tag:blogger.com,1999:blog-71422483454087661882024-03-01T18:34:05.509-05:00Prof. Brunetti's Tax Newsjerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.comBlogger138125tag:blogger.com,1999:blog-7142248345408766188.post-78509355227390728042024-03-01T18:33:00.000-05:002024-03-01T18:33:10.022-05:00<p> Press Release</p><h1 class="page-title" style="background-color: white; box-sizing: inherit; color: #162e51; font-family: "Source Serif Pro", serif; font-size: 40px; line-height: 1.3; margin: 1rem 0px 0px;"><span class="field-formatter--string" style="box-sizing: inherit;">Operation Fraud Street Mafia Results Announced: Nine Arrested for Drug Trafficking and Committing More Than $550 Million in Attempted Tax Fraud</span></h1><div class="node-top" style="background-color: white; box-sizing: inherit; color: #444444; display: flex; font-family: "Public Sans Web", -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol"; font-size: 16px; margin-bottom: 3rem;"><div class="node-top-left" style="box-sizing: inherit; flex-basis: 50%; margin-right: 2rem;"><div class="node-language-switcher" style="box-sizing: inherit; line-height: 1.6; margin-bottom: 1rem;"></div><div class="node-date" style="box-sizing: inherit; color: #333333; font-size: 14px; margin-bottom: 1rem;"><div style="box-sizing: inherit;"><div class="field-formatter--datetime-default field_date" style="box-sizing: inherit;"><time datetime="2024-02-23T12:00:00Z" style="box-sizing: inherit;">Friday, February 23, 2024</time></div></div></div><div class="node-share" style="box-sizing: inherit; margin-bottom: 1rem;"><div style="box-sizing: inherit;"><div class="usdoj-sharing" style="box-sizing: inherit; display: inline-block; position: relative;"><button aria-controls="sharing-links" aria-expanded="false" aria-label="Share" class="usdoj-sharing-toggle" style="appearance: button; background-color: #07648d; border-color: initial; border-style: none; border-width: initial; box-sizing: inherit; color: white; display: block; font-family: inherit; font-size: 14px; font-weight: 600; line-height: 1.6; margin: 0px; overflow: visible; padding-left: 1rem;" tabindex="0" type="button"><span class="toggle-text" style="box-sizing: inherit;">Share</span><span class="toggle-icon" style="border-left: 1px solid white; box-sizing: inherit; display: inline-block; margin-left: 1rem; padding: 0.375rem 0.75rem;"><img alt="right caret" aria-hidden="true" height="6" src="https://www.justice.gov/themes/custom/usdoj_uswds/assets/img/angle-arrow-right-white.svg" style="border-style: none; box-sizing: inherit; display: inline-block; height: auto; max-width: 100%; width: 0.4rem;" width="6" /></span></button></div></div></div></div><div class="node-top-right" style="box-sizing: inherit; flex-basis: 50%;"><div class="node-info-box" style="background-color: #f6f6f2; border-left: 4px solid rgb(255, 190, 46); box-sizing: inherit; padding: 1rem;"><span style="box-sizing: inherit; color: #333333; display: block; font-weight: bolder; margin-bottom: 0.5rem;">For Immediate Release</span><div class="node-office" style="box-sizing: inherit;">U.S. Attorney's Office, Eastern District of California</div></div></div></div><div class="node-subtitle" style="background-color: white; box-sizing: inherit; color: #162e51; font-family: "Public Sans Web", -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol"; font-size: 20px; font-weight: 600; margin-bottom: 1.5rem;"><div style="box-sizing: inherit;"><div class="field-formatter--string field_subtitle" style="box-sizing: inherit;">Over 180 pounds of methamphetamine, 14 pounds of fentanyl, 9.5 pounds of heroin, and 8.5 pounds of cocaine seized</div></div></div><div class="node-body" style="background-color: white; box-sizing: inherit; color: #444444; font-family: "Public Sans Web", -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif, "Apple Color Emoji", "Segoe UI Emoji", "Segoe UI Symbol"; font-size: 16px; line-height: 1.6; margin-bottom: 1.5rem;"><div style="box-sizing: inherit;"><div class="field-formatter--text-default field-text-format--wysiwyg text-formatted field_body" style="box-sizing: inherit;"><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; margin-top: 0px; word-break: break-word;">FRESNO, Calif. — As a result of <b>Operation Fraud Street Mafia,</b> a Kern Valley State Prison (KVSP) inmate has been charged in two separate federal complaints with drug trafficking and <b>COVID-19 fraud.</b> Seven defendants in California and Maryland are also charged in the two schemes.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">Making the announcement today are U.S. Attorney Phillip A. Talbert, DEA Special Agent in Charge Brian M. Clark, Acting Special Agent in Charge Mark Remily of the FBI Sacramento Field Office, and IRS Criminal Investigation Oakland Field Office Acting Special Agent in Charge Michael Mosley.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">“It is remarkable that a prison inmate coordinated with others on the outside to distribute over 100 pounds of methamphetamine into the community,” said U.S. Attorney Talbert. “But that apparently was not enough: he also conspired to pursue over half a billion dollars in federal tax credits that were meant to help struggling businesses during the COVID-19 pandemic. The U.S. Attorney’s Office is committed to combatting organized crime whether it is drug trafficking or theft of taxpayer money, and whether it is committed inside or outside of prisons.”</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">“This extensive drug trafficking investigation exposed a massive fraud operation being conducted from behind bars. As a prison inmate engineered a criminal network from coast to coast to peddle poison, law enforcement put their collective authorities together to dismantle this organization brick by brick,” said DEA Special Agent in Charge Clark. “Strong law enforcement partnerships built on action are an invaluable tool to ensure prison is no longer a place where violent criminals can operate without consequence.”</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">“I applaud the work of our California COVID-19 Fraud Strike Force and the hard-working prosecutors, agents, and analysts in the Eastern District of California who conducted this investigation,” said Michael C. Galdo, Department of Justice Director of COVID-19 Fraud Enforcement. “The Department will continue to work with our law enforcement partners around the country to uncover these schemes and hold those accountable who attempt to steal from the American people—whether they are hiding overseas or, like the allegations in this investigation, operating conspiracies from behind bars.”</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;"><b>“The criminal enterprises we battle today are more sophisticated than ever before,” said FBI Acting Special Agent in Charge Remily. “From interstate drug trafficking rings to massive fraud schemes aimed at stealing pandemic relief funds meant for struggling American businesses, the criminal conspiracies we face are complex and ever-changing. </b>Despite these challenges, the dedicated men and women of the FBI and our local, state, and federal law enforcement partners will continue to diligently investigate these criminals. We will use every investigative technique at our disposal to disrupt their activities and bring them to justice.”</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">“Kristopher Thomas and his associates being in federal custody are a result of an incredibly detailed, multi-agency OCEDTF investigation and is a critical milestone in this case,” said IRS Criminal Investigation Acting Special Agent in Charge Mosley. “While incarcerated and with the help of his associates, Thomas is accused of leading a conspiracy to defraud taxpayers of over $550 million by falsely claiming COVID-19 Employee Retention Credits. CI agents specialize in financial investigations and remain on the front lines of fighting fraud.”</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">According to court documents, in August 2022, the DEA began a wiretap investigation into a methamphetamine trafficking operation that was run out of the Kern Valley State Prison in Delano, California, by inmate Kristopher Thomas, 36. Thomas has been incarcerated since December 2010 after being convicted of a gang-related first-degree murder. Thomas is a long-time member of the Main Street Mafia Crips, a street gang located in South Los Angeles.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">Agents reviewed recorded jail calls placed by Thomas on a prison-issued tablet to numerous romantic partners, family members, and other individuals believed to be involved in drug trafficking. Agents also intercepted Thomas sending and receiving text messages about what appeared to be a tax fraud scheme. The intercepted text messages contained screenshots of tax information for many businesses with tax refund amounts. This triggered the DEA to request assistance from IRS Criminal Investigation and the FBI.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The drug trafficking and the tax fraud scheme are being prosecuted separately, and Thomas is charged in both cases.</p><p align="center" style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;"><span style="box-sizing: inherit; font-weight: bolder;"><i style="box-sizing: inherit;">The Methamphetamine Trafficking Scheme</i></span></p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">According to court documents, Thomas<span style="box-sizing: inherit; font-weight: bolder;"> </span>was the head of a drug trafficking organization (DTO) that was responsible for the shipment of large quantities of methamphetamine to Hawaii, Oklahoma, Alabama, New Jersey, and elsewhere, as well as the smuggling of fentanyl into Kern Valley State Prison.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The investigation began after DEA agents identified Thomas as a source of methamphetamine supply in Hawaii. Subsequent recorded negotiations with Thomas resulted in the seizure in Oahu, Hawaii, of more than 90 pounds of methamphetamine. These seizures became the basis for the initiation of the wiretap investigation into multiple contraband cellphones in Thomas’s possession at KVSP.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The wiretap investigation revealed that Thomas orchestrated the interstate shipment of more than 54 pounds of methamphetamine to other states, including Oklahoma, Alabama, and New Jersey. Thomas was assisted by other gang associates. In addition, wire intercepts led to the seizure of an additional 40 pounds of methamphetamine, over 14 pounds of fentanyl, 9.5 pounds of heroin, and 8.5 pounds of cocaine. A half a pound of fentanyl was seized after it was smuggled into KVSP at Thomas’s direction.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">Charged with Thomas in the drug trafficking scheme are Justin Damonte Mitchell, 31, of Los Angeles; Derrick D. Charles, 41, a former inmate at KVSP; Natasha Michelle Bailey, 44, of Bakersfield; Antrell Maeshack Sr., 41, of Santa Clarita; and Marie Joo-Yeon Choi, 29, of Los Angeles.</p><p align="center" style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;"><span style="box-sizing: inherit; font-weight: bolder;"><i style="box-sizing: inherit;">The IRS Employee Retention Credits Scheme</i></span></p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;"><b>According to court documents, from January 2022 through at least July 2023, Thomas led a multi-million-dollar tax refund fraud scheme whereby Thomas and his co-conspirators filed payroll tax returns with the IRS that claimed Employee Retention Credits (ERC) for businesses that were not entitled to receive the credits so that they would receive large tax refunds.</b></p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">Others charged with Thomas in the ERC scheme are Thomas’s mother, Kettisha Thompson-Dozier, 55, and her spouse Charmane Dozier, 44, both of Waldorf, Maryland, and Sharon Vance, 36, of Hawthorne, California.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">During the COVID-19 pandemic, the ERC became available as a refundable federal tax credit for employers as a way to encourage businesses to keep employees on their payrolls. The credit was available to eligible employers that paid wages to some or all employees during the pandemic.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">IRS records show Thomas and his co-conspirators filed hundreds of payroll tax returns that claimed over $550 million in tax refunds. The payroll tax returns were for fake business entities, actual businesses with overstated wages and numbers of employees, and businesses that were defunct at the time the payroll tax returns were filed. The defendants used the proceeds for improper personal expenditures. For example, in December 2022, Thomas celebrated his birthday by paying for his family members and friends to be driven to Las Vegas from Los Angeles, party for the night at a luxury penthouse, and then fly back to Los Angeles on a private jet.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The drug trafficking case is the product of an investigation by the DEA with assistance from the U.S. Marshals Service. Assistant U.S. Attorney Karen Escobar is prosecuting the case.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The ERC tax fraud case is the product of an investigation by the IRS Criminal Investigation and the FBI. Assistant U.S. Attorneys Joseph Barton and Jeffrey Spivak are prosecuting the case.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The crimes charged today carry the following penalties: (1) conspiracy to distribute and to possess with intent to distribute methamphetamine and fentanyl and distribution of methamphetamine – both of which carry a 10-year mandatory minimum prison term and maximum penalty of life in prison; and (2) conspiracy to defraud the United States by submitting fraudulent ERC claims – which carries a maximum penalty of five years in prison.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">Any sentence, however, would be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables. The charges are only allegations; the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.</p><p style="box-sizing: inherit; line-height: 1.5; margin-bottom: 1rem; word-break: break-word;">The case was investigated under the Organized Crime Drug Enforcement Task Forces (OCDETF). OCDETF identifies, disrupts, and dismantles the highest-level criminal organizations that threaten the United States using a prosecutor-led, intelligence-driven, multi-agency approach. For more information about OCDETF, please visit <a href="https://www.justice.gov/ocdetf" style="background-color: transparent; box-sizing: inherit; color: #0064a8; word-break: break-word;">Justice.gov/OCDETF</a>.</p><div class="media entity-type-media entity-bundle-document media--document--full entity-document-1339766" style="box-sizing: inherit; margin-top: 0.5rem;"><div style="box-sizing: inherit;"><div class="field-formatter--media-entity-download-download-link field_media_file" style="box-sizing: inherit;"><a class="file file--mime-application-pdf file--application-pdf" href="https://www.justice.gov/usao-edca/media/1339766/dl?inline" style="background-color: transparent; box-sizing: inherit; color: #0064a8; word-break: break-word;" title="24mj7.crmp_.thomas.fsm_.pdf" type="application/pdf; length=23631583">24mj7.crmp_.thomas.fsm_.pdf</a></div></div></div></div></div></div>jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-15446169628663063332022-09-30T14:59:00.000-04:002022-09-30T14:59:47.436-04:00THE IRS CONTINUES ATTACK ON "ZERO OUT" OF PROFITS BY CLOSELY-HELD C CORPORATIONS[1]<p> <span style="color: #252525; font-family: sans-serif; font-size: 12pt; text-align: justify;">As we all know “C” corporation owners, because of the double tax
regime, can be subject to claims by the IRS of excessive compensation. In two
recent case the IRS attacked the use of the "zero out" technique. The
IRS focused on how closely-held corporations taxed as "C"
corporations compensate their shareholders. Under this approach, a
"C" corporation compensates its shareholders by paying a portion of
its anticipated pre-tax operating profits as compensation (salary) in regular
increments during the tax year and then distributes the bulk of its profits in
bonuses that are paid at year-end. Both the salary and year-end bonuses are
deducted as compensation in order to reduce or even eliminate federal income
taxes.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The potential tax risk of this method for compensation is that
even though the shareholders provided services to the corporation, the IRS
could disallow the compensation deduction for the "salary" and
bonuses paid and treat the payments as non-deductible dividends made by the
corporation to its shareholders on either or both of two grounds: (1) that the
payments made were unreasonably excessive based on the services provided, <i>and/or</i>
(2) that the payments made were not purely for services.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Two recent cases provide insight into how the zero out approach
to compensation can be properly structured to support the deductibility of
payments of salary and year-end bonuses made by closely-held "C"
corporations to their shareholders as compensation for services provided. In
one case, the Tax Court issued a lengthy opinion in support of its denial in
part of the deduction of compensation paid to the sole owner of a construction
business organized as a C corporation. In another case, the Eighth Circuit
Court of Appeals affirmed a 2021 Tax Court case that upheld the IRS's
characterization of payments made by an asphalt paving company to or for its
owners as non-deductible dividends rather than deductible compensation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><u><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Aspro Case<o:p></o:p></span></u></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Eighth Circuit Court of Appeals affirmed a Tax Court case
that had upheld the IRS's characterization of payments made by a "C"
corporation as non-deductible dividends rather than as deductible compensation
payments for management services.<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: sans-serif; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">[2]</span></span><!--[endif]--></span></span></a><sup>
</sup>In <i>Aspro</i>, the taxpayer was a "C" corporation that
operated an asphalt paving business and obtained business by bidding on paving
contracts through the efforts of its owners. Even though the taxpayer generated
income throughout the year, it made no payments for services to or for the
benefit of its three shareholders until the end of the year, when it paid
"management fees" for assistance provided to the taxpayer on how to
bid for projects.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Tax Court had found that the payments made during each of
three tax years by the corporate taxpayer to its three shareholders were
non-deductible dividends and could not be deducted as compensation for personal
services provided to the corporation. The Tax Court indicated that to be
deductible under the applicable regulation, compensation payments must be made
purely for services.<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: sans-serif; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">[3]</span></span><!--[endif]--></span></span></a><sup>
</sup>This regulation states in part that "[a]ny amount paid in the form
of compensation, but not in fact as the purchase price of services, is not
deductible. An ostensible salary paid by a corporation may be a distribution of
a dividend on stock. This is likely to occur in the case of a corporation
having few shareholders, practically all of whom draw salaries... ." <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Tax Court noted that the corporation had never previously
paid any dividends to its shareholders, the payments made were in roughly the
same proportions as share ownership of the taxpayer, and that two recipients of
the payments were corporations that were shareholders of the taxpayer, both of
which were "paid" the same amounts each year for services ostensibly
performed by the individuals who owned these two shareholder-corporations.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The court also pointed out that the personal services for which
compensation was paid were performed throughout the entire year but the
payments were made annually <u>at the end of each year</u> and thus lacked a
compensatory purpose. Additionally the payments eliminated almost 90% of the
taxpayer's taxable income in two of the three years and just under 80% of its
taxable income in the third year. Because the corporation had never paid dividends
an inference could be made that the management fees paid were not compensation
for services but dividends.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The amounts paid had little relation to the value of the
services provided by the three shareholders (or their owners) to the
corporation. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Tax Court<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: sans-serif; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">[4]</span></span><!--[endif]--></span></span></a>
noted </span><span style="font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=22.09&dbName=TREGS&linkType=docloc&locId=26cfr1.162-7%28a%29_final&permaId=i902a8b5e096a11dc8063c7f8ee2eaa77&tagName=RSBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Reg.
1.162-7(a) </span></a><span style="color: #252525;">which provides that payments
made that "correspond or bear a close relationship to the stockholdings of
the officers or employees" are subject to recharacterization as dividends.
Since the Tax Court had identified "numerous indicia of disguised
distributions," the court found that the payments were not deductible, and
the taxpayer was liable for corporate income taxes based on its net income
determined without the denied compensation deductions.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Court of Appeals then addressed each of the factors relied
upon by the Tax Court in making its decision and expanded on the Tax Court's
analysis. For example, the Court of Appeals noted that all compensation
arrangements within closely-held corporations should be closely scrutinized,
that the payments made by the taxpayer were made in a lump sum at the end of
the year (a true "zero out" approach), and that the corporation did
not pay and had never paid dividends to its owners.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">As a result, the Court of Appeals upheld the Tax Court decision
that denied in their entirety the deductibility of the payments made to or for
the benefit of the taxpayer's three shareholders as compensation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">T<u>he Clary Hood case</u><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">In <i>Clary Hood, Inc.</i>,<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: sans-serif; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">[5]</span></span><!--[endif]--></span></span></a><sup>
</sup>the Tax Court redetermined the deductible portion of the salary and the
substantial "one-time" bonuses in the amount of $5 million that the
taxpayer, a construction company owned by one shareholder, paid its CEO/founder
during each of two tax years. Based in part on testimony provided by the IRS
expert and applying the multifactor test utilized by the Tax Court in the <i>Aspro</i>
case as to whether or not the payments made were reasonable based on the
services provided, the Tax Court found that a significant portion but not all
of the salary and bonuses paid to the sole shareholder of the construction company
in each tax year could be deducted as reasonable compensation for services
provided to the corporation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Even though the Board of Directors of the construction company
consisted only of the sole shareholder and his spouse, prior to Board approval
of payment of the two significant bonuses, the corporation had engaged its
accountants to determine the extent to which the corporation's owner had been
"undercompensated" during the tax years prior to the review of the
compensation paid and to obtain the accountants' recommendations as to how to
compensate the taxpayer's sole shareholder for services provided going forward.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Working with the corporation's accountants, an officer and the
corporation's shareholder reviewed the accountants' report and determined that
the owner had been undercompensated on an historical basis and that any
compensation paid to the shareholder going forward should also take into
account the ongoing financial risk incurred by the shareholder in personally
guaranteeing the performance bonds of the taxpayer corporation. This analysis
by the corporation's accountants used publicly available industry specific
compensation data in its findings and recommendations.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">In support of its decision, the Tax Court cited several facts:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 74.25pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l4 level1 lfo5; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">prior to the payment of the first annual bonus, the taxpayer had
conducted a detailed study to confirm that its sole shareholder/founder had
been undercompensated during its startup years,<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 74.25pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l4 level1 lfo5; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">that he personally agreed to guarantee claims of the companies
that provided performance bonds for construction contracts of the corporation,
and <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 74.25pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l4 level1 lfo5; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">that the detailed analysis provided by an expert engaged by the
taxpayer's Board of Directors established a reasonable method to compensate the
owner for the ongoing financial risk he incurred in guaranteeing personally the
construction company's performance bonds and other significant factors.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Tax Court also noted that the taxpayer had bonused out to
the founder during the two tax years in question a relatively small portion of
the business's pre-tax operating profits. Specifically, the Tax Court concluded
that "[w]hile such amounts are not insignificant, we do not necessarily
consider them telling of an egregious pattern of disguised dividends . . .
[since paid for prior services]. " The amounts found by the Tax Court to
be deductible were those determined as reasonable by the IRS's compensation
expert who testified at trial.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Even though the taxpayer corporation's Board of Directors (the
sole shareholder and his spouse) set annual compensation on a subjective basis
(i.e., not using an objective formula), the Board solicited and accepted input
and advice from the corporation's accountants for this purpose. In addition,
prior to the tax years in question, the corporation had not compensated the
shareholder for the financial risk he had personally incurred in annual
guarantees of the corporation's performance bonds.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Le<u>ssons from Aspro and Clary Hood </u><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">These two cases provide valuable lessons to closely-held
corporations organized as "C" corporations as they develop methods
for compensating employed shareholders for services rendered:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: sans-serif;"><span style="mso-list: Ignore;">•<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Do not wait until the end of the year to pay bonuses to the
corporation's shareholders. Instead, make periodic payments of base
compensation as salary during the year, using an objective formula that takes
into account the value of the services provided by each shareholder. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo2; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: sans-serif;"><span style="mso-list: Ignore;">•<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">If the corporation is owned by more than one shareholder, do not
pay compensation to the corporation's shareholders in the same percentages as
their relative share ownership. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l2 level1 lfo3; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: sans-serif;"><span style="mso-list: Ignore;">•<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">The Board of Directors of the closely-held corporation should
engage competent accountants, tax preparers, or compensation consultants to
provide advice and counsel in structuring any compensation method, and the
Board of Directors should review and consider written guidance and reports from
these advisors prior to approval of any compensation method (or prior to
payment of any year-end bonuses based on that method). Make sure that these
compensation advisors rely upon available industry specific compensation
studies to support their analysis.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l3 level1 lfo4; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: sans-serif;"><span style="mso-list: Ignore;">•<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Do not zero out all corporate pre-tax profits each year as
compensation, but declare and pay annual dividends of a portion of these
profits and pay federal income taxes on the remaining pre-tax profits of the
corporation. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l3 level1 lfo4; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: sans-serif;"><span style="mso-list: Ignore;">•<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Enter into a written employment agreement with each individual
shareholder that contains an objective formula for determining at least the
contingent portion of compensation.<sup> </sup><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><sup><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></sup></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><u><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Further Lessons<o:p></o:p></span></u></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Today many small businesses are operated as pass through entities
such as S corporations as there is largely no double taxation. Therefore, the
tax incentive is to pay as little compensation as possible and pass profits as
S corporation distributions. This is done to avoid FICA, Medicare taxes and
other taxes. These two cases illustrate that a corporation must pay reasonable
compensation to its owners lest it be subject to underpayment of compensation
with the S corporation distribution being converted to compensation.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="color: black; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif;">Like many things in taxation adherence to guide lines established
by statutes, regulations, cases, rulings etc. provide a road map to be followed.
Its when the taxpayer “takes a wrong turn” that she finds herself facing
additional taxes and penalties.<o:p></o:p></span></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 11.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a>
<span style="font-size: 9.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">This is an abstract of an article published in <a href="https://checkpoint.riag.com/app/find?begParm=y&appVer=22.09&dbName=JCT&linkType=docloc&locId=ctj09202202&ods=JCT&permaId=ie2eca0af1b5fe75e9d6ae98cb307177a&permaType=doc&tagName=STORY&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Corporate
Taxation (WG&L), Sep/Oct 2022 issue by Ralph Levy.</span><span style="color: #145da4; text-decoration: none; text-underline: none;"> </span></a><o:p></o:p></span></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="line-height: normal; margin-bottom: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="font-size: 9.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 9.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></span></a><span style="font-size: 9.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">
<span style="background: white; color: #212121;">Aspro, Inc. v. Comm’r., 129 AFTR
2d 2022-1581, 32 F.4th 673</span> (8<sup>th</sup> Cir. 2022), </span><span style="color: #252525;">2022-1 USTC P 50,147 (8<sup>th</sup> Cir. 2022).</span><o:p></o:p></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 11.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a>
<a name="JCT:5086.4-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=i902a8b5e096a11dc8063c7f8ee2eaa77&SrcDocId=T0JCT%3A5086.1-2&feature=ttoc&lastCpReqId=463ded&pinpnt=TREGS%3A6950.1&d=d#TREGS%3A6950.1"><span style="mso-bookmark: "JCT\:5086\.4-1";"><span style="color: windowtext; font-size: 9.0pt; letter-spacing: .1pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">Reg.
1.162-7(a)</span></span><span style="mso-bookmark: "JCT\:5086\.4-1";"></span></a><span style="mso-bookmark: "JCT\:5086\.4-1";"></span><span style="font-size: 9.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">.<o:p></o:p></span></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="line-height: normal; margin-bottom: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="font-size: 9.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 9.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></span></a><span style="font-size: 9.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">
<a name="JCT:5086.3-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=i18013e5a42c1c08acef9b0b745245bfb&SrcDocId=T0JCT%3A5086.1-2&feature=ttoc&lastCpReqId=463ded"><span style="mso-bookmark: "JCT\:5086\.3-1";"><span style="color: windowtext; letter-spacing: .1pt; text-decoration: none; text-underline: none;">TC Memo 2021-8</span></span><span style="mso-bookmark: "JCT\:5086\.3-1";"></span></a></span><span style="mso-bookmark: "JCT\:5086\.3-1";"></span><span style="-webkit-text-stroke-width: 0px; float: none; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;">.</span><o:p></o:p></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/IRS%20CONTINUES%20ATTACK%20ON%20ZERO%20OUT%20OF%20PROFITS%20BY%20CLOSELY%20HELD%20C%20CORPORATIONS%204860-2639-1094%20v.4.rtf#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a>
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 13.5pt; line-height: 107%;"> </span><a data-ajax="false" data-cp-js-function="{"useHref" : true , "command" : "CP.doc.docLink" , "params" :[""]}" name="JCT:5086.6-1" plr-id="13949103-139919874" style="background-position-x: 0px; background-position-y: 0px;"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=i375de8d9187cee43aedb8aaa75b48722&SrcDocId=T0JCT%3A5086.1-2&feature=ttoc&lastCpReqId=463ded"><span plr-id="55854691-29749888" style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="mso-bookmark: "JCT\:5086\.6-1";"><span style="color: windowtext; font-size: 9.0pt; letter-spacing: .1pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; text-decoration: none; text-underline: none;">TC Memo 2022-15</span></span><span style="mso-bookmark: "JCT\:5086\.6-1";"></span></span></a><span style="mso-bookmark: "JCT\:5086\.6-1";"></span><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 13.5pt; line-height: 107%;"><span style="-webkit-text-stroke-width: 0px; float: none; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;">.</span></span><o:p></o:p></p>
</div>
</div>jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-68602404319744322112022-09-21T13:20:00.000-04:002022-09-21T13:20:53.594-04:00New rules for New Jersey captive insurance companies; New Jersey credit for tiered subsidiary dividends;New Jersey adopts regulation permitting Director to decombine unitary groups.<p> </p><div style="text-align: justify;"><b>New Jersey—Corporate Income Tax</b>—New Jersey adopts regulation on combinable captive insurance companies.
The New Jersey Division of Taxation has adopted N.J. Admin. Code § 18:7-1.24, effective September 19, 2022, to support its existing policy that combinable captive insurance companies are subject to the corporation business tax. A combinable captive insurance company is exempt from the insurance company premiums tax imposed pursuant to N.J. Rev. Stat. § 17:47B-12 and any other insurance premiums taxes imposed pursuant to any other laws of the State of New Jersey. A combinable captive insurance company that has nexus with New Jersey, but is not included as a member of a New Jersey combined return, must file a separate return. Captive insurance companies that do not meet the definition of a combinable captive insurance company are exempt from the corporation business tax and are excluded from the combined group reported on the combined return. Such captive insurance companies are subject to the insurance premiums tax at N.J. Rev. Stat. § 17:47B-12. For the purposes of determining whether a captive insurance company is a combinable captive insurance company, the entity must use the same method of accounting used for federal purposes. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><b>New Jersey—Corporate Income Tax—New Jersey credit for tiered subsidiary dividends</b>.
Effective September 19, 2022, the New Jersey Division of Taxation has adopted N.J. Admin. Code § 18:7-3.28 to provide rules for the deduction of tiered subsidiary dividends. In order for a taxpayer to qualify for the Tiered Subsidiary Dividend Pyramid Tax Credit, the taxpayer must have received the same dividends and deemed dividends from a subsidiary that paid tax to New Jersey. Such subsidiary must have received the same dividends and deemed dividends from other subsidiaries and included those dividends and deemed dividends in its entire net income for the purposes of determining its tax liability and paid tax on those dividends and deemed dividends to New Jersey on a timely filed New Jersey corporation business tax return. The Tiered Subsidiary Dividend Pyramid Tax Credit is a credit for: (1) dividends and deemed dividends from non-combined group subsidiaries that file separate New Jersey returns and paid the corporation business tax on dividends and deemed dividends from other subsidiaries; and (2) dividends and deemed dividends from a separate lower-tier combined group that files a New Jersey combined return separate and apart from another (dividend paying) combined group and that paid the corporation business tax on dividends and deemed dividends from other subsidiaries. A member of a combined group cannot receive a Tiered Subsidiary Dividend Pyramid Tax Credit for taxes paid by another member because the members of a combined group are one taxpayer. The Tiered Subsidiary Dividend Pyramid Tax Credit can only reduce the regular tax liability of the taxpayer. However, the Tiered Subsidiary Dividend Pyramid Tax Credit cannot exceed the regular tax liability and is not refundable. The Tiered Subsidiary Dividend Pyramid Tax Credit does not contain a provision permitting the credit to be carried forward. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><b>New Jersey—Corporate Income Tax—New Jersey adopts regulation permitting Director to decombine unitary groups</b>.
Effective September 19, 2022, the Division of Taxation has adopted N.J. Admin. Code 18:7-21.24. This regulation permits the Director upon audit of the combined return and review of the facts and circumstances, to decombine and require a member or members to file a separate return instead of the members being included as part of the combined group filing a mandatory unitary combined return, if the Director determines that the members were not unitary and the principle purpose of including the members was to either shelter income, dilute the allocation factor of the combined group, improperly increase the combined group net operating losses, or the inclusion was for the purpose of sharing tax credits that were not related to any function of the combined group.</div>jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-62175986171749155182022-09-21T12:57:00.002-04:002022-09-21T12:57:36.670-04:00New Technical Guide for Business Leagues, Issue Snapshot on Self-Dealing<p> </p><div style="text-align: justify;">Dear Colleagues and Friends, </div><div><div style="text-align: justify;">I know from time to time we are asked to form or consult non-profit organizations.
