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Tax Articles

Is Your Activity For Profit Allowing for Business Deductions – Rundlett v. Commissioner

You are allowed deductions for ordinary and necessary expenses incurred in the course of business under §162, but you must also keep adequate records to substantiate expenses which can at times seem esoteric if not convoluted. Deductible travel expenses for example under §274(d) are based on whether or not the travel relates to a business activity or is for pleasure, while §162(a)(2)…


Interest Deduction Determined Based on Use of Loan Proceeds – Ellington v. Commissioner

If you incur interest expense on loans you should use the tracing rules of Reg. §1.163-8T to determine whether the interest expense is for: 1. business 2. investment 3. passive activities. or is 4. personal in nature The regulation focuses on the use of the loan proceeds, not the item or items used as collateral for the loan. Reg.…


IRS Guidelines for Determining Noncompliance – The Cohan Rule

As I understand the Cohan rule under the IRS’ Guidelines For Determining Noncompliance, taxpayers are allowed a deduction for an estimated amount of expenses when it is clear the taxpayer is entitled to a deduction but is unable to establish the exact amount of the deduction. Specifically the IRS states on their web site the following. “The “Cohan Rule,”…


Subdivided Lots – Understand Intent of Purchase to Characterize Gain

Under §1221(a)(1), property held by a taxpayer primarily for sale to customers in the ordinary course of a trade or business is excluded from the definition of a capital asset. Accordingly, if you by acreage to subdivide, develop and sell, the transaction would not meet the definition of a capital asset under §1221(a)(1) since his purpose was to sell the subdivided lots. In…


First Time Home Buyer Credit Repayment Tool

The First Time Home Buyer Credit (FTHBC) Account Look-up tool is now up and running on the IRS website. This tool provides information that helps taxpayers accurately report their FTHBC repayment obligations on their federal tax return. To access this tool, go to:,,id=252351,00.html Taxpayers need to enter their Social Security Number, date of birth, and…


IRS Master File Codes 6209-8A

The first thing that I always do when investigating a tax dispute is pull the transcripts from the IRS for review. They can be really hard to read if you don’t understand the Transaction Codes referenced. Transaction Codes are defined in IRS Document 6209 – Section 8A. This is a valuable resource in understanding how…


Employee Tool and Equipment Plans

Tool and Equipment Plans generally require employees to provide their own tools. Some plans purport to receive tax-favored treatment as “accountable plans” under the definition of adjusted gross income in Internal Revenue Code § 62(c). If you are expected to use your own tools and equipment on the job and get reimbursed be very careful in…


IRS Rules for Providing K-1’s Electronically: Rev. Proc. 2012-17

Certain entities, such as partnerships, are required annually to file K-1s with the IRS and provide a copy to their partners. The IRS estimates that partnerships filed almost 26 million K-1s during 2011. Revenue Procedure 2012-17 provides new rules describing when partnerships may provide K-1s electronically to partners. These new rules make it easier for partnerships to provide…


Understanding IRS Notices and Letters

Look on the IRS notice or letter you received in the upper right hand corner for an alpha numeric sequence.  The corresponding IRS explanations below to their Notices and letters are sub categorized as follows: 1. Redesigned Notices 2. Other Notices 3. Individual Filer 4. Business Filer Redesigned Notices Notice Number Description Topic CP01H You…