Tax Update for Financial Executives. Edward K. Zollars

Transcription

1 Tax Update for Financial Executives Edward K. Zollars

2 Ed Zollars Practice in Phoenix, Arizona - Thomas, Zollars & Lynch, Ltd. Nichols Patrick CPE, Inc. Arizona Income Tax Guide

3 Contact Slides for today (PDF) Manual (Adobe PDF Envelope) Password TUFEWSCPA Be sure to save the manual (then won t need password)

4 Web Materials IRS hidden FTP Site Revenue Rulings, Revenue Procedures, Notices, etc. - IRS PLRS Cases - Google Scholar

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6 Business Module 1

7 EXPIRED AND EXPIRING PROVISIONS AFFECTING 2012 RETURNS AND 2013 TAX PLANNING List of Expiring Federal Tax Provisions , (JCX-1-12), Joint Committee on Taxation, 1/6/12 Page 1-6

8 Bad Debt Field Attorney Advice F, 5/8/12, p Identifiable event rule Same rule applies for cancellation of debt income

9 Damages Origin of the claim issue CCA , 1/20/12, p PLR , 12/30/11, p Reduced basis of inventory rather than current income

10 Related Entities Mulcahy, Pauritsch, Salvador & Co., Ltd., USTC 50,349, CA7, affirming T.C. Memo , 5/17/2012, p Related entities IRS looks for reality behind transactions

11 Ordinary and Necessary Meilluer v. Commissioner, TC Summary Opinion , 1/3/12, p Standard test for business Small companies - IRS looking for personal expenses FAA F, 12/16/11, similar issue p Furhman v. Commissioner, TC Memo , 9/29/11, p more management fees

12 Bonus Depreciation CCA , 1/20/12, p Qualified Leasehold Property qualification overrides other exclusion provision

13 Depreciable Life CCA , 11/25/11, p Continuing care retirement buildings get 27.5 life Even with found to be primarily renting residential space

14 Net Operating Loss CCA , 9/9/11, p Can t pick and choose waiver

15 15 Year Intangible Recovery Group v. Commissioner, TC Memo , affirmed CA U.S.T.C. 50,541, 7/26/11 Acquisition of any part of business causes 15 year amortization of ANTC Substantial authority - reliance on professional

16 Telecommunications Revenue Ruling , 9/16/11, p Industry specific ruling Either of great interest or absolutely none

17 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11, p Materials and Supplies p Falls into one of four categories Special de minims rule if meet requirements Rotable Spare Parts Two Methods Expensed When Disposed Of Alternative Method

18 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Repairs Reg T p Specifically Not Required to Be Capitalized Under 263 Regulations Supremacy of Capitalization Regulations General Capitalization [Reg (a)-1T] p New Property, Improvements or Betterments Restoring Property Expenses to Be Included

19 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Produce Tangible Property [Reg T] p Cost includes invoice costs, facilitation costs, expenses incurred prior to placing in service Same rules apply for acquiring property for resale Facilitation costs special rule for real estate & employee costs Capitalize costs to defend or perfect title

20 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Improve Tangible Property [REG (a)-3T] p Three Categories Capitalized Result in a betterment of the unit of property Restore the unit of property Adapt the unit of property to a new or different use Unit of Property Definitions p Real Property Rules General Rules & Special Categories

21 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Improve Tangible Property [REG (a)-3T] Leased Property Rules Lessee Improvements Lessor Improvements General Application of 263A Rules Special Personal Residence Rules for Adding Repairs That Are Part of a Remodeling (and Inability to Do So In Other Cases)

22 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Improve Tangible Property [REG (a)-3T] Routine Maintenance Rule p Expect to perform more than once during class life Five situations that will never be routine maintenance Definition of Betterment p Buildings Not Looked at as One Piece of Property Facts and Circumstances Comparison Rule

23 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Improve Tangible Property [REG (a)-3T] Restorations Must Be Capitalized p Building Rule Like New Condition Rule Major Component Test New Use Rule Limited Regulatory Accounting Methods

24 263-Tangible Property Temporary Regulations Issued, TD 9564, 12/27/11 Accounting Method Changes Adjust Capitalized Amounts as if Always Used These Rules in Most Cases File Form 3115, 481(a) Adjustment Examples in Regulations

