Paul L. Caron
Dean


Saturday, September 14, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Friday, September 13, 2019

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Osofsky's Agency Legislative Fixes

This week, Sloan Speck (Colorado) reviews a new work by Leigh Osofsky (North Carolina), Agency Legislative Fixes, 105 Iowa L. Rev. __ (2020).

Speck (2017)In Agency Legislative Fixes, Leigh Osofsky develops a framework for understanding and analyzing agency actions to correct technical and drafting errors in legislation. Osofsky motivates this framework primary through various examples from the December 2017 tax legislation known as the Tax Cuts and Jobs Act. In addition, Osofsky alludes to a number of other high-profile legislative mistakes in the Affordable Care Act, the Dodd-Frank Act, and elsewhere. Osofsky adeptly interweaves her tax-oriented story with academic work on legislation and administrative law, yielding a rich critique of Treasury’s current practices in handling gaps between Congress’s presumptive or purported intent and prevailing interpretations of statutory text, as enacted. Osofsky concludes by addressing several possible reforms, including an interesting proposal to adjust the revenue baseline in budget reconciliation to account for erroneous scores attributable to congressional mistakes.

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September 13, 2019 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Saturday, September 7, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Friday, September 6, 2019

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Drumbl's Tax Attorneys As Defenders Of Taxpayer Rights

This week, Hayes Holderness (Richmond) reviews Michelle Lyon Drumbl (Washington & Lee), Tax Attorneys as Defenders of Taxpayer Rights, 91 Temple L. Rev. ___ (2019):

Holderness (2017)Tax attorneys serve many purposes. Two examples have been recently explored in this review series: tax attorneys may provide de facto insurance to their clients or may serve as agents of social justice. To these examples, Michelle Drumbl’s forthcoming essay adds another: tax attorneys defend taxpayer rights. One might be tempted to respond, “Well, of course they do; each tax attorney’s job is to make sure her clients only pay the tax they owe.” The strength of Drumbl’s essay is not to contradict this observation or to dwell on it, but to expose it as too narrow a view of the tax attorney’s function.

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September 6, 2019 in Hayes Holderness, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Saturday, August 31, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Friday, August 30, 2019

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Hemel's A Place For Place In Federal Tax Law

This week, Michelle Layser (Illinois) reviews Daniel Hemel (Chicago), A Place for Place in Federal Tax Law, 45 Ohio N.U. L. Rev. ___ (2019). 

Layser (2018)

Place-based investment tax incentives are nothing new, but they were dragged into the spotlight when Opportunity Zones were introduced through the 2017 Tax Cuts and Jobs Act. Depending on who you ask, OZs are either a long overdue solution to the complicated and administratively inefficient incentives of the past—poised to drive large sums of much-needed capital into otherwise disinvested communities—or a misguided law that may create more problems than it solves. Many academic observers, including myself, view OZs with skepticism. Some are so skeptical that they would recommend we abandon our experiment with place-based investment tax incentives altogether. But Professor Daniel Hemel, expanding on remarks given at the 42nd annual Ohio Northern University Law Review Symposium, argues in his forthcoming essay that there is a place for “place” in federal tax law. I agree.

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August 30, 2019 in Michelle Layser, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Trump's Taxes And Tax Returns

Saturday, August 24, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Friday, August 23, 2019

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Chaffee's Collaboration Theory And Corporate Tax Avoidance

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Eric C. Chaffee (Toledo), Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 93 (2019).

KimAlthough there is a famous tax quote by Justice Oliver Wendell Holmes, "I like to pay taxes. With them I buy civilization."; there is nothing wrong with taxpayers’ efforts to minimize their tax liability in manners the legislative body deems permissible. Such “tax minimization” is legally permissible and distinguished from “tax evasion,” which is the illegal nonpayment or underpayment of taxes. Then, what about the gray area between tax minimization and tax evasion, commonly referred to as “tax avoidance?” Is it permissible to pursue tax avoidance, where taxpayers reduce their tax obligations in a manner that technically complies with the law but violates the spirit of the law?

Eric C. Chaffee's new work, Collaboration Theory and Corporate Tax Avoidance, 76 Wash. & Lee L. Rev. 91 (2019), is an effort to answer this difficult question in the corporate tax context. 

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August 23, 2019 in Christine Kim, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Saturday, August 17, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Friday, August 16, 2019

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews The Property Tax Forty Years After Prop 13 and Alternative Local Government Revenues

This week, Ariel Jurow Kleiman (San Diego) reviews two recent articles on Californians’ perceptions of property taxes,by Ronald C. Fisher (Michigan State), Robert W. Wassmer (Cal State Sacramento), and Zachary Kuloszewski (Michigan State): Perspectives of the Property Tax Forty Years after Proposition 13 and Support for Alternative Local Government Revenues.

