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Welcome to the Federal Tax Update Podcast, hosted by Lynn Nichols. This is presented as a member benefit by the South Carolina Association of CPAs. It is produced to provide current information about developments in U.S. tax law, such as cases, ruling, IRS pronouncements and expert comments on hot topics.

Trending in this edition:

  • IRS Follows Tax Court, NOT the 6th Circuit (2:32 mark)
  • Tax Court Rules on Treatment of Split-Dollar Benefit (3:38 mark)
  • Worthless Stock of Subsidiary … Ordinary or Capital Loss?? Gross Receipts Test Necessary to Prove Ordinary Loss (4:47 mark)
  • Income Was Not Enough to Require Reporting??? Are You Kidding Me??? (7:11 mark)
  • A Question of “Taxable Event” When Does it Occur? (8:49 mark)
  • California District Court Sorts Out “Willfulness” Against Complex History of Finances Affected By Federal Bureaucracy and Pandemic; Taxpayer Did Not “Willfully” Fail to Remit Taxes Withheld From Employee’s Wages to IRS (12:59 mark)

Source page for April 19 Federal Tax Update podcast: https://www.scacpa.org/lynn-nichols-federal-tax-update-april-19-2021-important-excess-advance-payment-news-for-return-preparers-among-8-topics/

The April 19 segment “Tax Court Disagrees With Sixth Circuit on Split-Dollar Character” is at the 10:43 mark of this edition: https://www.youtube.com/watch?v=kzdvmDJZd14&t=643s

  1. IRS Disagrees With Sixth Circuit Take on Split-Dollar Character

The IRS has announced that it won’t follow a Sixth Circuit holding in Machacek v. Commissioner that the section 301 regulations treat split-dollar life insurance compensation income as shareholder distributions to owner-employees. [Tax Notes Today, 5/24/2021, article by Kristen Parillo] [AOD 2021-02, 2021-21 IRB 1156, 5/24/2021]

  1. Worthless Stock Deduction Gross Receipts Test Appears Obligatory

Corporations claiming a worthless stock deduction that prefer the default capital loss treatment should still conduct the often burdensome gross receipts test for determining whether ordinary loss treatment applies, tax professionals say. [Tax Notes Today, 5/26/2021, article by Emily Foster]

  1. Drop Shipper Had Unreported Income, Liable for Penalty

The Tax Court, in a summary opinion sustaining an accuracy-related penalty, held that an individual who bought and sold items online using a drop-shipping model had unreported income from sales and is not entitled to offset his gross receipts with cost of goods sold because he failed to provide substantiation. [John Legoski; No. 2542-20S; T.C. Summ. Op. 2021-15, 5/26/2021]

  1. Refund Suit Filed for Taxes on Created Cryptocurrency Tokens

A couple filed a complaint in a U.S. district court seeking a refund of taxes they paid for the 2019 tax year on cryptocurrency tokens the husband created that year, arguing that the law doesn’t permit the treatment of created property as taxable income and that the sale or exchange of the tokens will result in a taxable event. [Joshua Jarrett et ux; DC Mid TN Nshvl, No. 3:21-cv-00419, 5/26/2021

  1. Taxpayer Showed No Willfulness in Trust Fund Penalty Refund Suit

An operator of nursing home facilities facing trust fund penalties for failing to pay over withholding taxes didn’t demonstrate willfulness because he acted reasonably in trying to comply with federal and state regulations regarding the operation of his business, a district court held in Preimesberger v. United States. [James Preimesberger;  DC E CA, No. 1:19-cv-01441, 5/25/2921]

Missed last week’s Tax topic? Catch up with Lynn and check out his Tax Updates video playlist.

All commentary is brief, and you should not take a position on the items discussed until you thoroughly examine it with authoritative sources. The topics can be found discussed in further length at Tax Notes Today.

“I have relied on Tax Analysts® to provide reliable and timely analysis of Federal tax developments for over 30 years. The ‘headnotes’ you see here are from ‘Tax Notes Today,’ the preeminent source of accurate information and analysis of important developments and trends in Federal taxation,” Nichols says.

You can contact Lynn Nichols at lynnnicholscpa@outlook.com or 714.321.3387 and connect on LinkedIn.

A federal tax specialist for 50 years, Lynn Nichols provides tax consulting services to CPA firms on complex federal income tax issues, professional standards in tax practice and effective tax practice management.

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