The Tax Court recently decided a case, Slaughter v. Comm’r (find all the citations in 1 Taxation of Intellectual Property § 1.06 (2019), involving annual royalty payments to an author wherein the IRS argued that instead of treating the payments as royalties that are not subject to self-employment and Medicare tax, the payments should be treated as net earnings from self-employment. The dispute that the Tax Court faced was whether there is a distinction, for self-employment tax purposes, between an author’s royalty income derived from her writing and any royalty income derived from her name and likeness. The author contends that one portion of her royalty payments is derived from her writing, which is a trade or business, and that another portion is derived, not from her writing, but rather solely from her name and likeness which are personal attributes which are not part of any trade or business. The IRS argued that the entire payments the author received from her publishing contracts were derived from her trade or business as an author, thus subject to self-employment tax.
Archive for William Byrnes
Not all taxpayers will be able to take advantage of the Section 199A safe harbor for rental real estate. While the safe harbor does apply to residential rental real estate, taxpayers are not entitled to rely upon the safe harbor if the taxpayer uses the property as a residence during the tax year.
Notably, if the real estate is rented or leased under a triple net lease, the safe harbor remains unavailable under the final rule. When satisfying the “hours of rental real estate services” criteria, only certain activities are counted toward the 250-hour threshold. Activities such as rent collection, advertising the rental, property maintenance, negotiating leases and managing the real property generally count toward the threshold. However, the taxpayer’s activities as an “investor” are not counted.
Similarly, if any property within the rental real estate enterprise is classified as a specified service trade or business, the safe harbor is unavailable for the entire business. For more information on the final safe harbor rule, visit Tax Facts Online. Read More
Have a question? Contact William R Byrnes
April 1st Important Deadline For Clients With First-Time Required Minimum Distribution (RMD) Obligations
While April 15 is a well-known and understood deadline, most clients don’t associate April 1 with any important tax-related deadlines—but April 1 is, in fact, one of the most important deadlines for clients who turned 70 1/2 years old in the previous year. For those clients who maintain traditional retirement accounts, such as 401(k)s and IRAs, April 1 is the date by which they must take their first required minimum distribution (RMD) from the account if they turned 701/2 in the previous year.
For example, a client who turned 701/2 in 2018 must take their first RMD by April 1, 2019. This April 1 deadline is a special rule that applies only to first-time RMDs–a client’s 2019 RMD will be due by December 31, 2019. This means that clients who choose to wait until the April 1 deadline will be required to take two RMDs in 2019. For each subsequent year, the generally applicable December 31 deadline is the relevant date for RMDs. For more information on lifetime RMD requirements, visit Tax Facts Online. Read More
Most clients will change jobs a few times in their lives, which often means they wind up with multiple 401(k) and other types of retirement plans. Consolidating can produce many benefits–namely, making it easier to manage retirement assets and easing RMD calculations, but there are rules to consolidating and clients also need to be aware of benefits that may be unique to any one type of plan. Clients should evaluate their goals with respect to eventual withdrawals, as the rules for penalty-free withdrawals–for example, via using an IRA to establish a series of substantially equal periodic payments to provide penalty-free withdrawals prior to age 591/2.
For more information on the rollover rules and how they may impact clients considering retirement account consolidation, visit Tax Facts Online. Read More
The IRS has released a technical advice memorandum (TAM) that sheds light on the potential tax implications when employers provide employees with free meals in the office. Post-tax reform, meals provided “for the convenience of the employer” may receive favorable tax treatment. In the TAM, the IRS denied exclusion of the meals’ value from employee compensation. Here, the employer provided free meals to all employees in snack areas, at their desks and in the cafeteria, justifying provision of these meals by citing need for a secure business environment for confidential discussions, employee protection, improvement of employee health and a shortened meal period policy.
The IRS rejected these rationales, stating that the employer was required to show that the policies existed in practice, not just in form, and that they were enforced upon specific employees. In this case, the employer had no policies relating to employee discussion of confidential information and provided no factual support for its other claims. General goals of improving employee health were found to be insufficient. The IRS also considered the availability of meal delivery services a factor in denying the exclusion, but indicated that if the employees were provided meals because they had to remain on the premises to respond to emergencies, that would be a factor indicating that the exclusion should be granted. For more information on “de minimis” type fringe benefits, visit Tax Facts Online.
New Paper: “The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation”
With new tax legislation comes new tax games, which is the topic the new paper, “The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation,” available from SSRN. I haven’t reviewed it, but it has received a large amount of publicity in the press. It’s written by a group of tax professors. Read more
Organizations described in IRC 501(c)(3) and exempt under section 501(a) must be both organized and operated exclusively for exempt purposes. You have failed to produce documents to establish that you are operated exclusively for exempt purposes and that no part of your net earnings inures to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by section 6001 and 6003(a)(1) of the Code and Rev Ruling 59-95, 1959-1 C.B. 627. You did provide information stating that your organization has been inactive and that there have been no operations conducted or planned. As such, you fail to meet the operational requirements for continued exemption under Section 501(c)(3).
What is the Economic Activity Requirement that Offshore Financial Center’s Agreed to Adopt into Law?
Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU’s Code of Conduct or OECD’s Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. In the context of the screening process, the Code of Conduct Group invited each jurisdiction where concerns were identified to commit to address such concerns. The large majority of jurisdictions have decided to introduce the relevant changes in their tax legislation in order to comply with the EU screening criteria. The following jurisdictions are committed to addressing the concerns relating to economic substance by 2018: Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey; and Vanuatu.
FinCEN Issues $8 Million Penalty on California Card Club for Willful Violation of Anti-Money Laundering Controls
The Financial Crimes Enforcement Network (FinCEN) announced an $8 million civil money penalty against Artichoke Joe’s, a California corporation, doing business as Artichoke Joe’s Casino (AJC). AJC, one of the largest card clubs in California, willfully violated U.S. anti-money laundering (AML) laws from October 2009 to November 2017. During this 8-year period, AJC failed to implement and maintain an effective AML program, and failed to detect, deter, and timely report many suspicious transactions. Read more
FinCEN Further Restricts North Korea’s Access to the U.S. Financial System and Warns U.S. Financial Institutions of North Korean Schemes
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule under Section 311 of the USA PATRIOT Act that severs Bank of Dandong, a Chinese bank that acts as a conduit for illicit North Korean financial activity, from the U.S. financial system. FinCEN also issued today an advisory to further alert financial institutions to schemes commonly used by North Korea to evade U.S. and United Nations (UN) sanctions, launder funds, and finance the North Korean regime’s weapons programs.
The Federal Trade Commission has charged the publisher of hundreds of purported online academic journals with deceiving academics and researchers about the nature of its publications and hiding publication fees ranging from hundreds to thousands of dollars.
The FTC’s complaint alleges that OMICS Group, Inc., along with two affiliated companies and their president and director, Srinubabu Gedela, claim that their journals follow rigorous peer-review practices and have editorial boards made up of prominent academics. In reality, many articles are published with little to no peer review and numerous individuals represented to be editors have not agreed to be affiliated with the journals.
Operation made false claims and hid publishing fees, FTC alleges.
A federal court has granted a preliminary injunction requested by the Federal Trade Commission, temporarily halting the deceptive practices of academic journal publishers charged by the agency with making false claims about their journals and academic conferences, and hiding their publishing fees, which were up to several thousand dollars.