News

  1. Highway Act Changes Business Return Due Dates

    On 7/31/15, President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236) (Highway Act) into law, which includes some significant changes to longstanding tax provisions. The Highway Act makes both partnership and S corporation returns due March 15th following the close of the calendar year (or 15th day of the third month following the close of a fiscal year) for years beginning after 12/31/15. The tax filing deadline for C corporations is changed to April 15th (or 15th day of the fourth month following the close of a fiscal year) for returns for years beginning after 12/31/15. However, for C corporations with a 6/30 year end, the changes are effective for years beginning after 12/31/25. The automatic extension period for these returns has also been adjusted. The Highway Act includes other tax compliance provisions.

  2. No Business Deduction for Legal Medical Marijuana Dispensary

    The taxpayer operated a medical marijuana dispensary (The Vapor Room) in San Francisco that purchased inventory from licensed medical marijuana suppliers and sold the product to customers. The customers could use the Vapor Room’s vaporizers on-site, sample inventory, and participate in other services. A deduction is denied for ordinary and necessary businesses incurred in a trade or business of trafficking controlled substances prohibited by Federal law or the law of any State in which the business is conducted (IRC Sec. 280E). Although the use and sale of medical marijuana (a controlled substance) are legal under California state law, it is prohibited under federal law. The Tax Court determined, and the Ninth Circuit recently affirmed, the ordinary and necessary businesses expenses associated with operating the Vapor Room were not deductible. [ Editor’s Note: IRC Sec. 280E disallows a deduction only for the expenses of a business and not for its costs of goods sold.] Martin Olive, 116 AFTR 2d 2015-XXXX (CA 9, 2015).

  3. Defined Contribution Plans Included in 10% Penalty Exception for Public Safety Workers

    Beginning in 2016, federal public safety officers can withdraw amounts from their government retirement plans after age 50, rather than 55, without being subject to the 10% penalty under IRC Sec. 72. Previously, this exception applied only to governmental defined benefit plans, but after 2015, governmental defined contribution plans also are included. This is part of the Trade Priorities and Accountability Act of 2015 (H.R. 2146) and applies to Federal and state law enforcement officers, firefighters, air traffic controllers, and emergency medical service providers who have separated from service with the employer maintaining the plan. The exception from the 10% penalty applies only to amounts distributed directly from a governmental plan. IRC Sec. 72(t)(10)(B).

  4. Exempt Status Revoked Due to Private Benefit

    The IRS revoked the tax-exempt status under IRC Sec. 501(c)(3) of a foundation that claimed to support the descendants of Hungarian immigrants in the performing arts. Based upon audit findings, the IRS determined the foundation awarded scholarships to direct descendents of the founder and was organized and operated exclusively for private benefit. Furthermore, the IRS determined that the revocation of exempt status should apply retroactively “because it omitted and misstated material facts in its application for exemption.” The foundation argued that it was organized for tax-exempt purposes, but failed to prove that it operated exclusively for this purpose. The District Court upheld the retroactive revocation determining that the foundation (1) operated in a manner inconsistent with the exempt purpose as stated in its application, and (2) had made material misrepresentations of fact in the application. Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts, Inc. (DDC No. 1:11-cv-01573.)

  5. Exempt Status Revoked Due to Private Benefit

    The IRS revoked the tax-exempt status under IRC Sec. 501(c)(3) of a foundation that claimed to support the descendants of Hungarian immigrants in the performing arts. Based upon audit findings, the IRS determined the foundation awarded scholarships to direct descendents of the founder and was organized and operated exclusively for private benefit. Furthermore, the IRS determined that the revocation of exempt status should apply retroactively “because it omitted and misstated material facts in its application for exemption.” The foundation argued that it was organized for tax-exempt purposes, but failed to prove that it operated exclusively for this purpose. The District Court upheld the retroactive revocation determining that the foundation (1) operated in a manner inconsistent with the exempt purpose as stated in its application, and (2) had made material misrepresentations of fact in the application. Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts, Inc. (DDC No. 1:11-cv-01573.)

