Thursday, July 18, 2013

Tax Court Rules One Taxpayer's Activity Was Too 'Passive'

The U.S. Tax Court held on July 16th that taxpayer Guillermo Merino Jr. did not qualify as a real estate professional because of his lack of involvement with his properties. Merino was trying to claim losses on seven of his out-of-state properties located in Colorado and Nevada. Because he used a management company to perform all of the tasks associated with the Colorado property it was subject to the passive activity limitation under tax code Section 469. Merino also hired an assistant to handle the tasks associated with his six other properties in Nevada. As such, the Tax Court classified his lack of activity and involvement with each property as passive as defined in the tax code. It was Merino's burden to prove that he spent at least 750 hours during the 2007 tax year performing services in relation to his properties. It was also necessary to establish that these services accounted for over half the time he spent performing services in any trade or business. Because of his outsourcing in regards to managing the properties, collecting rent, etc., the Court held that Guillermo did not qualify as a real estate professional. Word to the wise: make sure you are putting in your allotted 750 hours!

Wednesday, July 10, 2013

Using the Words "Ponzi Scheme"

The words "ponzi scheme" are words that cannot be said loosely without thought. The consequences of calling a business or entity a ponzi scheme should be carefully considered first. Attorney Kathy Bazoian Phelps co-author of the book, "The Ponzi Book" explains that depending on certain contributing factors to how the words are said, some can get away with it and some cannot. In Phelp's blog post linked below she describes two separate cases that involved the words ponzi scheme being used by two different government agencies. In SEC v. Small Business Capital Corp. Mark Feathers for SBCC claimed that the SEC violated his First Amendment rights by using fighting words such as "ponzi-like". The court denied his motion saying that the words do not "...inflict injury or tend to incite an immediate breach of the peace." In the Emerging Money Corp. v. United States, EMC claimed that the IRS contacted EMC's clients and told them that their business is a "ponzi scheme" and that they were involved in "sham transactions". The IRS was found in the wrong for for their assertion that EMC's program was a ponzi scheme. Check out Phelps blog below for more information.

Friday, May 17, 2013

IRS Tax Exempt Application Scandal

The IRS has been under a lot of fire recently due to how they handled certain tax exempt applications from advocacy groups such as the tea party groups. This is all said to have happened between 2010 and 2012 and the IRS claims they were separating and organizing 501(c)(4) applications to produce a better work flow. The applications that had the most difficult time were the ones containing "tea party" or "patriot" in their names. Some applicants were asked questions that were not customary and inappropriate, their applications fell through the cracks, or they received a much longer response time than other applicants.  Despite the IRS' opposite counterclaim of not selecting and organizing the applications in a political or partisan rationale, the head of Exempt Organizations at the IRS has made a public apology. The IRS says they fixed the situation last year and have adopted new procedures to prevent such thing from happening again. Since this situation has been uncovered it has not been handled lightly, the head of the IRS, Steven Miller was forced to resign on May 15th and today marks the first hearing of a series of Congressional Hearings on the IRS scandal. Stay tuned for news and updates as we follow the hearings. 

Thursday, May 9, 2013

IRS Feeling the Effects from Government Budget Cuts

Government spending cuts are now having an effect on the chances of you getting audited. The cut which is known as the “sequester” is said to eliminate $600 million from the IRS’s budget this year. What does that mean? And how does that affect me? The cut will cause IRS employees to go on temporary unpaid leave for up to seven days starting May 24th and continuing throughout the pay periods. Fewer agents on hand to assist taxpayer’s wants/needs mean it may be harder to get the help you want. Due to the cut IRS employees will have less time to work on audits, meaning they will not be able to do as many audits as they did years prior. This does not mean you are in the safe house, just because the IRS won’t be starting as many new audits as before they will most likely pay extra attention to the ones they do focus on. 

Tuesday, May 7, 2013

New IRS Guidance on Principal Residence Foreclosures from tax Liens

The IRS has issued new guidance for foreclosures that have to do with a taxpayers principal home. Before the IRS can seek suit to foreclose on a personal principal property there are certain administrative cures that will be looked at first as well as if the taxpayer has any hardship issues, all these will be assessed before seeking a suit. These administrative cures help provide a more detailed look at the policies and procedures for suits. The guidance includes two options for the process of collecting the taxpayers principal residence. The first option is a  obtaining a  court order through proceeding that would allow for the administrative seizure of a principal residence under tax code Section 6334(e)(1). The second option is a suit to foreclose on the principal residence from the tax lien under Section 7403, but all administrative cures and hardships need to be examined beforehand. Most of these administrative cures include contacting the tax payer with the lien and advising them on the issue, the options they have and obtain and other other neccessary information. 

Thursday, April 4, 2013

SEC says Companies Can use Personal Facebook Pages to share Information

The Security and Exchange Commission has announced that it is okay for publicly traded companies to share financial information on their personal Twitter or Facebook pages. This announcement comes after the CEO of Netflix, Reed Hasting's made a corporate announcement on his personal Facebook page last year stating that Netflix had streamed more than 1 billion hours of Internet video. After investigation the SEC concluded that companies must inform their investors on where to find said information as one would not usually think to look at a personal Facebook page for important information. Reed Hasting's however did not inform his investors, but because the rules were up in the air Netflix was not penalized by the SEC. Personal Facebook pages are usually on private settings that limit what certain people can and cannot see, so in order for companies to make an announcement on their personal pages they must make sure first their investors have access to view it.
This is a major milestone for social media which has become more and more recognizable as a legitimate source for sharing information. Social media has opened the door for small investors to obtain important company information as not all investors attend the big corporate meetings and events. 

Tuesday, April 2, 2013

Fourth Circuit Overturns Million Dollar Judgment Against Charleston CPA Defended by LWC

The Fourth Circuit overturned a judgment last week issued at the District Court level against a Charleston CPA defended by Lindsey W. Cooper Jr.  The judgment of more than $2.5million in Section 6700 tax shelter promoter civil penalties was imposed by a jury after the admission of evidence the Fourth Circuit determined was inflammatory and prejudicial. 

At trial, Judge David C. Norton overruled Cooper's strenuous objection to the admission of the CPA's delinquent personal tax filings into evidenceThe Fourth Circuit found that the government offered no evidence linking Robert Nagy's failure to timely file or pay his personal taxes with work he performed for Derivium regarding their 90% Stock Loan tax shelter program, concluding that the admission of evidence regarding Nagy's personal returns violated Federal Rule of Evidence 404(b).   

Rule 404(b) prohibits admission of evidence of wrongdoing solely for purposes of proving a person's character and the government's evidence regarding Nagy's personal returns served only to reflect his character negatively, resulting in prejudice.  It also explained that the evidence was quite likely to influence the jury against Nagy. 

The case was remanded to U.S. District Court for a new trial.  Check back with us for updates.

Friday, February 8, 2013

Tax Court: Exchange of Partnership Interest for Annuity Agreements Was Not Disguised Gift

On February 7, the U.S. Tax Court held that a taxpayer's transfer of partnership interest to her children in exchange for private annuity agreements was not a disguised gift subject to gift tax  (Estate of Kite v. Commissioner, T.C., No. 6772-08, T.C. Memo. 2013-43, 2/7/13).

BNA reported that Judge Elizabeth Crewson Paris determined that the annuity transaction was a bona fide sale for adequate and full consideration.
Virginia Kite was the beneficiary of two qualified terminable interest property (QTIP) trusts, one marital deduction trust, and one revocable trust. In 2001, the QTIP trusts and the marital deduction trust were liquidated, and the trusts' assets, which consisted of family partnership interests, were transferred to Kite's lifetime revocable trust. The family partnership interests held by the lifetime revocable trust were then transferred to Kite's three children in exchange for 10-year deferred private annuity agreements.
IRS assessed more than $6 million for Kite's 2001 gift tax, and more than $5 million in estate tax.

Check back with us for updates and appeal information.  

Congressmen Introduce Bill to Repeal Medical Device Excise Tax

BNA reported yesterday that a bipartisan group of House lawmakers introduced a bill to repeal the Affordable Care Act's 2.3 percent medical device excise tax.
The group of 175 co-sponsors of the proposed Protect Medical Innovation Act (H.R. 523) was led by Reps. Ron Kind (D-Wis.) and Erik Paulsen (R-Minn.); the bill text was not available. The House  passed a similar version of the bill in June 2012, but was killed in the Senate.
Bipartisan companion legislation soon will be introduced in the Senate.
“Placing a new tax on the backs of U.S. medical innovators and entrepreneurs who employ more than 400,000 Americans is not a prescription for economic growth or job creation,” Paulsen said in a Feb. 6 statement. “In fact, companies have already laid off thousands of employees as a result of this onerous new tax, and more jobs will be lost now that this tax is in effect. It's not only costing our country jobs and deterring innovation, but more importantly, it will reduce patient access to cutting edge medical products and treatments that save lives.”

Check back with us for updates.