Sec. 988 treats most (but not all) gains and losses from foreign currency transactions as ordinary in character. Depending on the taxpayer’s circumstances, this treatment can be favorable or otherwise.
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TOPICS / INDIVIDUALS
Income
Aggregating Activities to Avoid the Hobby Loss Rules
Sec. 183 limits deductions for activities that are “not engaged in for profit,” commonly called hobbies. To sidestep this requirement, taxpayers often attempt to combine activities that would separately be considered hobbies with other activities to avoid the Sec. 183 limits.
Res Judicata Does Not Bar Taxpayer from Claiming NOL Carrybacks
The Tax Court ruled that the doctrine of res judicata did not bar a taxpayer from claiming net operating loss (NOL) carrybacks to 1999 and 2000, despite a prior deficiency case involving those years, because the statutory scheme for NOL carrybacks includes Sec. 6511(d)(2)(B) (i), which allows a refund attributable to an NOL carryback notwithstanding “the operation of any . . . rule of law,” which includes res judicata.
Individual Taxation Report
This article covers recent significant developments affecting taxation of individuals, including cases, IRS guidance, and legislative changes.
Income from Sales or Settlements of Life Insurance Contracts
The IRS has provided guidance on the amount and character of income that taxpayers recognize in the surrender or sale of life insurance contracts and has provided guidance to purchasers of life insurance contracts for profit.
Sec. 83 in the Context of Contract Manufacturing
Sec. 83 may be applied to successfully defer and possibly reduce taxable compensation to independent contractors, including contract manufacturers.
Personal Intangibles: The Antichurning Rules
In the process of selling the business of a closely held C corporation, the concept of the sale of personal intangibles should be considered in structuring the transaction.
Deferring Shareholder Gain by Distributing Installment Notes
When a C corporation sells some or all of its assets during the process of liquidation and takes back one or more installment notes as payment, it must recognize, in the year of liquidation, all unrecognized gains on installment receivables distributed to the shareholders (Secs. 336 and 453B(a)).
Two Recent Revenue Rulings Clarify Tax Treatment of Life Settlements
The IRS issued two revenue rulings discussing the taxation of life settlement transactions. Rev. Rul. 2009- 13 clarifies the tax implications of the surrender or sale of a life insurance policy by the original policyholder, while Rev. Rul. 2009-14 discusses the tax ramifications of certain transactions to an investor who has purchased a life insurance contract through a life settlement transaction.
Tax Planning for Troubled Debt
Today’s volatile real estate environment presents interesting opportunities for investors and developers to alter the terms of their debts in ways that may pay off if they can retain control of their projects.
Deducting Ponzi Scheme Losses: Practical Issues
In March 2009, the IRS issued Rev. Rul. 2009-9 and Rev. Proc. 2009-20, which provided guidance on the tax treatment of theft losses from Ponzi-type schemes.
Exclusion for Income from Discharge of Indebtedness: Mortgage Debt Forgiveness
The Mortgage Forgiveness Debt Relief Act of 2007 provides an exclusion from income for the discharge of indebtedness (DOI) on a qualified principal residence. The exclusion is effective for home mortgage debt discharged between January 1, 2007, and December 31, 2012.
IRS Requests Comments on Simplified Cell Phone Substantiation Rules
In Notice 2009-46, the IRS requested comments on three new proposed methods that would simplify the substantiation requirements for employee use of employer-provided cell phones.
Leasing Business Autos
Automobile leases have certain advantages. They require a minimal investment and are convenient if the customer replaces the car every two or three years. With a lease, there is no hassle with selling or trading in the car. Instead, the lease customer simply drops it off at the end of the lease and arranges another lease for a new one.
Deducting Losses for Defrauded Investors
This article considers theft losses “incurred in an activity engaged in for profit.” These investment theft losses are not subject to the 10% of AGI reduction for losses of personal use property, the 2% of AGI floor for miscellaneous itemized deductions, or the itemized deduction phaseout rules of Sec. 68.
Expatriation and the New Mark-to-Market Rules
New rules subject taxpayers that renounce their U.S. citizenship or abandon their U.S. residency to a mark-to-market exit tax on their assets.
Sec. 1245 Recapture Rules Can Apply to Stock
This item discusses how a reduction in a debtor’s stock basis through application of the Sec. 108 attribute reduction rules can result in Sec. 1245 recapture on a disposition of that stock. It also examines how the consolidated return rules in certain circumstances eliminate, in whole or in part, the potential Sec. 1245 recapture on a disposition of stock of a subsidiary member.
IRS Issues Guidance on Losses from Ponzi Schemes
The IRS has released guidance on how investors who have fraud losses from a Ponzi scheme should treat their losses for tax purposes and has provided a safe harbor for taxpayers to use in determining the amount and the timing of their losses from a Ponzi scheme.
Securities Transfer Is Not a Securities Lending Arrangement
The Tax Court held that a billion dollar–plus securities transaction was not a securities lending arrangement under Sec. 1058 because its terms reduced the opportunity for gain to the transferor of the securities in the transaction for almost the entire transaction period.
Like-Kind Exchanges: Deferral Is Not Always the Best Option
Sec. 1031 gives taxpayers the opportunity to defer taxation on the gains they may have on their transactions. Anytime there is an opportunity to defer tax costs, tax practitioners and their clients automatically tend to assume that they should take advantage of the opportunity. However, in the case of like-kind exchanges, it is not always in the taxpayer’s best interest to elect to defer the recognition of gain on realty.
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.
