IRS Tax Court Memo 2017-099: Katrina E. Taylor and Avery Taylor v. Commissioner


The following Tax Court Memorandum decision underscores the importance of substantiating auto and travel expenses. The court noted that in Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. “Section 274(d) imposes relatively strict substantiation requirements for deductions claimed for (among other things) “listed property.” Under section 280F(d)(4) listed property includes any “passenger automobile.” No deduction is allowed under section 274(d) unless the taxpayer substantiates, by adequate records or by sufficient evidence corroborating her own statements, the amount, time and place, and business purpose for each expenditure. Sec. 1.274-5T(a), Sec. 1.274-5T(b), and Sec. 1.274-5T(c).”

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IRS TaxCourt Memo 2017-100: Carolyn F. Whitsett v. Commissioner

wins-imageIn the case of Carolyn F. Whitsett v. Commissioner, Tax Court Memo 2017-100, the United States Tax Court found that the taxpayer, Carolyn F. Whitsett, relied in good faith on her accountant and was not liable for negligence related penalties when her CPA reported capital gain due to a stock redemption in the wrong tax year and failed to file a return. (see memorandum below) If the IRS has assessed a penalty against you and you would like help finding out if it may be abated, please give us a call at 404-255-7400 or email us at info@hoffmanestatelaw.com.

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IRS Advance Release 2017-92: Work Opportunity Tax Credit (WOTC)

Joe Nagel Website PictureThe IRS recently highlighted a reminder that a tax credit is available for those who hire long term unemployed workers. There are 10 categories of qualified hires, including if the employee has been unemployed for 27 weeks and has taken unemployment for a portion of that time. Businesses should remember to take advantage of the credit when looking to hire qualified workers. For more information regarding this or any other business or tax related issue, please contact us at 404-255-7400 or info@hoffmanestatelaw.com.

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IRS Advance Release 2017-93: Startups Can Choose New Option for Claiming Research Credit

business lawA new option for small companies (less than $5 million in receipts) exists to apply up to $250k of research credit against payroll tax liabilities rather than income tax liability. For start ups the new option offers an opportunity to take credits that would otherwise be deferred if the company did not have taxable income to offset the credits.

For more information regarding this or any other small business legal concern please contact us at 404-255-7400 or info@hoffmanestatelaw.com.

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Overtime Law Update

IAN M. FISHERIn  June, we warned business clients that new regulations governing overtime laws would take effect on December 1, 2016. However, a number of states sued the Department of Labor and on November 23, the United States District Court for the Eastern District of Texas issued an injunction blocking the implementation from taking effect.

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Changes in Overtime Pay Regulations

IAN M. FISHERSmall business owners may be in for a shock later this year when new Department of Labor Regulations governing overtime go into effect. On December 1, 2016, a Final Rule by the Wage and Hour Division will go into effect, causing approximately 4.2 million currently exempt workers to have a right to time and a half pay from their employers.

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Tax Extender Deal Signed

IAN M. FISHERChristmas came a week early for many taxpayers in 2015.

On Friday, December 18, President Barack Obama signed into law a tax and spending package containing numerous tax breaks for individuals and businesses.

Of particular interest to many Hoffman & Associates clients may be the Conservation Easement Enhanced Incentive. In 2014, there was a provision in Sec. 170 of the Internal Revenue Code that allowed the value of qualified conservation contributions to be deducted up to 50 percent of a taxpayer’s contribution base (similar to AGI) and carried over to 15 succeeding tax years. For qualified farmers or ranchers, the deduction limit was 100 percent of the contribution base.

However, that enhanced incentive ended at the end of 2014 without Congress’s action and the easement limit reverted to 30 percent of a taxpayer’s contribution base and 5 years of carryover. As part of the now signed tax extender deal, the enhanced incentive is now permanent. The bill completely deletes the language in the code section that makes the enhanced incentive expire, so taxpayers now have peace of mind when considering conservation easements going forward.

