Top Tax Blogs, Tax News, Tax Updates, Tax Legislation, TaxConnections

13 May 2022

Dividing Property In Divorce Tax Traps – Part 3 In Series

Tax Aspects Of Dividing Property In A Divorce (Series – Part 3

(This valuable series on Dividing Property In A Divorce Tax Traps has been updated for the Tax Cuts And Jobs Act (TCJA) and the Cares Act. This series is provided by David Ellis of Ellis & Ellis CPAs in Pasadena, CA.)

III. Section 1041 Specifics as to Type of Property

1. The Marital Residence

Perhaps the most common property division issue the practitioner will face when a couple divorces will be the division of the marital home. Often, which spouse, if any, will end up with the home will be the central issue in the property settlement.

Furthermore, non-monetary issues such as emotional attachments, or the preferred school district for couples who have children, frequently complicate matters.

Given the above, it is imperative that the practitioner be thoroughly familiar with the tax ramifications of dividing the residence.

A qualifying single taxpayer can exclude up to $250,000 of gain on sale of principle Qualifying married couples filing jointly can exclude up to $500,000.[1]
1. Taxpayer must have maintained the home as his/her principal residence for two out of the last five years.[2]
2. Taxpayer must have owned the residence for two out of last five years
3. Only one sale every two years qualifies for the exclusion. Taxpayer must not have used the exclusion during the previous two-year period before the current sale.[3]

Tax Trap Alert: Practitioners should familiarize themselves with the major exceptions and special cases IRC Section 121 and the related regulations and rulings address, including but not limited to the following:

Written by David Ellis

13 May 2022

Cryptocurrency In 401(k)s: DOL Warns Retirement Plan Fiduciaries

DOL Releases Warning on Cryptocurrency in 401(k)s. On April 11, 2022 William Byrnes Posted This Message Under Tax Notes Intelligence

The Department of Labor (DOL) issued a compliance assistance release that warns retirement plan fiduciaries about allowing participants to invest in either cryptocurrencies or products that are related to cryptocurrency. The guidance comes in response to President Biden’s executive order that directed agencies to study the risks and benefits of cryptocurrency. The DOL release warned that in the eyes of the DOL, cryptocurrency poses significant risks and challenges for participants, including the risk of fraud, theft and loss. The release is clear that plan fiduciaries who allow cryptocurrency investment options should expect to be questioned about how those decisions could comply with their duties of prudence and loyalty. Plan fiduciaries should pay close attention and carefully evaluate whether allowing crypto-related products in their investment lineup is worth the risk, given the DOL’s sweeping statements and indication that it will presume that a fiduciary who offers cryptocurrency products has acted imprudently.

For more information on the current DOL fiduciary standard and new prohibited transaction exemption, Read More.

Have a question? Contact William Byrnes.

Written by William Byrnes

13 May 2022

U.S. States Sales Tax Updates: Connecticut, Washington, New Mexico, Maryland

An Apple a Day Keeps the Sales Tax Away – Connecticut Online Learning Rendered Nontaxable

The true object test comes into play when determining the taxability of online learning plans and courses. Online learning plans are generally not subject to sales and use tax as digital goods because the true object being sold is the nontaxable service of education or training. However, these courses may be taxable when connected to job-related software or computer training at rate of 6.35% and non-job-related computer or software training at a rate of 1%. While audio-visual works are included in many online learning programs, the true object of the course is the education or training and not the sale of the digital good. Therefore, the service is nontaxable. On the other hand, if a company enacts an online job-related training plan it is a taxable service since it qualifies as a business management consulting service. However, general education seminars, refresher courses, courses on current developments in a particular field, and courses for continuing education credits are not subject to tax.

Sales Tax Gain from Your Window Pain – WA Taxpayer Audit Assessment

Written by Jordan Perri

13 May 2022

Texas Tax Roundup – Interesting Tax Court Cases And Rulings

[In this very special “throwback” edition of the Texas Tax Round Up, newly reemerged from out the Super-Saragossa Sea of the Internet, we travel back to a much simpler time—February 2022.]

