Tuesday, November 12, 2013

Several IRS Tax Court Rulings Dentists Should be Aware of... (if for no other reason than to dispel the myth that the IRS is humorless).

A Bike Sharing Program Isn't Mass Transit

Employee Benefits—Bike Sharing: Expenses an employee incurs by participating in a "bike share program" do not qualify for the favorable tax treatment provided for qualified transportation fringe benefits. According to IRC Sec. 132(a)(5), employers that provide their employees with transportation benefits can exclude those benefits from employees' gross incomes if the benefits are qualified transportation fringes as defined in IRC Sec. 132(f)(1) . A qualified transportation fringe includes any transit pass that entitles a person to transportation on mass transit facilities. A bike share program is not a mass transit facility. Information Letter 2013-0032. 

You Would Imagine They Could Have Thought of a Better Business Purpose...

Travel Expenses for Good Night's Rest: A self-employed tax return preparer that operated out of her home was denied a deduction for travel expenses that were necessary "just to get rest" from the stress of her neighborhood and harassment by clients that called her home at any hour. The Tax Court said that a taxpayer's choice of where to live is personal and her travel to get a good night's rest was a personal, not a business, expense. Meals and entertainment expenses claimed for meals with clients and a catered client party were denied as a business purpose was not established. Joyce Linzy , TC Memo 2013-219 (Tax Ct.).

Bad News for an Independent Contractor Deemed by IRS to be an Employee

Income Tax—SEP Contribution Disallowed: The taxpayer signed a letter of appointment with the British Consulate General (BCG) to serve a three-year term as a trade officer. He was referred to as "self-employed for tax purposes" in the letter and so filed a Schedule C reporting his income and related expenses and took a deduction for a SEP contribution based on his BCG earnings. After finding that the taxpayer was a common law employee of BCG and not self-employed, the Tax Court disallowed his SEP contribution and imposed a 6% excise tax on the excess contribution. On review of that decision, the 9th Circuit agreed that taxpayer was a common law employee. As such, he was not an employer under IRC Sec. 401(c)(4) with respect to his BCG earnings and could not contribute to a SEP and deduct his contributions based on those earnings. Rosenfeld v. Comm. , 112 AFTR 2d 2013-5638 (9th Cir.).

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