Tag Archives: IRS

IRS: Use of Work Cell Phones No Longer Taxable

In a rare gesture of friendliness toward taxpayers, last week the IRS allowed that personal use of employer provided cell phones generally will now be considered nontaxable — a working condition fringe benefit, the value of which is excludable from the employee’s taxable income.

It has been about a year since cell phones were removed from the “listed property” category if IRC Section 280F. And now, in Notice 2011-72, IRS states that where an employer provides employees with cell phones primarily for noncompensatory business reasons, neither the business nor personal use of the phone will result in income to the employee, and no recordkeeping of usage is required. Further, in most instances, an employer’s reimbursement for employees’ cell phone costs associated with bona fide business use won’t be taxable. This guidance applies for all tax years after 2009.

Notice 2011-72 does not address, however, the treatment of reimbursements received by employees from employers for the business use of an employee’s personal cell phone.

The Notice provides that an employer is treated as having provided an employee with a cell phone primarily for noncompensatory business purposes if there are substantial reasons relating to the employer’s business, other than providing compensation to the employee, for providing the phone.

Examples of substantial noncompensatory business reasons for requiring employees to maintain personal cell phones and reimbursing them for their use include:
1. The employer’s need to contact the employee at all times for work-related emergencies; and
2. The employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office or at times outside the employee’s normal work schedule.

IRS Issues Guidance for 2010 Decedents’ Estates

IRS issued a couple of important pronouncements last week that could be of interest for executors of 2010 decedents’ estates.

Recall that 2001 legislation repealed the application of the federal estate tax to estates of people who died in 2010. On December 17, 2010, however, the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (TRUIRJCA) was enacted, retroactively reinstating the estate tax. However, one of the provisions of TRUIRJCA allows the executor of the estate of a 2010 decedent to “opt out” of the estate tax, and thereby have the carryover basis rules apply, with certain potentially important modifications.

These executors will be required to file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent. The Form will be due November 15, 2011, though the final version of the form has not yet been published by IRS! (for now, you can see the draft version here)

Rev Proc 2011-41 (issued August 5, 2011) provides the necessary guidance to executors regarding the “safe harbor” procedures of making the IRC Section 1022 election, and Notice 2011-66 (issued August 5, 2011) provides guidance regarding the time and manner of choosing to opt out of the estate tax and have the modified carryover basis rules apply.

It is important to note that Form 8939 is due November 15, 2011. IRS will not grant extensions of time to file a Form 8939, and will not accept an amended Form 8939 after the due date, with limited exceptions.

So You Say You Want a Private Letter Ruling?

Maybe so — but be sure you understand what you are getting.

A private letter ruling (PLR) is a written statement by the IRS to a specific taxpayer in response to a written inquiry, which generally requests guidance as to the tax effects of a specific contemplated transaction. Significantly, a PLR is only binding with regard to the requesting taxpayer and may not be cited (officially) as precedent which is in any way binding on IRS. The IRS’ instructions to its people states that PLRs “may not be used as precedents in the dispositions of other cases but may be used as a guide with other research material in formulating an area office position on an issue.” (IRM

Although PLRs are technically only binding on the requesting taxpayer, they do reflect the attitude of the Service on given issues, and have been cited by the Supreme Court, and various other levels of the Federal Courts as evidence of IRS’ position on a matter.

Contrast the PLR with a technical advice memorandum, or TAM issued by IRS. These documents are issued by the IRS national office, generally at the request of the IRS Appeals Division, though taxpayers can request that the examining or appeals officer (in a tax audit situation) seek technical advice on an issue.

TAMs are not precedent that is binding on IRS, but some courts have likewise cited them as supporting a taxpayer’s position and revealing IRS’ interpretation of the law. (Buckeye Power Inc. v. U.S., 1997, Ct Fed Cl 79 AFTR 2d 97-2794)

Our “Voluntary” Tax System: Dispelling the Myth

Every once in a while, some uninformed bloke or other will pontificate about how income taxes in this country are all “voluntary,” and therefore those who don’t pay aren’t really violating the law.

But the IRS points out that the requirement to pay taxes is NOT voluntary and is clearly set forth in Section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts, not to mention Section 11 which similarly imposes income tax on corporations. And beyond all of that, Section 6151 requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the malingerer to criminal penalties, including fines and imprisonment!

And in discussing Section 6151, the Eighth Circuit Court of Appeals noted, “when a tax return is required to be filed, the person so required ‘shall’ pay such taxes to the internal revenue officer with whom the return is filed at the fixed time and place. The sections of the Internal Revenue Code imposed a duty on Drefke to file tax returns and pay the ….. tax, a duty which he chose to ignore.” (United States v. Drefke, 707 F2d 978, 981, 8th Cir. 1983)

And the same goes for the actual filing of returns — not “voluntary” either, according to IRC Sections 6011(a), 6012(a) et seq, and 6072(a). And as the IRS will tell you, the word “voluntary,” as used in IRS publications, refers simply to our system of allowing taxpayers to determine the correct amount of tax and complete the appropriate returns themselves, as opposed to having the government determine the tax for them.

Foreign Account Reporting Deadline Looms

Any U.S. person who had a financial interest or signature authority over any financial account located outside of the U.S. in 2010 is required to file form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (FBAR) by June 30, 2011. The filing requirement applies if the aggregate value of those accounts exceeded $10,000 at any time during the calendar year. The form must be received by June 30 – not just mailed by that date. And there are no extensions granted!

The definition of a “financial account” includes a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution. A “financial account” also includes a commodity futures or options account, an insurance or annuity policy with a cash value, and shares of a mutual fund or similar pooled fund.

A “foreign financial account” is a financial account located outside of the U.S., such as an account maintained with a branch of a U.S. bank that is physically located outside of the U.S.
And the definitions go on, and get more complicated. A U.S. person has a “financial interest” in a foreign financial account for which:

1. He is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person; or

2. The owner of record or holder of legal title is, among other things, an agent of the U.S. person, a corporation in which the U.S. person owns more than half of the value of the shares, a partnership in which the U.S. person owns more than half of the partnership’s income or capital, or a trust with respect to which the U.S. person has some relationship.

Consult a tax pro on this one — a person required to file an FBAR and who fails to properly file may be subject to a civil penalty of up to $10,000! Willful failure to file may subject you to a civil penalty equal to the greater of $100,000 or 50% of the balance in the account at the time of the violation!!