StevensonTax experts are befuddled and frustrated by Americans’ diehard aversion to the property tax, which contravenes professional wisdom on the tax’s salutary qualities and hamstrings local governments’ ability to provide necessary and popular public services.  The rich trove of survey research sparked by the 1970’s property tax revolt, e.g., here and here, speaks to decades of such consternation.  Two recent papers by Fisher, Wassmer, and Kuloszewski use 2016 CalSpeaks surveys to add modern texture to this body of data.

In Support for Alternative Local Government Revenues, the authors conclude that the property tax revolt is “alive and well in California forty years after Proposition 13.”  To arrive there, they asked survey respondents to choose a preferred revenue source to either: 1) make up for a public revenue shortage, or 2) raise revenue to improve inadequate services.  (Side note, data on respondents’ opinions of the adequacy of various public services is interesting on its own.)  In both cases, only about 15% of respondents preferred to raise property taxes, compared to about 30% who preferred to raise the sales tax, and 42-52% preferring to raise fees.  Unsurprisingly, they find that those who self-identify as progressive are more likely to support raising revenue via property taxes, and less likely to support doing so via fees.  Those who identify as conservative are more likely to support fees over taxes.  Aside from ideology, they also find that most other personal characteristics (such as race or education) are not correlated with tax preferences.  Two exceptions to this are homeowners and people with income above $150K, both of whom are less likely to prefer the property tax over other revenue sources. 

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August 16, 2019 in Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (1)

Saturday, August 10, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Saturday, August 3, 2019

This Week's Ten Most Popular TaxProf Blog Posts

Friday, August 2, 2019

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Kysar's Unraveling The Tax Treaty

This week, David Elkins (Netanya) reviews Rebecca M. Kysar (Fordham), Unraveling the Tax Treaty, 103 Minn. L. Rev. __ (2019).

Elkins (2018)Tax treaties are a ubiquitous feature in the landscape of international taxation, with several thousand bilateral instruments operating to regulate the taxing power of their signatories. However, in recent years, scholars have begun to challenge the century-old principles underlying the tax treaty. Some of these challenges concern the capacity of an institution formed in the aftermath of the First World War to handle our digital and much more globalized economy. Other challenges concern the role of the tax treaty in protecting the interests of wealthier countries.

The bulk of Professor Rebecca Kysar’s essay is dedicated to a critical examination of the tax treaty, as currently constituted. Tax treaties have been justified as tools for preventing double taxation, combatting tax evasion, inhibiting double non-taxation, encouraging foreign direct investment, respecting comity, providing certainty and predictability, institutionalizing non-discrimination, and binding governments to follow good tax policy even when confronted with the demands of political expediency. Professor Kysar addresses each of these issues in turn. 

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August 2, 2019 in David Elkins, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, July 26, 2019

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Crawford's Magical Thinking And Trusts

This week, Hayes Holderness (Richmond) reviews Bridget J. Crawford (Pace), Magical Thinking and Trusts, 50 Seton Hall L. Rev. ___ (2019).

Holderness (2017)

Wealth inequality is a major concern in today’s United States. As wealth concentrates among the super-wealthy, lawmakers, academics, and commentators have proposed ways to diffuse that wealth, often through tax reform. Wealth remains concentrated in part through the use of legal rules and entities, perhaps in ways that lead to unintended results. Here there be trusts. Trusts—particularly family trusts—have long been a major tool of wealth conservation and potential tax avoidance. So when the Supreme Court heard this year’s Kaestner case questioning North Carolina’s authority to tax the income of a family trust, many hoped that the Justices would help dismantle the tax avoidance tool by blessing the state’s taxing authority.

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July 26, 2019 in Hayes Holderness, Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (2)

Friday, July 19, 2019

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Nagato's Tax Consequences Of The Fukushima Nuclear Disaster

This week, Sloan Speck (Colorado) reviews a new work by Takayuki Nagato (Gakushuin University, Faculty of Law), Tax Losses and Excessive Risk Taking Under Limited Liability: A Case Study of the TEPCO Bailout After the Fukushima Nuclear Disaster, 32 Colum. J. Asian L. 137 (2019).

Speck (2017)On March 11, 2011, an earthquake and subsequent tsunami devastated the Fukushima Dai-ichi nuclear power plant, which lies roughly 150 miles north of Tokyo on Japan’s eastern coast. The Fukushima nuclear disaster caused tremendous and far-reaching economic—and, of course, personal—losses. By statute, the operator of the Fukushima plant, Tokyo Electric Power Company Holdings (TEPCO), was held strictly liable for approximately $80 billion of damages that stemmed from the disaster. In a compelling recent article, Takayuki Nagato explores the tax consequences of TEPCO’s damage payments as a vehicle to interrogate the treatment of tax losses and risk-taking more generally. Nagato’s excellent and engaging analysis also adds a parallel strand to scholarly conversations about taxation’s direct and indirect role in disaster relief, as well as current commentaries on Pacific Gas & Electric’s wildfire-driven bankruptcy.

