Insult to Injury – Properly Documenting and Taking Bad-Luck Deductions

In a recent case involving taxpayers Ronnie S. Baum and Teresa K. Baum, the IRS disallowed many deductions, including deductions for theft losses and worthless securities.[1] This case is a quick and helpful reminder of some common deduction rules. Fact Summary This case relates to events occurring between years 2010 and 2019. The tax years…
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FBAR Penalties Not Subject to Pay to Play Rule

In a recent case out of the United States Court of Federal Claims, the Court held that the plaintiff was not required to pay the full amount of the assessed Report of Foreign Bank and Financial Accounts (“FBAR”) penalty in order for the Court to have jurisdiction over a suit for refund.[1] The Court of…
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Update on President Joe Biden’s Proposed Tax Policies

Introduction Last year I discussed President Joe Biden’s Proposed Tax Policy For Individuals, Charles J. Allen discussed the tax plans of the democratic presidential candidates, and Josh Sage discussed some of Biden’s potential changes. We are now a few months into President Biden’s tenure and the first ripples of tax reform can be felt by…
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Substance over Form: Friend of the Taxpayer?

In the recent Complex Media[1] case, the Tax Court addressed a taxpayer’s ability to recast the form of a transaction under the “substance over form” doctrine. Since taxpayers typically control the form their transactions take, tax decisions routinely stick taxpayers with the consequences of that form. Some courts have precluded taxpayers from even raising substance…
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Fashion Designer Denied Research Credits

As it turns out, fashion design will not usually constitute qualified research for the purposes of qualifying for the research credit under Section 41 of the Internal Revenue Code. In a recent case from the Tax Court, taxpayer, Leon Max, failed to convince a sympathetic court that expenses related to his fashion design process should…
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Student Loans – Not Dischargeable, Even If Made to Family

When an individual files for bankruptcy, they are released from personal liability for certain specified types of debts. However, for public policy reasons, Congress has determined that certain debts can’t be discharged by filing for bankruptcy.[1] One of the most well-known non-dischargeable liabilities is student loan debt.[2] The recent U.S. Bankruptcy Court case, In re…
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Reasonable Compensation Revisited – Lateesa Ward

In the recent case of Lateesa Ward, TC Memo 2020-32, the Tax Court addressed a regular tax planning and reporting issue – reasonable compensation to an S corporation shareholder. The issue is important for at least a couple of primary reasons. First, as opposed to dividends, wages paid to the S corporation shareholder are subject…
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Holmes v. Taxpayer: Pankratz and Unreliable Reliance

On March 3, 2021, the Tax Court issued a new opinion in Pankratz v. Comm’r, T.C. Memo 2021-26. This case is a good reminder of some of the good faith and reasonable reliance rules to avoid penalties. The opinion, authored by Judge Holmes, was a typical Holmes’ opinion. It told a detailed story of the…
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Installment Method of Income Recognition – The Basics

It is quite common in transactions for the seller to accept a promissory note with payments over time rather than being paid the full purchase price up front. In this situation, if the taxpayer were to be taxed on the full amount of income at the time of the transaction, but not be paid the…
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