Taxing Lessons Case Summaries

Case — Charitable Contributions Carryover

THE QUESTION Can a taxpayer choose how much of a charitable contributions carryover deduction to allocate between various tax years? THE DISPUTE Taxpayer Says: The charitable contributions carryover can be used as necessary as long as the carryover is deducted within the allowable five year time period following the original contribution. Internal Revenue Service Says: A portion of the deduction…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Casualty Loss Due to Faulty Construction

THE QUESTION Can a casualty loss deduction be claimed when faulty construction methods decrease property value and create unstable conditions? THE DISPUTE Taxpayer Says: The damage to the property was sudden and unexpected, and should be allowed as a casualty loss. Internal Revenue Service Says: The damage was the result of faulty construction methods, and does not meet the requirements…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Royalties – Expense or Capitalize?

THE QUESTION Should royalties paid under licensing agreements for the use of trademarks be capitalized or currently deducted? THE DISPUTE Taxpayer Says: Royalty payments are ordinary and necessary business marketing expenses and should be currently deductible. Internal Revenue Service Says: The payments are indirect licensing costs related to production of property and should be allocated to ending inventory. THE LAW…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Taxability of Legal Settlement

THE QUESTION Are settlement proceeds received as a result of false imprisonment taxable? THE DISPUTE Taxpayer Says: The settlement proceeds arose from a claim based on tort rights. In addition, physical restraint and detention constitute a physical injury. The proceeds qualify for exclusion and are not taxable. Internal Revenue Service Says: The settlement was for nonphysical injuries, and should be…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Medical Expense Deduction for In Vitro Fertilization

THE QUESTION Are in vitro fertilization expenses that are incurred voluntarily a deductible medical expense? THE DISPUTE Taxpayer Says: Expenses paid for sperm and egg donation and surrogate mothers are deductible. Internal Revenue Service Says: The expenses were not incurred for medical reasons and cannot be deducted. THE LAW From Internal Revenue Code Section 213(a): Allows for the deduction of…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Theft Loss

THE QUESTION Can a taxpayer claim a theft loss when a building contractor finishes a home but fails to follow contract specifications during the construction? THE DISPUTE Taxpayer Says:  Although the house was completed, a theft loss deduction is allowable because the contractor committed fraud by taking money for the construction while intending to ignore contract specifications. Internal Revenue Service Says: This…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Penalty Abatement due to Reliance on Professional Advice

THE QUESTION Does reliance on a professional tax return preparer allow a taxpayer to avoid a penalty for errors involving depreciation deductions? THE DISPUTE Taxpayer Says: Ordinary business care and prudence were exercised in the reliance on a professional preparer to properly compute depreciation, and the reasonable cause exception to the penalty applies. Internal Revenue Service Says: The penalty was…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Deductibility of Legal Settlements and Fees

THE QUESTION Are legal settlements and fees currently deductible or should they be capitalized? THE DISPUTE Taxpayer Says: The settlement payments and legal fees are ordinary and necessary business expenses and are currently deductible. Internal Revenue Service Says: The settlements and fees were related to transfers of asset title and must be capitalized, not currently deducted. THE LAW From Internal…

Continue Reading

 ... Read This Post

Taxing Lessons Case Summaries

Case — Medical Expense Exception to Early Withdrawal Tax

THE QUESTION Do funds taken from a qualified retirement plan to repay a prior year medical loan qualify for an exception to the early withdrawal tax? THE DISPUTE Taxpayer Says: The 2004 early withdrawal was used to reduce a loan taken out in 2003 for medical expenses. The loan repayment should be considered a payment of medical expenses in 2004,…

Continue Reading

 ... Read This Post