The IRS has recently published a new technical guide to help tax-exempt business leagues to maintain their tax-exempt status, TG 6 IRC 501(c)(6) Business Leagues, as well as a new Issue Snapshot on Private Foundations and Self-Dealing. <b>https://www.irs.gov/government-entities/tax-exempt-and-government-entities-issue-snapshots</b></div><div style="text-align: justify;"><b>New TG on business leagues.</b> The newly released TG discusses how tax-exempt business leagues described under Code Sec. 501(c)(6), such as chambers of commerce, real estate boards, and boards of trade, can obtain and maintain their exempt status. The TG also covers IRS examination techniques.
The IRS has other tools to help leaders and volunteers of exempt organizations obtain and maintain their organization's exempt status, See Maintaining 501(c)(3) Tax-Exempt Status course, <b>https://www.stayexempt.irs.gov/home/existing-organizations/existing-organizations</b> and the Small to Mid-Size 501(c)(3) Organization Workshop, which provides additional information on the benefits, limitations, and expectations of tax-exempt organizations<b>. https://www.stayexempt.irs.gov/home/resource-library/virtual-small-mid-size-tax-exempt-organization-workshop</b> </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">I hope this is a helpful aid.
</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Frank L. Brunetti</div></div>jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-63971159563682601162022-01-26T16:27:00.001-05:002022-01-26T16:27:49.993-05:00How Should You Maintain Inventory in a Gig Economy?<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">One of the most misunderstood accounting concepts in the
ecommerce and reselling space involves how to deduct your inventory costs. Small
business that sell on a digital platform such as eBay, Esty, Shopify, etc. must
contend with rules relating to maintain inventory.<o:p></o:p></span></span></p>
<p><span style="font-family: "Times New Roman", serif; text-align: justify;"><span style="font-size: medium;">Before 2018, all taxpayers were required to maintain
inventory even if they were a cash basis taxpayer.</span></span></p><p><span style="font-size: medium;"><span style="font-family: "Times New Roman", serif; text-align: justify;">The </span><i style="font-family: "Times New Roman", serif; text-align: justify;"><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">Tax Cuts and Jobs Act (TCJA)</span></i><span style="font-family: "Times New Roman", serif; text-align: justify;"> of
2017 changed the inventory rules for the small business taxpayer. </span></span></p><p><span style="font-family: "Times New Roman", serif; text-align: justify;"><span style="font-size: medium;">Recently in
January 2021 the IRS issued final regulations to answer questions raised by the
TCJA.</span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">New Rules for Deducting Inventory<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Under the TCJA a small business taxpayer (basically any business
with sales under $25 million) can account for inventory for tax purposes
either:<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">1.<span style="font-family: "Times New Roman"; font-stretch: normal; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">as non-incidental materials and
supplies (this is not new and is described below…hint: it doesn't do you much
good), or <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; margin-left: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">2.<span style="font-family: "Times New Roman"; font-stretch: normal; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">as<b><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;"> </span></b><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">conforms to the taxpayer's method of accounting.</span><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The TCJA raised the threshold to $25 million<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[1]</span></span><!--[endif]--></span></span></a>
(it was $1 million for retailers before 2018) and now allows the small business
taxpayer to report inventory for tax purposes <span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">according to his or her method
of accounting</span>.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Cash method vs. Accrual method<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The difference between these two methods is timing.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Cash-basis<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">A business that is on a cash basis recognizes revenue when
cash or a cash equivalent is received from a customer. It recognized expenses (deduction)
when the cost item is paid.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Accrual-basis<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">With the accrual basis of accounting, revenue is recognized when
it is <span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">earned.<i> </i></span> Expenses are recognized when they are
incurred–which is often at a different time from when the payment is made. If a
taxpayer maintains accounts payable or accounts receivable it is likely using
the accrual method.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The Inventory Rules Before TCJA (pre 2018)<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Most small businesses use the cash method for simplicity. Notwithstanding
cash basis businesses with inventory were generally required to account for the
inventory on an accrual basis.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Accordingly, a cash basis taxpayer could <span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">deduct the cost of the inventory when the inventory was sold, not
when it was purchased.</span><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The IRS regulations provided certain businesses exempt from
accounting for inventory using the accrual method. These were businesses which
had less than $1 million average gross receipts. (the TCJA increases this
threshold to $25 million.)<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">If the taxpayer qualified for the alternative treatment,
which included most small businesses, it was not required to account for inventory
using the accrual method. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Having said that the taxpayer still had to account for non-incidental
expenses but could deduct currently <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">“Inventoriable items as materials and supplies that are not
incidental”.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The regulations provided that if you produce, purchase, or
sell merchandise in your business, you must keep an inventory and use the
accrual method for purchases and sales of merchandise. However, the small
business taxpayer [$1 million or less of average annual gross receipts] could use
the cash method of accounting even if they produce, purchase, or sell
merchandise.<b><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;"> </span></b><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">These taxpayers had to account
for inventoriable items as materials and supplies that are not incidental</span>.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">In order to understand how accounting for inventory works we
have to clarify what is meant by accounting for “inventoriable items as
materials and supplies that are not incidental.”<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Accounting for inventoriable items as materials and supplies
that are not incidental<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">“Not incidental” materials are those that required to
manufacture your products. They are essential to the creation and selling of
your product.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">“Incidental” materials, on the other hand, are materials
that are not directly involved in the production of your finished product.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The IRS regulations provides that <span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">“not incidental” materials and supplies are deductible in the year
they are used or paid</span>, <span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">whichever is later.</span><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">This means that all materials and supplies that are directly
used to produce your goods must be accounted for:<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo2; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">1.<span style="font-family: "Times New Roman"; font-stretch: normal; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">In the year you provided them as
finished goods to customers, or<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; margin-left: 0in; mso-add-space: auto; mso-list: l1 level1 lfo2; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">2.<span style="font-family: "Times New Roman"; font-stretch: normal; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">In the year you originally paid for
the material<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-size: medium;"><span style="border: none windowtext 1.0pt; font-family: "Times New Roman",serif; mso-border-alt: none windowtext 0in; mso-fareast-font-family: "Times New Roman"; padding: 0in;">Whichever is later.</span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Most businesses pay for their goods <i><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">before</span></i> selling them. If that’s the case, you were
required to account for your inventory using the accrual method–recognizing the
cost when you sell it (#1).<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">But if for some reason you don’t pay for your goods until
after you sell them (#2), you can recognize the cost when you pay. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">TCJA: “Taxpayer's Method of Accounting”<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The TCJA gave the taxpayer the option to report inventory on
using the “method of accounting used in the taxpayers’ books and records
prepared in accordance with the taxpayer's accounting procedures.”<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-size: medium;"><span style="border: none windowtext 1.0pt; font-family: "Times New Roman",serif; mso-border-alt: none windowtext 0in; mso-fareast-font-family: "Times New Roman"; padding: 0in;">What is meant by the “taxpayer's method of accounting? </span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">and <span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">What is meant by “books and records”?</span><o:p></o:p></span></span></p>
<p align="left" class="Para" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;"><span lang="EN-IN" style="mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">A “method of accounting” has
the following characteristics:<o:p></o:p></span></span></p>
<p class="MsoNormal" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif;">•<span style="mso-tab-count: 1;"> </span>It affects the computation of a
material item;<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[2]</span></span><!--[endif]--></span></span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span></p>
<p class="MsoNormal" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif;">•<span style="mso-tab-count: 1;"> </span>It is consistently applied and is
predictable;<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[3]</span></span><!--[endif]--></span></span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span></p>
<p class="MsoNormal" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif;">•<span style="mso-tab-count: 1;"> </span>It conforms to generally accepted
accounting principles;<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[4]</span></span><!--[endif]--></span></span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span></p>
<p class="MsoNormal" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif;">•<span style="mso-tab-count: 1;"> </span>It clearly reflects income;<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[5]</span></span><!--[endif]--></span></span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">
and<o:p></o:p></span></span></p>
<p class="MsoNormal" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif;">•<span style="mso-tab-count: 1;"> </span>It has been adopted.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[6]</span></span><!--[endif]--></span></span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p><span style="font-size: medium;"> </span></o:p></span></p>
<p class="MsoFootnoteText" style="line-height: 150%; text-align: justify;"><span style="font-size: medium;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">The IRS defines books as:</span><span style="font-family: "Times New Roman", serif; line-height: 150%;">
“Except as provided in paragraph (b) [of Reg. §1.6001-1], any person subject to
tax under subtitle A of the Code…or any person required to file a return of
information with respect to income, shall keep such permanent books of account
or records, including inventories, as are sufficient to establish the amount of
gross income, deductions, credits, or other matters required to be shown by
such person in any return of such tax or information.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn7" name="_ftnref7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[7]</span></span><!--[endif]--></span></span></a>”
<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Clearly Reflects Income<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Neither
the Code nor regulations define what clearly reflects income. The concept of “
clear reflection of income” is central to tax accounting; clear reflection of
income is influenced by many factors but not controlled by any one.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn8" name="_ftnref8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[8]</span></span><!--[endif]--></span></span></a> If
a taxpayer's method of accounting challenged by the Commissioner were to
prevail, the taxpayer must demonstrate that the Commissioner's determination is
arbitrary, capricious, and without a sound basis in fact or law.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn9" name="_ftnref9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[9]</span></span><!--[endif]--></span></span></a> A
method of accounting which reflects the consistent application of generally
accepted accounting principles in a particular trade or business in accordance
with accepted conditions or practices in that trade or business will ordinarily
be regarded as clearly reflecting income, provided all items of gross income
and expense are treated consistently from year to year.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn10" name="_ftnref10" style="mso-footnote-id: ftn10;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[10]</span></span><!--[endif]--></span></span></a>
However, the fact that an accounting method is consistent with GAAP does not,
by itself, satisfy the clear-reflection-of-income standard.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn11" name="_ftnref11" style="mso-footnote-id: ftn11;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[11]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif;">An often-cited
definition is found in <i>Caldwell v. Commissioner</i>,<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn12" name="_ftnref12" style="mso-footnote-id: ftn12;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[12]</span></span><!--[endif]--></span></span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">
where the Second Circuit said “clear reflection of income” means that income
should be reflected with as much <i>accuracy</i> as standard methods of
accounting practice permit.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn13" name="_ftnref13" style="mso-footnote-id: ftn13;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[13]</span></span><!--[endif]--></span></span></a> The
IRS generally wants to see accounting treatment that “clearly reflects income.”
Historically this has meant that the deduction of the inventory should be
recognized at the same time as the sale.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-size: medium;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">The </span><span style="font-family: "Times New Roman",serif;"><a href="https://www.law.cornell.edu/uscode/text/26/471" target="_blank"><span style="border: none windowtext 1.0pt; color: windowtext; mso-border-alt: none windowtext 0in; mso-fareast-font-family: "Times New Roman"; padding: 0in; text-decoration: none; text-underline: none;">TCJA </span></a></span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">specifically stated that “<span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">the taxpayer’s method of accounting for inventory for
such taxable year shall not be treated as failing to clearly reflect
income if such method either 1) </span>treats inventory as
non-incidental materials and supplies or 2) conforms to such taxpayer’s
method of accounting.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><b><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Updated Tax Guidance (Jan 2021)<o:p></o:p></span></span></b></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">The IRS published final regulations on the TCJA in January
of 2021.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif;"><span style="font-size: medium;">The final regulations clarify in <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.03&dbName=TREGS&linkType=docloc&locId=26cfr1.471-1%28b%29%286%29%28i%29_12%2F31%2F2020_final&permaId=i1704bc30096b11dc8063c7f8ee2eaa77&tagName=RSBPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Reg
§1.471-1(b)(6)(i) </span></a>that costs that are generally required to be
capitalized to inventory under <b><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.03&dbName=TCODE&linkType=docloc&locId=26uscas471%28a%29&permaId=ic01fea5c19d711dcb1a9c7f8ee2eaa77&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">IRC §471(a) </span></a>but
that the taxpayer is not capitalizing in its books and records are not required
to be capitalized to inventory. The IRS has also determined that, under this
method, such costs are not treated as amounts paid to acquire or produce
tangible property under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.03&dbName=TREGS&linkType=docloc&locId=26cfrs1.263%28a%29-2&permaId=ib1e347a4096a11dc8063c7f8ee2eaa77&tagName=REG&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Reg
§1.263(a)-2 </span></a>, and therefore, are generally deductible when they are
paid or incurred if such costs may be otherwise deducted or recovered,
notwithstanding <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.03&dbName=TREGS&linkType=docloc&locId=26cfr1.471-1%28b%29%284%29_12%2F31%2F2020_final&permaId=i1704bc30096b11dc8063c7f8ee2eaa77&tagName=RPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Reg
§1.471-1(b)(4) </span></a>, under another provision of the Code and
regulations.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn14" name="_ftnref14" style="mso-footnote-id: ftn14;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif;">[14]</span></b></span><!--[endif]--></span></span></a><o:p></o:p></b></span></span></p>
<p class="MsoNormal" style="line-height: 150%; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif;"><span style="font-size: medium;">Additionally, the final regulations
clarify that costs capitalized for the non-AFS IRC §471(c) inventory method are
those costs that are related to the production or resale of the inventory to
which they are capitalized in the taxpayer's books and records. Similar
clarifications have been made in <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.03&dbName=TREGS&linkType=docloc&locId=26cfr1.471-1%28b%29%285%29_final&permaId=i1704bc30096b11dc8063c7f8ee2eaa77&tagName=RPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Reg
§1.471-1(b)(5) </span></a>regarding the AFS IRC §471(c) inventory method.<a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftn15" name="_ftnref15" style="mso-footnote-id: ftn15;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif;">[15]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-size: medium;"><span style="border: none windowtext 1.0pt; font-family: "Times New Roman",serif; mso-border-alt: none windowtext 0in; mso-fareast-font-family: "Times New Roman"; padding: 0in;">Hence If you are not valuing your inventory, or in other words, if
you are not determining your ending inventory cost balance and they are not reflected
in your books and records, then it appears that you can use or continue to use
the inventory cash method, which means deducting your inventory when you
purchase it, rather than when you sell it.</span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">But if you are keeping track of your overall inventory
balance, meaning the total cost of everything you have on hand, or making
representations about it, then you’ll need to use the inventory accrual method,
meaning that you’ll deduct your inventory when sold.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">It’s good practice to use the accrual method for inventory. Accrual
accounting provides the best information into how a business is performing.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><span style="font-size: medium;">Notwithstanding the changes made by the TCJA and the ability
to deduct costs before the goods are sold, the accrual method is recommended if
your business is growing and it’s important to you to have good information about
your businesses’ performance.<o:p></o:p></span></span></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><span style="font-size: medium;"><br clear="all" />
</span><hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a> <span style="font-family: "Times New Roman",serif;">The threshold is adjusted for
inflation. For 2021 it was $26 million.</span><o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="text-align: justify;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a> <span style="font-family: "Times New Roman",serif;">Reg. §1.446-1(e)(2)(ii)(a) provides
that a material item is any item that concerns the timing of income or
deductions. In Revenue Procedures, the IRS has explained that an item concerns
timing, and is therefore considered a method of accounting, if “the practice
does not permanently affect the taxpayer's <i>lifetime </i>income but does or
could change the taxable year in which income is reported. The term “item” is
used to indicate any recurring incidence of income or expense. Examples
include: real estate taxes, Reg. §1.446-1(e)(2)(iii), Example 2; corporate
officers’ bonuses are items, <i>Connors, Inc. v. Comm’r</i>, 71 T.C. 913
(1979); and employees’ vacation pay, <i>Oberman Mfg. Co. v. Comm’r</i>, 47 T.C.
471 (1967), <i>acq.</i>, 1967-2 CB 3, <i>See, e.g.</i>, TAM 8201015.<o:p></o:p></span></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="text-align: justify;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> Reg. §1.446-1(e)(2)(ii)(a) states
that “in most instances,” a method of accounting is not established without a
“pattern of consistent treatment” of an item. The “consistency” referred to is
consistent treatment of a particular item over time, not consistency between
the contemporary treatment of different items.<o:p></o:p></span></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> Reg. §1.446-1(a)(2).<o:p></o:p></span></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> IRC §446(b).<o:p></o:p></span></p>
</div>
<div id="ftn6" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref6" name="_ftn6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> As stated in Reg. §1.446-1(a)(2),
“A method of accounting which reflects the consistent application of generally
accepted accounting principles in a particular trade or business in accordance
with accepted conditions or practices in that trade or business will ordinarily
be regarded as clearly reflecting income, provided all items of gross income
and expense are treated consistently from year to year.”<o:p></o:p></span></p>
</div>
<div id="ftn7" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref7" name="_ftn7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[7]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> IRC §446(a); Reg. §1.446-1(a).</span><o:p></o:p></p>
</div>
<div id="ftn8" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref8" name="_ftn8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[8]</span></span><!--[endif]--></span></span></a> <i><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">See</span></i><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">
TAM 9603004 (advising that a method of accounting that was permissible by one
taxpayer (using a sliding scale method of depreciation for television film
contract rights) was not permissible by another taxpayer because it did not
clearly reflect income for the other taxpayer).</span><span style="font-family: "Times New Roman",serif;"><o:p></o:p></span></p>
</div>
<div id="ftn9" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref9" name="_ftn9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[9]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> </span><i><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Ansley-Sheppard-Burgess
Co. v. Comm'r</span></i><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">, 104 T.C. 367 (1995). <i>See
Sierracin Corp. v. Comm'r</i>, 90 T.C. 341, 368 (1988). That standard was
described in <i>Sierracin</i> as follows:<o:p></o:p></span></p>
<p class="BlockQuote"><span lang="EN-IN" style="font-size: 10.0pt; mso-bidi-font-size: 11.0pt;">Section 446(b) and sections 1.451-3(e), 1.446-1(a)(2), and
1.446-1(b)(1), Income Tax Regs., vest respondent with broad discretion in
determining whether a taxpayer's contracts should be severed so as to clearly
reflect income. “Since the Commissioner has “[m]uch latitude for discretion,”
his interpretation of the statute's clear reflection standard “should not be
interfered with unless clearly unlawful.” Thor Power Tool Co. v. Comm'r, 439
U.S. 522, 532 (1979).</span><span lang="EN-IN" style="font-size: 10.0pt; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></p>
<p class="MsoFootnoteText" style="margin-left: 11.35pt;"><span style="font-family: "Times New Roman",serif;">Similarly, under IRC §482, the IRS can distribute,
apportion or allocate gross income, deductions, credits, or allowances between
two or more businesses under common control to prevent tax evasion or for clear
reflection of income.<o:p></o:p></span></p>
</div>
<div id="ftn10" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref10" name="_ftn10" style="mso-footnote-id: ftn10;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[10]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> </span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Reg.
§1.446-1(a)(2).</span><span style="font-family: "Times New Roman",serif;"><o:p></o:p></span></p>
</div>
<div id="ftn11" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref11" name="_ftn11" style="mso-footnote-id: ftn11;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[11]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> </span><i><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Thor Power
Tool Co v. Comm'r</span></i><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">, 439 U.S. 522, 79-1 USTC ¶9139
(1979).</span><span style="font-family: "Times New Roman",serif;"><o:p></o:p></span></p>
</div>
<div id="ftn12" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref12" name="_ftn12" style="mso-footnote-id: ftn12;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[12]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> 202 F.2d 112, 53-1 USTC ¶9218 (2d
Cir. 1953). <i>See also Knight-Ridder Newspapers, Inc. v. United States</i>,
743 F.2d 781 (11th Cir. 1984), where the court found that the IRS did not abuse
its discretion in forcing newspaper corps to change from cash to accrual
method. Newspaper was material part of business requiring use of inventories
which allowed the IRS to require the newspaper company to use the accrual
method. The IRS’s consent to use cash method in earlier year did not bar the
IRS from changing to accrual method during subsequent year in which it was
apparent that cash method did not clearly reflect income.<o:p></o:p></span></p>
</div>
<div id="ftn13" style="mso-element: footnote;">
<p class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref13" name="_ftn13" style="mso-footnote-id: ftn13;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[13]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> </span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">The problem,
however, is that if taken literally, it would, among other things, virtually
preclude the use of the cash method.</span><span style="font-family: "Times New Roman",serif;"><o:p></o:p></span></p>
</div>
<div id="ftn14" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref14" name="_ftn14" style="mso-footnote-id: ftn14;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[14]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> <i>Id.<o:p></o:p></i></span></p>
</div>
<div id="ftn15" style="mso-element: footnote;">
<p class="MsoNormal" style="line-height: 150%; text-align: justify; vertical-align: baseline;"><a href="https://scarincihollenbeck-my.sharepoint.com/personal/fbrunetti_sh-law_com/Documents/Office/Keeping%20Inventory%20in%20a%20Gig%20economy.docx#_ftnref15" name="_ftn15" style="mso-footnote-id: ftn15;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 150%;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[15]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 150%;"> <i>Id.
</i>Applicable date. The final regulations are applicable for tax years
beginning on or after January 5, 2021.</span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></p>
</div>
</div>jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-54261683619392831722022-01-17T14:53:00.001-05:002022-01-17T14:53:14.597-05:00What Income and Deductions Should be Reported or Taken on Your Tax return in the Gig Economy?<p> </p><p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 15.0pt; mso-outline-level: 2;"><b><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">What Income and Deductions Should be Reported
or Taken on Your Tax return in the Gig Economy<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b style="mso-bidi-font-weight: normal;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[1]</span></b></span><!--[endif]--></span></span></a>?<o:p></o:p></span></b></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; text-align: justify;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The Gig economy—also
called sharing economy or access economy—is activity where people earn income
providing on-demand work, services or goods. Often, it’s through a digital
platform like an app or website.<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 15.0pt; mso-outline-level: 2;"><b><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Gig Economy Income is Taxable<o:p></o:p></span></b></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">You must report income
earned from the Gig economy on a tax return, even if the income is:<o:p></o:p></span></p>
<ul type="disc">
<li class="MsoNormal" style="background: white; color: #1b1b1b; line-height: normal; mso-list: l12 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">From part-time, temporary or
side work<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #1b1b1b; line-height: normal; mso-list: l12 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Not reported on an
information return form—like a Form 1099-K, 1099-MISC, W-2 or other income
statement<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #1b1b1b; line-height: normal; mso-list: l12 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Paid in any form, including
cash, property, goods, or virtual currency<o:p></o:p></span></li>
</ul>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 15.0pt; mso-outline-level: 2;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">What is Gig Work?<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Gig work is certain activity you do to earn income, often
through an app or website (digital platform), like:<o:p></o:p></span></p>
<ul type="disc">
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Drive a car for booked rides or deliveries<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Rent out property or part of it<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Run errands or complete tasks<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Sell goods online<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Rent equipment<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Provide creative or professional services<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Provide other temporary, on-demand or freelance work<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[2]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></li>
</ul>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 15.0pt; mso-outline-level: 2;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">What are Digital Platforms?<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Digital platforms are businesses that match
workers' services or goods with customers via apps or websites. This includes
businesses that provide access to:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: 27.0pt; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Ridesharing services<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: 27.0pt; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Delivery services<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: 27.0pt; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Crafts and handmade item
marketplaces<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: 27.0pt; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 27.0pt; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">On-demand labor and repair services<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-left: .5in; mso-list: l5 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 2; tab-stops: list 27.0pt; text-indent: -27.0pt;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-bidi-font-weight: bold; mso-color-alt: windowtext; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-color-alt: windowtext; mso-fareast-font-family: "Times New Roman";">Property
and space rentals<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[3]</span></span><!--[endif]--></span></span></a></span><b><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></b></p>
<p class="MsoNormal" style="background: white; line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-color-alt: windowtext; mso-fareast-font-family: "Times New Roman";">The Gig economy has caught the attention
of the IRS so much that it has a Gig Economy Center<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[4]</span></span><!--[endif]--></span></span></a>. There is even a video “</span><span style="color: black; mso-color-alt: windowtext;"><a href="https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy" title="Understanding the Gig Economy webinar"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-color-alt: windowtext; mso-fareast-font-family: "Times New Roman";">Understanding the Gig Economy</span></a>.<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: black; font-family: "Calibri",sans-serif; font-size: 11.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a></span><span style="color: black; font-family: "Times New Roman",serif; mso-color-alt: windowtext;">”</span><b><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></b></p>
<p class="item" style="background: white; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 7.5pt; text-align: justify;"><span style="color: #1b1b1b;">The
IRS Gig Economy Tax Center can help people in this growing area meet their tax
obligations through more streamlined information. The Gig economy is also known
as the sharing, on-demand, or access economy. It usually includes businesses
that operate an app or website to connect people to provide services to
customers. While there are many types of gig economy businesses, ride-sharing
and home rentals are two of the most popular. The Gig Economy Tax Center
streamlines various resources, making it easier for taxpayers to find
information about the tax implications for the companies that provide the
services and the individuals who perform them. It offers tips and resources on
a variety of topics including:<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 7.5pt; margin-left: 48.0pt; margin-right: 0in; margin-top: 7.5pt; mso-list: l10 level1 lfo6; tab-stops: list .5in; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #1b1b1b;">Filing requirements;<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 7.5pt; margin-left: 48.0pt; margin-right: 0in; margin-top: 7.5pt; mso-list: l10 level1 lfo6; tab-stops: list .5in; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #1b1b1b;">Making quarterly
estimated income tax payments;<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 7.5pt; margin-left: 48.0pt; margin-right: 0in; margin-top: 7.5pt; mso-list: l10 level1 lfo6; tab-stops: list .5in; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #1b1b1b;">Paying
self-employment taxes;<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 7.5pt; margin-left: 48.0pt; margin-right: 0in; margin-top: 7.5pt; mso-list: l10 level1 lfo6; tab-stops: list .5in; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #1b1b1b;">Paying FICA,
Medicare, and Additional Medicare taxes;<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 7.5pt; margin-left: 48.0pt; margin-right: 0in; margin-top: 7.5pt; mso-list: l10 level1 lfo6; tab-stops: list .5in; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #1b1b1b;">Deductible business
expenses; and<o:p></o:p></span></p>
<p style="background: white; margin-bottom: 7.5pt; margin-left: 48.0pt; margin-right: 0in; margin-top: 7.5pt; mso-list: l10 level1 lfo6; tab-stops: list .5in; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #1b1b1b;">Special rules for
reporting vacation home rentals.<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 15.0pt; mso-outline-level: 2;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">If you are a Gig worker IRS publication 334
provides a list of forms are you required to file with your income tax return. <span style="mso-spacerun: yes;"> </span></span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 0in; margin-right: 0in; margin-top: 15.0pt; mso-outline-level: 2;"><b><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">What About Deductions?<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Deductions are a matter of
legislative grace, and the taxpayer bears the burden of proof. </span><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.12&dbName=TCODE&linkType=docloc&locId=26uscas162&permaId=i8d32581e19d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: windowtext; font-family: "Times New Roman",serif; font-size: 12.0pt; text-decoration: none; text-underline: none;">Section 162 </span></a><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">allows deductions
against business revenue for all expenses that are "ordinary and
necessary." In contrast, </span><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.12&dbName=TCODE&linkType=docloc&locId=262&permaId=i9cc0d35019d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: windowtext; font-family: "Times New Roman",serif; font-size: 12.0pt; text-decoration: none; text-underline: none;">Section 262 </span></a><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">disallows
deductions for personal living expenses. Determining what is an ordinary and
necessary business expense versus personal living expense is often not clear
cut. Deductibility can depend on the taxpayer's specific facts and
circumstances and is a frequent issue to be resolved in court cases. In
addition the taxpayer must substantiate his or her expenses and some expenses
must also satisfy stricter substantiation requirements laid out in </span><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.12&dbName=TCODE&linkType=docloc&locId=274%28d%29&permaId=i9ec1a19819d711dcb1a9c7f8ee2eaa77&tagName=SBSEC&endParm=y"><span style="color: windowtext; font-family: "Times New Roman",serif; font-size: 12.0pt; text-decoration: none; text-underline: none;">Section 274(d)</span></a><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Both self-employed individuals and
employees not reimbursed by their employer <span style="color: #252525;">apply
the same criteria to determine whether an item is deductible as an ordinary and
necessary business expense. Self-employed individuals can then deduct amounts
on Schedule C as part of their Form 1040<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></a>. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 8.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoPlainText"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Trade
or Business Deductions<o:p></o:p></span></b></p>
<p class="MsoPlainText"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;">To be currently deductible a trade or
business expenditure:</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: Symbol; font-size: 12pt; text-indent: -0.25in;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: -0.25in;">Must
be ordinary and necessary;</span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l9 level1 lfo9; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Must
be reasonable in about;<o:p></o:p></span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l9 level1 lfo9; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Must
be related to an activity deemed to be a trade or business;<o:p></o:p></span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l9 level1 lfo9; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Must
be business related rather than personal expenditure;<o:p></o:p></span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l9 level1 lfo9; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Must
not be a capital expenditure;<o:p></o:p></span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l9 level1 lfo9; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Cannot
be incurred in the production of tax-exempt income;<o:p></o:p></span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l9 level1 lfo9; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Must
not be a violation of public policy;<o:p></o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Ordinary means “customary and not a
capital expenditure“; necessary means “appropriate and helpful.”<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Substantiation</span></b></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><i><span style="color: black; mso-color-alt: windowtext;">IRS </span></i><span style="color: black; mso-color-alt: windowtext;"><a href="http://www.irs.gov/pub/irs-pdf/p463.pdf" target="_blank"><span style="border: none windowtext 1.0pt; color: black; mso-border-alt: none windowtext 0in; mso-color-alt: windowtext; padding: 0in; text-decoration: none; text-underline: none;">Publication 463</span></a><em><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">,</span></em><em><span style="border: none windowtext 1.0pt; font-style: normal; mso-border-alt: none windowtext 0in; padding: 0in;"> <u>Travel, Entertainment, Gift, and Car Expenses</u></span></em>,
provides detailed information on how a Gig employee can prove expenses. Proof
of an expense includes the following three items:<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l2 level1 lfo4; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="color: black; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black;">Adequate records<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l2 level1 lfo4; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="color: black; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black;">Sufficient evidence<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l2 level1 lfo4; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="color: black; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black;">Written record<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><span style="color: black;"><o:p> </o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><span style="color: black;">Adequate records are defined
by <em><span style="border: none windowtext 1.0pt; font-style: normal; mso-border-alt: none windowtext 0in; padding: 0in;">Publication 463</span></em><i> </i>on page
25: “You should keep the proof you need in an account book, diary, log,
statement of expense, trip sheets, or similar record. You should also keep
documentary evidence that, together with your record, will support each element
of an expense.”<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; mso-add-space: auto; text-align: justify; vertical-align: baseline;"><span style="color: black;">Records of
expenses do not have to be in any particular format, but it must be in a form
that allows the employee to keep a detailed record of the amount, time, place,
and business purpose of the expense. The format used must also enable an
employee the ability to document business meals that take place within the
employee's tax home and meals provided for others when away from their tax
home.<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; mso-add-space: auto; text-align: justify; vertical-align: baseline;"><span style="color: black;">To
substantiate these expenses, a Gig employee must record the following
information in their record:<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; mso-add-space: auto; mso-list: l7 level1 lfo5; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="color: black; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black;">The names of the individuals
in attendance<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; mso-add-space: auto; mso-list: l7 level1 lfo5; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="color: black; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black;">The business purpose
of the meeting<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; mso-add-space: auto; mso-list: l7 level1 lfo5; tab-stops: list .5in; text-align: justify; text-indent: 0in; vertical-align: baseline;"><!--[if !supportLists]--><span style="color: black; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: black;">The date and place of
the business meeting<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><span style="color: black;"><o:p> </o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><span style="color: black;">The best sufficient evidence
is documentary evidence that supports the employee's expenses. This may include
receipts, canceled checks, or bills. Documentary evidence, however, is deemed
adequate only if it shows the amount, date, place, and essential character of
the expense.<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><span style="color: black;">In most cases, the IRS
requires documentary evidence for travel expenses only if the expense is
greater than $75. However, there are exceptions, especially lodging expenses.
