Tax News

CCH (cch.taxgroup.com) reports:

  Property values determined for property tax purposes using the factoring valuation method, which required the use of unconstitutional values from the prior year, were necessarily unjust and inequitable, according to an en banc decision of the Nevada Supreme Court. The district court decision to void the 2004-2005 assessments was affirmed and a refund was granted.

CCH (cch.taxgroup.com) reports:

  An unemployed electrical engineer was prohibited from claiming deductions for expenses related to attending a week-long course to improve his day-trading activities, as well as travel expenses to attend the course. Code Sec. 274(h)(7) disallows any deduction for expenses of attending a convention, seminar or similar meeting if the expenses are unconnected with a trade or business. The taxpayer conceded that he was not in the trade or business of being a day trader.

C.H. Jones III, 131 T.C. No. 3, Dec. 57,496

Other References:

 
Code Sec. 274

  CCH Reference - 2008FED ¶14,408A.70

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 12,154.45

CCH (cch.taxgroup.com) reports:

  The IRS has released final regulations regarding the conversion of annuity contracts from non-Roth individual retirement accounts (IRAs) to Roth IRAs under Code Sec. 408A. The final regulations generally follow temporary and proposed regulations released in 2005, but with minor amendments made in response to comments received regarding the regulation.

  The major difference between a traditional, or non-Roth, IRA and a Roth IRA is that a traditional IRA allows for a deduction from income of the contributed amount, allowing for a pre-tax contribution, whereas a Roth IRA allows only after-tax contributions. Consequently, distributions from traditional IRAs are taxed while distributions from Roth IRAs are tax-free. The original final regulations released in 1999 provided guidance, in question-and-answer format, on the conversion of a traditional IRA to a Roth IRA, which requires the inclusion in income of the amount converted because the original contribution to the traditional IRA was a pre-tax contribution.

  Temporary and proposed amendments to Reg. §1.408A-4 released in 2005 provided additional guidance relating to the valuation of traditional individual retirement annuity contracts for purposes of conversion to a Roth IRA. In response to these temporary and proposed amendments, several comments were submitted regarding the proper valuation of the annuities and the methodology used in determining the valuation, and the IRS issued interim guidance in Rev. Proc. 2006-13, 2006-1 CB 315, in response. The commentators' suggestions and the interim guidance from Rev. Proc. 2006-13 have been incorporated into these final regulations.

  The final regulations provide guidance for circumstances in which a conversion is effected by the complete surrender of the annuity, without the transfer or retention of rights, in exchange for its cash value. In those circumstances, the surrendered cash value, which is made up of the proceeds to be contributed to the Roth IRA, is the amount of taxable income, not the fair market value of the annuity as provided under the temporary and proposed regulations.

  The other amendment provided in the final regulations relates to the methodology used to determine the fair market value of the annuity. Under the temporary and proposed regulations, the method of determining the fair market value of an annuity was similar to that found in gift tax regulations and was based upon comparable contracts issued by the same company at or around the same time. However, commentators suggested that the terms used in this guidance were unclear. In response, the final regulations provide for three different methods of determining the fair market value of the annuities. The first is the gift tax method based upon comparable contracts. The second applies where there is no comparable contract, and establishes fair market value through an approximation based upon the interpolated terminal reserve at the date of conversion, plus the proportionate part of the premium paid before conversion covering a period after the date of conversion. A third method is provided and is based on guidance in
Rev. Proc. 2006-13, and establishes the fair market value through a method that uses the accumulation of premiums, similar to a valuation method provided for qualified pension plans under Reg. §1.401(a)(9)-6.

  The final regulations apply to any Roth IRA conversion where an annuity contract is distributed or treated as distributed from a traditional IRA on or after August 19, 2005. However, the valuation methods in the temporary regulations or in Rev. Proc. 2006-13 can be used for annuity contracts distributed or treated as distributed from a traditional IRA on or before December 31, 2008.

T.D. 9418, 2008FED ¶47,054

Other References:

 
Code Sec. 408A

  CCH Reference - 2008FED ¶18,927B

  Tax Research Consultant

CCH (cch.taxgroup.com) reports:

  The IRS has adopted previously issued proposed regulations (REG-128274-03, published in the Federal Register on June 19, 2007) that amend the current low-income housing credit utility allowance regulations to provide new options for estimating utility allowance costs.

  In order to qualify as a rent-restricted unit the gross rent for a unit in a low-income housing project may not exceed 30 percent of the imputed income limitation applicable to the unit (Code Sec. 42(g)(2)). When utility costs are paid directly by the tenant, a utility allowance is added to the gross rent for that unit (Code Sec. 42(g)(2)((ii)).

Proposed Regulations

  The proposed regulations included two additional options for calculating utility allowances. The first new option allowed the building owner to obtain a utility estimate from the Agency with jurisdiction over the building. The second new method allowed the building owner to use the Housing and Urban Development (HUD) Utility Schedule Model. The final regulations retain these two proposed calculation methods and add a third option --the energy consumption model.

Calculation Method Added

  The utility allowance under the energy consumption model is calculated by a licensed engineer or Agency-approved professional using computer software that takes into account specific factors, including unit size, building orientation, design and materials, mechanical systems, appliances and characteristics of the building location.

  The final regulations do not prohibit using different calculation options for different types of utilities nor prohibit changing the method used to make a computation for a particular utility.

  A building owner is required to compute a new utility allowance once each calendar year. More frequent computation is permissible. In the case of a new building, a building owner is not required to review the utility allowances or implement new utility allowances, until the earlier of the date the building has achieved 90-percent occupancy for a period of 90 consecutive days or the end of the first-year of the 10-year credit period.

  In order to give tenants an opportunity to comment on a proposed allowance, a building owner must make the proposed utility allowances available to all tenants in the building at the beginning of the 90-day period before the utility allowances are used in determining the gross rents of rent-restricted units.

  The final regulations also exclude internet and cable television costs form the computation of the utility allowance. The current regulations only exclude telephone costs.

T.D. 9420, 2008FED ¶47,053

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4384G

  CCH Reference - 2008FED ¶4384I

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,214.10

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