October 15th Extension Deadline is near.

Tax Tip

October 15th Extension Deadline Approaching

If you were unable to file your 2013 individual tax return by April 15th and filed an extension, you should be aware that the extension gave you until October 15th to file your return or face a late filing penalty, which is 4½% of the tax due per month, with a maximum penalty of 22½% of the tax due. There is also a minimum penalty of the lesser of $135 or 100% of the tax due. If you prepaid your 2013 taxes timely through a combination or withholding or estimated taxes and will receive a refund when your return is ultimately filed, there is no penalty for filing late.

You should also be aware that the extension provided you additional time to file your return but not additional time to pay any tax you might owe. Thus, even though the extension avoids the late filing penalty, you are still subject to interest on any unpaid balance through the date of filing. Therefore, you can minimize interest charges by filing as soon as possible.

There are no additional extensions available, so if you owe tax it is important you file by the October 15th due date even if you have to estimate the missing items and file an amended return at a later date.

If you are on extension and have the information needed to complete your return, it is important that you provide that information to this office as soon as possible to avoid being caught up in a last-minute rush. If you are on extension and cannot obtain the information required to complete your return, please call this office as soon as possible to discuss your options.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Don't be Fooled by Scammers

Tax Tip

Repeated Warning about Phone Scams

This office has repeatedly warned clients about scams related to taxes. The problem has only gotten worse, so we feel obligated to issue another warning. The scammers out there are pretty sophisticated and are trying to steal your identity and your money. This office doesn’t want you to become a victim, so please read this article and let family and friends know about this rapidly escalating scam based upon individuals’ fears of the Internal Revenue Service (IRS) and their overreaction to calls claiming to be from the IRS. You can even forward this article to your friends and family, and especially be sure to make your elderly family members aware of these scams.

The IRS and the Treasury Inspector General for Tax Administration (TIGTA) continue to hear from taxpayers who have received unsolicited calls from individuals demanding payment while fraudulently claiming to be from the IRS. Based on the 90,000 complaints that TIGTA has received through its telephone hotline, through mid-year, TIGTA has identified approximately 1,100 victims who have lost an estimated $5 million from these scams. We can only imagine how many thousands of taxpayers haven’t reported their losses and encounters with these scammers.

Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams is an angry, threatening call from someone who says he or she is from the IRS and urging immediate payment. This is not how the IRS operates. If you receive such a call, you should hang up immediately.

Additionally, it is important for taxpayers to know that the IRS:

•  Never asks for credit card, debit card, or prepaid card information over the telephone.

•  Never insists that taxpayers use a specific payment method to pay tax obligations.

•  Never requests immediate payment over the telephone.

•  Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement action involving IRS tax liens or levies.

Potential phone scam victims may be told that they owe money that must be paid immediately to the IRS; or, on the flip side, that they are entitled to big refunds. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy. Other characteristics of these scams include:

•  Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

•  Scammers may be able to recite the last four digits of a victim’s Social Security number. Make sure you do not provide the rest of the number or your birth date…that is information ID thieves can use to make your life miserable.

•  Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

•  Scammers sometimes send bogus IRS e-mails to some victims to support their bogus calls.

•  Victims hear background noise of other calls being conducted to mimic a call site.

•  After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

DON’T GET HOODWINKED…it is a scam. If you get a phone call from someone claiming to be from the IRS, DO NOT give the caller any information or money. Instead, you should immediately hang up. Call this office if you are concerned about the validity of the call.

The IRS does not initiate contact with taxpayers by e-mail to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords, or similar confidential access information for credit card, bank, or other financial accounts. If you receive such a request or communication, DO NOT open any attachments or click on any links contained in the message. If you wish to help the government combat these scams, forward the e-mail to phishing@irs.gov.

This is not the only scam currently making the rounds; you should be aware that there are other, unrelated, scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS. When in doubt, please call this office.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Solar Energy may be the way to save energy cost and get a nice tax deduction

ax Tip

How to Cut Your Utility Bills While Reducing Your Taxes

After installing solar or other alternative energy systems in their homes, taxpayers generally benefit from lower utility bills. Taxpayers may also see a lower federal income tax bill for the year of the installation. Through 2016, taxpayers get a 30% tax credit on their federal tax returns for installing certain power-generating systems in their homes. The credit is non-refundable, which means it can only be used to offset a taxpayer’s current tax liability, but any excess can be carried forward to offset tax through 2016.

Systems that qualify for the credit include:

•  Solar water-heating system – Qualifies if used in a dwelling unit that is utilized by the taxpayer as a main or second residence where at least half of the energy used by the property for such purposes comes from the sun. Heating water for swimming pools or hot tubs does not qualify for the credit. The property must be certified for performance by the Solar Rating Certification Corporation or a comparable entity endorsed by the state government where the property is installed.

