The time limits for filing amended tax returns can present a number of difficult questions. This is particularly true when tax attributes, such as foreign tax credits and net operating loss deductions, are carried back to prior years. The carryback to one prior year can result in carrybacks to one or more years prior to…
Tax Articles
Court Says Rent Income from S Corp Not Subject to Self-Employment Taxes
In Martin v. Commissioner, 149 T.C. 12 (2017), the court concluded that S corporation shareholders can avoid self-employment taxes by holding their farming operations in their S corporation. While the court case considered farming operations, its holding is not limited to farming operations. The case provides authority shareholders may cite in support of similar but…
Court Denies IRS Injunction in Employment Tax Dispute
It is common for the IRS to make various demands on businesses that are undergoing employment tax audits or businesess that are trying to deal with employment tax collection issues. One common demand is that the taxpayer immediately start complying with the employment tax laws. But what if the taxpayer cannot comply, perhaps due to…
U.S. Treasury Says IRS Not Using Information from Foreign Governments
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…
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…