In a decision dated August 27, 2014, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit found that FedEx had a "right to control" the activities of 2,300 of its drivers. Normally, in the logistics and delivery business, this would not be exceptionally important news, except for the fact that FedEx has litigated this issue extensively in the past, and has gone to great lengths to devise an independent contractor based business model which would comply with California law.
When it's time to close a business in California, there are many important steps that must be followed to ensure the requirements of the IRS and the California tax agencies are met. Failing to do so can result in the tax agencies coming back years later to collect tax on income you may not have earned, or tax on workers you no longer employed. Different rules apply depending on the type of entity and whether there are shareholders, assets to distribute and employee benefit or retirement plans in place. In addition to filing final income tax returns, business owners should also be sure to file other applicable final tax returns including sales and use tax returns and employment tax returns. The IRS, California Franchise Tax Board, Board of Equalization and Employment Development Department each provide guidance on the steps to following when closing a business.
In Wade v. Commissioner, T.C. Memo. 2014-169, the Court found that the taxpayers, a husband and wife who owned stock in two S corporations, had materially participated in the activities the corporations, which finding enabled the taxpayers to take a loss deduction in excess of $3 million.
The California Franchise Tax Board announced that with the 0.5 percent increase in inflation over the last fiscal year, adjustments have also been made to income tax brackets, filing requirement thresholds, the standard deduction and certain credits for tax year 2014.
In her mid-year report, the Taxpayer Advocate identified top priorities as issuing refunds to victims of return preparer fraud, continuing to make improvements in the Exempt Organizations area and expanding the recently announced voluntary return preparer certification program to include competency testing.
Many people enjoy hobbies and even earn money as a result. That income is reportable and business related to the income may be deductible so long as the activity is not truly a hobby. The way the activity is treated is important in determining whether the government will recognize the activity as a business. The IRS will analyze whether the activity is conducted in a businesslike manner, whether the taxpayer intends to make a profit, the amount of profit, current employment, efforts to increase profit and the causes of losses, along with other criteria.
Recently the District Court for the Western District of Kentucky upheld the imposition of a penalty under I.R.C. sec. 6656(a), which provides a penalty in the case of any failure to deposit a tax payment on the due date unless that failure is due to reasonable cause and not due to willful neglect. Commonwealth Bank and Trust Company v. United States, Civ. No. 3:13-CV-01204-CRS (July 3, 2014). At first glance, the ruling may seem peculiar in that it upholds the imposition of a failure-to-deposit penalty even though the taxpayer made full, timely payments to the IRS. However, the Treasury Regulations require that taxpayers who deposit more than $200,000 in taxes must use electronic funds transfer (EFT) to make deposits of these taxes. Treas. Reg. sec. 31.6302-1(h)(2)(ii).
The IRS has revised its plan to revoke Individual Tax Identification Numbers (ITINs) after five years of issuance based on the response from taxpayers and their representatives. Instead, beginning in 2016, the IRS will only retire those ITINs which have not been used on a federal income tax return for five consecutive years. For more information, read the IRS Press Release.
The IRS has created a new form to help small charitable organizations obtain 501(c)(3) tax-status. Instead of filing the 26-page Form 102, qualified organizations may use the IRS' new form, 1023-EZ, to complete the application. An estimated 70 percent of organizations seeking tax-exempt status will qualify for the streamlined approach, if gross receipts are $50,000 or less and assets do not exceed $250,000. For more information, read the IRS Press Release.
Six years ago, the FTB endeavored to implement a tax system modernization project, Enterprise Data to Revenue(EDR),to update existing systems that would allow the FTB to use data more efficiently and automate manual processes. The project has already doubled its projected revenue and is 10 months ahead of schedule.