Howdy y’all! Has it been a month already? We’ve got another action-packed month of Comptroller-related news. Here we go!

Court Cases

Courts of Appeals

Hegar v. Black, Mann, and Graham, L.L.P., No. 03-20-00391-CV (Tex. App.—Austin Feb. 25, 2022)

The Texas Third Court of Appeals held that a taxpayer may self-assess and pay tax under protest for subsequent periods after the filing of a protest suit and include those periods in the suit by amending the petition— in other words, there’s no requirement that the Comptroller actually assess tax for those periods. Thus, the Court of Appeals upheld that the District Court’s denial of the Comptroller’s plea to the jurisdiction for those subsequent periods.
On the merits, however, the Court of Appeals held that the taxpayer—a law firm that specialized in preparing loan packages for lending institutions—purchased taxable data processing (instead of nontaxable legal or paralegal) services from vendors when the vendors created an interface between each lenders’ loan origination systems and the vendors’ document generation systems that produced the loan package, which the law firm then reviewed to ensure the legal requirements were met.

Proposed Rules

Franchise Tax

Written by TL Fahring

11 May 2022

The Alter Ego Doctrine And Taxes

The Alter Ego Doctrine And Taxes

What is an “alter ego?” The phrase is Latin, translating to “second I,” “another I,” or “other self.” In the federal tax context, the alter ego doctrine comes into play where the IRS believes that one person or entity should be considered “one and the same” as the taxpayer in the eyes of the law, allowing the IRS to collect the tax liability from either the taxpayer or the taxpayer’s alter ego.

What Is The Alter Ego Doctrine?

Under the alter ego doctrine, the IRS may seize property that is held in the name of a third party if the third party holds the property as the taxpayer’s alter ego. That is, the law may allow the IRS to levy on property or rights to property held by a taxpayer’s alter ego entity (e.g., a trust, corporation, or LLC) to collect the taxpayer’s tax liability.

Simply put, for tax-collection purposes, a taxpayer and his/her alter ego are considered one and the same — and its assets are available to the IRS to collect the taxpayer’s tax liability.

The theory behind the doctrine is largely based on the premise that the taxpayer and the alter ego are so intermixed that their financial affairs cannot, or should not, be separated. As such, its application focuses on the relationship between the taxpayer and the would-be alter ego.

The Nominee Doctrine Compare

Written by Jason Freeman

11 May 2022

U.K Trade Minister Aims To Strike Mini Deals With Individual U.S. States

Penny Mordaunt, U.K. Minister of Trade, toured several U.S. states to begin a discussion about trading with states individually. Mordaunt said as a country, the United States “has more to do to be ready for an FTA.” She now spends time negotiating with officials in California, New York and several other states and plans to negotiate trade deals with up to twenty states.

These conversations were sparked by President Biden’s hesitancy to discuss a trade deal with Prime Minister Boris Johnson during their meeting in September 2021. While the Prime Minister hoped to have an agreement set by 2024, he says that President Biden had “a lot of fish to fry” and is unable to commit. Seemingly in response, Mordaunt began meeting with state officials to discuss future agreements in December of 2021.

Mordaunt’s goals for the discussions include:

Written by Jordan Perri

11 May 2022

Update On Criminal Breach of Taxpayer Data

(Article from Newsroom of the U.S. Senate Committee On Finance)

Almost a year later, the Biden Administration has not sought out stolen taxpayer information

Washington, D.C.–Nearly 10 months later, the Biden Administration still does not know what taxpayer data was stolen and leaked to ProPublica last summer. In a letter to Treasury Secretary Janet Yellen, top Republicans on the Senate and House tax panels are requesting an update on the investigation.

