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Taxpayer's compromise offer to be considered in spite of his corporation's behavior.
Filing late returns doesn't bar discharge of taxes.
Revamped IRS Appeals Division offers new options
New IRA mistake-correction tactic
How will I be able to deduct more business entertainment expenses?
Research credit allowed for developing commercial software
IRS must pay more than $2 million for unauthorized disclosure
IRS Pays $7,000 in damages for wrongfully keeping $185 refund
Invalid S election is valid
Payments are alimony only when supported in writing

Taxpayer's compromise offer to be considered in spite of his corporation's behavior.
After an individual made an offer in compromise to the IRS regarding his personal tax bill, the IRS discovered that a corporation the individual owned was failing to pay its taxes. An IRS agent asked if the individual's compromise offer should be automatically rejected due to the actions of his corporation. IRS legal opinion: The individual and the corporation are two separate legal persons. The individual's compromise offer should be processed regardless of the status of the corporation. -IRS Legal Memorandum 200020006 - February 20, 2001 - Back to Top

Filing late returns doesn't bar discharge of taxes.
Donna Ralph didn't file returns for several years until after the IRS assessed taxes against her for them. Then she filed late FORM 1040-EZs and declared bankruptcy. The IRS objected that her tax bills weren't dischargeable in bankruptcy because she hadn't filed returns until after the taxes were assessed. Court: For Ms. Ralph. Taxes are not dischargeable if an individual has committed fraud. But Ms. Ralph's numbers on her 1040-EZs were almost the same as those used by the IRS to compute her tax bill. Since she hadn't committed fraud, her taxes can be discharged.-Max Ralph, et ux, BC-DC Fla., 2000-2 USTC カ50,730. - February 20, 2001 - Back to Top

Revamped IRS Appeals Division offers new options
To speed case resolution, the IRS has reorganized its Appeals Division into three operating units focusing on small businesses and self-employeds, wage earners, and larger businesses. It is introducing new dispute resolution methods, including mediation and arbitration. And it is now accepting "early referrals" that let taxpayers appeal disputed audit issues before an audit is finished. For details, see www.irs.gov/prod/ind_info/appeals -Sidney Kess, Esq., CPA, New York City. - March 12, 2001 - Back to Top

New IRA mistake-correction tactic
A husband died after designating his estate as the beneficiary of his IRA. His wife asked if she could roll over the IRA funds into her own IRA. IRS ruling: The widow is the estate's sole executor and has the power to allocate assets among bequests as she wishes, including to herself as an estate beneficiary. Thus, she can roll over the proceeds from her late husband's IRA to her own IRA tax free.-Barbara Weltman, Esq., Millwood, New York. - March 12, 2001 - Back to Top

How will I be able to deduct more business entertainment expenses?
Loophole: Many business entertainment expenses are fully deductible -- not limited to a 50% deduction. These include:

- March 12, 2001 - Back to Top

Research credit allowed for developing commercial software
A company successfully developed and sold commercial accounting and tax return preparation software, and claimed the research and experimentation tax credit for its development costs. But the IRS denied the credit, saying the company's research did not result in the discovery of new "scientific" knowledge. Court: The requirement is not that discovered knowledge be new to science, but that it be technological, new to the taxpayer, and not freely available to the general public. The software capabilities developed by the company fit this description, so it gets the credit.-Tax and Accounting Software Corporation, DC N.D. OK., 2000-2 USTC カ50,672. - March 19, 2001 - Back to Top

IRS must pay more than $2 million for unauthorized disclosure
When the IRS executed a search warrant on Terry Jones's oil company, a television news team appeared to film the event and broadcast it on the evening news. No tax charges were ever brought. - March 19, 2001 - Back to Top

IRS Pays $7,000 in damages for wrongfully keeping $185 refund
A couple who owed the IRS only $185 declared bankruptcy due to their other debts. They needed to use a tax refund that they requested for a later year to meet their obligations under their bankruptcy plan. But the IRS froze their refund to "secure" the payment of the tax debt owed to it. Court: The IRS isn't entitled to security, and its action violated the automatic bar against further tax collection activity that becomes effective upon a declaration of bankruptcy. The IRS must pay $7,000 in damages for inflicting "mental distress" on the taxpayers.-Earll Holden, DC Vt., 2000-1 USTC カ50,666. - March 21, 2001 - Back to Top

Invalid S election is valid
When a corporation prepared an S election form, due March 15 for the current year, it realized it had an ineligible shareholder. So it transferred that shareholder's shares to a trust that was an eligible shareholder, thinking that solved the problem. But the election remained invalid because the company had had an ineligible shareholder during the early part of the year. The error was discovered only when a third party bought the corporation. The buyer asked for an IRS ruling on the election. IRS: The error was inadvertent and the company had tried to correct it. So the election is deemed valid, provided that the trust is treated as owner of its shares from the start of the year.-Letter Ruling 200031002. - March 21, 2001 - Back to Top

Payments are alimony only when supported in writing
A married couple separated but didn't have a separation agreement. While their lawyers were negotiating one, the husband paid rent, made mortgage payments, and covered many other costs on behalf of his wife. He deducted the amounts he paid for her as alimony, but she did not report them in income as alimony. Court: Only payments made under a written agreement can qualify as alimony. So the husband lost his deduction for most of the payment. Exception: The lawyers, in their correspondence, had agreed that he would pay certain housing costs for his wife. That constituted a written agreement, so the husband could deduct those costs.-Hermine Leventhal, TC Memo 2000-92- March 21, 2001 - Back to Top

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