tag:blogger.com,1999:blog-41972560017779983722024-03-19T03:47:56.640-05:00Cincinnati Tax GuySteve Hamilton is a Tampa native and a graduate of the University of South Florida and the University of Missouri. He now lives in northern Kentucky. A career CPA, Steve has extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.comBlogger769125tag:blogger.com,1999:blog-4197256001777998372.post-31629995966001976652024-03-17T19:00:00.004-05:002024-03-18T09:07:40.507-05:00Owing Tax on Social Security Not Received<p> </p><p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">I am
spending more time talking about social security.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">The clients
and I are aging. If it does not affect me, it affects them – and that affects
me.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Social
security has all manners of quirks.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">For example,
say that one worked for an employer which does not pay into social security. There
are many - think teachers, who are covered instead by state plans. It is common
enough to mix and match employers over the course of a career, meaning that
some work may have been covered by social security and some was not. What does
this mean when it comes time to claim benefits?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Well, if you
are the employee in question, you are going to learn about the windfall
elimination provision (WEP), which is a haircut to one’s social security for this
very fact pattern.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">What if this
instead is your spouse and you are claiming spousal benefits? Well, you are
going to learn about the “government pension offset,” which is the same fish but
wrapped in different paper.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">What if you
are disabled?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Kristen
Ecret was about to find out.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">She worked a
registered nurse until 2014, when she suffered an injury and became medically
disabled. She started receiving New York workers compensation benefits.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Oh, she also
applied for social security benefits in 2015.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">In December
2017 (think about it) she heard back from the SSA. She was entitled to
benefits, and those benefits were retroactive to 2015.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Should be a
nice check.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">In January
2018 she received a Form SSA-1099 for 14,392, meaning the SSA was reporting to
the IRS that she received benefits of $14,332 during 2017.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">But there
was a bigger problem.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Kristen had
received nothing – zippo, nada, emptitadad – from SSA. The SSA explained that
her benefits had been hoovered by something called the “workers’ compensation
offset.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">She filed a
request for reconsideration of her benefits.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">She got some
relief.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">It’s a year
later and she received a Form SSA-1099 for 2018. It reported that she received
benefits of $71,918, of which $19,322 was attributable to 2018. The balance – $52,596
– was for retroactive benefits.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Except ….<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Only $20,749
had been deposited to her bank account. Another $5,375 was paid to an attorney or
withheld as federal income tax. The difference ($45,794) was not paid on
account of the workers’ compensation offset.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Something
similar happened for 2019.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Let’s stay
with 2019.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Instead of
using the SSA-1099, Kristen reported taxable social security on her 2019 joint
income tax return of $5,202, which is 85% of $6,120, the only benefits she
received in cash.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">I get it.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">The IRS of
course caught it, as this is basic computer matching.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">The IRS had
records of her “receiving” benefits of $55,428.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">The difference?
Yep: the “workers’ compensation offset.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">There was
some chop in the water, as a portion of the benefits received in 2019 were for
years 2016 through 2018, and both sides agreed that portion was not taxable.
But that left $19,866 which the IRS went after with vigor.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">The Court
walked us through the life, times and humor of the workers’ compensation offset,
including this little hummable ditty:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in; text-indent: 0.3pt;">For purposes of
this section, if, by reason of section 224 of the Social Security Act [i.e., 42
U.S.C. § 424a] . . . any social security benefit is reduced by reason of the
receipt of a benefit under a workmen’s compensation act, the term ‘social
security benefit’ includes that portion of such benefit received under the
workmen’s compensation act which equals such reduction."<span style="font-size: 14pt; line-height: 115%;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Maybe the
Court will find a way ….<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 115%;"><span style="mso-tab-count: 1;"> </span></span>Section 86(d) compels us to
agree with respondent."<o:p></o:p></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">The “respondent”
is the IRS. No help here from the Court.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in;">Applying the 85% inclusion ratio,
we conclude that petitioners for 2019 have taxable Social Security benefits of
$16,886, viz, 85% of the $19,866 in benefits that were attributable to 2019.
Because petitioners on their 2019 return reported only $5,202 in taxable Social
Security benefits, they must include an additional $11,684 of such benefits
($16,886 − $5,202) in their gross income."<o:p></o:p></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Kristen
lost.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Oh, the IRS applied
an accuracy-related penalty, just to make it perfect. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">We know that
tax law can be erratic, ungrounded, and nonsensical. But why did Congress years
ago change the tax Code to convert nontaxable disability income into taxable
social security income? Was there some great loophole here they felt compelled
to squash?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15pt; line-height: 115%;">Our case
this time was <i>Ecret v Commissioner</i>, T.C. Memo 2024-23.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-21269110286383463372024-03-05T21:00:00.022-06:002024-03-05T21:07:48.052-06:00IRS Gets Called Out In Offer In Compromise Case<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">I am looking at an offer in compromise (OIC) case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">These cases are almost futile for a taxpayer, as the
Tax Court extends broad deference to the IRS in its analysis of and
determinations on OICs. To win requires one to show that the IRS acted in bad
faith.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">COMMENT: I have soured on OICs as the years have
gone by. Those commercials for “pennies on the dollar” stir unreasonable
expectations and do not help. OICs are designed for people who have experienced
a reversal of fortune - illness, unemployment, disability, or whatnot – which
affect their ability to pay their taxes. It is not meant for someone who is
irresponsible or inexplicably unfettered by decency or the responsibilities of
the human condition. Not too long ago, for example, one of the clients wanted
us to pursue an OIC, as he has racked up impressive tax debt but has no cash. I
refused to be involved. Why? Because his cash is going to construct a $2-plus
million dollar home. I am very pro-taxpayer, but this is not that. Were it up
to me, we would fire him as a client.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Let’s look at the <i>Whittaker</i> case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Mr. W is a veteran and was a self-employed personal
trainer. Mrs. W worked in a local school district and had a side gig as a mall security
guard. They were also very close to retirement.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Ws owed everybody, it seems: a mortgage, student
loans, the IRS, the state of Minnesota and so on. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">In 2018 the IRS sent a notice of intent to levy. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Ws requested a collection due process (CDP) hearing.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">COMMENT: The Ws were represented by the University of
Minnesota tax clinic, giving students a chance to represent clients before the
IRS and courts. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS of course wanted numbers: the Form 433
paperwork detailing income, expenses, assets, debt and so forth.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Ws owed the IRS approximately $33 grand. The clinic
calculated their reasonable collection potential as $1,629. They submitted a
20% payment of $325.80, per the rules, along with their OIC.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">In the offer, the Ws stressed that their age and
difficult financial situation meant that soon they would have to rely on
retirement savings as a source of income rather than as a nest egg. Their house
was in disrepair and had an unusual mortgage, meaning that it was extremely unlikely
it could be refinanced to free up cash.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS has a unit - the Centralized Offer in
Compromise unit – that stepped in next. Someone at the unit calculated the Ws’
RCP as $250,000, which is wildly different from $1,629. The unit spoke with representatives
at the clinic about the bad news. The clinic in turn emphasized special
circumstances that the Ws brought to the table. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">That impasse transferred the OIC file to Appeals.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">It was now March 2020.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Remember what happened in March 2020?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">COVID.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The two sides finally spoke in September.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Appeals agreed with an RCP of $250 grand. The Settlement
Officer (SO) figured that the Ws could draw retirement monies to pay-off the
IRS.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Meanwhile Mr. W had retired and Mrs. W was gigging at
the mall only two weekends a month.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The SO was not changing her mind. She figured that Mrs.
W must have a pension from the school. She also surmised that Mr. W’s military
pension must be $2,253 per month rather than $1,394. How did she know all this?
Magic, I guess.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The W’s argued that they could not borrow against the
house. They had refinanced it under something called the Home Affordability
Refinance Program, which helps homeowners owing more than their house is worth.
A ballon payment was due in 2034, and refinancing a house that is underwater is
nearly impossible.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">This did not concern the SO. She saw an assessed value
of $243,000 on the internet, subtracted an $85 thousand mortgage, which left plenty
of cash. The W’s pointed out that there was deferred maintenance on the house –
a LOT of deferred maintenance. Between the impossible mortgage and the deferred
maintenance, the house should be valued – they argued – at zero.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Nope, said the SO. The Ws could access their retirement
to pay the tax. They did not have to involve the house, so the mortgage and
deferred maintenance was a nonfactor. She then cautioned the W’s not to withdraw
retirement monies for any reason other than the IRS. If they did so, she would consider
the assets as “dissipated.” That is a bad thing. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Off to Tax Court they went. Remember my comment
earlier: low chance of success. What choice did the Ws have? At least they were
well represented by the tax clinic.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Court saw three key issues.<o:p></o:p></span></p>
<p class="MsoNormal"><b><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Retirement Account<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The W’s led off with a great argument:<o:p></o:p></span></p>
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<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">This is Internal Revenue Manual 5.8.5.10, which states
that a taxpayer within one year of retirement may have his/her retirement
account(s) treated as income rather than as an asset. This is critical, as it
means the IRS <i>should </i>not force someone to empty their 401(k) to pay off
tax debt.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The SO was unmoved. The IRM says that the IRS “may” but
does not say “must.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Yep, that is the warm and fuzzy we expect from the IRS.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Court acknowledged:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">We see no erroneous view of the law and no clearly erroneous
assessment of facts.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">But the Court was not pleased with the IRS:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">But there may be a problem for the Commissioner – this
reasoning didn’t make it into the notice of determination …”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The “notice of determination” comment is the Court
saying the files were sloppy. The IRS must do certain things in a certain order,
especially with OICs. Sloppy won’t cut it. <o:p></o:p></span></p>
<p class="MsoNormal"><b><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Home Equity<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The W’s had offered to provide additional information
on the loan terms, the deferred repairs to the house, the unwillingness of the
banks to refinance.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS worked from assessed values.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">It is like the two were talking past each other.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Here is the Court:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS does need to take problems with possible refinancing
a home seriously.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Whittakers have a point – there’s nothing in the
administrative record that states or even suggests that the examiner at the
Unit or the settlement officer during the CDP hearing asked for any information
in addition to the appraised value.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">There is no evidence in the record of any
consideration of the Whittakers’ arguments on this point.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Oh, oh.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Here is the first slam:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">We therefore find that the settlement officer’s
conclusion about the Whittaker’s ability to tap the equity in their home was
clearly erroneous on this record. This makes her reliance on that equity in her
RCP calculations an abuse of discretion.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><b><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">COVID<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The W’s had alerted the IRS that Mr. W had completely
retired and Mrs. W was working only two weekends a month. The SO disregarded
the matter, reasoning that the W’s had enough pension income to compensate. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Which pension, you ask? Would that include the pension
the SO unilaterally increased from $1,394 to $2,253 monthly?<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Commissioner now concedes that the settlement
officer was mistaken, and that Mr. Whittaker had a military pension of only
$1,394 per month.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Oops.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">There was the second slam.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS – perhaps embarrassed – went on to note that
the Mall of America opened after being COVID-closed for three months. Speaking
of COVID, the lockdown had inspired a nationwide surge in demand for fitness
equipment. Say …, wasn’t Mr. W a personal fitness trainer?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Court erupted:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Upholding the rejection of the Whittakers’ offer
because Mrs. Whittaker’s mall job <i>may </i>have resumed or Mr. Whittaker <i>might</i>
be able to run a training business using potential clients’ possible pandemic
purchases is entirely speculative.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">True that.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The settlement officer ‘did not think that the loss of
the Whittaker’s wage income or self-employment income … sufficiently mattered
to justify reworking the Offer Worksheet.’”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Court was getting heated.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The settlement officer’s explicit refusal to rework
the worksheet despite the very considerable discrepancy in the calculation
before and after the pandemic is a clear error and thus an abuse of
discretion.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Court remanded the matter back to IRS Appeals with
clear instructions to get it right. It explicitly told the IRS to consider the material
change in the Ws’ circumstances – changes that happened <i>during</i> the CDP
hearing itself - and their ability to pay.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">We said earlier “almost futile.” We did not say
futile. The Ws won and are headed back to IRS Appeals to revisit the OIC.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Our case this time was <i>Whittaker v Commissioner</i>,
T.C. Memo 2023-59.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-33664898439417068462024-02-26T20:30:00.008-06:002024-02-27T09:42:53.752-06:00 Can A Taxpayer Be Responsible For Tax Preparer Fraud?<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">We are familiar with the statute of limitations. In
general, the SoL means that you have three years to file a return, information
important to know if you are due a refund. Likewise, the IRS has three years to
audit or otherwise adjust your return, important to them if you owe additional
tax.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The reason for the SoL is simple: it has to end
sometime, otherwise the system could not function.<span style="mso-spacerun: yes;"> </span>Could it be four years instead of three? Of
course, and some states use four years. Still, the concept stands: the ferris
wheel must stop so all parties can dismount.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">A huge exception to the SoL is fraud. File a
fraudulent return and the SoL never starts.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Odds are, neither you nor I are too sympathetic to
someone who files a fraudulent return. I will point out, however, that not all
knuckleheaded returns are necessarily fraudulent. For example, I am
representing an IRS audit of a 2020 Schedule C (think self-employed). It has
been one of the most frustrating audits of my career, and much of it is self-inflicted.
I know the examiner had wondered how close the client was to the f-word; I
could hear it in her word selection, pausing and voice. We spoke again Friday,
and I could tell that she had moved away from that thought. There is no need to
look for fraud when being a knucklehead suffices.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Here is a question for you:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">You do not commit fraud but your tax preparer does. It
could be deductions or credits to which you are not entitled. You do not look
at the return too closely; after all, that is why you pay someone. He/she
however did manage to get you the refund he/she had promised. Can you be held
liable for his/her fraud?<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Let’s look at the <i>Allen</i> case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Allen was a truck driver for UPS. He had timely filed
his tax return for the years 1999 and 2000. He gave all his tax documents to
his tax preparer (Goosby) and then filed the resulting return with the IRS.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Mr. Goosby however had been juicing Allen’s itemized
deductions: contributions, meals, computer, and other expenses. He must have
been doing quite a bit of this, as the Criminal Investigations Division (CID,
pronounced “Sid”) got involved.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">COMMENT: CID is the part of the IRS that carries a
gun. You want nothing to do with those guys. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Allen was a good guy, and he agreed with the IRS that
there were bogus numbers on his return.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">He did not agree that the tax years were open, though.
The IRS notice of deficiency was sent in 2005 – that is, outside the normal
three years. Allen felt that the tax years had closed.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">He had a point.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">However, look at Section 6501(c):<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 14.0pt; margin: 14pt 0in 14pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Times New Roman",serif; font-size: 15pt; line-height: 140%; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">§ 6501 Limitations on assessment and collection.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 10.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 10pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; line-height: 165%; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(c) <a name="TCODE:34133.1"></a>Exceptions.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 15.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 15pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="6501(c)(1)"></a><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; line-height: 165%; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(1) <a name="TCODE:34134.1"></a>False
return.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 15.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 15pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; line-height: 165%; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">In the case of a false or fraudulent return with the
intent to evade tax, the tax may be assessed, or a proceeding in court for
collection of such tax may be begun without assessment, at any time.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The Court pointed out that the law mentions a “false
or fraudulent return.” It does not say that the fraud must be the taxpayer’s.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The year was open, and Allen owed the additional tax.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">I get it. There is enough burden on the IRS when fraud
is involved, and the Court was not going to add to the burden by reading into
tax law that fraud be exclusively the taxpayer’s responsibility. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS had helped its case, by the way, and the Court
noticed. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">How?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">The IRS had not assessed penalties. All it wanted was additional
tax plus interest.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">I wish we could see more of that IRS and less of the
automatic penalty dispenser that it has unfortunately become. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;"><i>Allen</i> reminds us to be careful when selecting a tax
preparer. It is not always about getting the “largest” refund. Let’s be honest:
for many if not most of us, there is a “correct” tax number. It is not as
though we have teams of attorneys and CPAs sifting through vast amounts of
transactions, all housed in different companies and travelling through numerous
foreign countries and treaties before returning home to us. Anything other than
that “correct” number is … well, a wrong number. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 115%;">Our case this time was <i>Allen v Commissioner</i>,
128 T.C. 4 (U.S.T.C. 2007).<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-48413292807889621592024-02-18T20:00:00.008-06:002024-02-18T20:00:00.126-06:00The Consistent Basis Rule<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">I was talking to two brothers last week who are in a
partnership with their two sisters. The partnership in turn owns undeveloped
land, which it sold last year. The topic of the call was the partnership’s
basis in the land, considering that land ownership had been divided in two and the
partnership sold the property after the death of the two original owners. Oh,
and there was a trust in there, just to add flavor to the stew.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Let’s talk about an issue concerning the basis of property
inherited from an estate.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Normally basis means the same as cost, but not always.
