Congress provides tax incentives to change taxpayer behavior. If a taxpayer changes their behavior to take advantage of the incentive, they have to do so carefully. The IRS and the courts can apply the economic substance doctrine to take away the tax benefit. This doctrine can apply to more transactions than what one would consider…
Category: Tax
Tax
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Documenting the Sec. 199a Rental Real Estate Safe Harbor
We have previously considered the “trade or business” requirement for the Section 199a deduction. The government recently issued guidance to clarify when rental real estate activities can qualify for the deduction. While the guidance is needed, it adopts a record keeping requirement that effectively prevents most rental real estate activities from ever qualifying for the…
Avoiding Hobby Loss Limits for Long-Term Projects
Long-term projects often lose money. They often do so for several years. This is the result of a project that needs capital to build infrastructure or to develop a new market or to capture market share. Taxpayers may be disappointed to learn that the tax losses coming from these long-term projects in the early years…
Bad Debt Deduction for Real Estate Lender for Non-Real Estate Loan
In the world of finance and investing, making loans is often seen as a relatively safe way to earn a higher rate of return than other investment opportunities. For many individuals, this means venturing into the realm of real estate loans, where they can use their expertise to evaluate the merit of investment opportunities and…
Court Addresses Tax Losses from Short-Term Rentals
Short-term rental properties are more popular than ever. Online services like Airbnb have made this possible. But how are tax losses from short-term rentals handled? Can the taxpayer use the rental losses to offset their non-rental income for tax purposes? The court addresses one aspect of these rules in Eger v. United States, 18-cv-00199-DMR (N.D.…
Court’s Take on How to Avoid the Interest Expense Limitation
Interest one pays is generally deductible for income tax purposes. For real estate owners who borrow against the value of their properties, the interest expense deduction is often one of their largest tax deductions. This tax deduction can be limited. The court in Lipnick v. Commissioner, 153 T.C. 1 highlights how one might avoid this…
The Importance of Accounting for C Corporation Expenses
It is important to keep accurate books and records. Accurate books and records can result in significant tax savings. This is particularly true for entrepreneurs who own more than one business. When one or more of these businesses are taxed as a C corporation, the stakes can be even higher. The Nzedu v. Commissioner, T.C.…
IRS & the Burden to Prove Constructive Dividends
When a C corporation pays expenses for its shareholder, the payment can be subject to income tax for the shareholder as a constructive dividend. One defense is that the expenses for the C corporation were legitimate. Does the taxpayer have to prove the amount of the expenses or does the IRS? The Combs v. Commissioner,…
Taxpayer Cannot Recoup Attorney Travel Costs
If the IRS wrongfully denies your refund claim and you are successful in litigating the matter in court, you are entitled to recoup some of your court costs. But what about the taxpayer’s tax attorney’s travel costs? And what if the travel costs were necessary as the tax issue was complex and a tax attorney…
Can the IRS Get Records from Foreign Corps Doing Business in the U.S.?
In CCA 2019060408545121, the IRS asked its tax attorneys whether a foreign corporation that conducts business with a limited partner in the U.S. had to produce records. Our tax laws provide address this very topic, as noted in the CCA. The CCA serves as a reminder that failing to provide records for transactions with foreign…