This item examines the IRS National Office’s ruling that the recharacterization of income from nonpassive to passive for purposes of the passive activity loss and credit limit rules of Sec. 469 is not a change of accounting method for purposes of Secs. 446(e) and 481(a).
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Tax Accounting
Transfer Pricing: Controlled Services Transactions
Sec. 482 can apply to domestic companies that file returns in multiple states and domestic taxpayers that do not file a U.S. consolidated income tax return. The focus of this item is on controlled services transactions under Regs. Sec. 1.482-9.
Royalty Payments Not Subject to Capitalization Under Sec. 263A
A recent decision provides a potential opportunity for taxpayers that will incur royalty payments to structure the agreements in such a manner that they can immediately deduct royalty costs instead of capitalizing them under Sec. 263A.
The New Health Care Law and the Medicare Part D Retiree Drug Subsidy
Beginning in 2013, a company’s tax deduction for covered retiree prescription drug expenses will be reduced to the extent these expenses are reimbursed under the retiree drug subsidy program.
FIN 48 and Tax Return Disclosure
This item provides a brief overview of the FIN 48 requirements, an update on the IRS plans, and some observations on the dynamics created among an engagement’s auditors, tax preparers, and client personnel resulting from these new rules.
Tax Implications of Transactions Involving Contingent Consideration
This article examines the tax and financial reporting consequences of companies using contingent consideration in payments for property and in payments to employees as compensation for services.
Case Studies for Book-Tax Differences in the Classroom
The authors discuss how to most effectively cover book-tax differences in financial accounting and tax courses and how to prepare accounting graduates for this type of work in the profession.
New EITF Revenue Recognition Standards for Multiple Deliverable Arrangements
The Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) recently updated guidance regarding recognition of revenue for multiple deliverable arrangements, which is intended to better reflect the underlying economics of such arrangements. In most situations, the new guidance will result in earlier revenue recognition for financial reporting purposes.
IRS Issues Fifth Directive on the Allocation of Mixed Service Costs
The IRS has been scrutinizing how taxpayers have allocated mixed service costs to self-constructed assets under Sec. 263A.
Treatment of Defective Merchandise Allowances May Provide Guidance for Other Trade Discounts
CCA 200945034 provides guidance on the proper tax accounting for defective merchandise vendor allowances.
IRS Issues Technical Advice on Success-Based Fees
When a taxpayer incurs success-based fees, the determination of whether the fees are currently deductible, as opposed to capitalizable, depends on whether the taxpayer can establish contemporaneously that all or a portion of the fees are allocable to activities that do not facilitate the transaction.
Safe Harbor for Failed Like-Kind Exchanges Where Qualified Intermediary Goes Bankrupt
The IRS has provided a safe harbor for taxpayers who start a like-kind exchange but fail to complete the exchange because the qualified intermediary (QI) goes bankrupt and defaults on its obligation to acquire replacement property (Rev. Proc. 2010-14).
Deducting Deficiency Interest Expense in the Proper Tax Year
Deficiency interest is often overlooked after the audit cycle closes. Taxpayers can effectively plan the timing of deducting deficiency interest simply by being aware of when proposed audit adjustments are agreed upon.
Deduction for Bonuses Deferred Due to Employment Contingency
The IRS Office of Chief Counsel has concluded that a liability arising from bonus compensation is deductible in the year the bonus is paid if payment of the bonus is contingent on the taxpayer’s employees being employed on the payout date.
Repairs and Maintenance Costs Method Change Designated Tier I Issue
The IRS Large and Mid-Size Business (LMSB) Division has issued two industry director directives (IDDs) relating to situations in which a taxpayer changes its method of accounting to recharacterize costs previously capitalized under Sec. 263(a) as deductible repairs and maintenance expenses under Sec. 162.
New Automatic Method Change for Nonincidental Materials and Supplies
With the release of Rev. Proc. 2009-39, taxpayers may now obtain automatic IRS consent to change their method of accounting for nonincidental materials and supplies to comply with the rules in Regs. Sec. 1.162-3.
The Blurred Line Between Production and Handling Costs
On September 15, 2009, the IRS announced in a field directive that it was temporarily suspending the examination of Sec. 263A (UNICAP) issues involving automobile dealerships. The suspension will end on December 31, 2010.
New Accounting Methods Subject to Automatic Change Procedures
The IRS has issued new guidance on automatic accounting method changes.
Court of Federal Claims Upholds LILO Transaction
The Court of Federal Claims held that a lease-in, lease-out (LILO) transaction involving a Dutch power plant undertaken by a New York utility company was a valid business transaction that had economic substance.
Restaurant Management Company May Not Defer Recognition of Income from Gift Card Sales
The IRS has determined in a legal advice memorandum (20093801F) that a restaurant management company may not defer income recognition from the proceeds of gift card sales under Regs. Sec. 1.451-5 or Rev. Proc. 2004-34.
TAX PRACTICE MANAGEMENT
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