The letter, sent by Ranking Member of the Senate Finance Committee Senator Mike Crapo (R-Idaho) and House Ways and Means Ranking Member Representative Kevin Brady (R-Texas) notes how investigators still have not sought a copy of the stolen information, writing:

“Anyone accessing or releasing confidential personal tax information from the IRS without necessary approvals faces severe penalties and must be prosecuted. In June 8, 2021, testimony before the Senate Finance Committee, IRS Commissioner Rettig pledged to ‘absolutely’ ensure that anyone found to have revealed such information would face prosecution, ‘absolutely.’

“It is unclear why the Department of Treasury, the IRS, and the Department of Justice do not ask ProPublica for a copy of whatever data ProPublica is using to produce political articles in order to determine whether ProPublica’s claim of possessing legally protected data is true.”

Read the full letter here.

KEY TAKEAWAYS:

Written by TaxConnections Admin

11 May 2022

Syndicated Conservation Easements: IRS Scrutiny Continues

On May 2, 2022, the Wall Street Journal published two detailed articles authored by Richard Rubin on the subject of syndicated conservation easements: Conservation Tax-Break Deals Keep Flowing Despite IRS Crackdown (WSJ 2022.05.02) and How a Georgia Pine Farm Became a Significant Tax Deduction (WJS 2022.05.02). In the first article, the author notes that IRS data released in 2020 showed syndicated easement deductions climbing from $6 billion in 2016 to $9.2 billion in 2018. And, the author quotes the head of the IRS’s business and international division as stating, “We don’t feel like we’ve seen the full impact of our [the IRS’s] efforts just yet. . . . We view it as abusive and problematic, and we will continue to throw significant enforcement tools” at abusive syndicated conservation easement tax shelters.

In the second article, the author focuses on a specific 434-acre pine-tree farm in Georgia and its dedication for conservation purposes pursuant to a syndicated easement arrangement. The author writes, “In 2020, some McGinnis family members sold off three-fifths of the property for $310,000. By the end of 2021, the . . . land had been sold again, this time to a business that raised $10.7 million from investors in a land-conservation deal. That transaction could yield its investors millions of dollars more in tax deductions—as well as scrutiny from the Internal Revenue Service.” Rubin writes that billions of dollars of tax revenue are at stake in abusive syndicated conservation easement tax shelters.

Written by Cory Halliburton

10 May 2022

Dividing Property In A Divorce Tax Traps (Series – Part 2)

Tax Aspects Of Dividing Property In A Divorce (Series – Part 2)

This valuable series on Dividing Property In A Divorce Tax Traps has been updated for the Tax Cuts And Jobs Act (TCJA) and the Cares Act. This series is provided by David Ellis of Ellis & Ellis CPAs in Pasadena, CA.

Major Exceptions to Nonrecognition of Gain or Loss
1. Transfers to trust in which property’s liabilities exceed basis.[1]
  1. Gain is recognized by transferor.
  2. Gain equals the amount by which property’s liabilities exceed basis.
  3. Trust increases its’ basis in the transferred property by the amount of gain
2. Transfer to Trust of Installment Instrument
  1. Transferring spouse recognizes untaxed built in gain upon transfer.^[2]
  2. Trust takes carryover basis plus trust gets increase in basis by the amount of gain recognized by transferee.[3]
  3. Post transfer interest income paid on installment instrument is taxable to trust.[4]
  4. Example: Transfers to Trust in Which Liabilities Exceed Basis.

Ward and June are in the process of getting a divorce. Ward inherited as separate property, a Japanese Samurai Sword that his grandfather brought back from World War I as a war trophy. The sword has an estimated Fair Market Value of $750,000.

Ward’s basis in the sword is $100,000, and he has pledged it as security for a business loan in the amount of $500,000. As part of the divorce settlement, Ward transfers the sword to a trust for the benefit of June. The trust assumes the loan on the sword. Ward must recognize a gain of $400,000 on transfer calculated as follows:

Written by David Ellis

10 May 2022

Hedge Funds 101: An Introduction To Tax Issues

Hedge Funds and Taxes

Hedge funds provide a vehicle to pool private capital for investment in stocks, securities and financial derivatives. While hedge funds take on many different structures—including master-feeder, parallel, or fund-of-funds structures—they share many similar tax considerations.

