Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
California Corner: California’s 15-Day Rule for New Businesses
By: As we approach the end of the year, it’s a good time to discuss the 15-day rule with your clients. Understanding the 15-day rule and realizing the rule only applies to short taxable years that are 15 days or fewer, is very important for your client’s decision about when to register their business entity with the California Secretary of State.The 15-day rule states that business entities (limited partnerships, limited liability partnerships, limited liability companies, and corporations) with a taxable year of 15 days or fewer are not required to file a tax return or pay the $800 annual/minimum tax, if …
Court Invalidates DOL Overtime Rule Nationwide
On November 15, 2024, the US District Court for the Eastern District of Texas retroactively invalidated a Final Rule from the Department of Labor (DOL) that had increased the minimum salary threshold for certain employees to be considered exempt from overtime pay under the Fair Labor Standards Act (FLSA). The rule was originally effective on July 1, 2024. An earlier ruling applied only to the State of Texas, but this decision affects all employers nationwide. The final rule provided staged increases to the standard salary level necessary for exemption from overtime pay for executive, administrative, and professional (EAP) employees. The …
Ideas & Price Tags: A Closer Look at President-Elect Trump’s Tax Reform Promises
By: As the nation heads into a period of political transition, many clients have questions about what potential tax reforms may mean for them and their finances. For this reason, Sharon Kreider, CPA, Western CPE’s Resident Tax Authority, has written a client letter that you can pass on to your clients as a trusted advisor to cut through the misinformation and keep them informed and assured. The letter is meant to be politically neutral and fact-based. Please read the letter carefully to make sure that you agree with the summary, the language, and tone, then modify it as required for your client …
DEA Considers Reclassification of Marijuana: A Potential Shift in Federal Tax Policy
By: In a move that could significantly alter the landscape of cannabis regulation in the United States, the Drug Enforcement Administration is set to hold a public hearing on the potential rescheduling of medical marijuana from a Schedule I to a Schedule III controlled substance. This development marks a pivotal moment in the ongoing debate surrounding medical marijuana’s legal status and its implications for the medical marijuana industry, law enforcement, and taxes.The proposed rescheduling of marijuana does not apply to recreational marijuana, only to medical marijuana. The Hearing: Date, Time, and Place The DEA has scheduled the public hearing for December …
The Tax Professional’s 5-Step Guide to Succession Planning
Beginning Client succession planning Succession planning for your client is more complicated than simply choosing a successor. Institutional knowledge, client relationships, and technical expertise are all important characteristics of their unique business expertise — expertise that needs to be passed down and implemented for a smooth transition at any organizational level. Whether you’re planning your own transition or advising clients, understanding the full scope of succession planning is critical for maintaining a business’s success and ensuring that the business’s legacy endures. Here are 5 steps to follow when creating a successful succession plan. Step 1: Build a Solid Foundation with …
Acqis Technology Inc. v. Comm., TCM 2024-21
Debit Cash, Credit Equity or Income? Settlements from Patent Infringement Lawsuits are Income (Acqis Technology Inc. v. Comm., TCM 2024-21) Acqis Technology’s business model was to acquire patents and engage law firms on a contingency basis to sue for patent infringement and failure to pay royalties. Defendants in some of the lawsuits entered into settlements that included licensing agreements and share purchase agreements (SPAs). The licensing agreements were generally free of additional costs to the defendants. Acqis sold Settlement Shares to the defendants. The Settlement Shares had limited dividend and distribution rights, limited liquidation rights, were nonvoting, and could not …
Growmark Inc. v. Comm., 160 T.C. No. 11 (May 16, 2023)
COGS Includes Net Amount of Excise Tax After Credit (Growmark Inc. v. Comm., 160 T.C. No. 11 (May 16, 2023)) Growmark incurs liabilities for excise taxes on fuels that it sells and is entitled to federal tax credits for some of the fuels that it produces or blends. Growmark claimed that it should be allowed to include the gross federal excise tax liability in its cost of goods sold before reducing the amount for any federal tax credits.Excise taxes are generally not deductible. (Treas. Reg. §1.164-2(f)) However, excise taxes incurred or paid in a trade or business as part of …
Betty Amos v. Comm., 11th Cir., No. 23-10532 Non-Argument Calendar (April 2, 2024)
No NOL means No NOL. (Betty Amos v. Comm., 11th Cir., No. 23-10532 Non-Argument Calendar (April 2, 2024)) Betty Amos appealed a Tax Court decision denying NOL carryforwards claimed in tax years her 2014 and 2015 and negligence penalties assessed for failing to provide documentation to substantiate the NOL deductions.In 2018, Amos received a notice of deficiency including penalties for tax years 2014 and 2015, disallowing NOL carryforward deductions of $4,220,639 and $4,149,326, respectively, on the grounds that the losses originating in tax years 1999 and 2000 were overstated and not available to be carried over. Tax returns filed for …
Cassandra Tucker and Edward Brodie v. Comm., T.C. Memo 2023-87
COGS is Not a Deduction, Some Expenses Allowed (Cassandra Tucker and Edward Brodie v. Comm., T.C. Memo 2023-87) Cassandra Tucker operated a fashion activity out of her home for many years. During 2015 and 2017 the activity generated gross sales of $1,542 and $1,498, respectively. Claimed cost of goods sold for each of the years were $6,510 and $8,086. To substantiate these amounts, Tucker provided a spreadsheet showing purchases in 2015 of fabric, packaging materials, including “bags, tissue, ribbon and boxes” along with other items. For 2017, the COGS spreadsheet showed purchases of “lifestyle flooring” and “lifestyle closet” totaling $9,003.Through …