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July 19, 2019 in Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, July 12, 2019

Weekly SSRN Tax Article Review And Roundup: Layser Reviews Blank & Osofsky's Legal Calculators And The Tax System

This week, Michelle Layser (Illinois) reviews a new work by Joshua D. Blank (UC-Irvine) and Leigh Osofsky (North Carolina), Legal Calculators and the Tax System, 15 Ohio St. Tech. L.J. ___ (2019).

Layser (2018)

The IRS has long attempted to aid wary taxpayers by publishing informal guidance that translates tax laws into more understandable statements. In previous work, Professors Joshua Blank and Leigh Osofsky have argued that such plain language guidance often oversimplifies complicated tax laws, opening the door to errors. They have called this characteristic “simplexity.” In their newest article on the subject, Blank and Osofsky identify another—potentially more serious—example of tax guidance that reflects simplexity: automated legal calculators like the IRS’s Interactive Tax Assistant.

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July 12, 2019 in Michelle Layser, Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, July 5, 2019

Weekly SSRN Tax Article Review And Roundup: Kim Reviews Schön's How To Tax The Digitalized Economy

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Wolfgang Schön (Max Planck), One Answer to Why and How to Tax the Digitalized Economy (June 2019).

KimTaxation of the digitalized economy is without a doubt the most important topic of international taxation in 2019. The G20 and the OECD have already released three documents this year—a Policy Note in January, a Public Consultation Document in February, and a Programme of Work to Develop a Consensus Solution in May—to follow up on the Action 1 of the BEPS Project (Addressing the Tax Challenges of the Digital Economy) released in 2015 and the interim report published in 2018. The February 2019 Public Consultation Document outlines three proposals under its consideration: 1) the User Participation Proposal, 2) the Marketing Intangibles Proposal, and 3) the Significant Economic Presence Proposal. The subsequent May 2010 Programme of Work categorized important differences in the prior three proposals into new nexus rules and new profit allocation rules. In consideration of the new profit allocation rules, the Programme of Work addressed several options under a number of different labels, including the modified residual profit split method, fractional apportionment method, distribution-based approaches, and so on.

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July 5, 2019 in Scholarship, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, June 28, 2019

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Data Analytics And Tax Law

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by University of Toronto faculty members Benjamin Alarie, Anthony Niblett, and Albert Yoon, Data Analytics and Tax Law.

StevensonWhether you fear or celebrate big data likely depends on your background, biases, experiences, and, perhaps most importantly, which systems you imagine the data to be benefitting.  Benjamin Alarie, Anthony Niblett, and Albert Yoon’s recent paper falls squarely on the celebrate side of the debate—at least in the context of tax administration—and persuasively invites the reader to join them there.  In this brief essay, the authors explore how tax agencies and taxpayers can harness data analytics and machine learning to improve tax administration for both government and taxpayers.

For government, data analytics can narrow the tax gap by improving fraud detection.  Specifically, tax agencies can mine taxpayer data to predict noncompliance ex ante, rather than uncovering the noncompliance ex post via audit.  Such predictions can inform resource allocations, allowing tax agencies to shift resources to high-risk sectors and companies.  Augmenting taxpayer data with information from other government agencies would improve these efforts.

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June 28, 2019 in Ariel Stevenson, Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, June 21, 2019

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Shanske's State Responses To Federal Tax Law

This week, Mirit Eyal-Cohen (Alabama) reviews Darien Shanske (UC-Davis), States Can and Should Respond Strategically to Federal Tax Law, 45 Ohio N.U. L. Rev. ___ (2019).

Mirit-Cohen (2018)Shanske writes this timely symposium piece as part of the aftermath of the Tax Cuts and Jobs Act (TCJA) as states are forced to respond to significant federal tax changes on conformity issues, namely whether and how to adapt to the changes made to federal tax law. The gist of Shanske’s argument is that as a matter of state tax policy, states do not need to conform to the TCJA. Rather, they should view conformity as an opportunity to be strategic and adopt only some federal law but not all in a particular area.

Nevertheless, states acting strategically may disincentivize behavior by taxing it thus undermine national goals.  For example, if a state chooses to levy a sufficiently high tax on an activity that the federal government incentivized (like a railroad system) as to thwart that activity altogether it could be very problematic. So Shanske is looking to draw the line that divides state autonomy and federal sovereignty. He outlines fiscal federalism in theory and practice and incorporates comparative constitutional perspectives to inform the appropriate – and actual – approach that constitutional law takes as to the preemption of state taxes.

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June 21, 2019 in Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, June 14, 2019

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Avi-Yonah's Does Customary International Tax Law Exist?

This week, David Elkins (Netanya) reviews a book chapter by Reuven S. Avi-Yonah (Michigan), Does Customary International Tax Law Exist.

