Taxpayers who file a return late are subject to penalty under Code §6651 “unless it is shown that such failure is due to reasonable cause and not due to willful neglect.” In United States v. Boyle, 469 U.S. 241 (1985), the U.S. Supreme Court adopted a bright line rule that if a taxpayer relies on a third party professional to prepare and file the return and the professional does not timely do so, that is…

Determining the source and character of transactions involving the Internet or digital items for U.S. income tax purposes is not always easy, given the paucity of IRS guidance on the subject. Treas. Regs. §1.861-18 is the exception, which addresses how to characterize transactions involving “computer programs,” but that is as far as it goes. In an effort to bring clarity and guidance to this exploding area of commerce, the IRS has issued proposed regulations under…

EXECUTIVE SUMMARY: The U.S. District Court for the District of Minnesota ruled in favor of the Mayo Clinic and held that in determining whether an organization meets the definition of an educational organization under Code §170(b)(1)(A)(ii), the primary function test imposed by regulation is invalid. FACTS: The Mayo Clinic sought to exclude debt-financed passive income from unrelated business income by qualifying as an organization described in Code §170(b)(1)(A)(ii). That provision describes an organization that is:…

According to the IRS, cryptocurrency like Bitcoin is treated as property, not money. Notice 2014-21. Therefore, taxpayers who use it buy things or convert it to dollars are treated as having sold it, and have to recognize gain or loss based on what they receive when the dispose of it compared to what they paid for it. In 2016, only 802 individual income tax returns reported cryptocurrency transactions out of the 132 million filed electronically.…

Back in 2017, I discussed the case of Reri Holdings I, LLC here. There, the Tax Court denied a charitable deduction of over $33 million since the taxpayer did not include the adjusted basis information for the property in its Form 8283 filing. The Tax Court concluded that the substantial compliance doctrine could not be used by the taxpayer to salvage the deduction since the reporting of the basis, while not directly relevant to…

In an effort to reduce identity theft, the IRS has issued final regulations that permit employers to truncate the social security numbers of employees on Forms W-2. Thus, the employer can elect to report the number in the format of XXX-XX-1234 or ***-**-1234 instead of providing the whole number. It is not a mandatory provision – the employer can choose to do it if it wants. Full taxpayer identification numbers are still required on the…

I noted in my February 23, 2018 posting that the taxation of GILTI under Code §951A does not apply to foreign base company income and insurance income that is excluded from Subpart F by reason of being highly taxed by a foreign country. The way the statute was drafted, income that was NOT foreign base company income or insurance income, but otherwise would be GILTI and subject to pass-through tax, could NOT use the high…