THE ELITE QUARTERLY – Taxation Published by CPElite, Inc. – The Leader in Continuing Professional Education NewslettersT.M.

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Volume XXIII, Number 4, Winter 2014 Issue – 4 Hours of CPE Credit (Taxation)Phone and fax # – 1-800-950-0273, e-mail – cpeliteinc@aol.com, web site – www.cpelite.com

44444444444444444444444444444444444444444444444444444444444444444444444444444444 Another year is coming to a close, and we want to wishyou a Happy Holiday season and a happy and productive2015. Thank you for your business. This is our finalnewsletter for 2014. There were four quarterlynewsletters and 2 hours of ethics for 2014. If you did notreceive all our 2014 newsletters, you may download themfrom our website. We are taking subscriptions now for our2015 newsletter options. We have added a new “2015 EAPackage” option (Option 2 on the order form on page 18of this newsletter). Under it, you ensure that you get the24 hours of CPE credit each year that you need to meetyour 72-hour three year requirement. And, the cost isonly $5.83 per hour if you order now. In fact, you save byordering by February 15, 2015, on all of our subscriptionpackages. Again, please see page 18.

We appreciate your telling other tax professionals aboutour tax and ethics newsletters and tax courses. If theyorder any of our 2014 or 2015 subscription options, youwill receive a $50 referral off the price of any of oursubscription packages (Options 1 - 3 on the order form).We will send you a $50 check if you already havesubscribed. If they subscribe for both 2014 and 2015,you earn $100! If they order just newsletters or courses,your referral is 25% of the new customer’s order cost.Here are items in this newsletter.

1. IRS Rulings and Other Items (pages 1-7), includingguidance on allocating pre-and after-tax amounts forcertain qualified plan distributions, and tax-exemptsocial clubs, and an IRS warning on tax scams.

2. Court Decisions (pages 7-12), including Tax Courtdecisions that the federal government’s Civil ServiceRetirement System cannot accept IRA rolloverdistributions, and that no depreciation was permittedon an RV even though it was used more than 50%for the taxpayer’s business use, and another courtdecision on the Section 36B refundable tax credit fortaxpayers covered by a qualified health plan that thetaxpayer enrolls in through an Exchange.

3. Treasury Items (pages 12-13), including finalregulations that provide favorable tax treatment forlocal lodging expenses.

4. An Elite Possibility (pages 13-14) on an end-of-year planning strategy for accelerating or deferringincome or deductions between two taxable years.

5. Quiz Questions (pages 15-16).

6. Newsletter and Subscription Information (page19), providing four options for using our newsletterfor CPE credit.

7. Course Information (pages 19-20).

8. Enrolled Agent Information (page 19).

9. CPA and Licensed Accountant information (page19).

LEARNING OBJECTIVE AND CONTENT LEVEL – Theprimary learning objective of this newsletter is to makeaccounting and tax practitioners aware of recent IRS andTreasury items, and court decisions which are likely tohave an impact on most tax practices. The content levelof the newsletter material is an overview of these items.

PREREQUISITES – There are no prerequisites nor isadvance preparation required for our newsletters.

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IRS ISSUES NEW GUIDANCE ON QUALIFIED PLANDISTRIBUTION ALLOCATIONS

In Notice 2014-54 [9/18/14], the IRS provides guidanceon allocating pre-tax and after-tax amounts when adistribution from a qualified retirement plan is sent tomultiple destinations. Generally, for distributions madeon or after January 1, 2015, all disbursements of benefitsfrom the plan to the recipient that are scheduled to bemade at the same time are treated as a singledistribution even though the recipient directs thatdisbursements be made to a single destination ormultiple destinations. If the aggregated pre-tax amountis less than the amount of the distribution that is directlyrolled over to other eligible retirement plans, the entirepre-tax amount is assigned to the amount of thedistribution that is directly rolled over. If the directrollover is to two or more plans, the recipient can selecthow the pre-tax amount is allocated among the plans.The recipient must inform the plan administrator of theallocation before the rollovers are made. If theaggregated pre-tax amount equals or exceeds thedirectly rolled over distribution amount to eligibleretirement plans, the pre-tax amount is assigned to theportion of the distribution directly rolled over up to theamount of the direct rollover. So, each direct rolloverconsists entirely of pre-tax amounts. Any remaining pre-tax amount next is assigned to any 60-day rollovers up tothe amount of the 60-day rollovers. If the remaining pre-tax amount is less than the amount rolled over to 60-dayrollovers, the recipient can select how the pre-tax amountis allocated among the plans that receive 60-dayrollovers. Any remaining pre-tax amount is includible inthe distributee’s gross income. If the amount rolled overto an eligible retirement plan is more than the pre-taxamount that is assigned or allocated to the plan, theexcess is an after-tax amount. Compliance Pointer:

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Even though multiple disbursements to differentdestinations are treated as a single aggregateddistribution, each disbursement may be required to bereported on a separate Form 1099-R. Planning Pointer:Assume an employee has a $250,000 qualified planaccount balance ($200,000 pre-tax, $50,000 after-tax)when he separates from service, and he requests a$100,000 distribution. His new employer maintains aqualified plan, and he has an IRA. He directly rolls over$50,000 to his new employer’s plan (which separatelyaccounts for after-tax contributions), and $32,000 to hisIRA, and takes $18,000 cash. Under Section 72(e)(8),the pre-tax distribution amount is $80,000 ($100,000 x($200,000 / $250,000)). So, the direct rollovers consist of$80,000 in pre-tax amounts and $20,000 in after-taxamounts. He is permitted to allocate the $80,000between his new employer qualified plan and his IRA.IRS: Beginning in 2014, IRS Publication 590 on IRAs willbe split into two separate publications. Publication 590-Awill focus on contributions to traditional and Roth IRAs.Publication 590-B will focus on traditional and Roth IRAdistributions.

IRS ISSUES CURRENT RATES FOR HIGH-LOWMETHOD

In Notice 2014-57 [9/19/14], the IRS provides the 2014 -2015 per diem rates for taxpayers to use in substantiatingthe amount of ordinary and necessary business expensesincurred while traveling away from home. These ratesapply to travel on or after October 1, 2014. Under thehigh-low method, the per diem rates are $259 for travel toany "high-cost" locality, and $172 for travel to any otherlocality within the continental United States (per diemsubstantiation method). The amount of the $259 ($172)per diem that is treated as paid for meals for purposes ofSection 274(n) is $65 for travel to any high-cost locality,and $52 for travel to any other locality within thecontinental United States (CONUS). A "high-cost" localityis one with a federal per diem rate of $216 or more. Thespecial transportation industry M&IE rate is $59 per dayfor any locality within the CONUS. The rate for anylocality of travel outside the continental United States(OCONUS) is $65. The rate for any CONUS or OCONUSlocality of travel for the incidental expenses onlydeduction is $5 per day. Incidental expenses include onlyfees and tips given to porters, baggage carriers, hotelstaff, and staff on ships. Transportation between placesof lodging or business and places where meals are taken,and the mailing costs of filing travel vouchers and payingemployer-sponsored charge card billings, are notincluded in incidental expenses. Compliance Pointer:As transportation and mailing expenses are not includedin incidental expenses, taxpayers who use per diem ratesmay separately deduct or be reimbursed for thoseexpenses. IRS: For more on per diem and carallowances, see IRS Publication 463.

IRS PROVIDES GUIDANCE ON TAX-EXEMPT SOCIALCLUBS

Suppose a tax-exempt motoring activities social clubsponsors a car racing event and conducts an annualraffle. Can these activities jeopardize the tax-exempt

status of the social club? The IRS in Technical AdviceMemorandum 201430019 answers this questionregarding a social club which promotes interest inmotoring activities. The club’s mission is to enhance thecar experience for its members by providing services,support, information, and activities that promotecamaraderie and encourage social awareness andresponsibility. It offers a range of services to members,such as publication of a monthly magazine, severaldriving events, an annual national club gathering, and anannual raffle of cars. The magazine accepts paidadvertising from both members and nonmembers.However, advertising is limited to items and events thatspecifically relate to car ownership. It does not solicit orreceive general advertising and has a policy to onlyaccept advertising from vendors who serve the interestof enhancing the car ownership experience. The clubreceives income from membership dues, merchandisesales to members, registration and vendor fees atvarious gatherings, investment income, mailing listrentals, book royalties, as well as from advertising,sponsorship of club events, and an annual raffle event.The IRS reviewed several Code provisions dealing withtax-exempt clubs. Section 501(c)(7) provides for thefederal tax exemption of clubs organized for pleasure,recreation, and other nonprofit purposes. Substantiallyall of the activities must be performed for such purposesand no part of the net earnings from these activities maybenefit any private shareholder or individual. Theseorganizations are permitted to receive up to 35% of theirgross receipts, including investment income, fromsources outside their membership without losing theirtax-exempt status. In addition, not more than 15% of thegross receipts should be derived from the use of a socialclub's facilities or services by the general public. If theseconstraints are violated, all the facts and circumstancesare taken into account in determining whether theorganization qualifies for exempt status. Section 512provides for the taxation of unrelated business incomeearned by the activity which is all of the activity’s grossincome less exempt function income. This provisiondefines exempt function income as “gross income fromdues, fees, charges, or similar amounts paid bymembers of the organization as consideration forproviding such members or their dependents or guestsgoods, facilities, or services in furtherance of thepurposes constituting the basis for the exemption of theorganization.” The rules also distinguish traditionalactivities (normal and usual activities of the club) fromnontraditional activities. Examples of traditional activitiesincome include membership fees and investment incomewhile fees generated from the general public constitutenontraditional income. The latter fees constituteunrelated business income and if it exceeds 15% of theclub’s gross income, it could nullify the club’s tax-exemptstatus. The IRS ruled that both the publishing of theclub’s magazine and its car racing event are traditionalactivities. The magazine furthers the club’s exemptpurpose, and while the car racing event allowed sponsorswho were nonmembers to have booth spaces forpromotional activities, the club limited sponsorshipopportunities to entities having a connection to carmotoring and ownership. The combined revenue derivedfrom nonmember magazine advertising revenue and

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nonmember sponsors was below the 35% threshold.Finally, the club’s raffle income was derived solely fromits members so it qualified as exempt function income.Compliance Pointer: Tax professionals who have tax-exempt social clubs as clients should periodically reviewthe basic rules governing social clubs. One slip up couldresult in the revocation of the club’s tax-exempt status.

