The tax deduction and income provisions for alimony have been repealed for divorce decrees entered into after December 31, 2018 or for earlier divorces where the agreements are modified after that date. This gives married couples and formerly married couples a window of time to structure or restructure their agreements to reduce their overall taxes.…
Category: Tax
Tax
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Misappropriated Money Subject to Tax, Even if No Criminal Violation
The proceeds of criminal activities are taxable income. Money that is embezzled from an employer is taxable to the embezzling employee. But what about money transferred between friends with the agreement that one of them will invest the funds, but he instead uses the funds personally and in doing so did not violate a criminal…
Court: IRS Cannot Apply New Law Based on Conduct Predating the Law
In Rafizadeah v. Commissioner, 150 T.C. No. 1 (2018), the court concluded that the IRS made a late assessment of tax and penalties. The case turns on whether the IRS can benefit from the longer six-year assessment period based on an information return filing that the law did not obligate the taxpayer to make at…
Family Cattle Operation Denied Tax Deductions
In Barnhart Ranch Co. v. Commissioner, No. 16-60834 (5th Cir. 2017), the court considered who was entitled to deduct expenses for cattle that were descended from cattle the taxpayers inherited and other cattle that were subsequently purchased. The case shows how important it is to implement an accounting system to capture income and expenses in…
Payments to Foreign Student Studying in U.S. Subject to Tax
We get quite a few questions from students who are in the U.S. on student visas as to whether their research awards are taxable in the U.S. The answer depends in large part on the terms of the applicable tax treaty and whether the awards are compensation for services or pure grants. The recent Dovzhenok…
No Interest & Penalties on Restitution Assessments
The IRS can assess criminal restitution as if it is a tax tax. But can it assess interest and penalties on the restitution as it would a tax? The IRS policy is to do just that. The court addressed this in Klein v. Commissioner, 149 T.C. 341 (2017), concluding that the IRS policy violates the…
Valuation of Management Fees Paid by Related Parties
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…
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…