Ability to pay tax liability not relevant to determination of willfulness under Code Sec. 7202

U.S. v. Easterday (2008, CA9) 102 AFTR 2d ¶ 2008-5218
By a vote of two to one, a Ninth Circuit panel decision has upheld a district court’s ruling that a defendant’s ability to pay wasn’t relevant to the determination of whether [...]

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IRS Fact Sheet reviews whether a hobby is actually a for-profit endeavor [Fact Sheet 2008-23]:
Taxpayers must follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby, IRS said in a new fact sheet published on the [...]

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IRS explains how to claim credit for qualified fuel cell and qualified microturbine property

A new Notice carries interim guidance on the terms and conditions that must be met by taxpayers that want to claim the Code Sec. 48 credit for fuel cells and microturbines.
Background. A taxpayer may be eligible to claim (on [...]

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TIGTA reviews IRS methodology for selling seized property [Audit Report No. 2008-30-144]:
IRS management needs to provide better oversight to ensure that employees consistently follow the requisite procedures for the storage and sale of seized property, according to a recent audit by the Treasury Inspector General for Tax Administration (TIGTA).
As described in the [...]

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To disclose or not to disclose, that is the question.
Hiding Income Offshore is not the way to go.
Mike Habib, EA
For years, offshore accounts have been a hot topic in popular culture and for the IRS; most recently Liechtenstein has been mentioned, however the IRS is interested in accounts anywhere in the world that generate income [...]

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If It Seems Too Good to Be True, It Probably Is
Tax Return Preparer Fraud
Mike Habib, EA
Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes. These scam artists make their money in a number of ways including skimming a portion of their clients’ refunds, charging a percentage of [...]

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“In this world, nothing is certain but death and taxes.” – Benjamin Franklin
Frivolous Arguments Don’t Work
Mike Habib, EA
Yes, folks, it’s a matter of fact. If you have earned income in the last year, you must file a tax return. There isn’t a way around it. If someone is claiming that there is a way to [...]

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Yes, we are all fed up with the cost of fuel.
No, I’m sorry to report, not everyone is eligible for the fuel tax credit.
Fuel Tax Credit Scams
Mike Habib, EA
The IRS has recently added fraud involving the fuel tax credit to the list of frivolous tax claims being put forth by individuals and businesses. The [...]

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JK Harris didn’t provide promised services to Missourians who sought help with tax problems, Nixon says in lawsuit
Jefferson City, Mo. – A South Carolina company that advertises it can help consumers resolve their state and federal tax problems didn’t provide the services it promised, Attorney General Jay Nixon says. Nixon filed a lawsuit [...]

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Tiered discount allowed in real estate FLP gift tax case

In Astleford, a memorandum decision, the Tax Court permitted a taxpayer to apply a tiered discount in the context of a family limited partnership owning interests in real estate.
Facts. On 8/1/96, Mrs. Astleford formed the Astleford Family Limited Partnership (“AFLP”) to facilitate the [...]

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Deduction for cost of goods sold limited to negotiated discount price

IRS concluded in this ILM that the step transaction doctrine applied to the repayment to companies of the difference between the full list price of merchandise and the negotiated discount price, and therefore the companies’ deduction for cost of goods sold (COGS) was [...]

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Beneficial owners can deduct home mortgage interest and taxes

The Tax Court held that taxpayers were entitled to deduct mortgage interest and real estate taxes they paid on property owned by their son, because they were the beneficial owners of the property.
The taxpayers resided at the property for all of 2003. During that [...]

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USA & Malta sign new income tax treaty
[U.S. Treasury Press Release, 8/8/08]:
The U.S. Treasury Department has announced that a new income tax treaty between the United States and Malta was signed on Aug. 8, 2008 . The treaty will have withholding tax ramifications for U.S. citizens working in Malta and citizens of [...]

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California LLC fee again held invalid

Ventas Finance I LLC v. Calif. FTB, Cal. Ct. App., Dkt. Nos. A116277; A117751, 08/11/2008

The California Court of Appeal once again has ruled invalid the state fee imposed on limited liability companies (LLCs) under former Rev. & Tax. Cd. § 17942 (the “§ 17942 fee”). Affirming the lower [...]

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IRS official pledges improved collection of billions in unpaid payroll taxes from businesses
WASHINGTON (AP) — A top IRS official promised Congress Tuesday that the agency “will do better” in collecting billions in taxes that businesses supposedly withheld from employees’ paychecks but never remitted to the government.
Linda Stiff, a deputy Internal Revenue Service commissioner, agreed [...]

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IRS targets U.S. source income paid to foreign persons IRM 4.10.21, U.S. Withholding Agent Examinations – Form 1042
Mike Habib, EA

IRS has issued a new Internal Revenue Manual (IRM) section, IRM 4.10.21, U.S. Withholding Agent Examinations – Form 1042, on reporting and withholding requirements for U.S. source income that’s paid to foreign persons.
Background. [...]

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Court rebuffs IRS and allows policyholder to escape gain on demutualization

Eugene A. Fisher et al. v. U.S. (Ct Cl 8/6/2008) 102 AFTR 2d ¶ 2008-5150

The Court of Federal Claims has applied a variation of the open transaction doctrine with the result that a policyholder had no gain to report when it chose a cash option [...]

