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| Brought to you by the American Institute of CPAs |   |
§ White House proposes small-business tax relief § Obama administration promotes programs for small businesses: The White House announced Monday that it is teaming up with business leaders and private foundations to offer more support for entrepreneurs and small businesses. The Startup America Partnership campaign, led by AOL co-founder Steve Case, will provide money and resources for startups and existing companies. Supporters include IBM, which will provide $150 million in funding. Entrepreneur.com/Daily Dose blog (1/31) |
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§ Economists say growth in U.S. is likely to continue
Economists said solid consumer-spending growth and rising factory output in the Midwest indicate that the U.S. economy stands a good chance of continuing its expansion through the end of 2011. Industrial production in the Midwest rose to its highest level in more than 22 years, the Institute for Supply Management said. Consumer spending across the U.S. was up 0.7% in December from the previous month, according to data from the Commerce Department. Reuters (1/31) 
§ Buyouts flourish as investors brace for inflation’s return
An expectation of rising inflation is driving investors to pull their money out of bonds and put it into funds that invest in corporate buyouts. Loans that finance buyouts carry floating rates that give investors some protection against higher interest rates. Institutions and individual investors put about $6 billion into buyout funds in the fourth quarter, Lipper said. The Wall Street Journal (2/1)
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§ How to use general asset accounts to simplify depreciation
Tracking depreciation of similar capital assets can be difficult for many small businesses. Using general asset accounts can help make tax depreciation easier and more efficient. This article discusses the advantages and potential disadvantages, and includes a PowerPoint presentation to help explain the idea to clients. JournalofAccountancy.com (1/27)
§ States’ tax collections increase at fastest pace in 5 years
A rebounding U.S. economy combined with tax hikes resulted in record growth for state tax revenue during the fourth quarter. Collection increased 6.9% for 41 states that have posted revenue, according to the Nelson A. Rockefeller Institute of Government. If the trend is reflected in the remaining states, it will mark the most significant increase in state tax collections since the second quarter of 2006. The Wall Street Journal (2/1)
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§ Copper price hits a record-high $9,790 in London trading
The price of copper climbed to a record high of $9,790 per metric ton on the London Metal Exchange. Traders were responding to a drop in global inventory, a sign that demand is gaining momentum. Bloomberg (1/31)
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§ State pension obligations should count as debt
The pension liabilities of U.S. states are really debts, and they should be considered when rating municipal debt, according to this blog post. How to do it is not clear, because states can sometimes change their pension plans to save money. "Benefit cuts are a form of default; it’s perhaps not as damaging as missing a bond payment, but it is still not delivering on a promised payment," the blogger writes. The Economist/Free Exchange blog (1/31)
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§ CFOs take on leadership roles as responsibilities grow
Chief financial officers are taking on added responsibilities as companies increasingly look to their finance executives for leadership. Their duties include strategic planning and overseeing marketing and technology departments. The shift is challenging finance pros to develop and exercise skills that will boost the bottom line, Dana Mattioli writes. The Wall Street Journal (1/31)
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From CCH Tracker News
The accuracy-related penalty for negligence or substantial understatement of income tax was imposed against married taxpayers who claimed fictitious losses generated by their investment in cattle and sheep breeding partnerships.
The taxpayers did not act in good faith or have reasonable cause insofar as they relied entirely upon the tax personnel of the partnerships. The substantial losses generated by the investment warranted additional scrutiny into the legitimacy of the transactions. Nevertheless, the taxpayers failed to seek advice or receive any written opinions in support of their investment in the partnerships from independent tax professionals.
S.L. Fletcher, TC Memo. 2011-27, Dec. 58,531(M)
A decedent’s estate was not able to take a fractional interest discount on the value of a ranch that the decedent had previously given to his five children through a grant deed transferring undivided one-fifth interests in the property.
The decedent retained the right to possess and enjoy the ranch during his life as evidenced by the terms of the deed. Furthermore, the decedent paid all expenses associated with the property and did not pay (nor was required to pay) his children rent. Because the decedent retained a life estate in the ranch, it was as though the ownership interest in the ranch was split upon the decedent’s death. Thus, applying discounts for fractional interests in that situation would be inappropriate because it would allow the estate to discount the ranch based on the number of beneficiaries of the property.
A. Adler Est., TC Memo. 2011-28, Dec. 58,532(M)
A corporation established by an individual as the sole shareholder was denied various deductions purported to be trade or business expenses related to the operation of a cattery because the business lacked a profit motive, and the individual was required to include in income the amounts denied as deductions as constructive dividends.
The individual had established, as the sole shareholder, a corporation to operate her information technology consulting business, and operated the business out of her home.
Concurrently, she, along with her partner, operated a cattery, ostensibly for the purpose of breeding cats for profit, under the corporate umbrella. However, the corporation was not entitled to a deduction under Code Sec. 162 for the reimbursement of various cattery-related expenses incurred by the individual and her partner because, under the evidence, the cattery was not operated with a profit motive, but rather for the personal pleasure of the two individuals. Additionally, the portion of the individual’s mortgage interest and real estate taxes claimed to be attributable to the corporation’s rental of her home for purposes of operating the cattery was also not deductible because the cattery was not a viable trade or business due to the lack of profit motive.
The individual also effected several transfers from the corporation of an investment account in her name and claimed that they were part of a corporate profit-sharing plan under Code Sec. 401. However, because the transfers were only made to an account for her, and not the corporation’s other employee, the individual’s partner, and the individual was the sole shareholder of the corporation, the purported profit-sharing plan violated the nondiscrimination rules of Code Sec. 401, as the transfers were only made to a highly compensated individual.
The receipt by the individual of both the nondeductible reimbursements of the cattery expenses and the transfers under the discriminatory profit-sharing plans were constructive dividends under Code Sec. 61 and 316, and were therefore included in the individual’s income.
The corporation was also denied deductions under Code Sec. 162 for health insurance premiums paid for the coverage of the individual because the corporation did not have an accident or health plan as required by Code Sec. 106. Further, because the premiums or any payments under the coverage did not satisfy the requirements of Code Secs. 105 and 106, the amounts paid for the coverage by the corporation were includible in the individual’s income.
Finally, the corporation was not a personal service corporation under Code Sec. 448, and therefore was not subject to the 35-percent tax rate under Code Sec. 11, because substantially all of the services rendered by the single-shareholder corporation were not consulting services. There was sufficient evidence that less than 95 percent (the definition of "substantially all" under Temporary Reg. §1.448-1T(e)(4)) of the services rendered were for consulting services. More than five percent of the services were related to the cattery.
DKD Enterprises, TC Memo. 2011-29, Dec. 58,533(M)
The president of a corporation was a responsible person for purposes of the trust fund recovery penalties assessed against him in connection with the company’s unpaid employment taxes.
He had the authority to hire and fire employees, sign checks on behalf of the company, including the company’s income tax returns, and decide which creditors to pay and when. The alleged malfeasance by the company’s bookkeeper, to whom the authority to pay the payroll taxes had been delegated, did not absolve the president of the legal obligation to ensure payment of the trust fund taxes.
Further, he acted willfully because had he discussed about the company’s unpaid tax liability with the company’s accountant, and knew that payments were made to other creditors in preference to the IRS. Moreover, the company’s funds were not encumbered, and no restrictions were imposed by the bank on the company’s ability to pay the trust fund taxes.
Affirming a DC Iowa decision, 2010-2 ustc ¶50,752.
C.A. Colosimo, Sr., CA-8, 2011-1 ustc ¶50,178
