Editor: Joel E. Ackerman, CPA, MST The tax imposed by Sec. 1(g) on the unearned income of minor children is commonly referred to as the “kiddie tax.” Its purpose is to prevent wealthy parents from shifting unearned income or investment income to their children, who presumably are in a lower
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Individuals
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
IRS Announces Redesigned Form 8857
The Service announced that it has redesigned Form 8857, Request for Innocent Spouse Relief, in order to reduce followup questions and minimize the burden on taxpayers. Previously, Form 12510, Questionnaire for the Requesting Spouse, was separate from Form 8857. The redesigned Form 8857 combines the two forms. The IRS believes
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
New Ruling Expands Definition of “North American Area” for Attendance at Foreign Conventions
Editor: Anthony S. Bakale, CPA, M.Tax. Sec. 274(h) limits deductions for expenses incurred while attending a convention, seminar or similar meeting held outside the “North American area.” Generally, no deduction is permitted under Sec. 162 for expenses allocable to such a meeting, unless the taxpayer can establish that they are
Executive Stock Options Under Senate Review
Editor: Anthony S. Bakale, CPA, M.Tax. Over the past several years, executive stock options have drawn the attention of legislators in Washington. This is not surprising, considering that close to 50% of executive pay is attributable to stock option exercises, according to Forbes magazine (see DeCarlo, “Big Paychecks,” Forbes (May
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
VITA, the MTC and the Modern Accounting Curriculum (Part I)
Editor: Annette Nellen, CPA, Esq. Several authors have discussed the benefits of “service learning” in the accounting curriculum and, more specifically, the Volunteer Income Tax Assistance (VITA) program. This is described as a means of strengthening the accounting curriculum by engaging students in critical analysis and problem solving; see Still
Rules Governing Lodging Away from Home Will Be Liberalized
The IRS and Treasury intend to amend regulations under Sec. 262, relating to the deductibility of lodging expenses. Background Sec. 162(a) allows as a deduction all the ordinary and necessary business expenses paid or incurred during the tax year in carrying on any trade or business. Sec. 162(a)(2) provides that
New Law Contains Small Business Tax Provisions
On May 25, 2007, President Bush signed into law the Small Business and Work Opportunity Act of 2007 (SBWOA ’07) (P.L.110-28), which included several tax provisions. Return preparer penalties: The SBWOA ’07 expands the scope of return preparer penalties and alters the standards of conduct that must be met to
Some Schedule K-1 Recipients Get Reportable Transaction Disclosure Relief
Editor: John L. Miller, CPA Taxpayers that discover after filing their returns that they indirectly participated in a reportable transaction through a passthrough entity may be able to rely on Prop. Regs. Sec. 1.6011-4(e)(1) to avoid reportable transaction penalties. The preamble to the proposed regulations (REG-103038-05, 11/2/06) provided that this
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
IRS Issues Final Rules on Nonqualified Deferred Compensation
The Service issued final regulations on nonqualified deferred-compensation arrangements under Sec. 409A (TD 9321, 4/10/07). These rules generally follow the proposed regulations (REG-158080-04, 10/4/05), but provide additional guidance and clarify many key issues, including: Liberalizing the definition of the underlying stock for stock options and stock appreciation rights (SARs) that
Tax-Free Money: The Medicare Retiree Drug Subsidy
Editor: Mary Van Leuven, J.D., LL.M. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), P.L. 108-173, amended Title XVIII of the Social Security Act (SSA) by establishing Part D: Voluntary Prescription Drug Benefit Program. This program adds certain prescription drugs to the benefits covered under the Medicare
Income Taxation of LLC Income in Year of Death
Editor: Albert B. Ellentuck, Esq. For a deceased member, a limited liability company’s (LLC’s) tax year ends on his or her date of death (DOD); the member’s distributive share of LLC income earned through the DOD is reported on his or her final return. Termination of the LLC’s tax year
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