The term “income” is broad. It includes just about any money or gains that a person receives. There are exceptions, however. Take the purchase price reduction. Assume Party A sells a property to Party B for $100. Party A will likely have a gain on the sale. The gain is income and may trigger income…
Category: Federal Income Tax
Federal Income Tax
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One Ex-Spouse Void the Other’s Alimony Deduction: Tax on Alimony
Assume that a divorce decree says that a payment is to be made to an ex-spouse. Does that mean that it is alimony the ex-spouse has to report as income for Federal income tax purposes? And if not, can the ex-spouse who receives the payment request a ruling from the IRS to say that the…
Non-Profit No More: The Defunct Non-Profit
People often form non-profit entities with the intent that they will get traction and take off. Not all entities do that. The entity may not be able to raise funds or secure donations, funding may dry up, or the entity may not find the support of those who need to operate or service it. There…
Taxation of Employee Donated Sick Leave
Even simple acts of kindness, such as donating paid sick leave to co-workers in need, can trigger complex tax requirements. The IRS recently released Private Letter Ruling 200720017 that sheds light on the federal tax consequences of such donations, highlighting the importance of following specific requirements such as employer-sponsored medical leave-sharing arrangements or qualified employer-sponsored…
Prepayment: to Deduct in Year 1 or Year 2?
Say you are an accrual method taxpayer and you hire someone to provide a service to you in year one, the service is to be provided to you over a twelve month period, and you prepay the person for this yet to be provided service. When can you claim a deduction for this prepayment? The…
Bankruptcy Filing Does Not Prevent Innocent Spouse Relief
There are often times when different government agencies with different clients and missions are at odds with one another. This is frequently true when it comes to the IRS and the bankruptcy trustee. The IRS is tasked with protecting the government fisc. The bankruptcy trustee is tasked with protecting the estate for the benefit of…
IRS Says When a Grape is No Longer a Grape
The tax law is filled with artificial distinctions and deadlines that often don’t match up with the way businesses actually operate. One area where this is particularly true is in the realm of capitalization. Capitalization rules allow taxpayers to calendar expenses and treat them differently depending on the phase of a project or manufacturing process.…
One Ticket or Two? Withholding Tax on Small Lottery Winnings
Winning the lottery can be a dream come true for many, but it can also trigger a number of tax-related complexities. This includes everything from income tax on the sale of lottery payments to substantiating lottery costs and losses. The IRS frequently challenges these issues on audit. One of these complexities arises when it comes…
Sale of Lottery Payments: Capital or Ordinary?
The IRS is always waiting for taxpayers to have windfalls as the tax on these one-time events is significant. Lottery winnings are no exception, as they are treated as income from gambling and subject to ordinary income tax rates, which can be as high as 38% or more depending on the amount won. But what…
Court Preempts IRS by Taking Taxpayer Property
In some cases, courts may take shortcuts to ensure that justice is served. While these shortcuts can be effective in obtaining the desired outcome, they can also raise concerns about fairness and due process. One such case is United States v. Spangler, 224 F. App’x 890 (11th Cir. 2007), where a trial court ordered the…