Archive for September 19, 2014

DOMA Tax Issues – Still Outstanding

Someone recently asked me what federal tax issues are still outstanding regarding DOMA and the effect of the June 2013 Windsor decision. There are still a few income tax issues that come to mind (there are also estate and gift and state tax issues as well), that were not covered in the initial guidance (Rev. Rul. 2013-17). Here is my list. Do you have any input or additional ones to add?

Amended Returns

Will the IRS issue guidance to assist in the filing of amended returns? The current version of Form 1040X is not conducive to showing how two prior separate returns will now be treated as one MFJ return. Read More

Written by | Posted in Gift Tax • Income Tax • State And Local Tax (SALT)

Charity Begins At Home – Part 2

What factors determine if your donation is tax deductible or not: For a charitable donation to be tax deductible, one has to keep in mind first and foremost that one has to itemize deductions on the tax return via Schedule A and,

• That the donation is to a qualified organization. A qualified organization is an organization to whom one can make tax deductible donations. Usually, this is an organization registered under Section 501(c)(3) or 501(c)(19).

• These organizations include non-profit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to animals or children. (For an exhaustive list refer Pub 526). Read More

Written by | Posted in Tax Education • Tax Tips

Eggshell Audit – What You Need To Know

What is an Eggshell Audit?

An eggshell audit is one in which the taxpayer has filed a fraudulent return in a prior year and the auditor is not aware of potential evidence of civil tax fraud or a criminal tax violation. A tax return is fraudulent if an additional tax is owed due to (i) a deliberate intent to evade tax or (ii) there is a willful and material submission of false statements/documents in connection with the return. It is considered an “eggshell” audit because of the care one must take – i.e. walk on eggshells – to guide the examination and prevent suspicion by the auditor.

What are the Risks of an Eggshell Audit?

Read More

Written by | Posted in Audit • Tax Fraud/Evasion/Crimes

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 7.3)

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 7 – CONCLUSION

7.3 SECTION 195(1) OF THE CONSTITUTION Read More

Written by | Posted in Africa • Audit

Lights, Camera, Action and Tax Cut! Spotlight on California’s Film Tax Credit Program

In a highly strategic effort to mitigate the exodus of filming to other states throughout the United States as well as other countries, California lawmakers enacted an increase to its Film Tax Credit Program on September 18th to more than triple the annual credits available from $100 million to $330 million, and to extend the program through the year 2020.

The new California law significantly enhances the California Film Tax Credit Program which will now allocate the available annual pool of credits 5% to independent films; 35% to feature films from major players; 20% to relocating television series; and 40% to new television series, pilots, movies-of-the-week and mini-series. Read More

Written by | Posted in Specialty Tax Incentives • State And Local Tax (SALT)

Lights, Camera, Action And Tax Cut! Spotlight On The Film Incentive Reform Act of 2014

Rep. Collin Peterson, D-Minn., has introduced new legislation that if passed into law would amend I.R.C. § 181 to disqualify certain movie and television producers from receiving tax incentives from the federal government if any of the production is performed outside the United States or its possessions. The bill, known as the Film Incentive Reform Act of 2014, would amend I.R.C. § 181, to change the requirements required to expense the cost of qualified film, television, and theatrical productions.

As a background, The American Federation of Musicians (hereinafter “AFM”) strategically lobbied Congress in 2003 and 2004 to add § 181 to the Code through the American Job Creation Act of 2004 which outlines the treatment of qualified film and television production expenditures for the purposes of providing tax incentives for domestic film Read More

Written by | Posted in Specialty Tax Incentives

Transfer Pricing: 25% Rule of Thumb Not Applicable To Determining Royalty Rates

Attached please find a recent U.S. Court of Appeals for the Federal Circuit case (September 16, 2014 in VirnetX, Inc. v. Cisco Sys., Inc.) in which a U.S. court finds again the “25 percent rule of thumb” to determine royalty rates inadmissible:

“[W]e agree with the courts that have rejected invocations of the Nash theorem without sufficiently establishing that the premises of the theorem actually apply to the facts of the case at hand. The use here was just such an inappropriate “rule of thumb.” Previously, damages experts often relied on the “25 percent rule of thumb” in determining a reasonable royalty rate in a hypothetical negotiation. That rule hypothesized that 25% of the value of the infringing product would remain with the patentee, while the remaining 75% would go to the licensee. [W]e held the “25 percent rule of thumb” to be inadmissible Read More

Written by | Posted in International • OECD • Transfer Pricing

Charity Begins At Home – Part 1

I had a strange experience on my door step with a man selling magazine subscriptions for a Charitable Organization the other day. To confirm his legitimacy he even showed me a check a neighbor had written for $50 and advised my donation to his organization would be tax deductible!

Most of us, through out the year are approached by various charities either personally or on the telephone or through letters. The callers may want you to pledge an amount that instant.

Financial stress has hit hard all round, both charities & donors are strapped for funds. My policy when approached thus in most cases is to ask for more information about the Read More

Written by | Posted in Tax Deductions • Tax Tips

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 7.2)

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 7 – CONCLUSION

7.2 SECTION 33 OF THE CONSTITUTION AND PAJA Read More

Written by | Posted in Africa • Audit

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Written by | Posted in TaxConnections

Illinois Tries Again With Nexus Law

On March 28, 2013, Overstock and Amazon lost their challenge of a state tax on online sales in New York’s highest court. Further, the the Supreme Court of United States declined hearing the case, because the court determined that such a law did not violate the federal Commerce Clause. Following the Amazon decision, we expected the states to follow New York’s lead and enact its own click-through-nexus laws.

In 2011, Illinois did just that. Specifically, Illinois has a nexus law that required any company with a place of business in Illinois to collect and remit tax to Illinois. In 2011, Illinois enacted its so-called “Click Through” nexus law, which required a business to collect and remit tax if it has contact with a person or business in Illinois who referred customers to the business’s website for a commission. In this case, the trade group Read More

Written by | Posted in Sales/Use Tax • State And Local Tax (SALT)

Who Is A Minister For Tax Purposes?

A minister occupies a unique niche in the United State tax code. He or she is considered an employee for income tax purposes, but self-employed for social security and Medicare. In addition, a minister is eligible for a housing allowance that is not subject to income tax, and has the choice to opt out of social security and Medicare.

Because of this unique tax treatment accorded ministers, it is important that the individual be properly qualified as a minister in order to receive this that treatment. One is not classified as a minister just by claiming to be one. The IRS has not directly addressed the issue of who is a minister. However, five factors have emerged that must be considered:

1. The person must be ordained, licensed, or commissioned by a local church or Read More

Written by | Posted in Clergy • Income Tax • Religion
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