One of the benefits of Subchapter S corporations is the ability to have losses flow through from the business’ tax return to the individual shareholder’s tax return. These flow-through losses are limited by the shareholder’s tax basis in the S corporation stock. The court recently addressed this limitation in Tinsley v. Commissioner, T.C. Summary Opinion… Continue reading Subchapter S Corporation Losses Limited by Tax Basis
Category: Tax
Bad Credit Results in Disallowance of Bad Debt Deduction
The IRS often challenges bad debt deductions–particularly when the loan is from a family member or friend. The courts have developed several factors that they consider in these disputes. One of these factors is whether the borrower would have been able to secure a loan from a third party. The court recently addressed this in… Continue reading Bad Credit Results in Disallowance of Bad Debt Deduction
Appeals Court Upholds IC-DISC Roth IRA Tax Strategy
The Sixth Circuit Court of Appeals upheld the IC-DISC Roth IRA tax strategy in In Summa Holdings, Inc. v. Commissioner, No. 16-1712 (2017). This tax strategy allows business owners to sidestep the annual Roth IRA contribution limits, thereby allowing the taxpayers to amass sizable amounts in their Roth IRAs to grow tax-free. The case is… Continue reading Appeals Court Upholds IC-DISC Roth IRA Tax Strategy
Discount Loyalty Programs are Not Trading Stamp Companies
Accrual method taxpayers generally must recognize advance payments in taxable income in the year of receipt, because receipt satisfies the all events test. The trading stamp rules are an exception to this all-events test. These rules apply to businesses that have customer loyalty programs. The rules can result in significant tax deferral as they allow… Continue reading Discount Loyalty Programs are Not Trading Stamp Companies
Deducting Back Taxes in Current Year for Defunct Business
Can an S corporation shareholder for a defunct business pay unpaid taxes in the current year, and have the defunct business deduct the payment in the current year? The court addresses this in Brown v. Commissioner, T.C. Memo. 2017-18. Most business owners may miss this deduction given that the business is no longer operating. Facts &… Continue reading Deducting Back Taxes in Current Year for Defunct Business
Deducting Pre-Acquisition Stock Compensation
In Qinetiq US Holdings, Inc. v. Commissioner, No. 15-2192 (4th Cir. 2017), the court addresses the situation where a taxpayer acquired a target corporation and then claimed a substantial tax deduction for expenses the target corporation had paid prior to the acquisition. There are rules intended to prevent taxpayers from being able to deduct pre-acquisition… Continue reading Deducting Pre-Acquisition Stock Compensation
Bad Debt Deduction for Cease-and-Desist Order
With tax losses, one challenge is to determine what tax year the loss is allowable. The loss year is usually identified by a triggering event. Is a cease-and-desist order from the state regulator a triggering event that establishes that a start-up company is worthless in the year the order was received? The court addressed this in Sensenig… Continue reading Bad Debt Deduction for Cease-and-Desist Order
S Corporation Owner Subject to Self-Employment Tax
Taxpayers often establish Subchapter S corporations to avoid Social Security and Medicare taxes on a portion of their earnings. This is a very common arrangement. The Fleischer v. Commissioner, T.C. Memo. 2016-238, court case provides an example of how the Subchapter S corporation must be structured to avoid these taxes. Facts & Procedural History In Fleisher, the… Continue reading S Corporation Owner Subject to Self-Employment Tax
Using IRA Funds to Settle a Probate Dispute
Inherited IRAs can present a number of challenges. In Ozimkoski v. Commissioner, T.C. Memo. 2016-228, the court considered the tax implications of a withdraw from an inherited IRA that was used to settle a probate dispute with the couple’s son. The case shows what not to do when using IRA funds to settle a probate… Continue reading Using IRA Funds to Settle a Probate Dispute
Tax Benefit Rule & Transfers at Death
A sole proprietor incurred a business expense. He dies in the same year. The business expense was for property that would last more than one year. Does the business owner’s estate have to report the amount of the deduction as income? This question is answered by considering the tax benefit rule. The court addressed this… Continue reading Tax Benefit Rule & Transfers at Death