Since lodging bills may contain other expenses in addition to room charges
(such as meals, telephone calls, laundry, Internet access, and video rentals),
a hotel or motel must provide an itemized bill. Personal expenses (such as
video rentals) should not be included or reimbursed.<o:p></o:p></span></p>
<p class="e-paragraph-text" style="background: white; margin: 0in; text-align: justify; vertical-align: baseline;"><span style="color: black;"><o:p> </o:p></span></p>
<h2 style="background: white; margin: 0in; mso-add-space: auto; text-align: justify; vertical-align: baseline;"><span style="color: black; font-size: 12.0pt;">Why
Business Expense Substantiation Is Vital<o:p></o:p></span></h2>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">When a taxpayer provides the IRS with better substantiation, the
IRSs is more inclined to grant deductions.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Deductible Expenses<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">This article does not cover
self-employed health insurance and retirement contributions. Additionally,
rules for home rentals are beyond the scope of this article. The items
discussed in more depth here are auto costs; cellular phone service; internet service;
work clothing; tools, supplies, and equipment; meals when not away from home;
entertainment expenses; home office, licensing; and inventory, cost of goods
sold, and selling expenses.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Auto Expenses<o:p></o:p></span></b></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">If you use your car for
business purposes, you may be able to deduct car expenses. You generally can
use one of the two following methods to figure your deductible expenses. The standard
mileage rate or the actual car expenses.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="background: white; color: #202124; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">The standard milage rate for 2021 is 56 cents per mile for business
miles driven. </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">f you use the standard mileage rate for a year, you
can’t deduct your actual car expenses for that year. You can’t deduct
depreciation, lease payments, maintenance and repairs, gasoline (including
gasoline taxes), oil, insurance, or vehicle registration fees.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Choosing the Standard Mileage
Rate<o:p></o:p></span></b></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">If you want to use the
standard mileage rate for a car you own, you must choose to use it in the first
year the car is available for use in your business. Then, in later years, you
can choose to use either the standard mileage rate or actual expenses. If you
want to use the standard mileage rate for a car you lease, you must use it for
the entire lease period. For leases that began on or before December 31, 1997,
the standard mileage rate must be used for the entire portion of the lease
period (including renewals) that is after 1997. You must make the choice to use
the standard mileage rate by the due date (including extensions) of your
return. You can’t revoke the choice. However, in later years, you can switch
from the standard mileage rate to the actual expenses method. If you change to
the actual expenses method in a later year, but before your car is fully
depreciated, you have to estimate the remaining useful life of the car and use
straight line depreciation.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%;">Standard Mileage Rate Not
Allowed. <o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">You can’t use the standard mileage rate if
you: <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify; text-indent: .5in;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">• Use five or more cars at the same
time (such as in fleet operations); <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">• Claimed a
depreciation deduction for the car using any method other than straight line,
for example, MACRS; <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">• Claimed a
section 179 deduction on the car; <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">• Claimed the
special depreciation allowance on the car; or <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">• Claimed actual
car expenses after 1997 for a car you leased.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Examples:<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Example 1. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Tony and his
employees use his four pickup trucks in his landscaping business. During the year,
he traded in two of his old trucks for two newer ones. Tony can use the
standard mileage rate for the business mileage of all six of the trucks he
owned during the year. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Example 2. Chris
owns a repair shop and an insurance business. He and his employees use his two
pickup trucks and van for the repair shop. Chris alternates using his two cars
for the insurance business. No one else uses the cars for business purposes. Chris
can use the standard mileage rate for the business use of the pickup trucks,
van, and the cars because he never has more than four vehicles used for
business at the same time. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Example 3. Maureen
owns a car and four vans that are used in her housecleaning business. Her
employees use the vans, and she uses the car to travel to various customers.
Maureen can’t use the standard mileage rate for the car or the vans. This is
because all five vehicles are used in Maureen's business at the same time. She
must use actual expenses for all vehicles.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Actual Car Expenses <o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 8.0pt; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">If
you don’t use the standard mileage rate, you may be able to deduct your actual
car expenses. Actual car expenses include: <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Depreciation<span style="mso-tab-count: 2;"> </span> <b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Licenses
<b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Lease
payments <b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Registration
fees <b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Gas
<b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Insurance
Repairs <b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Oil
<b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Garage
rent <b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Tires
<b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Tolls
<b><o:p></o:p></b></span></p>
<p class="MsoListParagraphCxSpLast" style="line-height: normal; margin-left: 1.0in; mso-add-space: auto; mso-list: l3 level1 lfo7; text-align: justify; text-indent: 0in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-weight: bold; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Parking
fees <b><o:p></o:p></b></span></p>
<p class="MsoNormal" style="line-height: normal; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">If you have fully
depreciated a car that you still use in your business, you can continue to
claim your other actual car expenses.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Business and Personal Use. <o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">If you use your car for both business and
personal purposes, you must divide your expenses between business and personal
use. You can divide your expense based on the miles driven for each purpose. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Example. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-add-space: auto; text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">You are a
contractor and drive your car 20,000 miles during the year: 12,000 miles for
business use and 8,000 miles for personal use. You can claim only 60% (12,000 ÷
20,000) of the cost of operating your car as a business expense.<b><o:p></o:p></b></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Cellular Phone Service<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">IRC</span><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.12&dbName=TCODE&linkType=docloc&locId=26uscas280f%28d%29%284%29&permaId=ia068008c19d711dcb1a9c7f8ee2eaa77&tagName=PARA&endParm=y"><span style="color: windowtext; font-family: "Times New Roman",serif; font-size: 12.0pt; text-decoration: none; text-underline: none;"> Section 280F(d)(4) </span></a><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">w<span style="color: #252525;">as amended in 2010 to eliminate cellular phones from the
definition of listed property and, as a result a taxpayer can deduct cellular
phone service based on an estimate.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Courts have rules that
taxpayers are required to have both cell phone and internet access for his
employment as a systems engineer, and he has provided a reasonable basis to
accept his estimated expenses," and, as a result, allowed the deductions
for both cell phone and internet service.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Internet Service<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">The courts consider internet
services a utility, and if they are ordinary and necessary business expenses,
utility expenses are deductible. However, home internet services are frequently
used for both personal and business purposes. Generally, the taxpayer must
provide a reasonable basis for determining how much usage is business versus
personal. Utilities, including internet.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 8.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Entertainment and Business Meals</span></b></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">The TCJ </span><u style="font-family: "Times New Roman", serif; font-size: 12pt;">disallows</u><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> deductions:</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: Symbol; font-size: 12pt; text-indent: -0.25in;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: -0.25in;">For
an activity considered entertainment, amusement, or recreation;</span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l11 level1 lfo12; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Membership
dues for any club organization for business, pleasure, recreation or other
social purposes; and<o:p></o:p></span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l11 level1 lfo12; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">For
a facility or portion of a facility used in connection with the above.<o:p></o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">The amount of any otherwise deductible
business meal must be reduced by 50%. This 50% reduction rule applies to all
food, and beverage costs (even though incurred in the course of travel away
from home) after determining the amount otherwise deductible.</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">The 50% reduction rule will not apply if:</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: Symbol; font-size: 12pt; text-indent: -0.25in;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: -0.25in;">The
full value of the meals or entertainment is included in the recipient income or
excluded as a fringe benefit;</span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l4 level1 lfo13; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">An
employee is reimbursed for the cost of meal and/or entertainment (the 50%
reduction rule applies to the party making the reimbursement).<o:p></o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">The TCJA expanded the 50% limit to food
and beverages provided to employees as a de minimis </span><span style="font-family: "Times New Roman", serif; font-size: 12pt;"> </span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">fringe benefits, to meals provided at an
eating facility that meets the requirements for an on premise dining
facilities, and to meals provided on premises to employees for the convenience
of the employer.</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Work Clothing<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Work clothing is deductible
under </span><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=21.12&dbName=TCODE&linkType=docloc&locId=26uscas162&permaId=i8d32581e19d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: windowtext; font-family: "Times New Roman",serif; font-size: 12.0pt; text-decoration: none; text-underline: none;">Section 162; these include</span></a><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo8; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">The clothing is required or essential for the employment;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo8; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">It is not adaptable to general usage as ordinary clothing; and<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo8; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: 0in;"><!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">It is not so worn.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Tools, Supplies, and Equipment<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Expenses incurred by
construction workers, electricians, plumbers, or other trades is the necessity
to purchase tools and equipment are deductible. For an over-the-road truck
driver, the courts allowed a deduction for a number of truck related supplies
including antennas, CB and XM radio and related repairs, atlases and maps, a
scanner, crowbars and other tools, flashlights and batteries, first aid kit,
jumper cables, floor mats, seat covers, tarps, power cords and boosters,
electrical and duct tape, towels and paper towels, and shovel and broom. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">In general, supplies that
are determined to be ordinary and necessary for the taxpayer's profession are
deductible. Self-employed social workers are allowed a supplies deduction rule
for computer supplies, reference materials, textbooks, and professional
periodicals.<sup> </sup>Additionally, for a security guard, items such as a
weapons holder, a handgun, a flashlight, and handcuffs were all considered
ordinary and necessary.<sup> </sup>Also, a flight attendant was allowed a
deduction for luggage.<sup> <o:p></o:p></sup></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 8.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><sup><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></sup></p>
<p class="MsoPlainText" style="text-align: justify;"><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Office in the Home<o:p></o:p></span></b></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Most expenses for personal use assets are
not deductible. Except for certain expenses (primarily interest and taxes) that
is the case with a personal residence. However self-employed individuals are
allowed a deduction for office in the home expenses if a portion of the
residence is used exclusively on a regular basis as either:<o:p></o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> <span> </span><span> </span><span> </span><span> </span></o:p></span><span style="font-family: Symbol; font-size: 12pt; text-indent: -0.25in;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: -0.25in;">The
principal place of business for any trade or business of the taxpayer, or</span></p>
<p class="MsoPlainText" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l1 level1 lfo8; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">A
place of business used by clients, patient, or customers<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn7" name="_ftnref7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[7]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">The term principal place of business
includes a place of business that satisfies the following requirements:</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p><span> <span> </span><span> </span></span> </o:p></span><span style="font-family: Symbol; font-size: 12pt; text-indent: -0.25in;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-indent: -0.25in;">The
office is used by the taxpayer to conduct administrative or management
activities of a trailer business; and</span></p>
<p class="MsoPlainText" style="margin-left: .5in; mso-add-space: auto; mso-list: l8 level1 lfo11; text-align: justify; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;"><span> </span><span> </span>·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">There
is no other fixed location of the trailer business where the taxpayer conducts
these activities.<o:p></o:p></span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="background-color: white; color: #1b1b1b; font-family: "Times New Roman", serif; font-size: 12pt;">Taxpayers have two
options for figuring this deduction.</span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p> </o:p></span><span style="color: #1b1b1b; font-family: "Times New Roman", serif; font-size: 12pt;">The regular method divides expenses of operating the home
between personal and business use. Self-employed taxpayers file Form 1040,
Schedule C, and compute this deduction on Form 8829.</span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p> </o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The simplified method, has a rate of $5 a square foot for business
use of the home. The maximum deduction is $1,500.<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p> </o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; text-align: justify;"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Special rules apply for certain business owners:<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin: 0in; mso-add-space: auto; mso-list: l6 level1 lfo10; tab-stops: list .5in; text-align: justify; text-indent: 22.5pt;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Daycare providers complete a special
worksheet, found in Publication 587.<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin: 0in; mso-add-space: auto; mso-list: l6 level1 lfo10; tab-stops: list .5in; text-align: justify; text-indent: 22.5pt;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Self-employed individuals use Form 1040,
Schedule C, Line 30 to claim deduction<o:p></o:p></span></p>
<p class="MsoNormal" style="background: white; line-height: normal; margin: 0in; mso-add-space: auto; mso-list: l6 level1 lfo10; tab-stops: list .5in; text-align: justify; text-indent: 22.5pt;"><!--[if !supportLists]--><span style="color: #1b1b1b; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Farmers claim the deduction on Schedule F,
Line 32<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn8" name="_ftnref8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="color: #1b1b1b; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[8]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Inventory, Cost of Goods Sold,
and Selling Expenses<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">In the case of businesses
that resell goods, such as selling on eBay, Esty or Amazon, the taxpayer is
expected to maintain inventory records, and a deduction is allowed for cost of
goods sold (e.g, cost or adjusted basis of the asset). If the taxpayer cannot
establish a basis, the presumption is that the basis is zero.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">In addition to cost of goods
sold, taxpayers are allowed other ordinary and necessary selling expenses. For
example, courts have allowed deductions for PayPal fees, eBay fees, postage,
and packaging.<sup> </sup></span><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#fn100"><sup><span style="color: #145da4; font-family: "Times New Roman",serif; font-size: 12.0pt; text-decoration: none; text-underline: none;"><span style="mso-spacerun: yes;"> </span></span></sup></a><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Any
fees charged for use of a digital platform would be deductible. <b><o:p></o:p></b></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; mso-bidi-font-family: sans-serif;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Other Common Business Expenses</span></b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Advertising;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Bad debts;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Salaries and wages;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Fringe benefits;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Rent;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Insurance;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Accounting and legal fees;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Capital expenditures which may be depreciable;<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Business gifts (limited to $25).<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 8.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><b><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Other Factors Affecting Deductions</span></b></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">The taxpayers tax accounting method may
affect the timing of a deduction.</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">Cash method taxpayers recognize expenses
when paid; accrual method taxpayers recognize expenses when obligations to pay
is fixed and determinable.</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">Prepaid interest may be deducted over the
period to which of the it accures; warranty expenses can only be deducted when
paid.</span></p>
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">Taxpayers must be able to substantiate
deductions through documentary evidence such as receipts, invoices, and cancel
checks.</span></p>
<p class="MsoPlainText"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p> </o:p></span><b><span style="font-family: "Times New Roman", serif; font-size: 12pt;">Restricted
Business Deductions</span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Political contributions by
businesses and individuals are not deductible.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Lobbing expenses and amounts paid to
influence voters or not deductible.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Business investigation and start-up
costs, for example survey of potential markets, expenses of securing
prospective distributors or suppliers, advertising, employee training are
deductible in the year paid or incurred is the taxpayers is currently in a
similar line of business as the start of business. If not in a similar line of
business and a new business is investigated but not acquired, <span style="mso-spacerun: yes;"> </span>start-up cost or not deductible<a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftn9" name="_ftnref9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[9]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 0in; margin-right: 0in; margin-top: 14.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 140%;">Suggestion:<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 0in; margin-right: 0in; margin-top: 14.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 140%;">If you prepare your own return, take time now to lay out how you
will keep track of these expenses and the ever -important supporting detailed
records.<span style="mso-spacerun: yes;"> </span>If you use an accountant that
may already have such a format for gig workers that ties to the professional’s
software, it may be easier to adopt the existing format.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 8.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; mso-prop-change: "Frank L\. Brunetti" 20220117T1423; text-align: justify; text-autospace: none;"><b><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;">Note:<o:p></o:p></span></b></p>
<p style="margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;"><span style="color: black;">In a May 2021 report by the TIGTA
it noted </span><span style="color: green;">"IRS did not always take compliance
actions on non filers of tax returns and under reporters related to P2P payments
even when information reporting was available," TIGTA
said. In total, some 170,000 taxpayers "potentially" <b>did
not report up to $29 billion of payments received per Form <span class="bestsection">1099-K </span></b>documents issued to them by three P2P payments
application companies. While taxpayers using P2P payment applications may
not always receive a Form <span class="bestsection">1099-K</span>, they are still required to <a name="lastkeyword"></a>report</span><span style="color: #252525;"> any taxable
income on their returns, TIGTA stressed. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><strong><span style="color: #252525; font-size: 12.0pt;">New for
2022-Reporting by third party settlement organizations</span></strong><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;"><span style="-webkit-text-stroke-width: 0px; float: none; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;">. Congress has tightened the de minimis exception to tax </span><a name="keyword" style="-webkit-text-stroke-width: 0px; background-position-x: 0px; background-position-y: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;">reporting by third-party settlement organizations (TPSOs, e.g.,
PayPal, Venmo, Zelle) by requiring reporting of transactions that exceed $600
(and eliminating the 200-transaction threshold). The American Rescue Plan Act
(ARPA) also clarified that TPSO </span><span style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;">reporting obligations </span><span style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;">are limited to transactions involving goods and
services. This means that, beginning in 2022, if you run a business where
customers pay you via a TPSO, and you receive more than $600 in total during
the course of the year via a TSPO, the TSPO is </span></a><a name="lastBestSection" style="-webkit-text-stroke-width: 0px; background-position-x: 0px; background-position-y: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"></a><a name="BestSection" style="-webkit-text-stroke-width: 0px; background-position-x: 0px; background-position-y: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"></a><span style="mso-bookmark: keyword;"><span style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;" title="Best Section">required </span></span><span style="mso-bookmark: keyword;"><span class="bestsection"><span style="color: green; font-family: "Times New Roman",serif; font-size: 12.0pt;">to report that amount to the IRS - regardless of how
many customers are paying you - and to send you a Form 1099-K, Payment
</span></span></span><span style="mso-bookmark: keyword;"></span><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 12.0pt;">Card
and Third-Party Network Transactions.</span></span><span style="color: black; font-family: "Times New Roman",serif; font-size: 12.0pt;"><o:p></o:p></span></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span>
<span style="font-family: "Times New Roman",serif;">This article is written by
Frank L. Brunetti, Esq. All rights are reserved.<o:p></o:p></span></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;"> </span><span style="font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";">Note: This
list does not include all types of Gig work.</span><span style="font-family: "Times New Roman",serif;"><o:p></o:p></span></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"> </span><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-fareast-font-family: "Times New Roman";">Note: This list does not include all types of digital
platforms.<o:p></o:p></span></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif;">
https://www.irs.gov/businesses/gig-economy-tax-center</span> <o:p></o:p></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 7.5pt;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"> </span><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-fareast-font-family: "Times New Roman";">https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy<o:p></o:p></span></p>
</div>
<div id="ftn6" style="mso-element: footnote;">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-bottom: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: 8.0pt; mso-margin-top-alt: 0in; mso-pagination: none; text-align: justify; text-autospace: none;"><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref6" name="_ftn6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></span></a><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"> <span style="color: #252525;">Since 2018, employees can no longer deduct unreimbursed
employee expenses. These expenses were included as part of miscellaneous
itemized deductions and that category was eliminated by the Tax Cuts and Jobs
Act (TCJA). <o:p></o:p></span></span></p>
<p class="MsoFootnoteText"><o:p> </o:p><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref7" name="_ftn7" style="text-align: justify;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 11.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 10.5pt; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">[7]</span></span></span></a><span style="text-align: justify;"> </span><span style="font-family: "Times New Roman", serif; font-size: 10pt; text-align: justify;">From 2018 through
2025 employees are not allowed an office in the home deduction.</span></p></div><div id="ftn7" style="mso-element: footnote;">
<p class="MsoPlainText" style="text-align: justify;"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt;"><o:p> </o:p></span><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref8" name="_ftn8" title=""><span class="MsoFootnoteReference"><span style="color: black; mso-color-alt: windowtext;"><span class="MsoFootnoteReference"><span style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 107%;">[8]</span></span></span></span></a><span style="font-size: 10pt;"> </span><span style="font-family: "Times New Roman", serif; font-size: 10pt;">See IRS </span><a href="https://www.irs.gov/forms-pubs/about-publication-587" title="Publication 587, Business Use of Your Home (Including Use by Daycare Providers)"><span style="color: black; font-family: "Times New Roman", serif; font-size: 10pt; text-decoration-line: none;">Publication
587, Business Use of Home (Including Use by Daycare Providers)</span></a><span style="font-family: "Times New Roman", serif; font-size: 10pt;"> and </span><a href="https://www.irs.gov/forms-pubs/about-form-8829" target="_blank" title="About Form 8829, Expenses for Business Use of Your Home"><span style="color: black; font-family: "Times New Roman", serif; font-size: 10pt; text-decoration-line: none;">Form 8829,
Expenses for Business Use of Your Home</span></a><span style="font-family: "Times New Roman", serif; font-size: 10pt;">
for more information.</span></p></div><div id="ftn8" style="mso-element: footnote;">
<p class="MsoFootnoteText"><o:p> </o:p><a href="file:///C:/Users/fbrunetti/ND%20Office%20Echo/VAULT-FBrunetti@scarincih/What%20Income%20and%20Deductions%20Should%20you%20Consider%20in%20the%20Gig%20Economy%204893-4142-6441%20v.11.docx#_ftnref9" name="_ftn9" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[9]</span></span></span></a> <span style="font-family: "Times New Roman", serif;">Deduction of start up expenses are
subject to special rules see IRS Publication 535.</span></p></div>
</div>jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-58277319579434470492020-03-23T17:26:00.002-04:002020-03-23T17:26:41.057-04:00P.L. 116-127, The Family First Coronavirus Response Act<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">In an Information
Release ( “the Act”) the IRS has announced that employers can begin taking
advantage of two new refundable payroll tax credits created by the <b style="mso-bidi-font-weight: normal;">Families First Coronavirus Response Act <a href="https://www.blogger.com/null" name="Teb3715b982324bcea2d5fe57c983b989"></a>(</b>PL 116-127, 3/18/2020). The IRS
also announced that it will release guidance on how eligible employers who pay
qualifying sick or child care leave under the Act will be able file a request
for an accelerated payment from the IRS.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Release summarizes the Act
as follows:<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Act <u>provides
paid sick leave and expanded family and medical leave for COVID-19 related
reasons and created the refundable paid sick leave credit and the paid child
care leave credit for eligible employers</u>. Eligible employers are businesses
and tax-exempt organizations with fewer than 500 employees that are required to
provide emergency paid sick leave and emergency paid family and medical leave
under the Act. Eligible employers can claim these credits based on qualifying
leave they provide between the effective date and December 31, 2020. Equivalent
credits are available to self-employed individuals based in similar
circumstances.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><i><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Paid leave</span></i></b><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Act provides that
<u>employees of eligible employers can receive two weeks (up to 80 hours) of
paid sick leave at 100% of the employee's pay where the employee is unable to
work because the employee is quarantined, and/or experiencing COVID-19
symptoms, and seeking a medical diagnosis</u>.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">An employee who is
unable to work <u>because of a need to care for an individual subject to
quarantine</u>, to care for a child whose school is closed or child care
provider is unavailable for reasons related to COVID-19, and/or the employee is
experiencing substantially similar conditions as specified by the U.S.
Department of Health and Human Services can receive two weeks (up to 80 hours)
of paid sick leave at 2/3 the employee's pay.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">An employee who is
unable to work due to a need to care for a child whose school is closed, or
child care provider is unavailable for reasons related to COVID-19, may in some
instances receive up to an additional 10 weeks of expanded paid family and
medical leave at 2/3 the employee's pay.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><i><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Paid sick leave credit</span></i></b><b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">. <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">For an employee who is unable to work because of coronavirus
quarantine or self-quarantine or has coronavirus symptoms and is seeking a
medical diagnosis, eligible employers may receive a refundable <u>sick leave
credit for sick leave at the employee's regular rate of pay, up to $511 per day
and $5,110 in the aggregate, for a total of 10 days</u>.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">For an employee who
is caring for someone with coronavirus, or is caring for a child because the
child's school or child care facility is closed, or the child care provider is
unavailable due to the coronavirus, <u>eligible employers may claim a credit
for 2/3 of the employee's regular rate of pay, up to $200 per day and $2,000 in
the aggregate, for up to 10 days</u>. Eligible employers are entitled to an
additional tax credit determined based on costs to maintain health insurance
coverage for the eligible employee during the leave period.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><i><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Child care leave credit</span></i></b><b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">. <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">In addition to the
sick leave credit, for an employee who is unable to work because of a need to
care for a child whose school or child care facility is closed or whose child
care provider is unavailable due to the coronavirus, eligible employers may
receive a refundable child care leave credit. <u>This credit is equal to 2/3 of
the employee's regular pay, capped at $200 per day or $10,000 in the aggregate.
Up to 10 weeks of qualifying leave can be counted towards the child care leave
credit</u>. Eligible employers are entitled to an additional tax credit
determined based on costs to maintain health insurance coverage for the
eligible employee during the leave period.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Prompt payment for
the cost of providing leave. In general, when employers pay their employees,
they are required to withhold from their employees' paychecks federal income
taxes and the employees' share of Social Security and Medicare taxes. The
employers then are required to deposit these federal taxes, along with their
share of Social Security and Medicare taxes, with the IRS and file quarterly
payroll tax returns with the IRS. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Information Release says that, under guidance that
will be released next week,</span></b><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;"> <b style="mso-bidi-font-weight: normal;">eligible employers who pay qualifying sick
or child care leave will be able to retain an amount of the payroll taxes equal
to the amount of qualifying sick and child care leave that they paid, rather
than deposit them with the IRS.</b><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Information Release says that the payroll taxes
that are available for retention include withheld federal income taxes, the
employee share of Social Security and Medicare taxes, and the employer share of
Social Security and Medicare taxes with respect to all employees.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<u><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">If there
are not sufficient payroll taxes to cover the cost of qualified sick and child
care leave paid, employers will be able file a request for an accelerated
payment from the IRS. The IRS expects to process these requests in two weeks or
less.</span></u><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;"> The details of this
new, expedited procedure will be announced next week.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Equivalent child care
leave and sick leave credit amounts are available to self-employed individuals
under similar circumstances. These credits will be claimed on their income tax
return and will reduce estimated tax payments.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Small business exemption.</span></b><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;"> <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Information
Release says that small businesses with fewer than 50 employees will be
eligible for an exemption from the leave requirements relating to school
closings or child care unavailability where the requirements would jeopardize
the ability of the business to continue. The exemption will be available on the
basis of simple and clear criteria that make it available in circumstances
involving jeopardy to the viability of an employer's business as a going
concern. The Department of Labor (Labor) will provide emergency guidance and
rulemaking to clearly articulate this standard.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">Non-enforcement period</span></b><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif;">The Information
Release says that Labor will be issuing a temporary non-enforcement policy that
provides a period of time for employers to come into compliance with the Act.
Under this policy, Labor will not bring an enforcement action against any
employer for violations of the Act so long as the employer has acted reasonably
and in good faith to comply with the Act. Labor will instead focus on compliance
assistance during the 30-day period.<o:p></o:p></span></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-15226064097937262222019-08-29T14:08:00.000-04:002019-08-29T14:08:19.131-04:00Accounting Documents Protected by the Work Product Doctrine and the Kovel Doctrine<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal">
<span style="text-align: justify;">The work product doctrine generally protects
“documents and tangible things that are prepared in anticipation of litigation
or for trial by or for another party or its representative.</span><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn1" name="_ftnref1" style="text-align: justify;" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[1]</span></span></span></a><span style="text-align: justify;">“ [T]o
qualify for protection against discovery under Rule 26(b)(3), documents must
have two characteristics:</span></div>
<div style="text-align: justify;">
<o:p></o:p></div>
<div style="margin-left: 1.0in; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->they must be prepared in anticipation of
litigation or for trial, and <o:p></o:p></div>
<div style="margin-left: 1.0in; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->they must be prepared by or for another party or
by or for that other party's representative.<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[2]</span></span><!--[endif]--></span></span></a>
<o:p></o:p></div>
<div style="text-align: justify;">
Only work product created in anticipation of
litigation qualifies for protection under the work product doctrine. In the
case of a tax controversy, the simultaneous nature of the IRS's examination and
the taxpayer’s ongoing tax and legal obligations presents a challenge in
determining whether the taxpayer or their representatives created a document in
anticipation of litigation. Under the right circumstances, a party may create
work product during the course of an IRS investigation in anticipation of
litigation<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[3]</span></span><!--[endif]--></span></span></a>.
