Tax Relief Blog

Cell Phone Deductibility

July 9, 2008 | Mike Habib, EA

IRS discusses easing of cell phone recordkeeping requirements [Information Letter 2008-0012]:

The IRS has issued an information letter in response to a question regarding the noted difficultly that states and localities are having drafting cell phone policies that comply with IRS recordkeeping requirements.

Under IRC §162(a), individuals may take deductions for all ordinary and necessary expenses incurred in carrying on a trade or business. The expenses are considered tax-free working condition fringe benefits, not subject to FITW, FICA, and FUTA, if they are incurred by an employee on behalf of an employer. Cell phones are currently included in the definition of “listed property,” as defined in IRC §280F(d)(4).

Expenses related to listed property may not be deducted under IRC §274(d), unless the employee substantiates by adequate records, or by sufficient evidence corroborating the employee’s own statement: (1) the amount of the expenses; (2) the time and place of the expenses; (3) the business purpose of the expenses; and (4) the business relationship to the employee of the persons involved in the expenses. In addition, employees must document their personal use of the property, and the employer must include such use in the employee’s income.

LP Limited Partner Deductions

July 8, 2008 | Mike Habib, EA

Limited partner’s investment interest from trader partnership deductible above-the-line

Rev Rul 2008-38, 2008-31 IRB; Ann. 2008-65, 2008-31 IRB

Mike Habib, EA

Earlier this year, IRS issued Rev Rul 2008-12, 2008-10 IRB 520 concluding that where a non-corporate limited partner doesn’t materially participate in the partnership’s activity, his distributive share of the interest expense on debt allocable to the entity’s trade or business of trading securities is investment interest, subject to the Code Sec. 163(d)(1) deduction limitation. Because it received a number of queries as to where to report such interest, IRS has issued a new revenue ruling amplifying the earlier one and a new announcement clarifying where to report such interest.

Opportunity Letter – Offshore Account

July 2, 2008 | Mike Habib, EA

Judge: IRS can seek tax information from Swiss banking giant UBS in expanding investigation

Associated Press WorldStream via NewsEdge :

MIAMI_A federal judge agreed Tuesday to allow the IRS to serve legal papers on Swiss banking giant UBS AG in an expanding investigation into U.S. taxpayers who may have used overseas accounts to hide assets and avoid taxes.

Rules for claiming a dependent child

July 2, 2008 | Mike Habib, EA

Final regs on dependent child of divorced or separated parents or parents who live apart T.D. 9408, 07/01/2008; Reg. § 1.152-4

Mike Habib, EA

IRS has issued final regs on the rules for claiming a child as a dependent by parents who are divorced, legally separated under a decree of separate maintenance or a written separation agreement, or who live apart at all times during the last 6 months of the calendar year. They are effective for tax years beginning after July 2, 2008, and reflect amendments under the Working Families Tax Relief Act of 2004 (WFTRA) and the Gulf Opportunity Zone Act of 2005 (GOZA).

Background. A taxpayer may deduct an exemption amount for a dependent, defined generally as a qualifying child or a qualifying relative. Code Sec. 152(e), as amended by § 404 of GOZA, carries rules for parents who (1) are divorced or legally separated under a decree of divorce or separate maintenance, (2) are separated under a written separation agreement, or (3) live apart at all times during the last 6 months of the calendar year. A child of parents described in (1), (2), or (3), is treated as the qualifying child or qualifying relative of the noncustodial parent if the child receives over one-half of his support during the calendar year from the child’s parents, the child is in the custody of one or both of the child’s parents for more than half of the calendar year, and:

the custodial parent signs a written declaration that the custodial parent will not claim a child as a dependent for a tax year and the noncustodial parent attaches the declaration to the noncustodial parent’s tax return (Code Sec. 152(e)(2); or
a qualified pre-’85 instrument allocates the dependency exemption to the noncustodial parent and the noncustodial parent provides at least $600 for the support of the child during the calendar year. (Code Sec. 152(e)(3))

A custodial parent is the parent having custody for the greater portion of the calendar year and the noncustodial parent is the parent who is not the custodial parent. (Code Sec. 152(e)(4)) If a child is treated as the qualifying child or qualifying relative of the noncustodial parent under Code Sec. 152(e), then that parent may claim the child for purposes of the dependency deduction under Code Sec. 151 and the child tax credit under Code Sec. 24, if the other requirements of those provisions are met.

