Tax Relief Blog

IRS Q&As shed some new light on the homebuyer credit

First-Time Homebuyer Credit: Questions and Answers, IRS Web Site

Mike Habib, EA Tax Relief & Tax Problem Resolution Services

IRS has posted a number of questions and answers (Q&As) on the first-time homebuyer credit on its web site. They are grouped into four categories: basic information; homes purchased in 2008; homes purchased in 2009; and scenarios. Those Q&As that shed some new light on the first-time homebuyer credit are examined below.

Background The homebuyer credit was recently enhanced by the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5). The pre-ARRA rules for the homebuyer credit apply for homes bought after Apr. 8, 2008 and on or before Dec. 31, 2008. The credit for these 2008 home purchases is reflected on an individual's 2008 return. A credit for a home bought after Dec. 31, 2008 and before Dec. 1, 2009 would normally be reflected on an individual's 2009 return but, at a taxpayer's election, may be taken on his 2008 return.

Pre-ARRA credit. Under pre-ARRA law, for qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers could claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately).

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies.

Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, could elect to treat the purchase as made on Dec. 31, 2008. For eligible purchases in 2009, a taxpayer could elect to claim the credit for 2008 or 2009 by attaching Form 5405 to the taxpayer's original or amended 2008 tax return or 2009 tax return.

The first-time homebuyer credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.

The credit for new homebuyers available under per-ARRA law is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit. This repayment obligation may be accelerated or forgiven under certain exceptions.

ARRA enhancements to the credit. For residences purchased after 2008, Sec. 1006 of the ARRA:

• increases the maximum homebuyer credit to $8,000. (Code Sec. 36(b))
• extends the credit so that it applies to purchases before Dec. 1, 2009. (Code Sec. 36(h))
• correspondingly, for purposes of the election to treat the purchase of a principal residence as having been made on Dec. 31, 2008, extends the last date of purchase until Nov. 30, 2009. (Code Sec. 36(g))
• generally waives recapture of the credit for qualifying home purchases. However, if the taxpayer disposes of the home or it otherwise ceases to be his principal residence within 36 months from the date of purchase, the pre-ARRA rules for recapture of the credit apply. (Code Sec. 36(f)(4)(D))

Basic Information Homes qualifying for the credit. Any home purchased as the taxpayer's principal residence and located in the U.S. The taxpayer must buy the home after Apr. 8, 2008, and before Dec. 1, 2009, to qualify for the credit. For a home that the taxpayer constructs, the purchase date is considered to be the first date he occupies the home. Vacation homes and rental property do not qualify for this credit, nor do homes located in U.S. territories.

Impact of room rental on credit. The credit would not be denied merely because the taxpayer plans to rent out two bedrooms in the home and report the rental income on Schedule E.

Impact of foreign ownership on credit. A taxpayer who owned a principal residence outside of the U.S. within the last three years is not disqualified from taking the credit for a purchase within the U.S.

Credit not mandatory. Homebuyers are not required to claim the credit.

Observation: The IRS guidance provides no information as to why someone would decline the credit. It's hard to imagine why someone would decline the credit for a purchase in 2009, when the credit generally does not have to be paid back. For 2008 purchases, it's a little different in that the credit is essentially an interest free loan. For either a 2008 or 2009 purchase, someone who plans to sell the new home within 3 years may want to decline it to avoid the hassle of claiming it and then having it recaptured. But, generally speaking, taxpayers normally would not decline the credit.

Taxpayers who can't take the credit. A taxpayer falling into any of the following categories cannot claim the credit even if he buys a new home:

• The taxpayer's income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
• The taxpayer buys his home from a close relative. This includes his spouse, parent, grandparent, child or grandchild.
• The taxpayer does not use the home as his principal residence.
• The taxpayer sells his home before the end of the year.
• The taxpayer is a nonresident alien.
• The taxpayer is, or was, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• The taxpayer's home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• The taxpayer owned a principal residence at any time during the three years prior to the date of purchase of the new home. For example, if an individual bought a home on July 1, 2008, he cannot take the credit for that home if he owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Homes Purchased in 2008 How the credit is repaid. The credit will be recaptured on Form 1040 as additional tax and is repaid in 15 equal annual installments beginning in the second tax year after the year in which the credit is claimed.

When credit is paid back. For homes purchased in 2008, the credit is similar to a 15-year interest-free loan. The taxpayer must begin repaying the loan the second year after claiming the credit. It is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. For example, if a taxpayer properly claims the maximum available credit of $7,500 on his 2008 federal tax return, he must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his 2010 federal tax return. Normally, $500 will be due each year from 2010 to 2024.

IRS knowledge of sale. IRS will know if someone sells his residence before the 15 years are up through both self reporting and third-party information.

Homes Purchased in 2009 Claiming higher credit for an early purchase. A taxpayer who bought his home in 2009 (early) and filed his 2008 tax return claiming the $7,500 first-time homebuyer credit that has to be repaid can claim the $8,000 credit that doesn't have to be repaid by filing an amended return.

No advance claim for the credit. A taxpayer who is in the process of buying a home and expects to close the deal before Dec. 1, 2009 may not claim the credit in anticipation of a purchase that has yet to happen. Until the taxpayer has finalized the purchase, which for most purchasers occurs at the time of the closing, he does not qualify for the credit.

Observation: A taxpayer whose 2009 qualifying home purchase will be completed after the Apr. 15, 2009 due date for filing the 2008 return should considering getting an automatic six-month filing extension if he would otherwise have to pay tax by the Apr. 15 due date and he is virtually certain to complete the purchase within the extended due date. The credit will be available to offset the tax he otherwise would have had to pay by the regular due date. If the credit won't be sufficient to completely offset the tax, he will have to pay the shortfall with his extension request. This approach should not be undertaken if the home purchase could fall through.

Paying credit back. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be the taxpayer's principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being the taxpayer's principal residence.

Scenarios Impact of later marriage. Eligibility for the credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A.