Elkins (2018)Customary international law provides that when countries habitually adhere to certain norms because of a belief that customary international law requires them to do so, then those norms constitute binding international law. Note that the fact that countries adhere to certain norms is not sufficient to establish the existence of an international obligation. For a usage to become a custom, it must be shown not only that countries habitually act (or refrain from acting) in a certain manner, but that they do so because of their belief that they are so obliged under international customary law. Once a custom has been established, it is binding upon all countries, including countries that did not take part in creating it and countries that did not even exist when the customary norm was established.

The other source of international obligations is conventional international law, which provides that countries are bound by the term of treaties to which they are signatories. On occasion, customary and conventional international law overlap. 

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June 14, 2019 in David Elkins, Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, June 7, 2019

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Field's Tax Lawyers As Tax Insurance

This week, Sloan Speck (Colorado) reviews a new work by Heather Field (UC-Hastings), Tax Lawyers as Tax Insurance, 60 Wm. & Mary L. Rev. __ (2019).

Speck (2017)In Tax Lawyers as Tax Insurance, Heather Field explores the issuance of tax legal opinions as a form of de facto insurance against the risks of an adverse tax determination by governmental authorities. Field moves beyond the conventional framing of tax opinions as “insurance” against penalties, instead casting opinion practice as providing “a limited and conditional indemnity” to clients by way of the opinion writer’s malpractice insurance. Field contrasts this informal insurance with the burgeoning market in formal tax insurance policies, giving particular attention to intersections and entanglements that complicate the broader question of how individuals and firms address tax-related risk. Field argues that thinking about tax opinions through the lens of insurance yields insights into the value and limitations of transactional lawyering, among other things.

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June 7, 2019 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, May 31, 2019

Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Abreu & Greenstein's Tax: Different, Not Exceptional

This week, Hayes Holderness (Richmond) reviews Alice Abreu (Temple) and Richard Greenstein (Temple), Tax: Different, Not Exceptional, 71 Admin. L. Rev. __ (2019):

Holderness (2017)Tax is special. There is nothing quite like it. It has its own lingo, bar sections, courts, constitutional provisions, and even blogs. Most United States citizens are keenly aware of tax; indeed, there might not have been a United States without certain taxes. But many areas of law can make similar claims. Most citizens are aware of the criminal law; specialized blogs, bar sections, and courts exist for many types of law; and apparently “trolls” are a concern in patent law. So tax is special, but is it truly in a league of its own, different in kind from other areas of law? Is tax exceptional? “No,” argue Alice Abreu and Richard Greenstein, in a thought-provoking piece that questions the very meaning of “exceptional” in this context.

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May 31, 2019 in Hayes Holderness, Scholarship, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink | Comments (0)

Friday, March 9, 2018

Weekly SSRN Tax Article Review And Roundup: Mazur Reviews Thimmesch’s Nexus And The Dormant Commerce Clause

This week, Orly Mazur (SMU) reviews a new work by Adam B. Thimmesch (Nebraska), A Unifying Approach to Nexus Under the Dormant Commerce Clause, 116 Mich. L. Rev. Online ___ (2018).

Mazur (2017-2)Adam Thimmesch’s timely new essay considers whether and how the Supreme Court should regulate a state’s taxing power over online transactions if the Court abolishes the physical presence nexus rule. According to this rule, upheld in the 1992 case, Quill Corp. v. North Dakota, a state cannot collect sales and use taxes from out-of-state vendors unless the vendor has a physical presence in that state. The Supreme Court is set to reexamine the continued validity of the physical presence mandate this year in the case of South Dakota v. Wayfair.

Many legal scholars (including 60 tax professors) and policymakers have urged the Court to take this opportunity to overrule Quill and the physical presence rule and have provided numerous and persuasive reasons to support this position. Adam Thimmesch’s new work contributes to this literature by evaluating what the Court should do if the Court were to abandon the physical presence rule. He concludes that the Court’s best option in Wayfair is to repeal the physical presence rule and not replace it with a different nexus requirement. In other words, Thimmesch argues that a separate jurisdictional rule is not necessary to regulate the state’s ability to tax online transactions.

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March 9, 2018 in Scholarship, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, May 26, 2017

The Last Weekly Tax Highlight And Roundup?

TaxProf Blog LogoOn August 1, 2016, I announced that, due to my growing other commitments, I was reducing the amount of time that I devote to TaxProf Blog by dropping my weekly tax, legal education, SSRN, and student tax note roundups.  Happily, Joe Kristan took over the weekly tax roundup, Scott Fruehwald took over the weekly legal education roundup, and David Gamage (Indiana), Ari Glogower (Ohio State), Daniel Hemel (Chicago), and Erin Scharff (Arizona State) took over the weekly SSRN roundup — and frankly have done better jobs than I did. (Regrettably, no one volunteered to take over the weekly student tax note roundup and it remains dormant.) 

As Joe describes below, this is the 31st and last installment of his weekly tax roundup on TaxProf Blog.  On behalf of all of my readers, I thank Joe for sharing his great work with us.  Joe belongs on the Mount Rushmore of tax bloggers.  We will miss him greatly. 

