There are a few items that are low hanging fruit that make for easy adjustments for IRS auditors. The adjustment for indirect costs is an example of such an adjustment that can be made for any taxpayer that has inventory. The recent Patients Mutual Assistance Collective Corporation v. Commissioner, 151 T.C. No. 11 (2018), case provides…
Tax Articles
Early IRA Distribution, Gambling Not a Disability
Early distributions from IRAs are subject to a 10 percent additional tax. The 10 percent additional tax does not apply if the distribution is taken when the IRA owner is disabled. The recent Gillette v. Commissioner, T.C. Memo. 2018-195, case addresses whether medically-induced compulsive gambling qualifies as a disability. Contents1 The Facts & Procedural History2 The Additional Tax…
Party Like its 2017: Deductible Entertainment Expenses
Entertainment expenses are deductible but the deduction is limited to 50 percent of the amount spent. There have been a number of disputes between taxpayers and the IRS as to what counts as a limited entertainment expense. The law was recently changed such that entertainment expenses are no longer deductible. This change to full disallowance…
U.S. Taxpayer With U.S. Residence & Foreign-Earned Income
There are a number of international tax issues that U.S. citizens and residents who live abroad have to consider. One of these is whether they qualify to exclude their foreign-earned income in computing U.S. income taxes. This exclusion has resulted in a number of tax disputes with the IRS. The Leuenberger v. Commissioner, T.C. Summary Opinion…
Documenting Tax Losses for Worthless Securities
tax loss for a worthless security, taxpayers must document the loss and establish several key elements. These elements include proving the existence of the security, the amount invested in the security, and the occurrence of a fixed and identifiable event that caused the security to become worthless. The recent Giunta v. Commissioner, T.C. Memo. 2018-180…
Court May Explain How to Allocate Tax Basis to Intangible Assets
If the U.S. government allows a taxpayer to call a liability an asset and then acts to make the asset worthless, can the taxpayer take a tax loss for the loss of the so-called asset? The Citigroup, Inc. v. United States, No. 15-953T (Ct. Cl. 2018) court case addresses this fact pattern. The case gets to one…
The IRS Isn’t Charged With Knowledge of Other Federal Agencies
The IRS only has to mail a notice of deficiency to a taxpayer’s last known address in order to assess or record a tax liability for the taxpayer. This “last known address” rule is often the subject of disputes. The Sadek v. Commissioner, T.C. Memo. 2018-174, case provides an example where information available to the…
Donations to Pastor are Taxable Income, Not Gifts
The distinction between taxable compensation and non-taxable gifts comes up in a number of contexts and has led to a number of tax disputes. Severance payments made to workers are an example. The recent Felton v. Commissioner, T.C. Memo. 2018-168, court case addressed this issue in the context of segregated donations made by a congregation…
Planning for Start-Up Businesses, Yacht Rental Example
New businesses may not be immediately profitable. To help mitigate the financial risk, many businesses are started by workers who have a day job. If the business is not immediately profitable it can help the owner finance the business if the owner is able to use the tax losses from the business to offset the…
Income Earned by Child Taxed to Parent
If a minor child earns income, is the income taxable to the parent or the child? There have been quite a few tax disputes involving this question. The Ray v. Commissioner, T.C. Memo. 2018-160 court case provides an opportunity to consider these rules. Contents1 The Facts & Procedural History2 Taxed for the Parent or Child?3 The…