If a minor child earns income, is the income taxable to the parent or the child? There have been quite a few tax disputes involving this question. The Ray v. Commissioner, T.C. Memo. 2018-160 court case provides an opportunity to consider these rules. The Facts & Procedural History Mr. Ray the financial officer for a non-profit…
Category: Federal Income Tax
Federal Income Tax
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Conservation Easement Denied for Private Golf Course
Tax benefits can cause investors to put money were they otherwise would not. The conservation easement is one example. Conservation easements reward investors with charitable contribution tax deductions for putting money into projects that conserve real property. The charitable deductions can be very large in relation to the amount invested. The recent Champions Retreat Golf Founders,…
Line of Credit Standby Fees, to Deduct or to Capitalize?
Many businesses rely on a standby line of credit to cover their expenses, to weather downturns, and to grow. But this credit can be expensive in terms of interest and fees. The fees can be problematic as they may not be deductible for federal income tax purposes at the time they are paid. The IRS…
A Partnership is Worth Less, Not Entirely Worthless
The complexities surrounding tax loss deductions can be particularly challenging for taxpayers. While claiming tax losses for worthless securities may seem like a straightforward process, the IRS often scrutinizes these deductions, raising questions about the timing and character of the loss. In many instances, the IRS challenges the year in which the loss is allowed,…
Intercompany Fee Arrangement Lacks Economic Substance
If the employees and owners of a profitable C corporation set up a related entity and lease the employee-owner’s services back to the C corporation, can the C corporation deduct the payments? Taking it a step further, what if the related entity is owned by a retirement plan so that most of the payments by…
The Trade or Business Requirement for the Sec. 199A Deduction
The new Sec. 199A deduction that provides a 20 percent benefit for flow through entities has been in the news as of late. The Yaryan v. Commissioner, T.C. Memo. 2018-129, case provides an opportunity to consider one aspect of this new Sec. 199A deduction. Specifically, the Treasury released regulations that adopt a “trade or business” standard…
Litigation Award for Damage to Dairy Farm Ordinary Not Capital
If a dairy farmer receives an award for damages to the farm, is the damage award capital or ordinary? The distinction is important. Unlike ordinary income, capital gains are generally afforded lower tax rates and not subject to self-employment taxes. The court considered this fact pattern in Allen v. United States, No. 16-C-1412 (E.D. Wis. 2018). Facts &…
Avoiding Cancellation of Debt Using Rebates or Refunds
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…
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…