Federal Tax News – March

By Team HRH | April 5, 2017

No touchdown on tax deductions for this football coach. “Ordinary and necessary” expenses incurred in the pursuit of a trade or business are generally deductible. But in one recent case, most of the expenses claimed by a married couple were denied. The husband, a high school coordinator and coach, failed to prove that costs for meals, telephone, seminars, software, “student motivation” and more were business related or related to his teaching duties. He did substantiate the costs of football equipment he provided to low income students and was allowed to deduct them. (TC Memo 2017-42)

Auto racing team gets a green flag on treatment of parts. When businesses dispose of assets, gain or loss must generally be recognized on tax returns, depending on the nature of the disposition (by sale, exchange, or involuntary conversion). In a private letter ruling, the IRS approved how a Formula 1 auto racing team handled its auto parts disposition for gain and loss purposes. Due to the unique nature of auto racing, the IRS ruled that each part used to build race cars for each specific race was the appropriate asset to be valued for disposition purposes. (PLR 201710006)

“Innocent spouse relief” is granted by the U.S. Tax Court. When a married couple files a joint tax return, each spouse is liable for the entire tax. However, in some cases, the IRS may provide relief from liability to spouses who meet certain conditions. The Tax Court recently ruled that a divorced woman was entitled to innocent spouse relief stemming from a tax deficiency caused by erroneous deductions on the joint tax return she’d filed with her ex-husband. The court stated that the ex-wife met the elements to qualify for innocent spouse relief and that the IRS hadn’t demonstrated she’d had actual knowledge that the deductions related to her ex-husband’s cattle ranching activity were erroneous. At no point was she involved in the activity, the court noted. (Tax Court Summary Opinion 2017-21)

Depreciation figures released for some vehicles used for business. The IRS recently issued inflation-adjusted depreciation dollar limits for business autos, light trucks and vans first placed in service by a taxpayer in 2017, as well as the annual income exclusion amounts for such vehicles first leased in 2017. The figures for autos placed in service in 2017 remain the same as in 2016. For light trucks and vans the figures are also the same as in 2016, except for year 3, which rose by $100. Click here to see amounts in IRS Revenue Procedure 2017-29.

What are your chances of being audited? The recently released IRS 2016 Data Book provides some clues. During fiscal year 2016, the IRS examined 0.6% of all 2015 returns — about 0.7% of all individual income tax returns and 1.1% of corporation returns (not including S corps). The majority of audits (70.7%) were conducted via correspondence. The remaining (29.3%) were field audits. The annual Data Book includes information on returns filed, taxes collected, audits conducted, taxpayer assistance, and the IRS budget and workforce. It also reveals categories of returns the IRS is focusing its audit resources on and other enforcement activities. See it here.

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