Tax Controversy

IRS & Bank NOL

December 15, 2008 | Mike Habib, EA

Senators question Treasury’s liberalization of bank NOL rules

Senator Chuck Grassley (R-IA), ranking member of the Committee on Finance, and Senator Charles E. Schumer (D-NY), have questioned a controversial IRS Notice that changed the existing rules to allow banks to deduct the built-in losses of other banks that they acquired. Code Sec. 382 generally limits the amount of an acquired corporation’s losses that can be used by the acquiring corporation. After an ownership change, such as in a takeover, Code Sec. 382 limits the amount of a corporation’s taxable income in a post-change year that can be offset by pre-change losses. However, on September 30, IRS issued Notice 2008-83, 2008-42 IRB 905, which provided that a bank’s losses on loans or bad debts (including deductions for a reasonable addition to a reserve for bad debts) wouldn’t be treated as pre-change losses. IRS implemented this administrative action–which resulted in billions of dollars of tax savings for the banks (and lost tax revenue for the government)–on its own.

Farmer’s Tax Guide

December 15, 2008 | Mike Habib, EA

Farmer’s Tax Guide highlights administrative and tax law changes for 2008 IRS Publication 225

Mike Habib, EA

IRS recently released Publication 225, Farmer’s Tax Guide, for use in preparing 2008 returns on its web site. It highlights several administrative and tax law changes for 2008 and 2009.

Employment Tax Rulings

December 15, 2008 | Mike Habib, EA

Roundup of recent employment tax rulings

Mike Habib, EA

There have been several recent rulings issued in the employment tax area. Here is a summary:

Gambling winnings or losses?

December 2, 2008 | Mike Habib, EA

Gambling winnings or losses?

Mike Habib, EA

As a US taxpayer, you can deduct gambling losses only if you itemize your deductions on form 1040. You can claim your gambling losses as a miscellaneous deduction on IRS Form 1040, Schedule A. However, the amount of losses you deduct can not total more than the amount of gambling income you’ve reported on your return. It’s important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

Estate not taxed on transfer

November 11, 2008 | Mike Habib, EA

Estate not taxed on transfer of decedent’s pension to charitable beneficiary PLR 200845029

IRS has privately ruled that an estate will not be taxed on a distribution of the decedent’s pension benefits to a charitable beneficiary of the estate.

Facts. An individual, whom we’ll call, Smith, died owning an interest in a defined benefit pension plan (the Plan Interest) of which his estate (Estate) was the beneficiary. His will (Will) named Charity as a residuary beneficiary. The executor of Estate proposes to assign the benefit of the Plan Interest to Charity in partial satisfaction of Charity’s share of the residue. The Will gave the executor the power to distribute property in kind and state law further allows distributions in kind without any requirement that they be made on a pro-rata basis.

How Businesses Are Affected

November 11, 2008 | Mike Habib, EA

How businesses are affected by tax changes in the Emergency Economic Stabilization Act of 2008

As I’m sure you’re aware, on Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains scores of mostly beneficial tax changes for business.

Most of the new law’s tax changes for business fall into one of these categories: tax changes that apply to a wide range of businesses; special tax breaks for disaster areas; and tax changes for specialized industries (there are numerous tax breaks relating to alternative energy production, but they are highly specialized and so not covered in this letter).

Emergency Economic Stabilization Act of 2008

November 11, 2008 | Mike Habib, EA

As I’m sure you’re aware, on Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains scores of tax changes, mostly beneficial, for individuals and businesses alike.

Here’s a brief review of the tax provisions individuals need to know about right now.

AMT relief: In general terms, to find out if you owe alternative minimum tax (AMT), you start with regular taxable income, modify it with various adjustments and preferences (such as addbacks for property and income tax deductions and dependency exemptions), and then subtract an exemption amount (which phases out at higher levels of income). The result is multiplied by an AMT tax rate of 26% or 28% to arrive at the tentative minimum tax. You pay the AMT only if the tentative minimum tax exceeds your regular tax bill. Although it was originally enacted to make sure that wealthy individuals did not escape paying taxes, the AMT has wound up ensnaring many middle-income taxpayers. One reason is that many of the tax figures (such as the tax brackets, standard deductions, and personal exemptions) used to arrive at your regular tax bill are adjusted for inflation, but the tax figures used to arrive at the AMT are not.

Excise Tax Refund Procedure

October 23, 2008 | Mike Habib, EA

Special refund procedures for coal producers and exporters on excise tax paid on exported coal Ann. 2008-103, 2008-46 IRB

In a new Announcement, IRS has advised taxpayers how to claim a refund of the excise tax on exported coal under the new procedures provided in Sec. 114 of the Energy and Extension Act of 2008 (2008 Energy Act, P.L. 110-343, 10/3/2008). The claim must be filed with IRS by Nov. 3, 2008.

Background. A manufacturers excise tax is imposed on coal mined from underground or surface mines located in the U.S. and sold or used by the producer. (Code Sec. 4121) In ’98, a district court (Ranger Fuel Corp v. U.S., (DC VA 1998) 83 AFTR 2d 99-375 ) held that the coal excise tax is unconstitutional to the extent it applies to exported coal based on the blanket prohibition imposed by the Export Clause of the U.S. Constitution, and IRS acquiesced, in effect, in that decision by issuing guidance on how to claim a refund for coal excise tax imposed on exported coal. (Notice 2000-28, 2000-1 CB 1116)

Trucking Employment Tax Relief

October 23, 2008 | Mike Habib, EA

Appeals Court reverses ruling that denied taxpayer Section 530 Relief

Trucker tax relief, trucking tax relief, trucking tax problem resolution.

Trucking Tax & Accounting: Back Taxes – Unfiled delinquent tax returns – IRS & State audits – Messy books / accounting

Charitable Extenders

October 7, 2008 | Mike Habib, EA

Charitable extenders and incentives in the 2008 Extenders Act

The Tax Extenders and Alternative Minimum Tax Relief Act of 2008, which was enacted on Oct. 3, 2008, extends several expired charitable giving tax breaks and provides several new tax incentives for charitable giving. Here is a brief overview of the charitable provisions in the new legislation.

Charitable giving provisions extended for two years. Several popular charitable incentives expired at the end of 2007 and would not have been available to taxpayers on their 2008 tax returns if Congress had not acted. The new law restores the provisions and extends them for two years (through 2009). The extended provisions include: