Tag Archive for Harold Goedde

At Least You Still Have Your Identity

Crime identity hackingWhen something goes wrong, people euphemistically say, “At least you have your health.” The AICPA wants to change that to: “At least you have your identity.” The Institute is hearing from more and more members with tax-related identity theft stories that make this author’s toes curl. One member recently told about how his client sent him an IRS notice the client had received during the third week of April. The notice indicated the amount of the refund shown on the client’s Form 1040 was being adjusted upward because the return showed only the amount of W-2 withholding but failed to claim the quarterly estimated tax payments that had been made. Normally, that would be great news and government efficiency at its best; however, there was a problem. The CPA had actually filed an extension for the client on April 15. And no, the client had not filed the return, so you should know where this story is going.

Tax-related identity theft has become a huge and growing problem in this country. The IRS Advisory Council (IRSAC) serves as an advisory body to the IRS commissioner. IRSAC’s purpose is to provide an organized public forum for IRS officials and representatives of the public to discuss relevant tax administration issues. In its 2012 Public Report, IRSAC indicated that from 2008 through the middle of 2012, the IRS had identified more than 600,000 taxpayers who had been affected by identity theft. With respect to these taxpayers, during 2011 the IRS prevented $1.4 billion in refunds from being erroneously sent to identity thieves. Through mid-April 2012, the IRS had stopped more than 325,000 questionable returns with $1.75 billion in claimed refunds by using filters specifically targeting refund fraud. Read More

Written by | Posted in Individual • IRS

Exemptions On The Federal Tax Return

1040 tapeTwo types of exemptions are allowed – personal and dependents. There are special situations for a noncustodial parent of divorced or separated parents to claim a dependent and situations where several persons may contribute to the support of another person.

Personal Exemptions

These are for the taxpayer(s) filing the return – one for single, head of household, and married filing separate, and two for married filing joint. Each personal exemption is $3,900 for 2013 ($3,950 for 2014).

Dependents Exemptions

Tax payers are allowed one exemption for each dependent who must at some time during the year, qualify as a:

(a) Citizen of the U.S.

(b) U.S. national who has permanent allegiance to the U.S.-one born in American Samoa or the Northern Mariana Islands who has not become a naturalized American citizen. Read More

Written by | Posted in Federal • Income Tax • Tax Deductions

Self-Directed IRAs: A Tax Compliance “Black Hole” – Part II

Taxconnections Picture - Money Down the DrainPart II is a continuation from yesterday’s October 14, 2013 post.  See Part I HERE.

Nontraditional investments favored by many self-directed IRAs can lead to unexpected taxation of unaware IRA account holders.

Example 2: IRA-Owned LLC Invests in Real Estate Partnership

Setup. Mark, a retired airline pilot with $1.5 million in his 401(k) account, was afraid of another stock market meltdown and viewed real estate investments as a safer alternative and a diversification technique for his retirement savings. After learning about SDIRAs from a friend, he did some preliminary research online. Mark quickly found numerous IRA custodians and companies that promoted “checkbook control IRAs” (i.e., the SDIRA/LLC concept discussed above) and decided that the lower annual custodian fees and overall control made the SDIRA/LLC the best option for him.

Mark executed a partial rollover of his 401(k) account into his new SDIRA. Subsequently, the SDIRA invested all but $300 into a newly formed LLC, thus creating an SDIRA/LLC structure (it is typical to leave the smallest amount of cash in the IRA as possible). From there, the IRA custodian had very little involvement because all of the investments were made at the LLC level, with Mark facilitating transactions as the LLC’s sole manager.

Investment. Mark’s goal for his SDIRA/LLC was to invest in residential rental real estate, either directly out of the LLC or through a “project LLC” (i.e., a partnership) with other investors. Mark found a real estate investment group that frequently Read More

Written by | Posted in United States

Self-Directed IRAs: A Tax Compliance “Black Hole”

Taxconnections Picture - Money Down the DrainNontraditional investments favored by many self-directed IRAs can lead to unexpected taxation of unaware IRA account holders.

The appeal of investing retirement funds outside of the typical securities market has driven a surge in the use of self-directed IRA (SDIRA) investment structures. These structures come in various forms, but they all start when an IRA account holder forms an SDIRA with a custodian (e.g., a bank or trust company) that is amenable to holding “nontraditional” types of investments. In other words, the feature that makes an IRA “self-directed” is not its general legal framework, but rather the fact that the SDIRA’s custodian permits a wide array of investments and maximum control by the account holder.

Investments within SDIRAs frequently include real estate, closely held business entities, and private loans and can include any other investment that is not specifically prohibited by federal law—anything other than life insurance and collectibles can be held in an SDIRA. The SDIRA itself can be structured as a self-employed plan (SEP), a savings incentive match plan for employees (SIMPLE), or a traditional or Roth IRA, and is normally funded by a transfer from an account holder’s other IRA or a rollover from a qualified retirement account (e.g., a 401(k)). However, one common theme is that the IRA account holder wants to diversify away from 100% stock market-based investments and/or believes that better investment returns exist outside the securities market. Read More

Written by | Posted in Individual • IRS • United States

Married Same-Sex Couples – FICA Guidance – Part II

TaxConnections Blog Post - Additional Guidance on Federal Tax Laws for Same-sex couplesGeneral Conditions for Relief

Eligibility for equitable relief. A requesting spouse must satisfy all of the following threshold conditions to be eligible to submit a request for equitable relief under Section 6015(f). With the exception of conditions (1) and (2), a requesting spouse must satisfy all of the following threshold conditions to be eligible to submit a request for equitable relief under Section 66(c). The Service may relieve a requesting spouse who satisfies all the applicable threshold conditions set forth below of all or part of the income tax liability under Section 66(c) or Section 6015(f) if, taking into account all the facts and circumstances, the Service determines that it would be inequitable to hold the requesting spouse liable for the income tax liability. The threshold conditions are as follows:

(1) The requesting spouse filed a joint return for the taxable year for which he or she seeks relief.

(2) Relief is not available to the requesting spouse under Section 6015(b) or (c).

(3) The claim for relief is timely filed:

(a) If the requesting spouse is applying for relief from a liability or a portion of a liability that remains unpaid, the request for relief must be made on or before the CSE). The CSED is the date the period of limitation on collection of the income tax liability expires, as provided in Section 6502. Generally, that period expires 10 years after the assessment of tax, but it may be extended by other provisions of the IRC. Read More

Written by | Posted in United States

Married Same-Sex Couples – FICA Guidance – Part I

TaxConnections Blog Post - Additional Guidance on Federal Tax Laws for Same-sex couplesPurpose

This revenue procedure adopts the procedures detailed in Notice 2012-8 and under Section 66(c) or Section 6015(f) of the IRC [IRC{(a “requesting spouse”). It applies to spouses requesting relief from a jointly filed tax return with an income tax liability as well as spouses who live in community property states who have an income tax liability, regardless of the filing status used. Section 4.01 of this revenue procedure provides the threshold requirements for any request for equitable relief. Section 4.02 of this revenue procedure sets forth the conditions under which the Internal Revenue Service will make streamlined relief determinations granting equitable relief under Section 6015(f) from an understatement of income tax or an underpayment of income tax reported on a joint return, or the operation of community property law under Section 66(c). Section 4.03 of this revenue procedure provides a nonexclusive list of factors for consideration in determining whether relief should be granted under Section 6015(f) because it would be inequitable to hold a requesting spouse jointly and severally liable when the conditions of Section 4.02 are not met. The factors in Section 4.03 also will apply in determining whether to relieve a spouse from income tax liability resulting from the operation of community property law under the equitable relief provision of Section 66(c).

Scope

This revenue procedure applies to spouses who request either equitable relief from joint and several liability under Section 6015(f), or equitable relief under Section 66(c) from income tax liability resulting from the operation of community property law. Read More

Written by | Posted in Federal • United States

Claims for Refunds for Same-Sex Spouses – Part 3

TaxConnections Blogger Harold Goedde posts taxes and same sex spousesSpecial Administrative Procedure for Adjustments or Claims for Refund for Years Before 2013

The IRS is also providing a special administrative procedure for employers to make adjustments or claims for refund or credit of overpayments of FICA taxes paid with respect to same-sex spouse benefits for any year before 2013 for which the applicable period of limitations on credit or refund has not expired. Under this procedure, the employer must take into account the applicable social security wage base in determining the overpayment of FICA taxes for the prior year being corrected. The employer may file one Form 941-X for the fourth quarter of the prior year. This fourth quarter Form 941-X would include the adjustments or refunds for all overpayments of employment taxes with respect to same-sex spouse benefits provided during such prior year, including overpayments reflected in the Forms 941 for the first three quarters of the year. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of Form 941-X. Only corrections made under this special administrative procedure may be shown on this Form 941-X. Although the employer may file for all four quarters of a prior year on the fourth quarter Form 941-X, this special administrative procedure is subject to the usual requirements that apply in the case of corrections of overpayments for prior years, including the filing of Forms W-2c, repaying or reimbursing employees for the overwithheld taxes, and obtaining the required written statements (and consents if applicable) from employees. An employer may not make an adjustment for an overpayment of income tax withholding for a prior calendar year unless the overpayment is attributable to an administrative error. An employer may not claim a refund or credit for an overpayment of Read More

Written by | Posted in TaxConnections

Claims for Refunds for Same-Sex Spouses – Part 2

TaxConnections Blogger Harold Goedde posts taxes and same sex spousesAdministrative Procedures for Adjustments for 2013 on Fourth Quarter 2013 Form 941 or Fourth Quarter 2013 Form 941-X

The IRS is providing two alternative special administrative procedures for employers that treated the value of same-sex spouse benefits as wages on Forms 941 for the first three quarters of 2013 and that seek to correct overpayments of employment taxes attributable to the benefits.

First alternative: an employer must repay or reimburse its employees for the amount of the over collected FICA tax and the overcollected income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013. After repaying or reimbursing the employees, the employer, in reporting amounts on its fourth quarter 2013 Form 941, may reduce the fourth quarter wages, tips, and other compensation reported on line 2, taxable social security wages reported on line 5a (subject to the wage base limitation discussed below), and taxable Medicare wages and tips reported on line 5c, by the amount of the same-sex spouse benefits treated as wages for the first three quarters of 2013. Also, the income tax withheld from wages, tips, and other compensation reported on line 3 of Form 941 should be reduced by the amount of income tax withholding with respect to 2 The same procedures are available to filers of Form 941-SS, Employer’s Quarterly Federal Tax Return (American Samoa, Guam, the Commonwealth of Northern Mariana Islands, and the U.S. VirginIslands), Form 941-PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono, and Form CT-2, Read More

Written by | Posted in TaxConnections

Claims for Refunds for Same-Sex Spouses – Part 1

TaxConnections Blogger Harold Goedde posts taxes and same sex spousesThe IRS recently issued Notice 2013-61 regarding the application of the Windsor decision and Rev. Rul. 2013-17 to Employment Taxes and Special Administrative Procedures for Employers to Make Adjustments or Claims for Refund or Credits or adjustments (referred to in this notice as corrections) of overpayments of Federal Insurance Contributions Act (FICA) taxes and Federal income tax withholding (employment taxes) with respect to certain benefits provided to same-sex spouses and remuneration paid to same-sex spouses resulting from the United States Supreme Court decision in United States v. Windsor, 570 U.S. 133 S.Ct. 2675 (2013) and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201.

To reduce filing and reporting burdens associated with the optional retroactive application of the holdings of Rev. Rul. 2013-17, the IRS is providing special administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior years with respect to certain same-sex spouse benefits and certain remuneration paid to same-sex spouses, including overpayments that result from a taxpayer’s retroactive application of the holdings of Rev. Rul. 2013-17. With respect to these overpayments for 2013, this notice provides two alternativespecial administrative procedures. The special administrative procedures provided in this notice are optional. Employers that prefer to use the regular procedures for correcting employment tax overpayments related to same-sex spouse benefits and remuneration paid to same-sex spouses, instead of the special administrative procedures, may do so. Read More

Written by | Posted in Corporate • Federal • IRS • Tax Policy • United States

Regulations Bring Clarity to Treatment of Tangible Property Expenses

TaxConnections Blog Post - Harold Goedde about Tangible Property RegulationsWhile many of us were working long hours in mid-September to wrap up the 2012 tax filings for our clients, the IRS was busy as well. On September 13, 2013, the IRS issued the final, revised tangible property regulations TD 9636. In doing so, the taxing authorities have provided clarity for taxpayers in many areas surrounding the treatment of capital expenditures.

These regulations govern the treatment of expenditures incurred in acquiring, producing, or improving tangible assets, including rules on determining whether costs related to tangible property are deductible repairs or capital improvements. The regulations have broad application – they affect all taxpayers that acquire, produce, or improve tangible property.

History

By issuing these regulations, the IRS has sought to resolve the capitalization vs. expense conundrum that has befuddled taxpayers for years. These regulations have followed a tortuous path—the original proposed regulations from 2006 were withdrawn in 2008 after receiving a negative reception, and new proposed regulations were issued. Then in 2011 the 2008 proposed regulations were withdrawn and new regulations were issued in temporary and proposed forms. Those regulations were originally intended to be effective in 2012, but the difficulty of adopting the Read More

Written by | Posted in Corporate • Federal • IRS • Property Tax • United States

CPAs Can Help Clients Stave Off IRS Scrutiny

TaxConnections Blogger Harold Goedde posts CPAs Help ClientsPreventing A Challenge To (Un)Reasonable Compensation- CPAs Can Help Clients Stave Off IRS Scrutiny With A Little Foresight

As the IRS increases scrutiny of executive compensation, CPAs need to proactively advise their clients on how to withstand these inquiries. As a result of IRS training initiatives, three types of entities draw the most attention and therefore need good advice from CPAs.

(1) closely-held C corporations are examined to determine whether they have overpaid their shareholder-employees. These corporations are allowed to deduct only “reasonable” compensation paid to shareholder-employees. So, examiners are looking for a disguised dividend, which is corporate profit being treated as compensation. Since a dividend is not deductible, but compensation is, the IRS may treat the portion of the compensation that it considers excessive as a dividend. The result is that the corporation loses its deduction for that amount and is assessed tax, interest, and penalties on the resulting increase in income.

(2) S corporations are audited to determine whether they have underpaid their shareholder-employees. These shareholders may have set their own pay levels unreasonably low and simultaneously increased their profit distributions. Since compensation is subject to payroll taxes, but distributions are not, some tax savings can Read More

Written by | Posted in Corporate • Federal • IRS • United States

Tax Provisions Of The 2012 American Health Care Act – Part 3

TaxConnections Blogger Harold Goedde posts about the affordable care actThis article will discuss the tax provisions enacted as part of the Act and its implications and hardships that will be created for businesses and individuals.

Penalties (Taxes) on Large Businesses

Under the ACT, starting January 1, 2015 (this provision was to start January 1, 2014 but was postponed by President Obama), large businesses (employing 50 or more) are required to purchase health coverage for all full-time employees (more than 30 hours per week or, if the employer elects, at least 130 hours of service per month) [Prop. Regs. Sec 54.4980H-(a)(18)]. The 50 employee requirement is determined by the sum of all full-time employees and full-time equivalents for each calendar month in the preceding year, divided by 12. If the result is 50 or more, the employer is a large employer for the calendar year unless a seasonal worker exception applies. [Sec. 498H(c)(2)]. If employees are paid by the hour, actual hours of service are used. For non-hourly employees, the employer must count actual hours or apply an equivalent of eight hours daily or 40 hours per week, provided the method used does not substantially understate the employees hours of service that would cause the employees not to be treated as full time [Prop. Regs. Sec 54.4980H-(3)(b)]. To determine the 30 hours per week requirement, individually, but, in combination, are counted as full-time solely to determine if an employer is a large employer. The number of full-time employees is determined by calculating the average number of monthly hours of service by all employees who worked less than full-time (capped at 130 hours for any single employee) divided by 12 [Prop. Regs. Sec 54.4980H-(2)(c)] . The employer is considered to offer health care coverage to full-time employees and their dependents for a calendar month if, for that month, it offers such coverage to at least 95% of its full-time employees and their dependents [Prop. Regs. Sec 54.4980H-(4)(a)]. The previous information was taken from “Prop. Regs. Clarify ‘Play or Pay’ Rules of the Affordable Care Act”, The Tax Adviser, May 2013. Read More

Written by | Posted in Corporate • Federal • Individual • IRS • United States
« Older Entries   Recent Entries »