The IRS has given taxpayers guidance on the tax treatment of exchanges of annuity contracts under Secs. 72 and 1035.
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TOPICS / INDIVIDUALS
Income
Individual Taxation: Digest of Recent Developments
This article covers recent developments affecting taxation of individuals, including last year’s tax relief and small business legislation, regulations, cases, and IRS guidance. The items are arranged in Code section order.
IRS Gives Relief for Late Elections to Combine Real Estate Activities
The IRS established a special procedure by which taxpayers can make a late election to treat all their real estate activities as a single activity for purposes of meeting material participation rules.
Capital Gain Exclusion on Small Business Stock
The Small Business Jobs Act of 2010 allows 100% exclusion from gross income of capital gains from the sale of certain qualified small business stock (QSBS). The deadline has been extended to January 1, 2012.
Day-Trading Losses Are Dissipation of Assets
The Tax Court held that a taxpayer’s losses from a period of day-trading activity constituted a dissipation of assets that the IRS could take into account in determining whether to accept the taxpayer’s offer in compromise.
Cooperative Owner Cannot Deduct Cooperative’s Casualty Loss
A shareholder in a cooperative housing corporation was not allowed to deduct as a casualty loss an assessment levied against her by the cooperative to pay for damages caused by the collapse of a retaining wall on its property.
Noncompete Covenants in Mergers and Acquisitions: Compensation or Capital Gain?
This item discusses the tax rules surrounding the treatment of noncompete covenants and cautions against overreliance on financial accounting reporting in making tax determinations.
Electing to Treat Musical Works as Capital Assets
The IRS issued final regulations governing how to elect to treat the sale or exchange of a musical work or copyright in a musical work as a sale or exchange of a capital asset.
Unfair Lending Practice Settlement Does Not Result in Income to Borrower
The IRS advised that adjustments to loan principal amounts under a settlement to reform unfair lending practices do not result in income to the borrower, even though the adjustments result in a reduction in the amount the borrower will pay under the loan
Overstatement of Basis Is Not Omission from Gross Income, Appeals Court Rules
A federal appeals court has handed the IRS another defeat on the issue of whether an overstatement of basis amounts to an omission from gross income for purposes of invoking the longer, six-year limitation period for assessing tax under Sec. 6501(e).
Another Circuit Says Overstatement of Basis Is Not an Omission from Gross Income
The ongoing controversy over whether a taxpayer’s overstatement of basis triggers a six-year statute of limitation period continues as the Fourth Circuit has held that the extended period does not apply.
Final Regs Issued on Treating Musical Works as Capital Assets
The IRS issued final regulations governing how to elect to treat the sale or exchange of a musical work or copyright in a musical work as a sale or exchange of a capital asset.
Foreign Housing Expense Limitations for 2011 Released
The IRS has provided the inflation-adjusted limitations on foreign housing expenses for 2011.
Sale Versus Loan: A Current Development in Tax Ownership?
The characterization of a transaction as a sale has significant tax implications. The Calloway case rules on if and when a taxpayer sold his stock upon entering into an agreement, which purported to be a nonrecourse loan. This item summarizes the facts and holding in Calloway and the differences among the judges’ opinions.
IRS Guidance on FSA and HSA Reimbursements for OTC Drugs
The IRS has issued guidance implementing the Patient Protection and Affordable Care Act’s prohibition on reimbursement of the cost of over-the-counter drugs by HSAs, HRAs, Archer MSAs, and FSAs, which allows reimbursement for an OTC drug only if the individual has a prescription for the drug.
The Tax Consequences of Point-Based Employee Reward Programs
This article explores the tax consequences of point-based employee recognition programs.
Grouping Rental Real Estate Activities Under Regs. Secs. 1.469-4 and 1.469-9
This item reviews fundamental relationships of the grouping of activities under Regs. Sec. 1.469-4 and the grouping of rental real estate activities under Regs. Sec. 1.469-9.
Remodel or Rebuild? How the Decision Could Affect the Sec. 121 Exclusion
The recent Gates decision forces practitioners to reexamine the types of questions they ask a client during tax planning or their annual tax interview if the client has sold his or her personal residence.
Elections to Direct Credit Card Rebates to Qualified Charities
In a letter ruling, the IRS addressed the common concept of credit card companies allowing their customers to request that their credit card rebates be donated to charity.
Sec. 121 Exclusion of Gain from Sale of a Principal Residence
This item reviews the Tax Court’s decision to side with the IRS in the Gates case denying a exclusion under Sec. 121 and the possible implications for taxpayers.
employee benefits & pensions
Profits interests: The most tax-efficient equity grant to employees
By granting them a profits interest, entities taxed as partnerships can reward employees with equity. Mistakes, however, could cause challenges from taxing authorities.