•  Solar electric system – Qualified system that uses solar energy to generate electricity for use in a dwelling unit (taxpayer’s main or second residence) located in the U.S.

•  Fuel cell plant – This is a fuel cell power plant installed in the taxpayer’s principal residence that converts a fuel into electricity using electrochemical means. It must have an electricity-only generation efficiency of greater than 30% and generate at least 0.5 kilowatt of electricity. The credit is 30% of qualified fuel cell expenditures but limited to $500 for each 0.5 kilowatt of the fuel cell property’s capacity to produce electricity.

•  Qualified small wind energy – A wind turbine used to generate electricity for use in connection with a dwelling unit used as a main or second residence by the taxpayer.

•  Qualified geothermal heat pump – Must use the ground, or ground water, as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool the dwelling unit, and must meet the Energy Star program requirements that are in effect when the expenditure is made. The dwelling unit must be used as a main or second residence by the taxpayer.

Other aspects of the credit:

•  Limited carryover – The credit is a non-refundable personal credit, which limits the credit to the taxpayer’s tax liability for the year. However, the portion of the credit that is not allowed because of this limitation may be carried to the next tax year and added to the credit allowable for that year. Thus, the credit carryover is available through 2016 (the final year for the credit).

•  Installation costs – Expenditures for labor costs allocable to onsite preparation, assembly, or original installation of property eligible for the credit, as well as for piping or wiring connecting the property to the residence, are expenditures that qualify for the credit.

•  Swimming pool – Expenditures that are for heating a swimming pool or hot tub are not taken into account for purposes of the credit.

•  Newly constructed homes – The credit can be taken for newly constructed homes if the costs of the residential energy-efficient property can be separated from the home construction and the required certification documents are available.

Certification – A taxpayer may rely on a manufacturer’s certification that a product is a Qualified Energy Property. A taxpayer is not required to attach the certification statement to the return on which the credit is claimed. However, taxpayers are required to retain the certification statement as part of their records. The certification statement provided by the manufacturer may be a written copy of the statement that is posted on the manufacturer’s website with the product packaging details in printable form or in any other manner that will permit the taxpayer to retain the certification statement for tax recordkeeping purposes.

If you have questions about how you can benefit from this credit, please give this office a call.

Joseph C Becker
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Ten Forty Plus Tax Preparation, Bookkeeping and Payroll

Tax Tip for Newly Married

Tax Tips for Recently Married Taxpayers 

This is the time of year for many couples to tie the knot.  If you marry during 2014, here are some post-marriage tips to help you avoid stress at tax time.

1. Notify the Social Security Administration − Report any name change to the Social Security Administration so that your name and SSN will match when filing your next tax return.  Informing the SSA of a name change is quite simple.  File a Form SS-5, Application for a Social Security Card at your local SSA office.  The form is available on SSA’s Web site, by calling 800-772-1213, or at local offices.  Your income tax refund may be delayed if it is discovered your name and SSN don’t match at the time your return is filed. 

2. Notify the IRS if you have a new address, you should notify the IRS by sending Form 8822, Change of Address. 

3. Notify the U.S. Postal Service you should also notify the U.S. Postal Service when you move so that any IRS or state tax agency correspondence can be forwarded.

4. Review Your Withholding and Estimated Tax Payments if both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when we prepare your return for 2014.  On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling you to reduce your withholding or estimated payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, for 2014 to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season.

If you have any questions about the impact of your new marital status on your taxes, please give this office a call.

Joseph C Becker, CPB, MBA, CQP

Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Ten forty plus bookkeeping houston

Economic Substance Test

Tax Tip

Economic substance" is a new tax rule

Suppose someone offered you a business opportunity that would let you defer tax on your passive income, then later benefit from lower tax rates by converting ordinary income to capital gain. Would you invest?

In general, structuring business activities in a tax-efficient manner is part of good planning. However, when you enter into a transaction with no bona-fide business motive and that transaction changes nothing but your tax situation, you can run afoul of the economic substance rules.

These rules were not found in the tax code prior to the 2010 health care laws. Instead, they were applied by courts to individual cases. Now, economic substance is defined by a two-part test. When the rules apply, your economic position must change in a meaningful way and you must have a substantial business purpose for choosing a course of action.

What happens if you fail the economic substance test? You lose any tax benefits you claimed and you may be subject to a penalty of up to 40% of the underpayment caused by the loss of the benefits.

