CPA Observation Post

Accounting firm consulting fees were disguised dividends, Seventh Circuit holds (via @AICPA_JofA)

Payments an accounting firm characterized as consulting fees were really disguised dividends and should have been taxed as corporate income, the Seventh Circuit held on Thursday. The payments reduced the firm's income to zero, and the court applied the "independent investor" test to recharacterize them as dividends paid to the firm's owners. Read More>>

Supreme Court Rules Couple Must Pay Taxes on Sale of Bankrupt Farm (via @AccountingToday)

The Supreme Court has handed down a decision in favor of the Internal Revenue Service collecting capital gains taxes from a couple who sold their family farm during bankruptcy. Read More>>

Court rules Illinois "Amazon" nexus law is unconstitutional (via @AICPA_JofA)

An Illinois circuit court has held that the state's click-through nexus law is unconstitutional under the Commerce Clause and preempted by federal law. The law defines as a retailer and imposes a sales tax collection requirement on anyone who has a contract with an Illinois person to refer potential customers through a link on the Illinois person's website. The holding is appealable to the Illinois Supreme Court. Read More>>

Supreme Court Restricts IRS on Tax Shelter Enforcement (via @AccountingToday)

The Supreme Court ruled in favor of a company in a significant tax-related ruling that limited the ability of the Internal Revenue Service to pursue taxpayers over tax shelter cases for more than three years, as opposed to six. Read More>>

Federal court declares Colo. "Amazon" law unconstitutional (via @AICPA_JofA)

A federal district court has permanently enjoined the state of Colorado from enforcing a law requiring out-of-state retailers to send notices to customers telling them of their obligation to pay Colorado use tax and to provide the state with customer information. The court held that the law violates the Commerce Clause because it discriminates against out-of-state companies and places undue burdens on interstate commerce. Read More>>

Court upholds IRS’s denial of college insurance fund’s application for tax exemption (via @AICPA_JofA)

A fund formed by Florida tax-exempt schools to pool insurance risk for its members does not itself qualify for tax-exempt status, a federal district court held on Wednesday. The fund argued that it was a charitable risk pool or an insurance purchaser, not an insurance provider, but the court ruled it was a "commercial-type insurance company." Read More>>

Co-owners are subject to one mortgage interest deduction limit, Tax Court holds (via @AICPA_JofA)

The Tax Court held that unmarried taxpayers who jointly owned a residence were together subject to a single $1.1 million limit on the amount of mortgage debt for which interest can be deducted. The court decided that the limit applies per residence and not per taxpayer, upholding the Internal Revenue Service's view of the question. Read More>>

IRS Criminal Investigations Unit Boasts 94 Percent Conviction Rate

The cases that the criminal investigations unit at the Internal Revenue Service sends to the tax division have a 94 percent conviction rate, making it the highest rate of conviction in law enforcement, Rick Raven, deputy chief of IRS investigations, said March 2. Read More>>

Eighth Circuit affirms S corporation shareholder’s compensation was not reasonable (via @AICPA_JofA)

The 8th U.S. Circuit Court of Appeals held that an S corporation owner's salary was unreasonably low, and that he therefore owed FICA tax on a portion of amounts taken as distributions. The 8th Circuit upheld a lower court decision that had looked at the owner's experience and duties and at salaries of comparable professionals to conclude that the owner's services were worth more than the small salary he had taken in the years at issue. Read More>>

Filing false tax returns is a deportable felony, Supreme Court holds (via @AICPA_JofA)

The Supreme Court held that filing false tax returns qualifies as an aggravated felony and that resident aliens convicted under Internal Revenue Code Section 7206 could therefore be deported. Although fraud or deceit is not an element of Section 7206, the court held that filing a false tax return necessarily entails deceit and therefore fits the definition of aggravated felony for these purposes. Read More>>