On This Sunny Afternoon, The Tax Man’s Wanting to Tax the Dough

Posted on April 9, 2013 by Rob Nance

Is the double-edged sword striking down on that lunchtime chicken salad sandwich? I’ve often wondered when Silicon Valley’s culture of providing meals to employees at all hours–and I’m speaking of Google, Facebook and other companies in this free food mix–would be more of a hot Tax vs. Don’t Tax topic. Well, my friends, that day is officially here.

While this debate has certainly come up in the past, the lunch wagon has it on the front burner again, most likely because the IRS is on a mission to scrape up dimes in the gutter with a putty knife.

Looking at both sides of the controversy, on the pro-tax view of those company-provided lasagnas, smoothies and various cookies, crème puffs and gelatins, I venture to say that the average employee at these companies is enjoying at least a couple of thousand dollars a year in free eats and drinks. That’s clearly compensation and should be taxed.

Now, for the anti-tax view, it can all be taken in the same “de minimis” vein as the free donut and coffee of yesteryear. Why? Today’s work culture has changed. These companies that go to great lengths and costs to establish a high level of perks feel that they must do so in order to remain competitive with recruitment and retention in their respective industries. Few would argue that fact, I think. With that being the case, it doesn’t seem right to tax the free salad bar and barbecue hut, does it? If a Yahoo employee has to declare these edible fringe benefits as compensation, does that really seem fair?

What do you think about this issue? This matter isn’t in the same realm as a public accounting firm bringing in evening meals during busy season…this is a whole other kettle of fish. Drop it like a hot potato, IRS.

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IRS Concludes Open-Air Parking Garages are Buildings

Posted on March 22, 2013 by Rob Nance

The Curator offers this insightful article by Kreig Mitchell. It’s interesting. Enjoy.

IRS Concludes Open-Air Parking Garages are Buildings
By Kreig Mitchell

In recent Chief Counsel Memo #20125201F, the IRS concludes that open-air parking garages are considered buildings rather than land improvements for tax purposes and that a taxpayer’s conclusion to the contrary warrants the assessment of a negligence penalty.

Classification as a building or land improvement presents a timing issue. A building generally has a 39-year recovery period for depreciation purposes, whereas a land improvement generally has a 15-year recovery period. The shorter recovery period for property classified as a land improvement generally produces a larger depreciation deduction in the current tax year.

According to field advice handed down by the IRS, a taxpayer made several arguments as to why his open-air parking garages were land improvements and not buildings. The taxpayer argued that:

The applicable regulations are invalid as they depart from the legislative history;
The garages are not buildings because they do not have floor-to-ceiling walls, a conventional roof, and they do not share supporting structural elements; they offer only minimal shelter from the elements or protection from vandalism and theft and their primary purpose is storage of vehicles; and
The garages are land improvements because they are merely parking lots stacked one on top of another and not “garages” as that term is commonly understood.

The IRS field advice rejects each of these arguments based largely on a literal reading of the applicable regulations and certain concessions in the taxpayer’s submissions. This is consistent with Coordinated Issue Paper LMSB4-0709-029, which the IRS made public in 2009.

Despite assertions from the IRS, it is not altogether clear that the taxpayer’s position is incorrect or whether the taxpayer’s facts warrant the imposition of a negligence penalty. It is also not clear whether the IRS would reach the same conclusion if the facts were slightly different, such as if the parking garage was designed in a way that no one floor functioned as a roof for a lower floor, if the parking garage was situated entirely underground, or if the parking garage had an additional primary function–such as storage for supplies, tools, or other equipment.

If anything, this field advice serves as another warning to taxpayers that a contrary position will be challenged by IRS examiners and may have to be resolved by the IRS Appeals Office or the courts.

About the Author
Kreig Mitchell serves on the advisory board of Engineered Tax Services and is tax attorney focused on federal and state research tax credits and incentives and tax controversies. During his career, Kreig has worked as a tax attorney in private practice, a tax consultant for a research tax credit firm, and an attorney and appeals officer for the IRS. He is also the author of Research Tax Credits, a book published by the American Law Institute-American Bar Association and his research tax credit articles are in a number of well-respected tax publications.

ETS Disclaimer
The article is designed to provide authoritative information on the subject matter covered. However, it is distributed with the understanding that the publisher, editors, and authors are not engaged in rendering legal, accounting, or other related professional services for your client base. Consequently, it is your responsibility to exercise all of the necessary measures to ensure proper tax preparation and tax advisory services for your client base.

Circular 230 Disclaimer
Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

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Just Because You Can, Doesn’t Mean You Should

Posted on October 30, 2012 by Rob Nance

Deferring payment in order to ease the pain of filing bankruptcy feels as wrong as punching your grandmother. Trying to wipe away $25.7 million in debt in bankruptcy court and also hang onto $1.2 million in retirement accounts and personal property, Arkansas football coach John L. Smith is clearly not in a position to be teaching ethics courses. By deferring 71% of his Arkansas pay until several months after his bankruptcy filing, Smith could keep it away from his creditors. Naturally, this move raises legal questions.

There’s a line from the song “Caravan” by Canadian rockers Rush that reads: “In a world where I feel so small I can’t stop thinking big.” Apply that to the weaselly coach and, in my opinion, the line becomes “Living large, living wrong.” Whatever advisors this clown has should be ashamed of themselves.

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Press Release on the 250th Blog Post

How Many Billionaires?

Posted on September 24, 2012 by Rob Nance

There are an estimated 1,226 billionaires worldwide. Many of them have bad hair.

Ten states can claim primary residences for 72 percent of America’s billionaires. I wonder how many homes each of them has, though.

