If you receive payments from a lawsuit settlement award, are the payments excluded from Federal income tax? What if the payments are for claims of emotional distress or physical sickness? The Tishkoff v. Commissioner, T.C. Summary Opinion 2016-65, case provides an opportunity to consider these rules. Facts & Procedural History The taxpayer worked for Wells Fargo…
Category: Federal Income Tax
Federal Income Tax
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The Impact of Filing a CPA Malpractice Case
The YA Global Investments, L.P. v. RSM McGladrey, Inc.Docket No. A-2152-15T3 (2016), case addresses the difficult situation whereby a taxpayer sues their CPA firm in state court for incorrect tax advice, while at the same time arguing that the tax advice and position is correct in the U.S. Tax Court. This situation arises given the…
Charitable Deduction With a Defective Valuation
There are a number of cases where taxpayers have had to pay more tax than they should due to technical foot faults. These cases often come up when the IRS auditors believe that their job is to look for strict compliance (100%) rather than substantial compliance (something more akin to 80%). This brings us to…
Payments Were Alimony Despite Missing Language Agreement
Payments Made to Ex-Spouse Were Alimony Despite Missing Language in Divorce Agreement Tax issues are often the last thing that spouses consider when going through a divorce. In other cases, one spouse plans for the tax issues and the other does not. This appears to have been the situation in Leslie v. Commissioner, T.C. Memo.…
Payment for Failed Real Estate Deal, Capital or Ordinary Gain?
How is a termination payment for a failed real estate deal taxed? Does it trigger capital or ordinary gain? The court recently addressed this in CRI-Leslie, LLC v. Commissioner, 147 T.C. 8. Facts & Procedural History The taxpayer owned a Radison-branded hotel in Florida. It entered into a contract to sell the hotel to a third…
Evidence for Excluding Settlement Award from Income
Settlement payments paid to compensate a taxpayer for his physical sickness or injury are not taxable. Can you prove physical sickness or injury by showing that the payments were not for an economic harm? The court addressed this in George v. Commissioner, T.C. Memo. 2016-156. Facts & Procedural History The taxpayer was a car salesman in…
Grouping Nonpassive Activities Under the PAL Rules
Taxpayers are often surprised to learn that some losses may not be netted against gains in the current tax year. This is often due to the passive activity loss and material participation rules. The IRS National Office addressed these rules in TAM 201634022, in the context of whether two businesses should be grouped together and…
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…
Start-Up Expense Limitation
The Start-Up Expense Limitation: Starting a Business in Retirement There are several occupations where highly skilled individuals are forced to retire due to mandatory retirement provisions. These individuals often use their skills to start new businesses during retirement. The court addressed this situation in Tizard v. Commissioner, T.C. Summary 2016-42. The case provides an example…
Unmarried Taxpayers Can Claim Mortgage Interest Deduction
Mortgage Interest Deductions for Unmarried Couples In Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), the court addressed the rule that limits the deductibility of interest on home mortgages and home equity loans. This rule limits the amount of interest that can be deducted on mortgages in excess of $1 million and home equity…