Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
California Corner: The California Department of Tax and Fee Administration Tax Guides
This summer, the California Department of Tax and Fee Administration (CDTFA) posted a new comprehensive Tax Guide for Event Planners to help them (and tax practitioners) understand their tax obligations. Here’s a summary of the key points: Tax Guide for Event Planners – Key Topics Sales and Use Tax Application: Event planners may be subject to sales tax on certain services and products they provide. Consultation Services and Planning: Mandatory charges for professional planning or coordination are taxable if connected to sales of tangible personal property. Tips and Gratuities: Optional tips are generally not taxable, but mandatory service charges are …
California Corner: The California Supreme Court Upholds Proposition 22
On July 25, 2024, the California Supreme Court delivered a landmark ruling upholding Proposition 22, a measure passed by California voters in November 2020. The Court’s decision in People v. Uber Technologies, Inc. allows companies such as Uber, Lyft, and DoorDash to classify their drivers as independent contractors rather than employees. The Court’s ruling maintains that drivers for these app-based services are not employees but independent contractors. This classification exempts them from traditional employee benefits while ensuring they receive certain specific benefits under Proposition 22. Compliance Requirements for App-Based Companies: To comply with Proposition 22, app-based companies must adhere to …
The Supreme Court Overrules the Forty-year-old Chevron Doctrine
On June 28, 2024, the Supreme Court delivered a landmark decision in Loper Bright Enterprises v. Raimondo fundamentally altering the role of federal agencies in interpreting the laws they enforce. In a 6-3 ruling, the Court overruled the Chevron doctrine, a principle established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984). Under Chevron, courts were required to defer to federal agencies’ interpretations of ambiguous statutes if the agency’s interpretation was deemed reasonable, provided Congress had not directly addressed the issue.The recent decision in Loper Bright shifts this paradigm. The Supreme Court ruled that judges should no longer …
DOL Updates Exemptions For Executive, Administrative, Professional, Outside Sales, And Computer Employees
The Department of Labor final rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees took effect on July 1, 2024. The final rule updated and revised the regulations issued under §13(a)(1) of the Fair Labor Standards Act implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional (EAP) employees. Revisions include increases to the standard salary level and the highly compensated employee total annual compensation threshold, as well as a mechanism that provides for the timely and efficient updating of these earnings thresholds to reflect current earnings data. Specific …
CPE Credit Packages vs. Subscriptions: Which is Right for Your Professional Development?
In the world of continuing professional education (CPE), staying up-to-date with your credits is crucial. But with various options available, how do you choose between traditional CPE subscriptions and a Western CPE Credit Package? Let’s dive into the key differences and help you make an informed decision for your professional development. Understanding CPE Credit Packages CPE Credit Packages are a flexible alternative to the traditional CPE subscription model. Instead of paying for unlimited access, you purchase a specific number of credits that you can use across our entire course catalog. This model allows professionals to: Pay only for the credits …
The Fact and Fiction of the “Self Employment Tax Credit”
Move over, ERC: there’s another social media craze gaining steam. The IRS has issued an alert regarding misleading information on social media telling people they can cash in on the “Self Employment Tax Credit” (sometimes abbreviated as “the SETC”) as a way for self-employed individuals and gig workers to qualify for payments of up to $32,000 (with some sources claiming as high as $36,200) related to the COVID-19 pandemic period. The actual credit being referred to is the Credits for Sick Leave and Family Leave, and while it is certainly real, there are important details some social media influencers are not …
A&A Alert: The Final Chapter of the FASB Conceptual Framework
It’s funny how these things work out. A few days ago, I was at Disney’s Four Seasons Resort for Western CPE’s Orlando conference, speaking about the exposure draft for the final chapter of the FASB’s Conceptual Framework. At the time, I indicated it was still an exposure draft but that I expected a final issuance any day now. Low and behold, when I checked my emails later, the announcement from the FASB was in my inbox. For several years, the FASB has been working on a complete conceptual framework to serve as a basis for any and all future GAAP …
GPS Tracker Doesn’t Work Alone to Get Deduction for Tax Preparer (Patricia Chappell v. Comm., TCS 2024-2)
Patricia Chappell used MileIQ to track her location from March 23 to December 15, 2015. From the app, she entered whether trips were business or personal. MileIQ summarized Ms. Chappell’s tracking information and provided a log that could be used to help substantiate her business miles driven during the year. Ms. Chappell’s driver’s license was suspended for about six months in the middle of 2015. During that time, she used a driver. In a close examination of her records, there were inconsistencies in dates and purchases. There were several days on which gas was purchased multiple times, but no excessive …
Used Car Salesman Sells Judge on Cohan Rule (Jesse Alvarado and Estate of Maria De Lourdes Velasques v. Comm., TCM 2024-1)
After 25 years as a commercial lender at Comerica Bank, Mr. Alvarado opened South Bay Autos, a used car business, preparing a few tax returns on the side. South Bay relied heavily on credit, both for the acquisition of inventory and for the sale of vehicles to customers. South Bay purchased vehicles at car auctions using credit with terms that required repayment in 45 days before having to pay high interest charges. Vehicles were generally sold on credit, with the contracts sold to financing companies. The finance companies would pay the face amount of a contract less a reserve and …
Unreported Income, Unsubstantiated Deductions, Late Filing – Three Strikes and Taxpayer Loses (Paulette Thompson and Johnnie Thompson v. Comm., TCM 2024-14)
By: The Thompsons earned income from farming operations raising and selling cattle, chickens, eggs, and turkeys. Mrs. Thompson also earned income from a tax preparation business (which earned her a space in this tax update manual). IRS prepared SFRs for 2014, 2015, and 2016. Mrs. Thompson mailed a 2014 tax return to the IRS on April 16, 2018. She provided her 2015 and 2016 returns to an Appeals officer in February 2019. IRS did not process the returns for 2014 – 2016. Income from her tax preparation business was reported on Schedule F as “Custom Hire (Machine Work) Income.”Gross income from …
IRS Explains the Employer-Provided Childcare Tax Credit on New IRS.gov Page (IR-2024-34)
IRS has provided several plain language explanations on claiming the employer-provided childcare credit (§45F). An eligible employer must have paid or incurred qualified childcare expenditures to provide childcare services to employees. The credit is 25% of qualified childcare facility expenditures plus 10% of qualified childcare resource and referral expenditures, limited to $150,000 per year. The credit is claimed on Form 8882, Credit for Employer-Provided Childcare Facilities and Services. Qualified Childcare Expenditures Qualified childcare expenditures are:Costs associated with acquiring, constructing, rehabilitating or expanding property used as the taxpayer’s qualified childcare facility;Qualified childcare facility expenditures are operating expenses made by the taxpayer, …
Taxpayer Was Willful in Failure to File FBARs When He Ignored Red Flags (US v. David Vettel, Apr. 11, 2024. US District Court for the District of Columbia, No. 4:21-CV-03099)
By: David Vettel opened a Swiss bank account and, from 2006 to 2011, failed to file FBARs to report the account. CPA Terri Phelps prepared Mr. Vettel’s federal income tax returns for tax years 2006, 2007, 2008, 2009, 2010, and 2011. Mr. Vettel did not provide CPA Phelps with information about his Swiss bank account. CPA Sent Organizer and Engagement Letter: CPA Phelps sent Mr. Vettel an “organizer” each year that contained a series of questions to which Mr. Vettel was supposed to respond in order to aid CPA Phelps’s preparation. The organizer included a question about whether Mr. Vettel had …
Cannabis Tax Legislation Went Up in Smoke, but the DEA Decides It’s High Time for a New Leaf on Pot Policy
The DEA has begun the process to reclassify marijuana from a Schedule I drug (like heroin and LSD) to a Schedule III drug (like ketamine and anabolic steroids.) The proposal does not legalize recreational marijuana use, but it recognizes cannabis as a less dangerous drug and acknowledges its medical uses. The move represents the DEA’s biggest policy shift in decades, and it’s likely to have far-reaching business and tax implications. What are the tax and accounting implications of marijuana rescheduling? Under Section 280E of the Internal Revenue Code, businesses involved in “trafficking” Schedule I and II substances may not claim …
Energy Credit Legislation Is Proving More Expensive Than Planned