IRS WARNS THAT TAX SCAMS ARE BECOMINGMORE FREQUENT

Within a 15-day period this summer, the IRS issued twowarnings about tax scams. In IRS News Release 2014-81 [8/13/14], the IRS reported that it and the TreasuryInspector General for Tax Administration (TIGTA)continue to hear from taxpayers who have receivedunsolicited calls from individuals demanding paymentwhile fraudulently claiming to be from the IRS. Based onthe 90,000 complaints that the TIGTA has receivedthrough its telephone hotline to date, the TIGTA hasidentified approximately 1,100 victims who have lost anestimated $5 million from tax scams. Potential phonescam victims may be told that they owe money that mustbe paid immediately to the IRS. When unsuccessful thefirst time, sometimes phone scammers call back trying anew strategy. Tax scammers use fake names and IRSbadge numbers. They generally use common names andsurnames to identify themselves. They may be able torecite the last four digits of a victim's Social Securitynumber as well as spoof the IRS toll-free number oncaller ID to make it appear that it is the IRS calling.Scammers send bogus IRS emails to some victims tosupport their bogus calls while other victims havereported that they hear background noise of other callsbeing conducted to mimic a call site. In IRS NewsRelease 2014-84 [8/28/14], the IRS provides five easyways to identify a telephone scam artist. It notes that it willnever take any one of the following actions: (1) call ataxpayer about taxes owed without first mailing an officialnotice; (2) demand that a taxpayer pay taxes withoutgiving the taxpayer the opportunity to question or appealthe amount it says is owed; (3) require a taxpayer to usea specific payment method for paying taxes, such as aprepaid debit card; (4) ask for credit or debit cardnumbers over the phone; or, (5) threaten to bring in localpolice or other law enforcement groups to have ataxpayer arrested for not paying. Note: Wheneverpossible, clients should be warned of these tax scamsand if a client has been scammed, the scam should bereported to the TIGTA at 1-800-366-4484.

IRS CONCEDES PENALTY ON PART OR ALL OF ANIMPROPERLY CLAIMED REFUNDABLE TAX CREDIT

Assume a taxpayer claims a $5,000 refundable tax creditwhich results in a taxpayer receiving a $4,000 tax refundrather than having a tax liability of $1,000. Later, thetaxpayer is audited, the $5,000 credit is denied, and anaccuracy-related penalty is imposed. Is the accuracy-related penalty imposed on the full amount of thedisallowed tax credit ($5,000) or on the amount of taxliability that the taxpayer owed prior to claiming the credit($1,000)? IRC Section 6664(a) defines the termunderpayment as the difference between (1) the sum of

the amount shown as tax by the taxpayer on his return(tax shown on the return), plus the amounts not soshown previously assessed (or collected withoutassessment) and (2) the amount of rebates made. In a2013 Tax Court case (Rand), the IRS took the positionthat the disallowed refundable credits should be takeninto account when determining the tax shown on thereturn and that the resulting tax shown on the returncould be a negative amount. The Tax Court agreed thatdisallowed refundable credits must be taken into accountwhen determining the tax shown on the return. However,it held that disallowed refundable credits cannot reducethe tax shown on the return below zero. The IRS hasappealed this decision to the 7 Circuit. In the meanth

time, in Chief Counsel 2014-007 [7/31/14], it hasinstructed IRS attorneys handling docketed Tax Courtcases to ensure that any accuracy-related penalty orfraud penalty involving disallowed refundable credits iscalculated in accordance with the Rand decision pendingfurther guidance. The IRS also instructs IRS personneldealing with statutory notices which are applying theaccuracy-related penalty to concede the portion of thepenalty applicable to the disallowed refund claim basedon an erroneous refundable credit. That is, the penaltyis assessed only on the tax due portion prior to the taxcredit. In the example above, IRS personnel shouldcalculate the penalty on the $1,000 tax due before thecredit and concede the penalty on the $4,000 refundwhich was based on the erroneous refundable credit of$5,000. Note: The definition of underpayment underSection 6664(a) applies to the 75% fraud penalty underSection 6663 as well as the 20% accuracy-relatedpenalty under Section 6662.

IRS RELEASES ITS STATISTICS OF INCOME FOR2012 INDIVIDUAL INCOME TAX RETURNS

In IRS News Release 2014-83 [8/22/14], the IRSannounced the availability of the “Statistics ofIncome-2012, Individual Income Tax Returns CompleteReport.” U.S. taxpayers filed 144.9 million individualincome tax returns for tax year 2012, down 0.3 percentfrom 2011. The adjusted gross income less deficitreported on these returns totaled $9.1 trillion, which is an8.7% increase from the prior year. The report is basedon a sample drawn from the 144.9 million individualincome tax returns filed for tax year 2012 and providesestimates on sources of income, adjusted gross income,exemptions, deductions, taxable income, income tax,modified income tax, tax credits, self-employment tax,and tax payments. Of the 144.9 million returns filed, 109million taxpayers reported taxable income but only 93.1million returns reported a tax liability after income taxcredits. Over twice as many taxpayers claimed thestandard deduction (97.2 million) than claimed itemizeddeductions (45.6 million) while 2.1 million claimed neithersince they had negative or no AGI. 119.8 million of thereturns reported wages and 17.6 million returns reportedbusiness income. For additional information, seePublication 1304 at irs.gov/taxstats (then click IndividualIncome Tax and Individual Income Tax ReturnPublications).

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IRS PROVIDES INFORMATION ON QUALIFIEDTRANSPORTATION FRINGE BENEFITS

In Information Letter 2014-0028 [10/1014], the IRSprovides information on the so-called “80/50" rule foremployee benefits for commuting costs found in Section132(f). It notes that the rule varies, depending on thetype of van pool. A van pool may be an employer-operated van pool, an employee-operated van pool, or aprivate or public transportation van pool. Gross incomedoes not include a “qualified transportation fringe” (QTF)benefit. QTFs include transportation an employerprovides to an employee in a commuter highway vehicleif the transportation is for travel between the employee’sresidence and place of employment. A commuterhighway vehicle must meet two conditions. First, it musthave a seating capacity of at least six adults (driverexcluded). Second, at least 80% of the mileage use mustreasonably be expected to be for transporting employeesbetween their residences and their place of employment,and to be used on trips during which the number ofemployees transported is at least 50% of the adultseating capacity (driver excluded). This is the “80/50"rule. The letter distinguishes the income taxconsequences depending on the type of van pool. For anemployer-operated van pool, the value (up to thestatutory monthly limit) is a nontaxable QTF. For anemployee-operated van pool, the employer’s cashreimbursement to employees for expenses incurred inconnection with the pool is a nontaxable QTF. The 80/50rule does not apply to private or public transit-operatedvan pools. The qualified transportation benefit exclusionis available for transit passes, tokens, farecards,vouchers, or similar items that entitle a person totransportation in private or public transit-operated vanpools. Employer-provided transit passes for each monthwith a value not more than the statutory monthly limit donot require any certification from the employee regardingthe use of the passes. If a van pool is employer- oremployee-operated, the van must comply with the 80/50rule for the value of the benefit or the employer’sreimbursements of the employee’s costs to be excludedfrom income and employment taxes. Any excess of theQTF value over the QTF exclusion amount is included ingross income and subject to employment taxes. For aprivate or public transit-operated van pool, the van mustseat at least six adults (driver excluded). Generally, theemployer must distribute transit passes for transportationin private or public transit-operated van pools if they arereadily available. If the passes are not readily available,the employer may provide cash reimbursement toemployees. Compliance Pointers: For the 50%component, it is not required that the employee use thevan pool at least 50% of the time. There aresubstantiation rules for cash reimbursements in Treasuryregulation 1.132-9(b). For 2014, the maximum monthlyexclusion for commuter transportation and transit passesis $130.