In contrast, documents that would have been prepared for a party's tax filings
regardless of the IRS examination would not qualify as work product<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[4]</span></span><!--[endif]--></span></span></a>. Consequently
a court must examine the underlying facts to determine when the party claiming
work product protection reasonably anticipated litigation and the nature of the
document's purpose.<o:p></o:p></div>
<div style="text-align: justify;">
Under IRC §7525(a)(1) the common law protections
of confidentiality applies to a communication between a taxpayer and an
attorney with respect to tax advice. The same common law protections of
confidentiality applies to a communication between a taxpayer and an attorney
and communication between a taxpayer and any federally authorized tax
practitioner to the extent the communication would be considered a privileged
communication if it were between a taxpayer and an attorney. Generally, the
privilege does not apply to communications regarding the preparation of tax
returns<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[5]</span></span><!--[endif]--></span></span></a>.<span style="font-size: 10.0pt;"> </span><o:p></o:p></div>
<div style="text-align: justify;">
In <i style="mso-bidi-font-style: normal;"><span style="background: white; mso-bidi-font-weight: bold;">U.S. v. Burga</span></i><span style="background: white; mso-bidi-font-weight: bold;">, 124 AFTR 2d 2019-XXXX, (DC
CA), 08/16/2019 the </span>district court held that some documents created by
an accountant were protected under the tax practitioner privilege and under the
holding in <em>Kovel</em> because the documents were produced to help an
attorney to give legal advice, not merely to produce a tax return.<o:p></o:p></div>
<div style="text-align: justify;">
The Court of Appeals for the Second Circuit previously
held that attorney-client privilege also applies to communications made in the
presence of an accountant who is indispensable to the consultation between
lawyer and client. The court held that the privilege attached to a
communication made to the attorney, in the presence of an accountant employed
by the attorney, if the communication was made in confidence for the purpose of
getting legal advice from the lawyer<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[6]</span></span><!--[endif]--></span></span></a>. <o:p></o:p></div>
<div style="text-align: justify;">
The tax practitioner privilege does not protect
communications made in the presence of an accountant if the accountant is there
merely to provide accounting services<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftn7" name="_ftnref7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[7]</span></span><!--[endif]--></span></span></a>. <o:p></o:p></div>
<div style="text-align: justify;">
In <i style="mso-bidi-font-style: normal;">Burda </i>the
attorney hired an accountant to, according to statements the accountant submitted
to the district court, "review and, if necessary and/or possible,
amend" the tax returns that the IRS was examining, as well as
"prepare returns for" future years. The accountant also said, that he
"performed services which were of a character and quality necessary for
the [attorney] to provide appropriate and accurate legal and tax advice to
[Burga] including reviewing and interpreting tax and financial information and
documents."<o:p></o:p></div>
<div style="text-align: justify;">
The IRS asked Burga to produce documents that the
accountant had prepared. Burga said the documents were protected under IRC §7425
and by the <em>Kovel</em><em><span style="font-style: normal; mso-bidi-font-style: italic;"> doctrine.</span></em><o:p></o:p></div>
<div style="text-align: justify;">
The IRS said the documents were not protected
because the accountant was merely providing accounting services, i.e., he was
preparing tax returns.<o:p></o:p></div>
<div style="text-align: justify;">
The district court held that <a href="https://www.blogger.com/null" name="T2eda1e8b111e44aabd161a2bbe1add05">IRC §7425 </a>and <em>Kovel</em> did
apply to protect some of the documents that the accountant produced. The court
also recognized that some of the accountant's documents were merely related to
his preparing tax returns and were not protected.<o:p></o:p></div>
<div style="text-align: justify;">
The court found that the accountant's statement
that he was hired to prepare tax returns did not preclude the possibly that he
also provided tax advice. The court looked to his statement as evidence that he
may have provided tax advice in addition to preparing tax returns. The court
found that this statement was enough to have both <a href="https://www.blogger.com/null" name="T07710be2a7db4544aadc63e4deb64c86">IRC §7425 and <em>Kovel</em> </a>apply.<o:p></o:p></div>
<div style="text-align: justify;">
The court ultimately decided to appoint a special
master review the documents to determine which ones were protected because they
contained tax advice provided by the accountant and which ones were merely
related to preparing tax returns.<o:p></o:p></div>
<div class="MsoPlainText">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman",serif;">Practice Pointer: </span></b><span style="font-family: "Times New Roman",serif;">The practical point is that in any
tax controversy if an accountant is going to be retained as part of the client
representation, protecting the work product of the accountant is critical.
Clearly any written documents or communications must be kept separate and
labeled as “property of the attorney [name]“ and those reflecting tax
preparation must be kept separate so as to not destroy the privilege.<o:p></o:p></span></div>
<div style="mso-element: footnote-list;">
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a><span style="color: #252525; font-family: "Times New Roman",serif;"> </span><span style="font-family: "Times New Roman",serif;">Fed. R. Civ. P. 26(b)(3)(A).</span><o:p></o:p></div>
</div>
<div id="ftn2" style="mso-element: footnote;">
<div style="margin-bottom: .0001pt; margin: 0in; mso-add-space: auto;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="font-size: 10.0pt;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[2]</span></span><!--[endif]--></span></span></span></a><span style="font-size: 10.0pt;"> <span class="c-doc-para-italic"><i>In re California
Pub. Utils. Comm'n</i></span>, 892 F.2d 778, 780–81 (9th Cir.1989).<o:p></o:p></span></div>
</div>
<div id="ftn3" style="mso-element: footnote;">
<div class="MsoFootnoteTextCxSpFirst">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a> <span class="c-doc-para-italic"><i><span style="font-family: "Times New Roman",serif;">United
States v. Roxworthy</span></i></span><span style="font-family: "Times New Roman",serif;">, 457
F.3d 590, 594–600 [98 AFTR 2d 2006-5964] (6th Cir. 2006).<o:p></o:p></span></div>
</div>
<div id="ftn4" style="mso-element: footnote;">
<div class="MsoFootnoteTextCxSpMiddle">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a> <span class="c-doc-para-italic"><i><span style="font-family: "Times New Roman",serif;">See
United States v. Richey</span></i></span><span style="font-family: "Times New Roman",serif;">, 632
F.3d 559, 568 [107 AFTR 2d 2011-573] (9th Cir. 2011).</span><o:p></o:p></div>
</div>
<div id="ftn5" style="mso-element: footnote;">
<div class="MsoFootnoteTextCxSpMiddle">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a> <i style="mso-bidi-font-style: normal;"><span style="background: white; font-family: "Times New Roman",serif; mso-bidi-font-weight: bold;">U.S. v. McEliogt,</span></i><span style="background: white; font-family: "Times New Roman",serif; mso-bidi-font-weight: bold;"> 115 AFTR 2d 2015-1433 (DC CA 2015).</span><o:p></o:p></div>
</div>
<div id="ftn6" style="mso-element: footnote;">
<div class="MsoFootnoteTextCxSpLast">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref6" name="_ftn6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></a><i style="mso-bidi-font-style: normal;"> </i><i style="mso-bidi-font-style: normal;"><span style="background: white; font-family: "Times New Roman",serif; mso-bidi-font-weight: bold;">U.S. v. Koval, </span></i><span style="background: white; font-family: "Times New Roman",serif; mso-bidi-font-weight: bold;">9 AFTR 2d 366, 296 F.2d 918 (2<sup>nd</sup>
Cir. 1961</span><span style="font-family: "Times New Roman",serif;">).</span><o:p></o:p></div>
</div>
<div id="ftn7" style="mso-element: footnote;">
<div style="margin-bottom: .0001pt; margin: 0in; mso-add-space: auto;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Accounting%20Documents%20Protected%20by%20the%20Work%20Product%20Doctrine%20and%20the%20Kovel%20Doctrine.docx#_ftnref7" name="_ftn7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[7]</span></span><!--[endif]--></span></span></a> <i style="mso-bidi-font-style: normal;"><span style="background: white; font-size: 10.0pt; mso-bidi-font-weight: bold;">Gonzales v. U.S.</span></i><span style="background: white; font-size: 10.0pt; mso-bidi-font-weight: bold;">, 110 AFTR
2d 2012-6083 (9<sup>th</sup> Cir. 2012).</span><span style="font-size: 10.0pt;"><o:p></o:p></span></div>
</div>
</div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-35126533806239515822019-08-19T13:49:00.000-04:002019-08-19T13:49:49.977-04:00IRS Approves spousal rollover although decedent’s IRA did not designate a beneficiary<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: left;">
</div>
<div class="MsoNormal" style="margin: 12pt 0in; text-align: left;">
<span style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;">Generally,
a surviving spouse may make a tax-free spousal rollover from a deceased
spouse's IRA only if the survivor is designated as the IRA’s beneficiary.
However, in PLR 201931006, IRS said this general rule did not apply—and a
tax-free spousal rollover was approved where the decedent failed to designate
an IRA beneficiary, died without a will, and the surviving spouse was the
administrator and sole heir to the decedent’s estate. </span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">A
surviving spouse designated as the beneficiary of an IRA need not leave the IRA
in the decedent's name. The surviving spouse can either:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">roll over the decedent's IRA into an IRA in the spouse's
name; or<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">elect to treat the decedent's IRA as the spouse's own IRA. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">However,
the regulations state the election to treat the decedent's IRA as the surviving
spouse beneficiary's IRA is available only if the spouse is “the sole
beneficiary” of the IRA and has an unlimited right to withdraw amounts from it.
Note the sole beneficiary requirement is not met if a trust is named as the
IRA's beneficiary, even if the spouse is the sole beneficiary of the trust (<i style="mso-bidi-font-style: normal;">but see</i> PLR 201923002).<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">There
is no immediate tax if distributions from an IRA are rolled over to an IRA or
other eligible retirement plan, annuity, or tax-sheltered annuity.
For a rollover to be tax-free, the amount distributed from the IRA generally
must be recontributed to an IRA or other eligible retirement plan no later than
60 days after the date that the taxpayer received the withdrawal from the IRA. A
distribution rolled over after the 60-day period generally will be taxed (and
also may be subject to a 10% premature withdrawal penalty tax). An individual
is permitted to make only one nontaxable 60-day rollover between IRAs in any
1-year period.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-bidi-font-style: italic; mso-fareast-font-family: "Times New Roman";">In PLR </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">201931006
the Decedent established an IRA but failed to designate a beneficiary for the
account. The IRA was maintained by a custodian that provided that if no
beneficiary is designated for the IRA, the account balance remaining at the
decedent’s death would be payable to her estate. The decedent died without a
will and, under relevant state law, the decedent’s surviving spouse was the
sole heir to the estate. The decedent’s surviving spouse was also the sole
administrator of the estate.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The
decedent’s surviving spouse intended to distribute the IRA to the estate, and
as administrator of the estate, pay the proceeds of the IRA to himself. Within
60 days of receipt, he would roll over the proceeds of the IRA into one or more
IRAs in his name.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The
surviving spouses asked IRS to rule that: <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">the surviving spouse be treated as the payee or distributee
of the IRA proceeds; <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The IRA would not be treated as an inherited IRA; and <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">He will be eligible to do a tax-free 60-day rollover from
the decedent’s IRA to his own IRA. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The
ruling points out that the surviving spouse would not be permitted to treat the
IRA as his own, because he was not named the beneficiary of the IRA. <u>However,
because he was the administrator and sole heir to the estate</u> he was
effectively the individual for whose benefit the account was maintained. As a
result, if the surviving spouse receives a distribution of the proceeds of the
IRA, he could roll over the distribution into his own IRA.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin: 13.2pt 0in; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">In
response to the ruling requests, IRS concluded that: <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The surviving spouse will be treated as the payee or
distributee of the proceeds from the IRA; <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">that the IRA would not be treated as an inherited IRA; and <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">That the surviving spouse will be eligible to make a
tax-free rollover of the proceeds from the decedent’s IRA to an IRA set up and
maintained in his own name, as long as the rollover occurred no later than 60
days after the proceeds were received by the surviving spouse in his capacity
as administrator of the estate, and all other applicable requirements were
satisfied.</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 13.2pt 0in 13.2pt 0.5in; text-align: justify; text-indent: -0.25in;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">In this case the surviving spouse was “lucky” in
that he was the sole heir of the estate and the state statue was favorable. In many case where clients are doing their estate
planning the non-probate assets are overlooked.
Non-probate assets do not pass through the will; they pass by beneficiary
designation. Therefore it is incumbent when doing your estate plan that you
confirm that you have properly designated the beneficiaries of your retirement accounts,
IRA’s etc., your life insurance, annuities, and other non-probate assets</span></div>
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-74300076277942268052019-08-09T11:53:00.000-04:002019-08-09T11:53:05.090-04:00IRS explains revocation of passports of taxpayers with significant debt<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">With the
summer in full swing with taxpayers traveling to foreign destinations, the IRS in </span><span style="color: black; font-family: "Arial",sans-serif; font-size: 12.0pt;">IR
2019-1451, 8/8/19 </span><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;"> has reminded taxpayers that they may not be able to
renew their current passport, or obtain a new passport, if they are delinquent
in paying federal taxes. </span><span style="color: black; font-family: "Arial",sans-serif; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">In 2015
Congress enacted “The Fixing America's Surface Transportation (FAST) Act” and added
a new Code section, IRC §7345. <span style="mso-spacerun: yes;"> </span>Under IRC
§7345, taxpayers having a "seriously delinquent tax debt" is, unless
an exception applies, grounds for denial, revocation, or limitation of a
passport.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">A seriously delinquent tax debt is generally
an assessed tax debt that exceeds $50,000 (adjusted for inflation for calendar
years beginning after 2016; currently $52,000) and for which a notice of lien
has been filed under IRC §6323</span></b><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">). <span style="mso-spacerun: yes;"> </span>Under IRC §7345(b)(2), a seriously delinquent
tax debt does not include a debt for which: there is an agreement in place to
repay the debt under IRC §6159 or IRC §7122; or collection is suspended because
of a collection due process hearing under IRC §6330 or because innocent spouse
relief under IRC §6015(b), (c) or (f) is requested or pending.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">In
addition, IRC §7508(a)(3) provides that certification of a seriously delinquent
tax debt under IRC §7345will be postponed while an individual is serving in an
area designated as a combat zone or participating in a contingency operation.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">In
February 2019, IRS issued IR 2019-23, which provided that when a taxpayer no
longer has a seriously delinquent tax debt, because he paid it in full or made
another payment arrangement, IRS will reverse the taxpayer's certification
within thirty days. It also provided steps taxpayers can take to avoid having
IRS notify State and circumstances under which IRS will not issue
certifications to State. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">The
Information Release lists circumstances under which IRS may ask State to
exercise its authority to revoke a taxpayer's passport. For example, IRS may
recommend revocation if IRS had reversed a taxpayer's certification because of
his promise to pay, and he failed to pay. IRS may also ask State to revoke a
passport if the taxpayer could use offshore activities or interests to resolve
his debt but chooses not to.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">Before
contacting State about revoking a taxpayer's passport, IRS will send Letter
6152, Notice of Intent to Request U.S. Department of State Revoke Your
Passport, to the taxpayer to let him know what IRS intends to do and give him
another opportunity to resolve his debts. Taxpayers must call IRS within 30
days from the date of the letter. Generally, <u>IRS will not recommend revoking
a taxpayer's passport if the taxpayer is making a good-faith attempt to resolve
his tax debts.<o:p></o:p></u></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">The IRS
can help taxpayers resolve their tax issues and expedite reversal of their
certification to State. When expedited, IRS can generally shorten the 30 days
processing time by 14 to 21 days. For expedited reversal of their
certification, taxpayers will need to inform IRS that they have travel
scheduled within 45 days or that they live abroad.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">For
expedited treatment, taxpayers must provide the following documents to IRS:<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: 0in; text-justify: inter-ideograph;">
<!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">Proof of travel. This can be a flight itinerary, hotel
reservation, cruise ticket, international car insurance, or other document
showing location and approximate date of travel or time-sensitive need for a
passport.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-left: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-indent: 0in; text-justify: inter-ideograph;">
<!--[if !supportLists]--><span style="color: #252525; font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">Copy of letter from State denying their passport application or
revoking their passport. State has sole authority to issue, limit, deny, or
revoke a passport.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12.0pt;">The
Information Release also repeats the information from IR 2019-23 regarding
steps taxpayers can take to avoid having IRS notify State and circumstances under
which IRS will not issue certifications to State.</span><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; mso-bidi-font-family: sans-serif;"><o:p></o:p></span></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-27072029748511113052019-07-29T11:53:00.001-04:002019-07-29T11:53:30.981-04:00IRS has begun sending letters to virtual currency owners advising them to pay back taxes and/or file amended returns<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="WordSection1">
<div class="MsoNormal" style="layout-grid-mode: char; margin-top: 13.85pt;">
<span style="color: black; font-family: "Arial",sans-serif; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">In IR-2019-132, July 26, 2019, the Internal Re<span style="letter-spacing: -.05pt;">v</span>enue Service has b<span style="letter-spacing: -.15pt;">e</span>gu<span style="letter-spacing: -.15pt;">n</span> sending letters
to taxpayers <span style="letter-spacing: -.15pt;">w</span>ith virtual cur<span style="letter-spacing: .05pt;">r</span>enc<span style="letter-spacing: -.1pt;">y</span>
<span style="letter-spacing: .05pt;">tr</span>ansa<span style="letter-spacing: -.1pt;">c</span><span style="letter-spacing: .05pt;">t</span>ions <span style="letter-spacing: .05pt;">t</span><span style="letter-spacing: -.1pt;">h</span>at
p<span style="letter-spacing: -.15pt;">o</span><span style="letter-spacing: .05pt;">t</span>entiall<span style="letter-spacing: -.1pt;">y</span> failed to<span style="letter-spacing: -.1pt;"> </span>re<span style="letter-spacing: -.15pt;">p</span>ort incom<span style="letter-spacing: -.1pt;">e</span> and pa<span style="letter-spacing: -.1pt;">y</span>
the resulting ta<span style="letter-spacing: -.05pt;">x</span> from virtual cur<span style="letter-spacing: .05pt;">r</span>enc<span style="letter-spacing: -.1pt;">y</span>
<span style="letter-spacing: .05pt;">tr</span>ansa<span style="letter-spacing: -.1pt;">c</span>tions <span style="letter-spacing: -.1pt;">o</span>r did not repo<span style="letter-spacing: -.1pt;">r</span>t their tran<span style="letter-spacing: -.1pt;">s</span>actions <span style="letter-spacing: -.1pt;">p</span>roperl<span style="letter-spacing: -.05pt;">y</span>.<o:p></o:p></span></div>
<div class="MsoNormal" style="layout-grid-mode: char; margin-top: 12.55pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<span style="color: black; font-family: "Arial",sans-serif; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">"<span style="letter-spacing: -.05pt;">Ta</span><span style="letter-spacing: -.15pt;">x</span><span style="letter-spacing: -.05pt;">pa</span><span style="letter-spacing: -.15pt;">y</span><span style="letter-spacing: -.05pt;">ers
should</span><span style="letter-spacing: -.15pt;"> </span>t<span style="letter-spacing: -.15pt;">a</span><span style="letter-spacing: -.05pt;">k</span><span style="letter-spacing: -.15pt;">e</span> <span style="letter-spacing: -.05pt;">these
le</span>tt<span style="letter-spacing: -.15pt;">e</span>r<span style="letter-spacing: -.15pt;">s</span><span style="letter-spacing: -.05pt;"> ver</span><span style="letter-spacing: -.1pt;">y</span><span style="letter-spacing: -.05pt;">
seriously by revie</span><span style="letter-spacing: .1pt;">w</span>ing their
tax f<span style="letter-spacing: -.15pt;">i</span>lings and when appropriate, <span style="letter-spacing: -.05pt;">a</span>m<span style="letter-spacing: -.05pt;">end
pa</span><span style="letter-spacing: -.15pt;">s</span>t<span style="letter-spacing: -.05pt;"> </span>r<span style="letter-spacing: -.05pt;">e</span><span style="letter-spacing: -.15pt;">t</span><span style="letter-spacing: -.05pt;">urn</span><span style="letter-spacing: -.15pt;">s</span> <span style="letter-spacing: -.05pt;">and</span><span style="letter-spacing: -.15pt;"> </span><span style="letter-spacing: -.05pt;">pa</span><span style="letter-spacing: -.15pt;">y</span> <span style="letter-spacing: -.05pt;">back
ta</span><span style="letter-spacing: -.15pt;">x</span><span style="letter-spacing: -.05pt;">es</span><span style="letter-spacing: -.15pt;">,</span><span style="letter-spacing: -.05pt;"> int</span>ere<span style="letter-spacing: -.1pt;">s</span>t
and penalties<span style="letter-spacing: -.1pt;">,</span>" said<span style="letter-spacing: -.1pt;"> </span>IRS Commissione<span style="letter-spacing: -.05pt;">r</span> Chuck Rettig. <span style="letter-spacing: .05pt;">"</span>Th<span style="letter-spacing: -.15pt;">e</span> <span style="letter-spacing: .05pt;">I</span>RS<span style="letter-spacing: .05pt;"> </span>is<span style="letter-spacing: .05pt;"> </span>e<span style="letter-spacing: -.1pt;">x</span>panding <span style="letter-spacing: -.1pt;">o</span>ur
<span style="letter-spacing: -.1pt;">e</span><span style="letter-spacing: .05pt;">ff</span><span style="letter-spacing: -.1pt;">o</span>rt<span style="letter-spacing: -.1pt;">s</span>
in<span style="letter-spacing: -.1pt;">v</span>ol<span style="letter-spacing: -.1pt;">v</span>ing <span style="letter-spacing: -.1pt;">v</span>irtual cu<span style="letter-spacing: -.1pt;">r</span>renc<span style="letter-spacing: -.05pt;">y</span>,
including increased use of data analytics. <span style="letter-spacing: .3pt;">W</span><span style="letter-spacing: -.1pt;">e</span> <span style="letter-spacing: -.1pt;">a</span><span style="letter-spacing: .05pt;">r</span>e focused on e<span style="letter-spacing: -.15pt;">n</span>fo<span style="letter-spacing: -.1pt;">r</span>cing the la<span style="letter-spacing: -.15pt;">w</span> and helping ta<span style="letter-spacing: -.1pt;">x</span>pa<span style="letter-spacing: -.1pt;">y</span>ers full<span style="letter-spacing: -.05pt;">y</span> understa<span style="letter-spacing: -.15pt;">n</span>d and meet their obligations."<o:p></o:p></span></div>
<div class="MsoNormal" style="layout-grid-mode: char; margin-top: 12.7pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<span style="color: black; font-family: "Arial",sans-serif; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Th<span style="letter-spacing: -.15pt;">e</span><span style="letter-spacing: .05pt;"> I</span>RS<span style="letter-spacing: .05pt;"> </span><span style="letter-spacing: -.1pt;">s</span><span style="letter-spacing: .05pt;">t</span>a<span style="letter-spacing: -.1pt;">r</span><span style="letter-spacing: .05pt;">t</span>e<span style="letter-spacing: -.15pt;">d</span><span style="letter-spacing: .05pt;"> </span>sending
<span style="letter-spacing: .05pt;">t</span>he<span style="letter-spacing: .05pt;">
“</span>educ<span style="letter-spacing: -.15pt;">a</span><span style="letter-spacing: .05pt;">t</span>ional<span style="letter-spacing: .05pt;"> </span>lett<span style="letter-spacing: -.1pt;">e</span><span style="letter-spacing: .05pt;">r</span><span style="letter-spacing: -.1pt;">s”</span><span style="letter-spacing: .05pt;"> t</span><span style="letter-spacing: -.1pt;">o</span><span style="letter-spacing: .05pt;"> t</span>a<span style="letter-spacing: -.1pt;">x</span>pa<span style="letter-spacing: -.1pt;">y</span>ers
last <span style="letter-spacing: -.15pt;">w</span>eek. B<span style="letter-spacing: -.05pt;">y</span> the end of August, more t<span style="letter-spacing: -.05pt;">han
1</span><span style="letter-spacing: -.1pt;">0</span><span style="letter-spacing: .05pt;">,</span>000<span style="letter-spacing: -.1pt;"> </span><span style="letter-spacing: .05pt;">t</span>a<span style="letter-spacing: -.1pt;">x</span>pa<span style="letter-spacing: -.1pt;">y</span>ers <span style="letter-spacing: -.15pt;">w</span><span style="letter-spacing: .05pt;">i</span>ll<span style="letter-spacing: .05pt;"> r</span>ecei<span style="letter-spacing: -.1pt;">v</span>e these let<span style="letter-spacing: .05pt;">t</span>er<span style="letter-spacing: -.1pt;">s</span><span style="letter-spacing: .05pt;">.</span> <o:p></o:p></span></div>
<div class="MsoNormal" style="layout-grid-mode: char; line-height: 99%; margin-top: 12.7pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<span style="color: black; font-family: "Arial",sans-serif; line-height: 99%; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Fo<span style="letter-spacing: .05pt;">r</span> <span style="letter-spacing: .05pt;">t</span>a<span style="letter-spacing: -.1pt;">x</span>pa<span style="letter-spacing: -.1pt;">y</span>ers
<span style="letter-spacing: .05pt;">r</span>ecei<span style="letter-spacing: -.1pt;">v</span>ing an<span style="letter-spacing: .05pt;"> </span>educa<span style="letter-spacing: .05pt;">t</span>ional<span style="letter-spacing: .05pt;"> </span>le<span style="letter-spacing: -.1pt;">t</span><span style="letter-spacing: .05pt;">t</span>e<span style="letter-spacing: -.1pt;">r</span><span style="letter-spacing: -.05pt;"> it
purpose is to </span>help ta<span style="letter-spacing: -.25pt;">x</span>payers
understand their tax and filing obligations and how to correct past errors.<o:p></o:p></span></div>
<div class="MsoNormal" style="layout-grid-mode: char; line-height: 100%; margin-top: 12.5pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<span style="color: black; font-family: "Arial",sans-serif; line-height: 100%; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Las<span style="letter-spacing: .05pt;">t </span><span style="letter-spacing: -.1pt;">y</span>ea<span style="letter-spacing: .05pt;">r</span> <span style="letter-spacing: .05pt;">t</span>h<span style="letter-spacing: -.15pt;">e</span><span style="letter-spacing: .05pt;"> </span>IRS
anno<span style="letter-spacing: -.1pt;">u</span>nced a </span><span style="font-family: "Arial",sans-serif; line-height: 100%; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Virtual Cu<span style="letter-spacing: -.1pt;">r</span>renc<span style="letter-spacing: -.1pt;">y</span> Compliance campa<span style="letter-spacing: -.15pt;">i</span>gn <span style="color: black;">t<span style="letter-spacing: -.05pt;">o</span> address tax noncompliance <span style="letter-spacing: .05pt;">r</span>elated <span style="letter-spacing: .05pt;">t</span>o<span style="letter-spacing: -.1pt;"> </span><span style="letter-spacing: .05pt;">t</span>he<span style="letter-spacing: .05pt;"> </span><span style="letter-spacing: -.1pt;">u</span>se
<span style="letter-spacing: -.1pt;">o</span><span style="letter-spacing: .05pt;">f
</span><span style="letter-spacing: -.1pt;">v</span>i<span style="letter-spacing: .05pt;">r</span>t<span style="letter-spacing: -.1pt;">u</span>al currenc<span style="letter-spacing: -.1pt;">y</span> thro<span style="letter-spacing: -.1pt;">u</span>g<span style="letter-spacing: -.1pt;">h</span> outr<span style="letter-spacing: -.1pt;">e</span>ach
and exam<span style="letter-spacing: .1pt;">i</span>nation<span style="letter-spacing: -.05pt;">s</span> of taxpayers. The IRS <span style="letter-spacing: -.15pt;">w</span>ill
<span style="letter-spacing: -.05pt;">remain a</span><span style="letter-spacing: -.15pt;">c</span><span style="letter-spacing: -.05pt;">ti</span><span style="letter-spacing: -.15pt;">v</span><span style="letter-spacing: -.05pt;">el</span><span style="letter-spacing: -.15pt;">y</span><span style="letter-spacing: -.05pt;">
engage</span><span style="letter-spacing: -.2pt;">d</span><span style="letter-spacing: -.05pt;"> in addressi</span><span style="letter-spacing: -.15pt;">n</span><span style="letter-spacing: -.05pt;">g non-c</span><span style="letter-spacing: -.1pt;">o</span><span style="letter-spacing: -.05pt;">mpliance </span>related to virtual currency
transactions through a variety of efforts, ranging from taxpayer education to
audits to criminal investigations.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="layout-grid-mode: char; margin-top: 12.55pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<u><span style="color: black; font-family: "Arial",sans-serif; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Vi<span style="letter-spacing: .05pt;">r</span>tual cu<span style="letter-spacing: -.1pt;">r</span>renc<span style="letter-spacing: -.1pt;">y</span>
is a<span style="letter-spacing: -.15pt;">n</span> ongoi<span style="letter-spacing: -.1pt;">n</span>g focu<span style="letter-spacing: -.1pt;">s</span> are<span style="letter-spacing: -.05pt;">a</span> for IRS Criminal Investigation.<o:p></o:p></span></u></div>
<div class="MsoNormal" style="layout-grid-mode: char; margin-top: 12.65pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<span style="color: black; font-family: "Arial",sans-serif; letter-spacing: .05pt; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">I</span><span style="color: black; font-family: "Arial",sans-serif; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">RS </span><span style="font-family: "Arial",sans-serif; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Notice<span style="letter-spacing: .05pt;"> </span>201<span style="letter-spacing: -.15pt;">4</span><span style="letter-spacing: .05pt;">-</span>21 <span style="color: black;">s<span style="letter-spacing: .05pt;">t</span><span style="letter-spacing: -.1pt;">a</span>tes
th<span style="letter-spacing: -.15pt;">a</span><span style="letter-spacing: .05pt;">t
</span><span style="letter-spacing: -.1pt;">v</span>i<span style="letter-spacing: .05pt;">rt</span>ual<span style="letter-spacing: .05pt;"> </span>c<span style="letter-spacing: -.1pt;">u</span>rre<span style="letter-spacing: -.15pt;">n</span>c<span style="letter-spacing: -.1pt;">y</span> is prop<span style="letter-spacing: -.15pt;">e</span>rt<span style="letter-spacing: -.1pt;">y</span> f<span style="letter-spacing: -.1pt;">o</span>r
federal ta<span style="letter-spacing: -.05pt;">x</span> purposes and provides
guidance o<span style="letter-spacing: -.15pt;">n</span> how gen<span style="letter-spacing: -.1pt;">e</span>r<span style="letter-spacing: -.1pt;">a</span>l
federal ta<span style="letter-spacing: -.1pt;">x</span> principles a<span style="letter-spacing: -.1pt;">p</span>pl<span style="letter-spacing: -.05pt;">y</span>
to virtual currency transactions. Compliance <span style="letter-spacing: -.1pt;">e</span><span style="letter-spacing: .05pt;">f</span>f<span style="letter-spacing: -.1pt;">o</span><span style="letter-spacing: .05pt;">rt</span><span style="letter-spacing: -.1pt;">s</span>
follo<span style="letter-spacing: -.15pt;">w</span> these<span style="letter-spacing: -.1pt;"> </span>gen<span style="letter-spacing: -.1pt;">e</span>ral ta<span style="letter-spacing: -.1pt;">x</span> principles<span style="letter-spacing: -.05pt;">.</span> The I<span style="letter-spacing: -.15pt;">R</span>S will
continue to consider and solicit taxpayer and practitioner feedback in
education efforts and future guidance.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="layout-grid-mode: char; margin-top: 12.65pt; mso-layout-grid-align: none; text-align: justify; text-autospace: none;">
<span style="font-family: Arial, sans-serif;">Ta</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">x</span><span style="font-family: Arial, sans-serif;">pa</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">y</span><span style="font-family: Arial, sans-serif;">ers </span><span style="font-family: Arial, sans-serif; letter-spacing: -0.15pt;">w</span><span style="font-family: Arial, sans-serif;">ho</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> </span><span style="font-family: Arial, sans-serif;">do</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> </span><span style="font-family: Arial, sans-serif;">not</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> </span><span style="font-family: Arial, sans-serif;">p</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">r</span><span style="font-family: Arial, sans-serif;">operl</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">y</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> r</span><span style="font-family: Arial, sans-serif;">eport</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> t</span><span style="font-family: Arial, sans-serif;">h</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.15pt;">e</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> </span><span style="font-family: Arial, sans-serif;">inco</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;">m</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">e</span><span style="font-family: Arial, sans-serif;"> </span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;">t</span><span style="font-family: Arial, sans-serif;">a</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">x</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> </span><span style="font-family: Arial, sans-serif;">cons</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">e</span><span style="font-family: Arial, sans-serif;">quence</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">s</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;"> </span><span style="font-family: Arial, sans-serif; letter-spacing: -0.05pt;">o</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.05pt;">f </span><span style="font-family: Arial, sans-serif;">virtual curre</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.15pt;">n</span><span style="font-family: Arial, sans-serif;">cy transactions </span><span style="font-family: Arial, sans-serif; letter-spacing: -0.05pt;">are,</span><span style="font-family: Arial, sans-serif;">
</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.2pt;">w</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.05pt;">hen
appropriat</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.15pt;">e</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.05pt;">, liab</span><span style="font-family: Arial, sans-serif;">le</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">
</span><span style="font-family: Arial, sans-serif;">fo</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">r</span><span style="font-family: Arial, sans-serif;"> ta</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">x</span><span style="font-family: Arial, sans-serif;">, penalties a</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">n</span><span style="font-family: Arial, sans-serif;">d intere</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">s</span><span style="font-family: Arial, sans-serif;">t. In s</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">o</span><span style="font-family: Arial, sans-serif;">me</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;"> </span><span style="font-family: Arial, sans-serif;">case</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.1pt;">s</span><span style="font-family: Arial, sans-serif;">,
</span><span style="font-family: Arial, sans-serif; letter-spacing: 0.3pt;">t</span><span style="font-family: Arial, sans-serif;">a</span><span style="font-family: Arial, sans-serif; letter-spacing: -0.05pt;">x</span><span style="font-family: Arial, sans-serif;">payers
could be subject to criminal prosecution.</span></div>
</div>
<span style="color: black; font-family: "Arial",sans-serif; font-size: 11.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 12.0pt; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;"><br clear="all" style="mso-break-type: section-break; page-break-before: always;" />
</span>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-69939293312037454622019-07-16T11:30:00.002-04:002019-07-16T11:30:52.429-04:00Advance Payment for Goods--Reg. 1.451-5 Removed by TD 9870<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="NormalLeftHead" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
</div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Prior to the TCJA, Reg. §1.451-5
provided special rules for advanced payment for goods and long term contracts.
