Charter School Not Exempt from FICA Tax Liability

  1. 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.

  2. 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.).

  3. 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).

  4. 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.).

  5. 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 idverify.irs.gov site or call a toll-free number on the letter to confirm their identity, but the IRS is encouraging the use of idverify.irs.gov 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

  6. 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 http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Tax-on-Early-Distributions

  7. 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.

  8. 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 http://irs.treasury.gov/rpo/rpo.jsf , 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.

  9. Filing Season Opens

    The IRS announced the on-time opening of the 2015 filing season highlighting online services. The announcement also highlights the Affordable Care Act healthcare provisions included in the 2014 individual income tax return. The IRS expects more than four out of five returns will be filed electronically. They will begin accepting and process all tax returns on 1/20/15. The fastest way to obtain a refund is to e-file choosing direct deposit. Similar to last year, the IRS expects to issue 90% of these refunds within 21 days. Due to budget cuts paper returns are expected to take an additional week or more to process, and refunds are expected to be issued in seven weeks or more. Commissioner Koskinen strongly encourages taxpayers to visit www.irs.gov before calling as phone wait times are routinely topping 30 minutes. News Release IR-2015-3.

  10. Tax Season to Begin in January, Says IRS

    Although there were more than 50 changes in the recent passage of the extenders legislation (the Tax Increase Prevention Act of 2014), the IRS announced that it still plans to open the 2015 filing season as scheduled in January. According to its recent News Release, the IRS will begin accepting tax returns filed electronically on 1/20/15. Paper tax returns will begin processing at the same time. The IRS also reminds taxpayers that filing electronically is the most accurate way to file tax returns and get a refund. IR 2014-119.