Taxation & Estate Planning

PENALIZE FIRST, ASK QUESTIONS LATER

Posted on October 23, 2008
U.S. persons and entities with interests in non-U.S. corporations take heed ? noncompliance with information reporting requirements will soon lead to automatic imposition of substantial U.S. penalties. The reporting at issue is for Form 5471, which must be filed by U...

ENHANCED BROKER REPORTING

Posted on October 22, 2008
A new provision enacted under the Emergency Economic Stabilization Act of 2008 has stepped up the record keeping and reporting obligations of securities brokers. Brokers are presently required to report sale information to the IRS each year, to assist the IRS in determining if taxpayers are properly reporting their securities gains and losses...

APPLICABLE FEDERAL RATES - NOVEMBER 2008

Posted on October 18, 2008

NEW TAX LAW DEFUSES TAXPAYER VS. PREPARER CONFLICT

Posted on October 15, 2008
As previously discussed, changes to preparer penalties had created a conflict between tax return preparers and taxpayers. The essence of the controversy was that taxpayers could report a tax issue based upon a "reasonable basis," and would be insulated from penalties if the position turned out to be wrong...

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"SHORT SALE" CONTROVERSY RESOLVED [FLORIDA]

Posted on October 11, 2008
In my posting of September 6, 2008, I discussed the controversy that had arisen over real property "short sales" in Florida. If you recall, a "short sale" occurs when a buyer purchases encumbered real property for less than the existing debt on the property, and the existing lender allows the buyer to obtain the property without a mortgage lien relating to the portion of the debt that the buyer is not taking over...

SURPRISE! NEW FBAR EXPANDS OFFSHORE ACCOUNT REPORTING

Posted on October 09, 2008
There are three certainties in life - death, taxes, and increases in U.S. information reporting requirements. In compliance with the third of these certainties, the U.S. Treasury Department has issued a new FBAR form that expands reporting of foreign accounts beyond those previously required...

TAX CHANGES ENACTED AS PART OF THE BAILOUT LAW

Posted on October 04, 2008
The bailout law passed by Congress included a number of tax provisions - some related to the bailout and some not. Some of the principal changes include:a. Compensation Deductions Limited. The new law limits to $500,000 the compensation deduction for pay of principal officers of employers who have assets acquired by the federal government that meet the thresholds including in the new law...

IRS TO EASE LOSS CARRYOVER RESTRICTIONS

Posted on October 01, 2008
Code Section 382 limits trafficking in net operating losses by imposing restrictions on use of net operating losses of a corporation after a substantial change in ownership. One of the restrictions that arises after such a change in ownership is that the available net operating losses are effectively written down to the fair market value of the corporation at the time of change in ownership...

EXPANSIVE DEFINITION OF GOODWILL IN LIKE-KIND EXCHANGES

Posted on September 28, 2008
Under Code Section 1031, taxpayers can exchange property of like-kind without incurring current gain - that is, they can defer gain recognition by rolling over their tax basis into the replacement property. While most often applied to real property, such exchanges can include exchanges of trade or business property...

IRS REMINDS TAXPAYERS OF A FIRPTA WITHHOLDING TRAP

Posted on September 24, 2008
Internal Revenue Code Section 897 subjects foreign taxpayers to U.S. income tax on their gains from sales and dispositions of U.S. real property interests. Code Section 1445 imposes a 10% withholding tax, to be collected by purchasers, when a foreign taxpayer sells a U...

APPLICABLE FEDERAL RATES - OCTOBER 2008

Posted on September 20, 2008

IRS TWISTING ARMS TO REMOVE ELECTRONIC FILING FEES

Posted on September 17, 2008
If you are one of the brave ones that prepares and files your own federal income tax return, you probably use one of the commercial tax preparation software programs to assist you. When you are ready to file your tax return, the programs typically prompt you to file your tax return electronically...

IRS CHANGES PUBLIC SUPPORT ADVANCE RULING PROCEDURES FOR SECTION 501(c)(3) ORANIZATIONS

Posted on September 13, 2008
Under the Internal Revenue Code, there are advantages for a Section 501(c)(3) organization to be classified as a "publicly supported" organization. To be "publicly supported," that organization must meet certain mathematical tests demonstrating a broad base of donor support (as compared to a small non-public pool of donors, such as a single family)...

INTEREST RATES FOR TAX OVERPAYMENTS AND UNDERPAYMENTS (OCTOBER 2008 QUARTER)

Posted on September 10, 2008
The IRS has announced the interest rates for tax overpayments and underpayments for the calendar quarter beginning October 1, 2008.For noncorporate taxpayers, the rate for both underpayments and overpayments will be 6%.For corporations, the overpayment rate will be 5%...