IRS DETAILS TREATMENT OF “GREEN CARD”HOLDERS

In Information Letter 2014-0033 [10/10/14], the IRSprovides information on “green card” holders. It states

that an alien individual is classified as a US resident fora calendar year in three cases. First, the individual is alawful permanent resident of the US at any time duringthe calendar year (“green card” test). Second, theindividual meets the substantial presence test of Section7701(b)(3). Third, the individual makes the first-yearelection of Section 7701(b)(4). An individual who isneither a US citizen or US resident is a nonresident alien.An individual is a lawful resident (“green card” holder) ifhe has the status of having been lawfully accorded theprivilege of residing permanently in the US as animmigrant in accordance with the immigration laws, andthe status has not revoked or been administratively orjudicially determined to have been abandoned. A greencard holder also may be treated as a resident of a foreigncountry, under that country’s domestic law, with whichthe US has an income tax treaty in force. This individualis a “dual resident taxpayer.” Income tax treaties usuallyhave tiebreaker rules to determine the residence of adual resident taxpayer. A dual resident green cardholder may compute his US tax as if he were anonresident alien by filing Form 1040NR, and attachingForm 8833. An alien individual who was not a USresident during the preceding calendar year, but who isa US resident in the current year, is treated as a USresident on the alien’s “residency starting date.” For agreen card holder, generally the residency starting dateis the first day during the calendar year on which theindividual is physically present in the US as a green cardholder. If the individual meets the green card test for thecurrent year but is not physically present in the US duringthe current year, then the residency starting date is thefirst day of the following calendar year. Under the greencard test, an individual continues to be a resident for taxpurposes until his lawful resident status is rescinded oradministratively or judicially determined to have beenabandoned. Resident status is considered to berescinded if a final administrative or judicial order ofexclusion or deportation is issued regarding the alienindividual. An administrative or judicial determination ofabandonment may be initiated by the green card holder,the immigration authorities, or a consular officer. Merelyleaving the US with no intention to return is not sufficient.An individual ceases to be treated as a green card holderif he begins being treated as a resident of a foreigncountry under treaty provisions between that country andthe US, he does not waive the benefits of the treaty thatapply to residents of the foreign country, and he notifiesthe IRS of the beginning of such treatment. IRS: SeeIRS Publication 901 for information on US tax treaties.

IRS PROVIDES RELIEF FOR CANADIANRETIREMENT PLAN BENEFICIARIES

In Revenue Procedure 2014-55 [10/7/14], the IRSsimplifies reporting procedures for US citizens orresidents who are beneficiaries of Canadian “registeredretirement savings plans” (RRSPs) and “registeredretirement income funds” (RRIFs). Generally, a UScitizen or resident who is a beneficiary of a Canadianretirement plan is subject to current US tax on incomeaccrued in the plan, even though the income is notdistributed currently. The individual is subject toCanadian income tax when the income is distributed.

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There may be double tax for which there is no relief. TheUS / Canadian tax treaty provides an individual may electto defer US tax to provide relief. To elect, an individualmust attach a statement with required information to atimely filed return. Also, since 2004, US citizens orresidents who held an interest in an RRSP or RRIF mustreport annually on Form 8891 distributions, contributions,and undistributed earnings in those plans. Manyindividuals did not make the election to defer or file Form8891 annually. To correct an omission to elect deferral orreport annually, the individual had to incur the cost andtime to request a private letter ruling. In the procedure,the IRS grants retroactive relief for certain individuals whofailed to make the election and report annually. They willbe treated as automatically having made the election, anddone the required annual filing. The individual must havebeen a US citizen or resident while a plan beneficiary,met any requirement for filing a US tax return during eachof those years, not reported as gross income on the USreturn for those years accrued and undistributedearnings, and reported distributions as if they had madethe election. Compliance Pointer: The IRS obsoletesForm 8891 as of December 31, 2014.

**REVIEW QUESTIONS AND SOLUTIONS**

1. True or False. If the amount rolled over to an eligibleretirement plan is more than the pre-tax amount thatis assigned or allocated to the plan, the excess is anafter-tax amount.

2. Regarding the per diem rates for 2014 - 2015 fortaxpayers to use in substantiating the amount ofordinary and necessary business expenses incurredwhile traveling away from home, which one of thefollowing statements is true?

a. Transportation and mailing expenses are notincluded in incidental expenses.

b. The special transportation industry M&IE rate is$65 per day for any locality within the CONUS.

c. Under the high-low method, the amount of the$259 per diem that is treated as paid for mealsfor purposes of Section 274(n) is $52 for travelto any high-cost locality within the continentalUnited States.

3. In a recent IRS ruling dealing with a tax-exemptsocial club involving cars, which one of the followingstatements is false?

a. Fees generated from nontraditional activitiesconstitute unrelated business income.

b. The club’s annual raffle was considered to be anontraditional activity.

c. The club’s car racing event was considered tobe a traditional activity even though somesponsors, who were nonmembers, of the clubwere allowed to have booth spaces forpromotional activities.

4. In response to the flurry of recent tax scams, the IRSlists five actions commonly done by tax scammersbut not actions the IRS will engage in. Which oneof the following actions is not included in the list?

a. Ask for a credit card number over the phone.

b. Have the taxpayer arrested for not paying thetaxes.

c. Call the taxpayer after a tax notice is mailed tothe taxpayer.

5. True or False. According to a recent Chief Counselannouncement involving the accuracy-relatedpenalty, IRS personnel are instructed to concede theportion of the penalty applicable to the disallowedrefund claim based on an erroneous refundablecredit.

6. Regarding individual income tax returns filed in2012, which one of the following statements isfalse?

a. Tax liability was reported on 109 million taxreturns.

b. Wages were reported on 119.8 million taxreturns.

c. Fewer individual income tax returns were filedin 2012 than in 2011.

7. Which one of the following statements about the80/50 rule for the qualified transportation fringebenefit is true?

a. At least 80% of the commuter highway vehiclemileage use must reasonably be expected tobe for transporting employees between theirresidences and their place of employment.

b. At least 50% of the commuter highway vehiclemileage use must reasonably be expected tobe for transporting employees between theirresidences and their place of employment.

c. The commuter highway vehicle must be usedon trips during which the number of employeestransported is at least 80% of the adult seatingcapacity (driver excluded).

8. Which one of the following actions does notterminate a green card holder’s status as a residentfor US tax purposes?

a. The holder’s action of leaving the US alone withno intention to return.

b. The holder’s lawful resident status is rescinded.

c. The holder’s lawful status is administratively orjudicially determined to have been abandoned.

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9. For a recent IRS ruling on certain Canadianretirement plans, which one of the followingstatements is false?

a. Retroactive relief is provided those who failed toelect to defer income tax on income earned butundistributed in certain plans.

b. Retroactive relief is provided those who failed toreport annually on Form 8891 distributions,contributions, and undistributed earnings incertain plans.

c. Form 8891 will have to be filed effectiveJanuary 1, 2015.

Solutions

1. True is the correct response. If the amount rolledover to an eligible retirement plan is more than thepre-tax amount that is assigned or allocated to theplan, the excess is an after-tax amount.

False is the incorrect response. The rolloverdistribution excess beyond the pre-tax amount is anafter-tax amount. Notice 2014-54.

2. "A" is the correct response. Transportationbetween places of lodging or business and placeswhere meals are taken, and the mailing costs of filingtravel vouchers and paying employer-sponsoredcharge card billings, are not included in incidentalexpenses.

“B" is an incorrect response. The specialtransportation industry M&IE rate is $59 per day forany locality within the continental United States.

"C" is an incorrect response. The portion treatedas paid for meals is $65. Notice 2014-57.

3. "B" is the correct response. Since the club’s raffleincome was derived solely from its members, it wasconsidered a traditional activity (and it is exemptfunction income).

“A" is an incorrect response. All income otherthan income from traditional activities constitutesunrelated business income.

"C" is an incorrect response. The club limitedsponsorship opportunities to entities having aconnection to car motoring and ownership and, sincethe revenue from nonmembers was less than 35% ofgross receipts, it was considered to be a traditionalactivity. Technical Advice Memorandum 201430019.

4. "C" is the correct response. The IRS indicated thatit will call a taxpayer only after it mails an officialnotice to the taxpayer.

“A" is an incorrect response. The IRS lists fiveactions it will not take. Asking for a credit cardnumber over the phone is the fourth item on the list.

"B" is an incorrect response. Having the taxpayerarrested for not paying taxes is the fifth item on thelist. IRS News Release 2014-84.

5. True is the correct response. Until furtherguidance is provided, the IRS has instructed itsemployees to concede the portion of the penaltyapplicable to the disallowed refund claim based onan erroneous refundable credit.

False is the incorrect response. Although the IRShas appealed the Rand decision, it will apply theaccuracy-related penalty only to the tax due portionof the liability until the appeal is heard. ChiefCounsel 2014-007.

6. "A" is the correct response. Tax liability wasreported on only 93.1 million returns. 109 million taxreturns reported taxable income.

“B" is an incorrect response. Wages werereported on 119.8 million tax returns.

"C" is an incorrect response. There was a .3%reduction in the number of tax returns filed in 2012than in 2011. IRS News Release 2014-83.

7. "A" is the correct response. At least 80% of thecommuter highway vehicle mileage use mustreasonably be expected to be for transportingemployees between their residences and their placeof employment.

“B" is an incorrect response. At least 80%, not50%, of the use must be for transporting employeesbetween their residences and place of employment.

"C" is an incorrect response. The commuterhighway vehicle must be used on trips during whichthe number of employees transported is at least50%, not 80%, of the adult seating capacity (driverexcluded). Information Letter 2014-0028.

8. "A" is the correct response. Merely leaving theUS with no intention to return is not sufficient toterminate a green card holder’s status as a resident.

“B" is an incorrect response. One way that agreen card holder ceases to be a resident for US taxpurposes is if the holder’s lawful resident status isrescinded.

"C" is an incorrect response. Another way that agreen card holder ceases to be a resident for US taxpurposes is if the holder’s lawful resident status isadministratively or judicially determined to havebeen abandoned. Information Letter 2014-0033.

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9. "C" is the correct response. The IRS obsoletesForm 8891 as of December 31, 2014.

“A" is an incorrect response. This is one of thetwo retroactive relief provisions in a recent revenueprocedure.

"B" is an incorrect response. This is one of thetwo retroactive relief provisions in a recent revenueprocedure. Revenue Procedure 2014-55.

444444444444 COURT DECISIONS 44444444444444

TAX COURT RULES THAT THE FEDERALGOVERNMENT RETIREMENT PLAN CAN NOTACCEPT IRA ROLLOVER DISTRIBUTIONS

The taxpayer was employed by the Social SecurityAdministration. He participated in the Civil ServiceRetirement System (CSRS) administered by the Office ofPersonnel Management (OPM). After he retired, on April13, 2010, the OPM mailed him a letter explaining hecould increase his CSRS retirement annuity by remitting$17,832. The $17,832 covered creditable governmentservice for a period no retirement contributions had beenwithheld from his salary. The taxpayer had 15 days toremit the funds, and the letter was silent on whether hisremittance could be made through a tax-free rollovercontribution. On April 27, he mailed OPM a $17,832check. On April 15, 2010, his traditional IRA trustee senthim a $4,500 distribution ($5,000 he requested less $500withholding), and on May 3, 2010, he requested andreceived a $12,832 distribution. The taxpayer used thefunds to reimburse a friend and replenish his bankaccount, the sources of the $17,832 check he mailed onApril 27. His IRA trustee issued the taxpayer a Form1099-R for 2010, reporting $17,832 in distributions andlisting the full amount as taxable. He reported none ofthe distributions as taxable. Subsequently, the IRSdetermined a $4,590 tax deficiency, treating the $17,832as taxable income. In Bohner [9/23/14], the Tax Courtdecided that $17,832 must be included in the taxpayer’staxable income. The court stated that the United StatesCode does not specifically permit civil service employeesto remit deposits as the taxpayer did here through a tax-free rollover contribution from an IRA or another eligibleretirement plan. It also stated that the related federalregulations under the Code do not require CSRS toaccept tax-free rollovers as a form of deposit. The courtobserved that the OPM letter was silent on whether therequired deposit could be made as a rollover. The courtnoted that the taxpayer made an indirect transfer, and theCSRS likely was not aware the taxpayer was attemptingto make a tax-free rollover contribution. It observed thatunless it explicitly accepted rollovers, a plan such asCSRS would not be aware of the proper tax treatment ofthe payment upon distribution. Compliance Pointer: Ifthe taxpayer receives a distribution he plans to use as arollover contribution, even though there will be withholdingon the distribution, he must remit the entire requestedamount to another qualified plan within 60 days.Planning Pointer: Trustee-to-trustee rollovers eliminate

the withholding issue. IRS: Use Form 8606 to figure thenontaxable part of qualified plan distributions.

TAX COURT RULES THAT THE TAXPAYER’S RV WASUSED 2/3RDS FOR BUSINESS BUT DISALLOWSDEPRECIATION DEDUCTIONS

In Jackson [8/7/14], the taxpayers have been involved inthe insurance business for many years. The husbandwas involved in his own company for about 30 years untilhe sold it in 2011. The wife also worked with herhusband in the business as an agent and officemanager. In 2004, they began selling insurance forrecreational vehicles (RVs). They first became involvedin RVs in 1995 when they joined a club that heldweekend rallies at RV parks. From 2004 on, they wouldsell RV insurance at the rallies. They had a banner thatthey attached to their RV and they would set up aninformation table either outside of their RV or by theclubhouse if the park had one. They would gatherinformation from potential clients one weekend andreturn the next weekend with quotes, policies and otherinformation. In 2006, they admitted to taking two or threepersonal trips with the RV but took no personal trips in2007 because of the husband’s health. On their 2006 taxreturn, they claimed over $47,000 in depreciationexpense. In 2007, they purchased a new RV andclaimed over $60,000 for depreciation expense. The IRSdenied all of the 2006 and 2007 depreciation. The IRSclaimed that the RV was used primarily for recreationalpurposes rather than business purposes. For 2006, thetaxpayer’s records were incomplete and the Tax Courtruled that they failed to establish business use of the RVbecause they could not sufficiently corroborate theirtestimony. However, based on the examination of thetaxpayers’ detailed log and testimony for 2007 businessuse, the Tax Court estimated that the business use in2007 was 66.67%. The Tax Court next addressed theIRS’s secondary argument that Section 280A preventsthe taxpayers from taking any deduction with respect tothe RV. Under Section 280A, the general rule prohibitsa deduction with respect to the use of a dwelling unitwhich is used by the taxpayer during the taxable year asa residence. The Tax Court first noted that underSection 280A(d)(2), a personal use day includes any partof a day that a taxpayer uses the property for personaluse. As an example, it concludes that watching TV in theRV for any part of the day makes the entire day apersonal day. It also noted that under Section 280A(c),the business use for any portion of a dwelling unitrequires that the dwelling unit be “exclusively used” on aregular basis "as a place of business which is used bypatients, clients, or customers in meeting or dealing withthe taxpayer in the normal course of his trade orbusiness." The court concluded that exclusivity was thekey issue in this case and that the taxpayers did not useany portion of the RV exclusively for business. Althoughthe facts of this case show that the use of the RV wasappropriate and helpful in the conduct of the taxpayer’strade or business, the Tax Court concluded that thetaxpayers failed to meet the stringent requirements ofSection 280A. As a result, all of the depreciation

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deductions were disallowed. Note: While it may seemharsh, the taxpayers also were assessed an accuracy-related penalty of 20% of the tax underpayment.

TAX COURT RULES THAT THE SIX-YEAR STATUTEOF LIMITATION APPLIES

If the taxpayer fails to report more than 25% of grossincome in a taxable year, the three-year statute oflimitations period is extended to six years. In Barkett[8/28/14], the taxpayers omitted gross income from their2006 and 2007 returns of $629,850 and $431,957,respectively. The IRS issued a notice of deficiencyrelated to the omission of gross income in September2012, well past the three-year statute of limitations. Thetaxpayers were 80% owners in a family limitedpartnership and 100% owners in an S Corporation.These entities reported extensive investment activity fortheir 2006 and 2007 returns. Combined, the entitiesreported capital gains from the sale of investments ofapproximately $123,000 for 2006 and $314,000 for 2007.They reported amounts realized from the sale ofinvestments of more than $7 million for 2006 and morethan $4 million for 2007. On their 2006 and 2007 returns,the taxpayers reported their shares of the entities' gainsand losses. In computing the percentage of omittedgross income, the IRS included in the denominator(taxpayers’ total gross income) the taxpayers’ shares ofthe entities’ net investment gains (amount realized lessbasis). Because the amount of omitted gross incomewas more than 25% of the taxpayers’ total gross income,the IRS argued that the six-year statute of limitationsshould apply. On the other hand, the taxpayers arguedthat their share of the amounts realized from the sale ofthe investments should be included in the denominator.In this case, the percentage of omitted gross income wasfar less than 25% so the taxpayers argued that the three-year statute of limitations should apply. The taxpayers’argument is based primarily on a 2012 Supreme Courtcase (Home Concrete), which invalidated a 2010Treasury regulation dealing with the omission of grossincome. The regulation indicated that an overstatementof basis was tantamount to an understatement of income.The Tax Court noted that the Home Concrete caseaddressed only when gross income is to be consideredomitted rather than how to calculate the amount of grossincome. The Supreme Court held that the underreportedgain was not omitted gross income and that it did notbelong in the denominator of the statute of limitationscalculation. After dispensing with the taxpayers’ relianceon the Home Concrete case, the Tax Court concludedthat the law is clear in that Section 61 defines grossincome as income from whatever source derivedincluding gains derived from dealings in property. As aresult, the Tax Court ruled that the six-year statute oflimitations applied.

SCORE UPDATE ON ‘’STATE-ESTABLISHEDEXCHANGES”: THE FEDERAL GOVERNMENT – 3;TAXPAYER - 2

In the Fall issue of The Elite Quarterly we reviewed twocourt decisions on the availability of the Section 36B

refundable tax credit for taxpayers covered by a qualifiedhealth plan that the taxpayer enrolls in through anExchange. For the taxpayer to receive the credit, hemust be covered by a qualified health plan enrolled inthrough an Exchange established by the State. Forstates that chose not to establish an Exchange, FederalExchanges may be set up. The issue is whethertaxpayers are able to receive premium assistance taxcredits in states that did not establish their ownExchanges. In a DC Circuit Court of Appeals case[Halbig et al. v. Burwell; 7/22/14], the court ruled theFederal Exchanges set up in states that do not establishExchanges do not have the authority to issue thepremium assistance tax credits. Its decision ruledagainst a lower court decision. On that same day, theFourth Circuit Court of Appeals [King v. Burwell; 7/22/14]reasoned that it is possible to infer from the reportingrequirements that Congress intended the tax credits tobe available on both State- and Federally-facilitatedExchanges. It ruled that Federal Exchanges have theauthority to issue premium assistance tax credits. Itupheld the lower court decision. On 9/30/2014 [State ofOklahoma v Burwell], the Oklahoma Eastern DistrictCourt took up the same issue. The district courtconsidered if the state had standing for the court to hearthe dispute. The court stated that the IRS regulationextends premium assistance tax credits to anyone“enrolled in one or more qualified health plans through anExchange.” The state argued that the assessablepayments under the employer mandate are triggeredonly if at least one full-time employee obtains a subsidyby purchasing insurance on an Exchange. As Oklahomahas not established its own Exchange, its stateemployees would not be eligible for subsidies if not forthe IRS rule that grants subsidies for coveragepurchases through all Exchanges. Were it not for theIRS rule, the state of Oklahoma would face no risk ofincurring penalties under the employer mandate. Thestate noted that because the challenged IRS regulationswould make credits and subsidies available in Oklahoma,the State would be forced to provide insurance toemployees to whom it does not currently provideinsurance, or be subject to enormous penalties. Thestate also contended the Health Care Act imposescompliance costs. The district court ruled that the Stateof Oklahoma did not lack standing. The court then foundthe DC Circuit Court of Appeals case most persuasive.The Oklahoma District Court applied the Chevron two-step analysis to determine if the IRS rule should beupheld. If the first step is satisfied, the second step is notnecessary. Under the first step, the court noted that ifCongress has directly spoken to the precise question atissue, the court must give effect to the unambiguouslyexpressed intent of Congress. If the court findsambiguity, it must go to the second step and determineif the IRS’s interpretation of the statute is animpermissible construction of it. The court resolved theissue at the first step. It noted the Halbig finding thatinasmuch as “the ACA unambiguously restricts theSection 36B subsidy to insurance purchased onExchanges ‘established by the State,’ we reverse thedistrict court and vacate the IRS’s regulation.” TheOklahoma District Court did not believe that the IRS