Cosigner on mortgage. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.

Former residence rented out. A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. She qualifies for the credit. A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years.

Observation: This is a very pro-taxpayer interpretation. It may help taxpayers to qualify for the credit, where due to the tough real estate market in many locations in the past few years, they could not sell and rented out their residence after moving to a rental in a new location. The opportunity of a potential purchaser to qualify for the credit, coupled with today's low interest rates, may help spur a sale of their former residence and put them in a position to qualify for a credit if they should decide to purchase a home in their new location.

One spouse owns. A husband and wife wanted to sell the home that the wife owned when they got married. The husband had not owned a home. He cannot qualify as a first-time homebuyer. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had an ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Code Sec. 36(c)(1) requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.

Link to IRS website: http://www.irs.gov/newsroom/article/0,,id=187935,00.html

Get tax relief, tax help and resolve your tax problems by retaining the tax firm of Mike Habib, EA at 1-877-78-TAXES or at myirstaxrelief.com

IRS unveils 2009 list of notorious tax scams--the "Dirty Dozen" IR 2009-41

Mike Habib, EA Tax Relief & Tax Problem Resolution Services

IRS has unveiled its latest list of notorious tax scams, which it calls the "Dirty Dozen," highlighted by schemes involving phishing, hiding income offshore and false claims for refunds. IRS warns that these tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

"Dirty Dozen" for 2009. IRS has identified the following tax scams as this year's "Dirty Dozen:"

• Phishing. This is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim's identity, access bank accounts, run up credit card charges or apply for loans in the victim's name. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues.
• Hiding income offshore. IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

• Filing false or misleading forms. IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims.
• Abuse of charitable organizations and deductions. IRS continues to observe the misuses of tax-exempt organizations. These include arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property. IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property.
• Return preparer fraud. Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their ploys.
• Frivolous arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty.
• False claims for refund and requests for abatement. This scam involves a request for abatement of previously assessed tax using Form 843, "Claim for Refund and Request for Abatement."
• Abusive retirement plans. IRS continues to uncover abuses in retirement plan arrangements, including Roth IRAs. IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions.
• Disguised corporate ownership. Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.
• Zero wages. Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed.
• Misuse of trusts. For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including IRS.
• Fuel tax credit scams. IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

Get tax relief and resolve your tax problems by retaining the tax firm of Mike Habib, EA at 1-877-78-TAXES or at myirstaxrelief.com

Get Tax Relief Today

It's important for you to file your income tax return on time, even if you cannot pay. The IRS does not take delays lightly, so if you already know that you're going to have a difficult time paying your taxes in full, you want to start exploring your options for tax relief as early as now.

When it comes to claiming tax relief, you need all the help that you can get so you can organize your paperwork and convince the IRS to possibly lower your tax debt, or agree to a setup where you can comfortably pay your tax debts over time. This is why getting the assistance of a tax professional associated with tax relief negotiations is important.

Getting help

You do not need a tax relief lawyer, you need a tax advocate like an Enrolled Agent to take advantage of tax relief options that the government is ready to provide to help you get your tax debts settled. Because of the ongoing financial crisis, the IRS is now implementing more humane methods and encouraging citizens to pay their income tax, which is why now is a good time as any to start claiming government tax relief.

Government assistance

In response to the ongoing global economic crisis, the Obama Administration has started implementing legislations that serve to ease the burden of tax debts from individuals and businesses that are bearing the brunt of the current crisis. Obama tax relief came in the form of the American Recovery and Reinvestment Act of 2009. The economic stimulus package mainly covered federal tax cuts and social welfare provisions. Obama tax relief was also provided for senior citizens that are earning less than $50,000 annually. Over the next months, new tax relief for Americans options will be implemented so individuals are encouraged to seek the assistance of a good tax advocate like an Enrolled Agent, not a tax relief lawyer so they can take advantage of tax relief programs.

Proper representation

One of the benefits of obtaining tax relief for Americans is that individuals are given access to various negotiation options. With the help of a tax representative, taxpayers can settle with the IRS and provide the agency with a reasonable offer to settle their debts. With tax relief in the USA, citizens can also take advantage of the penalty abatement program being implemented by the federal agency. Unlike negotiated tax settlement, this program provides tax amnesty for penalties incurred due to overdue debts particularly when they were unpaid for reasons beyond the taxpayer's control.

Qualifications

Not everyone is qualified for claiming tax relief. The IRS has posted a list of requirements to determine whether an individual should be granted relief from paying their taxes. Eligibility for various options is usually determined by the individual's financial status and their ability to pay. For instance, if the taxpayer is faced with an impending bankruptcy or is a victim of a natural disaster, this is reason enough for the IRS to grant some tax relief. A good example is how the Bush administration reacted in the aftermath of Hurricane Katrina.

Because of the hurricane Katrina, the former US administration has come out with the Bush tax relief for victims of the disaster. The government understood that it was one of those times when citizens are still trying to get their lives back in order so Bush tax relief in 2005 provided over $6 billion in short-term tax relief to taxpayers who needed the assistance. Tax breaks where also provided, allowing more time for citizens to take the necessary actions so they can pay off their tax debts. It provided for a blanket extension for filing tax returns as well as for filing claims for credit or tax refunds.

Classifications

Aside from natural calamities, there are other classifications that are associated with tax relief. The Innocent Spouse Relief, for instance, relieves individuals from tax liabilities and penalties of filing joint returns with their current or ex-spouses. In relation to this classification, there is such a concept as allocation of liability. In this setup, taxpayers file for the allocation of added tax that was not reported on a joint return that spouses typically file together. Finally, equitable relief refers to cases where individuals do not qualify for either the separation of liability relief or the innocent spouse tax relief in the USA.

To determine whether you're qualified for government tax relief, it's a good idea to consult your case with an established tax professional. Claiming tax relief is easier when you have someone who knows how to get through to the various IRS programs and wade through the paperwork needed for you to get that much-needed tax problem resolution.

