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In Goldsmith v. Commissioner, T.C. Memo. 2017-20 (link) the Tax Court held that the payments from the shareholder’s S corporation were not wages. The Tax Court reasoned that the payments to the taxpayer constituted a non-taxable return of capital. The court reached this conclusion even though the taxpayer did not draw a salary for the…
The taxpayer in Shaffran v Commissioner, T.C. Memo. 2017-35 (link) was not an owner, officer, or employee of a restaurant that got behind in its federal payroll taxes. Yet, the IRS still attempted to assert the Trust Fund Recovery Penalty (“TFRP”) against the taxpayer under the theory that he was a “de facto officer”. How…
Takeaway: When calculating insolvency for purposes of the insolvency exclusion of cancellation of indebtedness income, a pension plan may or may not be considered an “asset”. The determination depends on whether the taxpayer has an ability to utilize the equity in the pension plan (e.g., through a lump-sum distribution, loan, sale, etc.) as a means…
In Namen v. Commissioner[1], the taxpayer was a podiatrist in private practice. He was one of 6 members of an LLC that operated a surgical center, which closed in 2009. For federal income tax purposes, the LLC was treated as a partnership. The taxpayer claimed a loss on his personal 2009 income tax return from…
Takeaway: While S corporations can be an effective means to reduce FICA taxes, the form of the arrangement must be consistent with the taxpayer’s intended reporting position(s). The S corporation, not the S corporation’s employee-shareholder, must be in control of the receipt of income in order shift income from the shareholder’s personal income tax return…
On Tuesday November 24, 2015, the IRS released Notice 2015-82 (the “Notice”). The Notice increased the de minimis safe harbor limit, for businesses without “applicable financial statements”, from $500 to $2,500. As a result of the Notice, many small businesses will now be able to expense certain items that would have otherwise been depreciated over…
Overview How can a corporation have a loss for tax purposes if it does not have any bank accounts, credits cards, or other lines of credit and it does not keep any books or records? The taxpayers in Rochlani v Commissioner found out the hard way.[1] Business Formation and Operations In 2006, Mr. Rochlani (the…
This post is a primer on the federal income tax effects of adding a new member to a limited liability company (“LLC”) that goes from a single member limited liability company (“SMLLC”) to a two member LLC. These effects include the conversion of the LLC being treated as a disregarded entity (“DRE”) to a partnership…
Overview In Leyh v. Commissioner[1], the Tax Court held that the taxpayer’s time incurred while traveling from her home to rental properties to perform a variety of tasks with respect to 12 rental activities counted towards the test of whether the taxpayer was a real estate professional.[2] As a result, the taxpayer was considered a…
Overview The Tax Court determined that the extinguishment of the taxpayer’s debt took place in a closed tax year, even though FEMA issued a 1099-C[1] in an open tax year. As a result, the Tax Court held that the IRS was barred by the statute of limitations from assessing the taxpayer for the federal income…
