1. 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.

  2. 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.

  3. Charter School Not Exempt from FICA Tax Liability

    In a recent Chief Counsel Advice, the factors under Revenue Ruling 57-128 were considered to determine whether the school was an instrumentality of a government. The laws in State A regulate education including public, private, and charter schools. The charter schools are funded by tax revenue, governed by boards that are independent from the local school districts, and exempt from many statutory provisions that apply to district schools. Although the charter school is publicly funded and performs a government function (providing public education), it does not do so on behalf of the State because the State exercises no meaning control over the schools day-to-day operations, and it is operated independently from the local school district. Consequently, the school does not qualify as a wholly-owned instrumentality of the state and is not eligible for the exemption from FICA tax liability under IRC Sec. 3121(b)(7)(F). CCA201519027.

  4. Alimony Deduction Allowed for Home-schooling Contingency

    Upon his divorce, a taxpayer agreed to pay child support and alimony to his ex-wife as long as she homeschooled their child, who had learning disabilities. If she discontinued homeschooling their child, the alimony payments would be cut in half. Although the taxpayer deducted the alimony payments for the year in question, the IRS disallowed them based on its position that the payments were conditioned on the child’s being homeschooled and, thus, nondeductible child support under IRC Sec. 71(c)(2). The Tax Court disagreed, concluding that the contingency was related to the former wife’s decision to return to gainful employment. Therefore, the alimony payments were deductible. Joshua H. Wish, TC Summ. Op. 2015-25 (Tax Ct.).

  5. State Nonresident Income Tax Not Deductible on Partner’s Schedule E

    The Tax Court held that state nonresident income taxes paid by a lawyer on his law firm’s income sourced in four states were deductible as itemized deductions, not on Form 1040 as unreimbursed partnership expenses. The firm had offices in these states, but taxpayer did not perform services or work for clients in any of them. The taxpayer argued that the taxes were entity level taxes imposed directly on the firm, not him, and that he lacked a sufficient nexus to those states to be taxed by any of them. The Tax Court disagreed stating that (1) the state income taxes were imposed on the net income of the partner, not the firm; and (2) the taxpayer had nexus in the states because as a principal in the firm he had the authority to manage the firm’s business in those states. Matthew L. Cutler, TC Memo 2015-73 (Tax Court).

  6. Home Office Deduction Fails Exclusive Business Use Test

    A sole proprietor of a vascular ultrasound business claimed a home office deduction on his Schedule C for expenses allocable to his living room, where he was developing a laboratory and staffing agency. Because the only way to access other rooms in the house was through the living room, and the individuals who lived in the house used that room for other family activities, the space wasn’t used exclusively for business, which is required for the deduction under IRC Sec. 280A(c)(1). Therefore, the home office deduction was disallowed. Arunas Savulionis, TC Summ. Op. 2015-19 (Tax Ct.).

  7. IRS Is Sending out Identity Verification Letters to Possible Identity Theft Victims

    In its efforts to combat identity theft, the IRS is stopping suspicious tax returns that have indications of being identity theft, but contain a real taxpayer’s name and/or social security number and sending out (by US Postal Service) Letter 5071C to request that the taxpayer verify his or her identity. (The IRS will not email or telephone the taxpayer directly to request this information.) Taxpayers may use the site or call a toll-free number on the letter to confirm their identity, but the IRS is encouraging the use of as the safest, fastest option. Once their identity is verified, the taxpayers can confirm whether or not they filed the return in question. If so, it will take approximately six weeks to process it and issue a refund. If not, the IRS can take steps at that time to assist them. IR-2015-54

  8. IRS Reviews Early Distributions from IRAs and Qualified Plans

    The IRS recently conducted a project to review the taxable distributions from IRAs and qualified retirement plans reported on Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.). In its review, the IRS looked at whether individuals reported the amounts marked as “Early distribution, no known exception” (box 7, code 1) as taxable distributions and whether the additional 10% early distribution tax under IRC Sec. 72(t) was included. The IRS found that almost 40% of the individuals made errors on their Form 1040 tax returns and most didn’t qualify for the exception to the 10% early withdrawal penalty. The IRS provides a helpful chart listing the various exceptions to the 10% penalty at,-Employee/Retirement-Topics—Tax-on-Early-Distributions

  9. IRS To Include Charter School Employees In Proposed Code Sec. 414(d) Regs

    The IRS recently announced that it anticipates including rules for charter school employees who participate in state and local government retirement plans in proposed regs under Code Sec. 414(d). The IRS also provided transition relief for the period before final regs are issued.
    More than 40 states and the District of Columbia allow the chartering of independent public schools. Charter schools, the IRS noted, are treated as public schools, but are not subject to governmental control in the same manner as traditional public schools.

  10. Tax Preparer Directory Opens

    The IRS has launched a new, online directory of return preparers to assist taxpayers in finding a credentialed tax professional. The searchable and sortable directory lists preparers with valid 2015 Preparer Tax Identification Numbers (PTINs). The data includes the name, city, state, and zip code of attorneys, CPAs, enrolled agents, and those who have completed the IRS requirements for the voluntary Annual Filing Season Program (AFSP). The directory, located at , will be updated regularly and includes more than 666,000 preparers with active PTINs at the beginning of the filing season. News Release IR-2015-22.