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Deducting Investment Losses from W-2 Income Requires Active Participation in the Investment

Wiggle, wiggle, wiggle, wiggle, wiggle - Yeah! Deducting Investment Losses from W-2 Income Requires Active Participation in the Investment I work out!

I work out!

It is relatively common for Americans with day jobs to engage in side activities for profit. This might include owning rental properties, owning small family businesses, or investing in the businesses of others. Congress and the IRS certainly support and would like to encourage such activity, but they must also be concerned with loopholes in the tax system. Consequently, taxpayers…

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#IRC 469 #Passive Investment #Taxpayer Victory

Deductions of Charitable Contributions from Income and Death Taxes

Estate of Eileen v. IRS, 144 T.C. 6 (Feb. 19, 2015).

The tax code (income and estate taxes) allows for deductions in the amount of money actually donated to charity or “permanently set aside.” (Estate taxes: form 1041, line 13; Income Taxes form 1040 Schedule A lines 16-19).

In Eileen, “The issue [was] whether the estate is entitled to a $219,580 charitable contribution deduction for purposes of…

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#Charitable Contribution #Deduction #Estate Tax #IRC 170 #IRC 642

Re-Blog of a Heartwarming Case from the Tax Court in 2014

Roberts v. IRS, T.C. Summary Op. 2014-88 (Sept. 4, 2014). is a real heart-warmer (for a lawyer) despite its legal insignificance. There, a very responsible grandfather took in three of his young grandchildren because their mother was unable to support them. He only made about $30,000 that year and claimed some deductions related to caring for his minor children on his tax returns. Mr. Roberts…

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#Heartwarmer #IRC 1 #IRC 151 #IRC 152 #IRC 32

No Double (or Triple Dipping) on Deductions Allowed

Peterson v. IRS, T.C. Memo 2015-23 (Feb. 11, 2015) demonstrates the limits of double, or even triple, dipping when it comes to income tax deductions. There, Mr. Peterson was a police officer with a security business on the side. As the reader may have guessed, these careers involve many of the same expenses and assets: bullet-proof vests, emergency vehicles, uniforms, weapons, etc. Mr.…

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#Double Dip #IRC 162 #IRC 212 #Schedule A #Schedule C

Foreign Earned Income is Earned with a Foreign Tax Home

Congress has determined it would like to encourage the export of American products and services while increasing the competitiveness of Americans in the international economy by allowing “qualified individuals” to completely exclude “foreign earned income” from their gross income. I.R.C. § 911. A taxpayer becomes a qualifying individual by remaining in a foreign country for the entire tax year…

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#Abode #Foreign Earned Income #IRC 911 #Tax Home

They Shouldn't Buckle Under Pressure

Keep Small Business Records that Don't Buckle Under Pressure

Kaminski v. IRS, T.C. Summary Op. 2015-7 (Feb. 3, 2015) demonstrates why the IRS likes to pursue small businesses in audits and before the Tax Court. That is, small businesses tend to mix personal with business accounts and keep poor records. Here, Mr. Kaminski kept three calendars, receipts, and other records of his expenditures in his financial planning business. However, “A close comparison…

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#Burden of Proof #Deduction #Evidence #IRC 162 #Records #Small Business

Dependent Exemptions on My 1040?

Dependent Exemptions on My 1040? Make sure you're entitled to the exemptions claimed in Box 6 of your 1040 before taking them.

Research Time

One of the earliest sections of each year’s 1040 presents what many would consider a complicated legal question. That is, who may a taxpayer claim to be a dependent and write their personal exemption off on my taxes? Calderon v. IRS, T.C. Summary Op. 2015-9 (FEb. 5, 2015) is a recent Tax Court case that, though not binding, provides a relatively concise explanation of the…

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#Dependents #Exemptions #IRC 151 #IRC 152

2014 a Big Year for IRA Rollovers

Last year, the IRS clarified its new position on IRA rollovers. One-a-year Limit on Rollovers, IR 2014-107 (Nov. 10, 2014). In short, the IRS will only allow one rollover per year between a person’s IRAs-“An individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding 1-year period.” Internal Rev. Bulletin…

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#IRAs #Rollovers

Failure to Reply to the IRS in Tax Court Leads to Defeat

Tuesday’s Young v. IRS, T.C. Memo. 2015-18 (Feb. 2, 2015) demonstrates the consequences before the Tax Court when a tax preparer (who ostensibly understands the code) fails to reply to an IRS petition alleging deficiencies in tax. There, Ms. Young also failed to oppose the motion for summary judgment, which ultimately led to her defeat before the Court. What’s more, the IRS’s case for fraud and…

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#Bad Strategy #Default

Competent Tax Help and Ethical Legal Guidance

Competent Tax Help and Ethical Legal Guidance, reposed from the EFM Law Company's original 12/30/2014 blog

Mottahedeh v. IRS, T.C. Memo. 2014-258 (Dec. 29, 2014)perfectly demonstrates the importance of finding a competent, ethical legal advisor. There, the litigants earned a decent living by selling questionable tax planning and reporting advice. That is, they advised dealing in cash, avoiding the paper trail, and refusing to deal with the IRS and California tax authorities. They even offered…

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#Competence #Ethics

Tax Prep Fees are Deductible!

A taxpayer may deduct ordinary and necessary expenses incurred in connection with the determination, collection, and refund of taxes. IRC Sec. 212(3).

Passive Investment Losses Have Limits

Adeyemo v. IRS, T.C. Memo. 2014-1 (Jan. 2, 2014).

The first case of 2014, Adeyemo v. IRS, was a good reminder that “Rental activity (including rental real-estate activity) is per se passive unless the taxpayer qualifies as a real-estate professional as defined in section 469(c)(7)(B).” Id. at p. 13. For those of you who moonlight as landlords (less than 750 hours a year), be careful when…

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#IRC 469 #Passive Investment #Taxes

Reactions to Avoid from the Tax Court

Sodipo v. IRS, T.C. Memo 2015-3 (Jan. 5, 2015).

Not actually Mr. Sodipo

Earlier in January, the Tax Court published a case in which the pro selitigant succeeded in convincing the judge that he was a completely unreliable witness when testifying about his own case: “We found Mr. Sodipo’s testimony to be in certain material respects general, conclusory, vague, uncorroborated, self-serving, and/or…

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#Bad Strategy #Competence #Pro Se

Timing is Everything (for Tax Purposes)

Ferm v. IRS, T.C. Summary Op. 2014-115 (Dec. 30, 2014).

The Tax Court case of Ferm v. IRSdemonstrates the old adage that “timing is everything.” There, the cash-method taxpayer (money is earned as it’s actually received, expended as it’s actually paid) paid tuition for Spring 2011 semester on December 28, 2010. Following this payment, the Ferms attempted to deduct their qualified tuition…

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#Accounting Method #Taxes #Timing #Tuition

The Tax Court case of Ferm v. IRS demonstrates the old adage that “timing is everything.” There, the cash-method taxpayer (money is earned as it’s actually received, expended as...

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