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Basis in Partnership Interest: Is your word good enough to support a loss deduction?

In Namen v. Commissioner[1], the taxpayer was a podiatrist in private practice. He was one of 6 members of an LLC that operated a surgical center, which closed in 2009. For federal income tax purposes, the LLC was treated as a partnership. The taxpayer claimed a loss on his personal 2009 income tax return from his interest in the LLC, but the IRS denied the deduction on the grounds that the taxpayer lacked inadequate basis in his partnership interest. The Tax Court provided this background: Section 704(d) limits the deductibility of a partner’s distributive share of partnership losses. Those losses are deductible only to the extent of the adjusted basis of a partner’s interest in the partnership. Id.; Sennett v. [...]

January 31st, 2017|

Form is Critical: IRS Cuts Down Broker’s FICA S Corp Planning

Takeaway: While S corporations can be an effective means to reduce FICA taxes, the form of the arrangement must be consistent with the taxpayer’s intended reporting position(s). The S corporation, not the S corporation’s employee-shareholder, must be in control of the receipt of income in order shift income from the shareholder’s personal income tax return to an S corporation. After the fact tax planning to shift income to an S corporation by utilizing Schedule C with “reported on” or nominally including income reported to the shareholder on Form 1099 but zeroing out the income out with a deduction or expense could easily fail if challenged by IRS. Background The taxpayer in Fleischer v. Commissioner[1] is a financial consultant, who develops investment portfolios for clients. The taxpayer [...]

January 24th, 2017|

Counting Travel Time for Real Estate Professional Test? Leyh v. Commissioner

Overview In Leyh v. Commissioner[1], the Tax Court held that the taxpayer’s time incurred while traveling from her home to rental properties to perform a variety of tasks with respect to 12 rental activities counted towards the test of whether the taxpayer was a real estate professional.[2] As a result, the taxpayer was considered a real estate professional, which excepted her rental activities from the per se passive activity treatment for rental activities of non-real estate professionals.[3] Give the relatively small number of cases on whether travel time can be counted for real estate professional test, Leyh is a favorable case for taxpayers and it provides some guidance on how taxpayers may be able to withstand similar IRS challenges.[4] Facts: Taxpayer’s Real Estate Related Activities [...]

May 23rd, 2015|

Bacon v. Commissioner: Beware, Forms 1099-C Are Not Always Accurate

Overview The Tax Court determined that the extinguishment of the taxpayer’s debt took place in a closed tax year, even though FEMA issued a 1099-C[1] in an open tax year. As a result, the Tax Court held that the IRS was barred by the statute of limitations from assessing the taxpayer for the federal income tax on cancellation of indebtedness income (“COD income”). Takeaway Determining the timing and amount, if any, of COD income can be a very complex analysis.[2] Institutions, including banks and federal agencies, issuing Form 1099-C do not always get the analysis right. As a result, if you receive a Form 1099-C, you should have a discussion with your tax adviser to make sure that the amount and timing of the COD [...]

March 11th, 2015|

DMA v. Brohl: US Supreme Court Holds In Favor of DMA

Overview On Tuesday March 3, 2015, the Supreme Court handed down a unanimous decision in favor of the Direct Marketing Association, (“DMA”) in DMA v. Brohl (575 U.S. ____ )(March 3, 2015) and remanded the case back to the Tenth Circuit for further consideration. Although the decision did not come as a surprise, dicta in Justice Kennedy’s concurring opinion called into question the Supreme Court’s 23-year old holding in Quill Corp. v. North Dakota. Takeaway The Supreme Court’s holding likely suggests that the Tax Injunction Act (“TIA”) is not a bar to federal jurisdiction for certain challenges to state’s pre-assessment, information-reporting statutes, even if challenge would inhibit state tax assessments. DMA v. Brohl Procedural Posture The DMA brought suit against the Colorado Department of Revenue [...]

March 10th, 2015|
  • Vacation Home

When is a Building Placed in Service: Stine LLC v. USA

Is it possible to begin depreciating a building before the building opens its doors to customers? Although it seems unintuitive, the answer is yes. In the case of Stine LLC v. USA [1], a Louisiana federal district court held that the taxpayer’s retail building had been “placed in service” despite the fact that the retail stores had not yet open for business.  As a result, the taxpayer’s buildings were judged to be “placed in service” prior to 12/31/2008 and the taxpayer could therefore claim a deduction for 50% “Go Zone” incentive depreciation.[2]  General rule Generally, assets are “placed in service” when asset is in a “condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the [...]

March 2nd, 2015|
  • Vacation Home

Tax Court Analyzes How to Count Travel Days for Purposes of Section 280A

Takeaway from Van Malssen v. Commissioner: In Van Malssen v. Commissioner, the Tax Court concluded that, for purposes of section 280A, travel days will only escape classification as personal use days if the principal purpose of the trip as a whole is to perform repairs and maintenance.[1] Overview of Facts in Van Malssen The taxpayers purchased a vacation condominium in South Carolina in 2007 and spent a significant amount of time from 2008 through 2010 remodeling and repairing the property. Since the vacation property was 350 miles from the taxpayers’ home, the taxpayers took a number of overnight trips to the vacation property. Some of the trips were exclusively business related (i.e., to repair and remodel the property). However, some of the trips were solely for personal [...]

November 22nd, 2014|

8th Circuit Reverses Tax Court and Holds CRP Payments Not Subject to SECA

On Friday October 10, 2014, the U.S. Court of Appeals for the 8th Circuit overturned the Tax Court’s decision in Morehouse v. Commissioner and held, in a two-to-one decision, that CRP payments made to non-farmers constitute rentals from real estate for purposes of § 1402(a)(1) and are excluded from the self-employment tax (“SECA”).[1] What is the CRP? Established in 1985 under the Regan Administration, the Conservation Reserve Program (CRP) is a voluntary conservation program for land that has been used for farming or ranching. The long-term goal of the program is to re-establish valuable land cover to help improve water quality, prevent soil erosion, and reduce loss of wildlife habitat. The CRP offers owners of environmentally sensitive land the option to enter into a 10 [...]

October 14th, 2014|