Get tax relief today by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or at myirstaxrelief.com

U.K. revises rules on how short-term business trips by employees from other countries are taxed [HMRC website]: The United Kingdom's tax agency, Her Majesty's Revenue and Customs (HMRC), has amended its Employment Procedures (EP) manual with respect to the taxation of income earned by employees from other countries who are working in the U.K. on a short-term basis. In most circumstances, if employees from other countries perform duties in the U.K., they are responsible for U.K. income tax on a "pay-as-you-earn" (PAYE) basis, regardless of how long they are in the U.K. However, employees who are residents of a country with which the UK has a treaty agreement are not subject to income tax in the U.K. if the resident is in the U.K. for less than 183 days of the taxable year, and certain other conditions are met. Prior to the amendment to the EP manual, when determining the 183 day limit, a partial day counted as a partial day, not a full day. Therefore, someone spending three consecutive 8 hour days working in the UK was regarded as having spent one day in the U.K. Effective April 6, 2009, each partial day spent in the U.K. is now considered a full day. Therefore, someone spending three consecutive 8 hour days working in the U.K. is now regarded as having spent three days in the U.K. for purposes of the 183 day limit. For further information on the U.K. payroll tax system, see http://www.hmrc.gov.uk/employers

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For payroll tax problem resolution contact the tax firm of Mike Habib, EA at 1-877-78-TAXES or at myirstaxrelief.com

Tax Court finds regs imposing time limit on request for relief from joint and several liability invalid Lantz, (2009) 132 TC No. 8

Mike Habib, EA Tax Relief & IRS Tax Help

The Tax Court has concluded that Reg. § 1.6015-5(b)(1), which provides that a spouse must request relief under Code Sec. 6015(f) no later than two years from the first collection activity against the spouse, is invalid.

Background. Each spouse is jointly and severally liable for the tax, interest, and penalties (other than the civil fraud penalty) arising from a joint return. Code Sec. 6015(f) allows relief to a requesting spouse if, among other conditions, taking into account all the facts and circumstances, it is inequitable to hold the individual liable.

Reg. § 1.6015-5(b)(1) provides that a spouse requesting relief under Code Sec. 6015(f) must file Form 8857 or a similar statement with IRS no later than two years from the date of the first collection activity against the requesting spouse for the joint tax liability.

Facts. Cathy Marie Lantz sought relief under Code Sec. 6015(f) from joint income tax liability for '99. IRS denied relief on the basis that Lantz didn't request relief within 2 years of IRS's first collection action. It did not examine the substantive issues of the claim.

Reg is invalid. The Tax Court concluded that Reg. § 1.6015-5(b)(1) is an invalid interpretation of Code Sec. 6015(f). IRS abused its discretion by failing to consider all the facts and circumstances in Lantz's case. The Court determined that further proceedings were required to determine the validity of Lantz's claim for relief.

To be eligible for relief under Code Sec. 6015(b) (innocent spouse relief) or Code Sec. 6015(c) (separate liability relief), the Code explicitly provides that the requesting spouse must elect relief not later than the date that is 2 years after the date that IRS has begun collection activities with respect to the individual making the election. (Code Sec. 6015(b)(1)(E), Code Sec. 6015(c)(3)(B)) However, no such limitation is imposed in Code Sec. 6015(f). The Court found that the reg, by imposing a limitation that Congress explicitly incorporated into Code Sec. 6015(b) or Code Sec. 6015(c) but omitted from Code Sec. 6015(f), failed to give effect to the unambiguously expressed intent of Congress. The Court concluded that the equitable remedy which is available under Code Sec. 6015(f) only if relief is not available to an individual under Code Sec. 6015(b) or Code Sec. 6015(c) was meant to be broader than those provisions.

The Court noted that it did not previously address the issue of whether the 2-year limitations period in Reg. § 1.6015-5(b)(1) was valid. It also reasoned that Congress's failure to overturn the reg wasn't a tacit approval of the 2-year limitations period.

Dissents. Two dissenting opinions reached contrary conclusions. One concluded that the reg's 2-year limit did not necessarily impose an absolute time bar for relief because IRS could exercise its discretion to grant a reasonable extension of time under Reg. § 301.9100-3 . The other dissenting opinion concluded that the inclusion of a time limit in Code Sec. 6015(b) and Code Sec. 6015(c) but not in Code Sec. 6015(f) could be interpreted as mere Congressional ambiguity, rather than explicit intent. It noted that the former two Code Sections are mandatory ones--if a taxpayer meets their requirements, IRS has to grant relief-- while the latter one, in contrast, is a permissive one--if a taxpayer follows the prescribed procedures, IRS may relieve such individual of liability.

Get IRS tax help and tax relief by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or online at myirstaxrelief.com

Keywords: innocent spouse tax relief, tax relief, irs tax help, joint and several liability tax problem

Recession Offers the Best Opportunity to Obtain Tax Relief

Pasadena, CA --(PR.com) -- The current financial crisis is the best time to get IRS tax help. Just recently, the IRS has announced that it will adopt a more humane approach to taxpayers who are currently faced with issues such as increasing medical bills, heavy dependence on the assistance of Social Security or even recent job loss. According to the Internal Revenue Service, these are the criteria that can make taxpayers eligible for certain tax breaks. The IRS is also willing to make certain adjustments for those who have problems with unfiled tax returns or unpaid back taxes.

"In these trying times, it has become more important than ever to help the government by paying your taxes," says tax relief expert Mike Habib. "For its part, the IRS has expressed their willingness to make certain that tax resolution programs are in place so Americans can still afford to resolve their tax debts."

This, Habib added, has made the current recession the best time to obtain tax relief. For those who are having a hard time trying to handle their mounting tax debts, it's advisable to obtain the help of an expert tax professional who is licensed and who also specializes in tax problem resolution.

"The IRS has implemented a lot of changes associated with tax relief pursuant to Obama's American Recovery and Reinvestment Act of 2009," said Habib. He further explained that going to a licensed tax professional will help American taxpayers understand the impact of the new laws and how they can influence IRS tax help for American individuals as well as for businesses.

