Federal Tax Update - April 15, 2013

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Lynn Nichols of Nichols Patrick CPE delivers the latest tax updates in this week’s podcast. Lynn will be in Florida in June teaching two courses. For more information about then, click below.

6/24 Ft. Lauderdale Medical Finances: Enhancing Your Value to a Medical Practice
6/25 Orlando Medical Finances: Enhancing Your Value to a Medical Practice

For all of your CPE needs, please go to www.ficpa.org/cpe. The podcast covers the following topics this week.

(‘Doc’ numbers are citations to the listed item in Tax Analysts’ Tax Notes Today)

  1. D.C. Circuit Affirms S Corporation Loss Cannot Be Delayed, Penalty
    (Marc S. Barnes et ux. v. Commissioner; USDC DC; No. 12-1284; 4/5/2013)
    The D.C. Circuit affirmed a Tax Court decision that held a couple liable for a tax deficiency and accuracy-related penalty, finding no error in the court's determinations that they had insufficient basis in an S corporation to deduct the full amount of losses they claimed and that they failed to show they overreported income on their return. [Doc 2013-8196]

  2. Cancellation of Notes Due From Partner Is Deemed Distribution
    (LTR 201314004; 12/20/2012; rel. 4/5/2013)
    The IRS ruled that a partnership's cancellation of notes receivable from a partner will be treated as a distribution of cash from the partnership to the partner under reg. section 1.731-1(c)(2). [Doc 2013-8132]

  3. Vehicle Service Contracts Qualify as Insurance
    (LTR 201314020; 12/19/2012; rel. 4/5/2013)
    The IRS ruled that vehicle service contracts are insurance contracts for federal tax purposes and that the companies that issue and administer the contracts will be taxed as insurance companies under section 831 as long as more than 50 percent of their business during the tax year consists of issuing the contracts. [Doc 2013-8148]

  4. S Corp Does Not Have More Than 1 Class of Stock
    (LTR 201314031; 12/30/2012; rel. 4/5/2013)
    The IRS ruled that an S corporation's election was effective as of a certain date, that transitory ownership of stock by a corporation as part of a reorganization didn't cause it to have an ineligible shareholder, and that disproportionate distributions to shareholders didn't create a second class of stock for purposes of section 1361(b)(1)(D). [Doc 2013-8159]

  5. “CARDS” Transaction Lacked Economic Substance
    (Mark L. Kerman et ux. v. Commissioner; CA 6; No. 11-1822; 4/8/2013)
    The Sixth Circuit affirmed a Tax Court decision that disallowed losses an individual claimed from a custom adjustable rate debt structure tax shelter transaction and held him liable for a 40 percent valuation misstatement penalty, holding that the transaction lacked economic substance and that he didn't act reasonably or in good faith. [Doc 2013-8363]

  6. a. Cancellation of Debt Not Compensation, No Accuracy-Related Penalty
    (John E. McAllister Jr. v. Commissioner; T.C. Memo. 2013-96; 4/8/2013)
    The Tax Court, declining to impose an accuracy-related penalty for understatement of tax, held that an individual received unreported cancellation of debt income from his former employer and that a portion of it is excludable from income because he was insolvent. [Doc 2013-8399]

    b. Advances to New Physicians Not Loans; Medical Clinic Denied Refund of FICA Taxes Paid
    (Vancouver Clinic Inc. v. United States; USDC W WA; No. 3:12-cv-05016; 4/9/2013)
    A U.S. district court denied a medical clinic a refund of FICA taxes it paid on advances to new physicians under loan agreements that provided the loans would not have to be repaid if the physicians worked at the clinic for five years, finding that the advances were compensation subject to employment and income tax. [Doc 2013-8598]

  7. Sole Shareholder's Compensation Unreasonable; Penalty Applies to Tax Underpayment
    (Aries Communications Inc. et al. v. Commissioner; T.C. Memo. 2013-97; 4/10/2013)
    The Tax Court, after considering expert testimony and factors for determining the reasonableness of compensation, held that the compensation paid to a communications corporation's sole shareholder was unreasonable and only a portion was deductible under section 162; the court upheld an accuracy-related penalty on the resulting tax underpayment. [Doc 2013-8720]

  8. IRS Fact Sheet Explains How to Report Natural Resources Income
    (FS-2013-6; 4/11/2013)
    The IRS has released a fact sheet alerting taxpayers who own land with valuable natural resources that arranging for the development of the resources through a lease creates tax consequences. [Doc 2013-8826]

  9. Reporting Requirements for Gifts From Foreign Individuals
    (INFO 2013-0015; 3/5/2013; rel. 3/29/2013)
    The IRS described when an individual will be considered a U.S. resident for gift tax purposes and how a gift from a person not a U.S. resident or citizen should be reported. [Doc 2013-8845]
LAST UPDATED 4/15/2013