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.