With the help of a licensed tax professional, you can get proper IRS tax help and possibly settle your tax debt with the IRS for less than you owe. This can help you avoid wage garnishment or stop a bank levy, which can only put you in deeper debt than you already are. Tax professionals are also trained to negotiate with the IRS and put together all the necessary paperwork to negotiate your case with the agency.

Mike Habib also recommends a few pointers on how to get IRS tax help. He stressed the importance of getting all your paperwork in order so that your tax representative can easily help you through your case. Make sure that all your tax returns are filed and all the forms that you're supposed to gather are completely filled out so you leave no room for the IRS to reject your offer. When getting IRS tax help for American businesses, Habib also mentioned that it's important to keep the books and records organized.

"Now is a good time as any to start working on getting tax relief," Habib said. "With the current recession, the government is more than willing to review and possibly accept tax settlements whenever is appropriate, so you want to take advantage of this opportunity to get that tax load off your shoulders."

About Mike Habib, EA

Mike Habib, EA is an IRS licensed tax professional who has been providing IRS tax help and tax relief services to individuals and businesses. He specializes in helping individuals and business overcome their tax problems, personally handling each case to successfully obtain the best compromise for their tax matters. Obtain tax relief services offered by Mike Habib, EA through his website at myirstaxrelief.com today.

As an IRS licensed Enrolled Agent (EA) specializing in IRS tax help, tax relief and IRS Tax Problem Resolution, I can release your wage garnishment, wage levy, bank lien, bank levy and represent individuals and businesses in all of the following states, counties, and metro cities, Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington D.C.. West Virginia Wisconsin Wyoming. AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY New York, Los Angeles, Orange County, Riverside, San Bernardino, San Francisco, Ventura, Lancaster, Palmdale, Santa Barbara, Chicago, Washington D. C., Silicon Valley, Philadelphia, Boston, Detroit, Dallas, Houston, Atlanta, Miami, Seattle, Phoenix, Minneapolis, Cleveland, San Diego, St Louis, Denver, San Juan, Tampa, Pittsburgh, Portland, Cincinnati, Sacramento, Kansas City, Milwaukee, Orlando, Indianapolis, San Antonio, Norfolk & VB, Las Vegas, Columbus, Charlotte, New Orleans, Salt Lake City, Greensboro, Austin, Nashville, Providence, Raleigh, Hartford, Buffalo, Memphis, West Palm Beach, Jacksonville, Rochester, Grand Rapids, Reno, Oklahoma City, Louisville, Richmond, Greenville, Dayton, Fresno, Birmingham, Honolulu, Albany, Tucson, Tulsa, Tempe, Syracuse, Omaha, Albuquerque, Knoxville, El Paso, Bakersfield, Allentown, Harrisburg, Scranton, Toledo, Baton Rouge, Youngstown, Springfield, Sarasota, Little Rock, Orlando, McAllen, Stockton, Charleston, Wichita, Mobile, Columbia, Colorado Springs, Fort Wayne, Daytona Beach, Lakeland, Johnson City, Lexington, Augusta, Melbourne, Lancaster, Chattanooga, Des Moines, Kalamazoo, Lansing, Modesto, Fort Myers, Jackson, Boise, Billings, Madison, Spokane, Montgomery, and Pensacola

IRS posts Q&As on the Making Work Pay Credit

Making Work Pay Credit: Questions and Answers, IRS Web Site

IRS has posted a number of questions and answers (Q&As) on the Making Work Pay Credit (MWPC) on its web site. They are grouped into four categories: general issues, Form W-4, new withholding tables, and economic recovery payments. The most widely applicable information from each of the four categories is summarized below.

Background The refundable MWPC is available to eligible individuals for tax years beginning in 2009 and 2010. The MWPC is the lesser of (1) 6.2% of the taxpayer's earned income (with some modifications) or (2) $400 ($800 for a joint return). (Code Sec. 36A(a)) Generally, an eligible individual is any individual other than: (1) a nonresident alien; (2) an individual with respect to whom another may claim a dependency deduction for a tax year beginning in a calendar year in which the eligible individual's tax year begins; and (3) an estate or trust. (Code Sec. 36A(d)(1)(A))

The credit is phased out at a rate of 2% of the taxpayer's modified adjusted gross income ()--i.e., AGI increased by any foreign income or income from Puerto Rico or American Samoa excluded under Code Sec. 911 , Code Sec. 931 or Code Sec. 933 --above $75,000 ($150,000 for a joint return). (Code Sec. 36A(b))

Observation: Thus, the credit phases out completely at modified AGI of $95,000 ($190,000 on a joint return).

The credit is reduced by any payment received by the taxpayer under Recovery Act Sec. 2201 or any credit allowed to the taxpayer under Recovery Act Sec. 2202 (these are recovery payments under the Veterans Administration, Railroad Retirement Board, and the Social Security Administration and a credit for certain government workers). (Code Sec. 36A(c))

In early March, IRS issued IRS Publication 15-T (New Wage Withholding and Advanced Earned Income Credit Payment Tables (for wages paid through December 2009) and asked that employers begin using these tables in lieu of the applicable previously published tables as soon as possible, but no later than Apr. 1, 2009.

General Issues MWPC explained. In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals ($800 for married filing jointly).

How credit is obtained. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes made in early spring 2009. These changes may result in increased take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.

Self-employed individuals. Such individuals can claim the credit on their 2009 return filed in 2010. They should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.

Private pensioners. Such individuals are not eligible for the MWPC unless they have earned income. However, because the new withholding tables reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld from their pension benefits to cover their tax liability on those payments. They should evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P.

Social security number. IRS says eligibility for the MWPC is conditioned upon providing a valid SSN. An individual is not eligible if he does not include his social security number on the return.

Observation: IRS does not point out that, for joint filers, this requirement is met if the social security number of one of the spouses is included on the return. (Code Sec. 36A(d)(1)(B))

Credit not fully received. Taxpayers receiving less than the full amount of the anticipated credit through reduced withholding will still be entitled to the full credit on their return.

