Source: http://rubinontax.floridatax.com/2011/01/
Timestamp: 2018-07-19 11:55:39
Document Index: 561336176

Matched Legal Cases: ['§509', '§1', '§1', '§1', '§1', '§1', '§1']

RUBIN ON TAX: January 2011
APPEALS COURT BREATHES NEW LIFE INTO OVERSTATED BASIS ISSUE
On several occasions, we have written about cases where courts have held that the six-year extended statute of limitations for a 25% omission of gross income from an income tax return will not apply when the unreported income arises from the taxpayer overstating his basis in a sold asset. It now appears that the IRS' dogged persistence in fighting these cases has paid off, at least in one court.
In a decision of the Seventh Circuit Court of Appeals, the court has reversed the Tax Court in its decision and held that an overstatement of basis is an omission of gross income for this purpose.
This decision is contrary to holdings in the Nine Circuit and in the Court of Appeals for the Federal Circuit. Thus, the stage is set for a possible US Supreme Court resolution of this issue.
Beard v Comm., (CA 7, 1/26/2011)
Posted by Charles (Chuck) Rubin at 9:49 AM
TAX INCENTIVES IN THE SMALL BUSINESS JOBS ACT OF 2010
A little lost in the attention garnered by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 are for the tax incentives for small businesses enacted under the Small Business Jobs Act of 2010. These provisions are meant to encourage growth and expansion for small businesses.
The following summary is largely based on the article by Linda Nelsestuen and Michael Chiasson in the December 2010 version of Practical Tax Strategies/Taxation for Accountants entitled "Exploiting the Tax Incentives Included in the Small Business Jobs Act of 2010."
1 Capital Gains Tax Relief
1.1 Those who purchased qualified small business stock between 9/27/10 and 1/1/11 and hold it for at least five years, will pay absolutely no tax on the capital gain when the stock is sold.
1.2 This is an expansion of the 50% excluding available under Code Section 1202(a).
1.3 Qualified small businesses generally are domestic C Corporations whose aggregate assets are under $50 million and which use at least 80% of their assets in one or more active trade or businesses.
2 Section 179 Expensing
2.1 Increased to $500,000 in 2010 and 2011.
2.1.1 Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 for tax years beginning in 2012 a small business taxpayer will be allowed to write off up to $125,000 (indexed for inflation).
2.2 The limitations on the value of assets placed into service have increased from $800,000 to $2 million. For assets placed into service beyond the $2 million limit, the deduction is lost dollar for dollar.
2.3 The expensing now temporarily applies to “qualified real property” for the 2010 and 2011 tax years, which is defined as qualified, domestic (1) leasehold improvement property, (2) restaurant property, and (3) retail improvement property. Excluded, however, are units for air conditioning and heating.
3 Section 168(k) Depreciation Bonus
3.1 This 50% depreciation bonus has been extended to include 2010.
3.2 Note that the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 also subsequently provided for a 100% bonus for qualified tangible personal property placed in service after September 8, 2010 and through December 31, 2011 (through December 31, 2012 for certain longer-lived and transportation property).
4 Carryback of Credits
4.1 The general business credit carryback period is temporarily increased to five years from one year. Other limitations and restrictions relating to the carrybacks are reduced or eliminated.
5 Health Insurance Deduction for Self-Employment Taxes
5.1 For 2010, self-employed taxpayers may deduct health insurance costs to offset employment taxes.
5.2 Note this is different from the deduction available against federal income to reduce income taxes.
6 Increase in Deductible Start-Up Expenditures
6.1 The initial deduction is increased from $5,000 to $10,000, and with the phase-out threshold increased from $50,000 to $60,000.
7 Removal of Cell Phones from Listed Property
7.1 Cell phones and other personal communication devices are no longer treated as listed property. Listed property is subject to strict substantiation requirements, and thus these items are no longer subject to these requirements.
7.2 This is a permanent change.
7.3 Note that personal use is still not deductible, and there still has to be some type of documentation as to the portion of the cell phone used for business purposes.
