Surrender Charges Are Not to Be Automatically Disregarded in Determination of Value of Life Insurance Policies Distributed from Plan

In the case of Schwab v. Commissioner, (http://cdn.ca9.uscourts.gov/datastore/opinions/2013/04/24/11-71957.pdf) 2013-1 U.S.T.C. ¶50,294, CA9, affirming 136 T.C. 120, the Ninth Circuit Court of Appeals affirmed the Tax Court’s holding rejecting the IRS’s view that surrender charges must be ignored in determining the value of a life

IRS clarifies S. 1446 withholding rate on ECI for Form 8804

IRS recently clarified the withholding rate for the effectively connected income (ECI) allocated to foreign partners. As readers may be aware. IRC 1446 withholding rate was increased from 35% to 39.6% effective 2013. However, there was a confusion if the new rate on ECI would apply if teh partnership’s tax year was a fiscal year beginning in 2012.

IRS Ann. 2013-30, 2013-21IRB clarifies that since partnerships with fiscal years beginning in 2012 are required to file a 2012 Form 8804 (Annual Return for Partnership Withholding Tax),  2012 tax rates continue to apply. However, IRS announcement further states that a foreign partner will still be liable for tax on their share of the partnership’s income based on the tax rates in effect when included in income.

Court Revises Taxpayer’s Values, Finds a Portion of Debt Forgiveness Excludable Under Insolvency Exemption

In the case of McAllister v. Commissioner, TC Memo 2013-96 (http://www.ustaxcourt.gov/InOpHistoric/mcallistermemo.TCM.WPD.pdf), the Tax Court had to decide first if there was debt forgiveness and, if there was, was some or all of the cancellation of debt income excludable from income. Interestingly enough, both the IRS and the taxpayer argued there was no debt forgiveness in 2007 and the Tax Court sided with neither party.

How Can You Increase Your Odds When Making Decisions?

If you have a “yes or no” or a “whether or not” question, you have a 50-50 chance of being right. Would you like to increase these odds? Did you know that adding more choices will increase your odds of success in decision making?

Tax Court Rules Against Its Prior Precedent, Holds Conceding Adjustment on Alternative Grounds Does Not Insulate Taxpayer from 40% Valuation Misstatement Penalty

In the case of AHG Investments, LLC v. Commissioner, 140 TC No. 7, (http://www.ustaxcourt.gov/InOpHistoric/AHGDiv.TC.WPD.pdf) the Tax Court decided to depart from a prior holding in the case of Todd v. Commissioner, 89 TC 912 (1987) affd, 862 F.2d 540 (5^th Cir. 1988).  In that case the court had held that if a taxpayer conceded an assessment of tax on grounds unrelated to a valuation misstatement, the valuation misstatement penalty (the 40% penalty now found in IRC §6662) could not be applied even if the understatement of tax may have also have denied on the grounds of a valuation misstatement.

Payments Made to Providers for Meaningful Use of Electronic Health Records are Taxable Income, Not Return of Capital

A government agency may provide incentives payments to businesses that take certain actions.  Such programs raise income tax and information reporting questions that can be more complex than they appear at first.

In Chief Counsel Advice 20121307005 (http://www.irs.gov/pub/irs-wd/1307005.pdf) the IRS looks at such a program sponsored by the Centers for Medicare and Medicaid Services (CMS).  The program in question pays incentive payments to health care providers who are “meaningful” users of electronic health records.

Although Court Found It Doubtful That Appraisal Substantially Complied With Requirements, Contribution Allowed Due to Reliance on CPAs Advice that Appraisal Was Sufficient

Mistakes happen and sometimes clients are given erroneous advice on a matter.  In the matter of Crimi, et al. v. Commissioner, TC Memo 2013-51 (http://www.ustaxcourt.gov/InOpHistoric/JohnC.TCM.WPD.pdf), the taxpayer had relied upon his long time CPA’s advice that the use of a four year old appraisal on a piece of land involved in a part-sale, part-charitable gift transaction to meet the charitable documentation requirements for a qualified appraisal found in IRC §170(f)(11).