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offered any textual basis for concluding that a Federally-established Exchange is established by the state. Thecourt stated that it is upholding the ACA as written. It heldthat the IRS rule is arbitrary, capricious, an abuse ofdiscretion or otherwise not in accordance with law. IRS:R e a d t h e A C A ’ s t a x p r o v i s i o n s a t :http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Home.

EIGHTH CIRCUIT REVERSES TAX COURT IN FINDINGSOIL CONSERVATION PAYMENTS ARE RENTALINCOME

The taxpayer enrolled about 800 acres of his tillablecropland in a federal soil conservation program(Conservation Reserve Program (CRP)). The CRP /taxpayer contracts expressly forbade the taxpayer fromproducing agricultural commodities on the CRPproperties, or undertaking any action on the land whichwould tend to defeat the purposes of the CRP contract.The contract required the taxpayer to implementconservation plans for the CRP properties. The plansgenerally required him to establish and maintain specifictypes of grass and vegetative cover on portions of theproperties, and periodically engage in weed and pestcontrol. He was required to fulfill certain annualpaperwork obligations. He visited the properties aboutthree times annually to ensure they complied with theCRP contracts. The taxpayer never farmed any of theland. He was reimbursed part of his costs forimplementing the conservation plans, and paid annualrental payments. The character of the annual rentalpayments was the issue in Morehouse [10/10/14]. Thetaxpayer had reported the payments on Schedule E, andpaid no self-employment tax. The IRS insisted thepayments were Schedule F income subject to self-employment tax. The Tax Court agreed with the IRS. Itconcluded the taxpayer was engaged in the business ofparticipating in the CRP, and the payments were netearnings from self-employment. It decided that thepayments were for the taxpayer’s own use of the land,and they did not represent rent. The taxpayer appealedto the Eighth Circuit. The Eighth Circuit reversed the TaxCourt’s decision. The Eighth Circuit relied on a 1960 IRSrevenue ruling which concluded that soil bank paymentsmade to persons who did not operate or materiallyparticipate in a farming operation (non-farmers) were notnet earnings from self-employment. On the other hand,the ruling had held that such payments to farmers wereself-employment income derived from their farmingbusiness. In 1965, the IRS issued a ruling that indicatedthat soil bank payments to non-farmers were rentalincome. The Eighth Circuit noted that a 2000 SixthCircuit case had found CRP payments to farmers werenot rentals from real estate, but that finding was notinconsistent with the IRS’s longstanding position taken inthe 1960 ruling. The Eighth Circuit also noted that in2006 the IRS issued a proposed revenue ruling in whichit would treat CRP payments to non-farmers as self-employment income. But, it never formally adopted theproposed ruling. The Eighth Circuit felt the 1960 positionfor non-farmers effectively had not been changed byeither the 2000 case or the 2006 proposed revenue

ruling. It decided that the CRP payments to the taxpayerwere rentals from real estate not subject to self-employment tax.

DISTRICT COURT REFUSES TO FIND CORPORATETREASURER A RESPONSIBLE PERSON FOR UNPAIDPAYROLL TAXES

This case involves $181,000 of unpaid taxes and civilpenalties against a corporation’s treasurer. Thecompany did not account for its employee-withheldemployment taxes (“trust fund taxes”) for various periodsduring 2003 - 2008. A “responsible person” who willfullyfails to collect and pay over the taxes is subject to apenalty of the taxes evaded, not collected, or notaccounted for and paid over to the IRS. The taxpayerwas a founding officer of a tire company and agreed toact as its treasurer beginning March, 2003. Her fatherwas the sole shareholder of the corporation. InDecember, 2004, she resigned as treasurer because ofa separate, full-time job that required substantial out-of-state travel. Though resigned, she continued to help herfather’s business by calculating payroll, preparing andsigning tax returns, and writing checks to creditors at herfather’s direction. In Charlotte K. Webb-Smith [9/2/14],a North Carolina district court examined six factors todetermine if the taxpayer were a responsible person whowillfully failed to collect and pay over the withheld trustfund taxes. First, it considered her serving as acorporate officer. The court stated that the taxpayer didnot write checks or file the company’s tax returns withouther father’s permission, she had no office at the tirecompany, and she was away for substantial periods oftime. Second, it considered her control of thecorporation’s payroll. The court observed that thoughshe prepared the payroll and signed payroll checks, shedid so at the request and direction of her father, oftenwhile she was working full-time out of state. It noted thather lack of control was supported by her testimony thatshe did not learn that the company had failed to remittrust fund taxes. Third, the court considered thedetermination of which creditors to pay, and when to paythem. It stated that, while she possessed the technicalauthority to pay the company’s creditors due to hercheck-signing authority, there was a dispute as towhether she had actual authority to do so. She testifiedthat her father would tell her what specific bills to pay andthat she never questioned his decision or offered adviceon the issue. Fourth, the court considered the taxpayer’spossessing the power to write checks. It noted that shehad the power to write company checks, as no co-signorwas required. It concluded that there was a question ofwhether her father exerted such control over the processas to divest the taxpayer of any meaningful authority.Fifth, it considered her ability to hire and fire employees,and the court found it a reasonable inference that shelacked hiring / firing ability. Sixth, the court consideredher participation in the company’s day-to-daymanagement. It noted that, while she performed severaltasks for the company over the period in question, noevidence supported that she was involved in thecompany’s day-to-day management. The court found foreach of the six factors there were genuine questions

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whether the taxpayer was in fact a responsible person.It did not find her to be a responsible person underSection 6672. Compliance Pointer: Given theenormous potential for substantial liability, anyoneresponsible for collecting, accounting for, and payingpayroll taxes must be constantly watchful that the properemployment taxes are paid. IRS: For IRS information onemployment taxes and the trust fund recovery penalty, goto: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employment-Taxes-and-the-Trust-Fund-Recovery-Penalty-TFRP for IRS information onemployment taxes and the trust fund recovery penalty.Also, see IRS Publication 15 and the instructions for Form941 for more information on employment taxes.

TAX COURT DETERMINES YEAR OF DEDUCTIONFOR CONSERVATION EASEMENT CONTRIBUTION

In the past several years there have been a number ofcases dealing with charitable contributions ofconservation easements. Most of these cases dealtprimarily with proper valuations of the easement andwhether the taxpayers followed the myriad ofsubstantiation requirements that have to be followed toclaim the deduction. These requirements includeobtaining a qualified appraiser, appraising the propertyunder one of the allowable methods, and preparing aqualified appraisal report. In Zarlengo [8/11/14], theabove requirements were also at issue as well asdetermining the proper year of the contribution deduction.In 1975, the taxpayers purchased a townhouse inManhattan which had been built in the 1890's. It was indire need of repair so they undertook a completerestoration of the townhouse using materials designed topreserve its historic character. Their neighbors soonfollowed suit and the properties skyrocketed in value.The taxpayers divorced about 15 years later but eachretained an interest in the house. In 2004 they began theprocess of donating a conservation easement on thetownhouse to a trust, which is a nonprofit organizationwhose mission is to preserve historic architecture in theUnited States. A qualified appraiser determined that thevalue of the conservation easement was $660,000, whichwas 11% of the property’s appraised value of $6,000,000.On September 10, 2004, the taxpayers signed theconservation deed, had it notarized, and 12 days later anauthorized representative signed the deed on behalf ofthe trust. The trust mailed a letter to the taxpayers onDecember 10, 2004, thanking them for their donation andenclosed a copy of IRS Form 8283 executed by theappraiser and trust. On January 26, 2005, the New YorkCity Department of Finance, Office of the City Register,recorded and filed the conservation deed. During the timethe easement was being prepared, the townhouse waslisted for sale. It was not sold until November 20, 2007,for $4,650,500. In 2004, each taxpayer deducted$330,000 as a charitable deduction for their share of thedonated conservation easement. After listening to expertwitnesses on both sides of the argument, the Tax Courtlowered the value of the easement from $660,000 to$157,500. Two variables accounted for this reduction.First, the value of the home was reduced from$6,000,000 to $4,500,000. Second, the percentage of the

decline in value of the property resulting from theeasement was reduced from 11% to 3.5%, yielding a netdeduction of $157,500 ($4,500,000 x 3.5%). The TaxCourt also agreed with the IRS that the critical date fordetermining the year the deduction is allowed is the datethe easement was recorded (January 2005) rather thanthe date the conservation deed was signed by the trustrepresentative (September 2004). The court noted thatunder New York law, an instrument purporting to create,convey, modify, or terminate a conservation easement isnot effective unless recorded. It argued further that if thetaxpayers had sold their home prior to the recording date,the buyer could have taken the townhouse free and clearof the conservation easement.

