that will accept these entities. I’m not a fan of the idea, and a recent Tax Court case illustrates one of the dangers.
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Expert’s Expert on IRAs
May 19, 2013
Where does an expert turn for answers on IRAs? Whenever possible, I turn directly to the law: Internal Revenue Code, regulations, IRS rulings and court cases. Sometimes I want a reliable way to get to an answer more quickly though, and fortunately there’s a great way to do that. I reach for one of the most valuable books in my library, Life and Death Planning for Retirement Benefits by Natalie B. Choate. This 600-page reference would be overkill for an investor who might have an occasional question about how to deal with an IRA or other retirement account. For a financial advisor or tax professional who regularly deals with retirement planning issues, the book is simply indispensable. I’ve referred to it often, and it never lets me down.
- Learn more about this book and the author at Ataxplan Publications.
IRS to Shut Down Nationwide
May 18, 2013
No joke: all offices of the IRS throughout the country are going to shut down. But don’t get excited, it will be just for a day: May 24. And then for three other days: June 14, July 5 and August 30. IRS employees will be on unpaid furlough those days due to what the agency calls “the current budget situation, including the sequester.” Filing deadlines will not be affected, but on these days you won’t be able to reach the IRS by telephone, and the Service won’t be accepting or acknowledging electronically filed returns or conducting any compliance activities.
- There’s no word on how the shutdown might affect the feverish pace at which the IRS has been working to process exemption applications from conservative groups.
Taxing Internet Sales
April 23, 2013
By Kaye A. Thomas
If you read the Wall Street Journal, you may be aware that legislation dealing with Internet sales is moving forward. Monday, the Senate voted 74 to 20 in favor of opening debate on the measure. [Update: the Senate subsequently passed the bill; action in the House is pending with the outcome uncertain at this point.] The picture of this legislation painted on the Journal’s editorial pages is misleading, however.
Free Efile for Extension
April 9, 2013
If you can’t file by April 15, you should be aware that it’s easier than ever to file for a six-month extension. You can have a tax pro do it for you, or use tax software, but if push comes to shove you can file your federal extension online, free of charge, without regard to your income level. The IRS explains how to do this here.
- Do this even if you owe money and can’t pay at this time. Filing for an extension doesn’t get you out of the late payment penalty, but it gets you out of the much worse late filing penalty — if you follow up by filing the return by October 15.
Obama to Propose Retirement Account Cap
April 9, 2013
By Kaye A. Thomas
The Obama administration has revealed that the budget proposal to be published later this week will include a $3 million cap on retirement accounts.
Last Call for Refundable AMT Credit
April 2, 2013
By Kaye A. Thomas
In two important ways, this is the last year for the AMT refundable credit, which is mainly used by people who paid AMT in a previous year in which they exercised incentive stock options.
Sergio Garcia Beats Retief Goosen
March 28, 2013
The Tax Court has issued a ruling favorable to Swiss golfer Sergio Garcia. (If you follow golf, you probably think of him as Spanish, but his residence in Switzerland entitles him to certain tax benefits.) At issue was how much of his TaylorMade endorsement income is subject to U.S. income tax. The payment has to be apportioned between income for personal services and royalty income. A previous decision involving golfer Retief Goosen, who has an endorsement contract with the same manufacturer, allocated the payment 50-50. In this case, the court found reasons to allocate 65% of the payment to royalty income, which escapes U.S. income tax under a tax treaty with Switzerland. More striking, though, is the value of a dynamic personality in the world of golf endorsements. Goosen, who has won the U.S. Open twice, had a contract worth $400,000. Garcia, who has never won a major, commanded a $5.5 million contract. We wonder how much of that figure is ultimately attributable to a single shot Garcia hit in 1999 — golf fans know the one — eyes closed as he struck the ball from a seemigly impossible position behind a tree, then ran out onto the fairway and leaped in the air to see over a mound as the ball sailed onto the green.
Opinion: Garcia v. Commissioner (PDF)
Value Determined in Demutualization Case
March 28, 2013
The demutualization saga continues to play out. These cases involve holders of insurance policies issued by mutual insurance companies that convert to business corporations (a transaction known as demutualization). Mutual insurance companies are owned by their policyholders, who therefore receive shares of stock in a demutualization. A number of taxpayers have challenged the IRS position that these shares have zero basis, asserting that a portion of the premiums paid on the insurance policies should be allocated to basis of the shares. We previously reported on the Dorrance case, in which the court determined that a factual determination would be required to allocate premium payments to basis. The court has now published its determination that the basis of the shares was over $1,000,000, which was roughly half the price at which the shares received in the demutualization were sold.
The IRS does not agree with the result in the Dorrance case, and litigation over this issue continues. Taxpayers who sold shares received in a demutualization in years that are still open under the statute of limitations should consider filing protective claims. Under the general rule the oldest year still open is 2009, and that year closes on April 15, 2013, the third anniversary of the due date for income tax returns for that year.
Basis Isolation for Roth Conversions
March 26, 2013
By Kaye A. Thomas
We first posted on the topic of basis isolation for Roth conversions some four years ago, and we continue to receive inquiries on the topic. In response, we’ve upgraded our coverage. Previously we had a single article that described and critiqued the techniques that have been proposed. Now we offer a collection of seven articles dealing with different aspects of the topic.
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