Tax Relief Blog

Business or Hobby?

August 26, 2008 | Mike Habib, EA

IRS Fact Sheet reviews whether a hobby is actually a for-profit endeavor [Fact Sheet 2008-23]:

Taxpayers must follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby, IRS said in a new fact sheet published on the agency’s Web site.

As described in the fact sheet, Code Sec. 183 –often called the hobby loss rule–limits deductions that can be claimed when an activity is not engaged in for profit. There are tax implications for incorrectly treating hobby activities as activities engaged in for profit, IRS stressed. The goal of the fact sheet is to provide information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.

Fuel Cell Credit

August 22, 2008 | Mike Habib, EA

IRS explains how to claim credit for qualified fuel cell and qualified microturbine property A new Notice carries interim guidance on the terms and conditions that must be met by taxpayers that want to claim the Code Sec. 48 credit for fuel cells and microturbines.

Background. A taxpayer may be eligible to claim (on Form 3468) a number of energy credits, including the following credits added by the Energy Policy Act of 2005 (P.L. 109-58). In each case, the percentage is applied to the basis of eligible energy property placed in service during the year:

30% for qualified fuel cell property, (Code Sec. 48(a)(2)(A)(i)(I)) i.e., a fuel cell power plant with a nameplate capacity of at least 0.5 kilowatt of electricity using an electrochemical process, and an electricity only generation efficiency of greater than 30%. The credit can’t exceed an amount equal to $500 for each 0.5 kilowatt of capacity. The credit isn’t available after 2008. (Code Sec. 48(c))
10% for qualified microturbine property, (Code Sec. 48(a)(2)(A)(ii), Code Sec. 48(a)(3)(A)(iv)) i.e., a stationary microturbine powerplant with a nameplate capacity of less than 2,000 kilowatts, and an electricity only generation efficiency of not less than 26% at International Standard Organization conditions. A credit for qualified microturbine property can’t exceed $200 for each kilowatt of the property’s capacity. The credit is not available after 2008. (Code Sec. 48(c)(2))

No credit is allowed for property unless it is depreciable or amortizable; its construction, reconstruction or erection is completed by the taxpayer or, if acquired by the taxpayer, its original use begins with the taxpayer; and it meets the official quality and performance standards in effect at the time of acquisition. (Code Sec. 48(a)(3))

IRS Seized Properties

August 22, 2008 | Mike Habib, EA

TIGTA reviews IRS methodology for selling seized property [Audit Report No. 2008-30-144]:

IRS management needs to provide better oversight to ensure that employees consistently follow the requisite procedures for the storage and sale of seized property, according to a recent audit by the Treasury Inspector General for Tax Administration (TIGTA).

As described in the audit, when a taxpayer owes delinquent tax and thorough consideration has been given to all aspects of the case and alternative collection methods, IRS can seize taxpayer property for payment of the tax. The seized property can be sold by public auction or by public sale under sealed bids.

Hiding Income Offshore?

August 21, 2008 | Mike Habib, EA

To disclose or not to disclose, that is the question.

Hiding Income Offshore is not the way to go.

Mike Habib, EA

Tax Return Preparer Fraud

August 21, 2008 | Mike Habib, EA

If It Seems Too Good to Be True, It Probably Is

Tax Return Preparer Fraud

Mike Habib, EA

Frivolous Arguments

August 21, 2008 | Mike Habib, EA

“In this world, nothing is certain but death and taxes.” – Benjamin Franklin

Frivolous Arguments Don’t Work

Mike Habib, EA

Fuel Tax Credit

August 21, 2008 | Mike Habib, EA

Yes, we are all fed up with the cost of fuel.

No, I’m sorry to report, not everyone is eligible for the fuel tax credit.

Fuel Tax Credit Scams

MO AG Sues Tax Resolution Firm

August 18, 2008 | Mike Habib, EA

JK Harris didn’t provide promised services to Missourians who sought help with tax problems, Nixon says in lawsuit

Jefferson City, Mo. – A South Carolina company that advertises it can help consumers resolve their state and federal tax problems didn’t provide the services it promised, Attorney General Jay Nixon says. Nixon filed a lawsuit today seeking full restitution from JK Harris & Company LLC (JKH) for its Missouri customers who received neither the services for which they paid as much as $4,500 each nor the refunds they requested.

“JK Harris promises it can help consumers who are having tax problems, but the Missourians who complained to my office told a different story – one of unreturned phone calls, lost paperwork, and a worse financial situation than when they started,” Nixon said.

The JKH Web site tells consumers the company has a step-by-step strategy – known as “The Process” – to help consumers with their tax problems. According to JKH, “The Process” includes providing immediate relief to consumers by attempting to stop collection activities by the IRS; assigning a case specialist to review the consumer’s information and begin work on resolving the customer’s tax problems; and submitting an offer to the IRS to resolve the customer’s tax problems.

Real Estate Gift Tax

August 18, 2008 | Mike Habib, EA

Tiered discount allowed in real estate FLP gift tax case In Astleford, a memorandum decision, the Tax Court permitted a taxpayer to apply a tiered discount in the context of a family limited partnership owning interests in real estate.

Facts. On 8/1/96, Mrs. Astleford formed the Astleford Family Limited Partnership (“AFLP”) to facilitate the continued ownership, development, and management of various real estate investments and partnership interests she owned and to facilitate gifts that she intended to make to her three adult children. On the same day, Mrs. Astleford transferred to AFLP ownership of an elder care facility. Also on the same day, Mrs. Astleford gave each of her three children a 30% limited partner interest in AFLP and retained for herself a 10% general partner interest.

On 12/1/97, Mrs. Astleford made additional capital contributions to AFLP by transferring to AFLP a 50% interest in Pine Bend Development Co. (“Pine Bend”), a general partnership, and her interest in 14 other real estate properties. The Pine Bend general partnership agreement did not contain any provisions relating to the transfers of interests in Pine Bend or whether such transferred interests would be general partner or assignee interests. Pine Bend owned 3,000 acres of land of which 1,187 acres consisted of agricultural farmland (“Rosemount property”).

Cost of Goods Deductibility

August 18, 2008 | Mike Habib, EA

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

Facts. U.S. companies paid the full list price for merchandise and were reimbursed for the difference between the full list price and the negotiated discount price.

IRS analysis. The Service concluded that this transaction met all three tests applied by the courts in determining whether the step transaction doctrine should be invoked: