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文章基本信息

  • 标题:Federal tax update
  • 作者:De Jong, David S
  • 期刊名称:The Attorney-CPA
  • 印刷版ISSN:0571-8279
  • 出版年度:1999
  • 卷号:1999
  • 出版社:American Association of Attorney-Certified Public Accountants, Inc.

Federal tax update

De Jong, David S

Statutes

HR1180, the Ticket to Work and Work Incentives Improvement Act of 1999, extended through 2001 the offset of alternative minimum tax by personal tax credits, the employer-paid education exclusion and the credit for first-time home buyers in the District of Columbia; the law also changes the required individual protective estimate based on prior year liability for individuals with adjusted gross income in excess of $150,000 to 108.6 percent in 2000 and 110 percent in 2001.

Regulations

Final Regulations Under Section 453 follow the lead of prior Proposed Regulations and require 25 percent capital gain to be taken into account before any 20 percent capital gain in the case of installment sales; a pro rata method may be utilized for payments received before August 24, 1999.

Proposed Regulations Under Section 6212 adopt the Tax Court view of a taxpayer's "last known address" as the address appearing on the most recently filed tax return unless the IRS has been given "clear and concise" notification of a different address whereupon IRS must act diligently to make the change; notification of an address change may come by filing Form 8822, by filing correspondence with complete information or by correcting address information on correspondence generated by IRS.

Cases

In Kikalos v. Commissioner, the Seventh Circuit Court of Appeals reversed the Tax Court and agreed with the Fourth, Sixth, Eighth and Ninth Circuits that interest paid on a tax deficiency is always personal in nature; with a Texas Federal District Court in Davis v. United States in line, the Tax Court is the only forum remaining in disagreement.

In Gouhari v. United States, the Fourth Circuit Court of Appeals agreed with a Maryland Federal District Court that Iranian confiscation losses were not deductible by American legatees who in 1987 inherited property interests in Iran; the Court determined that the loss by the father of use and enjoyment of the property in 1980 controlled and not the formal confiscation in 1991 which could not be considered a taking of investment property of the legatees.

In Fransen v. United States, the Fifth Circuit Court of Appeals agreed with a Louisiana District Court that the regulation recharacterizing income from self-rented property as non-passive is valid; the Tax Court is ift accord.

In Sleiman v. Commissioner, the Eleventh Circuit Court of Appeals reiterated the validity of its 1985 decision holding that shareholders may get basis from their guarantees of corporate loans where the lender looks to the shareholder as the primary obligor but on the facts reached a decision in favor of the IRS; the Fourth, Sixth and Tenth Circuits deny basis in the absence of direct shareholder loans.

In 303 West 42nd Street Enterprises, Inc. v. United States, the Second Circuit Court of Appeals reversed a New York Federal District Court and determined that erotic dancers need not be treated as employees based on Section 530 relief in that a significant segment of the industry treats these dancers as independent contractors.

In Mitchell v. Commissioner, the Tax Court determined that the statute denying a deduction for travel expenses associated with indefinite employment (that which is likely to exceed or actually exceeds one year) does not apply where out-of-town work assignments exceed one year but are intermittent and the taxpayer does other work at his tax home during these intermittent periods.

In Exacto Spring Corporation v. Commissioner, the Seventh Circuit Court of Appeals reversed the Tax Court and found that an average salary of $1.15 million paid to its 55 percent owner was reasonable; the Court noted that the other major shareholders approved the compensation and were still receiving an above average rate of return.

In Law Offices-Richard Ashare, P.C. v. Commissioner, the Tax Court determined that a professional corporation's payment of $1.75 million to its sole shareholder was deductible as reasonable compensation when consistent with prior years' compensation even though it was funded by a loan; the purpose of the loan was to create an expense and to cause a net operating loss carryback.

In East Wind Industries v. United States, the Third Circuit Court of Appeals reversed a New Jersey Federal District Court and found that the company had reasonable cause for the non-payment of payroll taxes when it had refused to pay bribes to several U.S. defense agencies in order to receive payment on successfully performed contracts and goods delivered and accepted.

In Steeger v. Commissioner, the Tax Court determined that a retiring attorney may deduct the entire cost of a malpractice insurance "tail" without any requirement of capitalization.

In Pelton & Gunther v. Commissioner, the Tax Court determined that, while a law firm may not ordinarily deduct cost advances but must treat them as client loans, correction in the handling of costs is not a change in accounting method inasmuch as outlays are never deductible and reimbursements are never includable in income (the result being that prior year errors escape taxation in the absence of an IRS audit or an amended return).

In Holmes v. Commissioner, the Sixth Circuit Court of Appeals disagreed with the Tax Court and allowed taxpayers with farm losses from the property on which they lived to deduct these losses; the Sixth Circuit determined that their "sloppy" records were no worse than those kept by other farmers and that their continuing activities despite losses showed "commercial tenacity."

In Estate of Shackleford v. United States, a California Federal District Court determined that the proper estate tax value on 17 remaining annual lottery payments of $508,000 each (a total of $8.636 million to be received) was $2,012,500; the Court rejected the IRS number of twice that amount obtained by the annuity tables inasmuch as the lottery winnings were absolutely illiquid.

In Mira v. United States, a Pennsylvania Bankruptcy Court agreed with IRS that a Court has no review authority over equitable innocent spouse relief, the "catch-all" of the three methods of avoiding liability when a joint return has been signed.

In Lee v. Commissioner, the Tax Court determined that IRS was within its discretion in failure to abate interest on a deficiency arising from a 1980 Federal income tax return when the Notice of Deficiency was issued in 1984 but the case was not settled until 1995 pursuant to a Settlement Agreement.

In Baral v. United States, the U.S. Supreme Court agreed to hear the issue of whether a remittance with an automatic extension is always a tax payment subject to the statute of limitations; the Second, Sixth, Ninth, Tenth, Eleventh and District of Columbia Circuits consider the remittances to be payments subject to the statute of limitations; the Fifth and Eighth Circuits consider the remittances to be deposits not subject to the statute while the Third and Federal Circuits as well as the Tax Court use a "facts and circumstances" test.

Revenue Rulings, Procedures and Notices

In Notice 99-50, IRS announced a proposed revenue procedure that, when finalized, would prohibit ex parte communications between Appeals Officers and the originating office except to ask general or clarifying questions which do not address the strengths and weaknesses of the issues.

In Notice 99-53, IRS postponed by one year the January 1, 2000 effective date on the required reporting of all payments to attorneys and law firms irrespective of amount by payors engaged in business.

In Announcement 99-82, IRS determined that furnishings and appliances used in residential rental real estate should be depreciated over five years rather than seven years effective for property placed in service in 1999.

Letter Rulings

In Service Center Advice 199929036, IRS determined that the filing of an S corporation return by a C corporation, or vice versa, constitutes the "filing of a return", not permitting IRS preparation of an "original" return.

In Legal Memorandum 199930013, IRS indicated that it could not directly levy on the assets of a oneperson limited liability company for its owner's tax debt unless it "pierced the entity's veil" although it could levy on the owner's interest in the LLC.

In Letter Ruling 199933001, IRS determined that an estate beneficiary not estopped by previous actions or statements may seek to overcome the presumptive value shown on an estate tax return by claiming a basis in inherited property higher than that shown on the estate tax return.

In Legal Memorandum 199936041, IRS determined that it may make an early retirement election for a vested plan participant where the participant had an immediate right to make the election; thereupon, it could levy on the plan interest.

David S. De Jong

Stein Sperling Bennett De Jong et al Rockville, MD

Copyright American Association of Attorney-Certified Public Accountants 1999
Provided by ProQuest Information and Learning Company. All rights Reserved

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