Tax Roundup, 8/28/14: Frequent flying in the Tax Court. And: you don’t need 50 employees to face Obamacare problems.

August 28th, 2014 by Joe Kristan

20120529-2TaxGrrrl, Tax Court Sides With IRS In Tax Treatment Of Frequent Flyer Miles Issued By Citibank.  TaxGrrrl reports on a case this week where a taxpayer was awarded with “points” for opening a bank account, which could be redeemed for airplane tickets.  A couple who cashed in the points for tickets worth over $600 received a 1099 for them and left it off their 1040.

TaxGrrrl reports:

Thankfully, the Tax Court did draw a distinction between the taxability of “Thank You Points” and frequent flyer miles attributable to business or official travel using Announcement 2002-18 (linked above), wherein the IRS made clear that they would not tax frequent flyer miles attributable to business travel. But that’s where the good news for taxpayers stopped.

TaxGrrrl thinks its a bad result:

In a case of what could be characterized as bad facts making bad law, taxpayers didn’t put up much of an argument for not including the income on the tax return: there was no lengthy brief explaining why it might be excludable. Nor did the IRS say much about the inclusion: they more or less took the position that Citibank’s form was enough to prove income, saying “we give more weight to Citibank’s records.”

The Tax Court made this a “reported” decision, which signals that they will side for the IRS in taxing miles that show up on 1099 information returns.

The tax law certainly allows non-cash transactions to be taxable.  If they didn’t, barter exchanges would rule the world.  It’s also true that at some point trying to tax everything of value doesn’t make sense.  You might value the smile from the cute barista on the skywalk, but that doesn’t mean you should pay tax on the extra value received with your coffee.  The hard part now is knowing when you cross the line.

Cite: Shankar, 143 T.C. 5

 

20121120-2Health Reimbursement Plans a danger under Obamacare.  Health Reimbursement Plans Not Compliant with ACA Could Mean Exorbitant Penalties  (Kristine Tidgren):

As of January 1, 2014, a number of long-time options became illegal under the ACA. Lest employers are tempted to ignore this issue, they should know that offering noncompliant plans subjects them to a possible excise tax of $100 per day per employee per violation. ACA violations are no small matter.

In IRS Notice 2013-54, issued last fall, the Treasury Department and the Department of Labor made clear that such plans are no longer allowed. This prohibition applies to a number of long-used standalone health care reimbursement plans that are not integrated with an ACA-compliant group health care plan. Although some exceptions apply, the ACA has made the following types of reimbursement plans illegal (subjecting their sponsors to the possible $100/day/employee/violation penalty tax):

  • Standalone §105 medical reimbursement plans (including Health Reimbursement Arrangements (HRAs))

  • Employer payment of individual health insurance premiums on a pre-tax basis

  • §125 salary-reduction plans for employee health insurance premiums


If you think that you don’t have to worry about Obamacare because you don’t have 50 employees, think again.


Roger McEowen, Structuring the Business: S Corporation or LLC?.  “But, beyond the requirement to pay reasonable compensation, the S classification provides a means for extracting money out of the business without paying employment taxes – there isn’t any employment tax on distributions (dividends) from the S corporation.”


20130311-1Jason Dinesen, Tax Preparer Ethics: Miscellaneous Deductions:

Is it okay to show the purchase as a miscellaneous deduction if the amount is less than 2% of their income and thus isn’t deductible anyway? That way, the taxpayer sees it on their tax return but technically the government hasn’t been harmed because the amount was too small to actually be deducted. Is this okay?

This can be tempting for a practitioner.  You can “take” a deduction for “subscriptions” that are probably Sports Illustrated and appease a pushy taxpayer without actually reducing taxes.  But Jason makes good points as to why it can make it hard to stop taxpayers from pushing for bogus deductions that actually matter.


Peter Reilly, Bank Out 40 Grand When It Allows Withdrawal Two Hours After IRS Levy.  Oops.

Kay Bell, Be tax smart in combining business and personal travel

Phil Hodgen, Toronto Consulate Wait Times Have Ballooned.  They’re lining up to get out from under U.S. taxation.  Phil offers this advice:

Many of you will want to renounce your U.S. citizenship before year-end. You can go anywhere in the world to do it. Start calling Consulates and Embassies to see what the wait time is.

Our experience is that the Caribbean and Central American countries are often good. Southeast Asia seems to be good as well.

That’s a sad commentary on how we tax Americans abroad.  Congress makes financial life miserable for expats, and then calls them “deserters” for doing something about it.

 

Stephen Olsen, Boeri: Not a citizen, never lived or worked in the US? IRS will still keep your money. (Procedurally Taxing).  Of course they will.  They’re bigger than you.

 

 

Remember, these are the people who think we preparers are out of control and in need of regulation.  IRS Ethics Lawyer Facing Possible Disbarment, Accused of Lying (Washington Times):

A lawyer in the IRS ethics office is facing the possibility of being disbarred, according to records that accuse her of lying to a court-appointed board and hiding what she’d done with money from a settlement that was supposed to go to two medical providers who had treated her client.

Of course, given Commissioner Koskinen’s policy of stonewalling and evasion, she might be just the woman he wants for the job.  (Via TaxProf)

 

 

William McBride, Canada’s Lower Corporate Tax Rate Raises More Tax Revenue (Tax Policy Blog):

The natural question is: How much tax revenue did Canada lose?

Answer: None.

canada corp revenue chart

You shouldn’t assume that the lower rate caused the revenue increases.  Still, when our current rates clearly incentivize tax-saving moves like inversions, you shouldn’t assume rate cuts will be big revenue losers, either.  The revenue-maximizing rate has to be influenced by rates charged in other jurisdictions.

 

Cara Griffith, Is the Dormant Commerce Clause in Jeopardy? (Tax Analysts Blog)  “In matters of state taxation, the dormant commerce clause provides a much stronger defense against discriminatory taxation than the due process clause.”

Kelly Davis, Cumulative Impact of Ohio Tax Changes Revealed (Tax Justice Blog)

 

TaxProf, The IRS Scandal, Day 476

 

News from the Profession.  California Board of Accountancy Moves to Stop Incarcerated CPA From Providing Exceptional Client Service in Prison

 

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