Joseph and Louise Speizio v. Comm., TCM 2024-64
It’s Not About the NOL (Joseph and Louise Speizio v. Comm., TCM 2024-64) Joseph and Louise Speizio claimed expenses in 2017 that generated a net operating loss based on pension liabilities acquired in a business taken over by the taxpayer but not paid until 2018 or later. The taxpayer took over a sanitation business that had outstanding pension liabilities due to the local union. Through litigation and bankruptcy, the taxpayer became liable for the debt and was later relieved of the liability. In a bankruptcy proceeding, the pension liabilities were eventually settled and paid in 2019.In general, §404(a)(1)(A) allows a …
Anthony J.A. Bryan Jr v. Comm., T.C. Memo 2023-74
IRS Disallows NOLs by Reaching Back to Prior-Year K-1s (Anthony J.A. Bryan Jr v. Comm., T.C. Memo 2023-74) In 2007, Bryan gave a Watley Group, LLC (taxed as a partnership) a purported promissory note for $2.7 million with a single balloon payment due on or before Dec. 31, 2030 and interest accruing at 4.75%. The note was neither secured nor collateralized to any assets. Watley filed Forms 1065 for years 2008- 2011 without showing the $2.7 million note on the balance sheet. Watley gave Pool Boy the Movie, LLC (another tax partnership) a promissory note in the amount of $2.7 …
Edgardo Villanueva v. Comm., TCM 2022-27
“Concise Statement” Required for NOL Deduction (Edgardo Villanueva v. Comm., TCM 2022-27) Edgardo Villanueva reported a loss of $112,375 on Form 4797, Sales of Business Property, attached to his 2013 return, from the disposition of a condominium. He reported the date of loss as Aug. 5, 2013, although the condominium went through foreclosure in May 2009 and Villanueva lost possession of the condominium at that time. The Court determined that because Villanueva sustained the loss in 2009 when the foreclosure occurred, the deduction, if allowable, would have been for 2009. Villanueva was not permitted to carry forward any portion of that …
Edward & Ellen Berman v. Comm., 163 T.C. No. 1
Taxpayers Trigger Deferred Gain on Stock Sold to ESOP, But Installment Sale Works (Edward & Ellen Berman v. Comm., 163 T.C. No. 1 (July 16, 2024)) In 2002, Edward and Ellen Berman each sold stock to an ESOP for $4,150,000 in which they had bases of $27,428, thereby realizing a gain of $4,122,572 each. As payment, each received a $4,150,000 promissory note, on which a first payment of $449,277 was made in 2003. They made valid elections under §1042 on their 2002 federal income tax returns to defer recognition of the gain each realized for 2002. Effecting that deferral required …
Om and Anjali Soni v. Comm., CA-2, No. 22-829-ag
Tax Return was Jointly Filed Even though Spouse did not Sign the Return (Om and Anjali Soni v. Comm., CA-2, No. 22-829-ag (Jul. 27, 2023)) The U.S. Court of Appeals, Second Circuit, affirmed the Tax Court’s Jan. 7, 2022, opinion that Om and Anjali Soni’s 2004 tax return was jointly filed. Four circumstances were identified as probative of the taxpayers’ intent. First, Anjali knew “a return had to be filed” because “[s]he was generally aware of the U.S. tax system but chose not to engage.” Second, Anjali knew of Om’s “expert knowledge” because he was an experienced businessperson and she …
Adam Sowards v. Comm., TCM 2023-99
No Social Security Number Means No Child Tax Credits (Adam Sowards v. Comm., TCM 2023-99) Adam Sowards and his spouse jointly filed federal income tax returns for the three years at issue. The 2008 return claimed the additional child tax credit (ACTC) with respect to his four children, along with the earned income tax credit (EITC) and the recovery rebate credit. The 2009 return claimed the ACTC with respect to the four children, along with the EITC. The 2010 return claimed the child tax credit (CTC) with respect to the four children. The returns did not provide SSNs for the …
No Taxes on Tips: What Tax Pros and Accountants Need to Know
Recent campaign proposals from both sides of the aisle have suggested eliminating taxes on tips. While this idea may sound appealing to constituents, the reality is more complex — especially for tax professionals advising service industry clients. Here’s what you need to know. (We’ll be discussing this topic even more in-depth in our two-part livestream special, Tax at the Ballot Box, taking place October 22nd and December 10th.) The Current Landscape for TIP TAXATION The service industry comprises approximately 4 million tipped workers, representing 2.5% of the U.S. workforce, according to Yale University’s Budget Lab. These workers tend to be younger …
IRS Issues Relief for Victims of Hurricane Helene
The Internal Revenue Service has announced comprehensive tax relief for individuals and businesses affected by Hurricane Helene. The IRS has extended tax deadlines for the entire states of Alabama, Georgia, North Carolina, and South Carolina, as well as designated counties in Florida, Tennessee, and Virginia. All taxpayers in these areas now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.This extension applies to:2024 individual and business returns normally due in March and April 20252023 individual and corporate returns with valid extensionsQuarterly estimated tax payments due on Jan. 15, 2025, and April …
Storm Damage Loss Swamped and Sunk for Lack of Appraisals or Other Proof of Loss (Thomas Richey and Maureen Cleary v. Comm., TCM 2023-43)
Thomas Richey and Maureen Cleary owned a home and a boat in March 2017, when Winter Storm Stella hit Stone Harbor and flooded the city’s streets. Richey and Cleary claimed that the storm damaged the waterside portion of their property and their 40-foot boat, The Celtic Dream. On their 2017 tax return, they claimed total casualty losses of more than $820,000 and a deduction—after considering the income limitation—of nearly $740,000. Calculating the Deduction: There are three rules for determining a casualty loss deduction. The first rule is that only physical damage can be counted as a casualty loss and decreases …
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 …