25 Interest Capitalization Dominion Resources, Inc. v. United States, USTC 50,372, 5/31/12, p Regulation held invalid on including basis of assets temporarily withdrawn from service

26 Accounting Methods Bosamia v. Commissioner, CA5 Docket No , 2011 TNT , 10/24/11, p Related party 267(a) deferral is accounting method 481(a) adjustment Interesting difference at CCA , 1/13/12, p. 1-38

27 Accounting Methods CCA , 12/23/11, p Rev. Proc requires using same reporting as applicable financial statement FASB changed rule Nevertheless have to get IRS permission to change

28 Auto Classification Chief Counsel , 9/23/11, p Looks to manufacturer s classification, etc. Does not depend on chassis of vehicle

29 All Events Test TAM , 6/8/12, p Trade promotion accrual Submission back of invoices merely ministerial - liability established Estimation is a matter of facts, not law

30 All Events Test Caltex Oil Venture, et al v. Commissioner, 138 TC No. 2, 1/12/12, p Special oil & gas rule Drill bit has enter the ground Actually performed 3 1/2 month test Note not good enough anyway

31 Recurring Item Exception Revenue Ruling , 12/13/11, p 1-42 Materiality ruling - financial statement matters Maintenance contract not a warranty or service contract, doesn t qualify

32 Bonus Program Revenue Ruling , 11/9/11, p Can accrue bonus even if don t know exact employees to be paid IRS finally accepts old case

33 Payments Made The Heritage Organization LLC v. Commissioner, TC Memo , 10/19/11, p Date payment made when check not presented timely Issue for related party checks

34 IFRS & LIFO FSA F, 11/25/11, p LIFO conformity rule Statements showing GAAP, adjustments and then IFRS violated conformity rule

35 Involuntary Conversion FAA F, 12/23/11, p Compelled lease not involuntary conversion Just rental income

36 Cost Segregation Peco Foods, Inc. v. Commissioner, TC Memo , 1/17/12, p On purchase had agreement with seller on asset values reported to IRS Could not later do a cost segregation study on those assets

37 Capital Assets PLR , 1/20/12, p Right to buy power a capital asset True even though had to be renewed - similar to FCC licenses CCA , 11/4/11, p Single year fishing license - not a capital asset

38 Allocation of Damages Healthpoint, Ltd. v. Commissioner, TC Memo , 10/3/11, p Allocation not respected No adverse interests

39 Compensation Module 2

40 Loan Forgiveness Brooks v. Commissioner, TC Memo , 1/26/12, p. 2-4 Court clearly thinks was truly claim of right Court also troubled by not paying attention to annual reduction Investment interest issue that was decided

41 Auto Use Valuation Cents per mile Revenue Procedure , 1/13/12, p. 2-6 Change from Commuting to Lease-Value OK Chief Counsel , 11/25/11, p. 2-7

42 Option Triggered by Divorce Davis v. Commissioner, TC Memo , 12/12/11, p. 2-8 Shares may have triggered by divorce, but company issued to retain services Also could not challenge value

43 Employer Owned Life Insurance PLR , 4/27/12, p IRC 101(j) issue IRS rather understanding on matter

44 QDRO - Disability Fernandez v. Commissioner, 138 TC No. 20, 5/14/12, p Disability doesn t flow through if QDRO issued Plan situation

45 Minister Housing Driscoll v. Commissioner, 135 TC No. 27, 12/14/10, reversed CA11, U.S.T.C. 50,187, 2/8/12, p Is a house a one house limit? Published Tax Court overturned by circuit other than Ninth

46 FSA Limits Notice , 5/30/12, p First year beginning in 2013 Operate as if amended Amend by 12/31/14 IRS asks for comments on dropping use it or lose it rule

47 Medicare Premiums CCA , 7/16/12, p Confirms IRS instruction change Refund opportunity May be benefit plan issue in S corporations, partnerships, etc.