Property Seizure Compliance

July 2, 2008 | Mike Habib, EA

TIGTA results of 2008 review IRS compliance with legal guidelines when conducting property seizures [Audit Report No. 2008-30-126]:

IRS has usually followed the numerous legal and internal guidelines that apply to seizures of taxpayers’ property, the Treasury Inspector General for Tax Administration (TIGTA) said in a recent audit. TIGTA based its opinion on a review of a random sample of 50 of the 683 seizures conducted from July 1, 2006, through June 30, 2007.

Auditors identified 25 instances in which IRS did not comply with a particular Code requirement but, according to TIGTA, this represented an error rate of only about 1%. The problems identified in the audit included the following10 instances in which expenses and proceeds resulting from the seizure weren’t properly applied to the taxpayers’ accounts; five instances in which the sales of seized properties weren’t properly advertised; five instances in which the correct amounts of the liabilities for which the seizures were made weren’t provided on the notices of seizures sent to the taxpayers; and five instances that were redacted from the publicly released version of the audit.

Unemployment Benefits Extended

July 2, 2008 | Mike Habib, EA

New bill extends unemployment benefits for 13 weeks

The President has signed into law H.R. 2642, “The Supplemental Appropriations Act of 2008.”

Title IV of the bill authorizes an extension of unemployment insurance (UI) benefits. Individuals may be eligible for 13 weeks of extended benefits if they: (1) are fully or partially unemployed after July 5, 2008, (2) have exhausted their benefits in their regular UI claim, and (3) are ineligible to file a new claim.

The extension will be available to workers in all states, and can be used on top of the 26 weeks of benefits that typically are available. The maximum benefit is equal to the lesser of: (a) 50% of the maximum benefit that individuals received on their regular UI claim, or (b) 13 times the weekly benefit amount on their regular claim.

House passes AMT relief

July 1, 2008 | Mike Habib, EA

House passes AMT relief with bipartisan majority – President threatens veto

On June 25, the House by a vote of 233 to 189 approved H.R.6275, the “Alternative Minimum Tax Relief Act of 2008.” The bill will be sent to the Senate for consideration.

The bill would patch the alternative minimum tax (AMT) problem for 2008 by extending for one year AMT relief for nonrefundable personal credits and increasing AMT exemption amounts to $69,950 for joint filers and $46,200 for individuals. The one-year AMT patch would be fully offset with a variety of revenue raising measures, including taxing certain carried interests as ordinary income, barring large integrated oil companies from claiming the Code Sec. 199 domestic production activity deduction, freezing the Code Sec. 199 deduction at the 6% level for other producers of oil and natural gas, and requiring information returns for merchant payment card reimbursements.

On June 24, in a Statement of Administration Policy, President Bush indicated that he would veto the bill because of his strong opposition to provisions raising taxes on certain partners in partnerships and taxes on payments by U.S. subsidiaries to foreign affiliates and limiting the availability of the domestic production deduction for certain oil companies.

Shareholder Constructive Distribution

July 1, 2008 | Mike Habib, EA

Loan repayment to shareholder’s spouse wasn’t constructive distribution Beckley, 130 TC No. 18 (2008)

Mike Habib, EA

The Tax Court has ruled that payments made by a corporation to the wife of one of its shareholders represented repayment of money she advanced to a predecessor corporation. Despite the absence of a written loan agreement, the repayment wasn’t a constructive distribution to the shareholder.

Employment / Payroll Tax Adjustments

July 1, 2008 | Mike Habib, EA

Final regs include new process for reporting employment tax adjustments and refund claims T.D. 9405, 06/30/2008, Reg. § 31.6011(a)-1, Reg. § 31.6011(a)-4, Reg. § 31.6011(a)-5, Reg. § 31.6205-1, Reg. § 31.6302-1, Reg. § 31.6402(a)-1, Reg. § 31.6413(a)-1, Reg. § 31.6403(a)-2

Mike Habib, EA

IRS has issued final regs on employment tax adjustments and refund claims, effective Jan. 1, 2009. The final regs modify the process for making interest-free adjustments for both underpayments and overpayments of Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes and Federal income tax withholding (ITW).

Sales Tax BOE Announcement

June 30, 2008 | Mike Habib, EA

Final regs include new process for reporting employment tax adjustments and refund claims T.D. 9405, 06/30/2008, Reg. § 31.6011(a)-1, Reg. § 31.6011(a)-4, Reg. § 31.6011(a)-5, Reg. § 31.6205-1, Reg. § 31.6302-1, Reg. § 31.6402(a)-1, Reg. § 31.6413(a)-1, Reg. § 31.6403(a)-2

Mike Habib, EA

IRS has issued final regs on employment tax adjustments and refund claims, effective Jan. 1, 2009. The final regs modify the process for making interest-free adjustments for both underpayments and overpayments of Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes and Federal income tax withholding (ITW).