Related party transactions can raise difficult tax questions. This is especially true for management fees paid by one legal entity to another legal entity that has the same or similar owners or that are controlled by the same owners. As noted in the recent Wycoff v. Commissioner, T.C. Memo. 2017-203 case, related-party management fees often…
Category: Tax
Tax
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IRS Rejects Court’s Passive Activity Loss 5% Owner and Grouping Decision
The passive activity loss (“PAL”) rules can limit the ability to deduct losses from passive activities, such as rental losses. The real estate professional and activity grouping rules can allow taxpayers to avoid having their losses limited by the PAL rules. Earlier this month, the IRS issued AOD 2017-007, IRB 2017-42, to note its formal…
Revocation of Nonprofit Status Triggers Retroactive Interest
There are some areas of law where principles of equity and good faith play a big role. By and large, tax law does not adopt these principles. The CreditGUARD v. Commissioner, 149 T.C. 17 (2017) case provides an example. The case addresses whether the IRS is entitled to interest on a corporate tax liability when…
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…
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…
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…