Say for example that you purchased a cabin in western North Carolina 25 years
ago. You paid $250 grand for it. You have made no significant improvements to
the cabin. At this moment your basis is your cost, which is $250 grand.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Let’s add something: you die. The cabin is worth $750
grand.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">The basis in the cabin resets to $750 grand. That
means – if your beneficiaries sell it right away – there should be no – or minimal
– gain or loss from the sale. This is a case where basis does not equal cost, and
practitioners refer to it as the “mark to market,” or just “mark” rule, for inherited
assets.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">There are, by the way, some assets that do not mark. A
key one is retirement assets, such as 401(k)s and IRAs.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">A possible first mark for the siblings’ land was in
the 1980s. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">A possible second mark was in the aughts.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">And since the property was divided in half, a given half
might not gone through both marks.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">There is something in estate tax called the estate tax
exemption. This is a threshold, and only decedents’ estates above that
threshold are subject to tax. The threshold for 2024 is $13.6 million per person
and is twice that if one is married.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">That amount is scheduled to come down in 2026 unless
Congress changes the law. I figure that the new amount will be about $7
million. And twice that, of course, if one is married.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">COMMENT: I am a tax CPA, but I am not losing sleep over
personal estate taxes.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">However, the exemption thresholds have not always been
so high. Here are selected thresholds early in my career:</span> </p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 36.35pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 191px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Estate Tax<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Year<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Exclusion<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1986<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">500,000<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1987- 1997<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">600,000<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1998<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt 0in 5.4pt; width: 66.0pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; font-family: "Aptos Narrow",sans-serif; font-size: 11.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">625,000<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">I would argue that those levels were ridiculously low,
as just about anyone who was savings-minded could have been exposed to the
estate tax. That is – to me, at least – absurd on its face.</span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">One of our possible marks was in the 1980s, meaning
that we could be dealing with that $500,000 or $600,000 estate threshold.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">So what?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Look at the following gibberish from the tax Code. It
is a bit obscure, even for tax practitioners.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-indent: .5in;">Prop Reg 1.1014-10(c):<o:p></o:p></p>
<p class="MsoNormal"><span style="mso-tab-count: 1;"> </span><i>(3) After-discovered
or omitted property.</i><o:p></o:p></p>
<p class="MsoNormal" style="margin-left: .5in;"><a name="TREGS:132189.2"></a><a name="1.1014-10(c)(3)(i)"></a>(i) <span style="mso-spacerun: yes;"> </span>Return
under section 6018 filed. In the event property described in paragraph (b)(1)
of this section is discovered after the estate tax return under section 6018
has been filed or otherwise is omitted from that return (after-discovered or
omitted property), the final value of that property is determined under section
(c)(3)(i)(A) or (B) of this section.<o:p></o:p></p>
<p class="MsoNormal" style="margin-left: .5in;"><a name="TREGS:132189.3"></a><a name="1.1014-10(c)(3)(i)(A)"></a>(A) Reporting prior to expiration of period of
limitation on assessment. The final value of the after-discovered or omitted
property is determined in accordance with paragraph (c)(1) or (2) of this
section if the executor, prior to the expiration of the period of limitation on
assessment of the tax imposed on the estate by chapter 11, files with the IRS
an initial or supplemental estate tax return under section 6018 reporting the
property.<o:p></o:p></p>
<p class="MsoNormal" style="margin-left: .5in;"><a name="TREGS:132189.4"></a><a name="1.1014-10(c)(3)(i)(B)"></a>(B) No reporting prior to expiration of period
of limitation on assessment. If the executor does not report the
after-discovered or omitted property on an initial or supplemental Federal
estate tax return filed prior to the expiration of the period of limitation on
assessment of the tax imposed on the estate by chapter 11, the final value of
that unreported property is zero. See Example 3 of paragraph (e) of this
section.<o:p></o:p></p>
<p class="MsoNormal" style="margin-left: .5in;"><a name="TREGS:132189.5"></a><a name="1.1014-10(c)(3)(ii)"></a>(ii) No return under section 6018 filed. If no
return described in section 6018 has been filed, and if the inclusion in the
decedent's gross estate of the after-discovered or omitted property would have
generated or increased the estate's tax liability under chapter 11, the final
value, for purposes of section 1014(f), of all property described in paragraph
(b) of this section is zero until the final value is determined under paragraph
(c)(1) or (2) of this section. Specifically, if the executor files a return
pursuant to section 6018(a) or (b) that includes this property or the IRS
determines a value for the property, the final value of all property described
in paragraph (b) of this section includible in the gross estate then is
determined under paragraph (c)(1) or (2) of this section.<o:p></o:p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">This word spill is referred to as the consistent basis
rule.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">An easy example is leaving an asset (intentionally or
not) off the estate tax return.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Now there is a binary question:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Would have including the asset in the estate have
caused – or increased – the estate tax?<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">If No, then no harm, no foul.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">If Yes, then the rule starts to hurt.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Let’s remain with an easy example: you were already above
the estate exemption threshold, so every additional dollar would have been subject
to estate tax.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">What is your basis as a beneficiary in that inherited
property?<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Zero. It would be zero. There is no mark as the asset
was not reported on an estate tax return otherwise required to be filed. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">If you are in an estate tax situation, the consistent
basis rule makes clear the importance of identifying and reporting all assets of
your estate. This becomes even more important when your estate is not yet at –
but is approaching – the level where a return is required.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">At $13.6 million per person, that situation is not
going to affect many CPAs.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">When the law changes again in a couple of years, it
may affect some, but again not too many, CPAs.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">But what if Congress returns the estate exemption to
something ridiculous – perhaps levels like we saw in the 80s and 90s? <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Well, the consistent basis rule could start to bite.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">What are the odds?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">Well, this past week I was discussing the basis of real
estate inherited in the 1980s.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 115%;">What are the odds?<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-18132857682535092112024-02-13T20:00:00.008-06:002024-02-13T20:00:00.124-06:00Not Quite The Informal Claim Doctrine<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">I am looking at a district court opinion from
Illinois. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">I find the discussion of the numbers a bit confusing. It happens
sometimes.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">But there something here we should talk about.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">We have recently discussed the tax concept of a
“claim.” In normal-person-speak, it means you want the government to refund
your money. The classic claim is an amended income tax return, but there can be
claims for other-than-income taxes. It is its own niche, as using
the wrong form can result in having your claim rejected. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Let’s look at the <i>American Guardian Holdings</i>
case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">AGH filed its 2015 tax return on September 19, 2016.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Here are the numbers on the original tax return:<span style="mso-tab-count: 1;"> </span><o:p></o:p></span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 199px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Original<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Revenues<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">152,092,338 <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Taxable income<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">4,880,521 <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Tax<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1,327,806 <o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal"><o:p> </o:p><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The accountant found an error and amended the return
on June 6, 2019.</span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 388px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 132pt;" valign="bottom" width="176">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">First<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Original<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Original<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Amended<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Revenues<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">152,092,338 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">152,092,338 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">154,808,792 <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Taxable income<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">4,880,521 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">4,880,521 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">11,084,397 <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Tax<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1,327,806 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1,327,806 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">148,243 <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 83pt;" valign="bottom" width="111">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Refund<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 10pt;" valign="bottom" width="13"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 66pt;" valign="bottom" width="88">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: red; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">(1,179,563)</span><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;"><o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Let me see: The 2015 return would have been extended
to October 15, 2016. The amended return was prepared June 6, 2019. Yep, we are
within the statute of limitations.</span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Problem: AGH never sent the amended return.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Answer: AGH hired a new accountant.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">The new accountant filed an amended return on
September 19, 2019.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">COMMENT: Still a few days left on the statute.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">For some reason, the accountant incorporated the first
amended (even though it had not been filed) into the second amended, resulting
in the following hodgepodge:<o:p></o:p></span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 469px;">
<tbody><tr style="height: 15.2pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td colspan="2" nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 133.5pt;" valign="bottom" width="178">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">First<o:p></o:p></span></p>
</td>
<td colspan="2" nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 129pt;" valign="bottom" width="172">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Second<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Original<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Amended<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Original<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Amended<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83"></td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Revenues<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">154,808,792<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">141,773,572 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">154,808,792 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">? <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Taxable income<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">11,084,397 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">7,446,746 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">11,084,397 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;"><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>? <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Tax<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1,327,806 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">148,243 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">1,327,806 <o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">0 <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Refund<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: red; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">(1,179,563)</span><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;"><o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: red; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">(148,243)</span><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;"><o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.2pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 78pt;" valign="bottom" width="104">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">Total refund<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 66.75pt;" valign="bottom" width="89"></td>
<td nowrap="" style="height: 15.2pt; padding: 0in 5.4pt; width: 62.25pt;" valign="bottom" width="83">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span face=""Aptos Narrow",sans-serif" style="color: red; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;">(1,327,806)</span><span face=""Aptos Narrow",sans-serif" style="color: black; font-size: 11pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;"><o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Huh? I would find that second amended confusing. On
first impression it appears that AGH is filing a claim for $148,243, but that
is incorrect. AGH was stacking the second amended on top of its first. AGH is
filing a claim for $1,327,806, which is the entire tax on the original return.</span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Not surprisingly, the IRS also responded with “huh?”
It could not process the second amended return because the “Original” numbers
did not match its records. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">AGH responded by filing yet another amended return
(third amended). Mind you, at this point it was after October 15, 2019, and the
statute of limitations was in the rear view mirror.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">AGH did the following:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(1)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>AGH explained that the new and shiny (third) amended
return incorporated the previously (non-filed) first amended return and the
second (actually filed) amended return. As a consequence, the “previously-filed
amended return for 2015 should be discarded.”</span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto;"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">COMMENT:
NO!</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(2)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>AGH further explained that it was filing Form
1120-PC (a specialized tax form for property and casualty insurance companies) as
its third amended return rather than the Form 1120 originally filed because it
had received permission to change its method of accounting.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 54.3pt;"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">COMMENT: NO!!<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">I am somewhat shocked at how deep a hole AGH had dug,
and more shocked that it kept digging. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Let’s go through the wreckage:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(1)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>AGH filed its (second) amended return/claim within
the statute of limitations.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(2)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>This creates an issue if the claim is
imperfect, as one would be perfecting the claim AFTER the statute expires.
Fortunately, there is a way (called the informal claim doctrine) that allows
one to perfect a claim after the original filing date and still retain the
benefit of that original date.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(3)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>The IRS immediately seized on the
“previously-filed amended return for 2015 should be discarded” statement to
argue that AGH had violated the informal claim doctrine.<span style="mso-spacerun: yes;"> </span>If the second amended return was discarded, there
was no timely-filed return to which the informal claim doctrine could attach.
Fortunately, the Court decided that the use of the word “discard” did not actually
mean what it sounded like. AGH dodged a bullet, but it should never have fired.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(4)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>That leaves the third amended return, which
was filed after the statute expired. AGH of course argued informal claim, but
it had committed a fatal act by changing its method of accounting. You see, the
informal claim allows one to clarify, document and explain whatever issue is
vague or in dispute within the claim at issue. What one is not allowed to do is
to change the facts. AGH had changed the facts by changing its method of accounting,
meaning its third amended return could not be linked to the second via the informal
claim doctrine. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(5)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>Standing on its own, the third amended of
course failed as it was filed after the statute had expired. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">This case is a nightmare. I am curious whether there
was a CPA or law firm involved; if so, a malpractice suit is almost a given. If
the work was done in-house, then … AGH needs to tighten up its hiring
standards. The case reads like there were no adults in the room. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">All is not lost for AGH, however.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Remember that AGH filed its second amended return within
the statute of limitations. <span style="mso-spacerun: yes;"> </span>The matter then
went off the rails and the Court booted the third amended return. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">But that leaves the second amended. Can AGH resuscitate
it, as technically the Court dismissed the third claim but not necessarily the
second? <span style="mso-spacerun: yes;"> </span>It would likely require
additional litigation and associated legal fees, and I would expect the IRS to
fight tooth and nail. AGH would have to weigh the cost-benefit. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 115%;">Our case this time was <i>American Guardian Holdings,
Inc v United States of America</i>, No. 1:2023cv 01482, Northern District of
Illinois.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-47687284864254845892024-02-04T20:00:00.052-06:002024-02-04T20:00:00.127-06:00Incorrect Submission Leads to Dismissal of Refund Claim<p></p><p> </p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 15pt;">You should be able to talk with someone at the IRS and
work it out over the phone.”</span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I have lost track of how many times I have heard that
over the years.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I do not disagree, and sometimes it works out. Many
times it does not, and we recently went through a multi-year period when the
IRS was barely working at all.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">There are areas of tax practice that are riddled with
landmines. Procedure - when certain things have to be done in a certain way or
within a certain timeframe – is one of them. Ignore those letters long enough
and you have an invitation to Tax Court. You do not have to go, but the IRS
will – and automatically win.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I was looking at a case recently involving a claim.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Tax practitioners generally know claims under a
different term – an amended return. If you amend your individual tax return for
a refund, you use Form 1040X, for example.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">There are certain taxes, including penalties and
interest, however, for which you will use a different form. </span></p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiEcYBMzwUxFzhTfFbcZjXhWcoM9bFTv5qqegcLebN0NKx9EjlQR0Zkq2pQRj5VxEPrfVU9aPHflrzlDVt0KDHdsxbMVDzCe_FHq9VOikhnhpHsNS_j04GhrigSvLxbIxDn42KIAOaCybXWVXqzQQqYfOGpdmg8lbO8xhmQSCao51_QKwA4-nrA_MYNlWR/s878/Form%20843.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="126" data-original-width="878" height="58" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiEcYBMzwUxFzhTfFbcZjXhWcoM9bFTv5qqegcLebN0NKx9EjlQR0Zkq2pQRj5VxEPrfVU9aPHflrzlDVt0KDHdsxbMVDzCe_FHq9VOikhnhpHsNS_j04GhrigSvLxbIxDn42KIAOaCybXWVXqzQQqYfOGpdmg8lbO8xhmQSCao51_QKwA4-nrA_MYNlWR/w400-h58/Form%20843.JPG" width="400" /></a></div><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Frankly, one can have a lengthy career and rarely use this
form. It depends – of course – on one’s clients and their tax situations.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">And yes, there is a serious procedural trap here –
two, in fact. If you use this form but the IRS has instructed use of a different
form, the 843 claim will be invalid. You will be requested to resubmit the
claim using the correct form. By itself it is little more than an annoyance,
unless one is close to the expiration of the statute of limitations. If that
statute expires before you file the correct form, you are out of luck.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">There is another trap.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Let’s look at the <i>Vensure </i>case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Vensure is a professional employer organization, or
PEO. This means that they perform HR, including payroll responsibilities, for
their clients. They will, for example, issue your paycheck and send you a W-2 at
the end of the tax year.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Vensure had a client that stiffed them for
approximately $4 million. As you can imagine, this put Vensure in a precarious financial
situation, and they had trouble making timely payroll tax deposits in later
quarters.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I bet.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Vensure did two things:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">(1)<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"> They filed amended payroll tax returns (Forms
941X) for refund of payroll taxes remitted to the IRS on behalf of their
deadbeat client.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">(2)<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"> They submitted Forms 843 for refund of penalties
paid over the span of six quarters (payroll taxes are filed quarterly). <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Notice two things:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l2 level1 lfo3; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">(1)<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"> The claim for refund of the payroll taxes
themselves was filed on Form 941X, as the IRS has said that is the proper form
to use.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l2 level1 lfo3; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">(2)<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"> The claim for refund of the penalties on those
taxes was filed on Form 843, as the IRS has said that is the proper form for
the refund or abatement of penalties, interest, and other additions to tax.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Vensure’s attorney prepared the 843s. Having a power of
attorney on file with the IRS, the attorney signed the forms on behalf of the taxpayer,
as well as signing as the paid preparer. He did not attach a copy of the power
to the 843, however, figuring that the IRS already had it on file.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Makes sense.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">But procedure sometimes makes no sense.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Take a look at the following instructions to Form 843:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: .5in; text-indent: .3pt;"><span style="background: white; color: #1b1b1b; font-family: "Source Sans Pro",sans-serif;">You
can file Form 843 or your authorized representative can file it for you. If
your authorized representative files Form 843, the original or copy of Form
2848, Power of Attorney and Declaration of Representative, must be attached.
You must sign Form 2848 and authorize the representative to act on your behalf
for the purposes of the request.” </span><o:p></o:p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The IRS bounced the claims.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The taxpayer took the IRS to court.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The IRS had a two-step argument:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">(1)<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">For
a refund claim to be duly filed, the claim’s statement of the facts and grounds
for refund must be verified by a written declaration that it is made under
penalties of perjury. A claim which does not comply with this requirement will
not be considered for any purpose as a claim for refund or credit. </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";">(2)<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Next
take a look at Reg 301.6402-2(c): </span> </p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 5.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; line-height: 165%; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">Form for filing claim. If a particular
form is prescribed on which the claim must be made, then the claim must be made
on the form so prescribed. For special rules applicable to refunds of income
taxes, see §301.6402-3. For provisions relating to credits and refunds of taxes
other than income tax, see the regulations relating to the particular tax. All
claims by taxpayers for the refund of taxes, interest, penalties, and additions
to tax that are not otherwise provided for must be made on Form 843, "Claim
for Refund and Request for Abatement."<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt;">Cutting through
the legalese, claims made on Form 843 must follow the instructions for Form
843, one of which is the requirement for an original or copy of Form 2848 to be
attached.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Vensure of course argued
that it substantially complied, as a copy of the power was on file with the IRS.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Not good enough, said the
Court:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The court agrees with the
defendant that the signature and verification requirements for Form 843 claims
for refund are statutory.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Vensure lost on grounds of procedure.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Is it fair?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">There are areas in tax practice where things must be
done in a certain way, in a certain order and within a certain time. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Fair has nothing to do with it.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Our case this time was <i>Vensure HR, Inc v The United
States,</i> No 20-728T, 2023 U.S. Claims.<o:p></o:p></span></p><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br />Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-30197914460664490972024-01-28T19:30:00.009-06:002024-01-28T19:30:00.139-06:00Using A Fancy Trust Without An Advisor<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I am a fan of charitable remainder trusts. These are (sometimes)
also referred to as split interest trusts.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">What is an interest in a trust and how can you split it?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">In a generic situation, an interest in a trust is straightforward:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(1)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Someone
may have a right to or is otherwise permitted to receive an income distribution
from a trust. This is what it sounds like: if the trust has income, then
someone might receive all, some or none of it – depending on what the trust is
designed to do. This person is referred to as an “income” beneficiary.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(2)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">When
there are no more income beneficiaries, the trust will likely terminate. Any assets
remaining in the trust will go to the remaining beneficiaries. This person(s)
is referred to as a “remainder” beneficiary.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Sounds complicated, but it does not have to be. Let me
give you an example.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(1)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>I set up a trust.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(2)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>My wife has exclusive rights to the income for
the rest of her life. My wife is the income beneficiary.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(3)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>Upon my wife’s death, the assets remaining in
the trust go to our kids. Our kids are the remainder beneficiaries.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><span style="mso-list: Ignore;">(4)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;"><span style="mso-spacerun: yes;"> </span>BTW the above set-up is referred to as a
“family trust” in the literature.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Back to it: what is a split interest trust?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Easy. Make one of those interests a 501(c)(3) charity.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">If the charity is the income beneficiary, we are
likely talking a charitable lead trust.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">If the charity is the remainder beneficiary, then we
are likely talking a charitable remainder trust.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Let’s focus solely on a charity as a remainder
interest.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">You want to donate to your alma mater – Michigan,
let’s say. You are not made of money, so you want to donate when you pass away,
just in case you need the money in life. One way is to include the University
of Michigan in your will.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Another way would be to form a split interest trust,
with Michigan as the charity. You retain all the income for life, and whatever
is left over goes to Michigan when you pass away. In truth, I would bet a box
of donuts that Michigan would even help you with setting up the trust, as they
have a personal stake in the matter.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">That’s it. You have a CRT.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Oh, one more thing.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">You also have a charitable donation.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Of course, you say. You have a donation when you die,
as that is when the remaining trust assets go to Michigan.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">No, no. You have a donation when the trust is formed,
even though Michigan will not see the money (hopefully) for (many) years.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Why? Because that is the way the tax law is written.