Hedge fund tax issues include entity classification, tax allocations, the taxation of carried interests, swap taxation, withholding, and numerous other issues. In this Insight post, we discuss the typical hedge fund structure and usual players, as well as several common tax issues.

Typical Hedge Fund Structures

Most hedge funds use one of the following organizational structures: 1) a single entity fund, 2) a master-feeder fund, 3) a parallel fund, or 4) a fund of funds.

A typical hedge fund structure involves an entity formed as a partnership for U.S. federal tax purposes acting as an investment manager with a separate entity functioning as a general partner. The investment or fund manager is generally compensated through a management fee, typically tied to a percentage of the fund’s net asset value. In addition, the general partner generally receives an allocation of partnership profits (net of prior losses and management fees) that is based on the master fund’s performance. This is known as a carried interest.

Hedge Funds vs. Private Equity

Written by Jason Freeman

10 May 2022

You Received An IRS LT11 Notice (or Letter 1058), Now What?

IRS LT11 Notices (“LT11”) and Letters 1058 are no laughing matter. The IRS issues these particular “final” notices to taxpayers before it takes certain levy actions. Taxpayers must pay attention to these notices, as well as others, and understand their rights and responsibilities with respect to each. Our firm has previously described other notices: You Received an IRS CP518 Notice, Now What?; You Received an IRS CP504 Notice, Now What?; and You Received an IRS CP15 Notice (re: Form 3520 Penalty), What Now?. This article discusses the LT11 and Letter 1058 and how a taxpayer should respond.

What is the LT11/Letter 1058?

The LT11 and Letter 1058 are alternative forms of IRS final levy notices. Generally, a taxpayer receives the LT11 or Letter 1058 from the IRS after receiving a series of prior notices—CP503, CP504, CP504B, etc. These notices are generally what stand between the IRS and seizing a taxpayer’s assets.

The LT11 prominently displays the following language at the top of page 1: Notice of Intent to Levy and Your Collection Due Process Right to a Hearing. Similarly, the Letter 1058 includes the following language on page 1: Final Notice—Notice of Intent to Levy and Notice of Your Rights to a Hearing.

The IRS describes (1) the purpose of these notices, (2) what happens if a taxpayer does not respond, and (3) what kinds of property can be levied as follows:

What this notice or letter is about

We haven’t received your payment for overdue taxes. We intend to seize your property or rights to property. You must contact us immediately. . . .

What happens if I don’t respond to this notice of letter or don’t pay?

Written by Zachary Montgomery

10 May 2022

IRS Encourages Modernization Of Electronic Filings: 30M Taxpayer Paper Filed Tax Returns Destroyed

IRS Encourages Modernization Of Electronic Filings: Destroys More Than 30M Taxpayer Paper Filed Tax Returns

Treasury Inspector General For Tax Administration Report

The IRS has taken a number of actions and developed initiatives in an effort to increase e-filing. Furthermore, legislative requirements have resulted and will continue to result in increases in e-filing. The
backlogs of paper tax and information returns to be processed along
with the inability to ship paper tax returns and/or retrieve paper tax
returns from Federal Records Centers due to the pandemic
demonstrate the need for the IRS to develop a Service-wide strategy to further increase e-filing. However, the IRS does not have a Service-wide strategy that identifies, prioritizes, and provides a
timeline for the addition of tax forms for e-filing nor an accurate and
comprehensive list of tax forms not available to e-file.

