Wednesday, May 02, 2012 Six-Year Statute of Limitations
During our 2011 Year-End Seminars, Bob and I discussed the 4th Circuit's decision in the Home Concrete Case. The 4th Circuit determined that the six-year statute of limitations does not apply to an overstatement of basis which in turn causes an understatement of income in excess of 25% of that which is reported. The 4th Circuit's decision added to an already messy landscape of decisions that had come from the Tax Count and various Courts of Appeals. At the seminar we mentioned that the Supreme Court had granted Certiorari and would ultimately decide the issue.
On April 25, 2012, in a 5-4 decision, the Supreme Court affirmed the 4th Circuit and found that the six-year statute of limitations does not apply to an overstatement of basis. Following its long-standing decision in Colony, Inc. v. Comm'r, the Court maintained its position that the plain language of the term "omit" as used in the statute refers only to something that is left out, and while the impact of an overstatement of basis might be the same, it is not an omission. Further, the Court pointed to the prior Colony decision which stated that the purpose of the six-year statute was to give the IRS some "extra time" to find items that did not appear on the face of a return and such additional time would not be necessary to review the reported basis amount.
The Supreme Court in Home Concrete thus refused to overrule its previous decision and effectively invalidated the Treasury Regulation (301.6501(e)-1(a)(1)(ii)) which set forth Treasury's position as to the six-year statute applying to overstated basis. Presumably, the IRS will shortly withdraw this regulation.
Neil
Monday, January 16, 2012 Form 8939 - Allocation of Increase in Basis for Property Acquired From a Decedent
Reminder: If you have a client who died in 2010 and the executor wants to elect out of the estate tax and into the carry-over basis regime, Form 8939 must be filed. The deadline for filing the return is tomorrow, January 17. There are no extensions of time to file this form. In addition, as I have stated in a previous blog, the only way to elect out of the estate tax, for 2010 decedents, is to timely file this form.
Bob Katz
Tuesday, January 10, 2012 Foreign Account Voluntary Disclosure Initiative
At our recent seminars I spent a considerable amount of time talking about the offshore voluntary disclosure initiatives that had expired and the extremely large penalties that can be asserted. Commissioner Shulman stated that there would be no more disclosure initiatives available after the second one ended in 2011.
Good News!!!!!! Yesterday the IRS announced that it had reopened the Offshore Voluntary Disclosure Initiative. The 2009 and 2011 programs have accounted for $4.4 billion of revenue so far. While the reopened program will be generally the same as the 2011 program, the penalty will 27.5% of the highest amount in the accounts in the previous 8 years (this is a 10% increase from the 25% penalty that applied in the 2011 program). In certain cases the penalty could be as low as 5% or 12.5%.
At this time the IRS has not set a date for the end of this initiative. As always, Neil and I remain available to assist you and your clients in regards to applying for this program and receiving the relief available.
Bob Katz
Wednesday, December 21, 2011 New Foreign Financial Asset Reporting
The Internal Revenue Service has released the final version of, and instructions for, Form 8938 (Statement of Specified Foreign Financial Assets) which must be used by individuals to report specified foreign financial assets for tax year 2011. With a joint return, only one Form need be filed. Until regulations are promulgated, this disclosure requirement does not apply to domestic entities formed or used to hold such assets.
The requirement to file Form 8938, which is an attachment to the tax return, applies to any year in which an individual has an interest in specified foreign assets the aggregate value of which exceeds an applicable reporting threshold amount. The threshold amount depends upon whether the individual lives in the United States or files a joint income tax return. The Form need not be filed if there is no income tax return filing requirement.
The specified foreign assets include any financial account at a foreign financial institution, individually owned stock or securities issued by foreign persons, any foreign issued financial instrument or contract, and any interest in a foreign entity.
Failure to file the disclosure form could result in a $10,000 penalty with an additional penalty of up to $50,000 for continued failure to file after IRS notification, unless there is reasonable cause for not filing the form.
