deductible expenses | TaxConnections

15 Mar 2023

Gifts, Bequests, Deductible Expenses, And Estate Tax

Estate of Spizzirri v. Comm’r, T.C. Memo 2023-25 | February 28, 2023 | Urda, J. | Dkt. No. 19124-19

Opinion

Short Summary. Decedent was a wealthy lawyer and investor. During the last few years of his life, decedent paid significant sums to one of his daughters, one of his stepdaughters, and multiple women with whom he was either socially or romantically connected.

At the time of his death, decedent was married to his fourth wife. Decedent and wife had entered into a prenuptial agreement, which was subsequently amended over the course of several years. As amended, the prenuptial agreement provided that wife would receive at decedent’s death the right to reside at one of decedent’s properties for five years free of charge and that decedent’s will would include a bequest of $1,000,000 to each of wife’s daughters. This provision of the prenuptial agreement acted as a “waiver and release . . . of all rights in and to each other’s estate under any rule or law . . . entitling a surviving spouse to all or any part of the estate or property of a deceased spouse or to any interest therein.”

Decedent passed away in 2015. Decedent’s will did not include the payments reflected in the prenuptial agreement. Wife and her daughters brought claims against decedent’s estate. Eventually, the estate entered into a binding settlement with wife and paid each of wife’s daughters $1,000,000. The estate reported these payments to the Internal Revenue Service on Forms 1099-MISC.

The estate’s Form 706, United States Estate (and Generation Skipping Transfer) Tax Return, was due on February 10, 2016. On February 19, 2016, the estate requested a six-month extension to file the return, which was granted, extending the deadline to August 12, 2016. In July 2016 the estate’s tax return preparer requested a second extension of the filing deadline because of the ongoing probate litigation with wife. The IRS informed the estate that a second extension could not be granted as a matter of law.
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Written by Jason Freeman | Posted in Deductible Expenses • Estate Taxes

31 Aug 2021

Tax Court In Brief: Trade Or Business And Deductibility Of Expenses

Estate of Charles P. Morgan, Deceased, Roxanna L. Morgan, Personal Representative and Roxanna L. Morgan v. Comm’r, T.C. Memo 2021-104| August 23, 2021 | Pugh, J. | Dkt. No. 592-18

Short Summary: The case analyzed whether activities carried to acquire a business rise to the level of a trade or business, and thus, whether related expenses are deductible. Additionally, the case discusses the framework applicable to establish reasonable cause based on reliance on a tax professional.

Mr. Morgan (the petitioner) was a real estate developer. During the 1983-2009 period he actively owned and was involved in various real estate companies. During the 2009 financial crisis, his real estate companies were severely impacted because of lack of liquidity and eventually, his creditors requested the appointment of a receiver. Upon the appointment, the receiver was in sole control of the petitioner’s companies, and he was prohibited from incurring expenses on behalf of the companies that were under the receiver’s control.

As consequence of the above, petitioner spent vacation time and later decided to start a new business, through a single-member LLC, Legacy. The purpose of his new venture was to acquire a business. Petitioner recorded his time spent working as “business search” and deducted various expenses related to the search of a possible target acquisition. Aside from Legacy, petitioner also owned another entity, Falcon, that was used to hold and operate an aircraft. Legacy paid consulting fees to Falcon, and Falcon’s expenses were related to the use and maintenance of the aircraft. Legacy deducted the consulting fee paid to Falcon. Finally, petitioner claimed Net Operating Losses (NOL) for both Legacy and Falcon, derived from previous years. The IRS disallowed the expenses and issued a notice of deficiency and imposed a penalty under section 6662 (underpayment due to negligence or substantial understatement of income tax).

Written by Jason Freeman | Posted in Deductible Expenses • TaxConnections • Trade or Business

07 Jan 2021

Eligible Paycheck Protection Program Expenses Now Deductible

The Treasury Department and the Internal Revenue Service issued guidance PDF today allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).

Today’s guidance, Revenue Ruling 2021-02 PDF, reflects changes to law contained in the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on December 27, 2020.

The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.

Written by IRS | Posted in Deductible Expenses • Eligible Paycheck Protection Expenses • IRS Notice

12 Dec 2017

2017 Year-End Tax Savings Tips – Do Not Overlook

With the possibility that tax law changes could go into effect next year that would significantly reduce income tax rates for many businesses, 2017 may be an especially good year to accelerate deductible expenses. Why? Deductions save more tax when rates are higher.

Timing income and expenses can be a little more challenging for accrual-basis taxpayers than for cash-basis ones. But being an accrual-basis taxpayer also offers valuable year-end tax planning opportunities when it comes to deductions. Read More

Written by William Rogers | Posted in Tax Advice • Tax Tips