Mind you, there is crazy math involved in calculating the charitable deduction.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Let’s look at the Furrer case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The Furrers were farmers. They formed two CRATs, one
in 2015 and another in 2016.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">COMMENT: A CRAT is a flavor of CRT. Let’s leave it
alone for this discussion.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">In 2015 they transferred 100,000 bushels of corn and
10,000 bushels of soybeans to the CRAT. The CRAT bought an annuity from a life
insurance company, the distributions from which were in turn used to pay the
Fullers their annuity from the CRT.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">They did the same thing with the 2016 CRT, but we’ll
look only at the 2015 CRT. The tax issue is the same in both trusts.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The CRT is an oddball trust, as it delays - but does
not eliminate – taxable income and paying taxes. Instead, the income beneficiary
pays taxes as distributions are received. <o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">EXAMPLE: Say the trust is funded with stock, which it
then sells at a $500,000 gain. The annual distribution to the income beneficiary
is $100,000. The taxes on the $500,000 gain will be spread over 5 years, as the
income beneficiary receives $100,000 annually. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Think of a CRT as an installment sale and you get the
idea.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">OK, we know that the Furrers had income coming their
way. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Next question: what was the amount of the charitable
contribution?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Look at this tangle of words:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 14.0pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: black; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">§ 170 Charitable, etc.,
contributions and gifts.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 0in; margin-left: 10.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: black; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><span style="mso-tab-count: 1;"> </span></span><span style="color: #252525; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(e) <a name="TCODE:5293.1"></a>Certain
contributions of ordinary income and capital gain property.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 0in; margin-left: 15.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none; text-indent: 21.0pt;"><a name="170(e)(1)"></a><span style="color: #252525; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(1) <a name="TCODE:43115.1"></a>General
rule.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">The amount of any
charitable contribution of property otherwise taken into account under this
section shall be reduced by the sum of-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 0in; margin-left: 67.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="170(e)(1)(A)"></a><span style="color: #252525; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(A)
<a name="TCODE:43115.3"></a>the amount of gain which would not have been
long-term capital gain (determined without regard to section 1221(b)(3)) if the
property contributed had been sold by the taxpayer at its fair market value
(determined at the time of such contribution),</span><span style="color: black; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">This incoherence is sometimes referred to as the
“reduce to basis” rule.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The Code will generally allow a charitable
contribution for the fair market value of donated property. Say you bought Apple
stock in 1997. Your cost (that is, your “basis”) in the stock is minimal, whereas
the stock is now worth a fortune. Will the Code allow you to deduct what Apple stock
is worth, even though your actual cost in the stock is (maybe) a dime on the
dollar?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Yep, with some exceptions.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Exceptions like what?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Like the above “amount of gain which would not have
been long-term capital gain.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Not a problem with Apple stock, as that thing is
capital gain all day long.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">How about crops to a farmer?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Not so much. Crops to a farmer are like yoga pants to
Lululemon. That is inventory - ordinary income in nerdspeak - as what a
farmer ordinarily does is raise and sell crops. No capital gain there.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Meaning?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The Furrers must reduce their charitable deduction by
the amount of income that would not be capital gain.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Well, we just said that none of the crop income would
be capital gain.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I see income minus (the same) income = zero.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">There is no charitable deduction.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Worst … case … scenario.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">I found myself wondering how the tax planning blew up.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: .5in; text-indent: .3pt;"><span style="color: #222222; font-family: "Helvetica",sans-serif;">In July 2015, after
seeing an advertisement in a farming magazine, petitioners formed the Donald
& Rita Furrer <span class="rprop">Charitable Remainder Annuity Trust</span> of
2015 (CRAT I), of which their son was named trustee. The trust instrument
designated petitioners as life beneficiaries and three eligible <a href="https://www.taxnotes.com/research/federal/usc26/501#cqfp-0000011" target="_blank" title="section 501(c)(3)"><span style="color: #222222; font-family: "Aptos",sans-serif; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; text-decoration: none; text-underline: none;">section 501(c)(3)</span></a> charities
as remaindermen.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">The Furrers should have used a tax advisor. A pro may
not be necessary for routine circumstances: a couple of W-2s, a little interest
income, interest expense and taxes on a mortgage, for example.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">This was not that. This was a charitable remainder
trust, something that many accountants might not see throughout a career.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Yep, don’t do this. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 115%;">Our case this time is <i>Furrer v Commissioner</i>,
T.C. Memo 2022-100.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-84589575182163811132024-01-22T20:00:00.006-06:002024-01-22T20:00:00.131-06:00Common Law Versus Statutory Employee<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">I am looking at a case concerning employee status and
payroll taxes. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">I see nothing remarkable, except for one question: why
did the IRS bother?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Let’s talk about it.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">There was a 501(c)(3) (The REDI Foundation) formed in
1980. Richard Abraham was its officer (a corporate entity must have an officer,
whether one gives himself/herself a formal title or not). Mr A’s wife also
served on the Board. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">REDI did not do much from 1980 to 2010. <span style="mso-bidi-font-style: italic;">In 2010 Mr A – who was a real estate
developer for over 40 years – developed an online course on real estate
development and began offering it to the public via REDI. Mr A was a one-man
gang, and he regularly worked 60 hours or more per week on matters related to
the online course, instruction, and student mentoring.</span> <o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">COMMENT: Got it. It gave Mr A something to do when he
“retired,” if 60 hours per week can be called retirement. I have a client who
did something similar, albeit in the field of periodontics.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">So REDI went from near inactive to active with its
online course. For its year ended May 2015 it reported revenues over $255 grand
with expenses of almost $92 grand.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">COMMENT: Had REDI been a regular corporation, it would
have paid income taxes on profit of $163 grand. REDI may have been formed as a
corporation, but it was a corporation that had applied for and received (c)(3)
status. Absent other moving parts, a (c)(3) does not pay income taxes.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">The IRS flagged REDI for an employment tax audit.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Why?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">REDI had not issued Mr A a W-2. Instead, it issued a 1099,
meaning that it was treating Mr A as an independent contractor.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Let’s pause here.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A W-2 employee pays FICA taxes on his/her payroll. You
see it with every paycheck when the government lifts 7.65% for social security.
Your employer matches it, meaning the government collects 15.3% of your pay.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A self-employed person also pays FICA, but it is instead
called self-employment tax. Same thing, different name, except that a
self-employed pays 15.3% rather than 7.65%. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">My first thought was: Mr A paid self-employment tax on
his 1099. The government wanted FICA. Fine, call it FICA, move the money from the
self-employment bucket to the FICA bucket, and let’s just call … it … a … day.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">In short: why did the IRS chase this?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">I see nothing in the decision.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Technically the IRS was right. A corporate officer is
a de facto statutory employee of his/her corporation. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 15.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 14.0pt; mso-font-kerning: 0pt;">§ 3121
Definitions.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 15.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: black; font-family: "Arial",sans-serif; font-size: 14.0pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 20.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(d) <a name="TCODE:23622.1"></a>Employee.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 20.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 20.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">For purposes of this chapter, the term "employee" means-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; margin-left: 20.0pt; margin-right: 0in; margin-top: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-bottom: 0in; margin-left: 43.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -.25in;"><a name="3121(d)(1)"></a><a name="TCODE:23623.1"></a><!--[if !supportLists]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: sans-serif; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(1)<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="color: #252525; font-family: sans-serif; font-size: 12.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">any officer of a corporation; or<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: 0in; margin-left: 43.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: sans-serif; font-size: 10.0pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Yep, know it well. Been there and have the t-shirt.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Mind you, there are exceptions to 3121(d)(1). For
example, if the officer duties are minimal, the Code does not require a W-2.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Mr A argued that very point.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Problem: there was only one person on the planet that
generated revenues for REDI, and that person was Mr A. Revenues were
significant enough to indicate that any services performed were also substantial.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">There was another argument: REDI had reasonable basis
under Section 530 for treating Mr A as a contractor.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">COMMENT: Section 530 is an employment relief provision
if three requirements are met:<o:p></o:p></span></blockquote><p></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Consistency
in facts<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Consistency
in reporting<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Reasonable
basis<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Section 530 was intended to provide some protection from
employment tax assessments for payors acting in good faith. On first
impression, 530 appears to be a decent argument. Continuing education
instructors are commonly treated as contractors, for example. If REDI treated instructors
with similar responsibilities the same way (easy, as there was only one instructor)
and sent timely 1099s to the IRS, we seem to meet the three requisites.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Except … <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Section 530 deals with common law workers. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Corporate officers are not common law workers. They
instead are statutory employees because the statute – that is, Section 3121(d) –
says they are.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Mr A was a statutory employee. REDI was therefore an
employer. There should have been withholding, tax deposits and payroll return filings.
There wasn’t, so now there are penalties and interest and yada yada yada. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">I probably would have lost my mind had I represented REDI.
Unless Mr A was claiming outsized expenses against 1099 income, any self-employment
tax he paid would/should have approximated any FICA that REDI would remit as an
employer. Loss to the fisc? Minimal. Let’s agree to switch Mr A to employee
status going forward and both go home.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Why did this not happen? Don’t know. Sometimes the
most interesting part of a case is not in the decision.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Our case this time was <u>The REDI Foundation v
Commissioner</u>, T.C. Memo 2022-34.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-20683378424049341702024-01-07T13:30:00.027-06:002024-01-07T13:30:00.137-06:00 Ohtani’s New Baseball Contract<p><span style="font-family: "Times New Roman", serif; font-size: 15pt;">I was reading about Shohei Ohtani’s new contract with
the Las Angeles Dodgers. If the name rings a bell, that is because he both bats
and pitches. He is today’s Babe Ruth. He played with the Los Angeles Angels in
2023, led the American League with 44 home runs and pitched over 130 innings
with a 3.14 ERA.</span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrA_sAjZJfWJbvGby6y0MiIrRu2oj71ZeYRTphE7-KE0IrRsHW2Foz9aAxytvm5VjOUglDsSh5E6QAKSkSrntDHHbQObTZlOumrmPXczfHzJVZrtL6DET0zlICvyLQ-kruvnH1zufML1GpT7v-SNRfNGKHmxmmYNJoY85qhuJC9bOLS47Zdt68okscILdY/s275/Ohtani.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="183" data-original-width="275" height="183" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrA_sAjZJfWJbvGby6y0MiIrRu2oj71ZeYRTphE7-KE0IrRsHW2Foz9aAxytvm5VjOUglDsSh5E6QAKSkSrntDHHbQObTZlOumrmPXczfHzJVZrtL6DET0zlICvyLQ-kruvnH1zufML1GpT7v-SNRfNGKHmxmmYNJoY85qhuJC9bOLS47Zdt68okscILdY/s1600/Ohtani.jpg" width="275" /></a></div><span style="font-family: "Times New Roman", serif; font-size: 15pt;"><p><span style="font-size: 15pt;">I am more an NFL than an MLB fan these days, but it is
hard to ignore this guy’s athletic chops. It is also hard to ignore his new
contract.</span></p></span><p></p>
<p class="MsoListParagraphCxSpFirst"></p><ul style="text-align: left;"><li><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;"> Contract totals at $700 million</span></li><li><span style="font-family: "Times New Roman", serif; font-size: 15pt;"> He will draw “only” $2 million for the
first 10 years.</span></li><li><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;"> He will draw the deferral (that is, $68
million annually) beginning in 2034 and through 2043.</span></li></ul><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">At $700 million, Ohtani’s is the largest MLB contract
ever, but what caught my eye was deferring 98% of the contract for over a
decade. Do not be concerned about his cash flow, however. $2 million a year is
sweet (that is way over CPA bank), and I understand that his endorsements alone
may exceed $50 million annually. Cash flow is not a problem. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Why would Ohtani do this?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">For one, remember that athletes at his level are hyper-competitive.
There is something about saying that you received the largest contract in MLB history.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Why would the Dodgers do this?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">A big reason is the time value of money. $100 ten
years from now is worth less than $100 today. Why? Because you can invest that
$100 today. With minimal Google effort, I see a 10-year CD rate of 3.8%. Invest
that $100 at 3.8% and you will have a smidgeon more than $145 in ten years. Invest
in something with a higher yield and it will be worth even more. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Flip that around.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">What is $100 ten years from now worth today?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Let’s make it easy and assume the same 3.8%. What
would you have to invest today to have $100 in ten years, assuming a 3.8%
return?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Around $70.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Let’s revisit the contract considering the above
discussion.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Assuming 10 years, 3.8% and yada yada, Ohtani’s
contract is worth about 70 cents on today’s dollar. So, $700 million times 70%
= $490 million today.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">My understanding is the experts considered Ohtani’s market
value to be approximately $45 million annually, so our back-of-the-envelope math
is in the ballpark.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Looks like the Dodgers did a good job.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">And deferring all that money frees cash for the
Dodgers to spend during the years Ohtani is on the team and playing. He may be
today’s Ruth, but he cannot win games by himself.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">There is one more thing …<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">This is a tax blog, so my mind immediately went to the
tax angle – federal or state – of structuring Ohtani’s contract this way.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Take a look at this bad boy from California
Publication 1005 <i>Pension and Annuity Guidelines</i>:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;"> </span><span style="font-family: Aharoni; font-size: 14pt; line-height: 107%;">Nonresidents of California Receiving a
California Pension</span><span style="font-family: Aharoni;"> <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="font-family: Aharoni; font-size: 13pt; line-height: 107%;">In General <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="font-size: 13pt; line-height: 107%;">California does not impose tax on retirement income received
by a nonresident after December 31, 1995. For this purpose, retirement income
means any income from any of the following:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 13pt; line-height: 107%;">• A private deferred compensation plan program or arrangement
described in IRC Section 3121(v)(2)(C) only if the income is either of the
following: <o:p></o:p></span></p>
<p class="MsoListParagraph" style="margin-left: 1.75in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 13pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">1.<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 13pt; line-height: 107%;">Part of a series of <i>substantially
equal periodic payments</i> (not less frequently than annually) made over the
life or life expectancy of the participant or those of the participant and the
designated beneficiary or a <i>period of not less than 10 years</i>. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Hmmm. “Substantially equal periodic payments” … and “a
period of not less than 10 years.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Correlation is not causation, as we know. Still.
Highly. Coincidental. Just. Saying.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Ohtani is 29 years old. 98% of his contract will
commence payment when he is 40 years old. I doubt he will still be playing baseball
then. I doubt, in fact, he will still be in California then. He might return to
Japan, for example, upon retirement.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">That is what <i>nonresident</i> means.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Let me check something. California’s top individual
tax rate for 2024 is 14.4%.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Seriously?? <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Quick math: $680 million times 98% times 14.4% equals
$95.96 million.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Yep, I’d be long gone from California.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;"> </span></p><p class="MsoNormal"><br /></p><p></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-21201861008731745752023-12-25T08:00:00.009-06:002023-12-25T08:00:00.127-06:00Merry Christmas<p> </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHFQ39w1ce6s-RDcb4US-Xj2QFJ4TCQZrcds_7r5vS41FhD1Ey8XS2zD2sHsOlvX8YbJGv6NpY0TsLYQ2qymzapUJaj24Xnn564SDp4Xw5WyntwzvlmQct2R9Dmynr5se5QqbDqN2ELaK4J555hXADwyART2a3jMvhegvYUCWafCWyvt2VB38TxdIkzjWa/s749/Bigfoot%20walking%20in%20a%20winter%20wonderland.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="749" data-original-width="563" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHFQ39w1ce6s-RDcb4US-Xj2QFJ4TCQZrcds_7r5vS41FhD1Ey8XS2zD2sHsOlvX8YbJGv6NpY0TsLYQ2qymzapUJaj24Xnn564SDp4Xw5WyntwzvlmQct2R9Dmynr5se5QqbDqN2ELaK4J555hXADwyART2a3jMvhegvYUCWafCWyvt2VB38TxdIkzjWa/w482-h640/Bigfoot%20walking%20in%20a%20winter%20wonderland.jpg" width="482" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><p></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-19051429187363532222023-12-23T17:00:00.054-06:002023-12-23T17:00:00.132-06:00 Notice(s) Of Intent To Seize And Levy <p> </p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">I received
the following notice under power of attorney for a client. </span><span style="font-size: 14pt;"> </span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;"><o:p></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRMWnrvaMsoQi_WkGTFZar2Y_BLmqwVvKDMd0i17C2_VGidW7p84WkjCrt8G97HUfJYh7Fa60tr388jNvxtuR02tqZ6edLP7IVhxoDwwF50XLgFxJ00ZNr85O2SUGm7J2dCov-6jExbgoGBlz5fjypAuXSKod2TVb7yy0vw9BLxPNu3OLSWPKpS0V9FBdX/s1024/CP504.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1024" data-original-width="791" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRMWnrvaMsoQi_WkGTFZar2Y_BLmqwVvKDMd0i17C2_VGidW7p84WkjCrt8G97HUfJYh7Fa60tr388jNvxtuR02tqZ6edLP7IVhxoDwwF50XLgFxJ00ZNr85O2SUGm7J2dCov-6jExbgoGBlz5fjypAuXSKod2TVb7yy0vw9BLxPNu3OLSWPKpS0V9FBdX/w494-h640/CP504.jpg" width="494" /></a></div><p></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Another
accountant at Galactic Command works with the client. I am the tax nerd should problems
arise.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Yeah, we
have a problem.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">For more
than one year, too.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Combine the
two and I can get cranky. Just because I know the route doesn’t mean I want to revisit
the site.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">But back to
our topic. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The notice
seems terrifying, doesn’t it? The IRS is talking about seizing and levying and
all matters of unkindliness.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Let’s go
through the sequence of these notices. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">First, you
owe the IRS. There is a sequence of four notices, sometimes referred to as the “500”
sequence.</span></p><p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-family: helvetica;">CP501 <span style="line-height: 107%; text-indent: -0.25in;"> You have unpaid taxes somewhere.</span></span></li><li><span style="font-family: helvetica;"><span style="line-height: 107%; text-indent: -0.25in;">CP502 </span>We
have not heard from you about unpaid taxes.</span></li><li><span style="font-family: helvetica;">CP503 <span style="line-height: 107%; text-indent: -0.25in;">Hey, dummy! Are you there?</span></span></li><li><span style="font-family: helvetica;"><span style="line-height: 107%; text-indent: -0.25in;">CP504 </span><span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span><span style="line-height: 107%; text-indent: -0.25in;">We intend to levy if you do not do something.</span></span></li></ul><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">This is the
fourth notice in the sequence for our client for tax year 2022. As you can see,
he/she/they are moving through the IRS machinery rather quickly. Then again,
almost $225,000 in taxes and penalties buys you a better spot in line.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The CP504 is
however not the final:final notice.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Let’s talk
IRS procedure.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Before the
IRS can go after your stuff (bank account, car, John Cena collectibles), it must
(almost always) allow you a hearing. This is called a Collection Due Process
(CDP) hearing, and it entered the tax Code with the 1998 IRS Restructuring and
Reform Act. The Act was Congress’ response to IRS horror stories, including aggressive
collection actions.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The IRS is
not allowed to go after you until you have been offered that CDP hearing. You
can turn it down, blow it off or whatever, but the IRS must provide the
opportunity before it can unleash the tender attention of Collections.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>Except …<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">There is a
short list of stuff the IRS can levy before a CDP. The list is uncommon air, except
for:</span></p><p class="MsoNormal"></p><blockquote><span style="font-size: 14pt; line-height: 107%; text-indent: -0.25in;">Your state tax refund</span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">That’s it.
