Federal Income Tax Archives

Forget the 5-Year Rule – Change Entity Classification Early

Many believe that once you elect an entity’s tax classification, you are locked into that choice for at least 5 years. Conventional wisdom says that the tax status cannot be changed within a 5-year or 60-month period. However, a recent IRS private letter ruling shows this is not necessarily the case. In PLR 202341001, the…

Breach of Contract as Theft Loss Tax Deduction

Many people have experienced the pain of an investment gone wrong. You put money into a business, loan funds to a friend, or participate in a real estate venture, expecting strong returns. But instead of profits, you end up suffering losses when the deal unravels. It leaves you wondering – can I at least deduct…

Accounting for Interest Deductions as a Tax Planning Option

Tax attorneys frequently come from an accounting background. This may seem like an unrelated skill, but it often plays a pivotal role in effective tax planning. The ability to navigate revenue and expenses and debits and credits not only ensures accurate financial reporting but also lays the foundation for strategic tax planning. Tax planning often…

Can You Still Owe Taxes on a Loan That’s 10 Years Old?

Our legal system allows people to move on from past obligations under certain circumstances. For example, people can discharge debts through bankruptcy, creditors have a limited amount of time to sue for unpaid debts, and even the IRS allows a fresh start for unpaid taxes. These laws strike a balance between allowing those who are…

Triggering Losses by Selling a Business: NQDC Example

Timing issues are one of the aspects of effective tax planning. There are scores of options for timing and tax deferral and recognition that depend on the taxpayer’s circumstances. For example, for corporate taxpayers, these timing issues may involve timing the receipt of income using the installment rules or the use of losses or foreign…

Tax Deductions for Non-Facilitating Costs for IP, M&A & Real Estate

One of the most common disputes between taxpayers and the IRS revolves around the question of whether certain expenses are deductible in the current year or need to be capitalized and recovered over time. This expense versus capitalization issue arises in various contexts. We have considered a number of these disputes on this site. It…

Charitable Tax Deductions & Bargain Sales

Our tax administration operates within the framework of a zero-sum game, leaving little flexibility for taxpayers who encounter technical foot faults or minor errors. Even when taxpayers have complied with most of the tax law requirements, a single misstep can potentially result in the disallowance of a tax benefit or deduction. This zero-sum approach, while…

Crypto Tax Loss & the Tax Loss Deduction Rules

Crypto tax loss refers to the capital losses incurred from selling or trading cryptocurrencies at a lower price than what was paid for them. These losses can be used to offset any gains earned throughout the year, reducing the taxpayer’s overall tax bill. The tax laws are clear that this type of investment loss is…

Tax Benefits of Charitable Remainder Trusts

Charitable giving is often an important part of an individual’s tax and estate planning strategy. One popular vehicle for charitable giving is a Charitable Remainder Trust (“CRT”), which can provide significant tax benefits for the donor and a stream of income for non-charitable beneficiaries during their lifetime. CRTs are valid, they can have some tax…

Explaining Real Estate Profesional Status to IRS Employees

In the complex realm of the legal system, judges hold the vital responsibility of making impartial decisions, drawing from their wealth of life experiences. These experiences, in turn, have a profound influence on the judgments they render. This principle extends to other government officials as well, such as IRS agents, auditors, and attorneys, who are…