Taxation News Updates

 
 

Taxation News Updates

 
 

Foreign Bank Accounts - June 2014

A recent US District Court case was decided in favor of the IRS and imposed foreign account reporting obligations on a taxpayer that opened an account with an online poker company. The online account was a foreign account because the online poker company was a foreign company, and the account’s location was determined by the location of the institution. 

The ruling illustrates the expansive view the government takes in relation to a taxpayer’s obligation to disclose the existence of a foreign account under the Foreign Bank and Financial Accounts Report (FBAR) rules. If you have questions about your FBAR obligations, please contact David Guarino or Cory Bilodeau, the Co-Chairs of the Tax Practice at Fletcher Tilton. Click here to open pdf file.

Alimony Tax Issues – May 2014

The Treasury Inspector General for Tax Administration recently issued a report highlighting a compliance gap regarding the reporting of alimony deductions and income. The report noted a significant disparity in the number of tax returns that report deductible alimony payments and the number of tax returns that report taxable alimony income. As the report notes, the number of returns that report deductions for alimony payments is significantly larger than the number of returns that report alimony income.

The IRS has agreed to implement most of the procedures recommended in the report to try to reduce the compliance gap. Taxpayers should therefore expect the IRS to be more likely to review tax returns that report deductions for alimony or that should report taxable alimony income, and to be more aggressive in assessing related penalties.

If you have questions about how to report your alimony payments, please contact David Guarino or Cory Bilodeau, the Co-Chairs of the Tax Practice at Fletcher Tilton. Click here for a printable pdf.

Alimony Deductions – April 2014

A recent Tax Court case is a reminder of the importance of carefully crafting the alimony provisions in a separation agreement for a divorcing couple.  The IRS was successful in asserting that the ‘alimony’ payments deducted by the taxpayer for the payments to his former wife were based on an impermissible contingency related to the taxpayer’s child.  Because of this contingency, the payments could not be deducted by the taxpayer, as they were not actually alimony.  The fact that both the taxpayer and his former wife apparently agreed that the payments would be deductible by the taxpayer was not enough to support their deduction, nor was an explicit provision for their deductibility in the separation agreement controlling.

If you are concerned about alimony or other support issues, and their related tax consequences, please contact David Guarino or Cory Bilodeau, the Co-Chairs of the Tax Practice at Fletcher Tilton.  Click here for printable pdf.

Income and Expense Substantiation – May 2014

In a recent Tax Court case, the IRS was successful in using the bank deposits method to reconstruct the taxpayer’s income when the taxpayer failed to file tax returns or maintain adequate records of his operations. To make matters worse for the taxpayer, because he did not maintain the adequate records, he was unsuccessful in substantiating deductions for his business expenses.

The case is another illustration of the problems that a taxpayer can have when he fails to keep sufficient records. If you have questions about your own recordkeeping and tax reporting, please contact David Guarino or Cory Bilodeau, the Co-Chairs of the Tax Practice at Fletcher Tilton. Click here for a printable pdf.

IRS Audits and Income Reconstruction Update - April 2014

The IRS was again successful in asserting the ‘bank deposits’ method of reconstructing a taxpayer’s gross income in a recent Tax Court case.  The taxpayer in this case claimed that the deposits to his bank account  in question were actually tax refunds and wages from his primary employer, but had only his testimony to corroborate this assertion.  The Tax Court ruled in favor of the IRS, stating that the taxpayer’s unsubstantiated testimony was insufficient.

Had the taxpayer obtained competent representation in the examination underlying the court case, he might have been able to more effectively assert his position and avoid the tax liability and penalties that he incurred.   He also might have been able to obtain a more favorable result with the IRS Appeals office, rather than presenting a weak case in the Tax Court.  If you have been selected for an examination by the IRS, please contact contact  David Guarino or Cory Bilodeau, the Co-Chairs of the Tax Practice at Fletcher Tilton.  Click here for a printable pdf.

 
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