Some other tax breaks included in the package include the following:

  • IRA charitable rollover, which means once a taxpayer reaches age 70 1/2, he or she can make direct gifts from his or her IRA to charities of up to $100,000 per year. This would be more beneficial than taking withdrawals and then gifting to charity.
  • Research and Development Credit, which incentivizes small businesses and startups to invest in research and development by allowing them the use of this credit against alternative minimum tax or even payroll taxes in some limited instances.
  • Reduced S Corporation Built-In Gains recognition period, which is important for C corporation owners who are interested in converting to S Corporations. Under previous law, the corporation had to hold appreciated assets for 10 years or it would be taxed on their gains. Now, that holding period has been reduced to 5 years.
  • Itemized deduction for state and local sales tax in lieu of income taxes. This could be beneficial if a taxpayer made a large purchase during the year that is greater than his or her state income tax obligation. This is particularly useful for taxpayers who live in states without a State income tax, such as Florida.
  • Enhanced Sec. 179 Deductions, which allow businesses to deduct full purchase price of qualifying equipment and/or software purchased during the tax year. Businesses may deduct up to $500,000 of qualifying expenses on up to $2,000,000 of equipment. These were set to drop to $25,000 and $200,000 had this not been included in the tax extender bill.
  • Once the Sec. 179 cap is reached, bonus depreciation was also made permanent in this tax deal. What that means is a taxpayer can deduct 50% of the depreciation in the first year instead of the normal 20%.

 To illustrate this in conjunction with the enhanced Sec. 179 deductions, let’s say a company bought $750,000 worth of new equipment. They would be able to deduct the following:

  • $500,000 – Sec. 179 deduction ($250,000 remaining after Sec. 179 deduction)
  • $125,000 50% Bonus first year depreciation (of the remaining $250,000)
  • $25,000 normal 20% depreciation (20% of the $250,000-$125,000)


  • $650,000 Total First Year Deduction ($500,000+$125,000+25,000)
  • $227,500 Cash Savings, assuming 35% tax rate

The tax extender bill contained numerous other provisions benefitting both individual taxpayers and businesses. If you have any questions about them, please feel free to contact Hoffman & Associates.

Planning for Farming and Agriculture

Farming & Agriculture




WealthCounsel Quarterly Q2 2015_ Planning for Farming and Agriculture

Why YOU should have a BDIT

Ian 1As a business owner, does anything sound better than having your business protected from creditors and having it grow completely outside of your estate while still having full control over it? The Beneficiary Defective Inheritor’s Trust (the “BDIT”) technique allows all of that. Essentially, a trust beneficiary, the business owner, YOU, can grow your business in a trust established for you by someone else.

The biggest advantage of this strategy is that the BDIT will be for the benefit of the business owner and will be completely discretionary, so there will be no problem getting money out of the company if needed. Some other benefits of this trust are that the beneficiary/business owner has significant control over the trust property and it is a grantor trust with respect to the beneficiary, so that will further remove assets from the beneficiary’s estate while the assets grow tax free. One other advantage is that a BDIT is more flexible than a defective grantor trust as far as changing beneficiaries of the trust, so it might be a good option if a parent is not sure if their child can handle a business or a similar situation.

The mechanics of the BDIT are as follows:

  1. A Parent (or other third party, hereinafter the “Parent”) forms the trust (in a favorable jurisdiction for asset protection) for the benefit of the business owner;
  2.  The Parent contributes $5,000 cash to the trust and allocates $5,000 of GST exemption to it;
  3.  The Parent grants the beneficiary a Crummey power of withdrawal over the $5,000 for 30 days and it lapses;
  4.  The Parent retains no powers that could trigger the grantor trust rules for the Parent;
  5.  The Parent grants full discretion over distributions of income and principal to a third-party trustee;
  6.  The child is granted the power to remove and replace the independent trustee with another independent trustee;
  7.  The Parent grants a broad special power of appointment to the child, exercisable during life or at death;
  8.  The beneficiary will be the Investment Trustee and control all managerial decisions; and
  9.  A formula clause will be used to shift any unintended gifted assets to a non-GST tax exempt BDIT.

However, because the BDIT is a very complex strategy, it must be documented, implemented, and administered very carefully.  If all the proper procedures are followed, this transaction is legitimate despite the IRS not liking it.  Anyone with a growing business should look into a BDIT

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

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