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Tax Articles

Refurbishing Real Estate for Resale is (usually) Taxed as Ordinary Income

According to Tax Court Memo 2010-261, a husband and wife purchased real estate, refurbished it and reported the sale on Form 4797. They contended the homes were purchased for use as rentals; however, over the three-year period at issue, none of the homes were rented. The IRS determined that in actuality the couple was in the business of refurbishing…


Who is a Professional Gambler?

In the Tax Court case of Trieu M. Le, et ux. v. Commissioner TC Summary Opinion 2010-94 the IRS took the position that the taxpayer was a casual gambler and should have deducted his losses up to his winnings on Schedule A.  The taxpayer took the position that he was a professional gambler and accounted…


IRS Form 8332 Outweighs Divorce Decree Regarding Dependency Exemption

Section 152(e) of the tax code specifies how to determine the dependent status of children of divorced parents. This code section states that the noncustodial parent can claim the dependency exemption for a child when the custodial parent signs a written declaration that the custodial parent will not claim such child as a dependent for any taxable year beginning on the…


Abusive Tax Shelters

Abusive tax shelters of every nature are what I call scum bag lawyer schemes.  It is difficult to specifically define abusive tax shelters because new ones are constantly emerging.  Essentially they are arrangements usually designed by ‘promoters’ to circumvent tax laws or evade taxes.  They range from being clearly illegal to being carefully constructed to…


IRS Criminal Investigation Enforcement Trends

Hey everyone, check out what the Treasury Inspector General for Tax Administration is writing… “Criminal Investigation’s (CI) primary resource commitment is to develop and investigate legal source tax cases. The prosecution of these cases is key to supporting the Internal Revenue Service’s (IRS) overall compliance goals, enhancing voluntary compliance with the tax laws, and promoting…


IRS Guidance on Qualified Long Term Care Insurance Contracts

IRS Notice 2011-68 provides interim guidance on the federal income tax treatment of annuity and life insurance contracts with a qualified long-term care insurance (QLTC) feature. The guidelines address the application of certain changes to the federal income tax rules governing annuity and life insurance contracts as well. All taxpayers are invited to provide comments for final…


Ponzi V. Pyramid Scheme

A friend of mine asked me to blog today about my experiences from a tax perspective with Ponzi schemes and pyramid schemes. Both are for the most part perpetrated by clandestinely malcontent people that have inadvertently grown trustworthy, a “friend” or relative or fellow member of your spiritual congregation for example, or even a guy…


Personal Guarantee of Corporate Debt Does NOT Add to Basis (Investment)

Taxpayers who own shares in an S corporation are allowed pass-through losses to the extent of their basis (also commonly referred to as investment) under §1366(d) in their entity. Shareholders can obtain basis in a variety of ways such as direct investment, loaning the corporation money, contributing capital etc. However sharholders of S Corporations do not gain…