For most of us, the IRS can only go after our state tax refund – at this stage.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Then you
have the FINAL BIG BAD notice: either the 1058 or LT11.The difference depends
on whether you have been assigned to a Revenue Officer (RO). <o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 14.0pt; line-height: 107%;">LIFE TIP:
Avoid having your own Revenue Officer.</span></blockquote><p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiI3cNdDLZoEkc_v5vj8pn5oVSiTjX6Ys5bYECStIE4P56-y8svXGG6DPpE2jBcKM5eiJd8CMNxi6YAiRR3hlYngGBMX5yuAq4kQ8IJdto-wVqnMC4SziQcFW8rqWwHdVeb4nyYnr6TI2vnhdDATDoz85Yi1DBEU7bjLG07WGJyKdE_OKT6WGODRUxCYg32/s1072/LT1112.21.23.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="727" data-original-width="1072" height="271" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiI3cNdDLZoEkc_v5vj8pn5oVSiTjX6Ys5bYECStIE4P56-y8svXGG6DPpE2jBcKM5eiJd8CMNxi6YAiRR3hlYngGBMX5yuAq4kQ8IJdto-wVqnMC4SziQcFW8rqWwHdVeb4nyYnr6TI2vnhdDATDoz85Yi1DBEU7bjLG07WGJyKdE_OKT6WGODRUxCYg32/w400-h271/LT1112.21.23.JPG" width="400" /></a></p><span style="font-size: 14pt;"><p class="MsoNormal"><span style="font-size: 14pt;">If you get
to a 1058 or LT11, you are at the end of the line. You will be dealing with
Collections, and it is unlikely you will like the experience.</span></p></span><p></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">You may want
an attorney or CPA, depending upon.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Not that having
a CPA seems to matter – because clearly not - to our client.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-34195172996899159402023-12-17T17:00:00.005-06:002023-12-17T17:00:00.239-06:0090 Days Means 90 Days<p><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Let’s return to an IRS notice we have discussed in the
past: the 90-Day letter or Notice of Deficiency. It is commonly referred to as
a “NOD” or “SNOD.”</span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">If you get one, you are neck-deep into IRS machinery.
The IRS has already sent you a series of notices saying that you did not report
this income or pay that tax, and they now want to formally transfer the matter
to Collections. They do this by assessing the tax. Procedure however requires
them (in most cases) to issue a SNOD before they can convert a “proposed”
assessment to a “final” assessment.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">It is not fun to deal with any unit or department at the
IRS, but Collections is among the least fun. Those guys do not care whether you
actually owe tax or have reasonable cause for abating a penalty. Granted, they
might work with you on a payment plan or even interrupt collection activity for
someone in severe distress, but they are unconcerned about the underlying story.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Unless you agree with the proposed IRS adjustment, you
must respond to that SNOD.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">That means you are in Tax Court.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Well, sort of.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The IRS will return the case to the IRS Appeals with instructions
and the hope that both sides will work it out. The last thing the Tax Court
wants is to hear your case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">This week I finally heard from Appeals concerning a filing
back in March.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Here is a snip of the SNOD that triggered the filling.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;"><o:p></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjc9dpGad_TqOKh-UotDllnQ_7Cw8kWTQDOvE3vIB4uk_WLoUySYpxdU1_V7-xfifV_ojtuq2CFWOMfaep0DeifLe0-dvtFLlT6U0LFcX026fSJyLD18gaW_kbmlAxrnTV99t_eHbO0VkmhG6H-xU-P0jykoJy309asqzEnaLCVW31FOPvu9G8ZnW3IKXEU/s1633/SNOD.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="487" data-original-width="1633" height="119" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjc9dpGad_TqOKh-UotDllnQ_7Cw8kWTQDOvE3vIB4uk_WLoUySYpxdU1_V7-xfifV_ojtuq2CFWOMfaep0DeifLe0-dvtFLlT6U0LFcX026fSJyLD18gaW_kbmlAxrnTV99t_eHbO0VkmhG6H-xU-P0jykoJy309asqzEnaLCVW31FOPvu9G8ZnW3IKXEU/w400-h119/SNOD.JPG" width="400" /></a></div><br /><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Yeah, no. We are not getting rolled for almost $720 grand.</span><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">I mentioned above that this notice has several names,
including 90-day letter. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Take the 90 days SERIOUSLY.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Let’s look at the <i>Nutt </i>case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The IRS mailed the Nutts a SNOD on April 14, 2022 for
their 2019 tax year. The 90 days were up July 18, 2022. The 18<sup>th</sup> was
a Monday, not a holiday in fantasy land or any of that. It was just a regular
day.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The Nutts lived in Alabama.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">They filed their Tax Court petition electronically at
11.05 p.m.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Alabama. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Central time.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">90 days.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The Tax Court is in Washington, D.C. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The Tax Court received the electronic filing at 12.05
a.m. July 19<sup>th</sup>.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Eastern time.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">91 days.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">The Tax Court bounced the petition. Since it had to be
filed with the Tax Court - and the Tax Court is eastern time - the 90 days had
expired. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">A harsh result, but those are the rules. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14.0pt; line-height: 107%;">Our case this time was <i>Nutt v Commissioner</i>, 160
T.C. No 10 (2023).<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-48285734674792891592023-12-10T18:00:00.069-06:002024-01-06T17:05:59.867-06:00A Ponzi Scheme And Filing Late<p></p><p class="MsoNormal"></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I am reading
a case involving a late tax return, a Ponzi scheme, and an IRS push for
penalties.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">It made me
think of this form:<o:p></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh01RfZquQvaGMfCPhA2b5s4I9fFV-i4jdNtzMOKNglM8v1kIMteCP2WKREmxTneDPPBUKwhkxchjTqq6n76ht2ytk9uwc9KJR2C9ixDJ8CgbILM7-A06eBL58nd6J0tBIIeJF_NxJhyr-gDZZkLHKs5u9rxwbTuxYRQWsqAofg775jA3LxKftY1skfJb5A/s624/Form%208082.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="254" data-original-width="624" height="163" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh01RfZquQvaGMfCPhA2b5s4I9fFV-i4jdNtzMOKNglM8v1kIMteCP2WKREmxTneDPPBUKwhkxchjTqq6n76ht2ytk9uwc9KJR2C9ixDJ8CgbILM7-A06eBL58nd6J0tBIIeJF_NxJhyr-gDZZkLHKs5u9rxwbTuxYRQWsqAofg775jA3LxKftY1skfJb5A/w400-h163/Form%208082.png" width="400" /></a></div><br /><div><p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">It is used for one of two reasons:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; tab-stops: 58.05pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(1)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Someone is filing a tax return with
numbers different from a Schedule K-1 received from a passthrough entity (such
as a partnership).<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; tab-stops: 58.05pt; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(2)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Someone is amending a TEFRA
partnership return.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">That second one is a discussion for another day. Let’s focus
instead on the first reason. How could it happen?<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Easy. You are a partner in a partnership. You bring me your
Schedule K-1 to prepare your personal return. I spot something wrong with the
K-1, and the numbers are large enough to matter. We contact that partnership to
amend the return and/or your K-1. The partnership refuses.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">COMMENT: We would use Form 8082 to inform the IRS that we are
not using numbers provided on your K-1.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">This is a tough spot to be in. File the form and you are possibly
waiving a flag at the IRS. Fail to file it and the IRS has procedural rights,
and those include the right to change your numbers back to the original (and disputed)
K-1. <o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">There is another situation where you may want to file Form 8082.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Let’s look at the <u>Rosselli</u> case.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Mr. Roselli (Mr. R) was a housing appraiser. Mrs. Rosselli was
primarily a homemaker. Together they have five children, three of whom have
special needs.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Through his business, Mr. R came to know the founder of a
solar energy company (DC Solar). Turns out that DC Solar was looking for
additional capital, and Mr. R knew someone looking to invest. The two were
introduced and – in gratitude – Mr R became a managing member in DC Solar via his company Halo Management Services LLC.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">This part turned out well for the R’s. In 2017 DC Solar paid
Halo approximately $300 grand. In 2018 DC Solar paid approximately $414 grand.
Considering they had no money invested, this was all gravy for the R's.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">COMMENT: Notice that Halo was paid for management services.
Halo in turn was Mr. R, so Mr. R got paid over $700 grand over two years for services
performed. This was a business, and Mr. R needed to report it on his tax return
like any other business. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">In late 2018 the FBI raided DC Solar’s offices investigating
whether the company was a Ponzi scheme. The owners of DC Solar were eventually
indicted and pled guilty, so I guess the company was.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Let’s roll into the next year. It was tax time (April 15, 2019) and
there was not a K-1 from DC Solar in sight.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">COMMENT: You think?<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">The accountant filed an extension until October 15. It did
not matter, as the R’s did not file a tax return by then either.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">The IRS ran a routine check on DC Solar and its partners. It
did not take much for the IRS to flag that the R’s had not filed a 2018 return.
The IRS contacted the R’s, who contacted their accountant, eventually filing their
2018 return in January 2022.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">You know what was on that 2018 return? The $414 grand in management
fees. <o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">You know what was not on that 2018 return? A big loss from DC
Solar.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Here is Mr. R:<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">Mr. Carpoff informed me that I was to receive Schedule K-1s
showing large ordinary losses for 2018 from DC Solar, and as a result I would
not have a tax liability for that year. However, before the K-1s could be
issued … DC Solar’s offices were raided by the FBI.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">All of DC Solar’s documents and records were seized by
federal authorities in the ensuing investigation. As a result, I was unable to
determine any tax implications because I did not receive a K-1 or any other tax
reporting information from DC Solar.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">Got it: Mr. R was expecting a big loss to go with that $414
grand. And why not? DC Solar had reported a big loss to him for 2017, the prior
year.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">But the IRS Collections machinery had started turning. By August
2022, the IRS was moving to levy, and the R’s filed for a Collection Due
Process (CDP) hearing.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">COMMENT: There is maddening procedure about arguing
underlying tax liability in a CDP hearing, which details we will skip. Suffice
to say, a taxpayer generally wants to fight any proposed tax liability like the
third monkey boarding Noah’s ark BEFORE requesting a CDP hearing.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">At the conclusion of the CDP hearing, the IRS decided that
they had performed all the required procedural steps to collect the R’s 2018
tax. The R’s disagreed and filed with the Tax Court.<o:p></o:p></span></p>
<p class="MsoNormal" style="tab-stops: 58.05pt;"><span style="font-size: 14pt; line-height: 107%;">The R’s presented three arguments.</span></p><p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-size: 14pt; line-height: 107%;">They reasonably assumed that they would not be required to
file or pay tax for 2018 because of an expected loss from the DC Solar K-1.</span></li></ul><p></p><p class="MsoNormal"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">The Court was not buying this. Not owing any taxes is not the
same as not being required to file. This was not a case where someone did not
work, meaning they dd not have enough income to trigger a filing requirement.
The Rs instead had a more complicated return, with income here and deductions
or losses there. Granted, it might compress to no tax due, but they needed to
file so one could follow how they got to that answer.<o:p></o:p></span></blockquote><p></p><p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-size: 14pt; line-height: 107%;">The R’s reasonably relied on advice from their accountant and
others.</span></li></ul><p></p><p class="MsoListParagraph"></p><blockquote><span style="font-size: 14pt;">The Court did not buy this either. For one thing, the Rs had
never informed their accountant about the $414 grand in management fees. If one
wants to rely on a professional’s advice, one must provide all available
pertinent information to the professional. The Court was not amused that the R’s
had not shared the LARGEST number on their return with their accountant.</span></blockquote><p></p><p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-size: 14pt; line-height: 107%;">The R’s argued that they would experience “undue hardship”
from paying the tax on its due date.</span></li></ul><p></p><p class="MsoNormal"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">The R’s argued that their income died up when DC Solar was
raided. Beyond that, though, they had not provided further information on what “drying
up” meant. Without information about their assets, liabilities and
remaining sources of income, the Court found the R’s argument to be self-serving.<o:p></o:p></span></blockquote><p></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Also, the Court did not ask – but I will – what the R's had
done with the $700 grand in management fees they received in 2017 and 2018.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Yeah, no. The Court found for the IRS, penalties and all.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">And here is what I am thinking:<o:p></o:p></span></p><p class="MsoNormal"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">What if they had timely filed their 2018 return, showing a
loss from DC Solar equal to the management fees? <o:p></o:p></span></blockquote><p></p><p class="MsoNormal"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">Problem: there was no K-1 from DC Solar.<o:p></o:p></span></blockquote><p></p><p class="MsoNormal"></p><blockquote><span style="font-size: 14pt; line-height: 107%;">Answer: attach the 8082.<o:p></o:p></span></blockquote><p></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I think the tax would eventually have turned
out the same.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">But I also think they would have had a persuasive case for
abatement of penalties for late filing and late payment. The penalty for late
file and pay is easily 25%, so that abatement is meaningful.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">
</span></p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Our case this time was <u>Rosselli v Commissioner</u>, TC
Bench Opinion, October 23, 2023.<o:p></o:p></span></p><br /></div>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-57381248783647319872023-12-03T18:30:00.015-06:002023-12-03T18:30:00.125-06:00IRS Collection Alternatives: Pay Attention To Details<p> </p><p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">I was
glancing over recent Tax Court cases when I noticed one that involved a rapper.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">I’ll be
honest: I do not know who this is. I am told that he used to date Kylie Jenner.
There was something in the opinion, however, that caught my eye because it is
so common.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Michael
Stevenson filed his 2019 tax return showing federal tax liability over $2.1
million. <o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT: His
stage name is Tyga, and the Court referred to him as “very successful.” Yep, with
tax at $2.1-plus million for one year, I would say that he is very successful.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOXn8V7OzgNBW8gaiGVKfukcH-NB2m4jCW7YKWbcd3sQgDESp5q-R9yHyxCLSzZdQX4upC6SpF6EZRXzhHFFSqi1Wj3pW0M5p5hTg9C1Xp3kVaMCGyEtW7gdzkw1B0HbyNnm5T6UP0fqq2hVPmdA-TqfopJMYJgl66tV9QOJVQwhCVthNqLceOghl_cC9X/s224/Tyga.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="224" data-original-width="224" height="224" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOXn8V7OzgNBW8gaiGVKfukcH-NB2m4jCW7YKWbcd3sQgDESp5q-R9yHyxCLSzZdQX4upC6SpF6EZRXzhHFFSqi1Wj3pW0M5p5hTg9C1Xp3kVaMCGyEtW7gdzkw1B0HbyNnm5T6UP0fqq2hVPmdA-TqfopJMYJgl66tV9QOJVQwhCVthNqLceOghl_cC9X/s1600/Tyga.jpg" width="224" /></a></div><span style="font-size: 15pt;"><p class="MsoNormal"><span style="font-size: 15pt;">Stevenson
had requested a Collection Due Process (CDP) hearing. It must have gone south,
as he was now in Tax Court.</span></p></span><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Why a CDP
hearing, though?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Stevenson
had a prior payment plan of $65 grand per month.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT: You
and I could both live well on that.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">His income
had gone down, and he now needed to decrease his monthly payment.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT: I
have had several of these over the years. Not impossible but not easy. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The
Settlement Officer (SO) requested several things:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 15.0pt; line-height: 107%;">Form 433-A (think the IRS equivalent
of personal financial statements)<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 15.0pt; line-height: 107%;">Copies of bank statements<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 15.0pt; line-height: 107%;">Copies of other relevant financial
documents<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 15.0pt; line-height: 107%;">Proof of current year estimated tax
payments<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Standard
stuff.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The SO
wanted the information on or by November 4, 2021.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Which came
and went, but Stevenson had not submitted anything.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Strike One.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The SO was helpful,
it appeared, and extended the due date to November 19.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Still nothing.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Strike Two. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Stevenson
did send a letter to the SO on December 1.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">He proposed
payments of $13,000 per month. He also included Form 433-A and copies of bank
statements and other documents.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT:
Doing well. There is one more thing ….<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The SO
called Stevenson’s tax representative. She had researched and learned that
Stevenson had not made estimated tax payments for the preceding nine years. She
wanted an estimated tax payment for 2021, and she wanted it now.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT:
Well, yes. After nine years people stop believing you.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Stevenson
made an estimated tax payment on December 21. It was sizeable enough to cover
his first three quarters.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT: He
was learning.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The SO sent
the paperwork off to a compliance unit. She requested Stevenson to continue his
estimated payments into 2022 while the file was being worked. She also
requested that he send her proof of payments.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The
compliance unit did not work the file, and in July 2022 the SO restarted the case.