Form W-4, Employee's Withholding Allowance Certificate Changing one's Form W-4. Generally, for people who receive a paycheck, the credit will typically be handled by their employers through automated withholding changes. A Form W-4 will not need to be submitted for the automatic withholding change. An employee with multiple jobs or married couples whose combined income place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his/her combined income. Publication 919, How Do I Adjust My Tax Withholding?, provides additional guidance for tax withholding.

Observation: calculations show that the withholding tables produce anomalous results in various situations.

Nonresident aliens and dependents. Because nonresident aliens and those who can be claimed as dependents on someone else's income tax return are not eligible for the MWPC, the new withholding tables may cause them to be underwithheld. These taxpayers need to evaluate their expected tax liability for the year and determine if they need to either make appropriate estimated tax payments or adjust their withholding on Form W-4. However, Publication 15-T, New Wage Withholding and Advanced Earned Income Credit Payment Tables (for wages paid through December 2009), does include additional amounts to be added to the pay of nonresident aliens to figure their income tax withholding.

No employer determinations. Employers are not required to make determinations with regard to an employee's eligibility for the Making Work Pay credit. Employers just need to withhold consistently with the employee's filed W-4 and the newly modified withholding tables.

New Withholding Tables Nonresident aliens. The previous percentage method tables do not continue to be used for nonresident aliens. The new tables should be used and they have new higher amounts to be added to the pay of nonresident aliens to figure their income tax withholding.

Pension income. The new withholding tables are applicable to certain pension payments unless the recipient has elected no withholding. However, pension payments are not considered earned income for purposes of the credit. Consequently, a pension recipient with no earned income would not be eligible for the credit and may not have enough withheld from their pension benefits to cover their tax liability on those payments. It is recommended that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P.

Economic Recovery Payments Economic recovery payments explained. The economic recovery payment is a one-time payment of $250 that will be made in 2009 to retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration, disabled veterans receiving benefits from the Department of Veterans Affairs and those receiving benefits from the Railroad Retirement Board.

How payments are made. Unlike payments made in 2008 under the economic stimulus payment program, the economic recovery payment will not require a special tax return and will not come from IRS. Individuals who may qualify for this year's economic recovery payment should contact their respective agency for more information. The Social Security Administration's Web site has a special section on the economic recovery payment.

Effect on withholding. Individuals receiving economic recovery payments may want to evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding.

Special credit for certain government retirees. The "Special Credit for Certain Government Retirees," available on the 2009 tax return, reduces the Making Work Pay credit by the amount of the provision's credit. Therefore, withholding under the new tables should not adversely impact individuals eligible for this credit.

Observation: Apparently, what IRS means is that, since this is a credit and not a payment, too much will not be withheld because the tables provide reduced withholding for the MWPC but not for the special credit and together they cannot exceed $400. For example, assume a worker with $10,000 of wages qualifies for the MWPC and the special credit, and his withholding is reduced by $400. This will be the correct result because the worker will be entitled to a $250 special credit and a $150 MWPC ($400 reduced by $250).

Making Work Pay Q&As can be viewed on the IRS website at http://www.irs.gov/newsroom/article/0,,id=205922,00.html

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Get IRS Tax Help and professional tax representation by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or myirstaxrelief.com

G-20 includes accounting reform in proposed overhaul of market regulation

Mike Habib, EA Tax Relief & Tax Problem Resolution

Summary: The heads of the leading 20 world economies called on accounting standard-setters to revise fair value guidance and adopt a single, global set of global accounting rules. The leaders also agreed to regulate hedge funds, increase oversight of credit rating agencies, set up systemic risk regulators, and tighten the limits on executive pay.

The heads of state of the world's largest economies called on accounting standard-setters to step up their work to change the guidance for valuing financial instruments in a statement issued from the G-20 summit in London on April 2, 2009. They also endorsed the adoption of a single set of global accounting standards.

Accounting standards ranked among several priorities to strengthen financial regulation, including creating national systemic risk regulator, to extend regulation to the so-called shadow banking system, including hedge funds, and to increase the oversight of credit rating agencies, according the communiqué issued by the leaders. (The more detailed declaration agreed to by the leaders was not publicly available when this article was written.)

The decision came on the same day as the FASB responded to political pressure and approved new guidance to allow banks more flexibility in valuing troubled assets. The five-member board voted unanimously for the new guidance on valuing assets, but split three-to-two on the revision to asset impairment tests. (See article immediately below.)

In November 2008, the G-20 leaders met in Washington at the height of the financial crisis to set out an agenda for financial regulatory reform. Accounting standards figured prominently among those priorities, and they continue to remain at the heart of the debate on reforming financial regulation. A key question in the debate over accounting concerns the fair value guidance used to value the toxic assets that are viewed as being at the source of the crisis.

The April 2 communiqué's proposals closely track those presented to Congress last week by Treasury Secretary Timothy Geithner, which included the regulation of hedge funds and the creation of a systemic risk regulator in the U.S.

Speaking with reporters after the summit, President Barack Obama said the principles set out by the leaders in London on executive compensation "move us in the direction" of what he considers to be best practices and accountability on executive compensation. Obama said many companies have operated with a "CEO who selects his board, develops a cozy relationship with them, hires an executive compensation firm, and gets into the kinds of practices that have not served shareholders well because they "distort" the decision making of CEOs." "If you get shareholders involved by which they can judge executive compensation, then you can have rewards based not on short-term performance but based on sustained effective growth, and that's what's embodied in these documents," said Obama.

The president hastened to add that it did not mean that government would be micro-managing issues of executive compensation. "It doesn't mean we want the state dictating salaries, we don't," said Obama. "I strongly believe in a free market system. In America, people don't resent the rich, they want to be rich." The communique does not specifically mention executive compensation practices.