These rules were superseded by revised IRC §451(c). The prior regulations
implementing IRC §451 allowed taxpayers generally to defer the recognition of
advance payment for goods until the tax year in which the payments were properly
accruable under the taxpayer's method of accounting for tax purposes if that
method results in the payments being included in gross income no later than
when they are includible in gross receipts under the taxpayer's method of
accounting for financial reporting purposes.<span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;"><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn1" style="mso-footnote-id: ftn1;" title="">[1]</a></span></span><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn1" title=""><!--[endif]--></a></span></span><o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><span class="MsoFootnoteReference"><br /></span></span></span></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Revised IRC §451(c) and its
election to defer advance payments removed the deferral method provided by Reg.
§1.451-5.<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[2]</span></span><!--[endif]--></span></span></a>
On July 15, 2019 the Treasury issued <a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=ica6b622be6234df9c86cc8680ee7763f&SrcDocId=T0FEDNEWS%3AI3edf18cee38d45a-1&feature=thome&lastCpReqId=6a8391&tabPg=3000" target="_top"><span style="color: windowtext; letter-spacing: .1pt; text-decoration: none; text-underline: none;">T.D. 9870</span></a> and removed Reg. §1.451-5 and
its cross references. Removing Reg. §1.451-5 ensures that the new deferral
rules of IRC §451(c) apply uniformly and consistently to all taxpayers and
simplifies tax administration. The rules of IRC §446 regarding changes in methods
of accounting apply to taxpayers changing a method of accounting for advance payments
from a method described in Reg. §1.451-5 to another method of accounting<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[3]</span></span><!--[endif]--></span></span></a>.
<b style="mso-bidi-font-weight: normal;">The removal of <a href="https://www.blogger.com/null" name="Te27fdc2747ce45998c7e017af999f78f"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=i052f4020096b11dc8063c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI3edf18cee38d45a-1&feature=thome&lastCpReqId=6afe03" target="_top"><span style="mso-bookmark: Te27fdc2747ce45998c7e017af999f78f;"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">Reg. §1.451-5</span></span><span style="mso-bookmark: Te27fdc2747ce45998c7e017af999f78f;"></span></a><span style="mso-bookmark: Te27fdc2747ce45998c7e017af999f78f;"></span> is
effective for tax years ending on or after Jul. 15, 2019. </b><o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><b style="mso-bidi-font-weight: normal;"><br /></b></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<a href="https://www.blogger.com/null" name="Te970f59511fd4e7199b2e8257933d7f5"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Current Rule<o:p></o:p></span></i></b></a></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<a href="https://www.blogger.com/null" name="Te970f59511fd4e7199b2e8257933d7f5"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><br /></span></i></b></a></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="mso-bookmark: Te970f59511fd4e7199b2e8257933d7f5;"></span><a href="https://checkpoint.riag.com/app/mobile/docLinkNew?usid=19af3fs146244&DocID=iba6ab8b219d711dcb1a9c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI3edf18cee38d45a-1&feature=tnews&pinpnt=TCODE%3A48688.1&mobileHash=TCODE%3A48688.1"><span style="mso-bookmark: Te970f59511fd4e7199b2e8257933d7f5;"><span lang="EN-IN" style="color: windowtext; mso-bidi-font-size: 12.0pt; text-decoration: none; text-underline: none;">Code §451(c)</span></span></a><span style="mso-bookmark: Te970f59511fd4e7199b2e8257933d7f5;"></span><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"> generally requires an accrual method taxpayer that receives any
advance payment described in <a href="https://www.blogger.com/null" name="T8d6db61e26e64a2baf6383e586109152"></a><a href="https://checkpoint.riag.com/app/mobile/docLinkNew?usid=19af3fs146244&DocID=iba6ab8b219d711dcb1a9c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI3edf18cee38d45a-1&feature=tnews&pinpnt=TCODE%3A48692.1&mobileHash=TCODE%3A48692.1"><span style="mso-bookmark: T8d6db61e26e64a2baf6383e586109152;"><span style="color: windowtext; text-decoration: none; text-underline: none;">IRC §451(c)(4)</span></span></a><span style="mso-bookmark: T8d6db61e26e64a2baf6383e586109152;"></span> during the tax
year to include the advance payment in income in the tax year of receipt <em>or
</em>make an election to: <o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><br /></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(1) include any portion of the
advance payment in income in the tax year of receipt to the extent required
under <a href="https://www.blogger.com/null" name="Ta5e892c43b284ea4af6a761de4a10cd5"></a><a href="https://checkpoint.riag.com/app/mobile/docLinkNew?usid=19af3fs146244&DocID=iba6ab8b219d711dcb1a9c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI3edf18cee38d45a-1&feature=tnews&pinpnt=TCODE%3A48680.1&mobileHash=TCODE%3A48680.1"><span style="mso-bookmark: Ta5e892c43b284ea4af6a761de4a10cd5;"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec. 451(b)</span></span></a><span style="mso-bookmark: Ta5e892c43b284ea4af6a761de4a10cd5;"></span>; and <o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><br /></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(2) include the remaining portion
of the advance payment in income in the following tax year. <o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><br /></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Under IRC 451(c)(2) a taxpayer may
make a deferral election for any portion of the advance payment that is otherwise
required to be included in gross income under financial statement rules.<span style="mso-spacerun: yes;"> </span>If the election is made the advance payment
would be included in gross income in the tax year in which it is received and
the remaining portion of the advance payment would be included in gross income
in the tax year following the tax year in which it is received.<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[4]</span></span><!--[endif]--></span></span></a></span><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">
An item of gross income is received by the taxpayer if it is actually or
constructively received, or if it is due and payable to the taxpayer.<span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;"><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn5" style="mso-footnote-id: ftn5;" title="">[5]</a></span></span><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn5" title=""><!--[endif]--></a></span></span><o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><span class="MsoFootnoteReference"><br /></span></span></span></span></div>
<div class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Treasury
and the IRS expect to issue guidance for the treatment of advance payments to implement
the TCJA amendments to <a href="https://www.blogger.com/null" name="TRCON:589423.264-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=iba6ab8b219d711dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.264-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">IRC §451</span></span><span style="mso-bookmark: "TRCON\:589423\.264-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.264-1";"></span>. In the meantime, taxpayers with or without <a href="https://www.blogger.com/null" name="TRCON:589423.265-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=i472a1659e42e6486e768da85123f5c41&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&pinpnt=TRCON%3A589423.301&tabPg=40&d=d#TRCON%3A589423.301" target="_top"><span style="mso-bookmark: "TRCON\:589423\.265-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">applicable financial statements</span></span><span style="mso-bookmark: "TRCON\:589423\.265-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.265-1";"></span> may continue to rely on <a href="https://www.blogger.com/null" name="TRCON:589423.266-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=ic8fa14f032ad11dd877bc7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.266-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">Rev. Proc. 2004-34</span></span><span style="mso-bookmark: "TRCON\:589423\.266-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.266-1";"></span> for the treatment of advance payments.
Until new guidance is issued, the IRS will not challenge a taxpayer’s use
of <a href="https://www.blogger.com/null" name="TRCON:589423.267-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=ic8fa14f032ad11dd877bc7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.267-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">Rev Proc 2004-34</span></span><span style="mso-bookmark: "TRCON\:589423\.267-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.267-1";"></span> to satisfy the requirements of <a href="https://www.blogger.com/null" name="TRCON:589423.268-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=iba6ab8b219d711dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.268-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">IRC § 451</span></span><span style="mso-bookmark: "TRCON\:589423\.268-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.268-1";"></span>, although it will continue to verify on
examination that taxpayers are properly applying <a href="https://www.blogger.com/null" name="TRCON:589423.269-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=ic8fa14f032ad11dd877bc7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.269-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">Rev Proc 2004-34</span></span><span style="mso-bookmark: "TRCON\:589423\.269-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.269-1";"></span><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[6]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">How to elect to defer inclusion of
advance payments in income.</span></b><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"> The IRS is instructed to provide details on making the election to
defer the inclusion of advance payments in income. This includes the time, form
and manner, and the categories of advance payments. The election will be
effective for the tax year with respect to which it is first made and for all
subsequent tax years, unless the taxpayer obtains the IRS's consent to revoke
the election.<span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;"><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn7" style="mso-footnote-id: ftn7;" title="">[7]</a></span></span><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn7" title=""><!--[endif]--></a></span></span></span><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><span class="MsoFootnoteReference"><br /></span></span></span></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Change of accounting method.</span></b><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"> The computation of taxable income
under the deferral election for advance payments is treated as a method of
accounting.<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn8" name="_ftnref8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[8]</span></span><!--[endif]--></span></span></a></span><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">
In the case of any qualified change of accounting method for the taxpayer's
first tax year beginning after December 31, 2017, the change is treated as
initiated by the taxpayer and made with the IRS's consent. A qualified change
of accounting method is any change of accounting method that is required by the
new income recognition rules or was prohibited and is now permitted under the
new rules.<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn9" name="_ftnref9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[9]</span></span><!--[endif]--></span></span></a>
For a qualified change of accounting method involving income from a debt
instrument with original issue discount (OID), taxpayers should use a six-year
period for taking into account any required IRC §481 adjustments.<span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;"><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn10" style="mso-footnote-id: ftn10;" title="">[10]</a></span></span><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn10" title=""><!--[endif]--></a></span></span><o:p></o:p></span></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><span class="MsoFootnoteReference"><br /></span></span></span></span></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 107%;">What
is an Advance Payment?<o:p></o:p></span></b></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><br /></span></b></div>
<div class="Para" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Rev. Proc. 2004-34 allows a
one-year deferral in certain cases of prepaid income. <u>The ruling pertains to
prepayment for services to be rendered before the end of the next succeeding
year</u>. In particular, Rev. Proc. 2004-34 provides that a payment received by
a taxpayer is an advance payment if:<o:p></o:p></span></div>
<div class="Para" style="margin-left: 54.45pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: -27.2pt;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(1)<span style="mso-tab-count: 1;"> </span>the inclusion of the
payment in gross income for the taxable year of receipt is a permissible method
of accounting for federal income tax purposes;<o:p></o:p></span></div>
<div class="Para" style="margin-left: 54.45pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: -27.2pt;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(2)<span style="mso-tab-count: 1;"> </span>the payment is recognized
by the taxpayer (in whole or in part) in revenues in the taxpayer's applicable
financial statement for a subsequent taxable year or, for taxpayers without an
applicable financial statement, the payment is earned by the taxpayer (in whole
or in part) in a subsequent taxable year; and<o:p></o:p></span></div>
<div class="Para" style="margin-left: 54.45pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: -27.2pt;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(3)<span style="mso-tab-count: 1;"> </span>the payment is for<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(a)<span style="mso-tab-count: 1;"> </span>services;<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(b)<span style="mso-tab-count: 1;"> </span> the
sale of goods; <o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(c)<span style="mso-tab-count: 1;"> </span>the
use (including by license or lease) of intellectual property;<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(d)<span style="mso-tab-count: 1;"> </span>the
occupancy or use of property, if the occupancy or use is ancillary to the
provision of services (for example, advance payments for the use of rooms or
other quarters in a hotel, booth space at a trade show, campsite space at a
mobile home park, and recreational or banquet facilities, or other uses of
property so long as the use is ancillary to the provision of services to the
property user);<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(e)<span style="mso-tab-count: 1;"> </span>the
sale, lease, or license of computer software;<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(f)<span style="mso-tab-count: 1;"> </span>guaranty
or warranty contracts ancillary to an item or items described in subparagraph
(a), (b), (c), (d), or (e), above;<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(g)<span style="mso-tab-count: 1;"> </span>subscriptions
(other than subscriptions for which an election under IRC §455 is in effect),
whether or not provided in a tangible or intangible format;<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(h)<span style="mso-tab-count: 1;"> </span>memberships
in an organization (other than memberships for which an election under IRC §456
is in effect);<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 90.7pt; mso-add-space: auto; mso-list: l2 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: -.5in;">
<!--[if !supportLists]--><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(i)<span style="font-family: "Times New Roman"; font-stretch: normal; font-style: normal; font-variant: normal; font-weight: normal; line-height: normal;">
</span></span></span><!--[endif]--><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">an
eligible gift card sale; or<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 90.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">(j)<span style="mso-tab-count: 1;"> </span>any
combination of items described in subparagraphs (a) through (i) above.<o:p></o:p></span></div>
<div class="ParaCxSpMiddle" style="margin-left: 54.7pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: 0in;">
<br /></div>
<div class="ParaCxSpMiddle" style="margin-left: 27.35pt; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-indent: -27.35pt;">
<a href="https://www.blogger.com/null" name="TRCON:589423.264"></a><a href="https://www.blogger.com/null" name="TRCON:589423.265"></a><a href="https://www.blogger.com/null" name="TRCON:589423.266"></a><a href="https://www.blogger.com/null" name="TRCON:589423.267"></a><a href="https://www.blogger.com/null" name="TRCON:589423.268"></a><a href="https://www.blogger.com/null" name="TRCON:589423.269"></a><span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;"><span style="mso-spacerun: yes;"> </span><b style="mso-bidi-font-weight: normal;"><i>What Are Not Advance Payments<o:p></o:p></i></b></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">Under Rev. Proc. 2004-34, the term “advance
payment” does not include:<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Insurance
premiums, to the extent the recognition of those premiums are governed by
Subchapter L;<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Payments
with respect to financial instruments (for example, debt instruments, deposits,
letters of credit, notional principal contracts, options, forward contracts,
futures contracts, foreign currency contracts, credit card agreements,
financial derivatives, etc.), including purported prepayments of interest;<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Payments
with respect to service warranty contracts for which the taxpayer uses the
accounting method provided in Rev. Proc. 97-38;<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn11" name="_ftnref11" style="mso-footnote-id: ftn11;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[11]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Payments
with respect to warranty and guaranty contracts under which a third party is
the primary obligor;<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Payments
subject to IRC §§871(a), 881, 1441, or 1442;<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Payments
in property to which IRC §83 applies;<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Rent;
and<o:p></o:p></span></div>
<div align="left" class="ParaCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<br /></div>
<div align="left" class="ParaCxSpLast" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left; text-indent: 0in;">
<span lang="EN-IN" style="mso-bidi-font-size: 12.0pt;">•<span style="mso-tab-count: 1;"> </span>Any
other payment identified by the IRS for this purpose.<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn12" name="_ftnref12" style="mso-footnote-id: ftn12;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[12]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
<h4 style="line-height: 16.8pt; margin-bottom: 12.0pt; margin-left: 0in; margin-right: 0in; margin-top: 12.0pt;">
<i>Advance Payment” Defined Under </i><i style="mso-bidi-font-style: normal;">IRC §451(c)(4)<span style="mso-bidi-font-style: italic;"><o:p></o:p></span></i></h4>
<div style="margin-bottom: 6.0pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<span lang="EN-IN">Under IRC §451(c)(4) an “advance payment” is any payment<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-138"></a>:<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn13" name="_ftnref13" style="mso-footnote-id: ftn13;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[13]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l1 level1 lfo1; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">the full
inclusion of which in the taxpayer’s gross income for the tax year of
receipt is a permissible method of accounting under IRC §451<a href="https://www.blogger.com/null" name="TRCON:589423.277"></a> (determined without regard to <a href="https://www.blogger.com/null" name="TRCON:589423.278-1">IRC §451</a><a href="https://www.blogger.com/null" name="TRCON:589423.278"></a><a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-139"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn14" name="_ftnref14" style="mso-footnote-id: ftn14;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[14]</span></span><!--[endif]--></span></span></a>;<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l1 level1 lfo1; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">any portion
of which is included in revenue by the taxpayer in a financial statement
described in <a href="https://www.blogger.com/null" name="TRCON:589423.280-1"><span style="letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC §451(b)(1)(A)(i)</span></a><a href="https://www.blogger.com/null" name="TRCON:589423.280"></a> or <a href="https://www.blogger.com/null" name="TRCON:589423.281-1"><span style="letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC §451(b)(1)(A)(ii)</span></a><a href="https://www.blogger.com/null" name="TRCON:589423.281"></a> for a later tax year<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-140"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn15" name="_ftnref15" style="mso-footnote-id: ftn15;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[15]</span></span><!--[endif]--></span></span></a>
and<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l1 level1 lfo1; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">which is for
goods, services, or other items as the IRS may identify for these purposes<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-141"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn16" name="_ftnref16" style="mso-footnote-id: ftn16;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[16]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></li>
</ul>
<div style="margin-bottom: 6.0pt; margin-left: 0in; margin-right: 0in; margin-top: 6.0pt;">
<span lang="EN-IN">Except as otherwise provided by the IRS, an advance
payment does not include:<o:p></o:p></span></div>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">rent<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-142"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn17" name="_ftnref17" style="mso-footnote-id: ftn17;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[17]</span></span><!--[endif]--></span></span></a>;<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">insurance
premiums governed by subchapter L (<a href="https://www.blogger.com/null" name="TRCON:589423.285-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=id2a4114e19d711dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.285-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">IRC §801</span></span><span style="mso-bookmark: "TRCON\:589423\.285-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.285-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.285"></a> through <a href="https://www.blogger.com/null" name="TRCON:589423.286-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=id87ab80c19d711dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.286-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">IRC §848</span></span><span style="mso-bookmark: "TRCON\:589423\.286-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.286-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.286"></a>)<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-143"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn18" name="_ftnref18" style="mso-footnote-id: ftn18;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[18]</span></span><!--[endif]--></span></span></a>;<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">payments as
to financial instruments<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-144"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn19" name="_ftnref19" style="mso-footnote-id: ftn19;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[19]</span></span><!--[endif]--></span></span></a>;<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">payments as
to warranty or guarantee contracts under which a third party is the
primary obligor<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-145"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn20" name="_ftnref20" style="mso-footnote-id: ftn20;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[20]</span></span><!--[endif]--></span></span></a>;<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">payments
subject to:<o:p></o:p></span></li>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level2 lfo2; tab-stops: list 1.0in;"><a href="https://www.blogger.com/null" name="TRCON:589423.290-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=idea83aba19d711dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&pinpnt=TCODE%3A15576.1&tabPg=40&d=d#TCODE%3A15576.1" target="_top"><span style="mso-bookmark: "TRCON\:589423\.290-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt; text-decoration: none;">IRC §871(a)</span></span><span style="mso-bookmark: "TRCON\:589423\.290-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.290-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.290"></a><span style="font-family: "Times New Roman", serif;"> (<em>i.e.,</em> the tax on income of
nonresident alien individuals not connected with a U.S. business),<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level2 lfo2; tab-stops: list 1.0in;"><a href="https://www.blogger.com/null" name="TRCON:589423.291-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=i7a09fc8096526accf33abffdc2edb57e&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.291-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt;">IRC §</span></span><span style="mso-bookmark: "TRCON\:589423\.291-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt; text-decoration: none;">881</span></span><span style="mso-bookmark: "TRCON\:589423\.291-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.291-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.291"></a><span style="font-family: "Times New Roman", serif;"> (<em>i.e.,</em> the tax on income of
foreign corporations not connected with a U.S. business),<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level2 lfo2; tab-stops: list 1.0in;"><a href="https://www.blogger.com/null" name="TRCON:589423.292-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=i099b27fa19d811dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.292-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt;">IRC §</span></span><span style="mso-bookmark: "TRCON\:589423\.292-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt; text-decoration: none;">1441</span></span><span style="mso-bookmark: "TRCON\:589423\.292-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.292-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.292"></a><span style="font-family: "Times New Roman", serif;"> (<em>i.e.,</em> the tax withheld on
certain amounts paid to foreign persons), or<o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level2 lfo2; tab-stops: list 1.0in;"><a href="https://www.blogger.com/null" name="TRCON:589423.293-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=i09ce9d0619d811dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.293-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt;">IRC §</span></span><span style="mso-bookmark: "TRCON\:589423\.293-1";"><span style="color: windowtext; font-family: "Times New Roman", serif; letter-spacing: 0.1pt; text-decoration: none;">1442</span></span><span style="mso-bookmark: "TRCON\:589423\.293-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.293-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.293"></a><span style="font-family: "Times New Roman", serif;"> (<em>i.e.,</em> the tax withheld from
income of foreign corporations)<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-146"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn21" name="_ftnref21" style="mso-footnote-id: ftn21;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[21]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></li>
</ul>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">payments in
property to which <a href="https://www.blogger.com/null" name="TRCON:589423.295-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=i7f31e1c619d711dcb1a9c7f8ee2eaa77&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&tabPg=40" target="_top"><span style="mso-bookmark: "TRCON\:589423\.295-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC
§</span></span><span style="mso-bookmark: "TRCON\:589423\.295-1";"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">83</span></span><span style="mso-bookmark: "TRCON\:589423\.295-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.295-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.295"></a> (taxation of property transferred in
connection with the performance of services., and<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-147"></a><o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; margin-bottom: .05in; margin-top: .05in; mso-list: l0 level1 lfo2; tab-stops: list .5in;"><span style="font-family: "Times New Roman", serif;">any other
payment identified by the IRS for purposes of IRC §451(c)(4)(B)<a href="https://www.blogger.com/null" name="TRCON:589423.298"></a><a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-148"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn22" name="_ftnref22" style="mso-footnote-id: ftn22;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman", serif; line-height: 107%;">[22]</span></span><!--[endif]--></span></span></a>.
<o:p></o:p></span></li>
</ul>
<div style="margin-bottom: 6.0pt; margin-left: 0in; margin-right: 0in; margin-top: 6.0pt;">
<span lang="EN-IN">An item of gross income is received by the taxpayer if it
is actually or constructively received, or if it is due and payable to the
taxpayer<a href="https://www.blogger.com/null" name="SRCREF755:114-755:110-149"></a><a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftn23" name="_ftnref23" style="mso-footnote-id: ftn23;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman", serif; line-height: 107%;">[23]</span></span><!--[endif]--></span></span></a>.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="mso-tab-count: 1;"> </span>Until
Treasury issues new guidance regarding advance payment for goods, taxpayer can
rely on IRC §451(c)(4) for treatment of advance payments.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></div>
<div style="mso-element: footnote-list;">
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: 6.65pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[1]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <i>See</i> Reg. §1.451-5(b)(1)(ii)(a).</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn2" style="mso-element: footnote;">
<div align="left" class="MsoFootnoteTextCxSpLast" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[2]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> See H.R. Rep. No. 115-466, at 429 n.880 (2017) (Conf. Rep.).</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn3" style="mso-element: footnote;">
<h4>
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="font-size: 10.0pt; font-weight: normal; mso-bidi-font-weight: bold;"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">[3]</span></span><!--[endif]--></span></span></span></a><span style="font-size: 10.0pt; font-weight: normal; mso-bidi-font-weight: bold;"> <a href="https://www.blogger.com/null" name="T04f30b2eafa0470db55cfcea261b8f78"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=ica6b622be6234df9c86cc8680ee7763f&SrcDocId=T0FEDNEWS%3AI3edf18cee38d45a-1&feature=thome&lastCpReqId=6a8391&tabPg=3000" target="_top"><span style="mso-bookmark: T04f30b2eafa0470db55cfcea261b8f78;"><span style="color: windowtext; letter-spacing: .1pt; text-decoration: none; text-underline: none;">T.D. 9870</span></span><span style="mso-bookmark: T04f30b2eafa0470db55cfcea261b8f78;"></span></a><span style="mso-bookmark: T04f30b2eafa0470db55cfcea261b8f78;"></span>.</span><o:p></o:p></h4>
</div>
<div id="ftn4" style="mso-element: footnote;">
<div align="left" class="MsoFootnoteTextCxSpFirst" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[4]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> IRC §451(c)(1)(B), as added by TCJA.</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn5" style="mso-element: footnote;">
<div align="left" class="MsoFootnoteTextCxSpMiddle" style="mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[5]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> </span><span lang="EN-IN" style="mso-fareast-font-family: "Times New Roman";">IRC
§451(c) (4)(C), as added by TCJA.</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn6" style="mso-element: footnote;">
<div class="MsoFootnoteTextCxSpMiddle">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref6" name="_ftn6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[6]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <a href="https://www.blogger.com/null" name="TRCON:589423.270-1"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?usid=19af3fk146e68&DocID=i749269f51cefeef1a13eb5bedfda20fa&SrcDocId=T0TRCON%3A589423.1-1&feature=tcheckpoint&lastCpReqId=69ec33&pinpnt=RULNG70%3A20006.37&tabPg=40&d=d#RULNG70%3A20006.37" target="_top"><span style="mso-bookmark: "TRCON\:589423\.270-1";"><span style="background: white; color: #145da4; letter-spacing: .1pt; mso-bidi-font-weight: bold;">Notice 2018-35, Sec. 3</span></span><span style="mso-bookmark: "TRCON\:589423\.270-1";"></span></a><span style="mso-bookmark: "TRCON\:589423\.270-1";"></span><a href="https://www.blogger.com/null" name="TRCON:589423.270"></a><span style="background: white; color: #252525;">.</span></span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn7" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: 8.5pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref7" name="_ftn7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[7]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> IRC §451(c)(2), as added by TCJA.</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn8" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: 8.5pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref8" name="_ftn8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[8]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> IRC §451(c)(2)(B), as added by TCJA.</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn9" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: 8.5pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref9" name="_ftn9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[9]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> </span><span lang="EN-IN" style="mso-fareast-font-family: "Times New Roman";">TCJA
§13221(d).</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn10" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: 8.5pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref10" name="_ftn10" style="mso-footnote-id: ftn10;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[10]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> </span><span lang="EN-IN" style="mso-fareast-font-family: "Times New Roman";">TCJA
§13221(e)(2).</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn11" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: 8.5pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref11" name="_ftn11" style="mso-footnote-id: ftn11;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[11]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> 1997-2 CB 479.</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn12" style="mso-element: footnote;">
<div class="MsoFootnoteText" style="margin-left: 11.35pt; text-indent: -11.35pt;">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref12" name="_ftn12" style="mso-footnote-id: ftn12;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[12]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> IRC §451(c)(4)(B), <i>as added by the</i> TCJA.</span><span style="mso-ansi-language: EN-US;"><o:p></o:p></span></div>
</div>
<div id="ftn13" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref13" name="_ftn13" style="mso-footnote-id: ftn13;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[13]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <a href="https://www.blogger.com/null" name="TRCON:589423.276-1">I<span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">RC §
451(c)(4)(A)</span></a><a href="https://www.blogger.com/null" name="TRCON:589423.276"></a><span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">.</span><o:p></o:p></span></div>
</div>
<div id="ftn14" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref14" name="_ftn14" style="mso-footnote-id: ftn14;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[14]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <a href="https://www.blogger.com/null" name="TRCON:589423.279-1"><span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(A)(i)</span></a><a href="https://www.blogger.com/null" name="TRCON:589423.279"></a>.<o:p></o:p></span></div>
</div>
<div id="ftn15" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref15" name="_ftn15" style="mso-footnote-id: ftn15;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[15]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <a href="https://www.blogger.com/null" name="TRCON:589423.282-1">I<span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">RC §
451(c)(4)(A)(ii)</span></a><a href="https://www.blogger.com/null" name="TRCON:589423.282"></a><span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">.</span><o:p></o:p></span></div>
</div>
<div id="ftn16" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref16" name="_ftn16" style="mso-footnote-id: ftn16;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[16]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> I<span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">RC § 451(c)(4)(A)(iii).</span><o:p></o:p></span></div>
</div>
<div id="ftn17" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref17" name="_ftn17" style="mso-footnote-id: ftn17;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[17]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <a href="https://www.blogger.com/null" name="TRCON:589423.284-1"><span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(B)(i)</span></a><a href="https://www.blogger.com/null" name="TRCON:589423.284"></a><span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">.</span><o:p></o:p></span></div>
</div>
<div id="ftn18" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref18" name="_ftn18" style="mso-footnote-id: ftn18;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[18]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(B)(ii)</span><o:p></o:p></span></div>
</div>
<div id="ftn19" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref19" name="_ftn19" style="mso-footnote-id: ftn19;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[19]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(B)(iii)</span><o:p></o:p></span></div>
</div>
<div id="ftn20" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref20" name="_ftn20" style="mso-footnote-id: ftn20;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[20]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(B)(iv)</span><o:p></o:p></span></div>
</div>
<div id="ftn21" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref21" name="_ftn21" style="mso-footnote-id: ftn21;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[21]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(B)(v)</span><o:p></o:p></span></div>
</div>
<div id="ftn22" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref22" name="_ftn22" style="mso-footnote-id: ftn22;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[22]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(B)(vii)</span><o:p></o:p></span></div>
</div>
<div id="ftn23" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Blogs/Advance%20Payment%20for%20Goods.docx#_ftnref23" name="_ftn23" style="mso-footnote-id: ftn23;" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="font-family: "Times New Roman",serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">[23]</span></span><!--[endif]--></span></span></span></a><span lang="EN-IN"> <span style="background: white; color: #252525; letter-spacing: .1pt; mso-bidi-font-weight: bold;">IRC § 451(c)(4)(C).</span><o:p></o:p></span></div>
</div>
</div>
<br /><br />
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-70062958550530539492019-07-11T10:36:00.001-04:002019-07-11T10:36:23.013-04:00It’s called the Setting Every Community Up for Retirement Enhancement, or the SECURE Act of 2019.<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal">
</div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Let’s
take a look.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Good Points-depending on
your individual situation.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">More
time in IRAs and 401(k)s.</span></b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"> The bill would push back the age for required minimum
distributions (RMDs) from 70½ to 72 years old. With 65,000 baby boomers
retiring daily, those who would rather not take their RMD’s and not have them
taxed and defer the distribution for two years this is a good feature. Moreover
the fund could continue to grow tax free. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Grant
part-time workers benefits.</span></b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"> Long-term part-time employees would be able to
participate in their company’s 401(k) plans.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Boost
small-business 401(k)s.</span></b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"> Small businesses could band together in group plans.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Annuity
adoptions.</span></b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">
Would allow employer-sponsored 401(k) plans to add annuities as investment
options on the menu.-this feature is favored by insurance companies as providing
annuities is a big market. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">529
plans.</span></b><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">
529 plans would be expanded to pay for expenses related to an apprenticeship or
to pay back as much as $10,000 in student loans.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Bad Points-depending on
your individual situation.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-outline-level: 3;">
<b><span style="color: #333333; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-outline-level: 3;">
<b><span style="color: #333333; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Age limits<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Investors
with 401(k) plans or other tax-deferred accounts would have another year and a
half before Uncle Sam required withdrawals. Instead of taking money out at 70½,
Americans would be able to wait until they turned 72. It gives extra time to
grow your investments before you have to start taking money out of your
accounts yet take the funds out at a later date would actuarially require
larger starting distributions as the time frame for taking the would be less.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">To
make up for lost tax revenue, the House bill would require Americans who
inherit an <u>IRA to withdraw the money within 10 years of the account owner’s
death, along with paying any taxes due.</u> Notwithstanding the surviving
spouses and minor children would be excluded. Under current law, heirs spend
down inherited IRA accounts over their lifetime, an estate-planning strategy
known as the “stretch IRA.” The SECURE Act would do away with the stretch IRA. This
is a big change and subjects the inherited IRA to income tax at a faster rate.
