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Tax Law Roundup current law developments in U.S. taxation

Category Archives: Deductions

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IRS Updates Accounting Method Procedures for Repair Regs

Posted in Deductions, General

In new Rev. Proc. 2014-54, the IRS modified the procedures to obtain the IRS consent to a change in method of accounting for dispositions of tangible depreciable property.  This relates to the “repair regulations” finalized last year.  The new guidance includes procedures to (i) obtain automatic IRS consent in certain contexts, (ii) to allow a late partial… Continue Reading

Taxpayer Failed Requisite Profit Motive When Investing In Partnership Solely for Charitable Deductions

Posted in Deductions, Partnership/LLC, Real Estate, Tax Shelters

In McElroy v. Commissioner, the Tax Court concluded that the taxpayer failed the requisite profit motive to receive a tax deduction from an investment in a charitable syndication partnership.  The case involves an attempted syndication of charitable deductions by placing real estate into a partnership, soliciting investors with promised charitable deductions well in excess of… Continue Reading

Part III – Senate Finance Reform of Cost Recovery and Accounting Rules

Posted in Deductions, General, Real Estate, Tax reform

Part III of the Sen. Baucus proposed tax reform proposes dramatic changes to the Cost Recovery and Accounting Rules.  The Senate Finance Committee proposes to make the cost recovery and accounting rules simpler, fairer, and lessen burdensome on small businesses.  Perhaps more notably, these reforms would raise significant revenue to finance a lowering of corporate… Continue Reading

IRS Finalizes Tangible Property “Repair” Regulations

Posted in Deductions, General

Today the IRS issued the long awaited final Tangible Property Regulations (also known as the “repair regulations”).  The 222-page regulation package addresses capitalization rules for amounts paid to acquire, produce, or improve tangible property. The final regulations clarify and expand the standards in the current regulations under sections 162(a) and 263(a). The final regulations replace… Continue Reading

7th Circuit Joins Majority In Applying 40% Valuation Penalty in Sham Partnership

Posted in Deductions, Partnership/LLC, Tax Shelters

In Superior Trading, the 7th circuit affirmed an earlier Tax Court decision, denying a taxpayer’s losses and imposing a 40% penalty in a so-called distressed asset/debt (“DAD”) tax shelter.  In the DAD shelter, the taxpayer attempted in import built-in loss assets into a US LLC/partnership so that US investors could deduct the losses.  The court… Continue Reading

8th Circuit Affirms In Wells Fargo – No Business Purpose to Transaction Accelerating Contingent Liabilities

Posted in Deductions, Economic Substance, Litigation/Controversy, Tax Shelters

A new 8th Circuit Wells Fargo Decision held for the IRS, denying the acceleration of deductible expenses in a “contingent-liability strategy” because the transaction lacked economic substance/business purpose.  What was the strategy? Under the strategy, Wells Fargo contributed high-basis valuable assets and deductible contingent liabilities into a subsidiary corporation in a purported tax-deferred transaction.  The… Continue Reading

IRS Finds Non-Grantor Trust Passive Under Section 469 – Trustee Cannot Count Non-Fiduciary Activities

Posted in Deductions, General

In TAM 201317010, the IRS held that a non-grantor trust can satisfy the passive activity material participation standard only through the activities of its trustees, acting in their fiduciary capacities as trustees of the trust.  The IRS rejected Texas district court holding in The Mattie K. Carter Trust, which held that the activities of all… Continue Reading

IRS Removes De Minimis Exception For Testing Partnership Allocations

Posted in Deductions, Joint Venture, Partnership/LLC, Real Estate

In 2008, the IRS published regulations on how to apply the section 704(b) substantiality tests when one or more partners is a “look-through” entity.  In general the 2008 regulations required looking through these partners to the ultimate owner to determine if there was an overall net tax savings from partnership special allocations. The 2008 final regulations had included a… Continue Reading