She calculated a monthly payment MUCH higher than Stevenson had earlier
proposed.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT: The
SO estimated Stevenson’s future gross income by averaging his 2020 and (known)
2021 income. Granted, she needed a number, but this methodology may not work
well with inconsistent (or declining) income. She also estimated his expenses,
using his numbers when documented and tables or other sources when not.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The SO spoke
with the tax representative, explaining her numbers and requesting any
additional information or documentation for consideration.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">COMMENT:
This is code for “give me something to justify getting closer to your number
than mine.” <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Oh, she also
wanted proof of 2022 estimated tax payments by August 22, 2022. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Yeah, you
know what happened.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Strike
Three.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">So,
Stevenson was in Tax Court charging the SO with abusing her discretion by
rejecting his proposed collection alternatives.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Remember the
something that caught my eye?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">It is someone
not understanding the weight the IRS gives to estimated tax payments while working
collection alternatives.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Hey, I get
it: one is seeking collection alternatives because cash is tight. Still, within
those limits, you must prioritize sending the IRS … something. I would rather
argue that my client sent all he/she could than argue that he/she could not
send anything at all.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">And the
amount of tax debt can be a factor. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">How much did
Stevenson owe?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">$8 million.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">The Court
decided against Stevenson. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Here is the
door closing:<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-size: 15.0pt; line-height: 107%;">The
Commissioner has moved for summary judgement, contending that the undisputed
facts establish that Mr. Stevenson was not in compliance with his estimated tax
payment obligations and the settlement officer thus was justified in sustaining
the notice of intent to levy.”<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-size: 15.0pt; line-height: 107%;">Our case
this time was <i>Stevenson v Commissioner</i>, TC Memo 2023-115.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-67870529214592039872023-11-23T06:00:00.001-06:002023-11-23T06:00:00.129-06:00Happy Thanksgiving<p> </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3Vuz2I7lgVxqygVef5S_l4Dv8NVy4j6BgvTU_S1IIbm7qG7Q64W0OMu1d-MvIwW9k-vQ3ZAKEyYep10K8UDC2OrCPkfgcRWGW7eGh-CUBRrMGtM2LpA-7qJT9YOgSe3u6W6qQECjk6adUSmY5MghD0Eb0IQNZ8Ro_wJCek9nrgZ7KE3r9hrRb6IJSSL8g/s1536/Turkeys-1152x1536.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1536" data-original-width="1152" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3Vuz2I7lgVxqygVef5S_l4Dv8NVy4j6BgvTU_S1IIbm7qG7Q64W0OMu1d-MvIwW9k-vQ3ZAKEyYep10K8UDC2OrCPkfgcRWGW7eGh-CUBRrMGtM2LpA-7qJT9YOgSe3u6W6qQECjk6adUSmY5MghD0Eb0IQNZ8Ro_wJCek9nrgZ7KE3r9hrRb6IJSSL8g/w480-h640/Turkeys-1152x1536.jpg" width="480" /></a></div><br /><p></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-19896583557911175152023-11-18T15:36:00.001-06:002023-11-18T15:37:09.707-06:00Another Backup Withholding Story<p> </p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">We talked not
too long ago about backup withholding.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">What is it?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Think Forms
1099 and you are mostly there.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The IRS
wants reporting for many types of payments, such as:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Interest<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Dividends<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Rents<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Royalties<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Commissions and fees<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Gambling winnings<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">Gig income <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Reporting requires
an identification number, and the common identification number for an
individual is a social security number.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The IRS
wants to know that whoever is being paid will report the income. The payor starts
the virtuous cycle by reporting the payment to the IRS. It also means that – if
the payee does not provide the payor with an identification number - the payor
is required to withhold and remit taxes on behalf of the payee.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">You want to
know how this happens … a lot?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Pay someone
in cash.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">There is a
reason you are paying someone in cash, and that reason is that you probably
have no intention of reporting the payment – as a W-2, as a 1099, as anything –
to anyone.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">It is all
fun and games until the IRS shows up. Then it can be crippling.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">I had the
following bright shiny drop into my office recently: </span><span style="font-size: 14pt;"> </span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGw6WHa1DasH8rLujeeWkaYAsCws0k8qam6TP-zad0GGBLepMnGpShTqNMHuAVC9wXnWNi0U8PZfTm-n2GH3NSEGVkXOBNSGFuUBQAGwuwlIlXhvBD1IotsSdMncUkkqkSX5i09bLengFQVnmltNNVnZdSNyY2uUx21Q6cb-IvqsA6UMVNBh87gZ3pCQCw/s1435/Adjustment%2011.18.23.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="198" data-original-width="1435" height="91" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGw6WHa1DasH8rLujeeWkaYAsCws0k8qam6TP-zad0GGBLepMnGpShTqNMHuAVC9wXnWNi0U8PZfTm-n2GH3NSEGVkXOBNSGFuUBQAGwuwlIlXhvBD1IotsSdMncUkkqkSX5i09bLengFQVnmltNNVnZdSNyY2uUx21Q6cb-IvqsA6UMVNBh87gZ3pCQCw/w442-h91/Adjustment%2011.18.23.JPG" width="442" /></a></div><span> </span><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The client
filed the 1099 and also responded to the first IRS notice.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">It could
have gone better.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">That 24% is
backup withholding, and I am the tax Merlin that is supposed to “take care of”
this. Yay me.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">This case was
not too bad, as it involved a single payee.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">How did it
happen?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">The client issued
a 1099 to someone without including a social security number. They filled-in “do
not know” or “unknown” in the box for the social security number. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Sigh. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Sometimes you
do not know what you do not know. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Here is a
question, and I am being candid: would I send in a 1099 to the IRS if I did not
have the payee’s social security number?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Oh, I understand
the ropes. I am supposed to send a 1099 if I pay someone more than $600 for the
performance of services and yada yada yada. If I don’t, I can be subject to a
failure to file penalty (likely $310). There is also a failure to provide penalty
(likely $310 again). I suppose the IRS could still go after me for the backup
withholding, but that is not a given.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Let me see: looks
like alternative one is a $620 given and alternative two is a $38,245 given.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">I am not
saying, I am just saying.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Back to our
bright shiny.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">What to do?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">I mentioned
that the payment went to one person.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">What if we
obtained an affidavit from that person attesting that they reported the payment
on their tax return? Would that get the IRS to back down?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">It happens
enough that the IRS has a specific form for it.</span> </p><span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhvF3f-mbjtbLeXHgS60WM2bjH8gxsEuXeMhKkhF-2Wx8FQ7gR5tWKj2IJvdrQ4eNNPPKQqq7FEO4hTjASnIOqDHP3DvpuBWBDLRJ_Nz5pKf7d50BVvHJ5c4MKtTJBivP1K7w7xHBYXrAriCF2l_GAVEnvSjMaLAg0ySecI2MZcUf9u6HjfVYutG_wNsDU/s1032/Form%204669.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="514" data-original-width="1032" height="199" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhvF3f-mbjtbLeXHgS60WM2bjH8gxsEuXeMhKkhF-2Wx8FQ7gR5tWKj2IJvdrQ4eNNPPKQqq7FEO4hTjASnIOqDHP3DvpuBWBDLRJ_Nz5pKf7d50BVvHJ5c4MKtTJBivP1K7w7xHBYXrAriCF2l_GAVEnvSjMaLAg0ySecI2MZcUf9u6HjfVYutG_wNsDU/w400-h199/Form%204669.JPG" width="400" /></a></div></span><p></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">We filled in
the above form and are having the client send it to the payee. We are
fortunate, as they have a continuing and friendly relationship. She will sign, date,
and return the form. We will then attach a transmittal (Form 4670) and send the
combo to the IRS. The combo is considered a penalty abatement request, and I am
expecting abatement.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Is it a
panacea?<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Nope, and it
may not work in many common situations, such as:<o:p></o:p></span></p><p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">(1)<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">One never obtained payee contact information.<o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">(2)<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">A one-off transaction. One did not do
business with the payee either before or since.<o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">(3)<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">The payee moved, and one does not
know how to contact him/her.<o:p></o:p></span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">(4)<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">There are multiple payees. This could
range from a nightmare to an impossibility.<o:p></o:p></span></p><p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-size: 14.0pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">(5)<span style="font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14.0pt; line-height: 107%;">The payee does not want to help, for whatever
reason.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Is there a
takeaway from this harrowing tale?<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Think of
this area of tax as safe:sorry. Obtain identification numbers (think Form W-9)
before cutting someone their first check. ID numbers are not required for
corporations (such as the utility company or Verizon), but one is almost
certainly required for personal services (such as gig work). I suppose it could
get testy if the payee feels strongly about seemingly never-ending tax reporting,
but what are you supposed to do? <o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">Better to
vent that frustration up front rather than receive a backup withholding notice
for $38,245.<o:p></o:p></span></p><p class="MsoNormal">
</p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">And wear out
your CPA.<o:p></o:p></span></p><p class="MsoNormal"><br /></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-27925653739347048702023-11-12T19:00:00.100-06:002023-11-13T09:25:01.744-06:00The EV Tax Credit<p><span style="font-size: 14pt;">I was
reading an article recently that approximately 40% of Americans have not heard
about the EV tax credits.</span></p><p>
</p><p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">EVs are battery
powered cars. We used to have hybrids, which sometimes used a motor and other
times a battery. EVs by contrast are 100% battery powered.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">If you are
thinking about buying one for personal use, here are a few markers to keep in
mind:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(1)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>There was an OLD tax credit and now there is a
NEW tax credit.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">a.<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The OLD credit went through April 18,
2023.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">b.<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The NEW credit of course is after
April 18, 2023.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">Both credits can get up to $7,500, so what changed was the
measuring stick. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">Before April 19, the EV had to be assembled in North America.
<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">After April 18, one test became two tests:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The battery itself has to be
manufactured in North America, and <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Then critical minerals in the battery
(cobalt and lithium, for example) must be extracted or processed in the U.S. or
in a country with which the U.S. has a free trade agreement.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">Notice that OLD $7,500 credit (assembled in North America)
has become two NEW credits of $3,750 each. You can get to $7,500, but along a
different route.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">It matters. For example, the new Ford Mustang Mach-E only
qualifies for one of the credits – only $3,750 – because its battery comes from
abroad.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">Some – like the Genesis GV70 – used to qualify for the old
$7,500 credit but no longer qualify for anything under the new rules.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-size: 14pt; line-height: 107%;">If you are considering an EV, please double check whether the
vehicle qualifies. Here is the Department of Energy’s website:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1.5in; text-indent: 0.3pt;"><a href="https://fueleconomy.gov/feg/tax2023.shtml" target="_blank">https://fueleconomy.gov/feg/tax2023.shtml</a><br /></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(2)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>Congress included some price caps on qualifying
vehicles. These things are expensive, and Congress was trying to exert downward
pressure. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto;"><span style="font-size: 14pt;">To qualify,</span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">A van, SUV or pickup truck must cost
$80 grand or less.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Any other vehicle (a sedan, for
example) must cost $55 grand or less. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(3)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>Starting in 2024, you will have the option of
using the credit immediately when you purchase the vehicle. It would make for
an easy down payment, I suppose. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto;"><span style="font-size: 14pt; line-height: 107%;">The heavy lifting is done
behind the scenes, as the dealerships will register on a new website to
initiate and receive the credits. If you are curious, that website is: </span></p><p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto;"><a href="https://www.irs.gov/credits-deductions/register-your-dealership-to-enable-credits-for-clean-vehicle-buyers" target="_blank">https://www.irs.gov/credits-deductions/register-your-dealership-to-enable-credits-for-clean-vehicle-buyers</a> </p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(4)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>For the first time, used EVs will qualify for
a credit. This credit will not be as large as the one for new EVs, but it is
not insignificant either. Here are the ropes:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The price must be $25 grand or less.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The car must be at least two years
old.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The car qualifies only once in its
lifetime.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The credit is up to $4 grand, limited
to 30% of the price.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">You can claim the used EV credit once
every three years. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(5)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>There are income limits on both the new EV and
used EV credits. Make too much money and you will not qualify. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto;"><span style="font-size: 14pt; line-height: 107%;">For example:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1.5in;"><span style="font-size: 14pt; line-height: 107%;">New EV<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 0in; margin-left: 1.5in; margin-right: 0in; margin-top: 0in; margin: 0in 0in 0in 1.5in; tab-stops: 2.0in;"><span style="font-size: 14pt; line-height: 107%;"><span style="mso-tab-count: 1;"> </span>Married <span style="mso-tab-count: 2;"> </span>income < $300,00<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 0in; tab-stops: 2.0in;"><span style="font-size: 14pt; line-height: 107%;"><span style="mso-tab-count: 1;"> S</span>ingle<span style="mso-tab-count: 3;"> </span>income < $150,000<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;"><span style="mso-tab-count: 3;"> </span></span><span style="font-size: 14pt; text-indent: 0.5in;">Used EV</span></p>
<p class="MsoNormal" style="margin-bottom: 0in; tab-stops: 2.0in;"><span style="font-size: 14pt; line-height: 107%;"><span style="mso-tab-count: 1;"> </span>Married<span style="mso-tab-count: 2;"> </span>income < $150,000<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 0in; tab-stops: 2.0in;"><span style="font-size: 14pt; line-height: 107%;"><span style="mso-tab-count: 1;"> </span>Single
<span style="mso-tab-count: 2;"> </span>income < $75,000<span style="mso-tab-count: 1;"> </span><o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto;"><span style="font-size: 14pt;">You can test for income
either in the year of purchase or the immediately preceding year. I am thinking
– to be safe – that one should generally go with the preceding year. It would
be no fun to apply a $7,500 credit against the purchase of an EV and then give
it back because you reported too much income on your 2024 tax return. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-size: 14pt; line-height: 107%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">(6)<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>Up to now, we have been talking about buying an
EV for personal use. There is a similar credit if you lease rather than buy,
but some rules are different. <o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Since the leasing company (and not
you) owns the vehicle, the income test does not apply.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">The credit requires the EV be manufactured
by a “qualified manufacturer” rather than the two-step qualification discussed
above for a purchased vehicle. This should result in a wider selection.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 135.3pt; mso-add-space: auto; mso-list: l0 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Mind you, the leasing company is not
required to pass (all or any of) this credit on to you. Education is important
here - and expect negotiation. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto;"><span style="font-size: 14pt; line-height: 107%;">The reason the rules are
different is that this second credit is designed for businesses – rather than individuals
– buying an EV. By bringing in a leasing company, we flipped from the first to
the second credit. </span><span style="font-size: 14pt;"> </span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I am not in
the market for a car myself. <span style="mso-spacerun: yes;"> </span>If I were,
though, I would go in a very different direction.</span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyvcvEHv0XeMqJKjOfW-_u7gO_a0a-MebT4_n1-oV2hGh3b4nrZ0qqxS968Z8u9CWzHcdVYuCnrdKQpXO9T048Eaapgl3is8XrTCTI1jjwu2PjH4zDrSwcbea1BtT4vIriNkplcGceZ-bBXBhVLZHznjNcb5e8LCPCYkbyZxuH2V_LcAQhpFQYR8eOu-BV/s275/GTO.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="183" data-original-width="275" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyvcvEHv0XeMqJKjOfW-_u7gO_a0a-MebT4_n1-oV2hGh3b4nrZ0qqxS968Z8u9CWzHcdVYuCnrdKQpXO9T048Eaapgl3is8XrTCTI1jjwu2PjH4zDrSwcbea1BtT4vIriNkplcGceZ-bBXBhVLZHznjNcb5e8LCPCYkbyZxuH2V_LcAQhpFQYR8eOu-BV/w320-h213/GTO.jpg" width="320" /></a></div><br />Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-36992230239722471602023-11-05T19:00:00.019-06:002023-11-05T19:00:00.131-06:00Another Runaway FBAR Case<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Let’s talk about the FBAR (Report of Foreign Bank and
Financial Accounts). It currently goes by the name “FinCen Form 114.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">This thing has been with us since 1970. It came to
life as an effort to identify foreign financial transactions that might
indicate money laundering or tax evasion. </span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; font-size: 15pt;">Sounds benign.</span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">The filing requirement applies to a United States
person, defined as<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
citizen or resident of the U.S.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
domestic partnership<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
domestic corporation<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
domestic trust or estate<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>We’ll come back
that first one in a moment.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Next, one needs a financial interest or signature
authority in a foreign financial account to trigger this thing.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A foreign financial account includes a bank account,
which is easy enough to understand. It would also include a broker account
(think Charles Schwab, but overseas). Some are not so intuitive, though.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
foreign insurance policy with cash value is reportable.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
foreign hedge fund is not.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
foreign annuity policy is reportable.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
foreign private equity fund is not.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
foreign cryptocurrency account is not reportable.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Some require a google search to understand what is
being said.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
Canadian registered retirement savings plan is reportable.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">A
Mexican fondo para retiro is reportable.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Next, the foreign financial account has to exceed a certain
dollar balance ($10,000) at some point during the year.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">That $10,000 balance has been there for as long as I
can remember. You will have a hard time persuading me that $10,000 in 1986 is
the same as $10,000 now, but that number is apparently eternal and unchanging. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">The $10,000 is tested across all foreign financial
accounts. If it takes your fourth foreign account to put you over $10 grand,
then you are over. Testing is done. All your accounts are reportable on a FBAR.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Like so many things, the FBAR started with reasonable
intentions but has morphed into something near unrecognizable. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Fail to file an FBAR and the standard penalty is $10
grand. Fail to file for two years and the penalty is $20 grand. Have two
foreign accounts and fail to file for two years and the penalty is $40 grand.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">And that is assuming the error is unintentional. Do it
on purpose and I presume they will execute you.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">I exaggerate, of course. They will just bankrupt you.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">It puts a lot of pressure on defining “on purpose.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Let’s look at Osamu Kurotaki (OK).<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">OK was born in Japan and lives in Japan. He obtained a
U.S. green card, making him a U.S. permanent resident. One of the pleasures of
being a permanent resident is filing an annual tax return with the United
States, irrespective of whether you live in the U.S. or not. One can talk about
a foreign income exclusion or foreign tax credit – which is fine – but that
annual filing makes sense only if someone intends to eventually return to the U.S.
It does not make as much sense if someone does not intend to return, someone
like OK.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">OK paid someone to prepare his annual U.S. tax
return. He found a CPA who was bilingual.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">In 2021 the U.S. Treasury assessed civil penalties
against OK for more than $10 million. His footfall? He failed to file FBARs.