TAX COURT ALLOWS TAXPAYER TO RECOVERSOME ATTORNEY’S FEES

Over the last few years, the IRS has been fairly heavilycriticized for its inefficiencies by many including theNational Taxpayer Advocate and the Treasury InspectorGeneral for Tax Administration. The Swiggart case[8/25/14] provides ad hoc evidence in justification ofthese claims. The taxpayer filed head of household in2010 but did not report the name of the dependent whoqualified him for the head of household filing statusbecause he had agreed to allow the child's mother toclaim the dependency exemption deduction for the childfor 2010. On June 20, 2011, the IRS issued a math errornotice stating that it changed the taxpayer’s filing statusto single because he did not report the name of thequalifying dependent. The notice stated that if hecontacted the IRS within 60 days with a valid explanation,they would reverse the change. However, 16 days laterthe IRS issued a Final Notice of Intent to Levy and Noticeof Your Right to a Hearing, seeking to collect the amountfrom the math error notice plus penalties and interest. OnAugust 5, 2011, 46 days after the original notice, thetaxpayer’s attorney mailed a request for abatement andForm 12153 (Request for a Collection Due Process(CDP) or Equivalent Hearing). The request included asupporting statement which listed the reasons why thetaxpayer should be able to file head of household and anexplanation as to why the IRS change was not a matherror. Five weeks later, the IRS notified the taxpayer thatit was unable to process his claim for abatementbecause his supporting information was not completeand the additional information provided did not give theIRS a basis to change its assessment. On October 24,2011, the taxpayer’s attorney contacted the settlementofficer assigned to the CDP hearing by letter informinghim that the request for abatement had been denieddespite his timely request. At the CDP hearing, thetaxpayer provided a signed affidavit dated September 13,2011, identifying his child by name and Social Securitynumber and stating that his child spent the greaternumber of nights in 2010 with him but that he had anagreement with the child's mother to waive thedependency exemption deduction for certain years,including 2010. The settlement officer agreed thatclaiming the child as a dependent was not required toqualify as a head of household, but the settlement officeralso concluded that he could not abate the tax

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attributable to the change in filing status until the taxpayerprovided additional documents showing that the child hadlived with him for more than half of the year. On February8, 2012, the IRS issued a notice of determinationsustaining the proposed levy on the basis that thetaxpayer had not proven that he was entitled to head ofhousehold filing status. The taxpayer timely filed apetition disputing the notice of determination andasserting that the assessment respondent attempted tocollect was invalid as to the portion relating to his filingstatus. He asserted that the change in filing status wasnot properly subject to a math error notice, that he hadtimely requested abatement, that the IRS had erroneouslyconcluded that he was required to prove his entitlementto the filing status before abatement, and that the IRShad erroneously determined the assessment was valid.After four more actions (motions, objections, notices, andtrials) from November 2012 to April 2013, the IRS agreedthat the taxpayer was allowed to file head of household.After the trial, the taxpayer filed a motion for an award ofadministrative costs and attorneys fees. To recoveradministrative and litigation costs under Section 7430(a),the taxpayer (1) must not have unreasonably protractedthe administrative or court proceedings, and (2) musthave been the "prevailing party." In addition, with respectto a request for litigation costs, the taxpayer also mustprove that he exhausted all administrative remediesavailable within the IRS. The IRS argued that he was notallowed to recover these costs because he was not theprevailing party. The Tax Court ruled that all of the aboveconditions were satisfied so he was entitled to recoverreasonable administrative and legal costs. The taxpayerrequested reimbursement of legal fees for 22.6 hours ata $250 hourly rate. Although the court found the numberof hours to be reasonable, it ruled that the hourly ratecould not exceed the statutory rate unless a special factwas present, such as a limited number of tax attorneys inthe area. The Tax Court ruled that the taxpayer had notdemonstrated a special factor was present so he wasreimbursed at the statutory rate ($180 per hour in 2011and 2012 and $190 per hour in 2013). Note: It sureseems that it could have taken much less time (almost 2years) and effort for something relatively simple asdetermining whether the taxpayer qualified to file as headof household.

**REVIEW QUESTIONS AND SOLUTIONS**

10. True or False. In a recent civil service retirement plancase, the Tax Court noted that the Treasuryregulations do not require the CSRS to accept tax-free rollovers as a form of deposit.

11. In a recent Tax Court case involving the use of arecreational vehicle (RV) for the taxpayers’ insuranceactivities, which one of the following statements istrue?

a. Since the Tax Court concluded that 2/3rds ofthe RV use was for business purposes in 2007,the Tax Court allowed 2/3rds of the depreciationdeductions on the RV.

b. Because of the stringent requirements ofSection 280A, the Tax Court ruled that the 20%accuracy-related penalty was not warranted.

c. The Tax Court noted personal use of the RV forany part of the day makes the entire day apersonal day.

12. Assume that a taxpayer reported the following itemson his 2013 tax return: (1) $110,000 of wages; (2)$90,000 of net capital gain income from the sale ofland; and, (3) $30,000 in total itemized deductionsand exemption deductions. The land was sold for$300,000 and its basis was $210,000. The taxpayerfailed to report $50,000 from a second job where hereceived cash payments. For purposes ofdetermining whether he failed to report more than25% of his gross income, what is the denominatoramount?

a. $200,000.b. $250,000.c. $460,000.

13. As a result of a recent Oklahoma court decision onthe Section 36B refundable tax credit, how manycircuit courts have ruled that the credit is availablefor health plans obtained through all exchanges?

a. Two.b. One.c. Three.

14. True or False. The Eighth Circuit recently agreedwith the Tax Court that CRP payments that a non-farmer receives for use of his land are net earningssubject to the self-employment tax.

15. A court recently examined six factors to determine ifa corporate treasurer was a responsible person forthe company’s trust fund taxes under Section 6672.How many factors did the court find favored thetaxpayer’s being a responsible person?

a. Six.b. None.c. Four.

16. Concerning a recent case involving the charitablededuction of a conservation easement, which oneof the following statements is false?

a. The taxpayers were allowed to deduct a 11%decline in the value of the townhouse beforethe conservation easement.

b. The date that the city recorded and filed theconservation deed was the date thecontribution was deemed to be made forpurposes of claiming a charitable deduction.

c. For purpose of calculating the conservationeasement deduction, the Tax Court reduced

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the value of the townhouse before theconservation easement.

17. In a recent case dealing with the taxpayer’s recoveryof attorney’s fees, which one of the followingstatements is false?

a. The taxpayer failed to reply to the IRS’s matherror notice within the 60-day requirement.

b. The taxpayer failed to demonstrate that he wasentitled to a reimbursement of legal fees inexcess of the statutory rate.

c. Ultimately, the taxpayer was able to file as headof household.

Solutions

10. True is the correct response. The Tax Courtstated that the related federal regulations do notrequire CSRS to accept tax-free rollovers as a formof deposit.

False is the incorrect response. The Code doesnot specifically permit and the regulations do notrequire acceptance of tax-free rollovers. Bohner.

11. "C" is the correct response. The Tax Court noted

that even watching TV for part of a day made the daya personal use day.

“A" is an incorrect response. Since the stringentrequirements of Section 280A were not satisfied, nodepreciation deductions were allowed.

"B" is an incorrect response. The Tax Courtupheld the 20% accuracy-related penalty. Jackson.

12. "B" is the correct response. Since only the netgains realized from the sale of property are includedin gross income, the denominator is $250,000($110,000 + $90,000 + $50,000).

“A" is an incorrect response. $200,000 is incorrectsince it does not include the unreported income inthe denominator.

"C" is an incorrect response. $460,000 isincorrect since it includes the amount realized fromthe sale of property rather than the gain realized inthe denominator. Barkett.

13. "B" is the correct response. Only the FourthCircuit Court of Appeals has ruled the credit isavailable through all exchanges, State- or Federally-established.

"A" is an incorrect response. Two circuits haveruled, but the DC Circuit ruled the credit is availableonly through State-established Exchanges.

"C" is an incorrect response. The Oklahoma

decision was made by a district court, not by a circuitcourt. State of Oklahoma v Burwell.

14. False is the correct response. The Eighth Circuitdisagreed with the Tax Court in ruling that the CRPpayments were rentals from real estate not subjectto the self-employment tax.

True is the incorrect response. The Eighth Circuitdisagreed with the Tax Court and reversed the TaxCourt decision. Morehouse.

15. "B" is the correct response. The court found thatthere were genuine questions for all six factors so itdid not find the person to be a responsible person.

“A" is an incorrect response. The court did notfind any of the factors favored the taxpayer’s beinga responsible person.

"C" is an incorrect response. The court did notfind any of the factors favored the taxpayer’s beinga responsible person. Charlotte K. Webb-Smith.

16. "A" is the correct response. The taxpayers wereonly allowed to deduct a 3.5% decline in the value ofthe townhouse before the conservation easement.

“B" is an incorrect response. The court noted thatunder New York law, an instrument purporting tocreate, convey, modify, or terminate a conservationeasement is not effective unless recorded.

"C" is an incorrect response. The court reducedthe value of the home before the easement from $6million to $4.5 million. Zarlengo.

17. "A" is the correct response. The taxpayer repliedto the IRS notice 46 days after it was dated.