Monday, December 12, 2011 NYS Tax Changes
Governor Cuomo has signed legislation restructuring the personal income tax for the tax year 2012 -2014. In addition, significant changes to the MCTMT will apply to small businesses.
These changes along with a number of other developments in NYS taxation will be discussed in detail at our Year End NYS/Entity Tax Update on December 14, 2011 at the Uniondale Marriott and January 6, 2012 at the Melville Marriott.
We hope to see you there.
N
Wednesday, September 07, 2011 NYS Announces Hurricane Irene Relief
NYS has issued Notice N-11-8 advising taxpayers that the state is also providing relief to taxpayers located in a Federally Declared Disaster Area resulting from Hurricane Irene. Interestingly, the state has not only provided taxpayers and prepares with extending filing and payment deadlines, but they also have given themselves an extension of time to assess tax or collect tax. Below is a link to the notice from NYS.
It would appear that tax season is ending a little later this year!!!!
http://www.tax.ny.gov/pdf/notices/n11_8.pdf
Tuesday, September 06, 2011 Another Update on Hurrican Irene ReliefMy blogs from last week created quite a stir...
I know that a lot have you have a lot of questions about these extended deadlines, and while I do not necessarily have an answer to them all, I am trying to flush out as much info as possible.
First, as of this morning, Suffolk County has been identified as an additional Federally Declared Disaster area on the IRS website. As such the extended deadlines apply to taxpayers in Suffolk as well as Nassau. Before you ask, the five boroughs of NYC have not been identified to date.
Next, the two questions that I have received the most are:
What about NYS and NYC? and Do the rules apply if my office is in the Federally Declared Disaster Area but my client is not?
To date, NYS and NYC have made no announcement as to a position regarding the extended dates. It would seem logical that they would follow the Federal dates, as the NYS returns are based on the Federal return, but logic may be just the reason that they DON'T do it!!! As soon as I know of an official position I will pass it along.
The question about the location of the preparer was one that perplexed me as well. While the original IRS notices did not directly address this issue, the notice regarding the one-week extension to September 22nd for certain preparers made inference to the fact that preparers in the Federally Declared Disaster Areas were covered by the October 31st extended date. To try to get some clarification, I called the IRS today and spoke to a very helpful representative who walked me through the IRS website and pointed me to a pronouncement which seems to say that whenever there is a Federally Declared Disaster and the IRS extends filing deadlines, the extension applies to preparers in the designated areas if the records necessary to prepare the returns are maintained in the designated area, even if the taxpayer is not. The IRS representative then pointed me to a pronouncement from the IRS which directs practitioners to get such clients "pre-approved" for this type of extension on an individual client-by-client basis or on a bulk basis. The process for this application is located on the IRS website.
http://www.irs.gov/taxpros/article/0,,id=185559,00.html
Please understand that this is the information that I received from one rep at the IRS, and although she seemed to know exactly what she was talking about, I would highly recommend that if you are in the designated area but have clients outside and would like to take advantage of the extended deadlines that you call the number on the web page linked above and get confirmation that you are eligible.
Good luck and stay tuned....
Friday, September 02, 2011 Update on Hurricane Irene ReliefNassau County was added yesterday to the list of federally declared disaster areas resulting from Hurricane Irene. As such, the filing deadline extensions discussed yesterday will apply to Nassau County individuals and businesses. Suffolk County is still waiting for word on whether it too will be declared a disaster area (for those of us that live there I think it is fairly obvious what should happen).
In addition, the IRS announced that taxpayers whose preparers were located in an area under an evacuation order or a sever weather warning area because of Hurricane Irene are given an extension until August 22, 2011 to file any return normally due on September 15, 2011, even if the preparer is located outside the federally declared disaster areas. This extension applies to filing, only, and not to payment.
Stay tuned for more updates.
Neil Friday, September 02, 2011 CorrectionIn the blog just posted I erroneously referred to an extended date for filing of August 22, 2011. The date should have read September 22, 2011.