DOC STAMP "SHORT SALE" RULING EXPECTED SOON [FLORIDA]

Posted on September 06, 2008
Florida imposes documentary stamp taxes on the transfer of real property, based on the amount paid for the property. Amounts paid for the property include mortgage indebtedness that encumbers the property.The declines in real property values has given rise to a substantial increase in real property "short sales...

EXTENSION PERIODS TO SHORTEN FOR PARTNERSHIPS, ESTATES & TRUSTS

Posted on September 04, 2008
Presently, partnerships, estates and trusts are generally obligated to file their income tax return by April 15, and can obtain 6 month extensions to October 15 (such dates are extended to the next business day if they fall on a weekend or federal holiday)...

VACATION!

Posted on September 04, 2008
Hopefully, you have noticed an absence of postings over the last two weeks. I have been on vacation - posts to restart shortly.

CONVERSION PROPERTY MAY HAVE LIMITED SECTION 121 EXCLUSION

Posted on August 24, 2008
Code Section 121 allows taxpayers to exclude up to $250,000 of gain from sale of a principal residence from federal income taxation ($500,000 for married couples). To qualify for the exclusion, the sold residence must have been used as the taxpayer's principal residence for at least 2 years in the 5 years preceding sale...

APPLICABLE FEDERAL RATES - SEPTEMBER 2008

Posted on August 20, 2008

FRINGE BENEFITS AND 2% SHAREHOLDERS OF S CORPORATIONS

Posted on August 17, 2008
S corporations may pay fringe benefits for the benefit of its shareholders, as well as its other employees. However, special rules apply as to whether these benefits will be taxable to shareholders who receive them if those shareholders own 2% or more of the stock of the corporation...

DAY TRADER IS ONLY AN INVESTOR

Posted on August 14, 2008
Successful stock market day traders like to be characterized as mere investors for federal income tax purposes - this allows them to pay taxes on their trading gains at preferential capital gains rates. Unsuccessful stock market day traders want to avoid the "investor" label, and instead they want to be characterized as engaged in the trade or business of trading...

MORE ON PROTECTION OF ASSETS AT BANK AND BROKERAGES

Posted on August 10, 2008
We recently addressed the FDIC insurance limits on various types of bank accounts. Not all accounts with banks are FDIC insured. Many don't need it - that is, some assets are effectively owned by the client so they are not impacted by a failure of the institution itself...

IS THERE LIFE LEFT IN THE COHAN RULE?

Posted on August 06, 2008
For income tax purposes, taxpayers are required to maintain permanent books of account and records sufficient to sufficient to establish the amount of gross income, deductions, credits, or other matters reported to the IRS (Treas.Regs. §1.6001-1(a))...

FDIC DEPOSIT INSURANCE LIMITATIONS

Posted on August 02, 2008
Over the past several weeks, several banks have failed, and their depositors paid out by the FDIC. While the FDIC may pay out more than the insured amount, the actual amount of deposit insurance per account at a given bank is $100,000 (or $250,000 for certain IRA's and other similar deferred accounts)...

NO DEDUCTION FOR SEMINAR EXPENSES

Posted on July 31, 2008
Internal Revenue Code Section 212(1) allows a deduction to individual taxpayers for expenses relating to the production or collection of income. Therefore, if one attended a seminar to learn investment trading techniques, that should be deductible, right?That's what Carl Jones thought, when he deducted the expenses of a day-trading seminar that he attended to improve his day trading skills...

GOOD FOR THE GOOSE...GOOD FOR THE GANDER?

Posted on July 26, 2008
Since U.S. transfer taxes (estate and gift taxes) are calculated on the value of the property transferred, taxpayers seek low values while the IRS seeks high values. When the asset in question is an interest in a business entity (e.g., stock in a corporation), valuation experts recognize that the stock of an entity may be worth less than the value of the assets owned...

NO VALUATION DISCOUNT FOR RMA'S

Posted on July 23, 2008
A restricted management account (RMA) is an account under which the owner of cash and/or securities places those items in the hands of an investment manager to manage for an extended period of time. The account agreement usually provides that the items will be kept under such management for a fixed number of years...

TAX NOTES ARTICLE

Posted on July 21, 2008
On July 10, I commented on recent IRS guidance relating to interest expense deductions of partners in securities trading partnerships. A more detailed analysis of that guidance was published on pages 98 & 99 of the July 14, 2008 edition of Tax Notes...

APPLICABLE FEDERAL RATES - AUGUST 2008

Posted on July 19, 2008

SHELL OIL SURVIVES ANTI-STUFFING ATTACK

Posted on July 15, 2008
In 1992, several Shell Oil affiliates transferred various properties to Shell Frontier Oil & Gas Inc. in a Section 351 transaction. As a Section 351 transfer, the shareholders of Shell Frontier received a basis in their Shell Frontier stock equal to the basis of the property transferred to Shell Frontier...

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