Frivolous Tax Arguments - IRS annual update

The IRS released the 2011 version of its discussion and rebuttal of common frivolous arguments made by individuals and groups that oppose compliance with the tax laws. The 84-page document also describes the nasty things they have in store for you if you feel compelled to rebel (resistence is futile), including the imposition of criminal and civil penalties on taxpayers who espouse frivolous arguments (News Release IR-2011-23).

 

We noted that the IRS was careful NOT to release the annual update on April 1st.  I guess you can't fight City Hall or, in this case, Big Brother, the Man, Uncle Sam, the Rev-a-noo-ers, the Internal Robbery System or that Infernal Redistribution Service!  Our advice continues to be "Render unto Ceasar what is Ceasar's".

 

The entire document can be found at:

 

http://www.irs.gov/taxpros/article/0,,id=159932,00.html

 

On that happy note, you've got 18 days left to file your 2010 tax return.

Web site Update!!

After nearly seven years, the Franty & Company website has had a complete makeover.  Check us out on the web!

 

http://www.franty.com/

 

A big thank you to our site developer Julie Weyers!  Great Job, Julie!  Also a huge 'atta Girl to Ellen Franty & Christie Hayes for spearheading this project internally.  Well Done, Ladies!

 

Have a great weekend...25 days left to file your 2010 tax return.

Own your own business? Be careful of those "shareholder loans"!

If you are a small business owner, the tax court case described below demonstrates why corporate board minutes, board resolutions, notes with repayment terms and a general plan for compensating yourself are vitally important.  It is especially true in a C Corporation but there are similar ramifications to all you S Corp shareholders out there.

 

A husband and wife both conducted business through their separate wholly-owned corporations and regularly withdrew funds from both corporations to pay living expenses for themselves and their children.  The payments were classified as "loans to shareholder" and there was no specific rhyme or reason to the frequency or amount disbursed. The Tax Court acknowledged that formalities involving shareholders and closely held corporations are not always followed, but still rejected taxpayer's claim that the distributions were repayments of loans or new loans to the shareholders.

 

Taxpayers failed to establish a debtor/creditor relationship using the following factors (Welch v. Comm. , 85 AFTR 2d 2000-1064):

(1) a note or other instrument,

(2) charging of interest,

(3) a fixed schedule of repayment,

(4) collateral,

(5) repayments actually made,

(6) a reasonable prospect of repaying by the borrower and sufficient funds to advance by the lender, and

(7) the parties conducting themselves as if the transaction was a loan.

[Knutsen-Rowell, Inc. , TC Memo 2011-65 (Tax Ct.)]

 

"Reasonable" compensation and a regular schedule of distributions to owners would go a long way to avoiding the trap that the Rowell's fell into.  This case is a reminder of how dangerous informality can be when a controlling shareholder borrows from a corporation. To avoid constructive dividend treatment, the owners of a corporation should observe the formalities when making their withdrawals. Whenever practicable, a withdrawal that's intended to be a loan should be documented as such, with a legally enforceable promissory note that pays sufficient interest, and the transaction should be reflected as a loan on the corporation's books and records. Further, repayments should be made in accordance with the terms of the note.

 

Only 26 Days left until 2010 tax returns are due...

 

Feel free to donate to Japanese Earthquake Relief efforts, AND...

...make sure that your donation goes to an eligible charity if you want a tax deduction for the contribution.

Hi Folks,

There are only 28 days left to file your 2010 tax returns and we still have some capacity!  We appreciate your confidence, your business and your continued referrals.

We are all seeing the devastation in Japan; its all over the news and the internet.  I'm sure that you feel compelled to reach out and offer some assistance.  We thought it would be a good time to give you some information about the tax deduction that results from your charitable nature.  We thought it would be a good time to give you some information about the tax deduction that results from your charitable nature.

For a charitable contribution to be tax deductibe in the U.S., the recipient of your donation must be a charitable, etc., organization created or organized in or under the laws of the U.S., any state, the District of Columbia, or any possession of the U.S., except as otherwise provided by treaty [ IRC Sec. 170(c)(2)(A) ].  Therefore, contributions to foreign organizations generally are not tax deductible.

In one case, the taxpayer couldn't deduct funds she wired to her cousin in a foreign country for transfer to local Catholic churches that had been damaged in a guerilla war from which taxpayer fled to the U.S. Taxpayer's argument that the local churches were arms of the Roman Catholic Church, a universal organization, and as such were qualified donees, was rejected [ Anonymous , TC Memo 2010-87 (2010) ]. Likewise, no deduction is allowed for contributions to an individual or earmarked for a specific individual, even if made through a qualified organization.

To make sure your generosity is rewarded with a tax deduction from Uncle Sam, consider making your contribution to an orgaization like the Red Cross, your local church or to an otherwise properly organized charitable entity.  Here is some additional general info about charitable deductions from IRS Publication 526 and a link to that Pub.

http://www.irs.gov/publications/p526/ar02.html#en_US_2010_publink1000229643

Generally, only the five following types of organizations can be qualified organizations.

1. A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). It must be organized and operated only for one or more of the following purposes.
   
   1. Religious.
   2. Charitable.
   3. Educational.
   4. Scientific.
   5. Literary.
   6. The prevention of cruelty to children or animals.
   Certain organizations that foster national or international amateur sports competition also qualify.
2. War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions.
3. Domestic fraternal societies, orders, and associations operating under the lodge system.
   Note. Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.
4. Certain nonprofit cemetery companies or corporations.
   Note. Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt.
5. The United States or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions.
   Note. To be deductible, your contribution to this type of organization must be made solely for public purposes.

 

Our first Blog Post

Only 33 days left until 2010 tax returns are due!

Just wanted to let you know that, yes, we are busy BUT we still have capacity for more returns.  Your continued referrals are greatly appreciated!

check us out at http://www.franty.com/