New Legislation

This chapter covers tax legislation that was enacted late in 2010 and in 2011. It is organized by subject matter to help participants quickly find topics of interest and includes a brief summary of each provision

Rulings and Cases

This chapter summarizes selected rulings and cases that were issued from September 2010 through August 2011 to gives participants an update on issues that are being addressed by the IRS and the courts. The rulings and cases are organized under topic headings that match the titles of other chapters. The introduction explains the hierarchy of authority among legislation, cases, and IRS documents.

Individual Taxpayer Issues

This chapter covers several issues tax practitioners encounter when preparing individual income tax returns, including:

• Filing status: requirements for each of the five filing statuses and how to choose the best status when a taxpayer qualifies for more than one filing status
• Kiddie tax
• Tuition refunds
• Self-employed health deduction for members of the clergy
• Schedule H (Form 1040), Household Employment Taxes
• Interest deductions on Schedule A (Form 1040), Itemized Deductions
• Government grants for individuals

Casualty Gains and Losses

The BP oil spill in the Gulf of Mexico and severe weather in many parts of the United States raise income tax issues for victims of these disasters. This chapter explains the rules for reporting income tax gains and losses from these events for both individuals and businesses and illustrates the rules with examples.

Business Issues

This chapter discusses some of the issues tax practitioners encounter when they prepare returns for clients who operate a business. Topics include:

• Taxation of grants to businesses
• Selected like-kind exchange issues
• Related-party issues
• Distinguishing commuting expenses from business travel and transportation expenses
• Recordkeeping requirements for listed property
• Standard mileage rate
• Transportation fringe benefits
• Self-employment income

Retirement

This chapter reviews the retirement plan options for business entities and compares the requirements for each of the plans, the contribution limits, and some of the administrative rules.

Business Entities

• Bargain sale of an interest in an entity with debt
• S corporation shareholder basis
• Owner’s compensation
• Schedules M-1, M-2, and M-3
• Bad-debt deductions for shareholder loans that are not repaid when a corporation goes bankrupt
• Purchase of a term interest in real estate by a corporation

IRS Issues

This chapter covers issues that will receive particular scrutiny from the IRS, including: return preparer registration; testing, and fingerprinting; handling a client’s refusal to file electronically; auditing with electronic accounting software; and Form 1099K (credit card receipts).

Real Estate Issues

This chapter covers selected issues that arise for clients who own real estate, including: financial distress; installment sales; vacation rentals; like-kind exchanges; and information reporting.

Trusts and Estates

This chapter presents and illustrates the income tax rules for trusts and estates through a case study of an estate with an operating business that is transferred to a trust after the estate is closed.

New Legislation

Congress continues to be active in passing tax legislation that affects tax returns for 2010 and future years. This chapter covers tax legislation that was enacted for 2010.

Individual Taxpayer Issues

• Schedule L (Form 1040)
• Tax Consequences of Owning a Home
• Part-time Clergy
• Recoveries and the Tax Benefit Rule
• Taxation of Damage Awards and Settlements
• Education Credits and Deductions

Financial Distress

This chapter covers practical tax issues that arise from financial distress such as reporting information from Form 1099-A and Form 1099-C on the debtor’s tax return and showing tax attribute reductions on Form 982. It includes issues such as foreclosure, repossession, property with debt in excess of FMV, and bankruptcy of both homes and business property. Credit card debt is also discussed.

Business Issues

• Fringe benefits
• Schedule C (Form 1040)
• Form 2106 planning issues
• Self-employment income
• Hobby loss issues        
• Domestic production activity deduction update
• Benefits of C corporation
• Single member LLC: EIN and liability rules

Retirement

This chapter focuses on Roth IRAs. Topics include:

• Conversion of regular IRA to Roth IRA: 2010 v. 2011 and 2012 recognition of income including present value analysis to determine if an IRA should be converted
• Roth 401(k)
• Qualified distributions
• Penalty provisions
• Long-term planning with Roth IRAs
• Chart of retirement plan requirements and limits

Investment Issues

• Interpreting brokerage statements
• Reporting calls and puts on stocks and commodities
• Accrued interest calculations and reporting
• Buying and selling life insurance policies
• Tax consequences of losses on investments
• Oil and gas: reporting issues for royalty owners

IRS Issues

• Practitioner registration
• Oversight of tax return preparers
• EITC Compliance
• Electronic filing tips
• Electronic Federal Tax Payment System
• IRS Notices and Letters
• CP 2000 Frequently Asked Questions
• Audit reconsideration process
• Bank Secrecy Act reporting requirements

Income taxation of Trusts and estates

• Decedent’s final return; filing status
• Beneficiaries’ returns
• Choosing the end of the tax year for an estate

Tax Practice

• Amending amendments such as an I.R.C. § 179 deduction or NOL carryback
• Forms issues such as e-file signature authorizations and transmittal of an e-file
• Responding to a math error correction
• Tax doctrines such as constructive receipt of income, step transactions, substance over form and the tax benefit rule

Basis of Assets

This chapter is a comprehensive discussion of the income tax basis rules. Topics include:

• Assets transferred by gift
• Assets transferred at death, including carry-over basis rules in 2010
• Basis rules for charitable contribution deduction
• Term interests, including life estates
• Conversion of personal property to business or investment property.
• I.R.C. § 1060 allocation

Recapture Provisions

This chapter is a comprehensive discussion of the recapture provisions in the Internal Revenue Code including depreciation, personal credits, excess front-loaded alimony payments, I.R.C. § 1231 losses under 5-year look-back rule, investment credit, at-risk amount less than zero, low-income housing credit, cost sharing payments and soil and water conservation expenses.

Ethics

• Impact of practitioner registration
• Conflicts of representation
• Who is the client?