Read The Full Report Of May 4, 2022

Written by TaxConnections Admin

« Older Entries Recent Entries »

Current Articles
- Dividing Property In Divorce Tax Traps – Part 5
  By David Ellis
  (Part 5 is continuation of series, links to all parts are provided at end of this blog post. This valuable series on Dividing Property In A Divorce Tax Traps has been updated for the Tax Cuts And […]
- Introduction Of Bipartisan Bill To Disallow Foreign Tax Credits And Other Tax Benefits for Companies Operating in Russia
  By TaxConnections Admin
  Washington, D.C.—Senate Finance Committee Chair Ron Wyden, D-Ore., and Senate Finance Committee Member Rob Portman, R-Ohio, today introduced legislation to disallow Foreign Tax Credits for companies […]
- Tax Exemption And Unrelated Business Income Tax (UBIT): The Framework (Part 1 of 3)
  By Cory Halliburton
  This Insights blog is Part 1 of a 3-Part series that provides a focused overview of the unrelated business income tax rules for the nonprofit organization that is tax-exempt pursuant to section […]
- Baby Formula Shortage Underscores Supply Chain Struggles; US Plans To Ease Import Restrictions
  By Jordan Perri
  A sudden nationwide shortage of baby formula has served as a stark reminder that supply chain woes continue to be felt midway through 2022. Across the United States, 40% of formula is currently out […]
- What’s At Issue In Reviewing The Determination Of A Collection Due Process Hearing?
  By Jason Freeman
  Jackson v. Comm’r, T.C. Memo. 2022-50 | May 12, 2022 | Vasquez, J. | Dkt. No. 19634-18L Opinion Short Summary: Petitioners, a married couple residing in Kansas, timely filed their Forms 1040, […]
Search for:
Blogger List
Recent Comments
- Pierre on Learn Your Residency Status For US Tax Purposes
- gotaxglobalus on How To Keep Your Personal And Tax Information Safe
- Michael S Cash on Odd Tax Proposal Harms Tax Gap And Tax Transparency
- Michael S Cash on Supreme Court Update On Tax Cases (March 1, 2022)
- steveneidelkind on Transform A Tax Services Firm Now And Years Into The Future
Tax Blog Archives
Tax Blog Archives
Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.
NEVER MISS AN ISSUE OF TAXCONNECTION

Learn from tax advisors, straight to your inbox

%d bloggers like this:

Access Leading Tax Experts And Technology
In Our Global Digital Marketplace

Dividing Property In Divorce Tax Traps – Part 3 In Series

Like this:

Cryptocurrency In 401(k)s: DOL Warns Retirement Plan Fiduciaries

Like this:

U.S. States Sales Tax Updates: Connecticut, Washington, New Mexico, Maryland

Like this:

Texas Tax Roundup – Interesting Tax Court Cases And Rulings

Like this:

The Alter Ego Doctrine And Taxes

Like this:

U.K Trade Minister Aims To Strike Mini Deals With Individual U.S. States

Like this:

Update On Criminal Breach of Taxpayer Data

Like this:

Syndicated Conservation Easements: IRS Scrutiny Continues

Like this:

Dividing Property In A Divorce Tax Traps (Series – Part 2)

Like this:

Hedge Funds 101: An Introduction To Tax Issues

Like this:

You Received An IRS LT11 Notice (or Letter 1058), Now What?

Like this:

IRS Encourages Modernization Of Electronic Filings: 30M Taxpayer Paper Filed Tax Returns Destroyed

Like this:

Current Articles

Blogger List

Recent Comments

Tax Blog Archives

Subscribe to TaxConnections Blog

NEVER MISS AN ISSUE OF TAXCONNECTION

Learn from tax advisors, straight to your inbox

Access Leading Tax Experts And TechnologyIn Our Global Digital Marketplace

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Current Articles

Blogger List

Recent Comments

Tax Blog Archives

Subscribe to TaxConnections Blog

NEVER MISS AN ISSUE OF TAXCONNECTION

Learn from tax advisors, straight to your inbox

INCREASE KNOWLEDGE WITH EVERY ISSUE OF TAXCONNECTIONS

Learn from tax advisors, straight to your inbox

Access Leading Tax Experts And Technology
In Our Global Digital Marketplace