As I get ready to assume the Pepperdine deanship on June 1 (more here, here, here, here, and here), I am struggling to fulfill my commitment to continue TaxProf Blog.  If you are a law professor who has found TaxProf Blog a helpful resource and would like to help it continue by contributing legal education or tax content on a regular basis, please email me.

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May 26, 2017 in About This Blog, Legal Education, Tax, Weekly Tax Roundup | Permalink | Comments (1)

Friday, May 19, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court case highlighting the perils of do-it-yourself tax preparation.

KristanThe perils of do-it-yourself tax prep.

I’ve tried to do plumbing myself. I have learned that it is cheaper in the not-very-long run to pay a plumber.

An insurance consultant learned a similar lesson about tax preparation in Tax Court last week. His client specialty was accountants. Whether out of thrift or because he didn’t want to be seen playing favorites, he used TurboTax. It went badly in Tax Court.

The taxpayer claimed disallowed deductions for alimony and for a net operating loss. The court determined that he reported too much Alimony, and that he whiffed entirely on the NOL. The deficiency was big enough to bring the 20% “accuracy related” penalty into play. Judge Holmes considers the issue:

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May 19, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, May 12, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses another in a long line of bizarre Eighth Circuit ESOP decisions.

KristanAnother 8th Circuit ESOP debacle.

The Eighth Circuit Court of Appeals has seen more than its share of cases involving Employee Stock Ownership Plans. That’s because Iowa is in the Eight Circuit, and Iowa was the home of practitioners whose creative use of ESOPs often led to unfortunate tax results.

The Eighth Circuit yesterday upheld another bad ESOP, in a case involving a Kansas orthopedic surgeon. The ESOP had an Iowa address, so we can add it to the roster of bad Iowa ESOPs.

The Tax Court had disallowed the ESOP on the grounds that it allocated shares to an owner with no compensation — a violation of the plan document — and that it failed to get the required annual appraisals. Either item standing alone is enough to disqualify the ESOP.

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May 12, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, May 5, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court case disallowing the deductions from a bed and breakfast operated out of Larry Bird's former home under the vacation home rules. 

KristanOwner of Larry Bird’s house fouls out in Tax Court

Larry Bird’s basketball career has been remarkable. As a player in high school, college and the NBA, he was an all-star. He is now winding down a successful career as a team executive.

An attempt to cash in on Mr. Bird’s fame was less successful. An Alaska attorney and his domestic partner formed French Lick LLC in 2007 and bought a house where Mr. Bird had once lived. They began operating a bed-and-breakfast there. The owners continued to live in Alaska, using on-site managers to run the business.

The plan went awry. Judge Kerrigan takes up the story:

About June 1, 2008, French Lick began operating the Indiana property as a bed and breakfast. Between May 2008 and January 2010 French Lick employed a series of managers for the bed and breakfast at the Indiana property. French Lick’s contracts with the managers provided them with an apartment on the Indiana property to use as their personal residence. The last manager of the bed and breakfast resigned in January 2010, and a replacement manager was not hired.

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May 5, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, April 28, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a rare Tax Court victory for a taxpayer who succeeded in being treated as a real estate professional for purposes of the passive loss rules.

KristanA.M. real estate pro, P.M. stockbroker

The IRS wins most cases in Tax Court involving taxpayers whose real estate rental losses have been disallowed. The tax law, after all, is stacked against taxpayers wanting those losses. They are automatically passive unless the taxpayer passes two stern tests:

  • The taxpayer has to work at least 750 hours during the year in a “real estate trades or businesses,” and
  • The taxpayer has to work more in real estate than in anything else.

This “real estate professional” rule usually filters out taxpayers with day jobs outside of real estate.

Yesterday’s taxpayer victory in Tax Court on this issue is a notable exception. The taxpayer worked mornings on her rentals. Then she went to her other job. Judge Paris takes up the story:

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April 28, 2017 in New Cases, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, April 21, 2017

Weekly Tax Roundup

Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog):

Monday, April 17, 2017

Diane Ring, Panama Papers: The One-Year Anniversary (Surly Subgroup). "At its core, the leak revealed the true ownership of over 200,000 offshore entities, thereby raising a host of tax and political questions regarding many of the entities’ owners."

Jack Townsend, Court Denies Motion to Dismiss Counts Against Tax Shelter Lawyer. “I will cut and paste Judge Rakoff’s discussion about § 7212(a) which I think offers good review for tax crimes lawyers.”

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April 21, 2017 in IRS News, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, April 14, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court decision denying limited partner status to law firm partners.

KristanLaw firm partners find the limits of “limited.”

In the beginning, there were general partnerships and limited partnerships.

But the lawyers came down and said, “Come, let us go down and confuse their language so they will not understand each other.” Thus LLCs, LLP, LLLPs, PLCs, PLLCs, and so forth were loosed upon the firmament.

