The IRS issued AOD 2016-03 to indicate that it will not follow the Third Circuit Court of Appeals decision in Giant Eagle, Inc. v. Commissioner, 822 F.3d 666 (3rd Cir. 2016), rev’g T.C. Memo 2014-146. The issue is whether costs for a rewards program are deductible in the year the rewards are earned by the…
Tax Articles
Is a Lawsuit Award Payment Taxable?
If you receive payments from a lawsuit settlement award, are the payments excluded from Federal income tax? What if the payments are for claims of emotional distress or physical sickness? The Tishkoff v. Commissioner, T.C. Summary Opinion 2016-65, case provides an opportunity to consider these rules. Facts & Procedural History The taxpayer worked for Wells Fargo…
Accuracy Related Penalties Do Not Apply to Full Understatement of Tax
In Hatcher v. Commissioner, T.C. Memo. 2016-188, the court considered a very common error IRS agents make in computing the Section 6662 accuracy related penalty. The IRS applied the penalty to the entire understatement of tax, rather than the portion of the understatement that was not subject to the reasonable cause defense. This is one…
How Long Do You Keep Your Tax Records?
Taxpayers often ask how long they have to keep their tax records. Many taxpayers only keep records for three to six years. In Reyonoso v. Commissioner, T.C. Memo. 2016-185, the court considered a case that turned on whether the taxpayer could produce records to support that he had made a mark-to-market election nearly twenty years…
The Impact of Filing a CPA Malpractice Case
The YA Global Investments, L.P. v. RSM McGladrey, Inc.Docket No. A-2152-15T3 (2016), case addresses the difficult situation whereby a taxpayer sues their CPA firm in state court for incorrect tax advice, while at the same time arguing that the tax advice and position is correct in the U.S. Tax Court. This situation arises given the…
How People and the Tax System Impact Individual Cases
In tax, we spend a lot of time focusing on tax rules. But tax rules only go so far. The results in tax cases are impacted by the people who work tax cases as much as they are by the tax rules. Our system of tax administration also plays a role. This is hard to…
Court Revisits Reasonable Cause Abating Penalties
The U.S. Supreme Court has made it clear that taxpayers cannot avoid penalties by blindly rely on tax attorneys to file tax returns and make tax payments. These situations are unfortunate. The court in Specht v. United States, No. 15-3095 (6th Cir. 2016) highlights one way that taxpayers may be able to avoid the bright…
Charitable Deduction With a Defective Valuation
There are a number of cases where taxpayers have had to pay more tax than they should due to technical foot faults. These cases often come up when the IRS auditors believe that their job is to look for strict compliance (100%) rather than substantial compliance (something more akin to 80%). This brings us to…
Payments Were Alimony Despite Missing Language Agreement
Contents1 Payments Made to Ex-Spouse Were Alimony Despite Missing Language in Divorce Agreement2 Facts and Procedural History3 The Alimony Rules4 Planning for Divorce Payments Made to Ex-Spouse Were Alimony Despite Missing Language in Divorce Agreement Tax issues are often the last thing that spouses consider when going through a divorce. In other cases, one spouse…
Taxes from IRS Audit Remitted to U.S. Virgin Islands
Contents1 Taxes Remitted to the U.S. Virgin Islands in Error were Not Compulsory Payments in an Audit2 Facts and Procedural History3 The U.S. Foreign Tax Credit4 The Typical Fact Pattern for “Compulsory” Payments5 The Current Fact Pattern for “Compulsory” Payments Taxes Remitted to the U.S. Virgin Islands in Error were Not Compulsory Payments in an…