Please call before you decide to participate in ventures that purport to save tax dollars. We're here to help you make prudent choices.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

LEASED CAR EXPENSES

Tax Tip

Leased Car Deductions

When you lease a car you get deductions for three types of expenses for your leased vehicle:

1.       Advance payments (You likely think of these as down-payments. The law calls them rents-paid-in-advance.)

2.       Lease payments

3.       Operating expenses

Business Use Only

Expenses for leased vehicle is for business use only.  This is simply a reminder. You can deduct a percentage of business use to total use as an expense.  The personal portion is not deductible.

Deduction 1a: Advance Payment

You must amortize the advanced payment over the entire length of the lease. 

In this example, you have a $3,000 advance payment on a 36-month lease. This gives you a deduction of $62.50 per month ($3,000/36 x 75 percent business use).

Deduction 1b: Trade-In Value Advance Payment

What if instead of a cash down payment, you trade in a vehicle that you own?

The trade-in of a vehicle you own on a lease is not a like-kind exchange. For tax purposes, the transaction breaks into two steps as follows:

1.       The value of your trade-in equals the selling price of your vehicle to the dealer. (You use this value to calculate gain or loss on sale.)

2.       The value of the trade-in is your down payment on the lease.

Think of the trade-in on a lease like this: You sold the vehicle to the dealer. The dealer took the cash and applied it as a down payment on the lease.

For tax-deduction purposes, you amortize the trade-in value just as you amortized the cash down payment. If the dealer gives you $3,000 for the trade-in, you amortize the $3,000 over the life of the lease. On a three-year lease with 75 percent business use, your monthly deduction is $62.50.

Deduction 1c: Loss on Trade-In (or Taxable Gain)

Because the trade-in of a vehicle you own is not like kind with the lease of a vehicle, the law treats the trade-in of your old vehicle as a sale to the dealer.

When you sell a business vehicle, you generally have a taxable profit or a deductible loss.

When you sell a personal vehicle, you pay taxes on any profits and get no deductions for any losses.

In the example, you sold a 75 percent business and 25 percent personal vehicle.

Deduction 2: Lease Payments

Your second deduction is for the lease payments. This is almost as straightforward as it sounds. The first step is to add up your lease payments for the year and multiply by your percentage of business use.

But there is a second step, mostly annoying. The IRS makes you reduce your lease payment deductions by a yearly “inclusion amount.”² The inclusion amounts are very low, but they are a pain in the neck to calculate. (The orange box at the end of this article shows you how to do this calculation.)

On May 1, 2013, you leased and placed in service a $30,000 automobile that you use 75 percent for business in 2014. Your 2014 inclusion amount is $12 (see the box at the end of the article).

Your lease payment deduction for 2014 is $2,688 ($300 x 12 x 75 percent - $12).

Inclusion Exemption

You apply the lease inclusion amount only to “luxury passenger vehicles.” You do not apply the lease inclusion amount to the following vehicles, all of which escape the luxury classification:³

1.       Cars with curb weights greater than 6,000 pounds (there are very few of these around)

2.       Sport utility vehicles (SUVs) with gross vehicle weight ratings of 6,001 pounds or more

3.       Pickup trucks and vans with gross vehicle weight ratings of 6,001 pounds or more

Deduction 3: Operating Expenses

You also deduct operating expenses, which include⁴

 · maintenance and repairs,

· tires, · gas,

· oil,

· insurance (including gap insurance),

· parking fees, and · tolls.

Let’s say you have $6,000 of operating expenses. Multiply this by your business percentage of 75 percent, and your deduction for 2014 is $4,500.

Putting It All Together

At tax time, total the three deductions. Using the amounts for 2014 from the example, your vehicle deductions total $7,938 ($62.50 a month x 12 + $2,688 + $4,500).

Why You Should Skip the Mileage Method

If you don’t operate your business as a corporation, the IRS gives you an easy alternative to the deductions listed above. You can use the IRS standard mileage rate (currently 56 cents per mile) for each business mile you travel.⁵

If you pick this method, you have to

1.       Give up deductions for your down-payment amortization, lease payments, and operating expenses, and

2.       Use the mileage rate method for the entire term of your lease (including renewals).

The mileage rate method is not a good choice for most leases. But it can work to your benefit if you lease a low-cost car that gets lots of miles to a gallon of gas and you drive a huge number of business miles.

Suppose in 2014 you drive your vehicle 12,000 miles for the year. The 56 cents a mile gives you a deduction of only $5,040 (12,000 x 75 percent x 0.56). When you compare the $5,040 with the $7,938 in actual expenses calculated above, you gain $2,898 of deductions by using actual expenses.