Treasury also upped the ante by saying that his failure was “willful.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Huh?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Treasury is requesting summary judgement that OK
willfully failed to file FBARs, prefers waffle over sugar cones and rooted for
the Diamondbacks in the World Series. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman", serif; font-size: 15pt;">The Court wanted to know how Treasury climbed the
ladder to get to that “willful” step.</span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">So do I.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Here is what the Court saw:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">OK
is a Japanese speaker and does not speak English “at all.”<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">OK
relied on his bilingual CPA to make sense of U.S. tax filing obligations.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">His
CPA provided annual tax questionnaires in both English and Japanese. The
English was for theater, I suppose, as OK could not read English.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">The
CPA’s translation now becomes critical. Here are instructions to the FBAR in
English:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1.0in;"><b><i><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">U.S. taxpayers</span></i></b><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">
are required to report their worldwide income; that is, income from both U.S.
and foreign sources.”<o:p></o:p></span></p>
<p class="MsoListParagraph" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15.0pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Here
is the Japanese translation:<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1.0in;"><b><i><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">U.S. resident taxpayers</span></i></b><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">
are required to report their worldwide income, that is, income from both US. and
foreign sources."<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">OK told the Court that he did not think he had a
filing obligation because he was not a “U.S. resident.” <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">I get it. He lives in Japan. He works in Japan. His
kids go to school in Japan. He is as much a “U.S. resident” as I am a Nepalese
Sherpa.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Except …<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">OK was green card – that is, a “permanent” resident of
the U.S.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Technically …<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">The Court cut OK some slack. Technically - and in a
law school vacuum - he was a “resident.” Meanwhile - in the real world – no one
would think that. Furthermore, OK hired a CPA who made a mistake. Even a trained
professional erred interpreting the Treasury’s word salad. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">The Court said “no” to summary judgement. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Treasury will have to argue its $10 million-plus proposed
penalty.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">And I believe the Court just outlined reasonable
cause.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Perhaps OK should consider turning in that green card. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;">Our case this time was <i>Osamu Kurotaki v United
States</i>, U.S. District Court, District of Hawaii.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15.0pt; line-height: 107%;"><o:p> </o:p></span></p>
<p class="MsoNormal"><br /></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-23790179492575745532023-10-31T19:30:00.011-05:002023-10-31T19:30:00.153-05:00A Short Story About Connecticut Unemployment Reporting<p></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;"><br /></span></p><p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">I read that
the Governor of Connecticut has signed a bill repealing certain additional
payroll reporting requirements otherwise slated to start next year. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14.0pt; line-height: 107%;">As
background, all state quarterly unemployment returns include certain basic
information, including:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-bottom: 0in; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt;">Name<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 0in; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt;">Social security number<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: 0in; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt;">Wages paid in the quarter <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt;">Prior to
repeal, Connecticut employers were to report additional information with their
quarterly unemployment returns. The reporting was to start in 2024, with the exact
phase-in depending on the number of employees:</span></p>
<p class="MsoListParagraph" style="line-height: normal; margin-left: .75in; mso-add-space: auto; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Gender identity<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Age<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Race<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Ethnicity<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Veteran
status<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Disability
status<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Highest
education completed<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Home address<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Address of
primary work site<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Occupational
code under the standard occupational classification (SOC) system of the federal
Bureau of Labor Statistics<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Hours worked<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Days worked<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Salary or
hourly wage<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Employment
start date in the current job title<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-left: .75in; mso-list: l1 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list .75in; text-indent: -.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 14.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Employment
end date (if applicable)<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">Ten
of the above 15 data elements are not collected by any other state.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">There
was concern that the additional elements could negatively impact people filing
for benefits – that is, the actual purpose of unemployment taxes.<o:p></o:p></span></p>
<p style="background: white; line-height: 22.5pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in; text-indent: 4.05pt;"><span style="color: #5a5f71; font-family: Poppins; font-size: 11.0pt;">“The Department of Labor would need
to edit incoming reports against certain standards and reject employer wage/tax
reports or suspend processing while seeking clarification of elements reported. </span><span style="color: #5a5f71; font-family: Poppins; font-size: 11pt; text-indent: 4.05pt;"> </span></p>
<p style="background: white; line-height: 22.5pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;"><span style="color: #5a5f71; font-family: Poppins; font-size: 11.0pt;">“Rejected or suspended wage reports could make wage
information unavailable when unemployment claimants apply for benefits.”<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"><span style="font-size: 14.0pt; mso-fareast-font-family: "Times New Roman";">It
appears a breath of sanity.<o:p></o:p></span></p><br /><p></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-46555736412806480702023-10-31T06:00:00.001-05:002023-10-31T06:00:00.139-05:00Happy Halloween<p> </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhwetSxj_J7ZOVmyCPrnmIT1kNEE4t2fLK-2q08J8qzkkVATQkkPns4dVp1D1fv9hVgIl5jfZxuxEOotgCYUDuDE_IK0RsQ0iOi3FGXWYYMx8ZK-d6KwK6neCYcb7GcvLFE0hucGP9Kwrk-xWsxc81ejEnhB3Iq_y1mlRlRZhO_0wRbknM2SCtrFGkNAvPI" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="444" data-original-width="601" height="295" src="https://blogger.googleusercontent.com/img/a/AVvXsEhwetSxj_J7ZOVmyCPrnmIT1kNEE4t2fLK-2q08J8qzkkVATQkkPns4dVp1D1fv9hVgIl5jfZxuxEOotgCYUDuDE_IK0RsQ0iOi3FGXWYYMx8ZK-d6KwK6neCYcb7GcvLFE0hucGP9Kwrk-xWsxc81ejEnhB3Iq_y1mlRlRZhO_0wRbknM2SCtrFGkNAvPI=w400-h295" width="400" /></a></div><br /><p></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-66712907942764799322023-10-29T18:55:00.030-05:002023-10-29T18:55:00.150-05:00A School And Obamacare Penalties <p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">How would you like to get the following notice in the
mail?</span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; font-size: 15pt;"> </span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5we2hFXgjaVcBz00mA3vmtCrrU6gjEHPg0YWHwpaxlddumEoadiU679IxkYzkmrcno8OAVVKnrL2CAlXtkeITYlXDDHjxYpp7qShachlr9JK4Xm42oIPE-6OENZwecnTNsJWhdZXjNthKVyn85h41QMLyYZJ25cqKnTWzMhDkvgrSvf4n0q7yxSwa41v2/s1077/We%20charged%20you%20a%20penalty.JPG" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="592" data-original-width="1077" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5we2hFXgjaVcBz00mA3vmtCrrU6gjEHPg0YWHwpaxlddumEoadiU679IxkYzkmrcno8OAVVKnrL2CAlXtkeITYlXDDHjxYpp7qShachlr9JK4Xm42oIPE-6OENZwecnTNsJWhdZXjNthKVyn85h41QMLyYZJ25cqKnTWzMhDkvgrSvf4n0q7yxSwa41v2/w400-h220/We%20charged%20you%20a%20penalty.JPG" width="400" /></a></p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Believe it or not, the IRS sent this to a public
school system in Virginia. I am looking at the Tax Court petition as I write
this.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">This notice is for a Section 6721 penalty, assessed
for failure to file certain information forms with the IRS. Common information
forms include:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Form
W-2 (Wage and Tax Statement)<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Forms(s)
1099 (Interest, Dividends, and numerous others)<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Form
8027 (Tip Income and Allocated Tips)<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 15pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Forms(s)
1094 & 1095 (Health Insurance)<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">There is a virtually automatic companion to this penalty
- Section 6722 – which assesses another penalty for failure to provide an
information form to the recipient. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Combined we are talking over $2.2 million.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">To a school?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Let’s go through this.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The school (Arlington) received the above notice dated
June 13, 2022.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The second notice (for Section 6722 penalties) was
dated June 27, 2022.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The IRS wanted payment by July 12, 2012.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Arlington had an issue. While they knew the
IRS was assessing penalties for information returns, they had no idea which
information forms the IRS was talking about. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The IRS Revenue Officer (RO) issued a Final Notice of
Intent to Levy on July 12, 2022.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: The same day?<span style="mso-spacerun: yes;">
</span>I have been leaving messages with a Revenue Agent for over two weeks now
concerning an individual tax audit, and this RO issued a FINAL on the same day stated
in the notice? <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: There is also a procedural error here. The
IRS must issue notices in a certain order, and the RO is not entitled to jump
the line and go straight to that FINAL notice.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">We learn that this specific RO had previously assessed
penalties (without explanation) and filed liens (again, without explanation) on
a middle school in the Arlington school system. These miraculously went away before
an Appeals hearing could occur.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Sounds like something personal.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">On August 10, 2022, Arlington requested a collection due
process hearing on the June 13 and June 27 notices. It faced a formidable obstacle,
however, as it did not know what the IRS was talking about.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The IRS sent a letter dated December 5, 2022,
scheduling an Appeals conference on January 18, 2023. That letter also suggested
that Arlington had not filed Forms 1042, which concerns withholding on payments
to foreign persons.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Seems an odd one. I would have thought Forms
W-2, if anything.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">It turns out that the 1042 reference was mistaken.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Clown show.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Arlington (more specifically, Arlington’s attorneys)
tried repeatedly to contact the Appeals Officer (AO). It appears that he inadvertently
answered his phone one time, and the Appeals conference was moved to January
31, 2023. Arlington still wanted to know what form was costing them over $2.2
million.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The attorneys marched on. They contacted the IRS
Practitioner Line, which told them that the penalties might relate to the Affordable
Care Act (Obamacare). They also sent a written request to IRS Ogden for explanation
and copies of any correspondence concerning the matter.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: I’ve done the same. Low probability swing, in
my experience.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The attorneys also contacted the Taxpayer Advocate.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Receiving nothing, the attorneys again requested to
postpone the Appeals hearing. They learned that two additional penalties had
been added. What were the two penalties about? Who knows.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The two late penalties were “abated” before the Appeals
hearing on February 10, 2023.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The AO failed to show up to the Appeals hearing on
February 10, 2023.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: That sounds about right.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">At the re-rescheduled hearing on February 24, 2023,
the AO wanted to know what Arlington intended to do. Arlington replied that
they were still trying to figure out what the penalties were for, and that a little
help would be welcome.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">That however would require the AO to – gasp – actually
work, so he attempted to transfer the case to another AO. He was unsuccessful.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Fire the guy.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">On June 30, 2023, the AO sent the attorneys
re-generated IRS notices (not copies of originals) proposing $1,1113,000 in
penalties for failure to send Forms 1094-C to the IRS and an additional
$1,113,000 for failure to provide the same 1094-C to employees.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Finally, we learn the mystery form. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Arlington (really, its attorneys) learned that the IRS
had listed a “Lang Street” address for correspondence. Lang Street was never
Arlington’s address and was only one of the middle schools in the district. It
was, however, the middle school which the RO had liened earlier in our story.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">While talking to the AO on June 30, 2023, the
attorneys requested additional time to submit a penalty abatement request.<span style="mso-spacerun: yes;"> </span>The AO allowed 14 days.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Really? This is the school’s summer recess,
no one is there, and you expect people to dig up years-old paperwork in 14 days?<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Once again, the AO refused to answer numerous calls
and faxes.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The attorneys – frustrated – contacted the AO’s
manager. The manager gave them additional time.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">On August 21, 2023, Arlington received a mysterious IRS
letter about a claim filed on or about February 23, 2023. Problem: Arlington had
not filed any such thing.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The attorneys sent a copy of the mystery notice to the
AO.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">On September 13, 2023, the AO told the attorneys that he
had closed the case and issued a Notice of Determination.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: This is the “90-day letter” and one’s
entrance ticket to the Tax Court.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The attorneys asked why the NOD. The AO explained that
he could not provide a penalty abatement while the underlying Obamacare forms remained
unfiled.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Uh huh. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">By the way, while the AO verbally communicated that a
NOD had been issued, Arlington never received it. It appears - best I can tell –
that the NOD is stuck at a processing facility.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Fits the rest of the story.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">So, what happened with those forms?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">It turns out that Arlington sent employees their
copies of the Obamacare forms on or about February 28, 2020.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: Well, there goes one of the two penalties.<o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Arlington was going to send the IRS copies on March
16, 2020.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">What happened at this point in 2020?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The Governor of Virginia closed all schools for two
weeks over COVID-19.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">He then closed the schools through the rest of the
school year.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">On March 30, 2020, Arlington requested an extension of
time to file those Obamacare forms with the IRS.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Virtually no one was at the school. People were working
remotely, if possible. The school was trying to figure out how to even pay its
employees when everyone was remote.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Yeah, I suspect those forms were never sent.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Heck of a reasonable cause, I would say.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">And fire the guy.<o:p></o:p></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-23829493760946687742023-10-22T17:30:00.040-05:002023-10-23T10:32:41.101-05:00 Sonny Corleone’s IRA<p><span style="font-size: 14pt;"><br /></span></p><p><span style="font-size: 14pt;">I remember
him as Sonny Corleone in The Godfather. He is James Caan, and he passed away in
July 2022.</span></p>
<p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG9QQ7hirB1Xk6gZRoYE1F5XZ0uUGE84jg-6n15TTf_ZJsm5es2DoS44ni-zPsShbxYiOnbLwdQwZJRisqpJJsorFMXgQB5PGtYSqNquz3F61aQJzz3O7MmwRDBaEDZ1FAAyfZgT_Pj97CNrNCtCbXNHyqczpiwtULGNqFnVdTTQ1-VTyrhBObHPFmak1t/s251/Sonny%20Corleone.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="251" data-original-width="201" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG9QQ7hirB1Xk6gZRoYE1F5XZ0uUGE84jg-6n15TTf_ZJsm5es2DoS44ni-zPsShbxYiOnbLwdQwZJRisqpJJsorFMXgQB5PGtYSqNquz3F61aQJzz3O7MmwRDBaEDZ1FAAyfZgT_Pj97CNrNCtCbXNHyqczpiwtULGNqFnVdTTQ1-VTyrhBObHPFmak1t/s1600/Sonny%20Corleone.jpg" width="201" /></a></div><span style="font-size: 14pt;"><p class="MsoNormal"><span style="font-size: 14pt;">I am reading
a Tax Court case involving his (more correctly: his estate’s) IRA.</span></p></span><p></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">There is a hedge
fund involved.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">For the most
part, we are comfortable with “traditional” investments: money markets, CDs,
stocks, bonds, mutual funds holding stocks and bonds and the mutual fund’s
updated sibling: an ETF holding stocks and bonds. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Well, there
are also nontraditional investments: gold, real estate, cryptocurrency, private
equity, hedge funds. I get it: one is seeking additional diversification, low
correlation to existing investments, enhanced protection against inflation and
so forth. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">For the most
part, I consider nontraditional investments as more appropriate for wealthier
individuals. Most people I know have not accumulated sufficient wealth to need nontraditional
assets.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">There are
also tax traps with nontraditional assets in an IRA. We’ve talked before about
gold. This time let’s talk about hedge funds.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">James Caan
had his cousin (Paul Caan) manage two IRAs at Credit Suisse. Paul wanted to
take his career in a different direction, and he transferred management of the
IRAs to Michael Margiotta. Margiotta left Credit Suisse in 2004, eventually
winding up at UBS. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">The wealthy
are not like us. Caan, for example, utilized Philpott, Bills, Stoll and Meeks
(PBSM) as his business manager. PBSM would:<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Receive all Caan’s mail<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Pay his bills<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Send correspondence<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Prepare his tax returns<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size: 7pt; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 14pt; line-height: 107%;">Act as liaison with his financial
advisors, attorneys, and accountants<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I wish.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Caan had 2
IRAs at UBS. One was a regular, traditional, Mayberry-style IRA.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">The second
one owned a hedge fund.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">The tax Code
requires the IRA trustee or custodian to file reports every year. You probably
have seen them: how much you contributed over the last year, or the balance in
the IRA at year-end. Innocuous enough, except possibly for that year-end thing.
Think nontraditional asset. How do you put a value on it? It depends, I suppose.
It is easy enough to look up the price of gold. What if the asset is trickier:
undeveloped land outside Huntsville, Alabama – or a hedge fund?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">UBS had Caan
sign an agreement for the IRA and its hedge fund.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in; text-indent: 0.3pt;">The Client must
furnish to the Custodian in writing the fair market value of each Investment
annually by the 15th day of each January, valued as of the preceding December
31st, and within twenty days of any other written request from the Custodian,
valued as of the date specified in such request. The Client acknowledges,
understands and agrees that a statement that the fair market value is
undeterminable, or that cost basis should be used is not acceptable and the
Client agrees that the fair market value furnished to the Custodian will be
obtained from the issuer of the Investment (which includes the general partner
or managing member thereof). The Client acknowledges, understands and agrees
that if the issuer is unable or unwilling to provide a fair market value, the
Client shall obtain the fair market value from an independent, qualified
appraiser and the valuation shall be furnished on the letterhead of the person
providing the valuation.<o:p></o:p></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Got it. You
have to provide a number by January 15 following year-end. If it is a hassle,
you have to obtain (and you pay for) an appraisal.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">What if you
don’t?<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in; text-indent: 0.3pt;">The Client
acknowledges, understands and agrees that the Custodian shall rely upon the
Client’s continuing attention, and timely performance, of this responsibility.
The Client acknowledges, understands and agrees that if the Custodian does not
receive a fair market value as of the preceding December 31, the Custodian
shall distribute the Investment to the Client and issue an IRS Form 1099–R for
the last available value of the Investment.<o:p></o:p></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Isn’t that a
peach? Hassle UBS and they will distribute the IRA and send you a 1099-R.