Billionaires pay the salaries of a lot of accountants. The more accountants employed, the better, I say.

Put On That Jumper, It’s Getting Cold Out There

Posted on September 17, 2012 by Rob Nance

There are a lot of poor people in America. That’s a fact, regardless of what politicians preach or what certain news media outlets bark. What’s even more staggering than any statistics on the number of welfare recipients, homeless or unemployed is the latest measurement that the average Canadian household is $43,232 richer than the average America one. That’s a huge spread—far more than I would have estimated.

I don’t hear Obama, Romney or any other candidate running for office this November talking about how we need to catch up to Canada, our seldom talked about friendly neighbor to the north.

I Want Lindsay Lohan To Do My Taxes

Posted on September 14, 2012 by Rob Nance

In a sleepy fog the other morning, I dreamt that Lindsay Lohan was in charge of doing my taxes. A CPA or EA she is not.

Lindsay Lohan is reportedly set to earn around $2 million this year. What an odd coincidence that she recently tweeted to President Obama that we need to cut taxes for those “that are listed on Forbes as ‘millionaires.’” Granted, Lohan is in support of lower taxes for all—not just the wealthy. I’ll give her that, but c’mon, Lindsay, is urging that taxes be lowered for ‘millionaires’ really the card you should play?

I only want Lindsay Lohan to do my taxes in the fictional dream world. Seeing her slaving away in a tax department at PwC, though, might help her clean up her act.

Taxman Says “No Job for You!”

Posted on August 9, 2012 by Rob Nance

Last week, the House of Representatives approved legislation that would allow federal employees with seriously delinquent tax debts to be fired. The legislation would also prohibit the hiring of future federal employees who are already in that hot overdue tax mess. I think this is a smart move–and certainly one that is long overdue–but I’m skeptical as to the implementation of this rule if, indeed, it gets set in the proverbial governmental stone.

For starters, this would allow for the opportunity to shed some dead weight on Uncle Sam’s payrolls. Honestly, how many star performers on the job are also going to be tax deadbeats? The two normally don’t go hand-in-hand. Secondly, the directive would provide a prudent safeguard for bringing on new hires. Smart companies run credit checks on prospective hires in finance and sales departments, allowing them to spot those occasional red flags, giving cause to end the employment process (“dodging bullets”) for finance workers and salespeople who can’t manage their money properly. Isn’t this really a similar attempt to strengthen the workforce? Bottom line, the government needs to borrow more ideas from the private sector and put them to use.

Big Four Going Up, Canseco Going Down

Posted on August 2, 2012 by Rob Nance

CCH’s Public Accounting Report stated that Big Four 2011 revenues rebounded to pre-recession levels. Collectively, the four giants increased U.S. gross revenues 7.9% (over 2010) to $38.2 billion. Is this a sign that business is headed in the right direction? $38 billion…just another month for Walmart!

Big Boy Jose has surely felt the whiff of a third strike–again. Former baseball great Jose Canseco is officially broke, filing for Chapter 7 in the Las Vegas U.S. Bankruptcy Court. The former Oakland Athletics (and a bunch of other teams) slugger’s bankruptcy petition lists less than $21,000 in assets and a whopping $1.7 million in liabilities, including over $500,000 owed to our Internal Revenue Service pals. The Chapter 7 filing is a fall from grace for the 48 year-old man who was named the 1986 American League “Rookie of the Year” and the 1988 American League “MVP.”

National Mustard Day is Saturday, August 4. Have a great evening.

Raising the Bar

Posted on July 26, 2012 by Rob Nance

“The point of the solution is to work toward a better quality of life,” said Ira S. Rosenbloom, CEO of Optimum Strategies, LLC. Primarily working with small public accounting firms in a quest to be more profitable, Ira helps to steer them to that point with a multi-faceted approach–which includes refining the business so that the engine is firing its cylinders more effectively, creating a happier overall vehicle.

What critical lines of thinking are resonating with today’s small firms? Says Ira, “There’s more interest in value-pricing and also ‘minimum’ fees. As part of that, the conversations need to be had with clients, telling them in a polite way, what is to be expected of them.”

Naturally, accountants often work with clients on keeping a budget–whether it’s a 1040 client who might require a bit of help; a small business with bookkeeping needs; or a billion dollar privately-held business obtaining budgeting and forecasting consulting. But what about the firms themselves? “Firms need to live by a budget on engagements,” remarked Ira. “Pay attention to the warning signals…as they are happening, not after-the-fact.”

On the subject of M&A, Ira offered, “There are so many conversations going on–it’s all more and more active. With competition being so severe these days, there’s plenty of merger and acquisition interest–and dialog–in the profession.”

Tangled Up in Blue: The Adoption Tax Credit

Posted on July 25, 2012 by Rob Nance

I know someone who adopted a pair of girls from China more than a decade ago. It was a hassle, for sure–but well worth the effort, expense and the heartache accompanying the process. So the IRS has now gone and made a bit of a mess of the Adoption Tax Credit. “Surely you jest!,” you say (and don’t call me “Shirley”). Bottom line, this needs to improve quickly. Missing and incomplete documentation for the Adoption Tax Credit prompted the Internal Revenue Service to delay processing 43,295 claims for the credit and approve more than $11 million in erroneous claims.

Intended to offset qualified adoption expenses, making adoption possible for families who could not otherwise afford it, many families count on the Adoption Tax Credit to be one less headache in the post-adoption process. As my grandfather said many times, “This too shall pass.”

The Curator welcomes your comments on this matter!

For more on this issue, read the TIGTA report.

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