November 2010


What are the substantiation rules for out of pocket charitable expenses, for example, travel to New Orleans to help build a habitat for humanity’s house?

According to Bill Roos, EA, the rules would be essentially the same as for an employee doing business travel. Since the costs are not business related, they are not subject to the limits that apply to business expenses. Because there is no standard meal allowance for charitable travel, the taxpayer will have to keep very good records.

For more helpful information on individual income tax issues like this one, download your free copy of the Federal Tax Update: Part 1 Q&A document offered by CPE Link. As additional questions and answers are added, the document will be updated. Those who have downloaded the original document will receive all updates automatically.
Got questions?
If you have more questions and would like to continue to participate in the discussion, visit CPE Link’s Discussion Forum. Log into your Facebook account to post a question.

This year brought an onslaught of Federal tax changes designed to spur economic recovery. As if that were not enough, the November ballot in California contained five propositions with tax implications, stemming from challenges the state has had in recent years in reaching a balanced budget.

Federal taxes have been on a wild ride this year, with six new tax laws taking effect. CPAs with clients residing in California also need to stay up to date on the state’s tax situation.

CPE Link’s upcoming California Tax Update webcast will provide an overview of statutory, regulatory, and judicial developments affecting taxpayers residing or doing business in California. Instructor Annette Nellen, CPA, Esq., will address income and franchise taxes, sales and use taxes, and some local taxes. She will also discuss what may be expected on 2011 agenda, based on the 2010 voting trends. For example, other states have taken steps to broaden the reach of sales tax in ecommerce transactions. Is California likely to follow suit?

Annette Nellen is director of the Masters of Science in Taxation program at San Jose State University. She has served on the Executive Tax Committee and the Individual Taxation Technical Resource Panel of the AICPA and is a frequent speaker on e-commerce and tax policy and reform topics.

California Tax Update webcasts will be held December 9, January 6, and January 12.

California tax practitioners now have the option to sign up for a Package of Tax Training from CPE Link that includes the four-part Federal Tax Update webcast series and a California Tax update. A total of 18 CPE hours.

Is it possible for divorced parents to each claim HOH if they both maintain their own home and have the children 50% of the time?

According to Bill Roos, EA, the answer is NO.

To claim head of household the parent has to have a qualifying child live with them for more than 50% of the year.

In addition, there are the rules for children of divorced parents that have to be followed. In the case of divorced parents, one of the parents is always the custodial parent. This is the parent with whom the child spends more nights than with the other parent. The custodial parent gets to claim the child as a dependent, gets to file as head of household (if otherwise qualifies), and gets to claim the child tax credit, and dependent care credit and the earned income credit.

If the custodial parent releases the exemption by filing form 8332, the noncustodial parent can claim the child as a dependent and the child tax credit. However, the custodial parent still retains the right to file as head of household. In the event there are two children and one spends 51% of time with one parent and the other child is with the other parent, each parent would have to be a custodial parent to one of the children and is going to require the parents to maintain very careful records of whose house the children spent the night in.

For more helpful information on individual income tax issues like this one, download your free copy of the Federal Tax Update: Part 1 Q&A document offered by CPE Link. As additional questions and answers are added, the document will be updated. Those who have downloaded the original document will receive all updates automatically.

Got questions?
If you have more questions and would like to continue to participate in the discussion, visit CPE Link’s Discussion Forum. Log into your Facebook account to post a question.

There is currently a big controversy over this issue. According to Bill Roos, EA, the answer depends in a large part, on the makeup of the severance payment. Some types of severance payments are not subject to FICA withholding and the problem arises when the payments are paid in one check. By not bifurcating the payments into two checks, the entire amount becomes subject to FICA withholding.

Bill suggests, if you have access to RIA’s Checkpoint, you can follow the series of developments in the Federal Taxes Weekly Alert Newsletter. Enter “severance pay” in the search box. If you want to study the court cases, the following are the key ones you should look at:

• Donnel, 88 AFTR 2d 2001-5940
• CSX Corp v. U.S., (Ct of Fed Cl 4/1/02) 89 AFTR 2d 2002-1935
• U.S. v. Quality Stores, Inc., (DC MI 2/23/2010) 105 AFTR 2d 2010-533

For more helpful information on individual income tax issues, download your free copy of the Federal Tax Update: Part 1 Q&A document offered by CPE Link. As additional questions and answers are added, the document will be updated. Those who have downloaded the original document will receive all updates automatically.

Got questions?
If you’d like to participate in the discussion, visit CPE Link’s Discussion Forum. Log into your Facebook account to post a question.

Looking for a great deal on CPE? You’re likely to find one at CPE Link for you–and all your friends.

CPE Link has just launched a new “group deal” app on its Facebook page. Just like the model that GroupOn has pioneered since 2008, the deal only kicks in if a certain number of people commit to it by the set deadline.

The group deal concept has been catching on across a variety of industries, and CPE Link is now testing it on the national CPE market. CPE Link creates its group deals within Facebook. The user selects the deal, enters their personal information including credit card, but they are not charged unless the deal parameters are met. Once the deal is activated, the buyers are notified and registered to their CPE programs.

For its premier deal, CPE Link is offering a deep discount on the Federal Tax Update webcast series scheduled for December and January. Participants will get 16 CPE hours for only $236—a great price for this highly-rated live webcast training. To activate the deal, 50 participants must sign up for the deal by November 30.

Using social media tools like Facebook and Twitter, users can spread the word, tell their colleagues, and get the deal to the required number of participants quickly. Once critical mass is reached, everybody wins.

To check out the deal, go to CPE Link’s Facebook page.

CPE Link just completed our first Facebook Fan Sweepstakes. We received 90 entries by the published deadline of November 5. Thank you to everyone who entered!

Today we randomly selected our sweepstakes winner:

Congrats to Angela W. from Texas!

Angela will be awarded a free registration into the 16 CPE hour Federal Tax Update webcast series.

To be eligible for future giveaways, be sure to go to http://www.facebook.com/cpelink and become a fan by clicking on the like button. We’ll keep you posted on the next contest.

A recent IRS study shows that S corporation return filings (Form 1120S) increased dramatically and continue to be the most prevalent type of corporation filing. For Tax Year 2006, almost 2/3rds of all corporations filed a Form 1120S. The total number of returns filed by S corporations for Tax Year 2006 increased to nearly 3.9 million, from nearly 3.2 million reported in Tax Year 2002 and 722,444 in 1985. In 2006, there were 6.7 million S corporation shareholders. S corporations became the most common corporate entity type in 1997.

According to IRS data, about 68% of S corporation returns filed for tax years 2003 and 2004 (the years data were available) misreported at least one item. About 80% of the time, misreporting provided a tax advantage to the corporation and/or shareholder. The most frequent errors involved deducting ineligible expenses. Even though a majority of S corporations used paid preparers, 71% of those that did were noncompliant.

Reasonable compensation still an issue for S corporations. The GAO report also focused attention on the loophole that allows shareholders to reduce payroll taxes by reducing wage compensation. The IRS admitted that their efforts to enforce the adequate compensation rules for S corporation shareholders have been limited. For fiscal years 2006 through 2008, the IRS examined less than half of one percent of S corporations who filed.

Misreporting of shareholder basis is also a common problem, permitting shareholders to claim excess losses averaging $21,600 per taxpayer based on IRS audits for the period 2006 to 2008.

(Note: The above information was excerpted from Vern Hoven’s manual used in CPE Link’s Federal Tax Update: Part 4 webcast.) Webcasts start November 15. In Part 4, you’ll get an update on all corporate tax changes, partnership tax changes, and IRS audit issues.

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