Ed Zollars' Tax Update Podcast

The Tax Court this week reasserted its previously stated position on the treatment of the GST grandfathering provision for trusts in existence on September 25, 1985 when a party holds a general power of appointment under that trust.  The Tax Court held that the IRS final regulations that treat such a power as removing the trust transfers from the protection of the grandfathering provisions are valid, despite cases decided by the Eighth and Ninth Circuit where it was held the plain language of the grandfathering provisions meant that such powers were to be ignored for this purpose.The Tax Court and the Second Circuit had previously held such a position to be a valid interpretation of the law.  Now it appears the Sixth Circuit, which has not yet been heard on this matter, will gets its say in the Gerson Estate case (127 TC No. 11).The materials can be downloaded from http://edzollars.com/2006-10-28_Plain_Language.pdf .The podcast is sponsored by Leimberg Information Services, located on the web at http://www.le

The IRS has proposed regulations that will radically change the taxation of private annuities, making Revenue Ruling 69-74 obsolete as of October 18.  We discuss the new treatment the IRS is proposing, and how it would impact such transactions.This week we also summarize some other recent developments, including the new updated numbers for qualified plan limitations.The materials can be downloaded at http://edzollars.com/2006-10-21_Annuity.pdf .The podcast is sponsored by Leimberg Information Services at http://www.leimbergservices.com .

In a relatively slow tax news week, the Tax Court issued yet another published opinion dealing with the coordination of the capital loss rules of §1211 and the alternative minimum tax.  In the case of Palahnuk v. Commissioner, 127 T.C. No. 9 the Tax Court once again dashed the hopes of a taxpayer who exercised highly appreciated incentive stock options only to see their value plummet before the year had expired that would allow the taxpayer to sell the shares and get long term capital gain treatment for regular tax purposes.The materials can be downloaded from http://edzollars.com/2006-10-14_Lets_Try_This_Again.pdf .The podcast is sponsored by Leimberg Information Services, located at http://www.leimbergservices.com.

This podcast covers a number of recent tax developments, including dealing with the burning issue of whether a preparer must sign the client's copy of the return, a recent case involving again the question of what is alimony and the IRS's recent reprieve from the requirement that nonqualified deferred compensaton plans be in compliance with the (as of yet) not issued final regualtions by January 1, 2007.Documents for this podcast are available at http://edzollars.com/2006-10-06_ThisandThat.pdf .The podcast is sponsored by Leimberg Information Services, online at http://www.leimbergservices.com .

The issue of whether a service provider is properly treated as a contractor or employee is an important issue for many small businesses.  In the case of Orion Contracting Trust v. Commissioner, TC Memo 2006-211, the Tax Court looked at this issue.  As well, the Court also took a look at the issue of what actions would indicate the proper "bad faith" to allow the imposition of a fraud penalty.The materials for the podcast can be downloaded from http://edzollars.com/2006-09-30_Who_Is_An_Employee.pdf .The podcast is sponsored by Leimberg Information Services.  Visit them on the web at http://www.leimbergservices.com . .

The documentation rules for charitable contributions can create situations where taxpayers lose the right to claim a deduction even though they made it and, by the time they get to Tax Court, can even show the value of what was contributed.  This was a lesson learned by the taxpayers in Ney v. Commisssioner, TC Summary 2006-154.This podcast reviews the requirements for qualified appraisals and why just because an appraisal exists that won't necessarily save the taxpayers' deduction unless have specifically contracted for a tax appraisal and are sure to have the proper parties sign off on their return.The materials for this week's podcast are located at http://edzollars.com/2006-09-23_Charity_Appraisals.pdf .The podcast is sponsored by Leimberg Information Services, on the web at http://www.leimbergservices.com.

We look at a case involving the statute of limitations and the issue of reliance on IRS advice.  In the case of A. L. Katz & J. L. Miller v. United States the United States Court of Claims explains that a taxpayer cannot use the fact that an IRS employee told them a claim could be filed by a date that turned out to be after the statute had expired to reopen the statute.  As well, the case provides an opportunity to look at the general rules that are involved with Section 6511 and the statute of limitations on claims for refund.The materials for the podcast can be downloaded from http://edzollars.com/2006-09-16_Statute.pdf .The next couple of weeks may prove challenging in getting the podcast up, as I will be traveling to Novi, Michigan to speak on Monday, come back to my office for Tuesday through Thursday, and then head off on my "Southern" speaking trip, speaking at the Virginia Accounting and Auditing Conference in Roanoke, Virginia on Monday, September 25 and then in Memphis, Tennessee for the Tenness

Securing data has become a key issue for professionals, given recent high profile thefts of computers and drives containing sensitive client information.  This week we look at some of the basics of encrypting data that professionals need to understand to protect their client’s information should a data containing device fall into a third party’s hands.  The materials for this week’s podcast can be downloaded at http://edzollars.com/2006-09-08_Securing_Data.pdfThe podcast is sponsored by Leimberg Information Services, located on the web at http://www.leimbergservices.com .