48 Local Lodging NPRM REG , 4/25/12, p Local lodging safe harbor May apply now

49 Insurance PLR , 12/30/11, p Deductible as business expense Receipt of benefits taxable

50 Cell Phones Notice and SBSE Memorandum SBSE , 9/14/11, p Business reason Post 2009

51 Medical O'Donnabhain v. Commissioner, 134 TC No. 4, 2/2/10, IRS AOD , 11/2/11, p Sex reassignment surgery Affects FSA medical accounts if provide broad 213 standard

52 Meals Expense CCA , 12/23/11, p If not part of eating facility limited to 50% deduction Involved aircraft

53 High Low Per Diem Revenue Procedure and Notice , 9/30/11, p High method not killed Have gone to annual notice rather than Revenue Procedure

54 Qualified Plan Limits IRS News Release IR and Notice , 10/20/11, p Table of values Released October of each year

55 Abusive 419A Plans Goyak v. Commissioner, TC Memo , 1/11/12, p Controller concerned but still implemented Too good to be true - it was

56 Medicare FICA Tax National Federal of Independent Business v. Sebelius, USTC 50,423, 6/28/12 0.9% extra on combined wages, SE income - $250,000 MFJ, $200,000 Single & HOH, $125,000 MFS Withholding on wages in excess of $200,000 - will fix up on W-2

57 Lower FICA Temporary Payroll Tax Cut Continuation Act of 2011, 12/23/11, Middle Class Tax Relief and Job Creation Act of 2012, 2/22/12, p Good for all of no recapture However must be ready to change on 1/1/13

58 S Corporation Compensation David E Watson, P.C. v. United States, US District Court for the Southern District of Iowa ( USTC 50,443), 5/27/10, affirmed CA8 ( U.S.T.C. 50,203), p Salary binds taxpayer not IRS S interest in salary will rise with Medicare tax

59 Voluntary Payroll Program p. 2-42

60 Voluntary Payroll Program p. 2-42

61 Family/Religious FICA FUTA T.D. 9554, 10/31/11, p Disregarded entities can qualify for relief

62 Tips/Service Charges Revenue Ruling , 6/21/12, p Wages vs. tip Factors that indicate a tip vs. service charge

63 UBIT - Reversion Tax Research Corporation v. Commissioner, 138 TC No. 7, 2/29/12, p IRS argued if 501(c)(3) ever paid UBIT had to pay reversion tax Tax Court disagreed

64 Excess DB Funds PLR , 11/25/11, p Cannot be used for matching funds in 401(k) plan Violating limit on early fund match

65 PPACA Constitutional (Mainly) National Federal of Independent Business v. Sebelius, USTC 50,423, 6/28/12, p PPA provisions will come into play Continue to enter law through 2018

66 PPA Coming Up 2013 Increase in medical expense deduction threshold for all except persons over 65 Additional hospital insurance tax on high-income taxpayers Fee imposed on health plans ($2 per participant) Maximum flexible spending provision for medical expenses capped at $2,500 Medical device excise tax

67 PPA Coming Up 2014 Premium Assistance Credit Excise tax on uninsured individuals Employer reporting requirements Permits health insurance through an exchange to be a qualified benefit for cafeteria plans Penalty on employer of more than 50 persons for failure to offer minimum essential coverage

68 PPA Coming Up No Coverage Offered Penalty imposed if any employee receives credit/ payment assistance Penalty = $ X (FTEs - 30) Minimum Coverage Offered Penalty imposed if any employee receives credit/ payment assistance Penalty = $ X Lesser of Number of Employees Receiving Assistance or FTEs-30

69 W2 Reporting Notice , 1/3/12, p Small employer exemption Calculation of amounts (COBRA numbers) Special rules Be sure to use this notice rather than earlier Notice

70 Fraudulent Return City Wide Transit, Inc. v. Commissioner, TC Memo , 11/23/11, p Distinguished from Allen v. Commissioner, TC Memo Fraudulent 941 was primarily to cover up embezzlement, not allow taxpayer to evade tax

71 Reliance on Promoter Hristov v. Commsioner, TC Memo , 5/23/12, p Conservative and Backward Accountants and Advisers Could not rely on promoter

72 Roth Stuffer Repetto v. Commissioner, TC Memo , 6/14/12, p Another case of bad promoter Listed transaction problem

73 Trust Fund Penalty Just following orders Jimenez v. United States, 2011 TNT 246-7, U.S. District Court for Central District of California, U.S.T.C. 50,119, 12/19/11, p Once discover, must keep monitoring In re Vaughn, U.S. Bankruptcy Court, E.D. North Carolina, U.S.T.C. 50,681, 10/17/11, p. 2-61

