Court Clarifies Tax Treatment of Loyalty Programs

Programs involving third-party vendors providing rewards, like hotels, airlines, and fuel companies, can amass substantial value over time. The term “substantial” is an understatement. “Massive” is more fitting. The tax law for these arrangements is not clear as it touches on concepts like trust funds, accounting methods, and redemption deductions. Given the size of the…

Accounting for Interest Deductions as a Tax Planning Option

Tax attorneys frequently come from an accounting background. This may seem like an unrelated skill, but it often plays a pivotal role in effective tax planning. The ability to navigate revenue and expenses and debits and credits not only ensures accurate financial reporting but also lays the foundation for strategic tax planning. Tax planning often…

Triggering Losses by Selling a Business: NQDC Example

Timing issues are one of the aspects of effective tax planning. There are scores of options for timing and tax deferral and recognition that depend on the taxpayer’s circumstances. For example, for corporate taxpayers, these timing issues may involve timing the receipt of income using the installment rules or the use of losses or foreign…

IRS Guidance on Structuring Attorneys Fees

It should not be a surprise to learn that attorneys often hire tax attorneys to help them minimize their taxes. One popular tax savings strategy for attorneys is to structure their contingent fees. A contingent fee is a payment arrangement in which a lawyer provides services on the condition that payment will only be made…

Tax Reporting for Returns & Allowances

Tax Reporting For Returns & Allowances

Our tax laws create categories–income/exclusion, deduction, and credit. Taxpayers are presented with structured forms that set out these categories. The IRS expects taxpayers to fill out the forms by correctly identifying what items go in each category. But it is not always clear what items go in each category. Taxpayers may engage in tax planning…

IRS Expands Sec. 9100 Relief for Late Forms 3115

Irs Expands Sec. 9100 Relief For Late Forms 3115

As innocuous as it sounds, the Form 3115 is a tax form like no other. A Form 3115 that is inadvertently omitted from a tax return filing can result in sizable differences in tax and trigger significant tax penalties and interest. Given the amounts that are often reported on the Form 3115, errors could cost…

How to Correct Late Accounting Method Changes

How To Correct Late Accounting Method Changes

A consistent mistake on a tax return for more than two years may require an accounting method change to correct. The IRS has procedures for making these elections, which generally require a timely filed tax return. But what if you miss the filing deadline–are you out of luck? Private Letter Ruling (“PLR”) 201850013 provides the…

IRS Audit Adjustments That Change Accounting Methods

Irs Audit Adjustments That Change Accounting Methods

Given the potential for the adjustments to trigger extremely large tax liabilities, accounting method changes made by the IRS on audit can be doomsday scenarios for unwary taxpayers. In Nebeker v. Commissioner, T.C. Memo. 2016-155, the court addressed a common situation where the IRS makes an adjustment on audit that is an accounting method, but…

Income Tax Consequences for Gift Cards

Gift cards remain a popular offering, with sales exceeding $200 billion annually. But when must retailers recognize income from gift card sales for tax purposes? Can related deductions be taken immediately, or only as gift cards are redeemed over time? Get it wrong, and businesses face cash flow headaches or penalties. The IRS Office of…