This week we deal with the issues involved with having cars that are used by employees, and the various rules that employers need to deal with in that situation.  While arguably not as “exciting? to tax practitioners as issues dealing with estate planning, entity selection and the like (we get excited by strange things), clients are often extremely interested in getting company autos to certain employees, far more interested than the dollars involved would suggest they should be. We look at the employment tax issues related to the company car, as well the requirements to meet the various “simplified? rules available for this purpose.The materials can be downloaded at http://edzollars.com/2006-09-01_Employee_Cars.pdf .The podcast is sponsored by Leimberg Information Services at http://www.leimbergservices.com .

Paying your children to work in your business can make sense both for the business and from a family tax planning standpoint, but you have to take care to justify that the children are truly being paid for actual business work.  This was the little item that caused the taxpayer problems in the case of Alexander v. Commissioner, TC Summary 2006-127.  While the case may mainly demonstrate the truth of the old "pigs/hogs" tax saying, the opinion also helps illustrate issues that need to be considered when a close relative is placed on the payroll.  You can download the materials for this podcast at http://edzollars.com/2006-08-26_But_My_Kids_Are_Worth_It.pdfI'll be heading to Bismarck, North Dakota next week for a vacation that will stretch over two weekends.  There may or may not be podcasts for those weeks (depends on if I get them recorded and uploaded), but I expect to have up the following week if nothing else.The podcast is sponsored by Leimberg Information Services, located at http://www.leimbergservices.

We look at a case this week that deals with the continuing problems of employee related options that were exercised when the stock was at a high price, but whose price collapsed before the tax was due.  The case involved was the case of Racine v. Commissioner, TC Memo 2006-162.The materials can be downloaded at http://edzollars.com/2006-08-19_Margins_and_Options.pdf .The podcast is sponsored by Leimberg Information Services at http://www.leimbergservices.com .

This week we look at a provision buried in the Pension Protection Act of 2006 that involves "employer" owned life insurnace.  The provision in question renders the death benefit taxable to the extent it is greater than the premiums paid unless the policy both falls into certain excepted categories and the policy owner takes specific steps before the policy is issued to assure that the insured both gets proper notice and gives a proper consent.The materials are found at http://edzollars.com/2006-08-12_Life_Insurance.pdf .The podcast is sponsored by Leimberg Information Services, located on the web at http://www.leimbergservices.com .

Taxpayers get their advice from a lot of sources, and we often end up having to defend our own advice against other sources.  This week we have two cases that show that all advice is not created equal.  In the case of Lehrer v. Commissioner (TC Memo 2006-156) a taxpayer learned the hard way that selecting a preparer predominantly on which one computes the lowest tax is not necessarily the best way to end up well advised.And the case of Diem v. Commissioner (TC Summary 2006-121) is useful for those clients that will try and check your advice by calling the IRS for an answer and then reporting the IRS's answer to you (so, you know, you don't have to do any work on that one).  Mr. Diem was clobbered when it turned out an IRS employee's assurance that the program offered by his employer would be treated just like the workers compensation style claim he was giving up for tax purposes turned out not to be so.The materials for this week's presentation are found at http://edzollars.com/2006-08-03_Trust.pdf . The podc

Is a distribution made to a surviving spouse that was rolled to her IRA but can be traced to her deceased spouse's IRA account eligible for the death benefit exception to Section 72(t)?  Considering a nearly $100,000 penalty was on the table, the taxpayer in the case of Gee v. Commissioner (127 TC No. 1) certainly hoped the Tax Court would answer yes.  Unfortunately for her, the Tax Court answered in the negative.  We look at the facts of her case, as well as the whole question of whether a surviving spouse should elect to treat an IRA as his/her own or take it as a beneficiary.The materials can be downloaded at http://www.edzollars.com/2006-07-29_IRA_Spouse.pdf .The podcast is sponsored by Leimberg Information Services (who had an email newsletter on this topic earlier this week), located on the web at http://www.leimbergservices.com .

