Trust as IRA Beneficiary

Heirs lost the ability to benefit from many years of tax free buildup of IRA value because the beneficiary designation was too vague. The IRA owner wrote “as stated in will” for his IRA beneficiary, intending the money to go into a trust. Specifically identifying the trust would have achieved the desired result.

Taxpayer Can Claim Home Tax Deductions Even if Not on Title or Loan

The tax court in the Njenge case recently validated something I’ve been telling clients for years: a taxpayer can deduct personal residence mortgage interest and property taxes even though loan and/or title to the home are in someone else’s name, under the right circumstances. The person who lived in the home, made the payments, and bore all benefits and burdens of ownership is treated as the “equitable owner” and can deduct the property tax and interest payments.

IRA Rollover 60-Day Period Waivers

IRS has issued Private Letter Rulings to allows IRA rollovers even though the 60-day period expired. The rulings covered cases of mistakes by financial institutions and financial advisors, and mental condition of taxpayer. PLR 200904030, PLR 200904027, PLR 200904028, PLR 200904032, PLR 200904034.

Late S-Corporation Election Allowed

IRS has again issued a Private Letter Ruling allowing a retroactive late S-corporation election when a corporation and its shareholders have reported income as if an S-Corporation election has been timely made, where reasonable cause was shown for failure to timely make the election. PLR 200904018.

Splitting Trust into 4 Separate Trusts Ruled Non-Taxable

In 3 Private Letter Rulings the IRS has recently ruled that splitting a trust into 4 separate trusts won't cause taxable gain or loss to any beneficiary, trust, or severed trust. The rulings addressed testamentary trusts and an irrevocable inter vivos trust. PLR 200904014, PLR 200904015, PLR 200904016.

S-Corporation Election Not Terminated by Convertible Debt

IRS privately ruled that an S-corporation that inadvertently created a second class of stock by issuing notes convertible into stock was allowed to continue as S-corporation as long as corrective adjustment were made.

Estate Credited for Additional Charity Deduction

Estate was given credit for additional charitable contributions for portion of settlement payments that were made to charitable beneficiaries and involved stock willed to non-charitable beneficiaries, who were alleged to have manipulated stock/stock's disposition so as to keep decedent from selling it and to preserve it for their benefit. (Estate Of Eugenia F. Williams, et al. v. Commissioner, (2009) TC Memo 2009-5)

"Luxury" Auto Tax Values 2009

IRS has released the 2009 maximum fair market values (FMVs) for employer-provided autos ($15,000), trucks and vans ($15,200) the personal use of which can be valued for fringe benefit purposes at the mileage allowance rate (55¢ per mile for 2009).

Employee vs. Independent Contractor: 1099-MISC or W-2?

Court case Peno Trucking: Appeals Court found that contracts that say workers aren’t employees can be disregarded in determining whether they are independent contractors. Instead, it is the degree of control that a company exerts over workers that determines whether they are employees or independent contractors. However, some exceptions may allow a company to still treat workers as independent contractors and avoid IRS penalties and back taxes.

S-Corporation Shareholder-Guaranteed Debt = No Basis to Deduct Losses

Tax court case Russell, TC Memo. 2008-246, reaffirms AGAIN that shareholder cannot deduct losses financed with debt in the name of the corporation. The S-corporation borrowed money from a bank and the shareholder guaranteed the debt. When the S-corporation incurred losses, the shareholder was not allowed to use the debt guarantee as basis to deduct the losses, which were suspended.

Non-Resident Partners or Shareholders?

S-Corporations, partnerships, and LLC’s: March 16, 2009 is the Franchise Tax Board deadline for first-time filers and remitters of nonwage withholding for nonresidents to apply under the FTB's 2008 Nonresident Withholding Incentive Program and avoid penalties. Can send in past-due 2008 withholding as additional compensation on behalf of the nonresident payee and pay interest by March 16, 2009 and the FTB will waive some failure-to-file penalties and will not audit withholding for tax year 2007 and earlier.

E-File Season Opens Tomorrow

IRS announced that 2009 e-filing season will open on 1/16.

Rental Owners Under-Reporting Income

Government Accountability Office estimates that 50% of rental property owners either underreported revenues or overstated expenses, costing the government $13 billion in lost tax collections in 2001. Look for reminder letters from the IRS on this issue – their weak attempt to increase collections.

S-Corporation Continues Despite Trustee’s Mistake

IRS privately ruled that an S-corporation election was not terminated in spite of trustee’s inadvertent failure to make ESBT (Electing Small Business Trust) election.

S-Corporation Continues Despite Beneficiary’s Failure

IRS ruled privately that an S-corporation could continue even though a trust beneficiary did not make the QSST (Qualified Subchapter S Trust) on time. When the case is effectively presented by a CPA, the IRS continues to allow S-corporations to continue despite technicalities that should cause termination of the S-elections.

California Limits NOL’s and Business Credits

For 2008 & 2009, California taxpayers with net business incomes of $500,000 or more cannot take a net operating loss (NOL) deduction and their use of business credits is limited to 50% of their tax liability. Common credits involved include the Research and Development Credit, Low Income Housing Credit, and Enterprise Zone Credit, and credits not allowed are carried over to future years.

IRS Tax Per Diem Meals & Travel Deductions

Effective Oct. 1, 2008. Reimbursements of an employee's business travel costs (lodging, meal and incidental expenses (M&IE)) at a per diem rate are payroll-and income-tax free if simplified substantiation is provided and the daily rate doesn't exceed the federal per diem rate (the maximum amount that the federal government reimburses its employees) for the locality of travel for that day. While the per diem rates vary by travel destination, employers can make reimbursements at the simplified “high-low” per diem rates, which assign one per diem rate to high-cost areas within the continental U.S., and another to non-high-cost areas. The IRS has issued the “high-low” simplified per diem rates for post-Sept. 30, 2008, travel. An employer may reimburse up to $256 for high-cost localities ($198 for lodging and $58 for M&IE) and $158 for other localities ($113 for lodging and $45 for M&IE). The list of high-cost areas is also updated.

Standard mileage rates down for 2009

The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 55¢ per mile for business travel after 2008. That's 3.5¢ less than the 58.5¢ allowance for business mileage that applied in the last six months of 2008. Further, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 24¢ per mile, down 3¢ from the 27¢ per mile allowance for the last half of 2008.

Late Election to Treat All Rental Properties as Single Activity for Material Participation / Loss Deductions

Married taxpayers who acted reasonably in good faith allowed by IRS in Private Letter Ruling to make a late election to treat all their interests in rental real estate as single rental real estate activity, allowing them to meet active participation requirement to deduct losses. – San Diego CPA Michael Fitzsimmons

60-Day IRA Rollover Extended

IRS waived 60-day rollover requirement for failure to roll over funds within 60 days because medical condition impacted taxpayer’s ability to manage his financial affairs. – San Diego CPA Michael Fitzsimmons

Alzheimer’s Patient Guardianship Deductible

IRS has ruled that the costs of establishing a guardianship for an Alzheimer’s patient are deductible medical expenses. [2008-0033]

Energy Efficient Home Improvements Tax Credit

Effective for 2009 (but NOT 2008) Congress reinstated a tax credit for energy efficient home improvements and expanded the credit to cover biomass fuel stoves (whatever those are!). – San Diego CPA Michael Fitzsimmons