T for Taxes http://www.tfortaxes.com Helping Make Taxes ABC Simple and the IRS Less Threatening Mon, 02 Jan 2017 16:31:54 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.6 The Home Office Deduction http://www.tfortaxes.com/2015/01/02/the-home-office-deduction/ Fri, 02 Jan 2015 22:10:44 +0000 http://www.tfortaxes.com/?p=361 Entrepreneurs are the new pioneers.

They are creative, intrepid and fast-moving. Most businesses in the United States are small businesses, and the self-employed entrepreneur is the new normal in our economy.

It is not surprising, then, that more and more business people are interested in ways to save tax dollars as they grow their business enterprises from small to great. Every dollar counts when you’re the boss, and every dollar saved on taxes is a dollar that you can invest in your business (or even pay yourself!).

Recently, I published a short e-book that is available on Amazon.com. It is entitled “The Entrepreneur’s Guide: Saving Taxes with the Home Office Deduction.” It explains how the new home-based entrepreneur can write-off the expenses that are allocable to a portion of his home (whether that’s a mansion or an apartment) as long as he or she follows some simple (but important) rules.

If you’re a self-employed business owner and are interested in learning more about the home office deduction, take a look at my new e-book.

Here’s a link to where you can find it on Amazon. com:

Home Office Deduction E-Book

By the way, good luck to all of my fellow entrepreneurs. Let’s make 2015 a great year and one in which we are organized and focused on smart tax planning and tax savings.


IRS Collections, Private Collection Agencies, and the EXPIRE Act of 2014 http://www.tfortaxes.com/2014/07/10/irs-collections-private-collection-agencies-and-the-expire-act-of-2014/ Fri, 11 Jul 2014 00:30:54 +0000 http://www.tfortaxes.com/?p=357 Senate Bill 2260 is entitled the “Expiring Provisions Improvement, Reform, and Efficiency Act of 2014” or more succintly the “EXPIRE Act of 2014.”

At present, the website govtrack.us gives the Senate Bill 2260 a 28% chance of being enacted into law. The status of Senate Bill 2260 is that it was reported by committee on April 28, 2014.

One provision of what would become the EXPIRE Act of 2014 if it were to be enacted is particularly troubling. Section 304 would require that a private debt collection be operated by the IRS with all inactive tax receivables being assigned to private collection agencies.

On May 14, 2014, the National Taxpayer Advocate, Nina Olson, wrote a letter to the chairmen of the Senate Finance Committee, the House Ways and Means Committee, and the House Subcommittee on Oversight of the Ways and Means Committee, as well as the ranking members of those committees, addressing her concerns over the EXPIRE Act’s mandate to use private collection agencies to collect delinquent federal tax debts.

You can read Ms. Olson’s letter at this link:

Taxpayer Advocate Letter to Congress

As of now, it appears unlikely that the EXPIRE Act of 2014 will actually become law. However, as a result of the inclusion of Section 304 providing for private debt collectors to get into the IRS tax debt business, it is important to keep an eye out for any Congressional movement on Senate Bill 2260.


Want to Avoid an IRS Audit? http://www.tfortaxes.com/2014/07/04/want-to-avoid-an-irs-audit/ Fri, 04 Jul 2014 14:08:22 +0000 http://www.tfortaxes.com/?p=354 An IRS audit has to be one of the most stressful experiences that someone can have.

Do you have problems just finding records from a year or two ago? Just wait until the IRS comes knocking and asks for all your relevant records from several years in the past.

The good news for taxpayers in my home state of Tennessee as well as throughout the United States is that the odds of being audited by the IRS are relatively low–hovering somewhere around 1%, perhaps a bit less.

Of course, your own personal return may make you a more inviting target for an audit than the next person–the IRS has a proprietary system of selecting returns for audit based on your tax return’s DIF score. Essentially, the IRS has a complex algorithim that compares your return with averages in a number of categories to see if you stray and by how much from the average return.