Apparently this was a tradeoff from a revenue perspective to allow a delay in
the RMD’s. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Moreover
from an estate planning perspective the elimination of the stretch IRA will
change the thinking of whether it is better to withdraw the IRA and have it
taxed at the (presumably) owner’s lower tax rate and pass on the net to his
heirs or maintain the fund, defer, and allow the fund to continue to grow. This
will be a new issue for estate planners to consider.<o:p></o:p></span></div>
<div class="MsoListParagraph" style="line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<a href="https://www.finance.senate.gov/imo/media/doc/RESA%20Summary%204.1.19-banner-converted.pdf"><span style="color: windowtext; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">The Senate version, known as RESA</span></a><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">, i<span style="color: #222222;">s
slightly less punitive and may instead call for a five-year payout period for
inherited IRAs over $400,000 per heir.<o:p></o:p></span></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Other Points<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">The
bill would require your employer’s 401(k)-type retirement plan to allow
“permanent” part-time workers to participate. To qualify, you would need to
have worked 500 or more hours a year (but fewer than 1,000 hours) for at least
three consecutive years. There are 2,080 hours in the traditional
40-hour-a-week year.<o:p></o:p></span></div>
<div class="MsoListParagraph" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-add-space: auto; mso-outline-level: 3;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-outline-level: 3;">
<b><span style="color: #333333; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">401(k) options for
small businesses<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">If
House and Senate bills pass and become law, small businesses could have the
option to join group plans alongside other companies. This lowers
administration and management costs and ideally makes higher-quality plans
available to small businesses and their workers.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Current
law allows small businesses starting a new retirement plan a $500 tax credit.
The SECURE Act bill would increase the credit to as much as $5,000, and apply
for three years. <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #333333; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><br /></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b><span style="color: #333333; font-family: "Times New Roman",serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Annuity options, good
and bad<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">The
bill would allow 401(k) plans to add annuities as an option for employees.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">The
idea is that annuities solve the problem of lifetime income for workers who
once received pensions. Annuities are insurance policies that convert
retirement savings into income. Common in pension plans, annuities to date have
not been popular in 401(k) plans.</span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">The
House bill would repeal the so-called <b style="mso-bidi-font-weight: normal;">kiddie
tax</b> changes beginning in 2019, although taxpayers could elect to use the
old tax rules for 2018 if they wish. This would be a welcome change for those
who were surprised by increases in tax under the new tax rules, which subjected
those children to the trust tax rates and brackets rather than using their
parents’ brackets. This is especially true for college students who received
taxable scholarships and `Gold Star’ families, those who are collecting military
survivor benefits after losing a parent.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">A
final positive: The SECURE Act would allow investors early access to IRA funds
for any “qualified birth or adoption” by creating a new exception to the 10
percent penalty.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: #222222; font-family: "Times New Roman",serif; font-size: 12.0pt; letter-spacing: -.15pt; mso-fareast-font-family: "Times New Roman";">Everyone
whether beginning to save for retirement, about to retire, or in retirement
needs to periodically examine their retirement account to insure it comports
with their current needs.<o:p></o:p></span></div>
<br /><br />
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-27193252366378634762019-07-01T12:21:00.000-04:002019-07-01T12:21:17.155-04:00Spouse May Roll Over Decedent's IRA Made Payable to Trust for Spouse's Exclusive Benefit with Spouse as Trustee<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<br />
<span style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;">In
</span><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=19.06&dbName=RULINGS&linkType=docloc&locId=plr201923002&permaId=i81ef57b70cfacd08c34cb22b3d40b4a2&tagName=PRIVLTR&endParm=y" style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;"><span style="color: windowtext; text-decoration-line: none;">PLR 201923002
</span></a><a href="https://www.blogger.com/null" name="NEWSLTR:859219.2" style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;"></a><span style="font-family: "Times New Roman", serif; font-size: 12pt; text-align: justify;">(June 7, 2019), the IRS stated that a
surviving spouse could roll over to an IRA in her own name a distribution from
her late husband's IRA, even though the beneficiary was a trust for the benefit
of the spouse, rather than the spouse. The IRS stated that, because the spouse was
entitled to the IRA proceeds as the sole beneficiary of the trust during her
life, she was effectively the individual for whose benefit the account is
maintained for purposes of the roll-over rules.</span><br />
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Moreover
the Decedent's IRAs will not be treated as inherited IRAs under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=19.06&dbName=TCODE&linkType=docloc&locId=408%28d%29&permaId=iad6ba02219d711dcb1a9c7f8ee2eaa77&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">IRC §408(d) </span></a><a href="https://www.blogger.com/null" name="RULINGS:139787.2"></a>as to taxpayer/surviving spouse. Also, taxpayer/surviving
spouse was entitled to rollover distributions from stated IRAs into one or more
IRAs set up and maintained in her own name, as long as rollover occurred within
60 days from date distribution was received from stated IRAs.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<u><span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">The
Facts<o:p></o:p></span></u></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">The
Decedent was married to Taxpayer (hereinafter “Spouse”) until his death, at
which time both the Decedent and his Spouse were over 70 ½ years old.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">At
the time of his death, the Decedent owned an individual retirement account- the
“Decedent's IRA.” The beneficiary of Decedent's IRA was a Trust for the benefit
of the spouse. The spouse was the sole trustee and beneficiary of Trust which
provided that the spouse could withdraw its net income and/or its principal. Additionally
the spouse has the right to modify, amend, or revoke the Trust at any time and
has the sole authority and discretion to distribute the Decedent's IRA proceeds
to herself at any time. The spouse decided to roll the amounts paid to her from
Decedent's IRA to an IRA in her own name rather than the Trust.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">The
critical question was </span>the application of IRC <a href="https://www.blogger.com/null" name="RULINGS:139788.24"></a>§1.408-8,
Q&A-5<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">, which
provides that a surviving spouse of an individual may elect to treat the
spouse's entire interest as a beneficiary in the individual's IRA as the
spouse's own IRA. In order to make this election, the spouse must be the sole
beneficiary of the IRA and have an unlimited right to withdraw amounts from the
IRA. <u>If a trust is named the beneficiary of the IRA, this requirement is not
satisfied even if the spouse is the sole beneficiary of the trust.<o:p></o:p></u></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; mso-add-space: auto; text-align: justify;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">As
the Trust was the named beneficiary the interpretation and application of this provision
was critical.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">Since the US Supreme
Court Decision in <i style="mso-bidi-font-style: normal;">Clark v.<span style="mso-bidi-font-weight: bold;"> Rameker</span></i><span style="mso-bidi-font-weight: bold;">, 134 S. Ct. 2242, (2014)</span> the trusteed Individual Retirement
Account has become a way of shielding retirement account from creditors<a href="file:///C:/Users/fbrunetti/Documents/Trusteed%20IRA/Spouse%20May%20Roll%20Over%20Decedent.docx#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast;">[1]</span></span><!--[endif]--></span></span></a>.
Accordingly it’s not uncommon to have a trusteed IRA rather than a custodial
IRA. Indeed several institutional investment companies have picked up on this
issued and have formulated their own trusteed IRA trusts.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">The dilemma therefore
is how to draft a trusteed IRA trust to avoid the application of IRC §1.408-8,
Q&A-5. Most trusteed IRA trust have minimum distribution requirements and
limited withdrawal powers. If the beneficiary is a spouse of a second marriage
it is unlikely that the Settlor will give his or her spouse unlimited
withdrawal powers. If the spouse is the spouse of a long standing marriage it
is more likely that the spouse will have an unlimited withdrawal power.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none;">
<span style="font-family: "Times New Roman",serif; font-size: 12.0pt;">In <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=19.06&dbName=RULINGS&linkType=docloc&locId=plr201923002&permaId=i81ef57b70cfacd08c34cb22b3d40b4a2&tagName=PRIVLTR&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">PLR 201923002
</span></a>the spouse had an unlimited withdrawal power. The IRS reasoned that
notwithstanding IRC §1.408-8, Q&A-5, which prohibits a rollover of an IRA
to a spouse who is a beneficiary of a trust, because the spouse was entitled to
the proceeds of Decedent's IRA as the sole beneficiary of Spouse’s Trust during
her life, for purposes of applying <a href="https://www.blogger.com/null" name="RULINGS:139788.28"></a>IRC §408(d)(3)(A)
to Decedent's IRA, the Spouse is <u>effectively</u> the individual for whose
benefit the account is maintained. Accordingly, the IRS ruled that if the
Spouse receives a distribution of the proceeds of Decedent's IRA, subject to
the limitation of <a href="https://www.blogger.com/null" name="RULINGS:139788.29"></a>IRC §408(d)(3)(B), she may
roll over the distribution (other than amounts required to have been
distributed or to be distributed in accordance with <a href="https://www.blogger.com/null" name="RULINGS:139788.30"></a>section
401(a)(9)) into one or more IRAs established and maintained in her name.<o:p></o:p></span></div>
<div style="mso-element: footnote-list;">
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/fbrunetti/Documents/Trusteed%20IRA/Spouse%20May%20Roll%20Over%20Decedent.docx#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri",sans-serif; font-size: 10.0pt; line-height: 107%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></span></a>
Brunetti, <u>the Trusteed Individual Retirement Account</u>, New Jersey Law
Journal, (December 29, 2014).<o:p></o:p></div>
</div>
</div>
<br /><br />
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-88655189529689024622019-06-12T12:36:00.000-04:002019-06-12T12:36:02.043-04:00Remote Material Participation Approved by US Tax Court <div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="text-align: center;">
<span style="background: white; font-family: Cambria, serif; text-align: left;">In a recent Memorandum Opinion, the Tax
Court held that a taxpayer satisfied the requirements for materially
participating in his Chicago based business despite living in Florida
approximately 60 percent of the year. </span><span style="font-family: Cambria, serif; text-align: left;">Satisfying the test for material
participation is important because it allows you to use your business losses to
offset other sources of business income. </span><span style="font-family: Cambria, serif; text-align: left;">Meanwhile, deductions and losses
generated by a “passive activity” are limited to income from passive
activities.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Cambria",serif;">The Tax Court’s ruling
in </span><a href="https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11949"><i><span style="font-family: "Cambria",serif;">Barbara v. Commissioner</span></i></a><span style="font-family: "Cambria",serif;">, TC Memo 2019-50, is good news for
business owners because it confirms that working remotely will not be treated
any differently than working in a physical office with respect to calculating
the time spent towards an activity for purposes of material participation. Accordingly,
you may live in one state and operate a business in another while still
satisfying the material participation requirements. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span style="font-family: "Cambria",serif;">Material Participation
Tests<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Red state, blue state, high tax
state, low tax state; with the passage of the TCJA, these issues have become
more significant.<span style="mso-spacerun: yes;"> </span>The income tax rates
for several states are as follow:<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>New
Jersey <span style="mso-tab-count: 2;"> </span>8.97%<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>New
York<span style="mso-tab-count: 2;"> </span>8.82%<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Vermont<span style="mso-tab-count: 2;"> </span>8.95%<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Illinois<span style="mso-tab-count: 3;"> </span>4.95%<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>New
York City (in addition to the New York<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>State
Tax Rate)<span style="mso-tab-count: 1;"> </span>3.876%<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 1;"> </span><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
On the other hand, seven states
do not have income taxes.<span style="mso-spacerun: yes;"> </span>They are:<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Florida<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Nevada<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>South
Dakota<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Texas<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Washington<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Alaska<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="mso-tab-count: 2;"> </span>Wyoming<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
If you were to select a place to
live and your focus was the least amount of state and local income taxes, the
choices are obvious.<span style="mso-spacerun: yes;"> </span>The issue is,
however, if you are conducting a business in a high tax state, can you have
your domicile in a low tax state. Perhaps under the right circumstances, you
may utilize Puerto Rico’s incentive provisions. Act 20 and Act 22, to
substantially reduce your combined federal and state income tax burden.<span style="mso-spacerun: yes;"> </span>These acts were designed to bring service
businesses and wealthy individuals to Puerto Rico.<span style="mso-spacerun: yes;"> </span>Act 20 and Act 22 are attractive to service
providers who do not need to be physically present in one of the fifty states.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Aside from the obvious
geographical challenges and perhaps time zones, there is also an IRS tax
section that might prevent you from utilizing a loss in a tax year to offset
gains in current or subsequent years.<span style="mso-spacerun: yes;">
</span>Normally if a taxpayer, who is in a trade or business and suffers a net
operating loss, under the TCJA 80% of the loss can be carried forward to offset
income in a future year.<span style="mso-spacerun: yes;"> </span>The key element
is the loss occurs in a trade or business in which the taxpayer is active.<span style="mso-spacerun: yes;"> </span>Being an active participant allows losses in
the activity to offset other current ordinary income or future income.<span style="mso-spacerun: yes;"> </span>See Section 162(a) and Section 212(1).<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
On the other hand, if the
taxpayer is not active in the business, the losses cannot be used because the
losses are passive losses passive losses can only be used against passive
income.<span style="mso-spacerun: yes;"> </span>Section 469 limits those
deductions when they arise from “passive activities.”<span style="mso-spacerun: yes;"> </span>A passive activity is any activity involving
the conduct of a trade or business in which the taxpayer does not materially
participate.<span style="mso-spacerun: yes;"> </span>Section 469(c)(1).<span style="mso-spacerun: yes;"> </span>A taxpayer materially participates in an
activity if such participation is regular, continuous and substantial.<span style="mso-spacerun: yes;"> </span>Section 469(h)(1).<span style="mso-spacerun: yes;"> </span>Regulations provide seven alternative tests
to determine whether a taxpayer has materially participated in an activity for
the taxable year.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
These are:<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<u>Tests Based on Current
Participation</u><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
1.<span style="mso-tab-count: 1;"> </span>The individual participates in the activity for more than
500 hours during the year.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
2.<span style="mso-tab-count: 1;"> </span>The individual’s p<span style="mso-bidi-font-weight: bold;">articipation<b> </b></span>in the activity for the taxable year
constitutes substantially all of the p<span style="mso-bidi-font-weight: bold;">articipation</span> in the activity of all individuals (including
nonowner employees) for the year.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
3.<span style="mso-tab-count: 1;"> </span>The individual participates in the activity for more than
100 hours during the year, and this p<span style="mso-bidi-font-weight: bold;">articipation</span> is
not less than that p<span style="mso-bidi-font-weight: bold;">articipation</span> of
any other individual (including nonowner employees) for the year.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
4.<span style="mso-tab-count: 1;"> </span>The activity is a <a href="https://www.blogger.com/null"><b><span style="color: windowtext; text-decoration: none; text-underline: none;">significant </span></b><b style="mso-bidi-font-weight: normal;"><span style="color: windowtext; text-decoration: none; text-underline: none;">p<span style="mso-bidi-font-weight: bold;">articipation activity</span></span></b></a> (where
the person’s p<span style="mso-bidi-font-weight: bold;">articipation </span><i>exceeds</i> 100
hours during the year), and the hours for all significant p<span style="mso-bidi-font-weight: bold;">articipation </span>activities during the
year is more than 500 hours.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<u>Tests Based on Prior
Participation</u><o:p></o:p></div>
<div class="MsoNormal" style="background: white; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="background: white; text-align: justify;">
1.<span style="mso-tab-count: 1;"> </span>The individual materially
participated in the activity for any 5 taxable years during the 10 taxable
years that immediately precede the current taxable year.<o:p></o:p></div>
<div class="MsoNormal" style="background: white; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="background: white; text-align: justify;">
2.<span style="mso-tab-count: 1;"> </span>The activity is a personal service
activity, and the individual materially participated in the activity for any 3
preceding taxable years.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<u>Tests Based on Facts and
Circumstances</u><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
1.<span style="mso-tab-count: 1;"> </span>Based on all of the facts and circumstances, the individual participates
in the activity on a regular, continuous, and substantial basis during the
year.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The IRS regulations contained
substantial detail on how to meet one of the seven tests.<span style="mso-spacerun: yes;"> </span>Mr. Fred Barbara managed to be a Florida
domiciliary and operated a business in Chicago and yet satisfy the material
participation test of the passive activity rules.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u>Barbara v. Commissioner, TC Memo 2019-50</u><o:p></o:p></b></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The Barbaras reside in Florida
when they filed their petition.<span style="mso-spacerun: yes;">
</span>Presumably, they were domiciled in Florida.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
For many years, Fred Barbara
owned and managed Barbara Trucking, a Chicago-area garbage collection and waste
management business. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
In 1997, Mr. Barbara sold Barbara
Trucking for tens of millions of dollars.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Mr. Barbara used the proceeds
from the sale of Barbara Trucking to start a money lending business.<span style="mso-spacerun: yes;"> </span>This business capitalized on the network of
contacts in the Chicago construction industry that he had developed while
running Barbara Trucking.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
In conducting the lending
business, he usually lent the money in his personal capacity.<span style="mso-spacerun: yes;"> </span>But on a few occasions, he lent the money
through a family trust or a closely held limited liability company, Barbara
Capital II, LLC.<span style="mso-spacerun: yes;"> </span>This LLC is treated as
a partnership for federal tax purposes.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">The
office of the lending business was in Chicago. The office was staffed by two
full-time employees: an accountant and a secretary.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<a href="https://www.blogger.com/null" name="ADVTCM:6082.53"></a><span style="color: #252525;">Mr. Barbara performed all executive functions for the
lending business. He decided when to make loans. He decided how to handle
defaulted loans. He managed over 40 outstanding loans during the years at
issue. He had no other significant work-related demands on his time besides the
lending business.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">During
the years 2009-2012, Mr. Barbara split his time between Chicago and Florida.
For each year he was in Chicago, 40% of his time and in Florida 60% of his
time. He worked at least 200 days in a year, proportioned between Chicago and
Florida on a 40/60 basis.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">When
in Chicago, Mr. Barbara lived in residences he owned. He was in the Chicago
office for about 5-3/4 hours each work day. When there he was working on the
lending business. He kept a regular schedule. Therefore, he was in the Chicago
office at least 460 hours per year working on the lending business, computed as
follows:<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; text-align: justify; text-indent: .5in;">
<span style="color: #252525;">200 days x 40% × 5.75 hours = 460 hours per
year <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: 1.0in; text-align: justify; text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">When
in Florida, Mr. Barbara lived in a house that he had purchased in 1995. He
called the Chicago office every day when it opened at 9:00 a.m. He also
communicated with the office at other times, through telephone, fax, and
e-mail. He averaged at least two hours of work per day on the lending business
while in<a href="https://www.blogger.com/null" name="ADVTCM:6082.54"></a> Florida. This means that he worked at
least 240 hours per year on the lending business while he lived in Florida,
computed as follows:<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; text-align: justify; text-indent: .5in;">
<span style="color: #252525;">200 days × 60% × 2 hours = 240 hours per year
<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">One
of the issues determined by the US Tax Court was whether Mr. Barbara materially
participated in his money lending business.<span style="mso-spacerun: yes;">
</span>The significance was that if he did not materially participate the
income and losses would be passive.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">The
court agreed that the activity at issue is all of Mr. Barbara’s lending,
whether loans were made individual or through an entity, was active and that he
materially participated in the lending business.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">For
each year, Mr. Barbara’s total hours participating in the lending business were
(1) 460 hours or more while in Chicago and (2) 240 hours or more while in
Florida.<span style="mso-spacerun: yes;"> </span>Thus, his total hours
participating in the lending business each year were 700 or more.<span style="mso-spacerun: yes;"> </span>This exceeds the 100-hour threshold that is
part of the material participation test.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">Both
while he was in Chicago and in Florida, Mr. Barbara’s participation in the
lending business was regular, continuous and substantial. <span style="mso-spacerun: yes;"> </span>Accordingly, losses were deductible under IRS
Section 162. Moreover, the losses suffered in the prior year could be used to
offset income in another year.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">The
case is significant for two reasons:<span style="mso-spacerun: yes;">
</span>First, the material participation test has no geographic limitations;
second, the material participation test rest on quantitative i.e. number of
hours spent, and qualitative, i.e. the significance of the individuals’
participation, good record keeping is essential.<span style="mso-spacerun: yes;"> </span>What kind of record keeping would be needed? <span style="mso-spacerun: yes;"> </span>A journal or daily diary detailing the nature
of the activity, i.e. telephone calls, examination of records, agreements, etc.
and the maintenance of regular business financial records as well as time spent
on each activity and so forth.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: #252525;">Meeting
the material participation requirements among other requirements might allow a
taxpayer to live in a low tax state and yet manage a business in a high tax state.
Consider an additional possibility, one that may allow one to avoid these
rules.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Puerto Rico enacted a corporate
incentive scheme Act 20, that provides a 4% corporate tax on income and zero
percent on dividends and capital gains.<span style="mso-spacerun: yes;">
</span>A software company could easily avail itself of this opportunity.<span style="mso-spacerun: yes;"> </span>There are requirements, such as the hiring of
local employees and a business presence, which require more than a nameplate on
a wall in a foreign jurisdiction.<span style="mso-spacerun: yes;">
</span>Individuals, under Act 22, who are present in Puerto Rico for six months
in the prior year, receive government approval and draw a reasonable salary
form the relocated business may benefit from this regime.<span style="mso-spacerun: yes;"> </span>There is a 100% exemption from Puerto Rican
taxes on dividends, interest and capital gains accrued after residency. Act 20
and Act 22 offer an alternative to expatriation and may prove valuable in the
right situation.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
While there are obvious
geographical and other challenges, the Tax Court has provided a path for the
operation of a remote business from a tax friendly jurisdiction.<o:p></o:p></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-23590420470726339762019-05-29T13:32:00.003-04:002019-05-29T13:32:49.726-04:00Does Your Retirement Plan Protect Your Home from Medicaid Recovery?<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">A recent </span><i style="font-family: Cambria, serif;">U.S. News and World
Report</i><span style="font-family: Cambria, serif;"> listed five major risks for retirement. One of these risks is health
problems. If you don’t plan accordingly, the financial costs of healthcare can
lead to everyone’s greatest fears — running out of money.</span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;"><br /></span></div>
<div style="text-align: justify;">
<b><span style="font-family: Cambria, serif;">Healthcare Costs Can Erase
Retirement Assets<o:p></o:p></span></b></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">Healthcare costs skyrocket as we age. Even if your insurance
company or Medicare covers some of the costs, a couple retiring at age 65
with Medicare will need about $240,000 for uninsured medical expenses, which
does not include long-term care expenses. Long-term care expenses can add
dramatically to the cost of retirement. A nursing home costs on average $79,935
per year, an assisted living facility costs on average $37,572 per year, and
in-home are costs about $19 per hour. These costs result in another retirement
risk, running out of money.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;"><br /></span></div>
<div style="text-align: justify;">
<b><span style="font-family: Cambria, serif;">Protecting Your Home from
Medicaid Recovery<o:p></o:p></span></b></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">For many retirees, Medicaid planning is necessary to ensure the
payment of necessary long-term care services without running out of money. This
is particularly true if you have been diagnosed with an illness, and,
therefore, the option of long-term care insurance is no longer available.</span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">As states begin to crack down more and more on traditional
Medicaid planning, it is important to be more creative in designing strategies,
particularly with regard to your home. In many states, including New Jersey,
Medicaid considers the home a countable asset unless it is occupied by the
community spouse, a child under age 21, a child of any age who is blind or
disabled, a child who qualifies as a caregiver, or a sibling who has resided in
the home for at least one year and has had an equitable interest in the home
for at least one year (the protected class).<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">However, on the death of the Medicaid recipient, if the home is an
Estate asset, the state will assert estate recovery, which means that is any
funds expended for the Medicaid recipient will be collected against the estate.
<a href="https://www.blogger.com/null" name="SRC_2"></a>If the home is occupied by a member of the protected class,
Medicaid will assert estate recovery but will permit the member of the
protected class to remain in the property. When the property is sold or on the
subsequent death of the protected class member, the estate recovery lien must
be satisfied. If the home is owned as tenants by the entirety or jointly with
right of survivorship, estate recovery will be asserted in those states that
have adopted the broad definition of “estate,” which includes New Jersey.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;"><br /></span></div>
<div style="text-align: justify;">
<b><i><span style="font-family: Cambria, serif;">Transferring the Home Outright<o:p></o:p></span></i></b></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">In order to protect the home, parents often transfer it outright
to their children. Clients must be aware of the carryover basis<sup> </sup><a href="https://www.blogger.com/null" name="SRC_3"></a>by which the parents' cost basis in the home will carry over
to the child. If the child lives in the home for a period of two years after
obtaining ownership, then the child may satisfy the requirements pertaining to
the sale of a principal residence.<sup> </sup><a href="https://www.blogger.com/null" name="SRC_4"></a> Unless the child meets the principal residence
exclusion, there will be significant capital gains tax on the sale of the
parent's home by the child.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">From a Medicaid standpoint, the transfer of the home to a child
who is not a member of the protected class is <u>subject to the five-year
lookback</u>.<sup> </sup><a href="https://www.blogger.com/null" name="SRC_5"></a>The transfer is subject to the
Medicaid transfer penalties.<sup> </sup><a href="https://www.blogger.com/null" name="SRC_6"></a>If there is a
Medicaid transfer penalty, it is calculated by dividing the uncompensated value
of the transfer by the statewide monthly average of the lowest semiprivate room
rate in Medicaid-certified nursing facilities. In New Jersey, this is currently
$</span><span style="font-family: "Cambria",serif;">10,459.<sup> <a href="https://www.blogger.com/null" name="SRC_7"></a><o:p></o:p></sup></span></div>
<div style="text-align: justify;">
<u><span style="font-family: Cambria, serif;">When property is transferred from parent to child, the casualty
insurance policy should also be changed.</span></u><span style="font-family: Cambria, serif;"> Insurance companies usually permit the
homeowner's policy to remain in effect if the parent reserves a life estate but
usually do not permit the homeowner's policy to remain in effect if a life
estate is not reserved.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;"><br /></span></div>
<div style="text-align: justify;">
<b><i><span style="font-family: Cambria, serif;">Retaining a Life Estate<o:p></o:p></span></i></b></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">A variation of the strategy of transferring a home to a child
outright is transferring the home to the child and <u>retaining a life estate</u>
or a use and occupancy agreement for the parent. The retention of a life estate
usually makes the parent more comfortable in making the transfer. One of the
benefits of transferring the home and retaining the life estate is that the
Medicaid period of ineligibility is reduced. The transfer is only for the value
of the remainder interest.<a href="https://www.blogger.com/null" name="SRC_8"></a><o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">For example, if an 80-year-old New Jersey person transfers a home
worth $500,000 to a child and the divisor is $10,459 per month, the penalty is
34 months. However, if the same parent transfers the home to the child and
retains a life estate, the penalty is significantly reduced. The calculation
looks like this: <a href="https://www.blogger.com/null" name="AEFq901z7"></a><o:p></o:p></span></div>
<span style="font-family: Cambria, serif; font-size: 12pt;"><br clear="all" style="page-break-before: always;" />
</span>
<br />
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<span style="font-family: Cambria, serif;"> $500,000 (value of home)<o:p></o:p></span></div>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;"> × <i>0.5634 </i>(remainder factor)<o:p></o:p></span></pre>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;"> ---------------<o:p></o:p></span></pre>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;">$281,705 (uncompensated value of transfer)<o:p></o:p></span></pre>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;">÷ <i>$10,439</i> (average cost of nursing home)<o:p></o:p></span></pre>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;"> ---------------<o:p></o:p></span></pre>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;"> 26.9 Months - Period of Ineligibility<o:p></o:p></span></pre>
<pre style="text-align: justify;"><span style="font-family: Cambria, serif; font-size: 12pt;"> </span></pre>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Cambria, serif;">Round up to 27 months.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Cambria, serif;">An additional benefit is that
if the home is not sold during the lifetime of the parent, the <u>child will
receive a “step up” in basis on the death of the parent.</u><sup> </sup><a href="https://www.blogger.com/null" name="SRC_9"></a> <o:p></o:p></span></div>
<div style="text-align: justify;">
<u><span style="font-family: Cambria, serif;">Advantages</span></u><span style="font-family: Cambria, serif;"><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Protects the home after five years<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Preserves step-up in basis on death.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Parent feels as if he has more control.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">No gift tax return needs to be filed, because it is an incomplete
gift for gift tax purposes.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Section 121 exclusion can be preserved.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify; text-indent: 3.0pt;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">State real estate taxes may be able to be preserved.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Parent not entitled to any portion of proceeds, if home is sold.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Parent not entitled to any rental income, if property is leased.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<u><span style="font-family: Cambria, serif;">Disadvantages</span></u><span style="font-family: Cambria, serif;"><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">Loss of control.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in; text-align: justify;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Cambria, serif;">If state penalizes transfers out of the trust, if income-only
trust is used and house is sold during parents’ lifetime, proceeds are
effectively “locked up” during parents’ lifetime.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">In states where estate recovery is asserted against the probate
estate (like New Jersey), the value of the life estate would not be included in
estate recovery. Some of the states using the broad definition of an “estate,”
including life estates, have taken the position that the value of a life estate
at death is zero; other states using the broad definition have claimed that the
life estate is valued at the moment before death. At the present time in most
instances, New Jersey does not seek a recovery against the life estate.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">The disadvantage to transferring the home and retaining a life
estate is that if the home is sold during the lifetime of the parent, the
parent would be entitled to a portion of the proceeds of sale represented by
the value of the parent's life estate (refer to the above example). Receipt of
these proceeds of sale would disqualify the parent from Medicaid, because the
parent would be over resourced. <o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;"><br /></span></div>
<div style="text-align: justify;">
<b><i><span style="font-family: Cambria, serif;">Right to Use and Occupy<o:p></o:p></span></i></b></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">A variation on the retention of a life estate is to retain a right
to use and occupy. Under a right to use and occupy, the parent does not reserve
the right to receive rent or any portion of the proceeds of sale. The
disadvantage to the right to use and occupy is that there is a complete loss of
the Section 121 Exclusion on the Sale of the Principal Residence because all of
the proceeds would go to the children who, presumably, would not qualify. In which case, the entire amount would be
subject to capital gains tax.<o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;"><br /></span></div>
<div style="text-align: justify;">
<b><i><span style="font-family: Cambria, serif;">Power of Appointment<o:p></o:p></span></i></b></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">Another alternative to the reservation of a life estate, grantors
may reserve a special power of appointment.<sup> </sup><a href="https://www.blogger.com/null" name="SRC_9z1"></a>For
Medicaid purposes, the transfer of property when grantors cannot recover the
property for their own benefit is a completed transfer.<sup> <a href="https://www.blogger.com/null" name="SRC_9z2"></a> </sup>The special power of appointment is a
“personal privilege” and not an interest in property. Therefore, it should not
be subject to Medicaid estate recovery. For gift tax purposes, however, the
gift will not be complete. In addition, the grantors' reservation of the
special power gives them continuing influence over their issue and flexibility
to deal with their children's deaths, divorces, or bankruptcies. <o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Cambria, serif;">This power of appointment may be reserved in trust into which
property (such as the residence) and may be transferred. The funding of the trust triggers the
Medicaid lookback period. If the trust is drafted as a “Grantor Trust,” even
using a use and occupancy, should the residence be sold during your lifetime
the gain would be protected from taxation up to $500,000 under IRC 121.<o:p></o:p></span></div>
<span style="font-family: "Cambria",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">As highlighted above,
there is a great deal to consider when planning for retirement. In order to
protect your home and other assets from Medicaid recovery, it is particularly
important to be proactive. </span><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-size: 10.0pt; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;"></span></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-44057195446466052752019-02-21T13:35:00.001-05:002019-02-21T13:35:51.360-05:00IRS Issues New Forms Related to Modification of Imputed Partnership Underpayments<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoPlainText" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman",serif; line-height: 150%; mso-bidi-font-size: 12.0pt;">As we get ready to file 2018 partnership
tax returns new rules audit have been implemented which require close examination
of the partnership and its partners. This is because the Centralized Partnership
Audit Regime (CPAR) is now the methodology used by the IRS to audit partnership
tax returns for 2018 going forward. If the partnership can elect out of the
CPAR an would be under the pre-TEFRA rules. In order to implement the
requirements of the CPAR the IRS has issued new forms.<o:p></o:p></span></div>
<div class="MsoNormalCxSpFirst" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Under the CPAR, adjustments to
partnership-related items are determined at the partnership level. The tax
attributable to those adjustments is also assessed and collected at the
partnership level in the form of an imputed underpayment determined pursuant to
<a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225&permaId=ief092f30de106bd8941a9599dd50d724&tagName=SEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225</span></a>. The imputed underpayment is determined by netting, in the
manner described in <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225%28b%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(b)</span></a>, all partnership adjustments with respect to the reviewed
year and applying the highest rate of tax in effect for that year under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=1&permaId=i6720810019d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec. 1 </span></a>or
<a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=11&permaId=i686f365019d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec. 11</span></a>.
