On Wednesday, December 4, the Franchise Tax Board followed the IRS's lead in announcing that it will not impose a tax penalty on taxpayers who sell their home for less than is owed, commonly referred to as a "short sale". The determination means California taxpayers will not have to claim income on the difference between the amount owed on a home and the sale price (the amount of debt forgiven by the approval of the sale) on their 2013 state or federal income tax returns. For more information, see the statement by the California Association of Realtors posted by Reuters news here http://www.reuters.com/article/2013/12/04/ca-assoc-realtor-irs-ftb-idUSnBw046476a+100+BSW20131204
Today the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions to draw attention to two lists of jurisdictions that were recently updated by the Financial Action Task Force (FATF).
On Monday, December 2, the United States Supreme Court declined to hear a case that could have answered long-standing questions about a state's right to collect sales tax from internet retailers who do not have a physical presence in the state. Amazon and Overstock.com joined forces to challenge a New York state law that requires online retailers to collect the sales tax. The lawsuit claims the New York law is not constitutional because it violates the Commerce Clause, which limits the states' power to regulate interstate commerce.
In addition to achieving philanthropic goals, many people make charitable donations at the end of the year in order to maximize income tax benefits. To make sure your charitable donation accomplishes both charitable and tax-savings benefits, here are few considerations to keep in mind as you make your year-end donations:
Yesterday the Supreme Court held that the 40% gross valuation misstatement penalty under I.R.C. § 6662(h) is applicable in cases where the IRS determines that a partnership is a sham or lacks economic substance. United States v. Woods, No. 12-562 (U.S. Dec. 3, 2013). The Court's opinion in Woods provides two main holdings: (1) that the District Court had jurisdiction under TEFRA to determine whether the partnerships' lack of economic substance could justify the application of a valuation misstatement penalty on the partners; and (2) that the gross valuation misstatement penalty applied to the disallowed partnership losses.
Yesterday the Tax Court issued an opinion in Senyszyn v. Commissioner, T.C. Memo. 2013-274, finding in favor of the IRS on summary judgment that a former revenue agent was liable for a fraud penalty and that the statute of limitations on assessment remained open. However, the Court denied the IRS's motion for summary judgment as to the amount of the taxpayer's deficiency because that amount was not a necessary element of the judgment in the prior criminal proceeding.
Earlier this week the U.S. Tax Court issued a court-reviewed opinion finding that the IRS has been improperly calculating accuracy-related penalties in certain cases involving refundable credits (i.e., the earned income credit, the additional child tax credit, and the recovery rebate credit). Rand v. Commissioner, 141 T.C. No. 12.
In Rand, the taxpayers reported wage and self-employment income in the total amount of $18,148, which income was reduced to zero by way of the standard deduction and personal exemption deduction. This resulted in zero taxable income and zero tax on line 44 of the taxpayers' Form 1040 (U.S. Individual Income Tax Return), leaving the taxpayers with a small self-employment tax of $144. The taxpayers reduced the self-employment tax with the earned income credit, the additional child tax credit, and the recovery rebate credit, and received a refund of $7,327.
In its 2013 annual report, the IRS Advisory Council has made several recommendations which would be favorable to taxpayers. The Council recommends an expansion of voluntary correction programs for taxpayers who self-report problems from prior years as well as changes to allow practitioners to assist clients more quickly with faster processing of Forms 2848 and a review of the transcript request policy.
One IRS official has indicated that the focus of tax audits concerning small businesses may shift from corporations to varying types of partnerships. This is in part because partnerships have grown in number and have also become more complex.
The concern regarding partnerships may be in part the pass-through status when it comes to taxation. By pass-through, we mean that the individuals owning the partnership are taxed rather than the business itself. The IRS official admitted that the agency was "a little bit behind the curve in getting around to developing a partnership strategy."
The U.S. Department of the Treasury has announced that the United States has signed an intergovernmental agreement (IGA) with France to implement the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010, FATCA aims to curtail offshore tax evasion by facilitating the exchange of tax information.