Tax Attic

The Tax Attic – May 14, 2009

May 14, 2009 // 0 Comments

Tax treatment of loss in Ponzi schemes Commissioner Douglas Shulman of the Internal Revenue Service recently testified before a senate finance committee. Commissioner Shulman gave testimony concerning the tax treatment of Ponzi schemes and also how the IRS is dealing with off-shore tax avoidance schemes. There probably aren’t too many people in Rockford who are involved in off-shore tax avoidance schemes. West Michigan, in the past, however, has had a few Ponzi schemes, with the latest being the infamous Pupler Distributing debacle, and there may be one or two out there that we don’t know about yet. These schemes just seem to come out of nowhere. The IRS recently published Revenue Ruling 2009-09 and Revenue Procedure 2009-20 that clarify the tax treatment of losses in Ponzi schemes, the computation of the loss, and when the loss is deemed to have occurred. These two publications are meant to help taxpayers take advantage of the tax laws in these very difficult situations. Revenue Ruling 2009-09 states that investors in Ponzi schemes may treat their losses as theft losses. In the past, the IRS has repeatedly ruled that these types of losses are deductible as investment losses. Investment losses are limited to $3,000 per year of capital loss in excess of capital gains. Theft losses are totally deductible in one year. This is a great ruling in favor of the taxpayers. Revenue Ruling 2009-09 clarifies that Ponzi scheme losses are not subject to the 10 percent of Adjusted Gross Income reduction nor the automatic $100 per incident reduction. The loss is still deductible as an itemized deduction, but the normal reductions in the loss do not apply. This is another great ruling in favor of the taxpayers. The Revenue Ruling further states that the loss is deductible when the Ponzi loss is discovered. The loss must be reduced by any amount that the taxpayers may have a reasonable chance of recovering through any and all means, such as SIPC insurance or partial recoveries from the courts. Revenue Ruling 2009-09 further states that taxpayers are allowed a theft loss deduction for the net amount the taxpayers have invested. In addition to the invested amounts, taxpayers will be allowed a loss for any investment income the taxpayers reported on their […]

The Tax Attic—May 7, 2009

May 7, 2009 // 0 Comments

Seminars help to improve client service As I have gotten older, I enjoy listening to more different types of music than I did when I was much younger. For instance, my future son-in-law Devon Cunningham and I just happened to end up at Founders Brew Pub in Grand Rapids last weekend. I have written before about the variety of craft beers available in West Michigan and the fact that I do enjoy drinking a good craft beer now and then. Founders happens to brew some of the best so we happened to be sampling some of those best beers. After a while, some musicians started setting up for some live music. The band setting up was a collection of musicians called the Grand Rapids Jazz Band. When I was 20 years old, I might not have enjoyed the jazz they played. However, at this stage of my life, I enjoyed it tremendously, as did the rest of the crowd at Founders. The jazz music played was very lively and, from what I saw and heard, the Grand Rapids Jazz Band has quite a few very talented musicians who really know how to play jazz. They play at Founders on the first Sunday of every month. I might just happen to end up at Founders sampling one of their craft brews on one of these future first Sundays of the month. I am also going to end up attending a few more tax seminars than normal this coming summer. The American Recovery and Reinvestment Act (ARRA) has guaranteed more education is required for all tax professionals in the coming few months. The tax business, like most businesses, is a client service business and the more knowledge we have of the tax laws, the better we can serve our clients. On May 14 and 15, the Michigan Chapter of the National Association of Tax Professionals (MI-NATP) will hold a two-day conference in Grand Rapids. Among various topics, the ARRA has top billing. I am a long-time member of MI-NATP, and their specialty is bringing taxes down to my level of client service. The instructors are tax professionals, such as me, who are practicing tax professionals. They know where the rubber hits the road, so to speak, and […]

