In response to the subprime mortgage crisis, the Mortgage Forgiveness Debt Relief Act of 2007 excludes from income the discharge of qualified principal residence indebtedness. Its discharge provisions are temporary and apply to discharges during 2007, 2008, and 2009.
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Defendant May Claim Improper Diversions of Corporate Funds Were Returns of Capital
The Supreme Court, reversing the Ninth Circuit, held that where a taxpayer is charged with criminal tax evasion related to funds he diverted from a corporation for his own use, the taxpayer may claim as a defense that the funds he received were a nontaxable return of capital without proving that they were intended as a return of capital at the time the diversion occurred.
IRS Provides Sec. 1031 Personal Use Safe Harbor for Dwellings
The IRS has provided a safe harbor, under which it will not challenge whether a dwelling unit qualifies as held for productive use in a trade or business or for investment purposes under Sec. 1031, governing like-kind exchanges.
Disposing of an Activity to Release Suspended Passive Losses
Unused PALs are suspended and carried forward to future years until the taxpayer (1) disposes of the particular activity that generated the losses, (2) generates net passive activity income in the case of a personal service corporation, or (3) generates net passive activity income or net active income in the case of a closely held corporation.
IRS Agrees That Payments from VA Work Therapy Program Are Not Includible in Income
The IRS has acquiesced to a Tax Court decision that payments to veterans made by the Department of Veterans Affairs (VA) for work performed under a VA-administered compensated work therapy program are veterans’ benefits that are excluded from income.
Prop. Regs. Clarify Source of Compensation Rules
Proposed regulations would clarify the determination of the source of compensation for a person, including an artist or athlete, who is compensated for labor or personal services performed at a specific event or events.
Foreign Earned Income Exclusion Housing Cost Limitations Increase
In Notice 2007-77, the IRS has adjusted the 2007 limitation on housing expenses under Sec. 911 for specific locations in countries with high housing costs relative to U.S. housing costs. The adjusted housing expense limitations are to be used in determining the housing cost amount eligible for exclusion or deduction
Subprime Lending Controversy Fuels Familiar Tax Issues
Editor: Michael D. Koppel, CPA, PFS It is difficult to winnow the subprime lending controversy down to a single sentence, a single page, or even a single discipline. Its effects are pervasive. In this environment, few participants or observers are thinking about tax issues. In fact, as in so many
Exercise of Options Using Borrowed Funds
Editor: Kevin F. Reilly, J.D., CPA Under Sec. 83(a), if property is transferred in connection with the performance of services, the employee who performed the services has gross income in an amount equal to the excess of the fair market value (FMV) of the property over the amount paid for
Tax Treatment of Compensation Received as a Nonprofessional Representative
Most baby boomers, who are now between the ages of 42 and 60, will soon face two major events in their lives: planning for retirement and the death of their parents. Many of these individuals will take on the role of personal representative (executor) of their parents’ estates when their
Sale of Vacation Home Disallowed as Tax-Free Like-Kind Exchange
Editor: Joel E. Ackerman, CPA, MST The Tax Court recently ruled that the sale of a vacation home and the purchase of another through an escrow agent did not qualify for tax-free like-kind exchange treatment under Sec. 1031 because the homes were not held for investment (Moore, TC Memo 2007-134).
IRS Extends the Reach of Sec. 83 to Post-Grant Stock Transfers
The IRS has ruled that in a taxable merger of corporations or a merger of corporations that qualifies as a tax-free reorganization, Sec. 83 applies to an employee’s transfer of stock in his or her employer corporation in return for stock in the remaining corporation that is subject to employment-related
Tax Treatment of Market Discount Bonds
Editor: Joel E. Ackerman, CPA, MST Generally, gain or loss on the sale of a note will be capital gain or loss if the note is a capital asset in the holder’s hands. Other than a note or trade receivable arising from the provision of a service or the selling
Short Sale or Foreclosure of a Principal Residence
It would be a bad dream for any homeowner: selling a home when the debt that secures the property is greater than its fair market value (FMV). With the real estate market slowing, more homeowners are discovering that this can actually happen. When the real estate market was booming, homeowners
Prop. Regs. Create Capital Gains and Losses for Non-bank Lenders
Editor: Frank J. O’Connell, Jr., CPA, Esq. On August 7, 2006, the IRS issued Prop. Regs. Sec. 1.1221-1(e), in an attempt to clarify the character of gains and losses resulting from sales of loans and notes receivable acquired through purchase or loan origination; see REG-109367-06. While the character of such
Divorce and Gain Exclusion
For most couples contemplating divorce, the largest single asset at issue is their personal residence. In most situations, one spouse moves out of the residence during the separation and divorce proceedings. Tax consequences are often ignored, as the primary concern is the division of marital assets. However, focus normally returns
Ninth Circuit Affirms Self-Rental Rule
As part of the Tax Reform Act of 1986, Congress enacted Sec. 469, limiting passive activity losses (PALs). As a general rule, PALs can only be offset against income from other passive activities; such losses cannot be offset against nonpassive income, such as dividends, interest, wages or most Schedule C
Claiming Passive Activity Credits
Credits arising from passive activities are allowable only to the extent a shareholder’s regular tax liability is attributable to passive activities for the year. The tax attributable to passive activities is the difference between the: Shareholder’s regular tax liability under Sec. 26(b) based on all income (disregarding credits), and Regular
Out of the Ordinary: Capital Gain/Loss from the Sale of a Foreign Currency-Denominated Debt Instrument
Editor: Annette B. Smith, CPA Foreign currency gain or loss realized by a holder on foreign currency-denominated debt generally is thought to be ordinary in character. However, when a holder disposes of such an instrument, the entire gain or loss realized on the transaction is not necessarily related to exchange-rate
Establishing Basis for Gambling Losses
Executive Summary Most taxpayers believe gambling proceeds are immune from tax, unless they receive a Form W-2G. Each pull of a lever or push of a button on a slot machine, hand of blackjack or spin of a roulette wheel is an individual wager that may result in gambling winnings.
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.
