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Archive for Annette Nellen

Bitcoin Transaction Reporting


A growing number of individuals and businesses own bitcoin or use it for transactions (perhaps with a third party actually handling the bitcoin to cash exchange). So, more people, including tax practitioners, need to know the federal guidance at Notice 2014-21.

I was interviewed recently for an article in Business Insider by Jonathan Marino on the topic. The article is titled: “Bitcoin will be a big mess for both Bitcoin holders and the IRS.” That may be true for some, but it doesn’t necessarily have to be.

Certainly, if an individual has been using bitcoin regularly and not doing anything to track the basis and value for each transaction, they have some catching up to do. If someone gets on a system of tracking, they should have the data all ready when it comes time to Read more

Taxable Income of A Marijuana Business

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Despite marijuana operations at the state level being legal at the state level since 1996 in California (and now many states), tax guidance has been sparse. A recent, non-binding Chief Counsel Advice memo sheds some light on how the UNICAP rules apply (or don’t apply), but more is needed.

I’ve got a short article in the AICPA Tax Insider today about the CCA and its meaning – here.

A few more observations beyond the article: While the CCA basically says that the UNICAP rules do not allow a seller of a controlled substance, such as marijuana, to treat more costs as inventoriable, there seems to still be some leeway for a producer. Producers Read more

Directory of Preparers And Annual Filing Season Program (AFSP)

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Remember back in 2010, the IRS rolled out its plan to regulate all return preparers. Those who were not a CPA, attorney, Enrolled Agent or non-signing/supervised preparer would have to pass a test and complete continuing education from IRS approved providers. That plan though was shot down in the DC Circuit in the Loving decision (click here for IRS response). The IRS even had to reinstate some practitioners it had previously suspended from practice because these individuals were only preparing returns (they were not otherwise representing taxpayers before the IRS).

The court found that Title 31 of the US Code, Section 330, did not give IRS authority to regulate preparers who did not “represent” taxpayers before the IRS. So, one solution Read more

National Taxpayer Advocate Report To Congress Released

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On 1/14/15, Nina Olson, the National Taxpayer Advocate released her required annual report to Congress about problems with the tax system. As noted on the NTA website, the key parts of this 700+ page report are:

Most Serious Problems Legislative Recommendations Most Litigated Issues Volume 2: TAS Research and Related Studies

Some key points noted include:

• Tax law complexity (here + Executive Summary)
• The need to put taxpayer bill of rights into the Internal Revenue Code (here)
• Problems due to inadequate funding of the IRS (here + Executive Summary) Read more

HR 30 – Defining Full-Time Worker For ACA Has Costs

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The Affordable Care Act (ACA) imposes a penalty on “applicable large employers” starting in 2014 (changed to 2015 by the Administration). An ALE is an employer with 50 or more full-time or full-time equivalent workers. A full-time worker is one who works on average, 30 hours per week, or 130 hours per month.

There have been proposals to increase the threshold from 30 to 40, including this week – H.R. 30 of the new 114th Congress. Full-time employee is relevant in determining if an employer is an ALE, but more significantly, it is relevant in describing which employee the ALE has to offer coverage to (as well as the employee’s dependents up to age 26), in order to avoid the employer mandate penalty (IRC Section 4980H). An ALE only owes a penalty if one of its full-time employees obtains a Premium Tax Credit. The change from 30 to 40 Read more

State Taxes And Bitcoin


What state tax rules and issues exist when a business accepts bitcoin from customers? What about for the customers? In March 2014, the IRS told us that convertible, virtual currency should be treated as property (rather than as currency under any special rule for currency, such as Code Section 988). That was in Notice 2014-21. States have mostly been silent on the topic. Where states conform to the federal system, that means, treat as property as well. But what about treatment for sales tax and some special state income tax issues, such as sourcing?

New York recently issued guidance on both income and sales tax.