Thank you to those of you who pointed this out...it is nice to see that these blogs are actually being read!!!! Thursday, September 01, 2011 Hurricane Irene Tax Relief - But Not for Long Island...YET!!!Pursuant to the notice those taxpayers that are in qualifying areas will have certain tax filing and payment deadlines extended:
1) Entity returns originally extended to September 15, 2011 will now be due on October 31, 2011;
2) Individual and entity returns originally extended to October 17, 2011 will now be due on October 31, 2011; and
3) 3rd quarter individual estimated taxes originally due September 15, 2011 will now be due on October 31, 2011.
Pursuant to the notice, the relief is only extended to taxpayers located in Federally declared disaster areas. In New York, only the counties of Albany, Delaware, Dutchess, Essex, Greene, Schenectady, Schorarie and Ulster are identified as presently qualifying. The IRS did state that it expects to announce tax relief for taxpayers in other areas as the damage assessments continue, and has advised taxpayers to continue to monitor its website for updates.
In addition to the NY counties set forth above, the notice initially includes the following counties in North Carolina, New Jersey and Puerto Rico as qualifying for the relief:
North Carolina: Beaufort, Carteret, Crave, Dare, Hyde, Pamlico and Tyrell Counties
New Jersey: Bergen, Essex, Morris, Passaic and Somerset Counties
Puerto Rico: Caguas, Canovanas, Carolina, Cayey, Loiza, Luquillo and San Juan Counties
Bob, Lara and I along with our entire staff hope that the storm did not cause you any significant harm and that life is returning to normal.
Neil Tuesday, April 12, 2011 Partnership and LLC Fee Deadline Extension
The New York State Department of Taxation and Finance has issued TSB-M-11(4)C to advise that Tax Law Section 658(c)(3) has been amended to extend the due date for form IT-204-LL and the required annual payment for tax years ending on or after March 1, 2011. Under the revised provision the IT-204-LL must be filed and the annual fee must be paid within 60 days after the last day of the tax year of a Partnership, LLC, LLP or Single-Member LLC that is treated as a disregarded entity. Prior to the change in the law the due date was 30 days from the last day of the year.
If you have any questions about this or any other New York State Tax issue, feel free to contact our office.
Neil Wednesday, March 30, 2011 Additional Guidance on 100% Bonus Depreciation
The IRS has just released Revenue Procedure 2011-26 which gives taxpayers guidance on the new 100% bonus depreciation rules for qualifying property placed into service after September 8, 2010 and before January 1, 2012. The following is a brief summary of the two major provisions thereof:
1) The instructions to Form 4562 state that a taxpayer cannot elect out of the 100% bonus depreciation and into the 50% bonus depreciation that previously applied. This statement is in direct conflict with the Joint Committee on Taxation's explanation of the intent of Congress in enacting 100% bonus depreciation. Revenue Procedure 2011-26 makes it clear that a taxpayer can elect down to the 50% bonus depreciation. Sections 4 and 5 of the Revenue Procedure give detailed instructions regarding tax returns that have already been filed claiming 100% bonus depreciation or electing out of bonus depreciation. These sections set forth the steps to be taken by taxpayers, in those instances, who want to elect down to 50% bonus depreciation or revoke their election out to elect 50% bonus depreciation.
2) While qualified leasehold improvement property qualifies for the 100% bonus depreciation there was a question as to whether qualified restaurant property or qualifed retail property was eligible for 100% bonus depreciation. The Revenue Procedure provides that qualified restaurant property and qualified retail property that also qualifies as qualified improvement property is eligible for the 100% bonus depreciation. For example, if a taxpayer leases property used as a restaurant and makes improvements thereto the improvements qualifiy for bonus depreciation. However, if the taxpayer owned the building which was used as a restaurant, improvements made thereto do not qualify for bonus depreciation and the improvements would have to be amortized over a 15-year period.
