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Tax Articles

ITIN issuance generates questionable returns

Billions of dollars in tax credits are being provided to Individual Taxpayer Identification Number filers without adequate verification of eligibility, according to the Treasury Inspector General for Tax Administration. The Internal Revenue Service provides ITINs to individuals who are not eligible for a Social Security number to help them comply with the tax laws. Although…


IRS starts special unit targeting the wealthy

The IRS is setting up a special unit that will take a more skeptical look at the various strategies used by the wealthy to reduce their tax burden (see Shulman Has ‘Some Sympathy’ for CPA Concerns). That includes trusts, real estate investments, royalty and licensing agreements, private foundations and flow-through entities of various kinds. The…


Net Operating Losses

Sec. 172(a) allows taxpayers to deduct against a tax year’s income those net operating losses both carried over to the tax year from previous tax years and carried back from later tax years. An NOL basically is the excess of allowed deductions over gross income. It does not include losses, however, that are disallowed because…


Hobby Losses

Sec. 183 denies loss deductions beyond income earned from activities in which the taxpayer does not intend to make a profit. These deductions are typically referred to as “hobby losses.” Generally, an activity is presumed to be carried on for-profit if it makes a profit in at least three of the last five tax years,…


Gambling Losses

Sec. 165(d) limits all but professional gamblers from taking losses incurred in a wagering activity to the amount of any gains. As a result, a taxpayer cannot claim a deduction for losses incurred while gambling or betting in excess of the amount they gained from that activity over the tax year. Excess losses cannot be…


Abandoment Losses

While a taxpayer conducts a trade or business, one or more items of business property may suddenly stop being useful. For a variety of reasons, the taxpayer may choose to stop conducting business with the property or permanently discard it. The IRS allows these businesses to claim an abandonment loss deduction under Reg. §1.165-2(a) for…


Bad Debt Losses

Code Sec. 166, titled “Bad Debts,” generally controls who is entitled to a bad debt deduction and when a bad debt may be deducted. Sec. 166 conditions treatment generally on whether a bad debt is incurred in a trade or business. Further, Sec. 166 defers to Sec. 165 on the special treatment afforded to worthless…


Personal Casualty Losses

Taxpayers may generally deduct losses that are sustained during the tax year and not compensated for by insurance or otherwise (Sec. 165). For individuals, deductible losses must fall within one of three categories: losses incurred in a trade or business; losses incurred in transactions entered into for profit but not connected with a trade or…


Investment Theft Losses

Victims of investment schemes or fraud may find themselves under the casualty loss rules, rather than using the net capital loss rules to salvage their position. Sec. 165(e) allows reporting a deduction for theft losses in the year in which a “reasonable taxpayer” discovers that the property was missing. Revenue Ruling 2009-9 covers the tax…