And now for something completely different-coverage of FASB.  Well, actually there is a tax angle to this one, as FASB has issued FASB Interpretation 48 in final form in June that will deal with uncertain tax positions.  The new interpretation will create some real problems for CPAs, especially those who both handle tax matters and have any sort of attest relationship with the client (including compilations, reviews and audits) that deals with GAAP statements.The materials can be downloaded from http://www.edzollars.com/2006-07-22_FASB_Podcast.pdf , though the actual FASB interpretation needs to be downloaded from their site ( http://www.fasb.org/st/#int48 ) due to copyright issues-and you will want to download it.The podcast is sponsored by Leimberg Information Services, on the web at www.leimbergservices.com .

The logic of the application of the IRC to specific situations at times seems to defy common logic, and this week we look at a specific case of such.  In this case, the Tax Court decided that a reasonable cause for late filing that allowed a taxpayer to avoid the late filing penalty was that the court believed the taxpayer in reality had mailed the return on time, even if as a matter of law the return was late filed.  This is an extension of the issue discussed in the October 2005 podcast on proving timely filing.The case in question is Gregorian v. Commissioner, TC Summary 2006-99.The materials can be downloaded from http://edzollars.com/2006-07-15_Late_Filing.pdf .Apologies for some of the audio glitches you'll notice this week.  For various reasons this week I used my Windows laptop to record the podcast--and, as should be clear, the machine proved "suboptimal" even though it used the same tools (hardware and software) as the old Mac iBook I normally use.  We'll be back on the iBook in next week's podcast.

The issue of the taxation of prepaid purchase discounts that may need to be refunded if purchase goals are not met has resurfaced as the Ninth Circuit Court of Appeals reversed the Tax Court in the case of Westpac Pacific Foods v. Commissioner.  The Ninth Circuit's views on this topic differ both from those of the Tax Court and the IRS, each of which has it own views o this topic.In the podcast, the question to be addressed is what do we tell our clients who are faced with this issue?  The materials for this podcast can be downloaded from http://edzollars.com/2006-07-08_Westpac_Advances.pdf .The podcast is sponsored by Leimberg Information Services, located on the web at http://www.leimbergservices.com .

For our one year anniversary show, we take a look at the newly released regulations under Section 199 as they define construction found at Regulation §1.199-3(m).  These definitions are key for anyone who works with clients in construction related entities.  The materials for this podcast can be downloaded at http://edzollars.com/2006-07-01_Construction.pdf .As I noted last week, I returned this week from visiting Syracuse, New York where  I presented a couple of continuing education courses for the New York Society of CPAs, and this was one of the topics we talked about in the course I gave Tuesday.This podcast is sponsored by Leimberg Information Services, on the web at http://www.leimbergservices.com .

A few weeks ago (back in April) we looked at the case of Ruckreigel where a taxpayer lost an IRS challenge on whether a debt was truly from the shareholders to the corporation due to a failure to follow the necessary formalities.  This week, the taxpayers strike back with a taxpayer victory in the case of Miller v. Commissioner (TC Memo 2006-125) where the IRS fails in its attempt to reclassify debt that followed the proper form but which the IRS attempted to claim was really debt from the bank to the corporation.The taxpayer achieved victory on this point and the issue of whether the taxpayer was truly at risk as defined in Section 465, even though when all was said and done the taxpayer got out of all liability as the debt was actually paid by other investors who had guaranteed the entire loan structure.  This is an interesting case in showing the extreme importance of following proper form because, from an economic standpoint, the taxpayers in Ruckreigel seem to have much real exposure to potential loss th

Another Circuit chimes in on the issue of the FICA taxation of payments made in exchange for tenure rights as part of an early retirement package offered to teachers.  In a combined appeal of two contradictory opinions of lower courts under their jurisdiction, the Sixth Circuit upheld the lower court's finding in favor of FICA taxation in Appolini and reversed the opposite lower court holding in Klender, both cases that involved early retirement payments to teachers subject to Michigan's tenure law.The Sixth Circuit, in a 2-1 split decision, specifically called into question the Eigth Circuit's holding in North Dakota State University where payments for professor's tenure rights were held not to be subject to FICA.  We look at why the majority believes the North Dakota holding was in error, as well the reasoning behind the dissenting opinion.  As well, we consider the IRS changes to Revenue Rulings in this area, as well as how the courts dealt with the prior rulings that were applicable to these cases.The mat