Jay J. Freireich, Esq., Freireich L.L.C.
30 Columbia Turnpike, 3rd Floor
P.O. Box 482
Florham Park, NJ 07932
ph: 973-845-2050
fax: 973-301-0094
alt: 201-572-2251
jay
8/16/17
A casual gambler may not offset winnings by losses.
The Tax Court in Bon Viso v. Comm., T.C. Memo 2017-154 (TCM 2017) requires that an individual had to report as income the full amount of his gambling winnings reflected on the Forms W-2G (Certain Gambling Winnings) he received without deducting the amounts bet. Since the Taxpayer was not engaged in the gambling business, he could only deduct his gambling losses as a miscellaneous itemized deduction and not as an offset to his income.
Under I.R.C. § 61(a), gross income includes all income from whatever source derived. McClanahan v. U.S., 292 F.2d 630 (5th Cir. 1961) has held that gambling winnings are includable in gross income. According to Lutz v. Comm., TC Memo 2002-89 (TCM 2002) and Hochman v. Comm., TC Memo 1986-24 (TCM 1986) a casual gambler's gross income from a wagering transaction is netted by the amount wagered. But the Bon Viso court stated that the Taxpayer did not prove the amount bet. The Taxpayer tried to utilize the Cohan rule stated in Cohan v. Comm., 39 F.2d 540 (2d Cir. 1930) (court may estimate the amount of a deduction, bearing heavily against the taxpayer whose inexactitude is of his own making and the taxpayer must present sufficient evidence for a court to even provide an estimate)
While people in the gambling business may deduct all their wagers for the year against all of their winnings for the year, casual gamblers deduct gambling losses (to extent of gambling gains) only as miscellaneous itemized deductions. Torpie v. Comm., TC Memo 2000-168 (TCM 2000).
In sum, the Bon Viso Court held that the taxpayer had to include his full $5,060 gambling winnings in his gross income and since the Taxpayer was not engaged in the gambling business, he could only deduct his gambling losses (to extent of gambling gains) as a miscellaneous itemized deduction.
His losses at other casinos, lottery tickets and sports wagers were simply only available as miscellaneous itemized deductions but since he could not prove them, they were not allowed.Lesson: Keep adequate records of losses throughout each year because if you ever do hit a winning, you will wish to at least be able to deduct the losses even if they may only be allowed as an itemized deduction.
1/17/11
The Hiring Incentives to Restore Employment Act adds credit for hiring new workers
In an effort to jump start the economy and employment, Congress is providing a credit of up to $1,000 for so called “retained workers” in 2011 pursuant to Section 102 of the HIRE Act, P.L. 111-147, for any tax year ending after Mar. 18, 2010. A “retained worker” is defined as any qualified individual (as defined for purposes of the employer payroll tax holiday that was in effect for hiring unemployed workers, who makes a proper certification on Form W-11 and began employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011 and
(1) who was employed by the taxpayer on any date during the tax year,
(2) who was employed by the taxpayer for a period of not less than 52 consecutive weeks, and
(3) whose wages (as defined for income tax withholding in Code Sec. 3401(a) ) for that employment during the last 26 weeks of the period (described in item (2) above) equaled at least 80% of the wages for the first 26 weeks of that period. (HIRE Act §102(b))
Make sure to file the Form W-11 to claim this credit for each such worker hired.
Shorter S corp built-in gain period. For tax years beginning after Dec. 31, 2010, the “Small Business Jobs Act of 2010,” the tax title of H.R. 5297, the Small Business Lending Funding Act ( P.L. 111-240 ) provided that for S corporation tax years beginning in 2011, no tax is imposed on the net unrecognized built-in gain of an S corporation if the fifth year in the recognition period preceded the 2011 tax year. ( Code Sec. 1374(d)(7)(B)(ii) )
10/4/10
Gift Tax Annual Exclusion Amount for 2011 Remains at $13,000
Each year, the prior Consumer Price Index (CPI) is used to compute the gift tax annual exclusion amount for the following year. There is uncertainty over which tax rates will apply for 2011 based upon the sunset provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") and the extent to which Congress may act to change it. Under the sunset, provisions of EGTRRA, the Internal Revenue Code of 1986 will be applied after 2010 as if the provisions of EGTRRA had never been enacted. However, under all laws and proposals to date, the Gift Tax has remained and based upon the inflation data, the gift tax annual exclusion is set to remnain at $13,000. This appears to be one of the few areas of certainty for next year. But stay tuned, as the only thing constant in tax law is change.
9/27/10
Small Business Jobs Act Enacted
On September 27, President Obama signed into law H.R. 5297, the Small Business Lending Funding Act. Included in the SBLFA is the tax title the “Small Business Jobs Act of 2010” which includes a number of important tax provisions for individuals, small businesses and large businesses. These were discussed below in the post dated 9/14/10.
9/25/10
Beneficiaries May Be Liable as Transfereed for Estate Tax Deficiencies
The Tax Court in Upchurch v. C.I.R., TC Memo 2010-169, RIA TC Memo ¶2010-169, 100 T.C.M. (CCH) 85, 2010 WL 3001748 (U.S. Tax Ct. Aug. 2, 2010) held that recipients of settlement payments from an estate that were later disallowed by the IRS were liable for estate tax deficiencies as transferees of property from the estate.
In Upchurch, the IRS audited the estate, then disallowed the estate's claims to deductthe settlement payments made to certain beneficiaries as an estate debt under the theory that they were not obligations of the estate, but only a family disagreement. The audit resulted in a deficiency plus interest. The IRS went after the beneficiaries who contested the imposition of the tax on them in the United States Tax Court..
Section 6901(a) provides the procedure for the IRS to collect unpaid taxes owed by the transferor of the assets from the transferee. Section 6901(h) provides that the term "transferee" includes "donee, heir, legatee, devisee, and distributee." The Tax Court therefore found in favor of the IRS.
Senate is set to vote on small business jobs bill
9/14/10
By a vote of 61-37, the Senate invoked “cloture” (a vote to limit debate) on the Landrieu-Baucus amendment (S. Amdt. 4594) to H.R. 5297, which carries the “Creating Small Business Jobs Act of 2010.” This means the Senate could vote on the small business package by the end of this week. If the Senate approves the bill, it would go back to the House, which passed its version of the bill earlier this year.
However, the Senate failed to invoke cloture on an amendment that would repeal extremely unpopular business information reporting provisions that are set to go into effect for payments made in 2012 and thereafter. The Senate also failed to invoke cloture on an amendment that would water down the recently enacted business information reporting provisions.
Selected Highlights of Senate Amendment 4594 include:
A 100% exclusion of gain under §1202 of the Code from the sale of certain small business stock acquired at original issue and held for more than five years. The change would be effective for stock acquired after the date of enactment and held for more than five years.
For the first tax year of the taxpayer beginning in 2010, eligible small businesses could carry back unused general business credits for five years. Eligible small businesses would consist of sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the previous three years.
For tax years beginning in 2010, eligible small businesses, as defined above, would be able to use all types of general business credits to offset their alternative minimum tax.
Where a C corporation elects to become an S corporation, the S corporation is taxed at 35% on all gains that were built-in (“B-I-G”) at the time of the election if the gains are recognized during the recognition period. The recognition period generally is the first ten S corporation years. For tax years beginning in 2009 and 2010, the American Recovery and Reinvestment Act of 2009 provided that no tax is imposed on the B-I-G of an S corporation if the seventh tax year in the recognition period preceded the 2009 and 2010 tax years. The Senate amendment goes one step further. It would, for any tax year beginning in 2011, shorten the holding period of assets subject to the built-in gains tax to 5 years if the fifth tax year in the recognition period precedes the tax year beginning in 2011. Thus, for conversions from a C corporation to an S corporation which occurred in 2006, or earlier, B-I-G would be avoided if such asset were sold in 2011.
Under current law, the §179 of the Code expensing limit for tax years beginning in 2010 is $250,000, and the maximum expensing amount is reduced (i.e., phased out, but not below zero) by the amount by which the cost of § 179 property placed in service exceeds $800,000 (the investment ceiling). For tax years beginning after 2010, these amounts were to revert to $25,000 and $200,000 respectively. The substitute amendment would for tax years beginning in 2010 and 2011 increase the maximum § 179 expensing amount to $500,000 and the investment ceiling to $2,000,000.
For property placed in service in 2010 and thereafter, for any tax year beginning in 2010 or 2011, qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) would be eligible for $250,000 of expensing under § 179. The dollar cap would apply to the aggregate cost of qualified real property.
Bonus 50% first year depreciation would be extended to apply to property placed in service in 2010 (in 2011, for certain long production period property).
For a tax year beginning in 2010, the deduction for startup expenses under § 195 would be increased from $5,000 to $10,000 and the phase-out threshold would be increased from $50,000 to $60,000.
Cell phones would be removed from the definition of listed property under § 280F, for tax years beginning in 2010.
For payments made in 2011 and thereafter, persons receiving rental income from real property would have to file information returns with the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. Exceptions would be provided for individuals renting their principal residences (including active members of the military), taxpayers whose rental income doesn't exceed an IRS-determined minimal amount, and those for whom the reporting requirement would create a hardship (under IRS Regulations).
For information returns required to be filed in 2011 and thereafter, the §6721 penalties for failure to timely file information returns to IRS would be increased.
For distributions after the enactment date, 401(k), 403(b), and governmental 457(b) plans could permit participants to roll their pre-tax account balances into a Roth account. If the rollover is made in 2010, the participant could elect to pay the tax in 2011 and 2012.
For amounts received in tax years beginning in 2011 and thereafter, holders of nonqualified annuities (annuity contracts held outside of a qualified retirement plan or IRA) could elect to receive part of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis.
9/25/10
Beneficiaries May Be Liable as Transfereed for Estate Tax Deficiencies
The Tax Court in Upchurch v. C.I.R., TC Memo 2010-169, RIA TC Memo ¶2010-169, 100 T.C.M. (CCH) 85, 2010 WL 3001748 (U.S. Tax Ct. Aug. 2, 2010) held that recipients of settlement payments from an estate that were later disallowed by the IRS were liable for estate tax deficiencies as transferees of property from the estate.
In Upchurch, the IRS audited the estate, then disallowed the estate's claims to deductthe settlement payments made to certain beneficiaries as an estate debt under the theory that they were not obligations of the estate, but only a family disagreement. The audit resulted in a deficiency plus interest. The IRS went after the beneficiaries who contested the imposition of the tax on them in the United States Tax Court..
Section 6901(a) provides the procedure for the IRS to collect unpaid taxes owed by the transferor of the assets from the transferee. Section 6901(h) provides that the term "transferee" includes "donee, heir, legatee, devisee, and distributee." The Tax Court therefore found in favor of the IRS.
Senate is set to vote on small business jobs bill
9/14/10
By a vote of 61-37, the Senate invoked “cloture” (a vote to limit debate) on the Landrieu-Baucus amendment (S. Amdt. 4594) to H.R. 5297, which carries the “Creating Small Business Jobs Act of 2010.” This means the Senate could vote on the small business package by the end of this week. If the Senate approves the bill, it would go back to the House, which passed its version of the bill earlier this year.
However, the Senate failed to invoke cloture on an amendment that would repeal extremely unpopular business information reporting provisions that are set to go into effect for payments made in 2012 and thereafter. The Senate also failed to invoke cloture on an amendment that would water down the recently enacted business information reporting provisions.
Selected Highlights of Senate Amendment 4594 include:
A 100% exclusion of gain under §1202 of the Code from the sale of certain small business stock acquired at original issue and held for more than five years. The change would be effective for stock acquired after the date of enactment and held for more than five years.
For the first tax year of the taxpayer beginning in 2010, eligible small businesses could carry back unused general business credits for five years. Eligible small businesses would consist of sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the previous three years.
For tax years beginning in 2010, eligible small businesses, as defined above, would be able to use all types of general business credits to offset their alternative minimum tax.
Where a C corporation elects to become an S corporation, the S corporation is taxed at 35% on all gains that were built-in (“B-I-G”) at the time of the election if the gains are recognized during the recognition period. The recognition period generally is the first ten S corporation years. For tax years beginning in 2009 and 2010, the American Recovery and Reinvestment Act of 2009 provided that no tax is imposed on the B-I-G of an S corporation if the seventh tax year in the recognition period preceded the 2009 and 2010 tax years. The Senate amendment goes one step further. It would, for any tax year beginning in 2011, shorten the holding period of assets subject to the built-in gains tax to 5 years if the fifth tax year in the recognition period precedes the tax year beginning in 2011. Thus, for conversions from a C corporation to an S corporation which occurred in 2006, or earlier, B-I-G would be avoided if such asset were sold in 2011.
Under current law, the §179 of the Code expensing limit for tax years beginning in 2010 is $250,000, and the maximum expensing amount is reduced (i.e., phased out, but not below zero) by the amount by which the cost of § 179 property placed in service exceeds $800,000 (the investment ceiling). For tax years beginning after 2010, these amounts were to revert to $25,000 and $200,000 respectively. The substitute amendment would for tax years beginning in 2010 and 2011 increase the maximum § 179 expensing amount to $500,000 and the investment ceiling to $2,000,000.
For property placed in service in 2010 and thereafter, for any tax year beginning in 2010 or 2011, qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) would be eligible for $250,000 of expensing under § 179. The dollar cap would apply to the aggregate cost of qualified real property.
Bonus 50% first year depreciation would be extended to apply to property placed in service in 2010 (in 2011, for certain long production period property).
For a tax year beginning in 2010, the deduction for startup expenses under § 195 would be increased from $5,000 to $10,000 and the phase-out threshold would be increased from $50,000 to $60,000.
Cell phones would be removed from the definition of listed property under § 280F, for tax years beginning in 2010.
For payments made in 2011 and thereafter, persons receiving rental income from real property would have to file information returns with the IRS and to service providers reporting payments of $600 or more during the year for rental property expenses. Exceptions would be provided for individuals renting their principal residences (including active members of the military), taxpayers whose rental income doesn't exceed an IRS-determined minimal amount, and those for whom the reporting requirement would create a hardship (under IRS Regulations).
For information returns required to be filed in 2011 and thereafter, the §6721 penalties for failure to timely file information returns to IRS would be increased.
For distributions after the enactment date, 401(k), 403(b), and governmental 457(b) plans could permit participants to roll their pre-tax account balances into a Roth account. If the rollover is made in 2010, the participant could elect to pay the tax in 2011 and 2012.
For amounts received in tax years beginning in 2011 and thereafter, holders of nonqualified annuities (annuity contracts held outside of a qualified retirement plan or IRA) could elect to receive part of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis.
Contact Jay J. Freireich, Esq. for more information on any of these topics.
(973) 364-5206
9/3/10
Tax Saving Opportunities for Corporations in this (Hopefully) Recovering Economy
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To help the economy recover, it is important for corporations to minimize their tax liability. The tax savings can then be used to help revitalize the economic well being of the company. New net operating loss ("NOL") carryback rules provide a significant opportunity for recovering companies. First, the American Recovery and Reinvestment Act of 2009 ("ARRA") allowed small businesses to carryback losses incurred in 2008 for three, four or five yearsonly for businesses with gross receipts of less than $15 million. More recently in November 2009, the Worker, Homeownership and Business Assistance Act of 2009 amended Code Sec. 172(b)(1)(H), allowing the up to five year liberal carryback of NOLs for the years 2008 and 2009. Essentially, the amendment provides a carryback period of up to five years for losses incurred in tax years ending after 12/31/07 and beginning before 1/1/10 for almost all corporations regardless of size.
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Copyright 2010 Jay Freireich, Esq.. All rights reserved.
Jay J. Freireich, Esq., Freireich L.L.C.
30 Columbia Turnpike, 3rd Floor
P.O. Box 482
Florham Park, NJ 07932
ph: 973-845-2050
fax: 973-301-0094
alt: 201-572-2251
jay