Inflation Reduction Act of 2022 Highlights
Inflation Reduction Act of 2022 Highlights This month, Congress passed and the President signed the Inflation Reduction Act of 2022, a bill which has the primary stated purpose of reducing inflation and warding off an economic recession. The legislation is lengthy and dense, spanning 273 pages of the congressional…
Tax Update
New Jersey Enacts Bill to Curb the Use of “Refund Anticipation Checks” by Tax Return Preparers Governor Murphy signed into law P.L.2022, c.90 (S891) that prohibits specified tax preparers from engaging in certain practices involving refund anticipation checks and loans. An income tax refund is the largest lump-sum payment that…
Zeroing Out of Profits by Closely Held Corporations
Shareholders of C corporations sometimes pay themselves bonuses in an amount that eliminates corporate profits, thereby eliminating the corporate tax that would result if paid on dividends (resulting in a “double tax”). However, several recent cases shed light on how paying supplemental shareholder compensation may backfire if not properly implemented….
IRS Offers Penalty Relief for Certain Taxpayers Filing Tax Returns for the 2019 and 2020 Years
The Internal Revenue Code (Code) imposes various penalties on taxpayers for failure to comply with certain return-filing and taxpaying obligations, including the following: Section 6651(a)(1) of the Code generally imposes an addition to tax for a failure to file (on or before the date prescribed) a tax return that is…
IRS releases technical advice memorandum impacting significant participation activities under the passive loss rules
The IRS has released a Technical Advice Memorandum (TAM)[1] addressing the question of whether, for passive loss limitation purposes, an activity qualifies as a significant participation activity in a taxable year where the taxpayer previously satisfied the significant participation activity test for material participation with respect to that activity in…
IRS Issues New Form 7203 to Track and Report S Corporation Basis
The subchapter S rules apply basis limitations in various circumstances, including the ability of an S corporation shareholder to deduct S corporation losses. An S corporation shareholder has basis in his/her stock and if he/she is also a creditor of the corporation, he/she has basis in her debt. Basis is…
IRS proposes new “clawback” regulations
There is a computational quirk (that tax lawyers call “clawback”) in the manner in which the federal estate tax is calculated. What is “clawback” of estate tax? Because the estate tax and the gift tax are accumulated into a single “transfer” tax, a problem occurs when the lifetime exclusion from…
Payment of tax generated by partnership audits at the partnership level – adjusting partnership items
In the 2015 Bi-Partisan Budget Act (“2015 Act”), Congress enacted new centralized audit procedures for entities taxed as partnerships for Federal Income Tax purposes. Because these rules are fairly complex, both for taxpayers and the IRS, they did not become effective until tax years beginning in 2018. The default rule…
RMD Proposed Regulations – The Good, The Bad, and The Ugly
The proposed regulations consist of 64 pages printed in the Federal Register and are subject to a comment period which ended on May 25, 2022. Once the IRS considers the comments it will move towards finalization and adoption after which they will become effective. The IRS has received 119 comments…
Company Owned Life Insurance and Buy-Sell Agreements
In Connelly v. U.S., USDC ED MO, Case No. 4:19-c-01410, September 21, 2021, the District Court for the Eastern District of Missouri held that company-owned life insurance on the life of a deceased shareholder that was used to redeem the deceased shareholder’s shares increased the fair market value of the…