But the IRS self-employment tax regulations, in their wisdom, ignored this, and continued to speak only of general partnerships and limited partnerships. And thus a Mississippi law firm ended up in Tax Court.

In the simple world of the old regulations, general partners in a service firm pay self employment tax on all of their K-1 income, and limited partners don’t. The Mississippi law firm practiced as a “PLLC,” short for “professional limited liability company.” Under the tax law, it was treated as a partnership. The “limited liability” thing makes it sound like a limited partnership. On the advice of their tax preparer, they treated their “guaranteed payments” — what non-partners call wages and bonuses — as self-employment income, and their residual income on their K-1s as income not subject to self-employment tax. According the Tax Court opinion, “the guaranteed payments were commensurate with local legal salaries as determined by a survey of legal salaries in the area.”

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April 14, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, April 7, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court case holding that an employer of a independent contractor reclassified as an employee is not liable for failing to withhold taxes if the employee pays the taxes on her own. 

KristanThe Coyote Bags the Roadrunner.

Battles over whether a given worker is an employee or an independent contractor have been going on since before the Coyote and the Road Runner began their epic conflict, with the IRS usually playing the winning Road Runner role. Yesterday the anvil landed on the Road Runner.

The IRS prefers that workers be treated as employees because that makes it easier to collect their taxes. Employers have to collect half of the Social Security and Medicare taxes on employee wages, and they have to withhold and remit income taxes. Independent contractors have to pay all of these on their own when they file their schedule Cs and Schedule SEs. While businesses have to send 1099s to independent contractors, the IRS likes having employers do most of the collecting. It’s becoming a big issue in the “gig economy.”

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April 7, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, March 31, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses the Tax Court's recent reminder about the limits of management fees in shifting income for tax planning purposes.

KristanManagement fees mismanaged.

In the misty dawn of time — well, in my early days in public accounting — I knew an old-school practitioner who used “management fees” between related companies as a tax planning cure-all. Too much taxable income? Pay a management fee to the commonly-controlled company that’s running a loss, or to the relative who needs some cash and who doesn’t have much income. Problems solved!

Like many bad tax ideas, that works fine if the IRS never finds out. A Tax Court case yesterday shows what happens when they do.

A home health care company operated as a C corporation. It was acquired by another corporation named Sacer Cor, but apparently never filed a consolidated return with its 100% owner. Whether that is because Sacer Cor might be an S corporation is never spelled out in the case. Either way, Sacer Cor and Home Team, the subsidiary, filed separate returns.

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March 31, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, March 24, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court case denying a couple's claimed $18,000 charitable deduction for used clothing donated to their church.

KristanDeducting that gold mine in your closet.

Thrift shop values. Tax pros might expect Goodwill and Salvation Army to be the largest industrial enterprises in the nation, going by the values clients provide for used clothing they give away. The Tax Court gave us a lesson last week on the sort of tax value you can squeeze out of last year’s wardrobe.

A Colorado couple must have really cleared out the closets and attic in 2013, as they claimed a charitable donation of $18,000 for donation of used clothing to a church. Unfortunately, the court record is light on just what those clothes were:

Other than generalized references to various clothing designers and the quality of the items petitioners claimed to have donated, no details as to the number of specific items donated or the value of any specific item have been provided. Petitioners did not present any written substantiation for the charitable contribution deduction, nor could petitioner recall how the value of the donations was calculated.

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March 24, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, March 17, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court case highlighting the difficulty S corporation shareholders face in overcoming the way an item is characterized on a K-1.  

KristanDon’t let the K-1 hit you on the way out the door.

Sometimes people become shareholders of S corporations without really understanding what they are getting into. Yesterday the Tax Court dealt with an S corporation shareholder who apparently didn’t understand just what he was getting out of.

The taxpayer owned 50% of Resort Builders, a construction company, with his brother, John. They operated as an S corporation, with the corporate earnings being taxed on the owner 1040s based on Forms K-1 allocating the corporation income.

Over time the brothers had a falling out. Judge Vasquez explains:

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March 17, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, March 10, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses how the House GPO Affordable Care Act replacement plan complicates 2016 tax filing.

KristanMandate no more? House Republicans released their Obamacare replacement plan yesterday. While the policy implications of the proposal are obviously interesting, this time of year my first question is, “does this affect the current tax season?”

Yes, big league.

The proposal would repeal both the individual mandate and employer mandate retroactive to the beginning of 2016. As we are in the middle of the filing season for 2016 returns, that’s a big deal.

Taxpayers and preparers had a filing season dilemma even before the House GOP announced their plan yesterday. After President Trump issued an executive order telling agencies to be forgiving on ACA enforcement, the IRS changed its plans to allow individuals to file returns without answering health coverage questions — making it possible to file returns ignoring the penalty for lacking ACA-compliant health coverage.

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March 10, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, March 3, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a Tax Court case illustrating the importance of complying with the technical requirements for deducting gifts of long-term capital gain property to charity. 