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New IRS settlement initiative for LILO and SILO transactions

Mike Habib, EA
IRS recently announced a settlement initiative for Lease-In/Lease-Out (LILO) and Sale-in/Lease-Out (SILO) transactions. Under this initiative, more than 45 of the nation’s largest corporations that participated in these shelters will receive a letter with an offer. Shelter participants will have 30 days to [...]

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Proposed regs explain strict charitable contribution substantiation & appraisal rules Preamble to Prop Reg 08/06/2008; Prop Reg § 1.170A-15, Prop Reg § 1.170A-16, Prop Reg § 1.170A-17, Prop Reg § 1.170A-18
Mike Habib, EA
IRS has issued proposed regs explaining the charitable contribution substantiation changes made by the American Jobs Creation Act of 2004 (AJCA) and [...]

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Finance Chairman Baucus wants more action and details on IRS strategy to combat identity fraud [Press release dated Aug. 5]:

A recent IRS update on its Identity Protection Strategy has failed to satisfy the concerns of Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee.
The report, submitted to Baucus on July 21 by IRS [...]

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IRS issues new version of Central Withholding Agreement form
Mike Habib, EA
The IRS has issued a June 2008 version of Form 13930, Application for Central Withholding Agreement.

Under IRC §1441(a), nonresident alien (NRA) individuals are subject to 30% withholding on the gross amount of interest, dividends, rent, salaries, wages, compensations, remunerations, and emoluments they receive from sources [...]

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IRS may require reporting of PAL activity groupings
Mike Habib, EA
Notice 2008-64, 2008-31 IRB 268

A new notice requests comments regarding a proposal to require taxpayers to report to IRS their groupings and regroupings of activities and the addition and disposition of specific activities within their existing groupings of activities for purposes of [...]

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Presidential candidates discuss merits of increasing the Social Security tax:
Mike Habib, EA
With less than three months until the 2008 presidential election, both candidates have expressed their views about a possible Social Security tax increase. The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers — one for Old [...]

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Innocent spouse relieved of tax from embezzlement and forgery

Yakubik, TC Summary Opinion 2008-74
Mike Habib, EA

The Tax Court recently held that the IRS abused its discretion in not granting equitable innocent spouse relief to a husband whose wife embezzled funds from her employer and forged checks taken from her stepfather.
Facts. The taxpayer was married [...]

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REIT changes in the 2008 Housing Act
Mike Habib, EA

Included in the $15.1 billion of housing tax incentives in the recently enacted “Housing Assistance Tax Act of 2008” (the Housing Act) is a package of changes liberalizing the real estate investment trust (REIT) rules. Under these new provisions:

Foreign exchange gains that a REIT generates [...]

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Tightened home sale exclusion and other revenue raisers in the 2008 Housing Act
Mike Habib, EA

To pay for the $15.1 billion of housing tax incentives in the recently enacted “Housing Assistance Tax Act of 2008” (the Housing Act), Congress passed several offsetting revenue raisers, including a requirement that banks provide information returns reporting annual credit card [...]

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Credit for first-time homebuyers in the 2008 Housing Act
Mike Habib, EA

The single largest provision in the $15.1 billion package of housing tax incentives in the recently enacted “Housing Assistance Tax Act of 2008” (the Housing Act) is a measure allowing individuals buying their first home to take a tax credit of up to $7,500 of [...]

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Property tax deduction for non-itemizers in the 2008 Housing Act
Mike Habib, EA

Included in the $15.1 billion package of housing tax incentives in the recently enacted “Housing Assistance Tax Act of 2008” (the Housing Act) is a measure creating a new, temporary property tax deduction for non-itemizers (i.e., for taxpayers who claim the standard deduction rather [...]

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IRS explains how to claim (or elect out of) 50% Kansas bonus depreciation Notice 2008-67, 2008-32 IRB
Mike Habib, EA

The Food, Conservation and Energy Act of 2008, popularly known as the Farm Act, provided temporary GO Zone-style tax relief for taxpayers in Kiowa County, Kansas, and surrounding areas, who were affected by the storms and tornadoes [...]

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Doctors get socked with big tax and penalties for donations tied to consolidation of their practice

Berquistist and Kendrick, et al., (2008) 131 TC No. 2

Mike Habib, EA

The Tax Court has determined that doctors grossly overvalued charitable donations of stock in their medical professional service corporation (PSC) that arose in connection with a consolidation of [...]

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No FUTA exemption for staffing company that was considered the employer for state UI purposes
Chief Counsel Advice 200827007

Mike Habib, EA
The IRS has denied a federal unemployment tax (FUTA) exemption to a staffing company because it did not consider the company to be the common law employer of the workers in question
Facts. According to [...]

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Proposed revenue ruling gives green light to use of private trust companies Notice 2008-63, 2008-31 IRB

Mike Habib, EA
A new notice contains a proposed revenue ruling that would allow families to use private trust companies (PTCs) in their estate planning without adverse income, estate, gift or generation-skipping transfer (GST) tax consequences for the trust creators [...]

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National Taxpayer Advocate annual report to Congress identifies priorities and issues for upcoming year [IR 2008-87]:

An annual report on the priority challenges and issues facing the Office of the Taxpayer Advocate (OTA) was delivered to Congress on July 8.

The report, National Taxpayer Advocate’s 2009 Objectives Report to Congress, cited three areas for “particular [...]

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