“B" is an incorrect response. The Tax Court ruledthat the taxpayer had not demonstrated a specialfactor was present so he was reimbursed at thestatutory rate.

"C" is an incorrect response. After almost twoyears of negotiations and hearings, the IRS agreedthat the taxpayer was allowed to file head ofhousehold. Swiggart.

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FINAL REGULATIONS PROVIDE FAVORABLETREATMENT FOR LOCAL LODGING COSTS

In Treasury Decision 9696 [9/30/14], the IRS issues finalregulations that cover the deductibility of expenses forlodging when not traveling away from home (locallodging). The regulations provide two separate testsunder which local lodging costs, normally not deductible,may be deductible. Under the facts and circumstancestest, one factor is whether the taxpayer incurs anexpense because of a bona fide condition or requirement

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of employment imposed by the taxpayer’s employer.Expenses paid or incurred for local lodging that are lavishor extravagant under the circumstances or that primarilyprovide an individual with a social or personal benefit arenot incurred in carrying on a taxpayer’s trade or business(including a trade or business as an employee), and notdeductible. The regulations provide six examples thatillustrate the facts and circumstances test. Under a safeharbor test, an individual’s local lodging expenses aretreated as ordinary and necessary business expenses iffour conditions are met. First, the lodging is necessaryfor the individual to participate fully in or be available fora bona fide business meeting, conference, trainingactivity, or other business function. Second, the lodgingis for a period that does not exceed five calendar daysand does not recur more frequently than once percalendar quarter. Third, if the individual is an employee,the employee’s employer requires the employee toremain at the activity or function overnight. Fourth, thelodging is not lavish or extravagant under thecircumstances and does not provide any significantelement of personal pleasure, recreation or benefit.Compliance Pointer: If the employer incurs theexpenses on behalf of an employee, the value of the locallodging may be excludable from the employee’s incomeas a working condition fringe benefit. An employer’sreimbursement of the employee for local lodging costsmay be excludable by the employee from his grossincome if made under an accountable plan. IRS: To lookat the regulation and the six examples, go to irs.gov, andtype in 1.162-32 in the “Search Box” at the top right-handcorner of the page.

TREASURY PROVIDES REGULATIONS ONDISPOSITIONS OF DEPRECIABLE PROPERTY

In Treasury Decision 9689 [8/18/14], the Treasury issuedfinal regulations regarding disposition of depreciableproperty. The regulations provide rules for determininggain or loss upon the disposition of MACRS property,determining the asset disposed of, and accounting forpartial dispositions of MACRS property. A disposition isdeemed to occur when ownership of the asset istransferred or when the asset is permanently withdrawnfrom use either in the taxpayer's trade or business or inthe production of income. A disposition includes the sale,exchange, retirement, physical abandonment, ordestruction of an asset. It also includes retirement of astructural component of a building if the “partialdisposition rule” applies to the structural component. Thepartial disposition rule is elective and allows taxpayers toclaim a loss upon the disposition of a structuralcomponent of a building or upon the disposition of acomponent of any other asset without identifying thecomponent as an asset before the disposition event. Forpartial dispositions, the regulations provide guidance onhow to identify and determine the basis of the disposed ofasset and calculate the gain or loss. The regulationsprovide several examples demonstrating the applicationof the partial disposition rule. For taxpayers who maintainone or more general asset accounts for any MACRSproperty, guidance is provided with respect to establishinggeneral asset accounts, determining depreciation for

each general asset account, and determining theappropriate disposed of asset.

**REVIEW QUESTIONS AND SOLUTIONS**

18. Recent final Treasury regulations provide twoseparate tests under which local lodging costs,normally not deductible, may be deductible. Whichone of the following is not one of those tests?

a. The facts and circumstances test.

b. The five calendar-day test.

c. The safe harbor test.

19. True or False. Under recent regulations dealing withdispositions of depreciable property, a taxpayer maynot claim a loss upon the disposition of a structuralcomponent of a building.

Solutions

18. "B" is the correct response. This is part of one ofthe four conditions under a safe harbor test thatpermits local lodging costs to be deducted.

“A" is an incorrect response. This is one of thetwo tests.

“C" is an incorrect response. This is one of thetwo tests. Treasury Decision 9696.

19. False is the correct response. If elected, thepartial disposition rule allows taxpayers to claim aloss upon the disposition of a structural componentof a building.

True is the incorrect response. The partialdisposition rule also allows taxpayers to claim a lossupon the disposition of a component of any otherasset without identifying the component as an assetbefore the disposition event. Treasury Decision9689.

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Near the end of a year, it is always a good idea toexamine whether accelerating or deferring income ordeductions between two taxable years can lower aclient’s total tax over the two-year period. With the ever-increasing number of deductions and tax credits that aresubject to income phaseouts, tax planning is morecomplicated than ever. Consider the basic standarddeduction and analyze whether it may be better for sometaxpayers to accelerate or postpone some deductions bypaying them in December 2014 or January 2015. Forexample, assume that a single taxpayer generally incursaround $6,000 of itemized deductions each year. Sincethe standard deductions in 2014 and 2015 for singletaxpayers are $6,200 and $6,300, respectively, thetaxpayer will claim the standard deductions in 2014 and2015 rather than itemize her deductions. What if it werepossible to alter the timing of some of the deductions?Assume that her $6,000 of itemized deductions included

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in part (1) $1,000 of charitable deductions to her churchwhich she contributes every year, (2) $1,200 of realestate taxes on her home which were paid on January 11,2014, and (3) $3,600 of mortgage interest on her home.Assume that she just received next year’s real estate taxbill of $1,300 that is due by January 15, 2015, and theinterest portion of the mortgage payment due on January1, 2015, is $300. By accelerating her 2015 charitabledeductions to 2014 and by paying her January realestate tax bill and January mortgage payment inDecember 2014, she can itemize her deductions in 2014and claim the standard deduction in 2015. This strategywill result in 2014 itemized deductions of $8,600 ($6,000+ $1,000 + $1,300 + $300) rather than a standarddeduction of $6,200 for a net reduction in taxable incomeof $2,400 ($8,600 - $6,200). In 2015, her itemizeddeductions will be considerably less so she will take the2015 standard deduction of $6,300. So by acceleratingsome of her itemized deductions normally incurred in theodd-numbered years to the even-numbered years, hertotal tax deductions over the two taxable years haveincreased. On our website under “Tax News,” we haveposted a table of key 2014 amounts and limitations.These include the standard deduction, exemptiondeductions, and the AGI or Modified AGI (MAGI) amountswhere certain tax deductions and tax credits begin to bephased out or are eliminated. The latter includesphaseout amounts reducing: (1) exemption deductions;(2) itemized deductions; (3) child tax credits; (4) AmericanOpportunity tax credits; (5) IRA deductions; and, (6)several more. If some of your clients are affected by oneor more of these phaseout limitations, they may be ableto increase their 2014 tax deductions or tax credits byeither deferring income to 2015 or accelerating 2015above-the line deductions to 2014 (the phaseouts arebased on AGI rather than taxable income, so acceleratingitemized deductions does not affect the AGI limitations).For example, assume a single taxpayer estimates thather 2014 AGI is expected to be $80,100. She has onechild who qualifies for a child tax credit. The phaseout ofthe child tax credit for a single taxpayer begins at an AGIof $75,000. Assume that she has a stock that if soldwould result in a capital loss of $2,400. A sale of thestock in 2014 will result in two tax savings – (1) increasingher child credit by $150, since less of the credit is phasedout, and (2) increasing her tax deductions (by $2,400).

Note: Deferring income to the next year or acceleratingdeductions to the current year is likely to have a negativeimpact on next year’s tax liability. So, as in the firstexample above where itemized deductions wereaccelerated from 2015 to 2014, the tax costs andbenefits of both years need to be estimated to determinethe optimal tax strategy.

**REVIEW QUESTIONS AND SOLUTIONS**

20. Each year, a single taxpayer’s total itemizeddeductions are nearly the same as his standarddeduction. His itemized deductions include about$800 of charitable deductions each year and realestate taxes on his home of about $1,000 each year.He usually pays the taxes in December even thoughthey are due in January. He would like to maximizehis “below the line” deductions over a two-yearperiod without increasing his total payments. Whichone of the following actions would not help toachieve this objective?

a. Make $1,600 of charitable deductions in year 1and none in year 2.

b. Always pay taxes in January, the month theyare due.

c. Make no charitable deductions in year 1 and$1,600 of charitable deductions in year 2.

Solutions

20. "B" is the correct response. If the taxpayer doesnot try to “double up” payments in either year 1 oryear 2, he will not be able to maximize hisdeductions as his standard deduction is nearly thesame as his itemized deductions.

“A" is an incorrect response. In this case, hisitemized deductions will be greater than his standarddeduction in year 1.

"C" is an incorrect response. In this case, hisitemized deductions will be greater than his standarddeduction in year 2. An Elite Possibility.

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material contained in CPElite's courses and newsletters qualifies for CPE credit designed to enhance the professional knowledge ofT.M.

the individual. The material is sold with the understanding that CPElite is not engaged in rendering legal, accounting, tax, or otherT.M.

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15

***** QUIZ QUESTIONS *****

Place your answers to the following 20 Multiple Choice Questions on the enclosed answer sheet (page 17).

