Federal Income Tax Archives

Can Judge-Made Doctrine Override Tax Deductions Allowed by Congress?

The tax code provides specific rules for when taxpayers can claim deductions for losses. These are rules enacted by Congress. There are other so-called “judicial doctrines” that allow the courts to override the rules set by Congress. There are several of these that frequently come up in tax disputes, such as the economic substance doctrine…

Distributions From Forfeited IRA are Not Taxable

You commit a crime, you are convicted, and you do your time. Then the IRS steps in to collect taxes. The IRS takes your assets to pay the tax that arose from your criminal activity. As part of this, the IRS seizes your IRA funds. Are you responsible for paying income taxes on the IRA…

Claiming a Casualty Loss for Property You Don’t Own

Natural disasters can be expensive. This is particularly true for those who own or have an interest in real estate. Our tax laws provide some relief through casualty loss deductions and theft loss deductions. But what happens when someone pays to repair property they don’t legally own? This question is particularly relevant when parents continue…

Section 179D Tax Deduction Claimed in Final Year

Architects and engineers who design energy-efficient government buildings can qualify for a Section 179D tax deduction. Technically, it is the building owner who qualifies, but since the government is the owner of the building and does not pay tax, our tax law allows the allocation of the deduction to the designer. This allocation provides an…

Immediate Expensing for Real Estate Costs

When a taxpayer has a capital outlay, they generally want to deduct the expense when the money leaves their bank account or when the liability is incurred. However, the accounting matching principle dictates that expenses should be deducted when the related income is received. The matching principle aligns the income and expense recognition. Our income…

When You Can’t Deduct Annual Business Expenses

Many businesses have significant recurring expenses that occur like clockwork each year. Think of annual maintenance shutdowns for manufacturing plants, seasonal refurbishments for hotels, or equipment rebuilds for industrial operations. While these expenses are predictable and virtually certain to occur, the timing of when they can be deducted for tax purposes isn’t always straightforward. The…

Attorney Fees in Tax Litigation: Jury Says Yes, Judge Says No

In most litigation, each party pays their own attorney fees regardless of who wins the case. This “American Rule” applies even when one party is clearly right and the other clearly wrong. But litigation against the government, such as tax litigation, presents a unique inequity. When taxpayers are forced to defend against an incorrect IRS…

Charitable Deductions for Defective Inventory

Manufacturers and retailers frequently face the challenge of handling defective or obsolete inventory that cannot be sold. This situation often results in waste. The inventory has some utility or value, but the benefit of repurposing or rehabilitating the inventory is often outweighed by the cost of handling or repurposing the inventory. Examples are easy to…

Tax Disputes When You Have Too Many Records

There are quite a few tax court cases involving taxpayers who did not have sufficient records to substantiate their tax positions. This is probably more than half of the cases that end up in the U.S. Tax Court. But what about the opposite situation where there are too many records? How is one to contend…

What is a Bona Fide Loan for Tax Purposes?

It is often said that a taxpayer is free to structure their affairs as they see fit and can even do so in a way to minimize or avoid paying taxes. While this is true, it is equally true that the IRS is not bound by the taxpayer’s characterization of transactions. The IRS has a…