The Tax Court on July 1 decided a case, Hunter v. Commissioner, that also provides a valuable lesson to taxpayers interested in avoiding an IRS audit.

The facts in Hunter are very complicated. In essence, the taxpayers in question entered into a transaction that generated capital losses, which were then used to offset the taxpayers’ significant gains.

The problem according to the IRS, however, was that the transaction that generated the capital losses lacked economic substance. The bottom line in the IRS’s view was that the transaction was entered into for the purpose of saving taxes, not for a valid business reason with economic substance apart from the tax savings purpose.

Keep in mind that a transaction must have economic substance in order to be respected by the IRS for tax purposes.

If you want to avoid an IRS audit or at least reduce your chances of being audited, be wary about entering into any transaction just to save on taxes–each transaction you enter into should have a valid business purpose and have economic substance apart from tax savings.


New IRS Form 1023-EZ http://www.tfortaxes.com/2014/07/01/new-irs-form-1023-ez/ Wed, 02 Jul 2014 03:47:45 +0000 http://www.tfortaxes.com/?p=352 There’s a new Form 1023-EZ that small non-profit organizations can file online to apply for tax-exempt status. In order to qualify to use Form 1023-EZ, the organization must have annual gross receipts that do not exceed $50,000 and assets that do not exceed $250,000.

Financial projections are not required in Form 1023-EZ, which substantially simplifies the process. Although the new form does not mention the need for a conflicts of interest policy, as the standard Form 1023 does, it is still a good idea for all tax-exempt organizations to adopt such a policy.

IRS Commissioner to Testify on Capitol Hill Again Today http://www.tfortaxes.com/2014/06/23/irs-commissioner-to-testify-on-capitol-hill-again-today/ Mon, 23 Jun 2014 15:59:37 +0000 http://www.tfortaxes.com/?p=347 IRS Commissioner Koskinen will testify on Capitol Hill again today, this time before the House Committee on Oversight, chaired by Rep. Darrell Issa. If last week’s hearing is any indicator, look for today’s hearing to be testy.

The U.S. Tax Court did not release any opinions this past Friday, June 20, 2014.


Received a 90-Day Letter? Be Careful How You Send Your Tax Court Petition http://www.tfortaxes.com/2014/05/13/received-a-90-day-letter-be-careful-how-you-send-your-tax-court-petition/ Tue, 13 May 2014 19:26:32 +0000 http://www.tfortaxes.com/?p=343 If you receive a notice of deficiency from the Internal Revenue Service, you have 90 days from the date of the notice to file a petition with the Tax Court, contesting the proposed deficiency. If you fail to do so, then the IRS can assess the additional tax deficiency and proceed to collect against you. Due to the 90-day time limitation to file a Tax Court petition, the statutory notice of deficiency is commonly known as a “90-day letter.”

A case decided yesterday by the Tax Court demonstrates that it is absolutely crucial to not let the 90-day limitation run if you wish to take your case to the Tax Court.

In Sanders v. Commissioner, T.C. Summary Opinion 2014-47, filed May 12, 2014, on February 5, 2013, the taxpayer received a notice of deficiency dated February 2, 2013. Based on the date of the notice of deficiency (i.e., February 2, 2013), the taxpayer had 90 days or until May 3, 2013, to file a Tax Court petition.

On Thursday, May 2, 2013, the taxpayer had his Tax Court petition sent to the Tax Court by United Parcel Service (UPS) using its UPS Ground service. The taxpayer’s petition arrived at the Tax Court on Monday, May 6, 2013.

The Internal Revenue Service filed a motion requesting that the taxpayer’s petition be dismissed as filed too late.

Was it too late? After all, the taxpayer sent the petition on May 2, prior to the deadline, but it was delivered on Monday, May 6, rather than on Friday, May 3, the deadline.