New Tax Provisions: Fiscal Cliff Averted – Sequestration Resumes in Two Months

Posted in Deductions, Legislative

On January 1, 2013, Congress passed H.R. 8, the American Taxpayer Relief Act of 2012 to avert the immediate tax increase and spending cuts (i.e., the so-called “fiscal cliff”) that was otherwise scheduled to take effect January 1, 2013.  The President signed the legislation January 2 and on January 8 the Joint Committee on Taxation… Continue Reading

IRS Updates Effective Date of Recent Repair Regulations

Posted in Deductions, General

The IRS issued an effective date update to the temporary “repair regulations” for determining when to capitalize or expense tangible property costs.  The new amendments change the applicability dates of the temporary regulations to taxable years beginning on or after January 1, 2014, while permitting taxpayers to choose to apply the temporary regulations for taxable… Continue Reading

IRS Revokes PLR Allocating Value of Power Purchase Agreement to Wind Facility

Posted in Deductions, Green, Tax Credits

In new PLR 201249013 the IRS revoked PLR 201214007.  The original ruling had allocated acquisition costs for a wind facility that economically related to an underlying Power Purchase Agreement (PPA) to the wind facility itself (resulting in faster tax depreciation).  In the new ruling the IRS states that “the Service has determined that Private Letter Ruling… Continue Reading

Final Repair Regs Expected in 2013 with 2014 Effective Date

Posted in Compliance, Deductions, General

The IRS has announced a 2013 publication date and January 1, 2014 effective date for the final regulations relating to when to capitalize or expense payments relating to tangible property (the so-called “Repair Regs”).  The IRS Notice contains details as to when taxpayers will be permitted to apply either the final regulations or the temporary regulations… Continue Reading

IRS Allows Five Year Depreciation for Wind-Facility Power Purchase Agreement

Posted in Deductions, Energy, Green

NOTE THE IRS REVOKED THIS RULING IN PLR 201249013. In PLR 201214007, the IRS treated facility-specific power purchase agreements (PPAs) as part of their related energy production facilities, and that such PPAs are therefore eligible for favorable five-year depreciation.  In the PLR, the taxpayer acquired both a wind facility and the related PPA and the… Continue Reading

IRS Issues Guidance on Capitalization vs. Repair Expense Including Automatic Accounting Method Changes

Posted in Compliance, Deductions

The IRS released two revenue procedures that describe how taxpayers can obtain automatic consent to change their accounting methods to comply with the recent temporary tangible property capitalization vs. repair regulations.  Revenue Procedure 2012-19 details repair and maintenance, materials and supplies, and related method changes resulting from the temporary regulations.  Revenue Procedure 2012-20 addresses depreciation,… Continue Reading

Court Rules Taxpayer Not a “Trader” – Losses Suspended

Posted in Deductions, Securities

In a Tax Court Memorandum decision, the court denied a taxpayer’s “trader” status, suspending over $2 million in loss deductions from stock trades and imposing penalties. The court found that the taxpayer did not meet the definition of a “trader” who is engaged in the trade or business of selling securities for their own account…. Continue Reading

Tax Court Finds Ordinary Bad Debt Loss on Loan Related to Venture Capital Business

Posted in Deductions, Funds, General

The Tax Court held that a Venture Capitalist was entitled to an ordinary loss on a failed loan to a business associate, finding that the loan was related to the lender’s VC business. The Venture Capitalist made the loans to an individual who agreed to provide business leads. The court concluded that business nexus required… Continue Reading

IRS Guidance on 100% Bonus Depreciation

Posted in Deductions, General, Real Estate

The IRS issued detailed guidance on the application of recent statutory changes that (1) temporarily allowed a 100-percent additional first year depreciation deduction for certain new property and (2) extended the placed-in-service date for property to qualify for the 50-percent first-year bonus depreciation.  The guidance clarifies when property must be acquired to qualify for 100%… Continue Reading