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NICHOLS PATRICK TAX PODCAST With E. Lynn Nichols, CPA October 3, 2011 CITATIONS 1. IRS Addresses Taxability of Fringe Benefit Flights (ECC 201138048; 9/6/2011, rel. 9/23/2011) In e-mailed advice, the IRS concluded that the costs of flying an employee's guests may be imputed fringe benefit income to the employee even if the employee is not on the flight. 2. FAQ on Voluntary Classification Settlement Program (Voluntary Classification Settlement Program FAQs; 9/21/2011) The IRS has released a list of frequently asked questions on its voluntary classification settlement program, which provides partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees instead of independent contractors. 3. Claims Court Dismisses Couple's Refund Suit Related to Losses on Stock Sale (Donald R. Schroerlucke; Fed Clms, No. 09-772T. 9/21/2011) [Doc 2011-20469] The Court of Federal Claims dismissed a couple's suit for a refund based on their claim of unreimbursed losses stemming from losses they suffered on the sale of WorldCom stock, finding that they are entitled to capital loss deductions under IRC Secs. 165(f) and (g) but that they did not suffer a theft that entitled them to the claimed theft loss deductions under IRC Sec. 165(e). 4. Supreme Court Grants Certiorari in Overstated Basis Assessment Period Debate (Tax Analysts Article, Jeremiah Coder, Doc 2011-20508, 9/28/2011) The Supreme Court has chosen to review the Fourth Circuit's interpretation of section 6501(e), granting certiorari on September 27 in Home Concrete & Supply LLC v. United States. For decisions on opposite sides of the dispute see: Home Concrete & Supply, LLC; CA 4, 2/7/2011 (Son–of-BOSS transaction) Beard, CA 7, 1/26/2011 (Son-of-BOSS transaction) 5. Second Circuit Affirms Jury Verdict Denying Tax Refund in SILO/LILO Case (Altria Group Inc. v. United States; CA 2, No. 10-2404, 9/27/20110) The Second Circuit affirmed a district court's denial of a company's motion for judgment as a matter of law or for a new trial after a jury denied a tax refund claim stemming from disallowed deductions from sale-in, lease-out and lease-in, lease-out transactions, holding that the jury was properly instructed on the substance-over-form doctrine. 6. Safe Harbor for Taxpayers Using Nonaccrual-Experience Method of Accounting (Rev. Proc. 2011-46; 2011-42 IRB 1, 9/28/2011) The IRS has issued a revenue procedure providing a book safe harbor method of accounting for taxpayers using the nonaccrual-experience method of accounting under section 448(d)(5). 7. Exempt Org. Must Allocate Portion of Member Dues to Circulation Income (National Education Association of the United States v. Comm.; 137 T.C. No. 8, 9/28/2011) The Tax Court held that for unrelated business income tax purposes the tax-exempt National Education Association of the United States, which publishes magazines and sends them to its members, must allocate a portion of its members' dues to circulation income, thereby reducing the portion of circulation expense allocable to advertising income. That adjustment results in significantly increasing UBTI. 8. Couple Didn't Have Cancellation of Indebtedness Income (Thomas Kleber et ux. v. Comm.; T.C. Memo. 2011-233, 9/28/2011) The Tax Court held that a couple isn't liable for an accuracy-related penalty and didn't have cancellation of indebtedness income as reported by the Defense Finance and Accounting Services, finding that the IRS failed to rebut a presumption that the identifiable event under which the debt was discharged occurred in a prior tax year. 9. Individual Liable for Addition to Tax for Early Distribution From Retirement Plan (Gail Marie Watson v. Comm.; T.C. Summ. Op. 2011-113, 9/28/2011) The Tax Court, in a summary opinion, held than an individual was liable for the section 72(t) 10 percent addition to tax for an early distribution from a qualified retirement plan because she left service before age 55, even though she did not receive the payments until after she was 55. 10. Electing Portability of Deceased Spouse's Unused Exclusion Amount (Notice 2011-82; 2011-42 IRB 1, 9/29/2011) The IRS has issued guidance informing executors of estates of married individuals dying after December 31, 2010, that they must file Form 706 to elect to allow the decedent's surviving spouse to take advantage of the deceased spouse's unused estate and gift tax exclusion amount. 11. Management Fees Paid by LLC to Wholly Owned Corporation Disallowed (Daniel E. Fuhrman et ux. v. Commissioner; T.C. Memo. 2011-236; 9/29/2011) The Tax Court, sustaining accuracy-related penalties, held that a couple was not entitled to deduct more than the IRS determined for management fees paid by the husband's single- member LLC to his wholly owned C corporation, finding that they did not establish that the fees were ordinary and necessary expenses. There was no way the taxpayers could explain how the husband would consult with himself, or why an LLC that employed no drivers would need to train drivers.
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