KristanAircraft donation fails to clear runway.

Sometimes it’s easier to land an airplane in the fog than to land a charitable deduction.

When you donate appreciated long-term capital gain property to charity, you can get a deduction for the full fair market value, even if your cost is much less than that. You never have to include the appreciation in income. That makes such donations a great tax planning tool. It also gives taxpayers incentive to value such donations aggressively.

To rein in abuses, Congress required donations of property to be carefully documented with appraisals when claimed deductions exceed $5,000. Only publicly-traded securities are excepted from this rule. The appraisal has to meet requirements as to form and appraiser qualifications. The taxpayer has to file Form 8283 with the return claiming the charitable deduction, and the appraiser has to sign it. The taxpayer also has to get a letter from the charity acknowledging the deduction and stating whether goods or services were received for the contribution by the time the return for the contribution year is due.

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March 3, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, February 24, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) highlights the lesson of a recent Tax Court case:  friends shouldn't let friends claim the business bad debt deduction:

KristanYou can have a friend, or you can have a bad debt.

With friends like this, who needs deductions? When you lose money on an investment, a business bad debt deduction for the loss is the best consolation. A business bad debt is an ordinary loss, fully deductible against any other taxable income. A “non-business” bad debt, in contrast, is a capital loss, deductible only against capital gains, plus (for most individuals) $3,000 of other income. If the investment isn’t a loan, the best you can hope for is a capital loss.

The best result is the hardest to get, as a Virginia financial advisor learned in Tax Court this week. The advisor had a friend, a Mr. Zinn, who ran a business negotiating reduced interest rates for credit card borrowers with high balances. The advisor got involved in the business, called CFS, as Judge Lauber explains:

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February 24, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, February 17, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses how a dentist kept adequate records to beat the IRS's claim that he did not materially participate in his real estate business:

KristanPart-time dentist, full-time record-keeper beats IRS.

Beyond Flossing. A California man seemed to have a pretty good deal going. He had a dental practice with his dentist wife and had a pretty good six-figure joint income. Yet somehow it didn’t satisfy. He wanted a real estate career.

He still kept up a part-time dental practice, but he threw himself into real estate. He spent a lot of time on it. The couple owned for rental properties that he managed, and he also worked as a broker. The rental properties generated a taxable loss, and the IRS said that he couldn’t deduct them under the “passive loss rules.”

Rental real estate losses are automatically passive for most taxpayers, deductible only to the extent of other “passive” income or when the property is sold. A special rule applies to “real estate professionals.” They get to determine whether rental losses are “passive” using the same “material participation” standards that apply to other businesses — primarily based on hours worked in the activity.

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February 17, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, February 10, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses how the EITC can be used to purchase drugs:

KristanEarned income credit helps poor man pay for his pharmaceuticals.

IRS 1, Grandma 0. A poor unemployed father was having difficulty financing his medication. But as a President once said, “when somebody hurts, Government has got to move.” Through the magic of the earned income tax credit, this poor man filed his tax return, moving the IRS to send a check that was used to pay for his medication.was

Unfortunately, the medication was recreational. 

The man was unemployed and living at his mother’s with his wife and kids. Grandma was working as a nurse’s aide to support the whole bunch. Judge Holmes takes up the story (as I normally do, I abbreviate the taxpayer’s name, here as “S.”):

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February 10, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, February 3, 2017

Weekly Tax Highlight And Roundup: Mary Tyler Moore And The IRS

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) reminisces about a 1970 episode of The Mary Tyler Moor Show involving an IRS audit.

The bewitching glamor of the 1970s IRS.

The Mary Tyler Moore Show was a Saturday night childhood staple in the days of three TV channels. Through the miracle of Amazon, I revisited my 10-year-old viewing habits by downloading an episode from Season 1, 1040 or Fight, in which the heroine gets examined by the IRS.

The fictional tax world of 1970 is a fabulous place. For example, the IRS does evening house calls, scheduling the exam in Mary’s bachelorette pad at 8:03 p.m. The IRS agent shows up right on time with his calculator.

MTM1

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February 3, 2017 in Celebrity Tax Lore, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, January 27, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) describes a recent Tax Court decision rejecting the IRS's attempt to attribute wages to an attorney from his failing S corporation law firm.

KristanS corporation doesn’t have to pay salary for its destruction

If Judge Holmes is to be believed, a Minnesota attorney mismanaged his law firm into oblivion and tax disaster. It hardly seems fair to make the firm pay him a salary for doing that.