The Tax Court acknowledged that although the result might seem harsh, the petition had not been timely filed. In other words, had the UPS package arrived on Friday, May 3, instead of Monday, May 6, the petition would have been timely. The fact that the UPS package had been sent before the deadline was not relevant.

What could the taxpayer have done to have avoided this result?

The Taxpayer could have mailed his petition through the U.S. post office, rather than a private delivery service such as UPS. If the taxpayer had simply mailed his petition at a U.S. post office by the deadline of Friday, May 3, the petition would have been timely. Under Section 7502(a) of the Internal Revenue Code, a timely mailed petition may be treated as though it were timely filed. Thus, if a petition is received by the Tax Court after the expiration of the 90-day period, it is nevertheless deemed to be timely filed if the date of the U.S. Postal Service postmark stamped on the envelope in which the petition was mailed is within the time prescribed for filing.

If a taxpayer wishes to rely on the “timely mailing as timely filing” doctrine, it is advisable to always use certified or registered mail to have proof of timely mailing. Thus, had the taxpayer sent the petition via certified U.S. mail on Friday, May 3, rather than via UPS Ground on Thursday, May 2, the taxpayer’s petition would have been timely.

Additionally, there are several private delivery services that the Internal Revenue Service has recognized as essentially equivalent to as the U.S. Post Office for purposes of the “timely mailing as timely filing” doctrine. These include the following: (1) DHL Same Day Service; (2) FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First; and (3) UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

Although United Parcel Service does have certain services that meet the “timely mailing as timely filing doctrine,” UPS Ground is not one of those services. Thus, if the Taxpayer had sent his petition on May 2 (or even May 3) via UPS 2nd Day Air rather than via UPS Ground, the petition would have been timely.

The Tax Court noted that the timely filing of a petition is a jurisdictional requirement for the Tax Court, and that the Tax Court cannot rely on general equitable principles to expand the statutorily prescribed time for filing a petition.

The moral of this story is simple: if you are filing a Tax Court petition, make sure that you meet the 90-day limitation by timely mailing your petition by U.S. mail or one of the specifically permitted private delivery services. If in doubt, don’t get creative. Just use the U.S. Post Office and mail your petition by certified mail so that you will have proof of timely mailing.


Tax Court Provides Guidance on What It Means for an Asset to be “Placed in Service” http://www.tfortaxes.com/2013/12/11/tax-court-provides-guidance-on-what-it-means-for-an-asset-to-be-placed-in-service/ Wed, 11 Dec 2013 22:20:56 +0000 http://www.tfortaxes.com/?p=341 Regular readers of “T for Taxes” know that my favorite Tax Court Judge is Judge Holmes. Some inveterate readers and book lovers get excited when there is a new novel out by John Grisham, for example. I’m certainly a book lover and reader myself, and I could provide a substantial litany of writers whose books I can’t wait to read when they hit the bookstores.

But, as a tax aficionado, I get that “can’t wait to read” attitude whenever I discover a new U.S. Tax Court opinion by Judge Holmes. Let me tell you, even if you can’t tell a deduction from a credit, you should do yourself a favor and look up one of Judge Holmes’ opinions–they read like great stories of intrigue and suspense. Each and every opinion by Judge Holmes restores a tax professional pride that he has chosen the sometimes bumpy career path of federal taxation.

So, as you might have surmised, today I am going to highlight a new Tax Court opinion authored by Judge Holmes. The case in question is Brown v. Commissioner, Tax Court Memo 2013-275 (December 3, 2013).

In the first couple of pages of the Brown case, Judge Holmes quotes both F. Scott Fitzgerald and Ernest Hemingway regarding the rich. Fitzgerald said that  “the very rich . . . are different from you and me.” Hemingway replied that the “very rich are different from you and me. . . They have more money.”

Judge Holmes says that the facts of this case show that both statements of Fitzgerald and Hemingway are true: “The very rich have much more money and they can use it to do things with insurance that most people can’t.”