His comments came on the same day as the House of Representatives passed legislation that would tie pay to performance at companies that have received government bailout funds under the Troubled Asset Relief Program. The Grayson-Himes Pay for Performance Act would prohibit some forms of compensation at companies accepting TARP money. It also repeals a controversial provision in the American Recovery and Reinvestment Act that exempts bonuses due under employment contracts entered into or before February 11, 2009. The Grayson-Himes bill passed by a vote of 247-171.

The G-20 leaders will meet again in the fall to assess the implementation of their decisions.

Source: WG&L Accounting & Compliance Alert Checkpoint 4/3/09

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Get IRS tax help professional IRS tax representation by the tax firm of Mike Habib, EA at 1-877-78-TAXES or at myirstaxrelief.com

Roundup of recent employment tax related cases of interest

Mike Habib, EA Tax Relief & Tax Problem Resolution

Federal courts have recently issued rulings on: (1) whether medical residents may qualify for the student FICA exception, (2) whether an employee's embezzlement was reasonable cause for failing to remit withholding taxes, and (3) whether the sole owner of a limited liability company (LLC) may be held liable for the LLC's unpaid employment taxes.

Student FICA exception. The U.S. Courts of Appeals for the Second Circuit and Sixth Circuit have both recently ruled that an analysis of the facts is required before determining whether wages paid to medical residents may be exempt from FICA tax. Federal law does not specifically bar this exemption [U.S. v. Memorial Sloan-Kettering Cancer Center et al., CA2, 103 AFTR 2d ¶ 2009-666, 3/25/09; U.S. v. Detroit Medical Center, CA6, 103 AFTR 2d 2009-541, 2/26/09].

Observation: This is not a new issue. The Courts of Appeals have previously issued several similar rulings on this topic, including University of Chicago Hospitals v. United States, and U.S. v. Mount Sinai Medical Center of Florida Inc.

Employee embezzlement. A federal district court has ruled that the sole owner of two home health care companies that were delinquent in paying employment taxes could be subject to the trust fund recovery penalty, even though two of his employees stole money from him [Anuforo v. Commissioner of Internal Revenue, DC Minn., 103 AFTR 2d ¶2009-1020, Dkt. No. 07-1756, 1/14/09].

IRC §6672 imposes a penalty on any person who is required to collect, truthfully account for, and pay over withheld income and Social Security taxes and who willfully fails to do so. The amount of the penalty is equal to the amount of the tax that was not collected and paid. The penalty is often referred to as the "trust fund recovery penalty" (TFRP). The penalty is imposed on a "responsible person." A "responsible person" is anyone within a corporation or partnership who has the duty to collect, account for, or pay over the tax.

The court determined that the owner was a responsible person, based on the owner's own admission to such status. He was the only person with hiring/firing, bill paying, contract negotiation, and tax payment authority. His willfulness was shown by fact that he paid other creditors while aware of growing, unpaid tax debts. The fact that employees embezzled corporate funds didn't excuse the owner from liability, particularly where the embezzlement only occurred in a few of the tax periods at issue.

Sole owner of LLC. The Tax Court has ruled that the IRS may pursue a collection action against the sole owner of an LLC for the LLC's unpaid employment taxes [Medical Practice Solutions LLC, Carolyn Britton, Sole Member, 132 TC No. 7, 3-31-09].

Reg. § 301.7701-2(a) allows an unincorporated business entity (e.g., an LLC) that has only one owner the option of being classified either as an association (defined in Reg. § 301.7701-2(b)(2) as a corporation), or as a "sole proprietorship," that is, to be "disregarded as an entity separate from its owner." Reg. § 301.7701-2(a) (known as the "check-the-box" regs) allows the above entity to choose how it would like to be taxed by filing IRS Form 8832, Entity Classification Election. An entity that doesn't file this form is disregarded as a separate entity, which results in tax being assessed at the personal income tax level.

Medical Practice Solutions was a single-member LLC with Carolyn Britton as its sole member. She treated the LLC as a sole proprietorship on her personal income tax return. She did not elect to have the LLC treated as a corporation for federal income tax purposes.

After Medical Practice Solutions failed to pay employment taxes for several periods in 2006, the IRS sent notices of lien and intent to levy to Britton. Following a hearing, a notice of determination sustaining lien and proposed levy was sent to Britton, pursuant to Reg. § 301.7701-3(b) of the check-the-box regs. Britton contended that only the LLC was liable and that the check-the-box regs (as applicable to employment taxes related to wages paid before Jan. 1, 2009) were invalid. She asserted that the LLC was the employer liable for the taxes.

The Tax Court concluded that the collection action could proceed against Britton. It cited several previous rulings in reaching its conclusion, including McNamee v. Treasury.

There are new check-the-box regs in effect beginning with wages paid after Dec. 31, 2008. The regs require disregarded entities to pay their own employment taxes and file their own employment tax reports.

Get IRS tax help and payroll tax representation by the tax firm of Mike Habib, EA at 1-877-78-TAXES or at myirstaxrelief.com

Former Vice President of Finance Pleads Guilty to Grand Theft, False State Income Tax Returns

A Chatsworth man pleaded guilty to one felony count of grand theft and one felony count of filing a false state income tax return.

James I. Ha, 35, was employed as the vice president of finance for a local marketing company. According to court documents, Ha abused his position of trust by embezzling more than $350,000 from 2001 - 2004. In addition, Ha also failed to claim this money on his state income tax returns for the same years. All income is taxable including income from illegal sources. Ha used the embezzled funds for personal expenses.

Sentencing is delayed until April 2010, to give Ha time to pay restitution to his former employer and pay FTB more than $45,000 representing the unpaid tax, penalties, interest, and the cost of the investigation. Ha faces up to three years in state prison and five years of formal probation.

Failing to report all income is part of the $6.5 billion tax gap California faces each year. The tax gap is defined as the difference between the tax that is owed and the tax that is paid. Since January, FTB has cooperated with local district attorneys around the state on six successful prosecutions.

