It wasn’t long ago that the IRS was completely in the dark as to what information taxpayers and others were reporting to foreign governments. The IRS would never show up on U.S. audit with information obtained from foreign governments. We do see this on audits occasionally, but it is still a rare occurrence. A recent…
Tax Articles
Facts Needed to Support a Bad Debt Deduction
When taxpayers claim a deduction for a bad debt, it can trigger an audit by the IRS. The IRS has a vested interest in ensuring that taxpayers are not taking advantage of tax laws to reduce their tax liability. As a result, they will closely scrutinize bad debt deductions to ensure that they meet the…
Airline Pilot Stationed Overseas & the Section 911 Foreign Income Exclusion
U.S. income tax laws can be challenging for U.S. citizens who live outside of the U.S. This is particularly true for airline pilots who accept jobs overseas. The recent Acone v. Commissioner, T.C. Memo. 2017-162, case addresses the challenge of determining whether an airline pilot stationed overseas qualifies for the Section 911 foreign income exclusion.…
Mortgage Broker Not a Real Estate Professional
The passive activity loss rules can prevent real estate investors from being able to deduct their real estate losses. That is the intent and purpose of the rules. The rules and how they have been interpreted draw some known but arbitrary lines in the sand. The recent Hickam v. Commissioner, T.C. Summary Opinion 2017-66, case…
IRS Penalties for Late-Filed Forms 5471
The Dewees v. United States, 16-cv-01579 (D.D.C. 2017) case is a good reminder that late-filed Forms 5471 should include reasonable cause statements. These statements can be submitted under the IRS’s Delinquent International Information Return Submission Procedures to avoid penalties being assessed. Contents1 The Facts and Circumstances in Dewees2 Section 6038 Penalties, Generally3 Reasonable Cause for…
Intercompany Receivable Results in Section 956 Inclusion for U.S. Corp.
The Subpart F rules can result in foreign profits being subject to tax in the U.S. In the recent Crestek v. Commissioner, 49 T.C. 5 (2017), the court addresses unpaid advances a controlled foreign corporation made to its U.S. parent. The case shows how easy it is for a U.S. corporation that has an outbound transactions to…
Tax Court Says Royalties Paid to Roth IRA Were Excess Contributions to IRA
The U.S. Tax Court recently issued another opinion involving a LLC owned by a self-directed IRA. The case is Block Developers, LLC v. Commissioner, T.C. Memo. 2017-142. The case invovles an IRA LLC that purchased a patent and then licensed the patent back to the prior owner, with the intent of the IRA LLC collecting…
Cash-Basis Taxpayers Can Deduct Reclamation Costs Under Sec. 468
Section 468 allows a current deduction for mining and solid waste reclmation costs even though the expenses may not be incurred for several years–if not decades–in the future. It has traditionally been thought that only accrual-method taxpayers can benefit from Sec. 468. The court recently dispelled this notion in Gregory v. Commissioner, 149 T.C. 2…
The Form 1045 Dispute & Possible Solution: Include a Detailed Cover Letter
The Form 1045, Application for Tentative Refund, is used to carryback losses, credits, etc. from the current year to prior years. In many cases it is used when a taxpayer was previously profitable and then incurrs a loss. The now unprofitable business can go back and recoup taxes paid in prior years and get a…
No Tax Due on Foreign Corporation’s Redemption of U.S. Partnership Interest
Many businesses that operate outside of the U.S. want to do business in the U.S. and they want to limit their exposure to U.S. income taxes. To do this, many in-bound investments are structured as U.S. partnerships with the parntership being formed in the U.S. to carry on the business activities in the U.S. This…