That’s how Judge Holmes ruled in a Tax Court opinion issued yesterday. I’ll alter the attorney’s name to “Mr. G” when quoting from the opinion. Much of the opinion is about issues arising from chaotic management practices. For example:

Mr. G had a clear vision of the type of law he wanted to practice, but he was a self-proclaimed micromanager without the know-how to manage. He testified that he had “no personal experience, education or background in accounting or the operation of a business or financial background.” He “micromanaged virtually about everything and * * * did not have the clarity of vision to * * * try to see how things should run.” He did not keep sufficient accounting records, and for the first four months of G&A’s existence, he didn’t even keep company funds in a corporate account. He kept track of cashflow and expenses on a legal pad, but the legal pads would pile up.

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January 27, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, January 20, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) describes how the Tax Court's treatment of a plastic surgeon's claim that his interest in a surgery center was a passive activity, distinct from his medical practice.

KristanPlastic surgeon gets his passive loss reconstructed

Losing for Winning.  A plastic surgeon convinced the Tax Court that his interest in a surgery center was “passive,” defeating an IRS attempt to group it with his medical practice. But the IRS got a partial win out of the deal.

The surgeon, who we will refer to as Dr. H., performed much of his surgery on an outpatient basis. He could not perform surgery requiring general anesthesia in his office. Hospital surgery space was scarce so he began plans to build a surgery center to accommodate patients needing anesthesia, but not an overnight hospital stay.

He dropped the plans when he was approached by a group of other surgeons asking him to invest in a surgery center, MBJ, that they were building. He ended up with a 1/8 interest in it. Tax Court Judge Buch explains how that works:

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January 20, 2017 in New Cases, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, January 13, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) describes a recent Tax Court case in which the judge rejected a taxpayer's attempt to be treated as a real estate professional for passive loss purposes because of his unsubstantiated assertions that he spent 750 hours per year working on real estate activities.

KristanIn Tax Court, the seventh “allegedly” proves fatal

Allegedly. That’s a bad word to see when a Tax Court judge is describing your arguments. It turned out badly for a Massachusetts couple in Tax Court.

Like other taxpayers we’ve seen, the couple was trying to convince the court that they had spent enough time on their rental properties to qualify as “real estate professionals.” If they did, they could deduct their rental losses despite the passive loss rules. Unfortunately, it’s a tough hurdle to clear.

Real estate professionals avoid the “per-se passive” rule that makes their rental losses automatically passive and deductible only to the extent of “passive” income. Instead they get to determine whether they are passive using the hours-spent standards that apply to other business activities. To be a real estate pro, you have to pass two tests:

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January 13, 2017 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, January 6, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) uses a recent IRS ruling to discuss how the accumulated earnings tax on C corporations may take on increased importance in a reformed tax code emerging from the Trump Administration and the 115th Congress. 

KristanLiving fossil tax bites cashless C corporation

The accumulated earnings tax on C corporations is one of the more obscure items in the tax law. Designed to force corporations to distribute earnings as taxable dividends, it rarely comes up even in tax nerd get-togethers. A few years ago some populist politicians talked of strengthening it to force corporations to pay more dividends as a perverse form of economic stimulus, but interest soon faded.

The new administration may make C corporations much more attractive and more popular. If so, this living fossil may again rise from obscurity to bite taxpayers and their advisors. That makes a legal memorandum recently released by the IRS timely.

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January 6, 2017 in IRS News, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, December 30, 2016

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses how deductions of a zombie corporations eventually die. 

KristanCorporations may have an indefinite life, but not their deductions.

I’ll just keep that company around in case I need it for something. Sometimes clients who sell a business want to preserve the corporation that held the business. While there are occasionally reasons to do so — for example, to deal with potential liabilities — more often such zombie corporations become an annoyance, and clients dissolve them when they realize they have to pay annual state charter fees and tax return fees.

Other taxpayers have other ideas. A human relations consultant who lost his primary client kept his S corporation around for years after the revenue stopped coming in. While there was no revenue, there was no shortage of expenses. The taxpayer claimed a 2009 loss on his K-1 of $5,795 on revenue of zero. Without revenue, what kind of expenses would there be? This kind, according to Tax Court Judge Morrison:

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December 30, 2016 in New Cases, Tax, Weekly Tax Roundup | Permalink | Comments (0)

Friday, December 16, 2016

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses how Sec. 263A can apply to a cash-basis farmer.

KristanSec. 263A – it’s not just for inventories.

Nuts. Few farmers worry much about the so-called “inventory capitalization” rules of Sec. 263A. After all, they don’t have inventories. A California almond grower learned in Tax Court yesterday how Sec. 263A can sneak up even on a cash-basis farmer.

Most farmers deduct their input costs when they buy them under “cash basis” accounting. That’s a sweet deal, as other producers have to capitalize their input costs — raw materials, supplies, labor, etc. — into the cost of the goods they produce, recovering the costs only at the time the production is sold.

Sec. 263A, enacted with the 1986 tax reforms, requires producers to capitalize indirect costs into inventory that formerly were expensed. Most farmers aren’t required to keep inventories, so they don’t waste time worrying about inventory capitalization.

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December 16, 2016 in New Cases, Tax, Weekly Tax Roundup | Permalink | Comments (0)