<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">The Code requires IRS to establish
procedures under which adjustments may be modified to reflect a lower level of
tax due because of (i) payment of the tax by the partners either through
amended returns or by the use of an alternative procedure in which the partners
otherwise take the adjustment into account, (ii) the fact that the partnership
has one or more tax-exempt partners, (iii) lower rates applying to the
partners, (iv) special rules relating to specified passive losses of publicly
traded partnerships (as defined in <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas469%28k%29%282%29&permaId=i587a0fc46faccb19ab8cf375aab50291&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
469(k)(2) </span></a>), or (v) as otherwise specified by IRS regs. or other
guidance. (<a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=6225%28c%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;"> Code Sec.
6225(c) </span></a>)<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;"><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=6227&permaId=if30a9defff20e9e980ccadbe4f0a6a82&tagName=SEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;"><span style="mso-spacerun: yes;"> </span>Code Sec. 6227 </span></a>provides a mechanism
for a partnership to file an administrative adjustment request (AAR) to correct
errors on a partnership return for a prior year. A partnership may file a
request for administrative adjustment in the amount of one or more items of
income, gain, loss, deduction, or credit of the partnership for any partnership
tax year. (<a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6227%28a%29&permaId=if30a9defff20e9e980ccadbe4f0a6a82&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;"> Code Sec.
6227(a) </span></a>)<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TREGS&linkType=docloc&locId=26cfr301.6227-2%28a%29%282%29_08%2F17%2F2018_prop&permaId=i16611179b55f4bd8e9bd8e73fe26db1c&tagName=PRPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Prop Reg §
301.6227-2(a)(2)</span></a>, in the case of an AAR, a partnership would be able
to reduce the imputed underpayment as a result of certain modifications allowed
under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TREGS&linkType=docloc&locId=26cfrs301.6225-2&permaId=icf00089823db6805bd5bbcba2f4fe1ab&tagName=PROPAMND&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Prop Reg §301.6225-2
</span></a>that relate to tax-exempt partners, rate modification, modification
related to certain passive losses of publicly traded partnerships, modification
applicable to qualified investment entities described in <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=860&permaId=idb1b35c819d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec. 860</span></a>,
and other modifications to the extent allowed under future IRS guidance. Other
types of modification-such as modifications with respect to amended returns and
closing agreements-would not be available in the case of an AAR.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">New Tax Forms</span></b><b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">
<o:p></o:p></span></b></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8980, Partnership Request for Modification of
Imputed Underpayments Under IRC Section 6225(c).</span></b><span style="font-family: "Times New Roman", serif; line-height: 150%;"> <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8980 is a 12-page form that should be
submitted by a partnership to request the modification of an imputed
underpayment under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=6225%28c%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)</span></a>. An imputed underpayment is reported to a partnership in a
notice of proposed partnership adjustment (NOPPA). <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8980 is also used by a partnership
which is applying certain permitted modifications to an imputed underpayment
included in the filing of an AAR. In the case of an AAR which includes
modifications to an imputed underpayment, the partnership should complete and
attach Form 8980 (including all required Form 8980 supporting forms and
attachments, and any supporting documents) to the AAR when filed.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8982, Affidavit for Partner Modification
Amended Return Under IRC §6225(c)(2)(A) or Partner Alternative Procedure under
IRC §6225(c)(2)(B)</span></b><span style="font-family: "Times New Roman", serif; line-height: 150%;">.</span><span style="font-family: "Times New Roman", serif; line-height: 150%;">
<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8982 is a supporting form that the
partnership representative attaches to Form 8980. It is used to affirm that a
relevant partner has either: a) filed modification amended return(s) that meet
the requirements under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=us_fed_26_usc_6225%28c%29%282%29%28a%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=SBPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(2)(A) </span></a>(Use Form 8982, Section A); or b) in lieu of filing
modification amended return(s), has met the requirements under the alternative
procedure in <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=us_fed_26_usc_6225%28c%29%282%29%28b%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=SBPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(2)(B) </span></a>(Use Form 8982, Section B). <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8982 must be completed and signed by
a relevant partner after the partner files the appropriate modification amended
returns or meets the requirements under the alternative procedure. The relevant
partner must then provide Form 8982 to the partnership representative.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8983, Certification of Partner Tax-Exempt
Status for Modification under IRC §6225(c)(3)</span></b><span style="font-family: "Times New Roman", serif; line-height: 150%;">. <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 8983 is used to certify: a) that a
relevant partner in a partnership requesting modification of an imputed
underpayment under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=6225%28c%29%283%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(3) </span></a>is, in the reviewed year, a domestic partner that is
either a tax-exempt entity within the meaning of <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas168%28h%29%282%29%28a%29&permaId=i8fba24ea19d711dcb1a9c7f8ee2eaa77&tagName=SBPARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
168(h)(2)(A)</span></a>, or a foreign partner that is a exempt from tax under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=501%28a%29&permaId=i61048816316bc154b779e56169f681a2&tagName=SBSEC&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
501(a)</span></a>; and (b) that, for the reviewed year, all or a portion of the
relevant partner's distributive share of the partnership's adjustment is not
subject to tax under any section of the Code.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">The partner should complete and sign Form
8983 and provide it to the partnership representative. The partnership
representative will submit Form 8983 along with the partnership's Form 8980.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 15028, Certification of Publicly Traded
Partnership to Notify Specified Partners and Qualified Relevant Partners for
Approved Modifications Under IRC §6225(c)(5)</span></b><span style="font-family: "Times New Roman", serif; line-height: 150%;">. <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 15028 is used by a partnership that
is a publicly traded partnership (PTP) that is requesting modification under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225%28c%29%285%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(5) </span></a>, in order to certify to IRS that the partnership will
report to each specified partner or qualified relevant partners their
respective amount of reduction to their suspended passive activity loss
carryover based on the partnership's approved modification under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225%28c%29%285%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(5) </span></a>. Form 15028 is a required attachment to Form 8980 for
any modification requests under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225%28c%29%285%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(5)</span></a>. <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Times New Roman", serif; line-height: 150%;">Form 15028 should be completed by the
partnership under the assumption that the partnership's requested modification
under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225%28c%29%285%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(5) </span></a>will be approved by IRS. If IRS approves the modification
under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.12&dbName=TCODE&linkType=docloc&locId=26uscas6225%28c%29%285%29&permaId=ief092f30de106bd8941a9599dd50d724&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;">Code Sec.
6225(c)(5) </span></a>and approves the amounts reported on Form 15028, IRS will
send the PTP an approved copy of Form 15028. If the modification request is
disallowed in whole or in part, a corrected Form 15028 will need to be
submitted by the PTP and approved by IRS. IRS will contact the PTP if a revised
Form 15028 is required.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<br /></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-23964219686140010512018-12-21T15:22:00.000-05:002018-12-21T15:22:42.842-05:00Important Changes in the New Jersey Corporation Business Tax Act as Tax Season Approaches<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, Helvetica, sans-serif;">P.L. 2018, c. 48, signed into law on July 1, 2018, and P.L. 2018, c.
131, signed into law on October 4, 2018, significantly changed the New Jersey
Corporation Business Tax Act. <o:p></o:p></span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, Helvetica, sans-serif;">TB-84 summarizes the major changes listed by the effective dates. <o:p></o:p></span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Effective for tax years beginning on and after January 1, 2017</b>: <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Repatriation of Accumulated Foreign Earnings</b>. A taxpayer is not
allowed to use any deduction, exemption, or credit taken for federal purposes
when reporting repatriation income (IRC §965(a) deemed dividends) on its New
Jersey Corporation Business Tax return. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Dividend Exclusion Changes.</b> Taxpayers who own 80% or more of the
stock of a subsidiary will only be able to exclude 95% of the dividends
received from those subsidiaries for tax years beginning after December 31,
2016. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Factor Relief.</b> A special allocation was created to provide factor
relief. Taxpayers can use a special allocation formula that is the lesser of
the three-year average 2014 through 2016 allocation factor or 3.5% for
calculating the tax on dividends received (or deemed received) by a taxpayer
from a subsidiary for tax years beginning on and after January 1, 2017, and
beginning before January 1, 2019. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Tiered Dividend Exclusion.</b> The law provides an allocated tiered
subsidiary dividend exclusion for dividends paid to a taxpayer by certain
subsidiaries. The exclusion is intended to avoid multiple layers of tax on
dividends that are included in entire net income. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Penalties and Interest.</b> The law provides that penalties and
interest are not imposed on the underpayment of tax resulting from the
retroactive changes for the 2017 tax year. This provision only applies if the
payments are made by the second estimated payment due date subsequent to the
enactment of the law (e.g., for a calendar year taxpayer, by December 31, 2018,
for tax years beginning on or after January 1, 2017)<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Effective for tax years beginning on and after January 1, 2018:</b> <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Surtax.</b> For tax years beginning on or after January 1, 2018,
through December 31, 2021, there is a surtax imposed on every business entity
that is subject to the Corporation Business Tax based on the taxpayer’s
allocated taxable net income to New Jersey. <b style="mso-bidi-font-weight: normal;">The surtax is not imposed on New Jersey S corporation or partnership
tax returns.</b> <b style="mso-bidi-font-weight: normal;">The surtax is imposed
only if the taxpayer’s allocated taxable net income is in excess of $1,000,000.</b>
The rate varies depending on the tax year (2.5% for tax years beginning on or
after January 1, 2018, through December 31, 2019, and 1.5% for tax years
beginning on or after January 1, 2020, through December 31, 2021). Allocated
taxable net income is defined as being either the allocated net income for tax
years ending before July 31, 2019, or taxable net income for tax years ending
on and after July 31, 2019. The definition of allocated taxable net income was
included to account for the change in net operating loss subtraction methods
from a pre-allocation method to a post-allocation method. The surtax does not
apply to New Jersey S corporations and partnerships. A corporate partner’s
share of partnership income is subject to the surtax if the corporate partner’s
allocated taxable net income meets the threshold for the surtax. However, if a
New Jersey S corporation is included in a unitary combined return, then its
portion of income is subject to the surtax. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">GILTI and FDII</b>. The law permits the taxpayer to use the amount of
its federal IRC §250(a) deduction against its Global Intangible Low Taxed
Income (GILTI) and Foreign Derived Intangible Income (FDII) if the income was
included in the taxpayer’s entire net income for New Jersey Corporation Business
Tax purposes. Additionally, GILTI and FDII income is treated the same as for
federal purposes. For federal income tax purposes, GILTI and FDII are their own
types of business income and are not dividends. Therefore, for New Jersey
Corporation Business Tax purposes, GILTI and FDII are not dividends or deemed
dividends. Additional information will be posted to the Division’s website as
soon as it becomes available. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Treaty Exceptions</b>. The treaty exceptions for the related party
addbacks of interest and intangible expenses (set forth in N.J.S.A.
54:10A-4(k)(2)(I) and N.J.S.A. 54:10A-4.4) have been amended to add additional
requirements. Previously, a taxpayer only needed to establish that the amounts
were paid, accrued or incurred by or to related members domiciled in nations
with a comprehensive tax treaty with the United States. The taxpayer must also
now establish that: 1) the related member was subject to tax in the treaty
nation on a tax base that included the amount paid, accrued or incurred, and 2)
the related member’s income received from the transaction was taxed at an
effective tax rate equal to or greater than 6 percent.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Qualified Business Income Deduction.</b> No deduction under IRC §199A
is allowed for either Corporation Business Tax or Gross Income Tax purposes for
tax years beginning after December 31, 2017. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">IRC §163(j) Limitation Method.</b> For Corporation Business Tax
purposes, the 30% business interest expense deduction limitation set forth
under IRC §163(j), applies on a “pro-rata” basis as between the total
categories of related party and unrelated party interest. Additional
information will be posted to the Division’s website as soon as it becomes
available. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Research and Development Credit.</b> The New Jersey Research and
Development Credit (R&D Credit) is recoupled to the current IRC §41.
Previously, the New Jersey R&D Credit was coupled to IRC §41 in effect on
June 30, 1992 and was not refundable. In recoupling to the current IRC §41, it
was expressly made clear that the New Jersey R&D Credit continued to be
non-refundable. In addition, to prevent any unintended consequences by acts of
Congress, the law states that no act of Congress terminating the federal credit
would terminate the New Jersey R&D Credit. Both of the methods used for
calculating the federal corporate income tax credit are now allowable for
purposes of calculating the New Jersey R&D Credit. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Miscellaneous Major Changes.</b> <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> Taxpayers must addback
all income that is exempt under any law of the United States to their entire
net income.</span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The law adjusts the
depreciable basis of assets for certain utility companies. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Penalties and Interest.</b> The law provides that penalties and
interest are not imposed on the underpayment of tax resulting from the
retroactive changes applying to returns filed for tax year 2018. This provision
only applies if the payments are made by the first estimated payment due after
January 1, 2019. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Effective for tax years ending on and after July 31, 2019 (beginning on
or after August 1, 2018 for full 12-month fiscal tax years)</b> <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;"><br /></b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Market Based Sourcing. </b>Under the new market-based sourcing
provisions, sourcing for services is based on where the benefit of the service
is received, rather than where the service is performed (aka “cost of
performance” method). <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Alternative Minimum Assessment. </b>The Alternative Minimum Assessment
is repealed and a transition conversion credit for unused Alternative Minimum
Assessment credits of taxpayers that are members of a combined group provides
relief to combined return filers. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Mandatory Combined Reporting.</b> The law mandates combined returns for
unitary businesses. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The law provides a net
deferred tax liability deduction for publicly<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The law provides a net
deferred tax liability deduction for publicly traded corporations that are
impacted by the switch to combined reporting, beginning five years after a
combined group’s first combined return. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The law designates the
default managerial member, provides options for selecting an alternate manager,
and details the various responsibilities of the managerial member. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The law provides combined
return exceptions to the related party addbacks. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The law provides a method
for calculating the entire net income of members of a combined group, and
methods for using tax credits and net operating losses. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> New Jersey S corporations
that do not elect to be included in a combined group are not considered
“taxable members” included on the combined return. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="mso-char-type: symbol; mso-symbol-font-family: Symbol;">·</span> The minimum tax for each
member of a combined group is $2,000. Taxpayers filing a separate return must
continue to calculate the minimum tax as per the statutes and regulations.
Minimum tax is never prorated. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: .5in;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Water’s-Edge Default Combined Return</b>. The default combined return
filing method is the water’s-edge method. Taxpayers in a unitary business must
file a mandatory unitary tax return on a water’s-edge basis. The members
included in the water’s-edge group are: 1) 80/20 property and payroll domestic
corporations; 2) 80/20 property and payroll foreign corporations; 3) members
that earn more than 20% of their income, directly or indirectly, from
intangible property or related service activities that are deductible against
the income of other members of the combined group; and 4) all members that have
nexus with New Jersey pursuant to N.J.S.A. 54:10A-2. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Worldwide or Affiliated Group Combined Return Basis.</b> The law allows
taxpayers to elect to file either on a worldwide combined return basis or an
affiliated group combined return basis, but not both at the same time. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Businesses Excluded from a Combined Group.</b> Insurance companies that
are not combinable captive insurance companies and certain regulated public
utilities are excluded from the combined group. This includes gas, electric,
water, waste water treatment, and other statutorily defined utilities. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Combinable Captive Insurance Companies</b></span><span style="font-family: Arial, Helvetica, sans-serif;">. Combinable captive
insurance companies are no longer exempt from the Corporation Business Tax, but
are exempt from the Insurance Premiums Tax. Captive insurance companies that do
not meet the definition of a combinable captive insurance company are still
subject to Insurance Premiums Tax and the cap imposed under N.J.S.A. 17:47B-12.
Combinable captive insurance companies are included in the combined group on a
combined return.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Penalties, Interest, and Estimated Payments.</b> In the first tax year
that a mandatory combined return is due, penalties or interest <b style="mso-bidi-font-weight: normal;">will not be imposed on an underpayment</b>
that results from the change from separate return reporting to mandatory
combined return reporting. Any overpayment by a member of the combined group
from the prior tax year is credited as an overpayment of the tax owed by the
combined group or credited toward future estimated payments by the combined
group. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, Helvetica, sans-serif;"><b style="mso-bidi-font-weight: normal;">Net Operating Loss Changes</b>. The law also transitions New Jersey net
operating losses to a post-allocation method. Prior to the enactment of P.L.
2018, c. 48, New Jersey net operating losses were calculated on a
pre-allocation method. The law includes a method for converting outstanding
pre-allocation net operating loss carryovers to post-allocation net operating
loss carryovers. Net Operating Losses and Changes in Ownership. The law
clarifies that N.J.S.A. 54:10A4.5 does not apply to members of a combined group
filing a New Jersey combined return. More Information. This document provides a
general summary of the major changes.<o:p></o:p></span></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-807968138319913502018-12-14T11:23:00.002-05:002018-12-14T11:23:39.445-05:00Tax Court Finds That the IRS Could Assess Restitution against a Third Party Where His Tax Conviction Crime Was Aiding and Abetting His Father’s Evasion of Income Tax.<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 14.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="color: #252525; font-family: Arial, sans-serif; font-size: 12pt;">In<i> Botrager</i> 151 TC No.
12 (2018), the Tax Court concluded that IRC<a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.09&dbName=TCODE&linkType=docloc&locId=us_fed_26_usc_6201%28a%29%284%29&permaId=i518a6dfa19d811dcb1a9c7f8ee2eaa77&tagName=PARA&endParm=y"><span style="color: #145da4; text-decoration-line: none;"> </span><span style="color: windowtext; text-decoration-line: none;">Sec.
6201(a)(4)</span><span style="color: #145da4; text-decoration-line: none;"> </span></a>authorizes IRS to assess restitution for a tax liability that
a person had been ordered to pay, upon conviction of violating</span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> IRC Sec. 7201<span style="color: #252525;">, when his wrongdoing consisted of aiding and abetting
the evasion of payment of a third party's tax liability.</span></span><a href="https://www.blogger.com/null" name="docNotesContainer"></a></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<i><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">Facts.</span></i><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;"> The IRS alleged that
from 1998 through 2010, Bontrager had criminally aided and abetted his father
in evading payment of the father’s 1994 Federal income tax liability. Bontrager
was alleged to have done this by using his company and a related real estate
company to help his father conceal assets, income, bank accounts, and business
interests. The IRS alleged that Bontrager had, for example, issued corporate
checks to his father's female acquaintance, had used corporate funds to
purchase a Rolls Royce for his father's use, had allowed his father to charge
personal expenditures to a corporate credit card, had titled various assets in
the names of his father's nominees, and had used offshore accounts to conceal his
father's income and assets.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">Several months before
his sentencing, on October 4, 2013, Bontrager filed a petition under Chapter 7
of the Bankruptcy Code. In 2014, the bankruptcy court closed the bankruptcy
case by issuing an order of discharge. That order noted that certain types of debts
are not discharged in a Chapter 7 case, including "[d]ebts for most fines,
penalties, forfeitures, or <u>criminal restitution obligations</u>."<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">Relying
on <a href="https://www.blogger.com/null" name="T15bb303d764b49ffb68d707dcc13da12">IRC Sec. 6201(a)(4)</a>, IRS
assessed the $72,710 of restitution that Mr. Botrager had been ordered to pay
and recorded this assessment as a liability for his 1994 tax year.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">On June 3, 2015, after
petitioner did not pay the balance of the liability on notice and demand, the
IRS filed a Notice of Federal Tax Lien. Upon notification, petitioner timely
requested a Collection Due Process hearing. In his hearing request, Bontrager contended
that the restitution was not assessable because it was ordered for failure to
pay a tax that title 26 imposed upon his father rather than upon him.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">After
the collection due process hearing, the settlement officer upheld the filing of
the Notice of Federal Tax Lien, and Mr. Bontrager timely petitioned the Tax
Court.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">The Court’s Analysis:<o:p></o:p></span></i></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">The
District Court's sentencing order stated that petitioner was adjudicated guilty
of violating "26 U.S.C. § 7201.” <a href="https://www.blogger.com/null" name="ADVTCR:599.39"></a>IRC Sec. 7201
criminalizes any willful attempt “in any manner to evade or defeat any tax
imposed by this title or the payment thereof.” The elements of a <a href="https://www.blogger.com/null" name="ADVTCR:599.40"></a>IRC Sec. 7201 offense are:<o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">willfulness; <o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">the existence of a tax deficiency; and <o:p></o:p></span></li>
<li class="MsoNormal" style="line-height: normal; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">an affirmative act constituting an evasion
or attempted evasion of the tax.<o:p></o:p></span></li>
</ul>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">The
second element is equivalent to a failure to pay tax.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">The sentencing order
described the nature of petitioner's offense as “aiding and abetting the
evasion of payment of income tax,” within the meaning of 18 U.S.C. sec. 2. which
alone does not make “aiding and abetting” a distinct crime. Rather, it provides
that a person who “aids, abets, counsels, commands, induces or procures” the
commission of an offense against the United States “<u>is punishable as a
principal</u>.” Restitution orders are therefore, based on the underlying
crime, not on the aiding and abetting.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<a href="https://www.blogger.com/null" name="ADVTCR:599.49-1"></a><a href="https://www.blogger.com/null" name="ADVTCR:599.49"></a><span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">IRC Sec. 6201(a)(4) authorizes the
Commissioner to assess and collect the amount of restitution under a sentencing
order “for failure to pay any tax imposed under this title.” As Bontrager was
convicted of violating <a href="https://www.blogger.com/null" name="ADVTCR:599.50"></a>IRC Sec. 7201, he was thus
found guilty of attempting “to evade or defeat [a] tax imposed by this title or
the payment thereof.” Because failure to pay a tax imposed by title 26 was an
element of the offense with which Bontrager was charged, and because he was
convicted of that offense, <a href="https://www.blogger.com/null" name="ADVTCR:599.51"></a>IRC Sec. 6201(a)(4) by
its terms authorized the IRS to assess and collect the amount of restitution
that Botrager was ordered to pay.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">Bontrager argued that
the tax, the payment of which he was convicted of evading, was not originally
imposed upon him by title 26. The Court said that neither <a href="https://www.blogger.com/null" name="ADVTCR:599.52-1"></a>IRC Sec.<a href="https://www.blogger.com/null" name="ADVTCR:599.52"></a> 7201 nor <a href="https://www.blogger.com/null" name="ADVTCR:599.53-1"></a>IRC Sec.<a href="https://www.blogger.com/null" name="ADVTCR:599.53"></a> 6201(a)(4)
requires that this be the case. <a href="https://www.blogger.com/null" name="ADVTCR:599.54-1"></a>IRC Sec.<a href="https://www.blogger.com/null" name="ADVTCR:599.54"></a> 7201 criminalizes any willful attempt to evade
payment of “any tax imposed by this title.” <a href="https://www.blogger.com/null" name="ADVTCR:599.55-1"></a>IRC
Sec. 6201(a)(4) authorizes the assessment of restitution “for failure to pay
any tax imposed under this title.” <span style="color: #252525;"><o:p></o:p></span></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: normal; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt;">The
Tax Court further held that Mr. Bontrager's restitution liability was not
discharged in the bankruptcy proceeding. The Court rejected his contention that
IRS waived the nondischargeability of the restitution obligation by filing a
claim as a general unsecured creditor in his chapter 7 case. Contrary to the
taxpayer's view, the Court found that nothing in the Bankruptcy Code prevents a
creditor of a nondischargeable debt from filing a claim, and the taxpayer
provided no legal authority for this proposition. Further, the Court determined
that IRS properly filed its claim as a general unsecured creditor. Because IRS
had not assessed the restitution obligation at the time of the taxpayer's
bankruptcy, let alone filed an NFTL, it was required to file its claim as a
general unsecured creditor.<o:p></o:p></span></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-76095218541097395832018-11-21T11:37:00.000-05:002018-11-21T11:37:12.498-05:00Are You Concerned that if Substantial Gifts Were Made Which Exceed the Pre-TCJA Estate and Gift Tax Exemption That Your Estate would Be Adversely Impacted?<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="color: #252525; font-family: Arial, Helvetica, sans-serif; font-size: 18px;">
<br /></div>
<div id="selectedTextRefFooter" style="color: #252525; font-family: Arial, Helvetica, sans-serif; font-size: 18px;">
<div class="MsoNormalCxSpFirst" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">In <a href="https://checkpoint.riag.com/app/view/frameBlob?usid=19af3fs1c3b0d&BLOBID=/resource/TX/reg-106706-18&DocID=i8f2d2f7b2597e3dae2cfdfdac0206d02&SrcDocId=T0FEDNEWS%3AIc46723ecd0094a9-1&feature=tnews&lastCpReqId=7fe310&preview=y&tabPg=4210"><span style="color: windowtext; letter-spacing: .1pt;">REG-106706-18</span></a> the
IRS has issued proposed regulations that provide that individuals taking
advantage of the increased gift and estate tax exclusion amounts in effect from
2018 to 2025, as provided for by the Tax Cuts and Jobs Act (TCJA), will not be adversely
impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018
levels. <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<u><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%; mso-fareast-font-family: "Times New Roman";">Background<o:p></o:p></span></u></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">In
computing the amount of Federal gift tax to be paid on a gift or the amount of
Federal estate tax to be paid at death, the gift and estate tax provisions of
the Internal Revenue Code (Code) apply a unified rate schedule to the
taxpayer’s cumulative taxable gifts and taxable estate on death to arrive at a
net tentative tax. The net tentative tax then is reduced by a credit based on
the applicable exclusion amount (AEA), which is the sum of the basic exclusion
amount (BEA) within the meaning of section 2010(c)(3) of the Code and, if
applicable, the deceased spousal unused exclusion (DSUE) amount within the
meaning of section 2010(c)(4). In certain cases, the AEA also includes a
restored exclusion amount.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">Prior
to January 1, 2018, for estates of decedents dying and gifts made beginning in
2011, section 2010(c)(3) provided a BEA of $5 million, indexed for inflation after
2011. The credit is applied first against the gift tax, on a cumulative basis,
as taxable gifts are made. To the extent that any credit remains at death, it
is applied against the estate tax. <o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">Section
11061 of the TCJA amended section 2010(c)(3) to provide that, for decedents
dying and gifts made after December 31, 2017, and before January 1, 2026, the
BEA is increased by $5 million to $10 million as adjusted for inflation
(increased BEA). On January 1, 2026, the BEA will revert to $5 million. Thus,
an individual or the individual’s estate may utilize the increased BEA to
shelter from gift and estate taxes an additional $5 million of transfers made
during the eight-year period beginning on January 1, 2018, and ending on
December 31, 2025 (increased BEA period).<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">Section
11061 of the TCJA also added section 2001(g)(2) to the Code, which, in addition
to the necessary or appropriate regulatory authority granted in section
2010(c)(6) for purposes of section 2010(c), directs the Secretary to prescribe
such regulations as may be necessary or appropriate to carry out section 2001
with respect to any difference between the BEA applicable at the time of the
decedent’s death and the BEA applicable with respect to any gifts made by the
decedent.<o:p></o:p></span></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoNormalCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">Given
the cumulative nature of the gift and estate tax computations and the differing
manner in which the credit is applied against these two taxes, there are several
questions regarding a potential for inconsistent tax treatment or double
taxation of transfers resulting from the temporary nature of the increased BEA.