The centerpiece of the Inflation Reduction Act of 2022 (IRA22) was a myriad of new and expanded energy credits intended to address climate change. Using the Congressional Budget Office’s February 2024 report, the Committee for a Responsible Federal Budget estimates that the ten‐year cost of the Inflation Reduction Act of 2022 credits will increase by 170% from $271 billion to $736 billion between 2022 and 2031. The increased costs will contribute to the pressure to repeal or reduce energy credits if the November election results in changes to the control of the House, Senate, and/or the White House. STAY TUNED Stay updated with …
EITC Improper Payments Increased Almost 50% from 2020 to 2023
The GAO estimates that 34% of Earned Income Tax Credit payments issued in FY 2023 were improper at a cost to the government of $21.9 billion. The Treasury Inspector General for Tax Administration (TIGTA) estimated an error rate of 24% for FY 2020.TIGTA reported that refundable credit improper payments are not primarily the result of internal control weaknesses that the IRS can address. Eligibility rules for ETTC are “often complex because they address complicated family relationships and residency arrangements to determine eligibility.”Carefully completing the Form 8867 to demonstrate preparer due diligence (while bothersome) serves to protect us and the client …
Steven Matzkin and Sarah Schroeder v. Comm., TCM 2020-117
Amount Paid to Ex-Spouse to Buy Her out of Dental Practice Did Not Increase Taxpayer’s Basis (Steven Matzkin and Sarah Schroeder v. Comm., TCM 2020-117) In January 2003, Steven Matzkin formed, with a partner, Dental Care Alliance, LLC (DCA). When Dr. Matzkin formed DCA, he was married to Georgeann. In May 2008, after more than 20 years of marriage, Dr. Matzkin filed for divorce. Under Florida law, DCA was a marital asset. An appraisal performed in 2007 valued his interest in DCA at $21 million. The Matzkins’ property settlement and spousal support agreement provided that Steven would pay Georgeann over …
Carole Holliday v. Comm., TCM 2021-69
Malpractice Award Arising from a Divorce Settlement Was Taxable – Attorney Fees Weren’t Deductible (Carole Holliday v. Comm., TCM 2021-69) Carole Holliday filed a malpractice lawsuit against her divorce attorney. She claimed that her divorce attorney’s representation constituted negligence and gross negligence and that he breached the duty of fair dealing and his fiduciary duties “by influencing * * * [her] to mediate and enter into a transaction that was not fair to * * * [her] under the circumstances” and by not pursuing an appeal. The malpractice defendants agreed to pay Ms. Holliday $175,000. Ms. Holliday’s malpractice attorney received …
Joe Alfred Izen v. Comm., 38 F.4th 459
Charitable Contribution Denied; Substantiation Rules Not Strictly Complied With (Joe Alfred Izen v. Comm., 38 F.4th 459 (5th Cir. 2022)) During an IRS audit of Joe Alfred Izen’s 2012 tax return, Mr. Izen remembered he donated his 50% partnership interest in a vintage airplane to the Houston Aeronautical Heritage Society. He filed a Form 1040X claiming a $338,080 deduction for the donation. To the Form 1040X he attached Form 8283, Noncash Charitable Contribution, and a written letter from the Houston Aeronautical Heritage Society that described the donation. The letter did not mention Mr. Izen and did not provide his taxpayer …
Duane Pankratz v. Comm., TCM 2021-26
$3.5 Million Property Charitable Contribution Deductions Denied for Lack of Appraisal (Duane Pankratz v. Comm., TCM 2021-26 (Mar. 4, 2021)) In 2008, Duane Pankratz donated his interests in four oil and gas projects, valued at $2 million, to Missionary Church, Inc. and made a large noncash donation of 5.78 acres for road and utility improvements, valued at $1,513,146, to the Church’s Rapid City, South Dakota, campus. In 2009, he donated a conference center to Keystone Project, Inc., another religious organization, leaving the fair market value blank.The issue before the court. The Form 8283 that Duane Pankratz used stated in plain …
Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Comm., TCM 2020-24
Missing Basis Entry on Form 8283 Means Taxpayer Loses Non-Cash Charity Deduction of $7,949,000 (Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Comm., TCM 2020-24) Strict substantiation requirements apply. To deduct non-cash contributions in excess of $5,000, the donor must obtain a qualified appraisal of the contributed property, attach a “fully completed” appraisal summary to the return on which the deduction is first claimed, and maintain records containing specified information (§1.170A-13(c)(2)(i)(A), (B), and (c)). The Form 8283, Non-Cash Charitable Contributions, appraisal summary that Oakhill Woods attached to its 2010 return indicated that it acquired the property by purchase …