Archive for August 21, 2014

When Does A Hobby Become A Business?

Many people enjoy hobbies and even earn money as a result. That income is reportable and business related to the income may be deductible so long as the activity is not truly a hobby. The way the activity is treated is important in determining whether the government will recognize the activity as a business. The IRS will analyze whether the activity is conducted in a businesslike manner, whether the taxpayer intends to make a profit, the amount of profit, current employment, efforts to increase profit and the causes of losses, along with other criteria.

If the activity is deemed to be a hobby, then the related losses are limited. For more information visit the IRS’ website.

Read More

Written by | Posted in Individual • Small Business

Foreign Persons As S Corporation Shareholders: Risky Business – Part II

Part I of this blog post detailed the requirements for eligibility for electing S corporation status, maintaining it, as well as the tax benefits of being an S corporation. It also outlined how S corporation status can be lost. The possible loss of S corporation status becomes very tricky when a foreign shareholder is involved, since nonresident aliens are not permitted to be shareholders in an S corporation. If a foreign national is a shareholder and is a US “resident” for income tax purposes, then S corporation status is fine, but it must be remembered that the other shareholders do not have control over the individual’s maintenance of his US “resident” status.

How to Prevent Inadvertent Termination of S Corporation Status

Steps to prevent the inadvertent termination of S corporation status should be undertaken Read More

Written by | Posted in Corporate • International • IRS • Small Business

Audit Assistance vs Audit Representation: Is There a Difference? Part 4

Loving and Cir. 230

In February of 2014 the U.S. Court of Appeals upheld the D.C. Circuit Court’s 2013 decision that the IRS had overstepped it’s authority in establishing certification and continuing education requirements for all tax preparers, not just the traditional “representatives” including Attorneys, CPA’s, and EAs.

The regulations had been seen by CPA’s and Enrolled Agents as a way to level the playing field. Without the regulations, we could be at a disadvantage because we are required to comply with competency and quality control regulations under IRS Circular 230, while unlicensed tax return preparers are not. Read More

Written by | Posted in Audit

Dear Mr. President… Why I Must Expatriate….

This letter was posted by Robert Wood on Forbes’ website. Robert is a US tax lawyer based in San Francisco, California. He received this letter in the course of his practice. I thought it was well worth passing on and have reproduced it in full:

“Dear Mr. President,

I am writing with a heavy heart as I, my husband, and our daughter are all seriously contemplating giving up our U.S. citizenship. We are doing this not to avoid paying U.S. taxes but because we strongly object to a system that is blatantly discriminatory and unfair to law-abiding Americans living outside the country. In addition, it has become too expensive, too difficult, and frankly, too frightening, to try to comply with all of the tax filing Read More

Written by | Posted in Expatriate • FATCA • FBAR • North America

Does The IRS Have The Authority to Issue Whistleblower Awards For FBAR Penalties?

Does the IRS have the authority to issue Whistleblower awards under Section 7623(b) to an individual who provides information that results in the assertion of FBAR penalties? In Whistleblower 22231-12W v. Commissioner, T.C. Memo. 2014-157, the Tax Court came close to deciding this issue.

The only reason it stopped short was because the jurisdictional pre-requisite for the Court to act – a determination by the Whistleblower Office on whether to accept or reject the petitioner’s claim – had not yet been made. In other words, because the petitioner’s claim was still pending before the Whistleblower Office, the Tax Court did not have jurisdiction to do anything. Read More

Written by | Posted in FBAR

Audit Assistance vs Audit Representation: Is There a Difference? Part 3

Audit Representation

What if you have a situation that you have determined needs a more proactive approach from a tax professional? As always, the first step is to get a good detailed engagement letter in place. If there is ever a time to make sure you have a good “disengagement clause” in place, this is it.

IRS Circular 230 Subpart B covers the Duties and restrictions Relating to practice before the Internal revenue Service. There have been some changes recently that we will discuss in the next section, however, the basics remain. You must be competent, exercise due diligence, and promptly follow lawful requests for information when practicing before the Read More

Written by | Posted in Audit

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 5.5.6 – 5.5.6.3)

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution of The Republic of South Africa

CHAPTER 5 – JUDICIAL REVIEW WITH REFERENCE TO SS 74A AND 74B –

5.5.6.3 Appropriate authority Read More

Written by | Posted in Africa • Audit

The IRS Issued New Administrative Authority In Connection To Accounting Method Changes For Retail Inventory

The Internal Revenue Service (hereinafter “IRS”) has issued new administrative authority for changing a method of accounting for retail inventory. Newly issued Rev. Proc. 2014-48 provides the select procedures under which a taxpayer may obtain the IRS’s consent to change a method of accounting to comply with the final treasury regulations on the retail inventory method of accounting. The final treasury regulations clarify the computation of ending inventory values under the retail inventory method and provide alternative methods for taxpayers using the retail Lower of Cost or Market (hereinafter “LCM”) method of accounting to account for margin protection payments.

As set forth under Treas. Reg. § 1.471-8, a taxpayer may use the retail inventory method to compute the value of ending inventory at approximate cost (i.e., retail cost) or approximate Read More

Written by | Posted in IRS • Treasury Regulations

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 5.5.6 – 5.5.6.2)

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution of The Republic of South Africa

CHAPTER 5 – JUDICIAL REVIEW WITH REFERENCE TO SS 74A AND 74B –

5.5.6.2 Constitutionality of the inquiry and audit Read More

Written by | Posted in Africa • Audit

What Is A FTE? What Is A Seasonal Employee?

My friend, confidant, mentor and expert in the procedural ramifications of ObamaCare, Debbie Nash of D. Nash & Associates, got to talking with me about some of the nuances of this legislation and our discussion quickly digressed into what the definition is of a ‘Full Time Equivalent’ (FTE) employee for IRS tax purposes. One of many reasons I appreciate time together with Debbie is our electrifying and challenging conversations. She keeps me on my toes continually pushing me to be a more astute student of the Internal Revenue Code.

After deliberate debate and further review it quickly became apparent to me that part of this precedent setting legislative action is to simply create long term jobs for the legal industry simply because there are so many unanswered questions. One on the menu today is how Read More

Written by | Posted in Affordable Healthcare Act • Corporate • Small Business

Audit Assistance vs Audit Representation: Is There a Difference? Part 2

Audit Assistance

Now for the ways I define the difference between Audit Assistance and Audit Representation.  Everyone of you is going to set “the line in the sand” at a different location for this call, so please understand these are not hard and fast “rules”, just what I have found works for me.

Audit Assistance include the items you do for you regular clients that get those pesky letters from the IRS of state that are really no big deal.  Things like:

1. Missing form from a mailed return
2. Missing signature from a mailed return Read More

Written by | Posted in Audit
« Older Entries   Recent Entries »