<o:p></o:p></span></div>
<div class="MsoNormalCxSpLast" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<u><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">Analysis<o:p></o:p></span></u></div>
<div class="MsoListParagraphCxSpFirst" style="line-height: 150%; mso-add-space: auto; mso-list: l0 level2 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">First, in cases in which a taxpayer exhausted
his or her BEA and paid gift tax on a pre-2018 gift, and then either makes an
additional gift or dies during the increased BEA period, will the increased BEA
be absorbed by the pre-2018 gift on which gift tax was paid so as to deny the
taxpayer the full benefit of the increased BEA during the increased BEA period?
<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level3 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The
IRS’s response is that the gift tax determination appropriately reduces the
increased BEA only by the amount of BEA allowable against prior period gifts,
thereby ensuring that the increased BEA is not reduced by a prior gift on which
gift tax in fact was paid.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">Second, in cases in which a taxpayer made a
gift during the increased BEA period that was fully sheltered from gift tax by
the increased BEA but makes a gift or dies after the increased BEA period has
ended, will the gift that was exempt from gift tax when made during the
increased BEA period have the effect of increasing the gift or estate tax on
the later transfer (in effect, subjecting the earlier gift to tax even though
it was exempt from gift tax when made)? <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level3 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The
IRS responded by ruling the only time that the increased BEA enters into the
computation of the estate tax is when the credit on the amount of BEA allowable
in the year of the decedent’s death is netted against the tentative estate tax,
which in turn already has been reduced by the hypothetical gift tax on the full
amount of all post-1976 taxable gifts (whether or not gift tax was paid). Thus,
the increased BEA is not reduced by the portion of any prior gift on which gift
tax was paid, and the full amount of the increased BEA is available to compute
the credit against the estate tax.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The third situation considered is whether the
gift tax on a gift made after the increased BEA period is inflated by a
theoretical gift tax on a gift made during the increased BEA period that was
sheltered from gift tax when made. If so, this would effectively reverse the
benefit of the increased BEA available for gifts made during the increased BEA
period. This issue arises in the case of donors who both made one or more gifts
during the increased BEA period that were sheltered from gift tax by the
increased BEA in effect during those years, and made a post-2025 gift. The
concern raised is whether the gift tax determination on the post-2025 gift will
treat the gifts made during the increased BEA period as gifts not sheltered
from gift tax by the credit on the BEA, given that the post-2025 gift tax
determination is based on the BEA then in effect, rather than on the increased
BEA. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level3 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The
IRS responded by ruling the gift tax from prior periods includes the gift tax
attributable to the gifts made during the increased BEA period. In this way,
the full amount of the gift tax liability on the increased BEA period gifts is
removed from the computation, regardless of whether that liability was
sheltered from gift tax by the BEA or was satisfied by a gift tax payment. All
that remains is the tentative gift tax on the donor’s current gift. Even if the
sum of the credits allowable for prior periods exceeds the credit based on the
BEA in the current (post-2025) year, the tax on the current gift cannot exceed
the tentative tax on that gift and thus will not be improperly inflated. The
gift tax determination anticipates and avoids this situation, but no credit
will be available against the tentative tax on the post-2025 gift.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: 150%; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: 0in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The fourth situation considered is whether, for
estate tax purposes, a gift made during the increased BEA period that was
sheltered from gift tax by the increased BEA inflates a post-2025 estate tax
liability. This will be the case if the estate tax computation fails to treat
such gifts as sheltered from gift tax, in effect reversing the benefit of the
increased BEA available for those gifts. This issue arises in the case of estates
of decedents who both made gifts during the increased BEA period that were
sheltered from gift tax by the increased BEA in effect during those years, and
die after 2025. The concern raised is whether the estate tax computation treats
the gifts made during the increased BEA period as post-1976 taxable gifts not
sheltered from gift tax by the credit on the BEA, given that the post-2025
estate tax computation is based on the BEA in effect at the decedent’s death
rather than the BEA in effect on the date of the gifts. In this case, the
statutory requirements for the computation of the estate tax, in effect,
retroactively eliminate the benefit of the increased BEA that was available for
gifts made during the increased BEA period. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="line-height: 150%; margin-left: 1.5in; mso-add-space: auto; mso-list: l0 level3 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 12.0pt; line-height: 150%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The
IRS responded by ruling to implement the TCJA changes to the BEA under section
2010(c)(3), the proposed regulations would amend §20.2010-1 to provide that, in
the case of decedents dying or gifts made after December 31, 2017, and before
January 1, 2026, the increased BEA is $10 million.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12.0pt; line-height: 150%;">The proposed regulations also would amend
§20.2010-1 to provide a special rule in cases where the portion of the credit
as of the decedent’s date of death that is based on the BEA is less than the
sum of the credit amounts attributable to the BEA allowable in computing gift
tax payable within the meaning of section 2001(b)(2). In that case, the portion
of the credit against the net tentative estate tax that is attributable to the
BEA would be based upon the greater of those two credit amounts.<o:p></o:p></span></div>
</div>
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-62343374645540318942018-11-09T11:21:00.000-05:002018-11-09T11:21:44.909-05:00Can the Filing of an Amended Tax Return Result in the Waiver of the Attorney-client Privilege Between Taxpayer and Accountant?<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div align="center" class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 0in; margin-right: 0in; margin-top: 12.0pt; mso-line-height-alt: 16.8pt; mso-outline-level: 4; text-align: center;">
<b><span style="color: black; font-family: Arial, sans-serif;">U.S. v. Adams, </span></b><a href="https://www.blogger.com/null" name="Tf3958f1ea53a4ab199d1c6f533745bc4"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=i062e01b6ce65eae3f3efb45ad0efe4c4&SrcDocId=T0FEDNEWS%3AI240e5a8e0f05489-1&feature=tnews&lastCpReqId=38698a&tabPg=4210" target="_top"><span style="mso-bookmark: Tf3958f1ea53a4ab199d1c6f533745bc4;"><b><span style="color: windowtext; font-family: Arial, sans-serif; letter-spacing: 0.1pt; text-decoration: none;">122 AFTR 2d ¶2018-5380</span></b></span><span style="mso-bookmark: Tf3958f1ea53a4ab199d1c6f533745bc4;"></span></a><span style="mso-bookmark: Tf3958f1ea53a4ab199d1c6f533745bc4;"></span><b><span style="color: black; font-family: Arial, sans-serif;">, (DC MN 10/27/2018)<span style="font-size: 17pt;"><o:p></o:p></span></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Under </span><span class="c-doc-para-italic"><i><span style="font-family: "Arial",sans-serif; font-size: 13.5pt;">United States v. Kovel</span></i></span><span style="font-family: "Arial",sans-serif; font-size: 13.5pt;"><span style="-webkit-text-stroke-width: 0px; float: none; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; widows: 2; word-spacing: 0px;">, </span><a data-ajax="false" data-cp-js-function="{"useHref" : true , "command" : "CP.doc.docLink" , "params" :[""]}" href="https://www.blogger.com/null" id="ADVAFTR:23972.5-1" name="ADVAFTR:23972.5" style="background-position-x: 0px; background-position-y: 0px;"></a><span style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-align: start; text-decoration-color: initial; text-decoration-style: initial; widows: 2; word-spacing: 0px;">296 F.2d 918, 921–22, 9 AFTR
2d 366 (2nd Cir. 1961) the attorney-client privilege applies to an individual's
communications with an accountant if the communications are “<u>made in
confidence for the purpose of obtaining legal advice from the lawyer</u>” </span><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The party asserting that a communication is protected by the
attorney-client privilege has the burden to establish that it applies. <a href="https://www.blogger.com/null" name="Iad1507b0dedf11e89a65e3e68dc1797d"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=ie262f5be19fa11dc9b24c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI240e5a8e0f05489-1&feature=tnews&lastCpReqId=38698a&tabPg=4210" target="_top"><span style="mso-bookmark: Iad1507b0dedf11e89a65e3e68dc1797d;"><i style="mso-bidi-font-style: normal;"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">U.S.
v. Horvath</span></i></span><span style="mso-bookmark: Iad1507b0dedf11e89a65e3e68dc1797d;"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">, 53 AFTR 2d 84-1138</span></span><span style="mso-bookmark: Iad1507b0dedf11e89a65e3e68dc1797d;"></span></a><span style="mso-bookmark: Iad1507b0dedf11e89a65e3e68dc1797d;"></span>, (8th Cir 1984).<o:p></o:p></span></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt;">In </span><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Adams the district court concluded that communications
between a taxpayer and his accountant was protected by the attorney-client
privilege. However the court concluded that any such privilege could be waived
by filing an amended tax returns, and that that even if they were protected,
the crime-fraud exception vitiated the privilege.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Under the crime-fraud exception, the attorney-client
privilege does not extend to communications made for the purpose of getting
advice for the commission of a fraud or a crime. Though the attorney-client
privilege protects an individual's consultation with a lawyer with respect to
past wrongdoings<u>, the privilege is lost if the communication is made to
further a continuing or contemplated criminal fraud or scheme.</u> Similarly, a
client who has used his attorney's assistance to perpetrate a crime or fraud
cannot assert the work product privilege as to any documents generated in
furtherance of his misconduct. <i style="mso-bidi-font-style: normal;">See</i>, <i style="mso-bidi-font-style: normal;">In re Green Grand Jury Proceedings</i>, <a href="https://www.blogger.com/null" name="I41fba9b0de1d11e8a118fcbaa06080e4">492 F.3d 976</a> (8<sup>th</sup> Cir.
2007); <i style="mso-bidi-font-style: normal;">Zolin v. U.S.</i>, <a href="https://www.blogger.com/null" name="I41fba9b2de1d11e8a118fcbaa06080e4"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=ic1a4d03019fb11dc9b24c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI240e5a8e0f05489-1&feature=tnews&lastCpReqId=38698a&tabPg=4210" target="_top"><span style="mso-bookmark: I41fba9b2de1d11e8a118fcbaa06080e4;"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">63 AFTR 2d 89-1483</span></span><span style="mso-bookmark: I41fba9b2de1d11e8a118fcbaa06080e4;"></span></a><span style="mso-bookmark: I41fba9b2de1d11e8a118fcbaa06080e4;"></span> (S. Ct. 1989)<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Before the crime-fraud exception may be applied, the
government must make a threshold showing that legal advice was obtained to
further an illegal or fraudulent scheme. It's required to demonstrate "a
factual basis adequate to support a good faith belief by a reasonable person…
that in camera review of the materials may reveal evidence to establish the
claim that the crime-fraud exception applies." In re <i style="mso-bidi-font-style: normal;">Green Grand Jury Proceedings</i>, <a href="https://www.blogger.com/null" name="I420e4750de1d11e8a118fcbaa06080e4"> 492 F.3d 976, 979</a> (8<sup>th</sup>
Cir. 2007); <i style="mso-bidi-font-style: normal;">Zolin v. U.S.</i>, <a href="https://www.blogger.com/null" name="I420e4752de1d11e8a118fcbaa06080e4"></a><a href="https://checkpoint.riag.com/app/main/docLinkNew?DocID=ic1a4d03019fb11dc9b24c7f8ee2eaa77&SrcDocId=T0FEDNEWS%3AI240e5a8e0f05489-1&feature=tnews&lastCpReqId=38698a&tabPg=4210" target="_top"><span style="mso-bookmark: I420e4752de1d11e8a118fcbaa06080e4;"><span style="color: windowtext; letter-spacing: .1pt; mso-bidi-font-weight: bold; text-decoration: none; text-underline: none;">63 AFTR 2d 89-1483</span></span><span style="mso-bookmark: I420e4752de1d11e8a118fcbaa06080e4;"></span></a><span style="mso-bookmark: I420e4752de1d11e8a118fcbaa06080e4;"></span>, (S Ct 1989).<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Notwithstanding, to make the ultimate showing that the
crime-fraud exception applies, and that the purportedly privileged documents
should be disclosed, a higher level of proof is required. <i style="mso-bidi-font-style: normal;">In re Gen. Motors Corp.</i>, <a href="https://www.blogger.com/null" name="I42183260de1d11e8a118fcbaa06080e4">153 F.3d 714</a> (8<sup>th</sup> Cir.
1998) The Supreme Court in <i>Zolin</i> expressly declined to specify
the quantum of proof required to establish the crime-fraud exception, but noted
that the standard is higher than the threshold showing required for in camera
review.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The taxpayer, Edward Adams, invoked the attorney-client
privilege over numerous communications between himself and accountants at Murry
LLC, who were retained by his tax counsel under a so-called "<i>Kovel</i> arrangement."<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The government raised three challenges to the assertion of
privilege with regard to the communication with the accountants: <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-bottom: 13.2pt; margin-left: .5in; margin-right: 0in; margin-top: 13.2pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 13.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">that the protections provided under <i>Kovel</i> were
not applicable to these individual communications; <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 13.2pt; margin-left: .5in; margin-right: 0in; margin-top: 13.2pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 13.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">that any such protection was waived by the taxpayer's
subsequent filing of amended tax returns; and <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: 13.2pt; margin-left: .5in; margin-right: 0in; margin-top: 13.2pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 13.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">that the crime-fraud exception invalidated any claim of
privilege.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">In addition to the communications with his accountants, the
government sought, and Mr. Adams asserted privilege with regard to,
communications that he had with his law and business partner and their
paralegal, and with lawyers that represented several companies (including the
Apollo corporation, noted below).<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The district court conducted an in camera review of the
various Murry LLC communications.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The district court rejected the government's argument that
the protections of <i>Kovel</i> did not apply to the Murry LLC communications.
The court found that the declaration and supplemental declaration by Mr. Adams'
attorney sufficiently demonstrated that the attorney-client privilege extended
to the documents at issue. In these declarations, the attorney thoroughly
explained how communications with Murry LLC and the information Mr. Adams
provided to the accountants assisted in his provision of legal advice to his
client regarding tax-related matters. The court found that this was sufficient
to invoke the attorney-client privilege. The court also stated that its in
camera review of the communications did not contradict the attorney's
explanation.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The Amended Tax returns. </span></i></b><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The district court also concluded that Mr. Adams' subsequent
filing of amended tax returns for 2008, 2009, and 2010 did not result in a
waiver of the privilege as to the Murry LLC communications submitted for in
camera review. The district noted that in <i>Cote,</i> the Eighth
Circuit stated that <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: .3in; margin-right: .3in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">"[n]otwithstanding our recognition that the
attorney-client privilege attached to the information contained in the
accountant's workpapers under the circumstances existing here, we find that by
filing the amended returns the taxpayers communicated, at least in part, the
substance of that information to the government, and they must now disclose the
detail underlying the reported data." <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Notably the <i>Cote</i> court distinguished
between "<u>workpapers [that] contain detail of unpublished expressions
which are not part of the data revealed on the tax returns," and other
workpapers to which the rule of waiver would apply</u>. Mr. Adam's attorney
explained in his supplemental declaration that, in responding to a subpoena
from the government, he provided copies of files that contain data and
information that that was included on the amended returns for 2008-2010. However,
the attorney did not disclose information communicated by Mr. Adams in
connection with requests for legal advice. The district court found that the
explanation of Mr. Adam's attorney distinguished this case from <i>Cote,</i> where
the accountant "testified that the information on his workpapers was later
transcribed onto the amended returns which were filed by the taxpayers with the
government," thereby waiving the privilege.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">The district court said that it could not conclude on the
record before it (including its in camera review) that Mr. Adams was claiming
privilege over the underlying details for the data that was ultimately
transmitted to IRS when he filed the amended returns. Instead, the record
suggested that the information conveyed to the accountants at Murry LLC
comprised the type of unpublished expressions that were not later revealed on
the amended tax returns.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">As to the government's contention with regard to the
crime-fraud exception, the district court found that while the government met the
initial threshold requirement, it failed to make the ultimate showing that the
crime-fraud exception applied.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">Conclusion.</span></i></b><span style="font-family: "Arial",sans-serif; font-size: 13.5pt; mso-fareast-font-family: "Times New Roman";">
While amended tax returns have the potential to unravel the Koval privilege, if
communications are maintained properly the waiver of the attorney-client can be
maintained.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 13.2pt; margin-left: 0in; margin-right: 0in; margin-top: 13.2pt; text-align: justify;">
<br /></div>
<br /></div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-55446860033196129132018-08-20T15:48:00.000-04:002018-08-20T15:48:28.470-04:00Can you audit my online Tax Accounting Class-online starting August 27th? <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="x_MsoNormal">
<b><span style="font-size: 14pt;"></span></b> </div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">As I mentioned a few days ago we are starting the online Tax Accounting class August 27th.</span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;"> </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">Someone asked –“can I audit the class?”</span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">Here is the rules:</span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;"> </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">Cost for outsiders non-FDU alum to audit is charge for 1 credit-$1334; For an FDU alumni the cost of 1/2 credit-$667.</span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;"> </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">Generally, we want them to have an MST and the MST can be from any school, or a JD or MBA. </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;"> </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">For online version- CPAs without MST (since it has no effect on those taking if for credit for an FDU MST) with some years of experience.</span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;"> </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">Here is a link to my introductory video-take a look! <a data-auth="NotApplicable" href="https://www.dropbox.com/s/7vty9ie9cgy24qt/Course%20Introduction.mp4?dl=0" rel="noopener noreferrer" target="_blank">https://www.dropbox.com/s/7vty9ie9cgy24qt/Course%20Introduction.mp4?dl=0</a></span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;"> </span></div>
<div class="x_MsoNormal">
<span style="font-size: 14pt;">If you would like to enroll contact me (<a data-auth="NotApplicable" href="https://www.blogger.com/null" rel="noopener noreferrer" target="_blank">brunettii@fdu.edu</a>) and/or Ron West (<a data-auth="NotApplicable" href="https://www.blogger.com/null" rel="noopener noreferrer" target="_blank">west@fdu.edu</a>)</span></div>
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-46507685580226055362018-08-07T17:00:00.000-04:002018-08-07T17:00:35.162-04:00Federal Tax Accounting -online @ Fairleigh Dickinson University<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">Once
again I am offering my federal tax accounting course online at FAIRLEIGH
DICKINSON UNIVERSITY starting August 27, 2018. I will be using my book, “Federal
Tax Accounting“(CCH 2017).</span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;"> </span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">The
course is divided into four modules. In the first module we will study “the entities
tax year.” In the second module we will study “changes of accounting methods.”<span style="mso-spacerun: yes;"> </span>In the third module we will study “tax
accounting methods.” <span style="mso-spacerun: yes;"> </span>In the fourth module
we will study “inventory and uniform capitalization.”</span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;"> </span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">The
course is designed to not only explore the principles of Federal Tax Accounting
as well as learn to analyze and solve tax accounting problems. The course is
activities-based, functional incrementally and cumulatively. The outcomes will
be determined based on case studies, analysis of solving tax problems, and preparation
of IRS forms such as 3115’s and 1128‘s, etc.</span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;"> </span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">Each
module will have a capstone project where, in some cases, there will be a group
activity, and in some an individual activity.</span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;"> </span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">Each
week you will have specific assignments, access to online video lectures (over
50), a weekly WebEx meeting, and access to numerous cases, rulings, revenue procedures,
etc. </span></div>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">The
topics include:</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial",sans-serif; font-size: 12pt; font-style: normal; font-weight: normal;"><div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;"><span style="mso-spacerun: yes;"> </span>The Entity’s Tax Year;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>Methods
of Accounting;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>The
Cash Receipts and Disbursements Method;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>The
Accrual Method;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>Change
in Accounting Method;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>Inventories;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>Uniform
Capitalization Rules;</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>Instalment
Sales; and</span></div>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span lang="EN-IN" style="font-family: "Arial",sans-serif;">•<span style="mso-tab-count: 1;"> </span>Long-Term
Contracts.</span></div>
</li>
</ul>
<br />
<div style="margin: 0in 0in 0pt; text-align: justify;">
<span style="font-family: "Arial",sans-serif;">I
invite you to sign up for the course through the FAIRLEIGH DICKINSON UNIVERSITY
MST website. You may contact Ron West at: <a href="mailto:West@fdu.edu"><span style="color: #0563c1;">West@fdu.edu</span></a>
or contact me at” <a href="mailto:brunetti@fdu.edu"><span style="color: #0563c1;">brunetti@fdu.edu</span></a>.</span></div>
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-72466706264494356972018-07-20T13:12:00.001-04:002018-07-20T13:12:55.308-04:00The IRS Recently Clarified Its Position on Willfulness in FBAR Penalty Cases and It Is Not Taxpayer-Friendly<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div style="margin: 0in 0in 0pt;">
<span style="font-family: Calibri;">“This article was originally posted on Scarinci Hollenbeck’s
website – (</span><a href="http://scarincihollenbeck.com/law-firm-insights/tax/taxes/irs-fbar-penalty-case/"><span style="color: blue; font-family: Calibri;">http://scarincihollenbeck.com/law-firm-insights/tax/taxes/irs-fbar-penalty-case/</span></a><span style="font-family: Calibri;">)
by <a class="author url fn" href="https://scarincihollenbeck.com/author/jpittard/" rel="author" title="Posts by Jeffrey R. Pittard"><span style="font-family: Times New Roman;">Jeffrey R. Pittard</span></a><span style="font-family: Times New Roman;"> </span></span></div>
<br />
<div style="margin: 0in 0in 0pt;">
<span style="font-family: Calibri;"> </span></div>
Pursuant to 31 U.S.C. 5314(a) and 31 C.F.R. 1010.350, a United States person is required to annually report financial accounts in which it has a financial interest or signature authority over to the Internal Revenue Service on a Report of Foreign Bank and Financial Accounts Form (FBAR). If a taxpayer fails to timely submit its FBAR, 31 U.S.C. 5321(a)(5) allows the government to impose penalties on the taxpayer up to the greater of $100,000 or half the value of the account balance at the time of the violation when the failure to file is considered “willful”.<br />
<br /><br />
The IRS has <a href="https://www.irs.gov/pub/lanoa/pmta_2018_13.pdf" rel="noopener" target="_blank">recently released internal documentation</a> in which it outlines its views on the standard for “willfulness” in assessing FBAR penalties against taxpayers. It also sets forth its belief in the burden of proof required to establish that a taxpayer acted willfully.<br />
<br /><br />
According to the IRS, willfulness is more than just ignoring a known obligation. The IRS has determined that for FBAR violation purposes, the term “willful” includes not only a knowing failure to file, but also when the taxpayer is “reckless” or “willfully blind” in its failure to file.<br />
Courts have held that recklessness exists when a taxpayer “(1) ought to have known know that (2) there was a grave risk [in not complying with the law] and if (3) he was in a position to find out for certain very easily.” United States v. Vespe, 868 F.2d 1328, 1335 (3d Cir. 1989).<br />
<br /><br />
Willful blindness exists when a taxpayer makes “a conscious effort to avoid learning about reporting requirements.” United States v. Williams, 489 Fed.Appx. 655, 659-660 (4<sup>th</sup> Cir. 2012). The Internal Revenue Manual also indicates that “willful blindness may be present when a person admits knowledge of, and fails to answer questions concerning, his interest in or signature or other authority over financial accounts at foreign banks on Schedule B of his Federal income tax return.”<a href="https://www.irs.gov/irm/part4/irm_04-026-016" rel="noopener" target="_blank"> I.R.M. 4.26.16.6.5.1.</a><br />
<br /><br />
Thus, the IRS could attempt to assess a willfulness penalty even if you were not aware of your FBAR filing obligation. Although the <a href="https://www.irs.gov/pub/irs-wd/0603026.pdf" rel="noopener" target="_blank">IRS initially believed in the internal guidance that the IRS would need to prove willfulness</a> under the clear and convincing standard, case law has indicated that a lower burden – merely a preponderance of the evidence – is all that is required to assess an FBAR penalty against a taxpayer. Thus, the IRS needs only to prove that you were more likely than not willful in failing to file your FBAR.</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0tag:blogger.com,1999:blog-7142248345408766188.post-28428113531156853682018-07-06T16:40:00.000-04:002018-07-06T16:40:32.001-04:00IRS implies that payments made inn 2017 for 2018 real property taxes will not result in a property tax deduction for 2017<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div style="line-height: 140%; margin: 14pt 0in 14pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 140%;">In Information Letter </span><span style="color: black; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 140%;">2018-0009 the </span><span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 140%;">IRS has implied that actions taken in Dec. 2017 by <span style="mso-spacerun: yes;"> </span>the New Jersey Department of Community
Affairs, which ordered NJ municipalities to accept payments for 2018 property
taxes in calendar year 2017, will not result in those payments generating 2017
federal income tax deductions.</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">One of the provisions of the Tax Cuts and Jobs Act (TCJA)
limited post-2017 annual deductions for real property and other state and local
taxes to a maximum of $10,000. Another TCJA provision increased the standard
deduction for 2017 and thereafter. As a result of these two changes, many
taxpayers will not get a full benefit for their 2018-and-later payments of
nonbusiness real property taxes.</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;"><a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.06&dbName=TCODE&linkType=docloc&locId=26uscas164%28b%29%286%29&permaId=i8e81a55819d711dcb1a9c7f8ee2eaa77&tagName=PARA&endParm=y"><span style="color: windowtext; text-decoration: none; text-underline: none;"><span style="mso-spacerun: yes;"> </span>Code Sec. 164(b)(6) </span></a>,<span style="color: #252525;"> as amended by TCJA, provides that a taxpayer who, in
2017, pays <i>an income tax</i> that is imposed for a tax year after 2017, cannot
claim an itemized deduction in 2017 for that prepaid income tax.</span></span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">In December, 2017, IRS announced that a prepayment of real
property taxes is deductible in the year of prepayment, e.g., 2017, only if the
property tax is assessed in the year of prepayment. (IR 2017-120) State or
local law determines whether and when a property tax is assessed, which is
generally when the taxpayer becomes liable for the property tax imposed. In the
pronouncement the IRS provided the following illustrations:</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">Illustration. Assume County A assesses property tax on Jul. 1,
2017 for the period Jul. 1, 2017 - Jun. 30, 2018. On Jul. 31, 2017, County A
sends notices to residents notifying them of the assessment and billing of the
property tax in two installments, with the first installment due Sept. 30, 2017
and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the
first installment in 2017, the taxpayer may choose to pay the second
installment on Dec. 31, 2017 and may claim a deduction for this prepayment on
the taxpayer's 2017 return.</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">Illustration. County B also assesses and bills its residents for
property taxes on Jul. 1, 2017, for the period Jul. 1, 2017 - Jun. 30, 2018.
County B intends to make the usual assessment in Jul. 2018 for the period Jul.
1, 2018 - Jun. 30, 2019. However, because county residents wish to prepay their
2018-2019 property taxes in 2017, County B has revised its computer systems to
accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers
who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct
the prepayment on their federal tax returns because the county will not assess
the property tax for the 2018-2019 tax year until Jul. 1, 2018.</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">On December 27, 2017 then New Jersey Governor Chris Christie
issued Executive Order 237 essentially requiring municipalities to accept
payments for 2018 property taxes in calendar year 2017, and to credit payments
postmarked on or before Dec. 31, 2017, as received in calendar year 2017 (NJ
Order). The state agency charged with implementing the NJ Order, the New Jersey
Department of Community Affairs, issued a similar requirement in Local Finance
Notice 2017-28. The NJ Order cites existing New Jersey law that permit taxes to
be received and credited prior to the dates otherwise fixed for payment. That
law is N.J. Rev. Stat. §§ 54:4-66(e) and 54:4-66.1(f), which provide that
taxes may be received and credited as payments at any time, even prior to the
dates herein before fixed for payment, from the property owners, their agents,
or lien holders.</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">In February, 2018, New Jersey Attorney General Gurbir Grewal
wrote IRS, arguing that New Jersey taxpayers who paid 2018 property taxes on or
before Dec. 31, 2017 should be eligible for deductions in 2017 and asking IRS
to confirm that analysis. Pointing to the NJ Order and the Local Finance
Notice, he said <b style="mso-bidi-font-weight: normal;">that "State
statutes, executive orders, and agency notices are clear that residents may
satisfy property tax assessments in advance and payments must be credited at
that time. I see no basis for the IRS to refuse to do the same.</b>" He
also noted, "...<b style="mso-bidi-font-weight: normal;">while the TCJA did
establish that income tax prepayments should be credited in 2018, that law did
not impose the same rule on property tax prepayments.</b> And so, relying on
the text of the law, thousands of New Jersey taxpayers rushed to pay their
taxes in order to qualify for the SALT [state and local tax] deduction."</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">In a letter to the New Jersey attorney general, IRS has implied
that it disagrees with his position. The IRS noted that, before the passage of
the TCJA, IRS has consistently taken the position during examinations that the
deduction for state and local real property taxes is allowable as long as the
tax is both paid and imposed (or assessed) in the tax year. The IRS said that,
on the rare occasions this position has been challenged, courts have upheld
IRS's interpretation. <i style="mso-bidi-font-style: normal;">See Estate of
Hoffman, </i>87 AFTR 2d 2001-2119 (4<sup>th</sup> Cir. 2001 where the Court of
Appeals for the Fourth Circuit upheld a Tax Court decision disallowing the
deduction for a prepayment of property taxes because the tax had not yet been
assessed.</span></div>
<br />
<div style="line-height: 165%; margin: 5pt 0in 5pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-align: justify;">
<span style="color: #252525; font-family: "Arial",sans-serif; font-size: 12pt; line-height: 165%;">In the letter the IRS said that the TCJA did not change <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.06&dbName=TCODE&linkType=docloc&locId=164&permaId=i8e81a55819d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: #145da4; text-decoration: none; text-underline: none;">Code Sec. 164 </span></a>relating
to property tax prepayment. As such, IRS's longstanding position remains the
same and is reflected in IR 2017-120. Thus, if a state or local taxing
jurisdiction imposed tax on real property by the end of 2017, the amounts paid
in 2017 are deductible on a taxpayer's 2017 tax return. If the tax was not
imposed by a state or local taxing jurisdiction by the end of 2017, the
requirements for the deduction under <a href="https://checkpoint.riag.com/app/find?begParm=y&app.version=18.06&dbName=TCODE&linkType=docloc&locId=164&permaId=i8e81a55819d711dcb1a9c7f8ee2eaa77&tagName=SEC&endParm=y"><span style="color: #145da4; text-decoration: none; text-underline: none;">Code Sec. 164 </span></a>are
not satisfied in that year, and the deduction is therefore not allowable in
2017.</span></div>
</div>
jerseytaxbloghttp://www.blogger.com/profile/07596390536291354156noreply@blogger.com0