The Revenue Procedure also deals with aspects of self constructed components and business use automobiles.
Should you require any further information please do not hesitate to call upon us.
Bob Katz Wednesday, February 16, 2011 Form 8939 - Allocation of Increase in Basis for Property Acquired From a Decedent
On December 17, 2010 the Estate Tax Law was reinstated retroactively to January 1, 2010. However, the law allows executors of decedents who died in 2010 to elect-out of the estate tax. If that is done the estate has elected-into the carry-over basis regime for all assets inherited from the estate. The executor can increase the decedent's bases for the assets, generally, as follows: (1) $3 million for assets inherited by the surviving spouse, either directly or through a QTIP trust, and (2) $1.3 million for assets inherited by anyone.
If the executor has elected-out of the estate tax they must file Form 8939 to show the allocation of the basis increases. Originally, the law provided that this form be filed with the decedent's final income tax return.
The IRS has just issued a draft of Form 8939 which can be found on the IRS's website (http://www.irs.gov/pub/irs-dft/f8939--dft.pdf). The draft form does not include the instructions to the form which will be available once the form has been finalized. In addition, the IRS has announced the following:
a. It will be issuing Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010.
b. Form 8939 should not be filed with the decedent's final return.
c. The final form will be released at least 90 days before it is required to be filed.
d. Information as to when to file, where to file and how to file will be included in Publication 4895.
e. The election to elect out of the estate tax and into carry-over basis should not be made on the decedent's final return. The instructions will be contained in Publication 4895.
Should you require any additional information please contact us.
Bob Katz Wednesday, February 09, 2011 2011 Offshore Voluntary Disclosure Initiative
As we predicted in our seminars, the IRS has announced (IR-2011-14) a second voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system. The previous initiative resulted in 15,000 voluntary disclosures and since it ended over 3,000 more taxpayers have become compliant. Commissioner Douglas Shulman has stated that "Combating international tax evasion is a top priority for the IRS."
The new initiative will end on August 31, 2011. To participate the taxpayer must file all original and amended returns and include payment of taxes, interest and accuracy-related penalties by that date. The years covered by this initiative are the calendar years 2003 through 2010. (It should be noted that the previous voluntary disclosure program covered six years while this program covers eight years).
The penalty for those participating in this initiative is 25% of the amount in the foreign account with the highest aggregate balance covering the eight year tax period. (The penalty under the previous program was 20%.) However, a 12.5% penalty rate will apply if the offshore accounts do not exceed $75,000 in any of the eight years covered.
As in the previous voluntary disclosure program, taxpayers who do not come forward face higher penalties and the posssibility of criminal prosecution.
It should be further noted that taxpayers who have used so-called "silent disclosure" can qualify for this new initiative.
The IRS is going to launch a new section on its website (www.irs.gov) dedicated to information related to the new voluntary disclosure program, to help taxpayers and tax professionals.
Should you need any assistance with voluntary disclosure do not hesitate to call upon us.
Bob Katz Friday, January 21, 2011 IRS Announces Date to Begin Filing Returns
As a result of the late passage of the 2010 Tax Relief Act, that reinstated a number of deductions which expired at the end of 2009, the IRS previously announced a delay in processing most individual income tax returns.
Yesterday, the IRS announced that it will begin processing those returns on February 14, 2010.
Bob Katz Monday, December 27, 2010 Delay in Filing 2010 Income Tax Returns
As a result of the late passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (referred to as the 2010 Tax Relief Act), the IRS has stated that there will be a delay in processing many 2010 individual income tax returns. The 2010 Tax Relief Act made many changes retroactive to January 1, 2010 (i.e. allowing state and local sales tax in lieu of state and local income tax, reinstating the higher education tuition deduction etc.).
The IRS needs to reconfigure its computer program to take these changes into account. Therefore, they released IR 2010-126 stating that they may not begin processing returns affected by these changes until mid to late February. They will make a subsequent announcement setting forth the date when their computer programs will start processing those returns.