Takeaways

1.       The trade-in of a business or personal vehicle on the lease of a business vehicle produces first an amortizable down payment and second either taxable gain or deductible loss on the vehicle that you traded in.

2.       If your newly leased vehicle qualifies as a “luxury vehicle” (6,000 pounds or less as explained above), you generally need to calculate an “inclusion amount” from the IRS table to find your deductible lease payments for the year.

3.       You may not use IRS mileage rates on a corporate-owned vehicle.

4.       You deduct the business part of the vehicle only.

Calculating the Inclusion Amount

With the exception of non-luxury passenger vehicles discussed above, the IRS makes you reduce the amount of your lease payment deductions by an “inclusion amount.” Rates are currently very low, but you still have to make the calculation.

Here are the steps:

1.       Determine the fair market value of the vehicle on the day you begin the lease. 2.       Look at IRS Publication 463 for the year your lease began, and then find the “Inclusion Amount” tables in the appendices near the end of the publication. 3.       Determine the type of vehicle you have. 4.       Find the table that begins in the first year of your lease. As of the date of this article, the IRS publication is up-to-date only to 2013. You can find 2014 numbers at Rev. Proc. 2014-21 in Section 4.6 5.       Scan the table to find the dollar amounts for each year of the lease. 6.       Multiply the listed amount for each year by a.        The number of days of the year your lease is in effect (e.g., 244/365) and b.        The percentage of business use of your vehicle.       7.    Round to the nearest dollar amount. Example. Let’s say your lease begins May 1, 2013, and on that date your leased car had a fair market value of $30,000. You use the vehicle 75 percent for business in both 2013 and 2014. Your inclusion amounts are: · 2013 = $5 ($7 x 244/365 x 0.75 = $5) · 2014 = $12 ($16 x 0.75 = $12)

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Foreign Bank Accounts

Tax Tip

Foreign Banks Forced to Report US Account Owners’ Tax Information to IRS.  The Foreign Account Tax Compliance Act (FATCA) is a United States law that requires United States persons, including individuals who live outside of the US, to report their financial accounts held outside of the United States to the Treasury Department. This is done by completing and attaching IRS Form 8938, Statement of Foreign Financial Assets, to the individual’s income tax return, and is generally required if the value of the foreign accounts exceeds $50,000 (this threshold is higher for US persons residing abroad). In addition, FATCA requires foreign financial institutions to report about their US clients to the IRS. Congress enacted FATCA in order to make it more difficult for US taxpayers to conceal assets held in offshore accounts and shell corporations and thus, recoup federal tax revenues on unreported foreign-source income. The penalties for not reporting the accounts are draconian.

Under FATCA, foreign financial institutions that refuse to share information with the IRS face penalties when doing business in the US. FATCA requires US banks to withhold 30% of certain payments to foreign banks that have refused to comply with the information-sharing program. That is a heavy price to pay for access to the world’s largest economy, and it has forced many reluctant countries to comply with the reporting requirement.

As a result, nearly 70 countries, including Switzerland, the Cayman Islands, and the Bahamas—all places where Americans have traditionally hid assets in the past—have agreed to share information from their banks.

Beginning in March 2015, more than 77,000 foreign banks, investment funds, and other financial institutions have agreed to supply the IRS with names, account numbers, and balances for accounts controlled by US taxpayers. Some foreign banks are refusing to accept US citizens as clients because they don’t want the paperwork headaches imposed by FATCA and the additional compliance costs. As a result, US persons living abroad may find their banking options curtailed.

Oh, and did I mention that the FATCA filings are in addition to the long-standing Foreign Bank Account Report (FBAR) that US persons must file with the U.S. Treasury when the aggregate value of foreign accounts exceeds $10,000 in a calendar year? This report must now be e-filed using FinCEN Form 114 and is due by June 30 for the prior calendar year—no extensions are available. Heavy penalties apply if a FBAR isn’t filed when one is required.

If you have foreign accounts and have not been reporting, there is an amnesty filing that is still availbable.

If you have questions related to the individual FATCA or FBAR reporting requirements, please give this office a call.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Foreign Financial Accounts must be reported

Tax Tip

Do you need to file an FBAR?

So you included Form 8938, Statement of Specified Foreign Financial Assets, with your 2013 federal income tax return to report your interests in certain foreign financial accounts. Do you also need to file a separate Treasury Department report known as the FBAR? This report is easy to overlook, since it's not an IRS form and has special filing requirements.

Here's an overview.

What's an FBAR? FBAR is the short name for Form 114, "Report of Foreign Bank and Financial Accounts." You use the FBAR to report your individual or joint financial interest in, or signature authority over, a financial account in a foreign country — in some cases even if you have included Form 8938 with your federal income tax return.

