Federal Income Tax Archives

What is a “Foreign Country” for Income Tax Purposes?

United States citizens are subject to tax in the U.S. on their worldwide earnings and income. This includes wages earned for work performed in foreign countries. There are exceptions to this treatment, such as the provisions of tax treaties. The other exception involves the foreign-earned-income exclusion. This exclusion allows individual taxpayers to exclude income earned…

Taxation of Employer-Provided Education: A Look At Section 127 Plans

Section 127 plans are often overlooked by both employers and employees as a valuable tax benefit. Despite their potential advantages, many taxpayers fail to take advantage of these plans, which allow employers to deduct educational expenses for their employees, up to $5,250 per year, and employees to exclude these amounts from their taxable income. This…

Taxing Online Video Game Earnings

The advent of virtual worlds like Second Life and online video games has created a new form of commerce that raises a complex issue for tax professionals: should online earnings from virtual businesses be taxed? The compensation for these businesses is paid in virtual currency, which can be converted to U.S. dollars. While traditional U.S.…

Documenting a Non-Compete Allocation

Planning For And Documenting Covenant Not To Compete Allocation

The importance of planning and documenting transactions is a critical aspect of tax law that can impact taxpayers across various industries and transactions of all sizes. It is a lifesaver when the IRS attacks. Documenting transactions can help taxpayers provide evidence of the details of the transaction, such as the parties involved, the terms of…

The Hobby-Loss Grouping Rules

Irs “its All Or Nothing” Stance Often Helps Taxpayers

The IRS is not a government agency. It does not have to earn a profit. It does not even have to be concerned about keeping basic books and records. Unlike the standard that it imposes on even the smallest of business taxpayers, the IRS cannot produce anything close to a simple profit and loss statement…

The Section 44 Small Business Disabled Access Credit

The Section 44 small business disabled individuals tax credit provides a tax incentive to comply with the Americans With Disability Act of 1990 (“ADA”). There is very little guidance for the tax credit, which makes it hard for taxpayers to plan for this tax incentive. The recent Arevalo v. Commissioner, No.05-61129 (5th Cir. 2006), case provides an…

Late Section 475(f) Election and Section 9100 Relief

Vines v. Commissioner, day trader, and his attempt to make a late Section 475(f) election.

Those who are traders in securities or commodities can make a mark-to-market election. This election can allow the trader to immediately deduct losses each year and avoid the wash sale rules. But many traders do not know about this election and only learn of it after it is too late to benefit from it. Even…

Part-Time Employee Not Entitled to IRA Contribution Deduction

Part-time Employee Not Entitled To Deduction For Ira Contribution

Taxpayers who participate in their employer’s retirement plan are not able to deduct contributions the taxpayer makes to their IRA retirement account. This is also true for taxpayers who are entitled to participate in their employer’s retirement plan, but choose not to do so. In Colombell v. Commissioner, T.C. 2006-184, the court considered whether an…

Navigating the Deductibility of Investment Advisory Fees for Trusts

Deducting Investment Advisor Fees Paid By Trusts

The tax treatment of investment advisory fees paid by trusts has become a hotly debated topic in recent years. The conflicting decisions of various circuit courts of appeals have led to discrepancies in tax treatment across different jurisdictions. While some courts have ruled that investment advisory fees paid by trusts are subject to the same…

Compensatory Damages May Not be Taxable

Compensatory Damages May Not Be Taxable: Let The Tax Refunds Begin

The tax code is an intricate and complex framework that governs the collection of taxes in the United States. While numerous provisions have been contested in courts, it is quite rare for a provision to be deemed unconstitutional, particularly for a tax code section that has already undergone substantial litigation. In the landmark case of…