The Brown case involves an insurance salesman to the very rich. At issue was whether an airplane he purchased was placed in service in 2003 or in 2004. The facts of the case are fascinating, but the legal issue and its resolution is ultimately more important for readers of this blog who may wish to learn a thing or two about what it means to place an asset into service for tax purposes.

Property is first placed in service when placed in a condition or state of readiness and availability for a specifically assigned function. In the Brown case, the taxpayer took delivery of the airplane on December 30, 2003, and used it in business that day. However, a few days later, the plane was returned to the manufacturer to complete a previously-planned upgrade to add a conference table and larger video screens, both of which the taxpayer had earlier indicated he needed for business purposes. That upgrade took about a month.

Although the plane was operational in 2003 and used in business in 2003, the Tax Court held that the airplane was not available for its intended use on a regular, ongoing basis in 2003, and, thus, could not be deemed “placed in service” until 2004.

What is especially interesting about this case is this–as Judge Holmes notes, it is the taxpayer who gets to determine what an asset’s “specifically assigned function” is. In this case, the Tax Court determined that the taxpayer’s  specifically assigned function for the airplane required it to have a conference table and larger video screens so that the taxpayer could use those for business presentations while in flight. Another taxpayer who simply needed a more basic jet aircraft to get him from Point A to Point B could have taken delivery of the very same plane in 2003 and it would have been deemed placed in service in 2003.

The moral of the story: if it is important to make sure that you have placed a particular asset in service in a particular year, make sure that it is available to you for its intended use on a regular and ongoing basis in that year. If your intended use requires upgrades, make sure that those are completed in the year in which you wish to have the asset treated as placed in service.




Government Shutdown Slows Down IRS Activities http://www.tfortaxes.com/2013/10/02/government-shutdown-slows-down-irs-activities/ Wed, 02 Oct 2013 20:36:43 +0000 http://www.tfortaxes.com/?p=336 What impact has the federal government shutdown that went into effect at midnight on October 1 had so far on the IRS?

It has been reported that less than 10% of IRS employees are on the job at present due to the shutdown, and those that are working are for the most part high-level employees that would have been labeled “essential” in the last government shutdown but are now labeled “exempted.”

Because of the shutdown all IRS audit activities have been suspended. Also, if you were to call an IRS office to speak with someone about a tax matter, you would be told via a recorded message that the office is closed due to the government shutdown.

The shutdown is certainly causing pain to a large segment of our population, but a smaller, less active IRS is probably not such a bad thing, at least for the time being.

Better Late Than Never! If You Have Unfiled Tax Returns, Get Them Filed http://www.tfortaxes.com/2013/05/10/better-late-than-never-if-you-have-unfiled-tax-returns-get-them-filed/ Fri, 10 May 2013 16:26:59 +0000 http://www.tfortaxes.com/?p=333 Earlier this week, the U.S. Tax Court published an opinion in a case that demonstrates very, very clearly the importance of getting your tax returns filed.

As you’ve probably often heard, you are always better off filing your tax return on time, even if you cannot pay all of the tax you owe. By filing in a timely manner, you will avoid the late filing penalty.

But even filing late is better than not filing at all, as the case of Brennan v. Commissioner of Internal Revenue, which was filed a couple of days ago, demonstrates.

In that case, the taxpayer failed to file his 2008 federal income tax return. That failure to file set in motion a chain of events that is all too common.

About a year after the date that the taxpayer should have filed his 2008 return, the IRS did what the law permits it to do when a taxpayer fails to file an income tax return–the IRS prepared a return for him, called a “substitute for return” or “SFR.”

When the IRS prepares an SFR for a taxpayer, the taxpayer does not get the benefit of all the deductions he would otherwise be allowed to take into account–the IRS doesn’t know how much you spent on things that would be deductible. All it knows about are the items of income that are reported to it from third-party sources, such as on a Form W-2 or a Form 1099. It is hardly surprising, therefore, than an SFR virtually always results in a higher tax liability than you would otherwise owe if you filed your own tax return.