Unless that IRA is rolled over correctly, that “distribution” is going to cost
you “taxes.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Let’s start
the calendar.<o:p></o:p></span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 492px;">
<tbody><tr style="height: 36.35pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">March 2015<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 36.35pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">UBS contacted the hedge
fund for a value.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 36.35pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">June 2015<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 36.35pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Margiotta left UBS for
Merrill Lynch.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 36.35pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">August 2015<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 36.35pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Striking out, UBS
contacted PBSM for a value. <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 72.65pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 72.65pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">October 2015<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 72.65pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 72.65pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Hearing nothing, UBS
sent PBSM a letter saying UBS was going to resign as IRA custodian in
November. <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 72.65pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 72.65pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">October 2015<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 72.65pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 72.65pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Margiotta had Caan sign
paperwork to transfer the IRAs from UBS to Merrill Lynch.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 54.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 54.5pt; padding: 0in 5.4pt; width: 95pt;" valign="bottom" width="127"></td>
<td nowrap="" style="height: 54.5pt; padding: 0in 5.4pt; width: 16pt;" valign="bottom" width="21"></td>
<td style="height: 54.5pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">There was a problem: all
the assets were transferred except for the hedge fund.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 54.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 54.5pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">December 2015<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 54.5pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 54.5pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">UBS sent PBSM a letter
saying that it had distributed the hedge fund to Caan.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 18.2pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 18.2pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">January 2016<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 18.2pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 18.2pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">UBS sent a 1099-R.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 90.8pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 90.8pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">March 2016<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 90.8pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 90.8pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Caan’s accountant at
PBSM sent an e-mail to Merrill Lynch asking why the hedge fund still showed
UBS as custodian.<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 72.65pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 72.65pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">December 2016<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 72.65pt; padding: 0in 5.4pt; width: 16pt;" width="21"></td>
<td style="height: 72.65pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Margiotta requested the
hedge fund liquidate the investment and send the cash to Merrill Lynch. <o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 108.95pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td colspan="2" nowrap="" style="height: 108.95pt; padding: 0in 5.4pt; width: 111pt;" width="148">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">November 2017<o:p></o:p></span></p>
</td>
<td style="height: 108.95pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">The IRS sent the
computer matching letter wanting tax on the IRA distribution. How did the IRS
know about it? Because UBS sent that 1099-R.<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal"><a name="_Hlk148806561"><span style="font-size: 14pt; line-height: 107%;">The IRS wanted taxes of almost $780 grand, with penalties
over $155 grand.</span></a></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">That caught
everyone’s attention.<o:p></o:p></span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 492px;">
<tbody><tr style="height: 36.35pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 95pt;" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">July 2018<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 36.35pt; padding: 0in 5.4pt; width: 16pt;" valign="bottom" width="21"></td>
<td style="height: 36.35pt; padding: 0in 5.4pt; width: 258pt;" width="344">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: 13pt;">Caan requested a private
letter ruling from the IRS.<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal"><span style="font-size: 14pt;">Caan wanted
mitigation from an IRA rollover that went awry. This would be a moment for PBSM
(or Merrill) to throw itself under the bus: taxpayer relied on us as experts to
execute the transaction and was materially injured by our error or negligence….</span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">That is not
wanted they requested, though. They requested a waiver of the 60-day
requirement for rollover of an IRA distribution.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I get it:
accept that UBS correctly issued a 1099 for the distribution but argue that fairness
required additional time to transfer the money to Merrill Lynch.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">There is a
gigantic technical issue, though.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Before that,
I have a question: where was PBSM during this timeline? Caan was paying them to
open and respond to his mail, including hiring and coordinating experts as
needed. Somebody did a lousy job.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">The Court
wondered the same thing.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Both
Margiotta and the PBSM accountant argued they never saw the letters from UBS
until litigation started. Neither had known about UBS making a distribution.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Here is the
Court:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;"> </span><span style="font-size: 12pt; line-height: 107%;">We do not find that portion of either witness’ testimony
credible.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Explain,
please.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 0.5in; text-indent: 0.3pt;"><span style="font-size: 12pt; line-height: 107%;">We find it highly unlikely that PBSM
received all mail from UBS— statements, the Form 1099–R, and other
correspondence—except for the key letters (which were addressed to PBSM).
Additionally, the March 2016 email between Ms. Cohn and Mr. Margiotta suggests
that both of them knew of UBS’s representations that it had distributed the
P&A Interest. It seems far more likely that there was simply a lack of
communication and coordination between the professionals overseeing Mr. Caan’s
affairs, especially given the timing of UBS’s letters, Mr. Margiotta’s move
from UBS to Merrill Lynch, and the emails between Mr. Margiotta and Ms. Cohn.
If all parties believed that UBS was still the P&A Interest’s custodian,
why did no one follow up with UBS when it ceased to mail account statements for
the IRAs? And why, if everyone was indeed blindsided by the Form 1099–R, did no
one promptly follow up with UBS regarding it? (That followup did not occur
until after the IRS issued its Form CP2000.) The Estate has offered no satisfactory
explanation to fill these holes in its theory.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I agree with
the Court.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">I think that
PBSM and/or Merrill Lynch should have thrown themselves under the bus.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">But I would
probably still have lost. Why? Look at this word salad:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 10.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 10pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-size: 14pt; line-height: 165%;"> </span><span style="font-size: 12pt; line-height: 165%;">408(d) <a name="TCODE:8889.1"></a>Tax
treatment of distributions.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 15.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 15pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-size: 12pt;"> (3) <a name="TCODE:8892.69"></a>Rollover
contribution.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 46.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 46pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-size: 12pt;">An
amount is described in this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 51.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 51pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="408(d)(3)(A)"></a><span style="font-size: 12pt;">(A) <a name="TCODE:8892.72"></a>In general.
Paragraph (1) does not apply to any amount paid or distributed out of an
individual retirement account or individual retirement annuity to the
individual for whose benefit the account or annuity is maintained if-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 56.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 56pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="408(d)(3)(A)(i)"></a><span style="font-size: 12pt;">(i) <a name="TCODE:8892.74"></a>the entire
amount received (<b>including money and any other property</b>) is paid into an
individual retirement account or individual retirement annuity (other than an
endowment contract) for the benefit of such individual not later than the 60th
day after the day on which he receives the payment or distribution; or<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 56.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 56pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="408(d)(3)(A)(ii)"></a><span style="font-size: 12pt;">(ii) <a name="TCODE:8892.75"></a>the entire
amount received (including money and any other property) is paid into an
eligible retirement plan for the benefit of such individual not later than the
60th day after the date on which the payment or distribution is received,
except that the maximum amount which may be paid into such plan may not exceed
the portion of the amount received which is includible in gross income
(determined without regard to this paragraph).<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt;">I
highlighted the phrase “including money and any other property.” There is a case (</span><i style="font-size: 14pt;">Lemishow</i><span style="font-size: 14pt;">)
that read a “same property” requirement into that phrase.</span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">What does
that mean in non-gibberish?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">It means
that if you took cash and property out of UBS, then the same cash and property
must go into Merrill Lynch.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Isn’t that
what happened?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">No.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">What came
out of UBS?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Well, one
thing was that hedge fund that caused this ruckus. UBS said it distributed the
hedge fund to Caan. They even issued him a 1099-R for it.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">What went
into Merrill Lynch?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Margiotta
requested the hedge fund sell the investment and send the cash to Merrill
Lynch.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Cash went
into Merrill Lynch.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">What went
out was not the same as what went in.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Caan (his
estate, actually) was taxable on the hedge fund coming out of the UBS IRA.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Dumb.
Unnecessary. Expensive.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: 14pt; line-height: 107%;">Our case
this time was <i>Estate of James E. Caan v Commissioner</i>, 161 T.C. No. 6,
filed October 18, 2023.<o:p></o:p></span></p><p class="MsoNormal"><br /></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-86556249253035519872023-10-16T19:30:00.002-05:002023-10-16T19:30:00.153-05:00 Primer On Research Expenses And The Research Credit<p><br /></p><p><i><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">[In case you were wondering what a tax CPA
does during weekdays, I drafted the following for a fellow CPA as a walkthrough
through the tax terrain for research expenses and the related – but different –
research credit. It is not recreational reading, but hopefully it may help another
tax practitioner out there – CTG].</span></i></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">The research & development tax credit has been
around since the early 1980s. Initially, only the largest of corporations
seemed able to meet its requirements. The passage of years introduced more
realistic standards, allowing even modest companies to benefit. Its decades of
changes, requirements, limitations and alternate calculations make this a
challenging area for almost any tax practitioner.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Let’s take a brief dive into the research credit.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Analysis of the credit, oddly enough, does not begin
with a tax credit itself. No, it begins with the deduction for research expenses.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 15.0pt; margin-right: 0in; margin-top: 14.0pt; margin: 14pt 0in 14pt 15pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="mso-tab-count: 1;"> </span><span face="sans-serif" style="color: black; font-size: 14pt; line-height: 140%; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">§ 174 Amortization of research and experimental expenditures.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 1in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="174(a)"></a><span face="sans-serif" style="color: #252525; font-size: 10pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(a) <a name="TCODE:48459.1"></a>In
general.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 1in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face="sans-serif" style="color: #252525; font-size: 10pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">In the case of a taxpayer's specified research or experimental
expenditures for any taxable year-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 77.0pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 77pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="174(a)(1)"></a><span face="sans-serif" style="color: #252525; font-size: 10pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(1) <a name="TCODE:48460.1"></a>except
as provided in paragraph (2), no deduction shall be allowed for such
expenditures, and<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 77.0pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 77pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="174(a)(2)"></a><span face="sans-serif" style="color: #252525; font-size: 10pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(2) <a name="TCODE:48461.1"></a>the
taxpayer shall-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 82.0pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 82pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="174(a)(2)(A)"></a><span face="sans-serif" style="color: #252525; font-size: 10pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(A) <a name="TCODE:48461.2"></a>charge
such expenditures to capital account, and<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 82.0pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 82pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="174(a)(2)(B)"></a><span face="sans-serif" style="color: #252525; font-size: 10pt; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(B) <a name="TCODE:48461.3"></a>be
allowed an amortization deduction of such expenditures ratably over the 5-year
period (15-year period in the case of any specified research or experimental
expenditures which are attributable to foreign research (within the meaning of <a name="i6e8e740619d711dcb1a9c7f8ee2eaa77"></a>section 41(d)(4)(F) )) beginning
with the midpoint of the taxable year in which such expenditures are paid or
incurred.<o:p></o:p></span></p>
<p class="MsoNormal"><o:p> </o:p><span style="font-family: "Times New Roman", serif; font-size: 14pt;">For years – decades actually – research and
experimental expenses were deductible as incurred, although the taxpayer had
the option to capitalize and amortize such expenses if preferred. For taxable
years beginning on or after January 1, 2022, however, that option has been
eliminated. Research and experimental expenditures must now be capitalized and
amortized (that is, spread out over time). The only difference is the period:</span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Domestic
research is amortized over 5 years.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Foreign
research is amortized over 15 years.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">This is a sea change in the treatment of such
expenses. Many practitioners – including me – have only known one option, and
that was the immediate deduction of relevant expenses. Granted, amortization
does not mean the deductions are lost; it means only that the deduction is
spread over a period of years. If the company is unprofitable (think a start-up),
the difference between immediate deduction and amortization may be minimal.
Take a mature company (Pfizer, for example), and the difference could be
dramatic.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">What type of expenses qualify for the Section 174
deduction?<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Wages
paid to employees directly involved in R&D, and individuals who support and
supervise their work. Support or supervise is defined as one level above or
below.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Supplies
and raw materials.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">There is an issue here about depreciable equipment.
In general, the taxpayer decides the matter by capitalizing or not capitalizing
the equipment. If it does, then the equipment is not considered supplies and
cannot be included in the expense pool.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Work
performed by a third party, as long as the business retains the risk of failure.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Patent
costs<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Certain
overhead expenses (think a research lab)<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Now, we know that wages may qualify for the Section
174 deduction, but obviously not all wages will qualify. There are additional “qualities”
for an expense to qualify as Section 174 expenses:<o:p></o:p></span></p>
<p class="MsoListParagraph" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">A
permitted purpose<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left: 1in;"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">The underlying activity
in which wages are incurred must relate to a new or improved business purpose.
For example,<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpFirst" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Something functions (at all)<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Something functions more reliably<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Something functions more efficiently</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Technological
in nature<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Must be based on a hard science<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 126.3pt; mso-add-space: auto; mso-list: l1 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Think
engineering, physics, chemistry<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 126.3pt; mso-add-space: auto; mso-list: l1 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Scratch
sociology and the like </span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Elimination
of uncertainty<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">There must be a realistic question whether
the idea will work.<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 126.3pt; mso-add-space: auto; mso-list: l1 level3 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Wingdings; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">§<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Mind
you, it does not have to work, but there must be an initial question (or
oppositely, a hope) that it will. </span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 54.3pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; line-height: 107%; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Process
of experimentation<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 90.3pt; mso-add-space: auto; mso-list: l1 level2 lfo1; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 14pt; line-height: 107%; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">Think classic trial and error.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 14pt; line-height: 107%;">There are best-practice recordkeeping standards for
these expenses. At this point (that is, deduction), such practices may or may
not be critical, but the recordkeeping becomes critical as we leave Section 174
and go to the tax credit under Section 41.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 140%; margin-bottom: 14.0pt; margin-left: 5.0pt; margin-right: 0in; margin-top: 14.0pt; margin: 14pt 0in 14pt 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="mso-tab-count: 1;"> </span><span face=""Arial",sans-serif" style="color: black; font-size: 14pt; line-height: 140%; mso-font-kerning: 0pt;">§ 41 Credit
for increasing research activities.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 0.5in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="41(a)"></a><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">(a) <a name="TCODE:47234.1"></a>General rule.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 0.5in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">For purposes
of section 38, the research credit determined under this section for the
taxable year shall be an amount equal to the sum of-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 41.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 41pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="41(a)(1)"></a><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">(1) <a name="TCODE:47235.1"></a>20 percent of the
excess (if any) of-<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 46.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 46pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="41(a)(1)(A)"></a><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">(A) <a name="TCODE:47235.2"></a>the qualified
research expenses for the taxable year, over<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 46.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 46pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 46.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 46pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="41(a)(1)(B)"></a><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">(B) <a name="TCODE:47235.3"></a>the base amount,<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 41.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 41pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="41(a)(2)"></a><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">(2) <a name="TCODE:47236.1"></a>20 percent of the
basic research payments determined under subsection (e)(1)(A) , and<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 41.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 41pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="41(a)(3)"></a><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;">(3) <a name="TCODE:47237.1"></a>20 percent of the
amounts paid or incurred by the taxpayer in carrying on any trade or business
of the taxpayer during the taxable year (including as contributions) to an
energy research consortium for energy research.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The research tax
credit is a big deal because it gives you a second tax bang for doing something
you were doing anyway. First, you get to deduct the expense of doing something
(immediately under old law; over time under the new law). Second, you get a tax
credit on top of the deduction.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The tax credit can
be – to be diplomatic – confusing.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">There are two main
paths:</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-bottom: 0in; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 0in 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The regular credit<o:p></o:p></span></p>
<p class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: 0in; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 0in 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><!--[if !supportLists]--><span style="font-family: Symbol; font-size: 14pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The alternate
simplified credit<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;">The
Regular Credit<o:p></o:p></span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 0in; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The regular credit begins with an odd
question:<o:p></o:p></span></p><p class="MsoListParagraph" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l1 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="font-family: Symbol; font-size: 14pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: "Times New Roman",serif; font-size: 14pt;">Did you have
qualifying research expenses (QREs) before 1984?<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">If the answer is
yes, you will have to accumulate information from the 1980s to calculate the
credit, This requirement has been enough to break the hearts of many seeking the
research credit.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">If the answer no,
then calculations become more doable.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The basic
calculation is:</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Current QREs – base amount = excess
QREs</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The base amount
involves a five-year period and can be any 5 years between the company’s 5th
and 10th taxable year.</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Add up the 5-year QREs. [A]</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Add up the 5-year gross receipts [B]</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Divide [A] by [B] (called the fixed
base percentage)</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">Let’s pause for a
moment.</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">For its first 5 years, the company can
just use 3% for its fixed base percentage.</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></blockquote><p></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The fixed base percentage cannot exceed
16% (i.e., once outside the five year window).</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 14pt; text-indent: 0.5in;">Back
to math. </span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Multiply the fixed base percentage by
average annual gross revenues for the 4 </span><span style="font-family: "Times New Roman", serif; font-size: 14pt;">preceding years (this is called the “base
amount”).</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Use the greater of the base amount or
50% of current QREs.</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Subtract that amount from current year
QREs (let’s call this the golden earring).</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Now what?</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">We multiply the golden earring by a
percentage.</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt; text-indent: 0.5in;">Easy:
20%, right?</span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 14pt; text-indent: 0.5in;">Nothing is easy.</span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">If we use 20%, then we have to add the
amount of the research credit back into taxable income, meaning there is a
loop-the-loop.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="_Hlk147771737"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">Fortunately, one
can elect to use a reduced credit to avoid the loop-the-loop. <span>T</span>he reduced
credit is directly tied to the maximum corporate tax rate. Presently the
maximum rate is 21%, so the reduced credit would be 20% times 79% = 15.8%.</span></a></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">The election must be claimed on an
original, timely filed return and is good </span><span style="font-family: "Times New Roman", serif; font-size: 14pt;">only for the year of election.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Let’s look at an
example. </span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face="Arial, sans-serif" style="color: #252525; font-size: 10pt;"> </span></p>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 0.4in; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 457px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 89pt;" valign="bottom" width="119">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Current year QREs<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">164,000<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 139pt;" valign="bottom" width="185">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Sum of 5-year QREs<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">[A]<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">250,000<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 139pt;" valign="bottom" width="185">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Sum of 5-year gross receipts<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: center;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">[B]<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">960,000<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 139pt;" valign="bottom" width="185">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Fixed base percentage<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">26%<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4;">