The Tax Attic, April 30, 2009

April 30, 2009 // 0 Comments

Home improvement credits change It’s home improvement time of the year. It was a cold winter and many of us are thinking about adding some insulation wherever possible, replacing a few of those leaky windows, replacing that old leaky slider,  putting in a new insulated exterior door, buying a new high-efficiency furnace, or purchasing high-efficiency appliances. This is a good opportunity to go over the dollars our federal government has available to help with these home improvements. The American Recovery and Reinvestment Act of 2009 (ARRA) signed by President Obama in February greatly expanded the Residential Energy Credit in dollars available. In most instances, ARRA increased the percentage of cost that we are allowed as a credit in addition to also increasing the maximum amount of dollars that we are allowed. ARRA also further defined what products actually do qualify for the credits. Many of the products that qualified for a credit in 2007 will not qualify for the credit in 2009 because they won’t be considered high-efficient enough. The credit has been increased, but the qualifying standards have also been raised. For reference purposes, for most purchases, there was no Residential Energy Credit in 2008. That year was skipped, so if you did some updating in 2008, you may be painfully aware that there was no credit for those purchases. I think it is fair to say the federal government once again wants us to spend money on energy-saving home improvements. For example, ARRA increased the maximum credit for installing qualifying windows to 30% of the cost up to a maximum of $1,500 credit. It’s important to note that this credit is nonrefundable. In other words, the taxpayer must have a tax liability in order to benefit from the credit-no tax, no credit. Under the old rules, only 10% of the cost qualified and the maximum credit allowed for windows was $200. In addition to the $200 limit, there was also a $500 lifetime maximum for all improvements. This was replaced totally by the 30% of cost figure and the $1,500 maximum credit. Perhaps that is one reason every other advertisement we seem to see on TV is Jack’s Windows or Wall Side Windows. Other types of purchases also had small limits. Advanced main […]

The Tax Attic-April 23, 2009

April 23, 2009 // 0 Comments

Continuing health insurance   We are all creatures of habit. For me, the day after the end of tax season, usually April 16, is the perfect example. I always take that day off work. I really enjoy preparing taxes, as do my co-workers, but the pressure is so intense during those last few weeks that a day off is needed to at least partially recharge the batteries, so to speak.   Since Meijer opened on Ten Mile Road several years ago, my first stop of the morning has been there to buy an all-species fishing license. All fishing licenses expire on March 31 and, since I am rather tied up from April 1 through April 15, in order to legally jump in the Rogue River, I need a new license. I was rather pleased to see that 28 dollars bought me that all-species license-the same fee as last year. I thought I had heard the fees were going up by 10 dollars, but the state legislature must have felt sorry for us fishermen and decided to leave the fees the same. After getting that license, I head back home and take stock of what my garage looks like. It can take some straightening up, to say the least. It’s also time to switch recreation pursuits. Since bowling is finished, that must mean it’s time to start golfing. I get out the golf clubs and analyze the equipment in my bag. I’m still holding out hope for a round in the 70s and a hole in one, so I have to figure out what piece of technology is out there that just might allow me to get into the 70s and get that hole in one. It’s also time to think about playing softball. My expectations are substantially lower when it comes to softball. I plan to not pull any muscles this year, not make too many fielding errors-no more than six for the year-and to have an on-base percentage of at least 0.500. With proper stretching before each game, I might not pull any muscles. With a rather loose definition of “not too many” fielding errors, I most likely can meet that goal. Finally, I use the “on-base” percentage of calculating 0.500 instead of straight […]


April 8, 2009 // 0 Comments

Reasons to file The end of the 2009 tax filing season is coming up quickly. The majority of all tax returns are completed and either mailed in or e-filed. However, there are still several million, perhaps up to 20 million, taxpayers who are going to file an extension. There are actually some very legitimate reasons for filing an extension. One of the most common reasons is a retirement-planning reason. Taxpayers with an SEP retirement plan are allowed to make contributions until they file their return. By filing an extension, it effectively extends the time the taxpayer has to accumulate the money to fund the SEP. That is a huge difference between an SEP and a traditional or Roth IRA. The traditional or Roth IRA must be funded by April 15, whether the return is extended or not. If the money is not in the account on April 15, it’s a contribution that counts for the next year. A second reason to file an extension is the paperwork is just not available to complete the return. Many taxpayers today are invested in limited partnerships. Some of those limited partnerships invest exclusively in other limited partnerships. It’s their special form of diversifying. However, if just one of those other limited partnerships is late in getting their information out, it’s the domino effect, with the net effect that whoever is invested in the original limited partnership has to file an extension. A third reason to file an extension is some particular piece of information is not available for the cost basis of property that was sold such as a stock, mutual fund, or land. In today’s investing environment, many taxpayers have liquidated investments. The brokerage company involved always reports the gross sales price to the Internal Revenue Service. The IRS has one side of the story: the selling price. The part that is left to the taxpayer is to determine and report the cost of the item that was sold. If the taxpayers have purchased everything that was sold through the same brokerage company, usually they are provided with a cost basis statement. However, switching brokerage companies is a fine art today. Every time there is a switch, the new company usually has no idea of the cost […]

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