In Qinetiq US Holdings, Inc. v. Commissioner, No. 15-2192 (4th Cir. 2017), the court addresses the situation where a taxpayer acquired a target corporation and then claimed a substantial tax deduction for expenses the target corporation had paid prior to the acquisition. There are rules intended to prevent taxpayers from being able to deduct pre-acquisition…
Category: Federal Income Tax
Federal Income Tax
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Is a Bad Debt Deduction Triggered by Cease-and-Desist Court Order
Determining the allowable tax year for a loss is a common challenge for taxpayers, often relying on identifying a triggering event. There is very little guidance as to what can qualify as a triggering event for tax purposes. In the case of a cease-and-desist order from a state regulator, does it qualify as a triggering…
S Corporation Owner Subject to Self-Employment Tax
Taxpayers often establish Subchapter S corporations to avoid Social Security and Medicare taxes on a portion of their earnings. This is a very common arrangement. The Fleischer v. Commissioner, T.C. Memo. 2016-238, court case provides an example of how the Subchapter S corporation must be structured to avoid these taxes. Facts & Procedural History In Fleisher, the…
Using IRA Funds to Settle a Probate Dispute
Inherited IRAs can present a number of challenges. In Ozimkoski v. Commissioner, T.C. Memo. 2016-228, the court considered the tax implications of a withdraw from an inherited IRA that was used to settle a probate dispute with the couple’s son. The case shows what not to do when using IRA funds to settle a probate…
Tax Court Expands Innocent Spouse Relief for Divorced Taxpayers
Innocent spouse relief can allow a taxpayer to avoid joint liability for taxes that arose during the marriage. There is an exception for the would-be innocent spouse if they had actual knowledge of the item that resulted in the tax. The U.S. Tax Court addressed this limitation in McDonald v. Commissioner, T.C. Summary Opinion 2016-79,…
Court Considers Whether Moneygram is a Bank that Makes Loans
There are tax laws that provide significant tax advantages to banks. One of these laws allows banks to deduct capital losses against ordinary income. This allows banks to deduct losses immediately when others might have to carryover the loss to other tax years. There are other tax laws that are specific to banks. These laws…
Does Changing Roof Mean No Facade Easement Deduction?
Donating the rights to change the facade of a building can qualify for a charitable tax deduction. The donation helps ensure that the historical significance of the building is not compromised. But what if you retain the right to change the roof to the building? Can you still qualify for a facade easement deduction? The…
Can Lump Sum Cash Payment Qualify as Alimony?
For taxpayers who pay alimony to an ex-spouse, the tax deduction for the alimony payment is usually quite large. It can significantly reduce their tax. But can a lump sum payment made in cash qualify for tax-deductible alimony? The court addressed this in Muñiz v. Commissioner, No. 15-14478 (11th Cir. 2016). Facts & Procedural History Muñiz…
Using an Installment Sale in Related Party Deal to Avoid Federal Tax
What if you could transfer depreciable assets from one legal entity that you own to another legal entity that you own, without reporting the gain from the sale until some future year, and still step up the tax basis in the assets due to the sale and taking increased depreciation deductions in the current year…
IRS Will Not Follow Court’s Holding for Customer Rewards Program
The IRS issued AOD 2016-03 to indicate that it will not follow the Third Circuit Court of Appeals decision in Giant Eagle, Inc. v. Commissioner, 822 F.3d 666 (3rd Cir. 2016), rev’g T.C. Memo 2014-146. The issue is whether costs for a rewards program are deductible in the year the rewards are earned by the…