Category Archives: Uncategorized

Land Sale Gain Deemed Ordinary Income!

A California District Court recently held that a taxpayer sustained ordinary income, not long term capital gain income, from a land sale because the underlying facts showed an intent to develop the property, as opposed to holding it for long term investment gain.

The decision (Frederic Allen v. U.S. (DC CA 5/28/14) 113 AFTR 2d) reminds us that conclusions in matters of this sort are directly dependent on the facts of each case in the context of factors which courts have identified, including:

  • The nature of the acquisition of the property,
  • The frequency and continuity of sales over an extended period,
  • The nature and the extent of the taxpayer’s business,
  • The activity of the seller concerning the property, and
  • The extent and substantiality of the transactions.

The Court in Allen found that the evidence was demonstrable that the taxpayer intended to develop the property when he purchased it and that he undertook substantial efforts to develop it during the time that he owned it.

Amnesty for Some Delinquent Forms 5500

IRS recently announced a one year pilot program under which small business which may not have filed required Forms 5500 in recent years.  Under the program, catch-up filings will be permitted without imposition of the usual penalties.

Unlike IRS’ usual stance with respect to any number of different delinquent filings, leniency is being offered in cases in which small businesses may have been “unaware” of the filing requirements!

If this is you, and if IRS hasn’t already caught up with you and assessed the penalties (which can reach up to $15,000 per year!) you should look further into the particulars of this program.  See Rev Proc 2014-32.

IRS Crowing About E-Pay Success

IRS last week announced the successful start of its new web-based tax payment system – “IRS Direct Pay.”  Commissioner Koskinen says “IRS Direct Pay simplifies the payment process, and taxpayers can make a payment from the convenience of a home computer.”

Thus far, more than 150,000 taxpayers have remitted more than $340 million in taxes through this system.  Taxpayers receive instant confirmation of each payment via this system, which is available 24-7.

IRS says that bank account information is not retained – we’ll leave that assertion  to you to take or leave.

If you’re interested, go to, and locate the “pay your tax bill” icon, following the instructions from there.

Don’t Forget Small Business Health Care Tax Credit

Small employers which pay at least half of the premiums for employee health insurance under a qualifying arrangement may be eligible for the small business health care tax credit.

The credit is targeted to small employers who primarily employ low and moderate income workers.  In 2014, the maximum credit is 50% of premiums paid on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.

Check out Form 8941 for use in claiming the credit.

IRS’s Duty to Contact Taxpayer at ‘Last Known Address’

The recent decision in the Georgia case of Music v. U.S. reminds us that IRS has to follow the rules, just as do taxpayers.  Particularly when threatening levy action.  IRS may levy only if it sends the taxpayer notice of its intent at least 30 days prior to the action itself, and sends such notification to the taxpayer’s “last known address.”

In this case, IRS sent repeated notices to the taxpayer’s former Florida address to no avail.  It seems IRS knew the taxpayer’s employer was located in Georgia, and therefore should have been on notice as to where to contact the taxpayer.  And so concluded the Court, which ruled IRS was negligent in sending the repeated notices to the incorrect address.

Non-Profit Filing Deadline Looms

Don’t forget that May 15 is the filing deadline for calendar year tax exempt organizations.  Get that Form 990 (series) filed by that date, or get your extension in by then to secure three months of additional filing time.

Sometimes, very small exempt organizations fail to file at all, due usually to lack of familiarity with the rules by their typically hard-working key people, and not due to any intentional malfeasance.   Check your organization’s status – failure to file for three consecutive years can result in automatic revocation of tax exempt status!

And if you are up to date on your filings, also be sure to accomplish the usual public disclosure which most exempt organizations must do.

New FBAR Filing Rules

Folks owning foreign financial accounts, who may have grown accustomed to annually filing Form TD F 90-22.1 are facing some changes this year.

Starting with 2013 filings (due by June 30, 2014), taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during the year must ELECTRONICALLY (no more paper forms) file a Financial Crimes Enforcement Network (FinCEN) Form 114.  Check out for the details of this new form and filing procedure, as well as details regarding Form 8938, Statement of Foreign Financial Assets, which must also be included with the annual income tax return.  The simple “yes or no” questions which have long appeared on Schedule B of the individual return form are still there, but may only be the start of an individual’s reporting obligation.

IRS Clarifies IRA Rollover Ground Rules

Taxpayers have long been allowed to withdraw funds from an IRA, and not be taxed on the distributions as long as the sum was paid back to an IRA within a 60 day period – and this sort of transaction has only been allowed only once per year.

Proposed IRS regulations and IRS Publication 590 provide that this limitation is to be applied on an “IRA by IRA” basis, although the recent Tax Court decision (Bobrow v. Commissioner) stands for the notion that this limitation is to be applied on an “aggregate” basis, in cases where a taxpayer has multiple IRAs in place.

So, IRS recently notified taxpayers (Announcement 2014-15) that it will follow Bobrow, and accordingly intends to withdraw the proposed regulation and revise Publication 590.

As a timing matter, IRS will not apply Bobrow, however, to any rollover occurring before January 1, 2015.

What is a Principal Residence?

A very recent New York District Court decision (Cohen v. U.S., 2/28/14) provides a lot of good narrative for taxpayers wondering how Internal Revenue Code Section 121 (Exclusion of Gain From Sale of Principal Residence) truly works.  The taxpayers here sought a refund of taxes paid arising from the sale of certain real estate which they claimed was their principal residence, albeit the facts of the case included complications related to the use of the property by children and other family members.

Indeed, the Court notes “The central question in this case (is):  whether (the property) was used by the Cohens as their ‘principal residence’ during the period David and Nicole (son and daughter-in-law) were living there,” and the fact that the regulation discussing this term sheds little light on how it should be interpreted, providing only that whether property is used by a taxpayer as his principal residence depends upon all of the surrounding facts and circumstances.

The Court goes on to state that it is not “aware of any cases that discuss the term in factual circumstances similar to what has been presented here.”

Unfortunately, the taxpayers’ arguments were insufficient to carry the day in this case (to include securing the government’s agreement that the accuracy-related penalty should not apply).  But the discussion will be enlightening to folks whose living arrangements may not be quite so clear-cut relative to whether the Section 121 exclusion may be available to them.

Keep IRS Posted on Your Address

Folks sometimes wonder how important it is to keep IRS informed of your current address. Short answer: it is important – don’t overlook it.

Most importantly, some IRS communications are time sensitive, and bad things can happen if you don’t respond within a certain time frame. Thus, you don’t want their letters to you laying around in an old, perhaps unattended mail box, or returned to the “dead letter” department at the Post Office, where they may languish for many moons.

There are several ways to notify the IRS of an address change, including:

  • The filing of an annual (or other periodic) tax return, reflecting your current, new address
  • Submission of a Form 8822, or other written notification
  • Electronic notification – some taxpayers submit their new address information through one of the secure applications found on the IRS website, such as Where’s My Refund?