ON-LINE TESTERS GO TO CPELITE.COM

1. Regarding qualified plan distribution allocations,which one of the following statements is false?

a. Generally, for a 2015 distribution, alldisbursements of benefits from the plan to therecipient that are scheduled to be made at thesame time are treated as a single distribution.

b. If the direct rollover is to two or more plans, therecipient can select how the pre-tax amount isallocated among the plans if he informs the planadministrator of the allocation before therollovers are made.

c. If the aggregated pre-tax amount is less than theamount of the distribution that is directly rolledover to other eligible retirement plans, none ofthe pre-tax amount is assigned to the amount ofthe distribution that is directly rolled over.

2. For travel on or after October 1, 2014, under thehigh-low method what is the per diem rate for travelto any non-"high-cost" locality within the continentalUnited States?

a. $259.b. $216.c. $172.

3. What percentage of gross receipts from traditionalactivities are tax-exempt social clubs allowed toreceive from sources outside their membershipwithout losing their tax-exempt status?

a. 50%.b. 35%.c. 15%.

4. Regarding the flurry of recent tax scams, which oneof the following statements is false?

a. Scammers use IRS badge numbers.

b. Scammers have access to taxpayers’ socialsecurity numbers.

c. The TIGTA estimated that 90,000 taxpayerswere victimized with losses of about $5,000,000.

5. Assume a taxpayer files her tax return with a $2,000tax liability before a $3,000 refundable tax credit.She receives a $1,000 refund and then is auditedtwo years later in which the $3,000 tax credit isdenied. The IRS assesses the 20% accuracy-relatedpenalty. According to a recent Chief Counselannouncement, what is the amount subject to the20% penalty?

a. $1,000.b. $2,000.c. $3,000.

6. Regarding individual income tax returns filed in 2012,which one of the following statements is true?

a. More taxpayers claimed itemized deductionsthan the standard deduction.

b. 2012 total adjusted gross income was less than2011 total adjusted gross income.

c. Business income was reported on 17.6 milliontax returns.

7. For which one of the following types of van poolsdoes the 80/50 rule not apply?

a. Employer-operated van pool.

b. Employee-operated van pool.

c. Private or public transportation van pool.

8. Regarding “green card” holders, which one of thefollowing statements is true?

a. Generally, a green card holder’s residencystarting date is the first day during the calendaryear on which she is physically present in the USas a green card holder.

b. A green card holder may not be treated as adual resident taxpayer.

c. An administrative or judicial determination ofabandonment may be initiated only by the greencard holder.

9. The IRS recently provided relief for US citizens orresidents who are beneficiaries of certain Canadianretirement plans. Which one of the following is notone of those plans?

a. Registered Retirement Annuity Plan.

b. Registered Retirement Savings Plan.

c. Registered Retirement Income Fund.

10. For a recent case where the taxpayer made adeposit to his federal retirement plan to buy past timefor his retirement, which one of the followingstatements is true?

a. The taxpayer made a direct rollover from his IRAto buy the time.

b. The Tax Court decided that the IRA distributionswhich reimbursed the taxpayer for the depositwere fully taxable.

c. The United States Code explicitly permitsrollover distributions to buy time under thefederal Civil Service Retirement System.

16

11. Why were depreciation deductions claimed on arecreational vehicle (RV) in 2007 disallowed by theTax Court in a recent case?

a. The RV was used less than 50% for businesspurposes in 2007.

b. The taxpayers’ activity in which they used theirRV was determined to be a nonprofit activity.

c. No portion of the RV was used exclusively forbusiness.

12. Regarding a recent case involving the six-yearstatute of limitations period, which one of thefollowing statements is true?

a. The taxpayers failed to report their share ofincome from a partnership and S Corporation inwhich they owned interests.

b. The Tax Court ruled that the court case onwhich the taxpayer was relying did not apply.

c. The Tax Court ruled that for sales of property,the amount realized rather than the gain realized(amount realized less basis) is included in thedenominator to calculate the percentage ofgross income not reported by the taxpayer.

13. For a recent Oklahoma district court decision, whichone of the following statements is true?

a. The court agreed with the decision of the FourthCircuit Court of Appeals.

b. The court decided that the Section 36Brefundable tax credit is available for anExchange established by the Federalgovernment in a state.

c. The court agreed with the decision of the DCCircuit Court of Appeals.

14. For a recent court decision on soil conservationpayments, which one of the following statements isfalse?

a. CRP soil conservation payments that a non-farmer receives are subject to self-employmenttax.

b. The Eighth Circuit disagreed with the Tax Courtdecision.

c. The Eighth Circuit relied on an IRS positionestablished 54 years earlier.

15. In a recent court case dealing with trust fund taxes,the court examined six factors to determine if thetaxpayer was subject to the Section 6672 responsibleperson penalty. Which one of the following was notone of the factors?

a. The taxpayer’s serving as a corporate officer.

b. The taxpayer’s possessing the power to writecompany checks.

c. The taxpayer’s relationship with the company’sowner.

16. Assume that a taxpayer who lives in New York Citycontributes a conservation easement on hertownhouse to a nonprofit organization whose missionis to preserve historic architecture. Dates relevant tothis contribution are: (1) March 1 - the taxpayersigns the conservation deed; (2) March 15 - arepresentative of the nonprofit organization signs thedeed; and, (3) April 7 - the New York CityDepartment of Finance records and files theconservation deed. When is the conservationeasement deemed to be made for purposes ofclaiming a charitable deduction?

a. March 1.b. March 15.c. April 7.

17. In a recent case dealing with the taxpayer’s recoveryof attorney’s fees, which one of the followingstatements is true?

a. The taxpayer was considered to be theprevailing party.

b. The taxpayer recovered all of his attorney fees.

c. The IRS was very efficient in handling thetaxpayer’s case.

18. The expenses of local lodging may be deductible iffour conditions are met under a safe harbor test.Which one of the following is not a condition?

a. The lodging is necessary for the individual toparticipate fully in or be available for a businessfunction.

b. The lodging is for a period that does not exceedten calendar days and does not recur morefrequently than once per calendar quarter.

c. The lodging is not lavish or extravagant underthe circumstances and does not provide anysignificant element of personal pleasure,recreation or benefit.

19. Regarding recent regulations dealing withdispositions of depreciable property, which one ofthe following statements is true?

a. A retirement of an asset is not considered adisposition.

b. The partial distribution rule is elective.

c. Taxpayers may no longer maintain generalasset accounts.

20. Currently, a significant amount of the taxpayer’s childcredit will be phased out in the current year. Whichone of the following actions will not increase thetaxpayer’s child credit in the current year?

a. Make an additional amount of charitabledeductions at the end of the year.

b. Sell a stock for a loss at the end of the yearassuming there are no other losses this year.

c. Delay the recognition of income until January ofnext year.

17

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QUIZ INSTRUCTIONS AND ANSW ER SHEET – W INTER 2014, VOLUME XXIII, NUMBER 4, TAXATION(LATEST RECOMMENDED COMPLETION DATE: WITHIN ONE YEAR OF PURCHASE)

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NEWSLETTERS

[1] THE ELITE QUARTERLY – Recommended CPE Credit – 4 Hours per issue [O]

To make practitioners aware of recent tax developments in legislation, the IRS, judicial decisions, and the Treasury. The four issuestypically are available on-line, by email, or mail by the following dates: May 1, July 15, September 15, and November 30. Each issuecosts $40. An annual subscription to all four issues costs $135 ($120 if paid by 2/15/15). The 2-hour ethics issue for enrolled agentsis included in the subscription.

[2] ETHICS FOR ENROLLED AGENTS – Recommended CPE Credit – 2 Hours per issue [O]

To provide recent developments affecting tax professionals which satisfy the ethics and professional conduct component required forenrolled agents only. The 2015 issue costs $20 and is free to annual subscribers to The Elite Quarterly.

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COURSES

[1] INCOME ITEMS AND PROPERTY TRANSACTIONS. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of (1) selected income items affecting individual income taxpayers, including social security income,alimony, and scholarships, and (2) common property transactions involving individual income taxpayers, such as capital gains,sale of personal residence, and like-kind exchanges.

[2] ABOVE-THE-LINE DEDUCTIONS. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of (1) expenses commonly deducted by Schedule C taxpayers, including travel, transportation, andhome office deductions, and (2) and common above-the-line deductions.

[3] ITEMIZED DEDUCTIONS. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of medical expenses, taxes, residence interest, charitable contributions, nonbusiness casualty andtheft losses, miscellaneous itemized deductions, and the standard deduction.

[4] RATES, CREDITS AGAINST TAX, AND SPECIAL ISSUES. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of the tax rate structure, selected credits (including the earned income tax credit and the educationcredits), estimated tax payments, and selected special issues (including filing status and exemptions).

[5] PARTNERSHIP TAXATION – PART I. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of (1) the tax implications of formation, including gain or loss, basis of partnership interest, and basisof partnership assets after formation and (2) general reporting procedures of partnership items.

[6] PARTNERSHIP TAXATION – PART II. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of the special topics involving partnership operations and the tax implications of sales of partnershipinterests, partnership distributions, and redemptions of a partner’s interest.

[7] S CORPORATION TAXATION – PART I. Recommended CPE Credit: 6 HRS [B]

To provide an explanation of (1) considerations in being an S Corporation, (2) requirements and election to be an S Corporation,(3) elections and operations, (4) shareholder basis issues, and (5) reporting and compliance.

[8] S CORPORATION TAXATION – PART II. Recommended CPE Credit: 6 HRS [B]

To provide detailed coverage of S Corporation shareholder basis issues, and an explanation of loss limitation issues,distributions made by an S Corporation to its owners, and S Corporation shareholder changes and income taxes.

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