Here is yet another lottery-related tax question: Does a state lottery have to withhold tax from lotto winnings if a single taxpayer wins more than one lottery prize from the same lotto ticket where the total winnings exceed $5,000, but the individual winnings do not exceed $5,000? In PLR 132947-06-2007, the IRS recently held that… Continue reading Yet Another Lottery-Related Tax Question
Category: Federal Income Tax
Federal income tax advice, articles, tips, & more.
The Federal income tax is the largest expenditure for most individuals and businesses. It dwarfs the costs for insurance and basic necessities. This is only going to increase in the future. Tax planning is needed.
This page provides timely and thorough coverage of various Federal income tax law questions, court cases, and rulings.
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Sale of Lottery Payments, Capital or Ordinary?
While lottery winnings may be subject to tax at ordinary tax rates, what about the sale of the right to receive annual lottery payouts? The court addressed this in Prebola v. Commissioner, T.C. Memo 2006-240. Facts & Procedural History The taxpayer won $17.5 million from the lottery. She selected the annual installment option, which would pay out… Continue reading Sale of Lottery Payments, Capital or Ordinary?
Section 104 Survives Non-Murphy Constitutional Challenge
The now famous Murphy decision has left some uncertainties with regard to whether compensation for a personal injuries that are unrelated to lost wages or earnings are taxable. There can be little doubt that the IRS will ask the Supreme Court to settle the issue if the IRS is not successful in the coming Murphy… Continue reading Section 104 Survives Non-Murphy Constitutional Challenge
Civil Restitution Tax Assessment Satisfied by Criminal Restitution Payment
According to the IRS’ tax attorneys, the “The court misconstrued the facts of the case.” That is the conclusion reached by the IRS Office of Chief Counsel in Chief Counsel Notice 2007-008. The case that the IRS attorney refers to is Creel v. Commissioner, 419 F.3d 1135 (2005). The Creel Case In the Creel case… Continue reading Civil Restitution Tax Assessment Satisfied by Criminal Restitution Payment
Referrals/Leads Group is Not a Tax Exempt Entity
In Private Letter Ruling 200709070 the IRS recently held that Exceptional Organizations, a standard referrals/leads group, did not qualify as a tax-exempt “business league.” This ruling presents a good opportunity to review a few of the requirements to qualify as a tax-exempt “business league.” What is a Tax Exempt Business Leage? A “business league” is… Continue reading Referrals/Leads Group is Not a Tax Exempt Entity
Health Reimbursement Arrangements: Employer-Provided Medical Coverage
The business enterprise presents taxpayers with numerous tax planning opportunities. Many of these tax planning opportunities include pulling money out of the entity in a way that benefits both the business and its owners and employees on an after-tax basis. As with employer-provided education benefits, employers may be able to minimize their tax obligations by… Continue reading Health Reimbursement Arrangements: Employer-Provided Medical Coverage
Tournament Poker Accorded Same Tax Treatment as Live-Action Poker
Today, in Tschetschot v. Commissioner, the tax court ruled that taxpayers where not entitled to treat tax losses from tournament poker different than tax losses from live-action poker. Facts & Procedural History In Tschetschot, the taxpayer had earned $49 thousand dollars from her day job and $11 thousand dollars from gambling. The taxpayer claimed a… Continue reading Tournament Poker Accorded Same Tax Treatment as Live-Action Poker
The Hobby Loss Rules: Planning for Unprofitable Businesses
Ordinary and necessary expenses incurred in operating a business are deductible against Federal income tax. This is even true for side gigs or moonlighting work. The IRS frequently challenges these deductions if the activity does not produce a profit. The recent Jones v. Commissioner, T.C. Summary Opinion 2007-21, court case provides an opportunity to consider these rules.… Continue reading The Hobby Loss Rules: Planning for Unprofitable Businesses
Tax Basis Planning for Inherited Property
The gain from the sale property is subject to income tax. Gain is generally the sales price minus tax basis, and tax basis is generally the cost or investment into the property. When a person owns property at death and the property passes to the heirs, the heirs get a tax basis equal to the… Continue reading Tax Basis Planning for Inherited Property
Reconsidering Murphy: Restorative Payments vs. Return of Human Capital
Last year’s Murphy v. United States decision was one of the most controversial tax cases in recent history. Unlike many other tax attorneys, I am not sure that I agree that the Murphy case was wrongly decided. One reason for this is that, in thinking about Murphy, I find it difficult to reconcile why “restorative… Continue reading Reconsidering Murphy: Restorative Payments vs. Return of Human Capital