Our January seminars will focus on all of the retroactive changes that affect the preparation of individual and business returns.
Bob Thursday, November 11, 2010 AMT Patch
For 2010 the AMT exemptions have reduced to the following amounts: $33,750 for unmarried individuals, $45,000 for married couples filing jointly and $22,500 for married individuals filing separately. In 2009 these amounts were $46,700, 70,950 and 35,475 respectively. The 2009 amounts were as a result of Congress enacting an "AMT Patch" as they have done in previous years.
On Nov. 9, Senate Finance Committee Chair Max Baucus and House Ways and Means Committee Chair Sander Levin, both Democrats, along with the ranking Republican members of those committees, Chuck Grassley and Dave Camp wrote to Douglas Shulman, the Commissioner of Internal Revenue, assuring him that there will be another "AMT Patch" enacted for 2010. Their letter sets forth the following AMT exemptions for 2010: $47,450 for unmarried individuals, $72,450 for married couples filing jointly and $36,225 for married individuals filing separately.
Their letter also stated that personal credits will be allowed to offset the AMT in 2010.
Depending upon when this legislation is enacted it may affect the issuance of the 2010 Form 1040 and the date upon which electronic filing may begin.
Tuesday, July 06, 2010 Home Buyers Tax Credit
President Obama signed the bill on July 2 giving taxpayers, who qualify, until midnight on September 30, 2010 to take title to their new home. Thursday, July 01, 2010 Home Buyers Tax Credit
Update- Last night the Senate passed the extension as well. It is now going to the President for signature. Wednesday, June 30, 2010 Home Buyers Tax Credit
The $8,000 home tax credit expired on April 30, 2010. However, anyone who had a contract in place on that date could qualify for the credit as long as they closed title before July 1, 2010. As we all are aware, if you went to contract in late April it is very difficult to accomplish the closing by July 1. Many clients are faced with the dilemma caused by this restrictive closing date. Yesterday the House passed "The Home Buyer Assistance Act of 2010" which would extend the closing deadline to midnight on Sepember 30, 2010. The Senate is expected to pass a similar measure and once passed the President is expected to sign the bill.
As soon as this provision is signed into law (hopefully !) we will send out a further blog. Any thoughts? Friday, April 23, 2010 NYS Tax Update
Lara and Neil attended the NYS Bar Association NYS and NYC Tax Institute yesterday, and while none of these provisions have as of yet been passed, there are a number of proposals that appear likely to be included in the final budget bill. Among them are:
1) A provision that would make Covenant Not to Compete payments to Non-Residents New York Source Income if the payments relate to a NY business.
2) Substantial changes to the OIC program including eliminating the requirement that the taxpayer have either filed bankruptcy or been insolvent, and changing the calculation of the minimum offer from the Maximum Amount that can be Collected Under the Law to an amount that Reasonably Reflects Collection Potential.
3) The elimination of the client Opt-Out as an automatic ground for the abatement of the penalty for failure to e-file. (This provision is apparently in response to a concern about the abuse of the client opt-out).
4) Allowing same-sex couples whose marriages are now recognized in NY to file Joint NY State returns. The filing of these returns will require the preparation of a pro-forma Federal return.
In addition, there are currently two bills before the NYS Legislature (S.6951 & S.2409A) both of which are intended to reverse the current rule that makes LLC members and Limited Partners per se personally responsible for unpaid Payroll and Sales tax regardless of whether they would otherwise meet the definition of Responsible Persons.
Lastly, Acting Commissoner Woodward announced that the NYS website will soon contain a list (in searchable form) of EVERY taxpayer against whom a Tax Warrant has been filed.