I’m working on an article about state tax issues and virtual currency. What issues do you Read more

ACA – Affordability of Health Insurance And Age

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In filing our 2014 tax returns, we will all have to answer a new question (line 61 on the 2014 Form 1040) – did you and everyone in your family (spouses and dependents on the return) have health coverage for every month of 2014.  If anyone was lacking coverage for any month, they must next determine if they meet an exemption. If they do not, they owe the Individual Shared Responsibility Payment (penalty). One of the exemptions that many people might qualify for is that the health insurance available to them was unaffordable. If the employer offered coverage, you look at the cost of that coverage (cost less what employer contributes to that cost). If the employer did not offer coverage, you look at what the cost of coverage would have been in the Marketplace (Exchange). If you would have been eligible for a Premium Tax Credit (Section 36B), you must reduce that cost of Marketplace coverage Read more

Over 50 Provisions Retroactively Extended On 12/19/14

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On December 31, 2013, 57 provisions in the federal tax law expired. Many had expired before and been renewed. While there was discussion in the congressional tax committees since at least April 2014, as well as votes, no consensus was reached until early December. The House passed the bill – H.R. 5771, the Tax Increase Prevention Act, on December 3 by 378-46. On December 16, the Senate passed it by a vote of 76-16. On December 19, President Obama signed the bill. The Joint Committee on Taxation estimates the cost of H.R. 5771 for one year as about $81 billion, but only $42 billion for ten years (because some of the items, such as bonus depreciation involved timing of deductions).

The extension means, for example, that if a business purchased new equipment in the first 50 weeks of 2014 not expecting to be able to claim 50% bonus depreciation on it (because Read more

Filing Status Challenges And Developments

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This year there were a few cases and IRS rulings where a married couple tried to change their filing status. Two of the cases involved a couple who split up at year end (before the time to file that year’s return). The cases are a reminder of the rule on when a married couple may amend a return to change from MFS to MFJ (before the statute of limitations runs out) and from MFJ to MFS (before April 15).

Also, in 2014, a few states that did not recognized same-sex marriage now due because of litigation challenging state law (such as Virginia and Wisconsin).

We probably think that identifying your filing status for your income tax return is one of the easiest things to do. These cases show that there can be challenges. Read more

An Odd Result For Premium Tax Credit Or Is It?

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A few people have already pointed out this oddity in the Affordable Care Act including National Taxpayer Advocate Nina Olson in her 2013 Annual Report to Congress. Her excerpt notes that in determining if a person had affordable health coverage available to them from an employer, the measure is whether the self-only lowest cost coverage available to the employee costs 8% or less. It doesn’t matter if the family coverage offered by the employer is affordable. The relevance is that the family members won’t qualify for a Premium Tax Credit.

That seems odd if no “affordable” coverage was offered to the rest of the family. Isn’t that the point of the Affordable Care Act? To help make coverage affordable to everyone? Read more

Inflation Adjustments In The Tax Law

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Our federal tax system includes numerous dollar amounts, such as for the standard deduction amount, personal exemption amount, credits, where different tax rates start and end, and defining the parameters of a “small taxpayer.” Some of these amounts are adjusted for inflation and others are not. Should they all be? That’s a good question.

I think where the tax rates of the graduated rate system start and end should be adjusted annually for inflation. This prevents “bracket creep” where a taxpayer is pushed into a higher tax bracket just because their income increased by the rate of inflation (yet their buying power and sense of wealth remained the same). The same logic calls for adjusting the standard deduction and personal exemption amounts. Read more

EU’s New VAT “MOSS” – Relevance For MFA?

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On January 1, 2015, the EU’s new approach for charging and collecting VAT on B2C sales of e-services and digital goods begins. The key to the approach is that all businesses will charge based on the customer’s location (destination basis). That makes sense for a consumption tax, but has its challenges. One key one is knowing where the customer is, which is not always easy to determine for digital goods relative to physical goods.

One administrative simplification is the Mini One Stop Shop or MOSS. This allows a business to register in one country for filing purposes. The business still has to collect the appropriate VAT for the country where the consumer is, but rather than quarterly filing in each country, the business just files in the MOSS country. That country makes sure the funds get to the right country (and handles the currency translation since not all EU countries use the Read more