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In a recent court case, the taxpayer who argued that by living in Germany for many years and selling his US properties a long time back, he had relinquished his Lawful Permanent Residence (LPR) or a green card and hence should not be subject to US taxes on his income. However, IRS did not accept this and court agreed with IRS making the taxpayer liable for the tax.

IRS contended that the taxpayer was liable for income tax deficiencies for 2004 and 2006 – 2009 (almost all of which was attributable to the gain on his installment sale of stock). IRS argued that (1) because the taxpayer did not formally abandon his LPR status (obtained in ’77) until 2010, he remained an LPR during the years in issue, and (2) because he was not taxable by Germany as a German resident during those years, he was not a German resident under Article 4 of the Treaty. Therefore, he was not exempted from U.S. taxation by the Treaty.

The Tax Court reasoned that the taxpayer did not formally renounce or abandon that status until Nov. 10, 2010, when he filed a Form I-407 and surrendered his green card to the USCIS consistent with the requirements of Reg. § 301.7701(b)-1(b)(3).The Court rejected the taxpayer’s argument that he “informally” abandoned his LPR status. The Court held that for Federal income tax purposes, the taxpayer’s LPR status turns on Federal income tax law and was only indirectly determined by immigration law. The taxpayer’s reliance on an immigration case that recognized “informal” abandonment was misplaced. Unlike immigration law, the Code and regs were not silent on the point at which a taxpayer’s LPR status was considered to change. The requirements set out in Code Sec. 7701(b)(6)(B), Reg. § 301.7701(b)-1(b)(1), and Reg. § 301.7701(b)-1(b)(3) for abandoning LPR status

As certain as I am that General Hospital will exceed 13, 125 episodes, as a CPA, you will be asked to serve on a governing board of a nonprofit. Serving on a nonprofit board is a big commitment. The question you need to ask yourself is, are you ready? Continue Reading »

In PLR 201431036 (http://www.irs.gov/irs-wd/201431036.pdf) the IRS granted relief from the 60 day rollover period to a taxpayer who intended to take funds out of the IRA to benefit from a short term investment opportunity—the type of situation that advisers might expect would not lead to an IRS waiver of the rollover period. As you might expect, though, the particular facts of this situation was likely key to obtaining relief.

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In the case of Schumann v. Commissioner, TC Memo 2014-138, http://www.ustaxcourt.gov/InOpHistoric/SchumannMemo.Kerrigan.TCM.WPD.pdf, a number of issues related to passive activities and rental real estate were before the court.  However an interesting issue arose as a taxpayer discovered that positions taken in one legal proceeding can come back to haunt the taxpayer in another.

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If a taxpayer sells a rental property formerly used as the taxpayer’s principal residence that has been used as a rental, there is the possibility that §121 may be available to be used to exclude gain from the sale of the rental.  But if the rental activity has unused passive losses, does invoking §121’s gain exclusion prevent the ability to release the excess losses under IRC §469(g)(1)’s special rule for dispositions?

Generally, IRC §121 allows for exclusion of up to $250,000 of gain ($500,000 for a married couple filing a joint return) from the sale of property that was owned and used by the taxpayers as their principal residence for two of the five years immediately before the sale.

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Reasonable reliance on a tax professional can serve to get taxpayers out of the accuracy related penalty of IRC §6662.  In the case of English v. Commissioner, TC Summary Opinion 2014-66, http://www.ustaxcourt.gov/InOpHistoric/EnglishSummary.Gerber.SUM.WPD.pdf, the taxpayers were able to use what turned out be erroneous advice to escape the penalty (albeit, not the tax) on an assessment.

Cheryl English had been receiving disability payments from Hartford Insurance after she became disabled in 2007 and could no longer work.  The policy provided that her benefits would be reduced if she qualified for Social Security disability benefits.  While she applied for such benefits in 2007, she did not receive any in 2007, 2008 or 2009.

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In Chief Counsel Advice 201427016 (http://www.irs.gov/pub/irs-wd/201427016.pdf) the IRS addressed the question of whether there’s an impact on whether a taxpayer may qualify as a real estate professional depending on whether or not the taxpayer makes an election to combine rental properties under Reg. §1.469‑9(g).

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