After the IRS filed an SFR for the taxpayer in this case, it then sent him a “notice of deficiency,” which is also called a 90-day letter. This notice, in effect, gives the taxpayer 90 days to either pay the amount of the deficiency or to challenge it in Tax Court by filing a petition there. The notice of deficiency in this case was for tax of approximately $71,000, plus additions to tax for failure to file a return, failure to pay, and failure to make estimated tax payments.

Since the taxpayer did not pay the amount shown to be due on the 90-day letter and did not file a Tax Court petition, the IRS assessed the amount they showed as due. An assessment is in essence a formal recording in the IRS records of an amount of tax due by a taxpayer, and the assessment is what is required in order for the IRS to proceed to collect the money due from the taxpayer. Accordingly, after the IRS made the assessment in this case, it sent the taxpayer a notice and demand for payment.

Since the taxpayer failed to pay the amount shown on the notice and demand, the IRS sent the taxpayer a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.”

At this point, the taxpayer took action. About 10 days later, the taxpayer requested a Collection Due Process Hearing, sometimes called a CDP Hearing. About a month later, the taxpayer and his wife finally filed a 2008 income tax return.

Although the return was filed approximately 2 years late, the IRS accepted the return and accepted the figure that the taxpayer showed on his return as the amount of tax due as the correct amount of tax. The IRS abated the taxpayer’s tax liability from $71,638 (i.e., the amount of the SFR) to $34,291 (i.e., the amount on the late filed return).

The IRS also reduced the amount of the penalties and interest due since those are based on the amount of tax owed.

Although other issues are addressed in the Brennan case, what it demonstrates on its most fundamental level is this: always, always file your tax returns on time. However, if for some reason you don’t file on time, it’s never too late to get your returns filed, even if you are embroiled in a collection action with the IRS.

If you have unfiled tax returns, it is important to get those returns filed.

Your best course, if you have unfiled tax returns, is to contact a lawyer who has an understanding of IRS matters and can guide you through the process.


Good News–IRS Audits Decrease in 2012 http://www.tfortaxes.com/2013/04/10/good-news-irs-audits-decrease-in-2012/ Wed, 10 Apr 2013 16:02:00 +0000 http://www.tfortaxes.com/?p=330 As April 15 rapidly approaches, harried American taxpayers need some bit of good news, so I am glad to be the messenger of good tidings–even before expected budget cuts attributable to the recent sequester, the number of IRS audits that individual taxpayers were involved in decreased in fiscal year 2012 over the previous year.

In 2012, the IRS reported that there were 1,481,966 income tax audits of individual taxpayers. That sounds like a lot, I know, but it is 5.3% fewer audits than the previous year, even though there were 1.8% more tax returns filed.

The number of face-to-face IRS audits dropped significantly, down 8.5% from the previous year, totaling 358,435 audits.

Correspondence audits continue to account for the bulk of IRS audits. In fiscal year 2012, there were 1,123,531 correspondence audits–quite a few, but still 4.2% fewer than in 2011.

So what are your general chances of being audited? Based strictly on the number of returns and the number of audits, any one return stands about a 1% chance of an audit. Of course, some returns are more likely to be audited than others, but the statistical probability of an IRS audit remains quite low.

If you are audited, the odds are strongly in favor that it will be a correspondence audit–a flurry of letters between the IRS and you. Over the past 20 years, while the number of in-person audits has dropped, the number of correspondence audits has tripled in number.

It seems likely that the trend in favor of correspondence audit will continue, especially given the lower cost of reaching out and touching taxpayers through the mail is less costly than those old-fashioned face-to-face audits.

Just remember, if you receive an audit letter from the IRS, take it seriously and do not ignore it. If you think you would benefit from professional advice and assistance, contact a tax professional immediately. Wishing or hoping that an IRS audit will just go away on its own is a bad strategy.