8 Reduction in Penalties for Failure to Disclose Information with Respect to "Reportable Transactions"
8.1 Section 6707A penalties will now be based in large part on the tax savings resulting from the unreported Reportable Transaction instead of being a flat amount penalty.
Posted by Charles (Chuck) Rubin at 7:41 PM
On December 30, 2010, the IRS advised certain taxpayers to wait until mid or late February, 2011 to file their income tax returns for 2010. This was because the IRS needed time to reprogram its computers to reflect the 2010 Tax Leave Act's changes. Taxpayers that were affected by the delay are those claiming:
--Itemized deductions on Schedule A;
--above-the-line deductions for higher education tuition and fees; and
--about-the-line deductions for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250.
In a January 20, 2011 news release, the IRS has announced that such returns can be submitted for processing on or after February 14, 2011. Taxpayers using commercial software can check with their providers, since many of those companies will accept returns prior to that date and hold them for submission to the IRS on February 14.
News Release 2011 – 7
For any that are interested, the powerpoint presentation and full outline from my presentation last week on the foreign tax provisions under FATCA (as part of the 2010 HIRE Act) at the 29th International Tax Conference in Miami are available online here. Also available on the same page is the International Tax Update presentation of my partner, Robert Chaves.
IRS EXPANDS SIMPLIFIED FILINGS FOR SMALLER EXEMPT ORGANIZATIONS
The IRS has doubled the $25,000 gross receipts threshold to $50,000 that allows exempt organizations to file an “e-postcard” Form 990-N, in lieu of a full Form 990. More particularly, an exempt organization with annual gross receipts of less than $50,000 can use the Form 990-N:
--if for the first year of existence, total gross receipts (including amounts pledged by donors) are $75,000 or less;
--if in the second or third year, $60,000 or less;
--if in fourth or later year, $50,000 or less.
Now don’t get too excited – as before, private foundations and Code §509(a)(3) organizations cannot use the Form 990-N. Nor does it relieve organizations of having to file a Form 990-T to report unrelated business income.
Foreign organizations and U.S. possession organizations cannot use this alternate filing if they have significant activity (including lobbying and political activity or the operation of a trade or business, but excluding investment activity) in the U.S.
Rev.Proc. 2011-15
Presently, under current Regulations, U.S. bank deposit interest payments are reported to the IRS only if the interest is paid to a U.S. person or a nonresident alien who resides in Canada. Treas. Regs. §1.6049-8. The IRS has now issued new proposed Regulations that will extend information reporting requirements to include bank deposit interest paid to nonresident aliens who reside in any foreign country.
The rationale for the enhanced reporting is to strengthen the U.S. information exchange program (i.e., the U.S. reporting of tax information to other countries so that other countries can tax their residents) and reducing the ability of U.S. persons to avoid taxation by fraudulently claiming to be nonresident aliens.
Will this Regulation, if finalized, decrease U.S. bank deposits (and the resulting lending and increased economic activity that results from such deposits)? Well, it surely isn’t going to increase them.
Proposed Treas. Regs. §1.6049-4 , §1.6049-5 , §1.6049-6 ,§1.6049-8 , §1.3406(g)-1
In the case, the taxpayers, who ran two restaurants, included in their cost of goods sold items purchased from grocery stores and wholesale clubs. They produced photocopied receipts from the stores to substantiate their expenses. In upholding the IRS in disallowing a large part of these deductions, the Tax Court noted:
These receipts are of little value. Without an explanation from the Daouds, it is impossible for us to distinguish items used at their Wienerschnitzels from those used by them personally. Many of the items on the receipts are household or personal care products, or food and drink (e.g., liquor) that we find were probably not served or used at their restaurants.
Some simple lessons can be gleaned. First, detail on the receipts what was purchased. Second, don’t combine personal items on the same receipts as business items.
It didn’t help the taxpayers that there were a multitude of other facts and issues detailed in the case that raised numerous questions for the Court as to the accuracy of the taxpayers’ returns, perhaps coloring the Court’s opinion of the taxpayers’ claims that the receipts substantiated bona fide business items.
Daoud, TC Memo 2010-282
Posted by Charles (Chuck) Rubin at 5:35 PM