<td colspan="3" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 189pt;" valign="bottom" width="252">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Limit on fixed-base percentage<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">16%<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 5;">
<td colspan="3" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 189pt;" valign="bottom" width="252">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Average gross receipts preceding 4
years<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">744,000<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 89pt;" valign="bottom" width="119">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Base amount<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">119,040<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 7;">
<td colspan="4" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 239pt;" valign="bottom" width="319">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Greater of base amount or 50% of
current QREs<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">119,040<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 89pt;" valign="bottom" width="119">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Subtract<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">44,960<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 89pt;" valign="bottom" width="119">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit rate<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">20%<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 89pt;" valign="bottom" width="119">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 53pt;" valign="bottom" width="71"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 51pt;" valign="bottom" width="68">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">8,992<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;">The Alternative Simplified Credit</span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">This option came
into the Code in 2007, offering an alternative to working with (possibly)
decades-old data, There is a price for the simplification, though:</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The credit is 14%
if the company has at least 3 years of QREs, otherwise …</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The credit is a
flat 6% of current year QREs. </span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></blockquote><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">You again have the
loop-the-loop or you can elect to use the reduced credit.</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">The nice part of
the calculation is that you look at only the three years preceding the current
year.</span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">Here is an example. </span><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<table align="left" border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 6.75pt; margin-right: 6.75pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-table-anchor-horizontal: page; mso-table-anchor-vertical: paragraph; mso-table-left: 111.45pt; mso-table-lspace: 9.0pt; mso-table-rspace: 9.0pt; mso-table-top: 12.4pt; mso-yfti-tbllook: 1184; width: 409px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Current year QRE<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">164,000<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td colspan="3" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 156.7pt;" valign="bottom" width="209">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Average QREs previous 3 years<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: center;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">[A]<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">105,000<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Multiply [A] by 50%<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">52,500<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 95.6pt;" valign="bottom" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Subtract<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">111,500<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit rate<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">14%<o:p></o:p></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 95.6pt;" valign="bottom" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit<o:p></o:p></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 111.5pt; mso-element-top: 12.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">15,610<o:p></o:p></span></p>
</td>
</tr>
</tbody></table>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><br /></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><br /></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><br /></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-family: "Times New Roman", serif; font-size: 14pt;">Here is an example with the reduced credit. </span></p>
<span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><span style="mso-bookmark: _Hlk148370817;"></span><table align="left" border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 6.75pt; margin-right: 6.75pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-table-anchor-horizontal: page; mso-table-anchor-vertical: paragraph; mso-table-left: 107.1pt; mso-table-lspace: 9.0pt; mso-table-rspace: 9.0pt; mso-table-top: 6.3pt; mso-yfti-tbllook: 1184; width: 409px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><a name="_Hlk148370817"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Current year QRE<o:p></o:p></span></a></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">164,000<o:p></o:p></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td colspan="3" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 156.7pt;" valign="bottom" width="209">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Average QREs previous 3
years<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: center;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">[A]<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">105,000<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Multiply [A] by 50%<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">52,500<o:p></o:p></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 95.6pt;" valign="bottom" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Subtract<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">111,500<o:p></o:p></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit rate<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">11%<o:p></o:p></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 95.6pt;" valign="bottom" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370817;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 107.15pt; mso-element-top: 6.3pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370817;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">12,265<o:p></o:p></span></span></p>
</td>
</tr>
</tbody></table>
<span style="mso-bookmark: _Hlk148370817;"></span>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p><br /></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p><br /></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p><br /></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="_Hlk148370842"><span style="font-family: "Times New Roman",serif; font-size: 14pt;">What
if the company does not have 3 years of QREs? Then a flat 6% of current QREs
applies. </span></a><span style="font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<span style="mso-bookmark: _Hlk148370842;"></span>
<span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span><span style="mso-bookmark: _Hlk148370878;"></span><span style="mso-bookmark: _Hlk148370878;"></span><span style="mso-bookmark: _Hlk148370878;"></span><span style="mso-bookmark: _Hlk148370878;"></span><span style="mso-bookmark: _Hlk148370878;"></span><span style="mso-bookmark: _Hlk148370878;"></span><span style="mso-bookmark: _Hlk148370878;"></span><table align="left" border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 6.75pt; margin-right: 6.75pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-table-anchor-horizontal: page; mso-table-anchor-vertical: paragraph; mso-table-left: 102.7pt; mso-table-lspace: 9.0pt; mso-table-rspace: 9.0pt; mso-table-top: 10.4pt; mso-yfti-tbllook: 1184; width: 476px;">
<tbody><tr style="height: 15.05pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><a name="_Hlk148370878"></a><a name="_Hlk148370858"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Current year QRE<o:p></o:p></span></span></a></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="top" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span>
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;"><o:p> </o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">164,000<o:p></o:p></span></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 1;">
<td colspan="3" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 156.7pt;" valign="bottom" width="209">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Average QREs previous 3 years<o:p></o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: center;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">[A]<o:p></o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="top" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="font-family: "Times New Roman",serif; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-ligatures: none;"><o:p> </o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 2;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Multiply [A] by 50%<o:p></o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="top" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span>
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;"><o:p> </o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">0<o:p></o:p></span></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 95.6pt;" valign="bottom" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Subtract<o:p></o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="top" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span>
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;"><o:p> </o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">164,000<o:p></o:p></span></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 4;">
<td colspan="2" nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 106.7pt;" valign="bottom" width="142">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit rate<o:p></o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span></td>
<td style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="top" width="67"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"></span></span>
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;"><o:p> </o:p></span></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370858;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">6%<o:p></o:p></span></span></span></p>
</td>
</tr>
<tr style="height: 15.05pt; mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 95.6pt;" valign="bottom" width="127">
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">Credit<o:p></o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 11.1pt;" valign="bottom" width="15"><span style="mso-bookmark: _Hlk148370878;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370878;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370878;"></span></td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67"><span style="mso-bookmark: _Hlk148370878;"></span></td>
<td style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="top" width="67"><span style="mso-bookmark: _Hlk148370878;"></span>
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;"><o:p> </o:p></span></span></p>
</td>
<td nowrap="" style="height: 15.05pt; padding: 0in 5.4pt; width: 50pt;" valign="bottom" width="67">
<p align="right" class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-element-anchor-horizontal: page; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 9.0pt; mso-element-left: 102.75pt; mso-element-top: 10.4pt; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; text-align: right;"><span style="mso-bookmark: _Hlk148370878;"><span style="color: black; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt; mso-hansi-font-family: Calibri; mso-ligatures: none;">9,840<o:p></o:p></span></span></p>
</td>
</tr>
</tbody></table>
<span style="mso-bookmark: _Hlk148370878;"></span>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><br /></span></b></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><b><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;">The Payroll Tax
Offset Option</span></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman", serif; font-size: 14pt;">The PATH Act of
2015 introduced yet another option to the research credit: use it instead to
offset employer payroll tax.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="mso-bookmark: _Hlk148370923;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;">More specifically:</span></span><span style="color: #252525; font-family: "Times New Roman", serif; font-size: 14pt;"> </span></p>
<p class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(1)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>The
offset applies to both the social security portion (6.2%) and Medicare portion
(1.45%) of the employer FICA tax.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(2)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>There
is a $500,000 maximum.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(3)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>Only
companies with gross receipts for 5 years or less (think startups) qualify.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(4)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>Only
companies with gross receipts of $5 million or less in the year of the election
qualify.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(5)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>The
election goes with the income tax return.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(6)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>The
offset applies to the first payroll tax quarter after the company files its
income tax return.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpMiddle" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(7)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>Any
unused credit carries over to the next payroll tax quarter.<o:p></o:p></span></span></p>
<p class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 54.3pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 54.3pt; mso-add-space: auto; mso-hyphenate: none; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; mso-pagination: none; text-autospace: none; text-indent: -0.25in;"><span style="mso-bookmark: _Hlk148370923;"><!--[if !supportLists]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-fareast-font-family: "Times New Roman"; mso-font-kerning: 0pt;"><span style="mso-list: Ignore;">(8)<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;"><span style="mso-spacerun: yes;"> </span>Any ultimately
unused credit, however, will not be refunded.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman", serif; font-size: 14pt;">The provision was
clearly directed at companies with payroll tax obligations but little or no immediate
income tax liabilities to sop up that research credit.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="mso-bookmark: _Hlk148370923;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 14pt; mso-font-kerning: 0pt;">Be cautioned,
however: you would be exposing your tax filings (both income and payroll) to
heightened scrutiny. R&D credits are a high priority for the IRS. <o:p></o:p></span></span></p>
<span style="mso-bookmark: _Hlk148370923;"></span>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face=""Arial",sans-serif" style="color: #252525; font-size: 10pt; mso-font-kerning: 0pt;"><o:p> </o:p></span></p><br /><p></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-15961892061653117132023-10-01T19:30:00.009-05:002023-10-02T10:21:22.253-05:00A Current Individual Tax Audit<p> </p><p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">We have an IRS audit at Galactic Command. It is of a
self-employed individual. The self-employeds have maintained a reasonable audit
rate, even as other individual audit rates have plummeted in recent years.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">I was speaking with the examiner on Friday, lining up submission
dates for records and documents. We set tentative dates, but she reminded me
that Congress was going into budget talks this weekend. <span style="mso-spacerun: yes;"> </span>Depending on the resolution, she might be
furloughed next week. No prob, we will play it by ear.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">This is a relatively new client for us. We did not
prepare the records or the tax returns for the two years under audit. We
requested underlying records, but there was little there for the first year and
only slightly more for the second. We then did a cash analysis, knowing that the
IRS would be doing the same.<o:p></o:p></span></p>
<p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">COMMENT: The IRS will commonly request all twelve bank
statements for a business-related bank account. The examiner adds up the deposits
for the twelve months and compares the total to revenues reported on the tax
return. If the tax return is higher, the IRS will probably leave the matter
alone. If the tax return is lower, however, the IRS will want to know why. <o:p></o:p></span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">We had a problem with the analysis for the first year:
our numbers had no resemblance to the return filed. Our numbers were higher across
the board: higher deposits, higher disbursements, higher excess of deposits
over disbursements. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Higher by a lot.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The accountant asked me: do you think …?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Nope, not for a moment.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Implicit here is fraud.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">There are two types of tax fraud: civil and criminal.
Yes, I get it: if you have criminal, you are virtually certain to have civil,
but that is not our point. Our point is that there is no statute of limitations
on civil fraud. The IRS could go back a decade or more - if they wanted to.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">I do not see fraud here. I do see incompetence. I think
someone started using a popular business accounting software, downloading bank
statements and whatnot to release their inner accountant. There are easy errors
to one not familiar: you do not download all months for an account; you do not
download all the accounts; you fail to account for credit cards; you fail to
account for cash transactions. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">OK, that last one could be a problem, if significant.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The matter reminded me of a famous tax case.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">It is easy to understand someone committing fraud on
his/her tax return. Put too much in, leave too much out. Do it deliberately and
with malintent and you might have fraud.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Question: can you be responsible for your tax preparer’s
fraud?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Vincent Allen was a UPS driver in Memphis. He used a
professional preparer (Goosby) for 1999 and 2000. <span style="mso-spacerun: yes;"> </span>Allen did the usual: he gave Goosby his W-2, his
mortgage interest statement, property taxes and whatnot. Standard stuff.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Goosby went to town on miscellaneous itemized
deductions; He goosed numbers for a pager, computer, meals, mileage and so
forth. He was creative.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The IRS came down hard, understandably.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">They also wanted fraud penalties.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Allen had an immediate defense: the three-year statute
had run. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The IRS was curt: the three years does not apply if
there is fraud.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Allen argued the obvious:</span></p><p class="MsoNormal"></p><blockquote><span style="font-family: "Times New Roman", serif; font-size: 15pt; text-indent: 0.5in;">How
was I supposed to know?</span></blockquote><p></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Off to Tax Court they went.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">The Court looked at the following Code section:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 165%; margin-bottom: 5.0pt; margin-left: 10.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 10pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="font-size: 14pt; line-height: 165%;"><span style="mso-spacerun: yes;"> </span></span><span face="sans-serif" style="color: black; font-size: 14pt; line-height: 165%; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">§ 6501 </span><span face="sans-serif" style="color: black; font-size: 14pt; line-height: 165%; mso-bidi-font-family: sans-serif; mso-font-kerning: 0pt;">Limitations on assessment and
collection</span><span face="sans-serif" style="color: black; font-size: 14pt; line-height: 165%; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 20.0pt; margin-right: 0in; margin-top: 5.0pt; margin: 5pt 0in 5pt 20pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face="sans-serif" style="color: #252525; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(c) <a name="TCODE:34133.1"></a>Exceptions.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 25.0pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 25pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><a name="6501(c)(1)"></a><span face="sans-serif" style="color: #252525; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">(1) <a name="TCODE:34134.1"></a>False
return.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5.0pt; margin-left: 25.0pt; margin-right: 0in; margin-top: 0in; margin: 0in 0in 5pt 25pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span face="sans-serif" style="color: #252525; mso-bidi-font-family: sans-serif; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">In the case
of a false or fraudulent return with the intent to evade tax, the tax may be
assessed, or a proceeding in court for collection of such tax may be begun
without assessment, at any time.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman", serif; font-size: 15pt;">The Court noted there was no requirement that the “intent
to evade” be the taxpayer’s.</span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">The statute was open. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">Allen owed tax.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">The IRS - in a rare moment of mercy - did not press for
penalties. It just wanted the tax, and the Court agreed.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">The Allen decision reminds us that there is some responsibility
when selecting a tax preparer. One is expected to review his/her return, and –
if it seems too good …. Well, you know the rest of that cliche.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">Do I think our client committed fraud?<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">Not for a moment.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">Might the IRS examiner think so, however?<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">It crossed my mind. We’ll see.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;">Our case this time was <i>Allen v Commissioner</i>, 128.
T.C. 37.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 5pt; mso-hyphenate: none; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="color: #252525; font-family: "Times New Roman",serif; font-size: 15pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-theme-font: minor-fareast; mso-font-kerning: 0pt;"><br /></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0tag:blogger.com,1999:blog-4197256001777998372.post-28642800746476642542023-09-19T19:30:00.002-05:002023-09-19T20:11:54.664-05:00A Bad Idea <p><a name="_Hlk145957191"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;"><br /></span></a></p><p><a name="_Hlk145957191"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">I
am reading an abstract for an upcoming article in the Southern California Law
Review.</span></a></p>
<p class="MsoNormal" style="margin-left: 0.5in;"><span style="mso-bookmark: _Hlk145957191;"><span style="background: white; color: #505050; font-family: "NexusSansWebPro",serif;">When
an electricity provider wants customers to pay their bills monthly, it sends
them a bill each month. Yet this is not how the tax system works, at least for independent
contractors. Their taxes are due quarterly, but they receive a tax statement
(Form 1099) only one time a year. It is up to the individual, then, to know
when their taxes are due and how to pay them, and it is on that individual to
estimate how much they owe each quarter. As a result, compliance for
independent contractors – particularly for online platform workers–tends to be
lacking. Failure to pay their estimated taxes subjects these taxpayers to
potential penalties and causes the government to collect less tax revenue.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Yep, quarterly taxes for the self-employed. I know
a lot about the topic.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="margin-left: 0.5in; text-indent: 0.3pt;"><span style="mso-bookmark: _Hlk145957191;"><span style="background: white; color: #505050; font-family: "NexusSansWebPro",serif;">There is a simple, yet entirely overlooked,
reform that could vastly improve compliance when it comes to paying estimated
taxes: third-party information returns (Form 1099s) should be issued to
taxpayers on a quarterly basis. The idea is straightforward and intuitive. If
the government wants people to pay taxes four times per year, it needs to
effectively “bill” them four times per year. This idea is supported by social
science research showing that, the more taxpayers are reminded to pay their
taxes, the more likely they are to do so.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Sigh.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">If only it were so simple. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Unspoken is an arrogance that accounting is just
pushing a button. Everything is automated, right, so what is the issue?<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Much is automated. More so today than when I
started, and it will be more so again when I eventually retire. But much is not
all. Much is not necessarily even much.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">The presumption that Fortune 500 accounting
departments are the norm for businesses will lead to erroneous conclusions, including
the one above. There are over 30 million companies in the United States. Less
than 1 percent of those are publicly traded, and the Fortune 1000 constitutes a
fraction of that fraction. There is an entire economic sector - the
self-employeds, the small- and mid-market companies - that are unlikely to have
an accountant - much less an accounting department - available to respond to the
whims of nonserious minds. Most CPAs - including me – advise that market. When
we meet with ownership, we meet with the owner or owners, not an assemblage at an
annual shareholder meeting.<span style="mso-spacerun: yes;"> </span>When
decisions are required, the number of decision makers is few; in many cases, it
is only one.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Somehow this overlooked sector represents roughly half
of all economic activity and approximately two-thirds of all jobs created in
the United States since the 1990s. This sector employs tens of millions,
allowing them home ownership, EV purchases, private schools, higher education, smart
phones, streaming services, and perhaps an occasional vacation to Disney World.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Can this sector push a button to generate quarterly
1099s because a professor thinks the idea has been “entirely overlooked?”
Maybe, but probably not. More likely, they will call their CPA – assuming they
have one. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">That quarterly 1099 is somehow now in my court.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">CPAs want to go home, too.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Then there is the issue of who will prepare these
1099s. I know that accounting literature is not a thing, but glance at the
following:<o:p></o:p></span></span></p>
<p class="MsoNormal" style="margin-left: 0.5in; text-indent: 3.45pt;"><span style="mso-bookmark: _Hlk145957191;"><b><span face=""Lato",sans-serif" style="background: rgb(242, 242, 242); color: #494949; font-size: 16.5pt; line-height: 107%; mso-bidi-font-family: "Times New Roman"; mso-bidi-theme-font: minor-bidi;">Statistics
from the AICPA suggest that 75 percent of current CPAs will retire in the next
15 years.<o:p></o:p></span></b></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Does this seem like an appropriate time to further add
to the problems of accounting? Many already see a profession facing future
demands exceeding its ability to supply. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">No, I don’t think that quarterly 1099s are a bright
idea.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">In fact, maybe the Congressional effort in 1986 to
move almost all taxable year-ends to December 31, further compressing our work
schedule was – in retrospect – not such a bright idea. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Notices are the bane of tax practice. One may be a gifted
practitioner but send enough penalty notices and even a loyal client begins to
question. Maybe the decades of Congress “balancing” budget bills by
increasing tax penalties on virtually anything that moves was not such a bright
idea.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Maybe the relentless introduction of arbitrary,
inconsistent if not preposterous – other than as blatant money grabs - tax laws
was not such a bright idea.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">Maybe passing tax laws late in the year when there
is no time for advisors to react – or even better, passing those laws the
following year but with retroactive effect – was not such a bright idea.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%;">Maybe
the hubris that just one more surtax, deduction or tax credit will somehow solve
the enduring difficulties of the species and pave the highway to heaven was not
such a bright idea.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">We are showered by sententious minds bringing bright
ideas.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="mso-bookmark: _Hlk145957191;"><span style="font-family: "Times New Roman",serif; font-size: 15pt; line-height: 107%; mso-bidi-font-style: italic;">They should be entirely overlooked.<o:p></o:p></span></span></p>Cincinnati Tax Guyhttp://www.blogger.com/profile/12624737268792344445noreply@blogger.com0