Can taxpayers avoid cancellation of debt income by structuring debt reductions as rebates or refunds? The court touched on this issue in French v. Commissioner, T.C. Summary Opinion 2018-36. The Facts & Procedural History The taxpayers borrowed money to purchase a home. When they failed to make their payments on the mortgage, the bank made contacted…
Category: Tax
Tax
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Legal Construction: Taxes Tied to Activities
When Congress provides a tax benefit contingent on some activity, there is often a question as to whether the activity can be read broadly to encompass many sub-activities or has to be read narrowly. This impacts the amount of the tax benefit and how difficult it is to comply. Generally, if construed broadly, the tax…
The Statutory Employee Classification Post-TCJA
The Tax Cuts and Jobs Act (“TCJA”) made several changes to our tax laws. One such change is that employees are no longer able to deduct unreimbursed expenses incurred as an employee. Given this change, employers and their workers may need to re-evaluate their relationship. For some workers, this may mean re-evaluating whether the worker…
Guaranteeing a Loan for Your S Corporation
In Phillips v. Commissioner, No. 17-14439 (11th Cir. 2018), the court concluded that a judgment against the owner of an S corporation for guaranteeing the business debts does not increase the owners tax basis in the S corporation. This is one area where a little advance planning can go a long way to avoiding a tax…
Deducting Fringe Benefits for Family Members
Small business owners often look for ways to reduce their taxes. With family businesses, these plans often involve employing the owner’s children. This raises the question of whether a small business owner employ their children as independent contractors and deduct seemingly personal expenses for the children as fringe benefits if the children did in fact…
Credit for Employment Taxes Reported in Error for Another Entity
If employment taxes are paid by one legal entity but incorrectly reported to the IRS for another legal entity, can the entity that paid the taxes get credit for the payment? The IRS said ‘no;’ the U.S. Tax Court said ‘yes.’ The case is E.C.C.B.A. v. Commissioner, T.C. Memo. 2018-55. Facts & Procedural History The case…
Establishing Tax Basis in IRA Contributions
Contributions to IRAs are deductible. If not deductible, the taxpayer has basis in his IRA so that this amount is not taxable when taken out of the IRA. The idea is that the taxpayer probably paid income taxes on the money prior to putting it into the IRA and should not be taxed on it…
What is a Real Estate Trade or Business?
There are a lot of questions about the new Sec. 199A pass thru deduction. One question is whether real estate will qualify as a trade or business. Since it is not defined in Sec. 199A, general tax law will apply. There are a number of court cases on point. The court recently issued its opinion…
Documenting Real Estate Professional Hours
You buy real estate and hold it for rental income. The real estate produces losses. The losses are increased by various items, such as depreciation deductions, interest expense deductions, etc. You spend the year working on your rental properties and at your part-time job. Can you offset the income from your part-time job with your…
Documenting Loans to Closely-Held Corporations
In Norgaard v. United States, No. 16-12107-FDS (D. Mass. 2018), the court addressed whether a personal loan made to a closely held corporation can be deducted as a bad debt when the business goes out of business. The case highlights why it is important to document loans made to corporations. The Facts & Procedural History…