Los Angeles County Superior Court Judge Marcelita V. Haynes presided over the case and Los Angeles County Deputy District Attorney Reid Rose prosecuted the case. This was a joint investigation between the Los Angeles County Police Department, the Los Angeles County District Attorney's Office, and us.

Restitution Ordered in Identity Theft, Online Auction House Scam

A Brentwood man was ordered to pay more than $187,000 restitution to the State of California after previously pleading guilty to state income tax evasion.

Charles Merritt-Osborne is currently serving an eight-year prison term after pleading guilty in June 2008. Merritt-Osborne was the alleged ringleader of a scheme where stolen identities were used to create fraudulent companies, which then obtained credit to purchase goods for resale on eBay. The scam netted more than $2 million.

Two felony counts of state income tax evasion were among the charges to which Merritt-Osborne pleaded guilty. An exact amount of restitution was not determined at sentencing, so the hearing ordered full restitution in the amount of $187,191 which represents the unpaid tax, penalties, interest, and the cost of the investigation. All income is taxable including income from illegal sources. The failure to file tax returns is part of the $6.5 billion tax gap California faces each year. The tax gap is defined as the difference between the tax that is owed and the tax that is paid.

Santa Clara Superior Court Judge David A. Cena ordered the restitution in Department 31 of the Hall of Justice. Assistant Attorney General Ralph Savilla with the Office of the Attorney General prosecuted the case. The fraud was discovered by the state's high tech crime task force.

Settle with IRS and resolve your tax problems by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or online at myirstaxrelief.com

As reported by Intuit, maker of TurboTax.

SAN DIEGO--(BUSINESS WIRE)--April 1, 2009--It's the 50 yard dash to the April 15 tax deadline and Intuit (NASDAQ: INTU), the maker of TurboTax® tax software products, has once again tallied last-minute online tax filings to find out which cities across the country are the biggest procrastinators when it comes to filing federal income tax returns.

The following list includes the TOP 10 TAX PROCRASTINATING CITIES IN AMERICA determined by the number of tax returns electronically filed online via the TurboTax Online service from April 13-April 17, 2008 (previous year ranking in parenthesis):

1. San Francisco, Calif. - (#5) - The Golden Gate City takes the gold this year when it comes to tax procrastinators, moving up from number 5.

2. Houston, Texas - (#3) - After being booted from the number 1 spot last year, which they have claimed more than any other city (three times), Houston barely misses out this year coming in at number 2.

3. New York, N.Y. - (#2) - The "City that Never Sleeps" has made a habit of snoozing through tax season. Although it has dropped one spot to number 3, New York has made it onto the top 10 list the last eight years.

4. Chicago, Ill. - (#1) - After taking the crown last year, the "Windy City" drops to number 4 on the list.

5. San Diego, Calif. - (#6) - The sun and sand are good distractions for San Diegans. Despite being home to TurboTax, San Diego manages to move up to number 5 this year.

6. Phoenix, Ariz. - (#13) - Returning to the list this year and making the biggest jump (from 13 to 6) is Phoenix.

7. Seattle, Wash. - (#7) - Seattle coffee must come in handy for all those procrastinators at tax time. For the second year running, Seattle comes in at number 7.

8. Los Angeles, Calif. - (#10) - Too busy chasing down celebrities? Los Angeles has once again made its way onto the list at number 8.

9. Dallas, Texas - (#11) - The 9 th largest city in the U.S. has gotten even bigger when it comes to tax procrastinators. Returning to the list this year is Dallas.

10. Las Vegas, Nev. - (#8) - Sin City proved to be too big of a temptation for taxpayers last year. Wrapping up the top 10 list this year is Las Vegas.

Dropping off the list this year: Austin, Texas; San Antonio, Texas

Extended List 11-20.

11. Austin, Texas

12. Atlanta, Ga.

13. Portland, Ore.

14. Philadelphia, Pa.

15. Washington, D.C.

16. Orlando, Fla.

17. Denver, Colo.

18. Charlotte, N.C.

19. Tampa, Fla.

20. Indianapolis, Ind.

Last-Minute Tax Tips for Procrastinators:

Even procrastinators have things they can do to save money on their taxes. Taxpayers have up until the April 15 deadline to contribute to an IRA.

Don't forget charitable contributions made in 2008. Even mileage to and from volunteering is deductible.

Go online. Taxpayers can go online to prepare and e-file taxes up to the 11 th hour at www.TurboTax.com - it's fast, easy and convenient.

E-file. Taxpayers can avoid the long lines at the post office and can get their refund back in as little as 8 days with direct deposit.

Not going to make the April 15 deadline? File for an extension. Taxpayers will get an extra 6 months to file (to Oct. 15 2009). But remember...an extension to file is NOT an extension to pay taxes. If a taxpayer owes money, they will need to pay their tax bill by April 15, or face penalties.

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Settle with IRS and resolve your tax problems by contacting the tax firm of Mike Habib, EA at 1-877-78-TAXES or online at myirstaxrelief.com

Like-kind-exchange related party rule triggered gain recognition despite use of qualified intermediary

Ocmulgee Fields, Inc. (2009) 132 TC No. 6

Mike Habib, EA Tax Relief Services

The Tax Court has held that a taxpayer could not avoid the like-kind-exchange related-party rule by using a qualified intermediary. The taxpayer had to recognize gain on its exchange even though it had intended at the outset of the transaction to effect a like-kind swap with a non-related party.

Background. If statutory identification and replacement period requirements are met, gain or loss isn't recognized currently on the exchange of property held for productive use in a trade or business or for investment for property of like kind that will be held for productive use in a trade or business or for investment. (Code Sec. 1031) Qualified intermediaries (QIs) may be used to structure like-kind exchanges. However, under Code Sec. 1031(f) , gain or loss on an exchange between related persons (under Code Sec. 267(b) or Code Sec. 707(b)(1)) must generally be recognized if either the property transferred or the property received is disposed of within two years after the exchange. Nonrecognition treatment under the like-kind exchange rules doesn't apply to any exchange that is part of a transaction or series of transactions structured to avoid the purposes of the related party exchange rule. (Code Sec. 1031(f)(4)) However, under Code Sec. 1031(f)(2)(C), a disposition won't trigger the related party bar if it is established to IRS's satisfaction that neither the original transaction nor the later disposition had as one of its principal purposes the avoidance of federal tax.

