Tax Relief Blog

IRS gets tougher on VPFC variable prepaid forward contracts with share lending arrangements

February 13, 2008 | Mike Habib, EA

IRS gets tougher on variable prepaid forward contracts with share lending arrangements Variable Prepaid Forward Contracts Incorporating Share Lending Arrangements

An IRS coordinated issue paper for all industries concludes that variable prepaid forward contract (VPFC) transactions that incorporate a share lending or similar agreement permitting the counterparty to borrow or dispose of the pledged shares results in a current taxable sale of the underlying stock.

Observation: VPFCs are sophisticated tools used by wealthy individuals with large stock gains who want to cash out some of their shares but defer the tax until a later year.

IRS SFR Substitute For Return Unfiled Tax Returns Back Taxes Owed

February 13, 2008 | Mike Habib, EA

Final substitute return regs adopt temporary and proposed regs with one minor change
T.D. 9380, 2/12/2008; Reg. § 301.6020-1

Mike Habib, EA

In 2005, IRS issued temporary (also issued as proposed regs) that broadened the scope of when IRS-prepared substitute returns (SFR) are valid. Specifically, the temporary regs provide that a document or set of documents (including a Form 13496, Code Sec. 6020(b) Certification) signed by an authorized IRS officer or employee is a “return” under Code Sec. 6020(b) if it identifies the taxpayer by name and taxpayer identification number, contains sufficient information to compute his tax liability, and purports to be a return. IRS has now adopted the temporary and proposed regs as final regs with one minor change.

Tax Court found that it could hear challenge to frivolous return penalty before rejecting summary judgment in favor of IRS

February 8, 2008 | Mike Habib, EA

IRS tax problem, IRS penalty, IRS Tax court ruling in favor of taxpayer

Tax Court found that it could hear challenge to frivolous return penalty before rejecting summary judgment in favor of IRS

Callahan (2008), 130 TC No. 3

IRS targets tool reimbursement plans that recharacterize wages

February 8, 2008 | Mike Habib, EA

IRS targets tool reimbursement plans that recharacterize wages
Employee Tool & Equipment Alert

on IRS’s website https://www.irs.gov/businesses/article/0,,id=178028,00.html

IRS has established a cross divisional team to address significant concerns with employee tool and equipment plans that purport to be valid accountable plans. Taxpayers that are considering implementing these plans, which are widely marketed to various industries, including the automotive, heavy equipment, construction, aircraft maintenance, agriculture, and other industries, are cautioned to be wary of them.

Foreign nationals, non US citizens with IRS filings, dealing, or tax problems facing non US citizens and foreign national

February 8, 2008 | Mike Habib, EA

Changes made to Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding)

Mike Habib, EA

The IRS has made some changes to the electronic/magnetic media filing procedures for 2007 Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, and also released the 2008 version of the form. Form 1042-S is filed by withholding agents to report amounts paid to foreign persons (including persons presumed to be foreign) that are subject to U.S. withholding, even if: (1) no amount is deducted and withheld from the payment because of a treaty or Internal Revenue Code exception to taxation, or (2) the amount withheld was repaid to the payee. Amounts subject to reporting include, but are not limited to, the following U.S.-source items: (i) compensation for independent or dependent personal services performed in the U.S., (ii) compensation for personal services performed in the U.S. by students, teachers, and researchers, and (iii) amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, except that amounts exempt under IRC §117 are not subject to reporting. An item that is required to be reported on Forms W-2 or 1099 should not be reported on Form 1042-S.

Capital gain treatment for self-created musical work

February 8, 2008 | Mike Habib, EA

Music composer tax related capital gain treatment

IRS Temp reg describes how and when to elect capital gain treatment for self-created musical works

T.D. 9379, 02/07/2008, Reg. § 1.1221-3T; Preamble to Prop Reg 02/07/2008, Prop Reg § 1.1221-3

Employment / Payroll tax penalty abatement, Payroll tax problem, Abate tax penalty

February 5, 2008 | Mike Habib, EA

Employment tax penalty abatement, Payroll tax problem, Abate tax penalty

Court says bank error (not employee error) may be reasonable cause to abate employment tax assessment

Mike Habib, EA

Don Johnson Motors, Inc. v. U.S., DC TX, 101 AFTR 2d 2008-370, Civil Action No. B-06-047, 12/21/07

S Corporation Tax Problems, IRS S Corp Tax Issues, IRS S Corp Audit

February 4, 2008 | Mike Habib, EA

S corporations tax challenges by the IRS and other taxing authorities

Tax Advocate’s Report highlights S corporation issues

Despite the fact that Subchapter S corporations are the most common corporate entity (over three million S corporations filing returns in fiscal year 2006), the National Taxpayer Advocate’s 2007 Annual Report notes that IRS is still struggling to develop an effective and comprehensive strategy to address noncompliance by S corporations. The Report focuses on some of the challenges in this area, including insufficient data to assess compliance risks and undue taxpayer burden because of the S corporation election process and Schedule K-1 matching errors. In particular, the Report examined the avoidance of employment taxes by means of treating shareholder wages as distributions.

Is the IRS knocking on your door? Don’t let them in!!

February 1, 2008 | Mike Habib, EA

How to handle the IRS at your Front Door? Is a Revenue Officer or a Revenue Agent visiting you soon?

If you find yourself face to face with an IRS Agent (Revenue Officer for collection issues, or Revenue Agent for audit and examination issues), at your front door you must remember to avoid these common mistakes:

1. Don’t invite them into your home or business.
2. Don’t answer any question. No matter how innocent they sound.
3. Don’t provide them paperwork or documentation.

Taxpayer Advocate’s Annual Report to Congress highlights compliance problems & suggests improvements

January 30, 2008 | Mike Habib, EA

Taxpayer Advocate’s Annual Report to Congress highlights compliance problems & suggests improvements

The National Taxpayer Advocate has released its 2007 Annual Report to Congress. It’s a voluminous study of the most serious problems facing taxpayers and IRS, along with suggested improvements. These problems include late-year Code changes by Congress, nonreporting of income in the cash economy, and lack of clear IRS guidance to taxpayers on the tax consequence of cancellation of debt.

https://www.irs.gov/advocate/article/0,,id=177301,00.html