These issues will all likely be decided in the next few weeks and months and they will be discussed in detail at future seminars. Wednesday, March 03, 2010 First Time Home Buyer Credit update
The IRS has reposted Form 5405 (First-Time Homebuyer Credit and Repayment Credit) with a special note concerning the attachment of the settlement statement. The Form's instructions requires that a signed settlement statement be attached to 2009 returns claiming the credit. The special note recognizes the fact that depending on the jurisdiction the settlement statement may not contain the signatures of the buyer and seller. Where signatures are not on the settlement statement the IRS is requesting that the buyer sign the settlement statement before it is attached to the return. The full note is reproduced below:
"While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and the seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required, the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line." Tuesday, February 16, 2010 Pay-As-You-Go (PAYGO)On February 12, President Obama signed into law the Statutory Pay-As-You-Go Act of 2010. The bill requires that any new non-emergency legislation affecting tax revenue not increase the federal deficit. In other words, any tax reduction provisions must be paid for by other tax increases.
It is interesting to note that the following tax provisions have been exempted from PAYGO:
Extension of the 2009 Estate and Gift Tax provisions;
An Alternative Minimum Tax patch;
A permanent extension of the Section 179 increases; and
Making permanent any middle class tax cuts (i.e. reduced capital gains and dividend rates, educational incentives, elimination of limits on personal and dependency exemptions and itemized deductions, and tax rate reductions). Tuesday, January 19, 2010 IR 2010-6 Home Sale ExclusionThe IRS has issued the new Form 5405, First Time Homebuyer Credit and Repayment of the Credit. This form is to be used to claim the first-time and second-time homebuyer credit on 2009 Income Tax Returns. The IRS announced that it will begin processing 2009 returns that claim the credit in mid-February. 2009 returns claiming the credit cannot be filed electronically.
One of the following documents must be attached to the new form:
1. A copy of the settlement statement showing all parties' names, addresses and signatures, the address of the property, the sales price and the date of purchase.
2. For newly constructed homes where a settlement statement is not available, a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.
To qualify for the "long-time resident credit" (the second-time homebuyer credit) the IRS is requesting the following documents to prove the 5 consecutive-year period out of the eight prior years requirement:
1. Copies of Form 1098, Mortgage Statement for the applicable years, or
2. Copies of property records, or
3. Homeowner's Insurance records.
To view a copy of the new form go to the following IRS website address:
http://www.irs.gov/pub/irs-pdf/f5405.pdf
Wednesday, December 30, 2009 2010 Where do we go from here?Here we are on December 30, 2009 and there has been no change to the upcoming one-year repeal of the Federal Estate Tax. If anyone had told me, at any time within the past ten years, that I would be discussing the repeal at this time I would have told them they were crazy. But it appears that the truly crazy people are our elected officials in Washington.
Let me give you something to think about and we would like to hear what you have to say in this matter. There are two possible senarios that we must contemplate:
First- Congress will do nothing in 2010 to the estate tax. If this happens there will be a one year moratorium and many plugs will be pulled. For people dying in 2010 there will be no estate tax, the beneficiaries (with limited exceptions) will inherit assets with a carry-over basis (instead of a stepped-up basis) and gifts over and above the annual exemptions and life-time exemption will be taxed at a rate of 35%. On January 1, 2011 the estate and gift taxes will revert to the rules that were in place ten years ago (Exemption of $1,000,000 and maximum tax rate of 55%).
Second- During 2010 Congress will enact a "permanent estate and gift tax law." Based upon bills introduced into the House and the Senate, in 2009, the exemption may stay at the $3.5 million level, the tax rate will be at most 45%, possibly lower, and stepped up basis will be reinstated.
Generally, the government does not like to pass tax legislation retroactively (unless it benefits taxpayers). Ponder this: A taxpayer dies early in 2010. Congress enacts an estate tax subsequent to the date of the taxpayer's death. What is going to happen?
Will the estate tax be applied retroactively? Will there be some blending of tax rates to soften the blow to the estate? Can you have two taxpayers who died in 2010, both with identical estate values, where one dies before the enactment and one dies after, where their estates are taxed differently?
Welcome to the State of Confusion. Your comments would be welcome.
Bob Katz
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