In Teruya Brothers, Ltd. & Subsidiaries (2005) 124 TC No. 4, dealing with a like kind exchange between related parties effected through a QI, the Tax Court held that the transactions involved were economically equivalent to direct exchanges of properties between the related parties, followed by the sale of property by one of the related parties to unrelated third parties. The interposition of a qualified intermediary couldn't obscure the end result. The Tax Court agreed with IRS that the transactions ran afoul of Code Sec. 1031(f)(4).

Facts. The essential facts of the new Tax Court case are as follows:

(1) Ucmulgee Fields, Inc. (UFI) transferred appreciated property it owned (Wesleyan Station) to a QI. UFI had a $716,000 basis in the property and it was worth approximately $7 million.

(2) An unrelated third party bought Wesleyan Station from the QI for $7.25 million. (3) Treaty Fields, an entity related to UFI, sold appreciated property in which it had an adjusted basis of $2.55 million (the Barnes & Noble Corner) to the QI. The sale price was $6.74 million. Years before, UFI had sold the Barnes &Noble Corner to Treaty Fields.

(4) The QI transferred the Barnes & Noble Corner to UFI.

When UFI initiated the series of transactions, it intended to swap its property for replacement property from an unrelated party, but once the property was transferred to the QI, it couldn't find suitable replacement property within the statutory identification and replacement periods. The Barnes & Noble was adjacent to property that UFI already owned.

UFI realized a gain of about $6 million but treated its part of the transaction as a like-kind tax-deferred exchange under Code Sec. 1031. Treaty Fields reported its part of the transaction as a taxable sale and reported a gain of about $ 4 million.

IRS said UFI wasn't entitled to treat the transaction as a like-kind, tax-deferred exchange because Code Sec. 1031(f)(4) applied to the transaction, and the Tax Court agreed with IRS.

Tax Court's reasoning. The Tax Court said that in the absence of the general rule of Code Sec. 1031(f)(1), a taxpayer anticipating the sale of low basis property might be tempted to exchange the low basis property for high basis property owned by a related person, with the related person then selling the property received in the exchange at a reduced gain (or possibly a loss) because of the shift to that property of his high basis in the property relinquished. Relying on its Teruya Brothers decision, the Tax Court said that to determine UFI's exchange was part of a transaction or series of transactions structured to avoid the purposes of Code Sec. 1031(f), it had to disregard that exchange and consider how UFI would have fared had it instead exchanged Wesleyan Station with Treaty Fields for the Barnes & Noble Corner and had Treaty Fields then sell Wesleyan Station. The immediate tax consequences resulting from UFI's deemed exchange with Treaty Fields included an approximately $1.8 million reduction in taxable gain and Treaty Fields paying tax on its gain at a much lower rate than UFI would have paid.

The Tax Court was not convinced by UFI's argument that tax avoidance was not a principal purpose of the deemed exchange because there was a business reason for exchanging Wesleyan Station for the Barnes & Noble Corner in that the swap allowed UFI to reunite ownership of the Barnes & Noble Corner with other contiguous property that it owned, thereby yielding operating efficiencies and increasing the overall value of the reunited property. Beyond self-serving testimony, UFI didn't offer evidence to support that claim. The Tax Court equally was not convinced of UFI's effort to distinguish itself from the Teruya Brothers situation by arguing that it had not structured the entire exchange to avoid Code Sec. 1031(f). Moreover, even if UFI were able to show a legitimate business purpose for the acquisition of the Barnes & Noble Corner, that would not necessarily preclude a finding that either the deemed exchange of Wesleyan Station for the Barnes & Noble Corner or Treaty Fields's deemed sale of Wesleyan Station had as a principal purpose the avoidance of Federal income tax.

The Tax Court concluded that the end result of UFI's exchange of Wesleyan Station for the Barnes & Noble Corner was the same as if it had made an exchange of Wesleyan Station with Treaty Fields followed by Treaty Fields's sale of Wesleyan Station. UFI failed to show that the deemed transaction lacked as a principal purpose the avoidance of Federal income tax. As a result, the actual exchange was part of a transaction structured to avoid the purposes of section Code Sec. 1031(f) and, under Code Sec. 1031(f)(4), the nonrecognition provisions of Code Sec. 1031 did not apply to the exchange.

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Adverse conditions may allow certain U.S. citizens to claim foreign earned income and housing cost exclusions [Rev Proc 2009-22]:

Individuals who were forced to leave certain foreign countries in 2008 because of adverse conditions may still qualify as bona fide residents of that country for purposes of the IRC §911 foreign income tax exclusion. Under IRC §911(a), qualified individuals may exclude foreign earned income and housing expenses from their gross income for tax purposes.

To qualify for the exclusion, an individual must prove that he has lived in a foreign country for at least 330 full days during any period of 12 consecutive months. However, if instances of war, civil unrest, or other adverse conditions force an individual to leave a country before the 330-day requirement is met, that individual can still qualify for the exclusion if he can prove that he would have otherwise stayed in the country.

For 2008, the Secretary of the Treasury, in consultation with the Secretary of State, has determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the following countries, beginning on the date noted below:

• • Chad - Feb. 3, 2008;
  • Serbia - Feb. 22, 2008; and
  • Yemen - April 7, 2008.

For purposes of IRC §911, an individual who left one of the above-listed countries on or after the specified departure date will be treated as a qualified individual with respect to the period during which that individual was present in, or was a bona fide resident of, such foreign country, if the individual establishes a reasonable expectation of meeting the requirements in IRC §911(d).

Keywords: IRS Tax Help for Expats, Expat tax information, Exapt tax preparation, Expat tax representation, Expat IRS tax audit