This article covers recent developments affecting the taxation of individuals, including health care reform and other legislation, regulations, cases, and IRS guidance. The items are arranged in Code section order.
Advertisement
TOPICS / INDIVIDUALS
Income
Maximizing the Use of the Special $25,000 Rental Real Estate Loss Allowance
Even though rental income or loss is generally passive, a special rule allows qualifying individuals and estates to offset up to $25,000 of nonpassive income with rental real estate losses and credits. This column describes the criteria needed to qualify for the $25,000 deduction.
Taxpayers Not Entitled to Exclude Gain from Sale of Principal Residence
The Tax Court ruled that a couple who sold a house they had never lived in could not take advantage of the Sec. 121 exclusion.
Rules Issued on Income Deferral of Canceled Debt
The IRS issued temporary and proposed regulations relating to taxpayer elections to defer recognition of cancellation of debt income.
Taxpayer Denied Exclusion for Gain on the Sale of a Principal Residence
The Tax Court held that taxpayers who demolished a home they had lived in for more than two years, built a new home on the same lot, and then sold the new home without ever living in it were not entitled to exclude the gain from the sale from income under Sec. 121.
Rules Issued for Income Deferral of Canceled Debt
The IRS issued temporary and proposed regulations relating to taxpayer elections to defer recognition of cancellation of debt (COD) income.
Appeals Court Overturns Taxpayer Win in Tax Shelter Case
The Tenth Circuit held that a taxpayer’s investment in a “son of boss” tax shelter lacked economic substance and therefore did not generate deductible losses, reversing a taxpayer win on the issue in which a district court had allowed the taxpayer to deduct losses from the investment.
Energy Star Rebates Reduce Basis
The Office of Chief Counsel (OCC) advised that a taxpayer should treat a rebate for purchasing an Energy Star product as a reduction of the basis of the product purchased and not as income.
Tax Court Holds Invalid Temporary Regulations on Overstatement of Partnership Basis
The Tax Court held that temporary regulations issued by the IRS last year that defined an overstatement of partnership basis as an omission from gross income are invalid.
Revenue Procedure Adds New Disclosure Requirements for Grouping of Passive Activities
Regs. Sec. 1.469-4 sets forth rules for grouping a taxpayer’s trade or business activities and rental activities for purposes of applying the passive activity loss and credit limitations. Under Rev. Proc. 2010-13, a taxpayer is required to file a statement with his or her income tax return for the first tax year in which the taxpayer originally groups two or more trade or business activities or rental activities as a single activity.
Tax Court Rules on Valuation of Life Insurance Policy in Bargain Sale
The Tax Court held that where the profit-sharing plan of an S corporation wholly owned by the taxpayers distributed to them a life insurance policy on their lives, the taxpayers could not reduce the taxable value of the policy by the amount of the surrender charge for purposes of determining their income from the transfer
Individual Taxation: Digest of Recent Developments
This article covers recent significant developments affecting taxation of individuals, including legislative changes, cases, regulations, and other IRS guidance.
Sec. 475 Mark-to-Market Election
Under Sec. 475(f), taxpayers who are traders of stocks or other securities can make an election to mark to market the stock and securities they own in their capacity as traders at the end of each year.
Proposed Regs. on Basis Reporting by Brokers
The IRS issued proposed regulations relating to how securities brokers report sales to the IRS and how stock basis is determined.
IRS Finalizes Regs. on Reporting for Discharges of Indebtedness
The IRS has issued final regulations (T.D. 9461) on information returns for cancellation of indebtedness by certain entities under Sec. 6050P.
Tax Ramifications of a Foreclosure: A Debtor’s Perspective
The tax ramifications of a foreclosure, from a debtor’s perspective, can best be understood by first exploring the general approach to determining the tax treatment of any particular debt forgiveness event. This approach begins with a twostep process. The first step is to divide the debt into two components: (1) discharged principal and (2) discharged, but previously deducted, accrued unpaid interest (if any). The first step is necessary because the tax treatment applicable to the discharge of principal is generally not the same as the treatment applicable to previously deducted accrued unpaid interest.
Real Estate Professionals: Do Their Rentals Qualify for Nonpassive Status?
Taxpayers who make their living in a trade or business related to real property are held to a different standard than other taxpayers when it comes to the rental passive activity loss rules of Sec. 469.
Grouping Activities Under Sec. 469
Generally, a taxpayer may group one or more trade, business, or rental activities as one activity if the activities represent an appropriate economic unit in determining gain or loss for Sec. 469 purposes.
Proposed Procedures for Simplifying Employer-Provided Cell Phone Substantiation Rules
In June 2009 the IRS published Notice 2009-46, requesting comments on several proposed procedures for simplifying the substantiation and reporting requirements of employees’ personal use of employer-provided cellular telephones.
Tax Treatment of Employment-Related Judgments and Settlements
Recent program manager technical assistance provides a detailed analysis of the IRS’s position on dealing with income and employment tax consequences, as well as appropriate reporting, of employment-related judgment or settlement payments.
TAX PRACTICE MANAGEMENT
2025 tax software survey
AICPA members in tax practice assess how their return preparation software performed during tax season and offer insights into their procedures.