  6. Supreme Court Legalizes Same-sex Marriages Nationwide

    The U.S. Supreme Court held, in a landmark decision, that the Constitution requires a state to license marriages between same-sex couples. This ruling to legalize same-sex marriage in all 50 states has far-reaching consequences, including a number of important tax issues. Same-sex couples who are married in any state will now be able to file joint state tax returns, inherit property more easily, and receive Social Security and veterans’ spousal benefits. For federal tax purposes, legally married gay couples have been able to file joint income tax returns, elect to split gifts for gift tax, and claim the marital deduction for estate tax since the Supreme Court’s 2013 ruling in Windsor. However, some states required same-sex couples to file separate state income tax returns, regardless of whether they were legally married in another state. [ Editor’s Note: Same-sex married couples should be able to amend their returns and file jointly to claim a refund (if entitled to one) for tax years that are still open.] Other areas likely to be impacted by this ruling include health and medical benefits. Obergefell v. Hodges, 115 AFTR 2d 2015-XXXX (Sup. Ct. 2015).

  7. IRS Issues Spring 2015 Statistics of Income Bulletin

    The Spring 2015 issue of the Statistics of Income Bulletin features preliminary data on 2013 individual income tax returns. Both Adjusted Gross Income (AGI) and taxable income increased less than 1% over 2012, with total tax liability increasing 4.5%. The larger percentage increase in total income tax liability compared to AGI coincided with new higher marginal tax rates for ordinary income and certain capital gain income, as well as,, the new net investment income and additional Medicare taxes. In 2013, more than 66% of taxpayers claimed the standard deduction. Taxes and interest comprised 70% of all itemized deductions for 2013. The report also contains prior year’s data that indicates for 2012, almost half of all noncash charitable contributions went to foundations and large charitable organizations. Corporate stock (39.1%), clothing (21.8%), household items (8.7%), and other investments (8.3%) accounted for the largest percentages of noncash contributions reported on Schedule A. The report is available at www.irs.gov/uac/SOI-Tax-Stats-SOI-Bulletin:-Spring-2015.

  8. IRS Data Breach

    Hackers breached the IRS’s Get Transcript Online service and obtained the past tax return data of more than 104,000 taxpayers while attempting to access data of more than 200,000 taxpayers. The hackers had previously gained sufficient information from an outside source before trying to access the IRS site, allowing them to clear a multi-step authentication process. According to IRS Commissioner Koskinen, the data obtained will help criminals file more credible appearing false returns that are more likely to evade the IRS’s antifraud filters. The 200,000 taxpayers will receive an IRS letter indicating that criminals have their tax data, and the IRS will offer credit monitoring services to the 104,000 who had their data stolen. After learning of the breach, the IRS shut down the Get Transcript Online service that is used by taxpayers to obtain past tax data for mortgage and college applications. There is currently no date for it to reopen, but transcripts are still available by mail. For more information on obtaining a transcript, go to www.irs.gov/Individuals/Get-Transcript

  9. IRS Reminds Businesses of Cash Transaction Reporting Requirement

    Businesses, including sole proprietors, in any U.S. possession or territory must report a cash transaction exceeding $10,000. The transactions are reported on Form 8300, which must be filed within 15 days of the transaction. A transaction can include two or more related transactions if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions. Transactions conducted between a payer (or its agent) and the recipient within a 24-hour period are considered related. Cash includes coins and currency (domestic and foreign), cashier’s checks, bank drafts, traveler’s checks, and money orders. U.S. possessions and territories include American Samoa, the Commonwealth of Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands. Businesses required to file Form 8300 can include pawnbrokers, attorneys, real estate brokers, insurance companies, and travel agents, as well as those that sell jewelry, furniture, boats, aircraft, or automobiles. IRS News Release IR-2015-81.

  10. Individuals Have Extra Time to File in 2016

    Under IRC Sec. 7503, filing and payment deadlines that fall on a Saturday, Sunday, or legal holiday are timely satisfied if met on the next business day. Although 4/15/16 is on a Friday, the Emancipation Day holiday observed in the District of Columbia will be on that day. Therefore, most taxpayers will have until the next business day (Monday, 4/18/16) to file their Form 1040s. However, taxpayers in Maine and Massachusetts will have until 4/19/16 to file their tax returns so they can observe Patriot’s Day on Monday, 4/18/16. The IRS also provided a detailed explanation of the effect of Emancipation Day and Patriot’s Day on the filing deadlines that are normally due on April 15 when April 15 falls on a weekend. Rev. Rul. 2015-13, IRB 2015-22.