Archive for October, 2016

Is It a Loan, Contribution of Capital or Wages Paid?

October 25th, 2016 No comments

Reading court cases often reveals how taxpayers can best structure their business transactions. In the Tax Court case of Scott Singer Installations (T.C. Memo. 2016-161), the Court discussed the criteria used to determine whether Mr. Singer was an employee and if personal expenses paid by his S corporation on behalf of Mr. Singer should be treated as wages. Mr. Singer was the sole shareholder and president of his company and served as its sole corporate officer.

To grow his business, Mr. Singer established a home equity line of credit and advanced the entire HELOC to his business. He then refinanced his primary mortgage and advanced those funds to his corporation. He later took a general business LOC and advanced those funds to his company, and borrowed from his mother and her boyfriend. Mr. Singer treated every advance he made to his company Read more…


IRS To Delay Issuance of 2016 Refund

October 18th, 2016 No comments

One of the techniques to combat identity theft used by the IRS and state tax jurisdictions is to delay the issuance of taxpayer refunds. So while the IRS encourages taxpayers to file early to minimize identify theft, the IRS’s may decide to delay the issuance of your refund check to combat ID theft. In fact, if a taxpayer is claiming the Earned Income Tax Credit or the Additional Child Tax Credit, the IRS is required by law to delay by a few weeks the issuance of the refund. This delay of issuing refund checks may likely also apply to those who seek tuition credits.

Where the IRS says that it issues most refunds in less than 21 calendar days, it is not uncommon for taxpayers with large refunds to have to wait 10-12 weeks to receive their refunds. During this extended period, the IRS is checking with third parties and the IRS’s internal records of the taxpayer’s filing history to determine if the refund claim appears legitimate. Taxpayers who are concerned about the status of their refund claims need to contact the IRS. The IRS has on its website a Where’s My Refund tool that will show you if the IRS has received your tax return and if your refund claim is being processed.

Whereas many taxpayers like the idea of receiving a large refund from the IRS, this approach may not be healthy in today’s identify theft environment. The “good news” is Read more…


CPA Loses to IRS in Tax Court

October 11th, 2016 No comments

This is an interesting Tax Court case, if for no other reason, it illustrates the importance of a taxpayer working with an experienced and ethical tax professional. For all those taxpayers who are looking for a CPA and their first question is “How much do you charge to prepare a tax return?” rather than inquiring about the experience and expertise of the tax preparer, here is what you may get.

The CPA (Sam D. Kilpatrick v. Commissioner of Internal Revenue U.S. Tax Court, Dkt. No. 17242-13, TC Memo. 2016-166, August 29, 2016) was audited by the IRS, was denied deductions he had claimed on his personal tax return and was assessed accuracy-related penalties, and decided to represent himself in Tax Court. Perhaps Mr. Kilpatrick never heard of the saying “An attorney who represents himself in court has a fool for a client.” Undoubtedly, this also applies to CPAs who decide to represent themselves.

Mr. Kilpatrick conducted his CPA practice Read more…


Have You Abandoned Your Retirement Account?

October 4th, 2016 No comments

Governor Wolf and the State Legislature of Pennsylvania took a bold step that could conceivably affect the IRA retirement accounts of PA residents. In the budget bill passed in July, a new provision makes it easier for PA to deem IRA retirement accounts “abandoned,” which would thereby require these accounts to be turned over to the state as unclaimed property regardless of the age of the owner of the account.

First, is this legal? Unfortunately for PA taxpayers, it is legal. All states have abandoned property laws, known as escheatment laws. These laws allow a state to take possession of individuals’ lost property so the state could use its greater resources (such as tax and property records) to find lost owners and reunite them with their property. The premise of the law is good. Whether states actually use their greater resources to find the property owners is questionable.

How does the escheat process work? Read more…

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