On October 23, 2014, U.S. District Court Judge Reggie Walton dismissed two lawsuits against the Internal Revenue Service (IRS). True the Vote, an offshoot of the Tea Party-Affiliated King Street Patriots, sued the IRS claiming the IRS targeted conservative tax-exempt groups by providing greater scrutiny to their applications for tax-exempt status and delaying approval of tax-exempt status. The Court did not rule on the merits of the lawsuit, but stated "unless an actual, ongoing controversy exists in this case, this court is without power to decide it." Since the IRS is no longer screening tax-exempt applications based on political leanings, the governmental conduct is no longer an impact on the plaintiffs in the case. True the Vote received its tax exempt status from the IRS after the lawsuit was filed, and sot its complaint is now moot. Click here to read the full opinion.
Aside from prurient interest in a celebrity's estate plan, there is often a lesson to be learned in the structure of the estate plan of the wealthy. The passing of fashion icon Oscar de la Renta on October 20, 2014 is a reminder for all business owners, no matter how large or small the company, to put a succession plan in place to insure the ongoing success of the business.
Oscar de la Renta founded a fashion empire 50 years ago. He often joked that he would never retire and worked up until his death. By all accounts, the long term success of Oscar de la Renta LLC was Mr. de la Renta's creative design work and his personal relationships with clients. Many would describe the privately held LLC as a "one-man show". A week before his death, Mr. de la Renta named a creative director to take over for him and lead the continued development of the company's iconic designs. This last minute appointment raises concerns for the company, as well as the heirs with an interest in the company, whether the new creative director can continue the legacy started by Mr. de la Renta.
Beginning in 2015, any business entity that files an original or amended tax return prepared by using a tax preparation software program will have to file electronically (e-file) with the FTB beginning January 1, 2015. A waiver may be obtained from the FTB if the business has certain technology constraints, would suffer undue financial burden by complying with the new law or can show circumstances that constitute reasonable cause to obtain a waiver. For more information, visit the FTB's website.
If you exchange real property after January 1, 2014 in California, you are now required to file Form 3840 each year to track your deferred gains and provide other information concerning any non-California replacement property. The new form will be available on the FTB's website in a few weeks to allow for public comment. The new form must be filed not only in the year the exchange is compete, but each year the gain or loss is deferred. A failure to file the form may result in a Notice of Proposed Assessment adjusting the taxpayer's income for the previously deferred gains.
Owners of Canadian retirement plans received good news today when the IRS announced that taxpayers with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) will now automatically qualify for tax deferral similar to that available to participants in IRAs and 401(k) plans in the U.S. To qualify, U.S. citizens and resident aliens can receive this treatment so long as they did file and continue to file, income tax returns in the U.S reporting distributions as income. Form 8891 will no longer be required by taxpayers, and retroactive relief is available for qualified taxpayers as well.
Today the IRS issued a fraud alert to foreign financial institutions warning them that scam artists posing as IRS agents may call to request client and account information allegedly as part of the Foreign Account Tax Compliance Act (FATCA) requirements. The IRS reminds the financial institutions that the IRS never calls requesting information on a specific account or accountholder.
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.