74 Partnerships Module 3

75 COD & Interest Tracing Revenue Procedure , 6/18/12, p. 3-2 Interest tracing rules of Reg T applied to nature of COD income (Publicly traded partnership) Also been applied previously to passive losses, certain investment income

76 Partnership & COD on Nonrecourse Debt Revenue Ruling , 5/25/12, p nonrecourse, not 752 nonrecourse Deals with debt in excess of fair value and insolvency calculation

77 Debt for Equity TD 9557, 11/15/11, Final Regulations under 108, p. 3-4 Safe harbor valuation of interest received Also clarified 721 treatment

78 Expense Policy McLauchlan v. Commissioner, TC Memo , 12/19/11, p. 3-5 Rule for partner to deduct expense Need agreement or documented policy

79 Passive Activity & LLCs REG , Proposed Reg , 11/28/11, p. 3-6 Management right would become the key Meant to address IRS losses in attempts to classify LLCs as passive due to limits on liabilities

80 Economic Substance & Profit Potential K2 Ventures, LLC v. United States, US Court of Claims, U.S.T.C. 50,739, 11/30/11, p. 3-9 As a matter of law, existence of profit potential does not automatically grant economic substance Son of BOSS case

81 Split Interests & Disregarded Entities IRS Memorandum AM , 2/17/02, p 3-10 Attempt to create different interests Followed by outside basis (most likely under partnership rules) IRS rules will not be respected

82 Self-Employment Tax Renkemeyer, Campbell & Weaver, LLP v. Commissioner, 136 TC No. 7, 2/9/11, p Activity level is the key LLC members are not automatically limited partners

83 S Corporations Module 4

84 Economic Substance Found Love v. Commissioner, TC Memo , 6/13/12, p. 4-2 Bought back stock, closed the books and paid deferred compensation after buying back stock from ESOP following law change Even though the reason was clearly related to tax, Congress had invited this action

85 Second Class of Stock PLR , 5/4/12, p. 4-5 Agreement that paid extra down the line if corporation entered into certain arrangements Note advisability of seeking protection of a PLR in cases like this

86 Kinder/Gentler (If Asked) PLR , 5/25/12, p. 4-9 Total mess of new client situation Had three years of excess passive income Disproportionate distributions made Fouled up attempt to distribute E&P IRS allowed taxpayer to fix all of it

87 Second Class of Stock PLR , 1/20/12, p Existence of right to declare disproportionate dividends fatal to S corporation status True even though board never actually used this power

88 Second Class of Stock PLR , 9/9/11, p LLC problem In this case made both elections-issue if only filed Form 2553 (may not be a bad issue--or least better than the alternative)

89 S Corporation Debt Broz v. Commissioner, 137 TC No. 5, 9/1/11, p Taxpayer never actually signed the loans personally, just as officer of corporation Related party loans don t work (see Ruckriegel v. Commissioner, T.C. Memo )

90 Late Filing Penalty Ensyc Technologies v. Commissioner, T.C. Summary Opinion , 6/14/12, p Tax Court incredibly understanding IRS clearly believed owner was lying

91 Individuals Module 5

92 Profit Motive Storey v. Commissioner, TC Memo , 4/19/12, p Attorney made movie about Up With People Found legitimate despite income

93 Medicare Tax National Federal of Independent Business v. Sebelius, USTC 50,423, 6/28/12, p Paired with wage tax Note issues

94 Estates & Trusts Module 6

95 Knight Regulations NPRM REG , Proposed Reg , 9/7/11, p. 6-3 Impacts bundled fees Will need to figure out reporting for trust companies

96 Tax Practice Module 7

97 Electronic Records CCA , 11/18/11, p IRS SB/SE Memorandum SBSE , 9/1/11, p. 7-25

98 Form UTP LB&I UTP Guidance and Procedures for the Field, 11/1/11, p Outline to auditors on use of Form UTP Useful to review

99 6 Year Statute United States v. Home Concrete & Supply, 2012 TNT 81-11, USTC 50,315, 4/26/12, p IRS overstatement basis = understate gross income regulation invalid When ambiguity isn t ambiguity according to majority (per Justice Scalia - this isn t a helpful standard to figure out what the law really is)

100 Timely Mailing - Certified Mail TD 9543, Reg , 8/23/11, p Only proof of filing is certified, registered, authorized delivery service or efiling Specifically to override various Circuits, including the Ninth (though was limited before)