Filing an FBAR is generally required when the aggregate value of your foreign accounts exceeds $10,000 at any time during the calendar year. Because the account value triggers the filing requirement, you may need to file an FBAR even if your foreign account generates no taxable income.

Note: Form 114 is new for 2013. It replaces Form 90-22.1, which was used in prior years.

What are foreign financial accounts? Financial accounts include deposit and custodial accounts, such as stocks, securities, and mutual funds you hold at foreign financial institutions or foreign branches of U.S. financial institutions. You don't have to include financial accounts held at a U.S. branch of a foreign financial institution, or foreign real estate or personal property you own directly.

When is the FBAR due? Form 114, which you and your spouse can file jointly to report your 2013 foreign accounts and assets, must be submitted electronically by June 30, 2014. No extension of time is available, though you can amend an incorrect return after the initial filing.

While there's no tax due with the FBAR, failure to file can lead to penalties. If you overlooked the filing requirement in prior years, please contact our office. We'll help you get caught up.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Rental Property requires proper documentation

Tax Tip

Renting your home calls for tax planning

Internet sites linking travelers to property owners with space to spare continue to grow in popularity. Whether you travel or not, you might be considering the possibility of signing up and offering for rent all or part of your main home. If so, establishing sound recordkeeping procedures from day one is a good idea.

In addition to a bookkeeping system to keep track of the income and expenses related to your rental, a calendar detailing the days your home was rented will be useful at tax time. The reason? Deductible expenses may be limited when rented property is also your personal residence. Having a written record helps determine which tax reporting rules apply.

For example, say you rent your primary home to a vacationer for 15 days or more during a year. All of the rental income is taxable. However, expenses such as interest, property taxes, utility costs, and depreciation are split between the time your property was rented for a fair rental price and the days you used it personally. The portion related to the rental is deductible up to the amount of your rental income.

What if you have rental expenses in excess of your rental income? You may be able to carry them forward to next year.

Different rules apply when your home is rented for less than 15 days, and when the property you offer for rent is your vacation home or timeshare. Please give us a call. We'll help you plan a tax-efficient rental program.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Alimony is Taxable

Tax Tip

Alimony can affect your tax return

Did you receive alimony in 2013?

You're probably aware that alimony you receive is taxable income. However, determining what's considered alimony may not be as simple as it appears at first glance, because you can receive several types of payments when you divorce or separate from your spouse.

For example, say your agreement includes a noncash settlement such as a house. That's not alimony, and generally is not taxable to you. Voluntary payments made in addition to, or without benefit of, a written court document are generally not alimony, either.

So what is alimony? Alimony is broadly defined as payments you receive in cash from your former spouse under a divorce decree or separation agreement. The payments can't be treated as child support or property settlements in the terms of the legal document, and they must stop at death. Other requirements include living in separate households and not filing a joint federal income tax return.

When you're sure the payments you receive are alimony, you'll need to report them in the year of receipt, using the standard Form 1040. You're also required to provide your social security number to your ex-spouse, and you could have to pay a penalty if you refuse.

Please give us a call to discuss the effect of alimony on your tax situation. We can help you plan your financial future.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

Tax Publications are not Binding

Tax Tip

IRS Tax Publications Are Not Binding Precedent

If you are a taxpayer who thinks the answers you receive when calling the IRS help line are always accurate and binding upon the IRS in a subsequent challenge, think again. The IRS will be the first to tell you that the information provided by its help line is not binding on the agency. In other words, even if you follow the advice provided by the IRS, you will not be protected from subsequently being challenged by the IRS and hit with additional taxes, penalties, and interest. The IRS does not stand behind the advice provided by their employees.

The same holds true for IRS publications. In a recent tax court case (Bobrow, TC Memo 2014-21) involving a prominent tax attorney, the court reiterated and emphasized its long-standing position that IRS published guidance is not binding precedent and that taxpayers "rely on IRS guidance at their own peril."

In the Bobrow case, the tax court ruled against the taxpayer, and even imposed a substantial accuracy-related understatement penalty against the taxpayer in spite of an IRS publication that supported his position.

The IRS does not make tax laws; Congress does through the Internal Revenue Code (IRC). The IRS only interprets how the IRC applies in various situations. The advice provided in IRS publications is far more reliable than the opinion provided by a single IRS employee on the phone. However, neither provides binding precedent that can be cited in audit, appeal, or tax court.

The moral of this story is to be cautious in interpreting how the tax laws apply to your particular situation and to seek professional assistance when needed. The IRC is huge and complicated. Please contact this office for assistance.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com