Sunday, July 13, 2014

From the Boston Tax Institute

Originally published on Passive Activities and Other Oxymorons on June 22nd, 2011.
Boston Tax Alert 2011-33,2011-34, 2011-35,2011-36

I'm late putting up the Boston Tax Alert due to my long weekend on the West Coast to attend the board meeting of Just Detention International

Lu Gauthier of The Boston Tax Institute has given me permission to republish his newsletter. The BTI newsletter is a regular feature of this blog now going up every Tuesday. Be sure to check out the BTI catalog for great CPE value.

Our thanks to Lisa J. Delaney, Esq., one of the drafters of the new Homestead law, for the following email!

The new Homestead Statute provides even greater lien protection for homeowners. Just like the former statute, owners of a primary owner-occupied home may protect up to $500,000 in their accrued equity by declaring and recording a Declaration of Homestead the Registry of Deeds.

The new statute defines and expands homeowners to include properties held in trust or in a life estate. The statute also adds condominiums, co-operative apartments, trailers and 2-4 multi-family dwellings as qualifying homes.

The new statute removes several ambiguities or outdated modes. Now, Homestead is declared by both spouses who are homeowners and removes the archaic construction of one spouse signing for the marriage. Spouses who validly reside separately may hold concurrent Homestead in the two homes at the combined $500,000 exemption amount. No longer will Homestead terminate simply because a divorced owner remarries. And, all new spouses will have the benefit of their spouse's earlier declarations. Deeds within a family will preserve the homestead without requiring any special language or recitation in the deed. And, all homeowners may record multiple declarations for the same home without fear they may unknowingly terminate their exemption rights.

Our thanks to David Klemm, Esq. for the following email!

The IRS ruled in CCA 201011009 that an accrual method taxpayer reporting advance payments on the deferral method under Rev. Proc 2004-34 in accordance with its applicable financial statements must obtain consent before using its new financial statement method of accounting for tax purposes. The taxpayer recognized advance payments in income under its book method of accounting on a pro rata basis over the first 10 months of the 15-month period during which it performed services. The taxpayer's financial auditors determined that the taxpayer's book method of accounting for advance payments improperly overstated revenues. Therefore, the taxpayer changed it book method for advance payments in order to recognize the advance payments in income in its applicable financial statements on a pro rata basis over the entire 15-month period during which the taxpayer performs services. In the first year that the taxpayer began reporting advance payments over the 15-month period for its applicable financial statements it also reported the advance payments in the same manner for tax purposes. The taxpayer restated its financial statements for the prior two years. The IRS was not persuaded by the taxpayer's argument that since it had already received consent to use the deferral method using its applicable financial statement that it was not a change in method of accounting when it changed its book method for computing advance payments in its applicable financial statements. The IRS ruled that the taxpayer changed the timing of including an item in income in the current tax year from the timing of including that item in income in the previous taxable years. Accordingly, the IRS held that the taxpayer must file an application to change its method of accounting in order to obtain consent to use the new book method for tax purposes which would permit application of §481 to account for any omission of gross income resulting from the change in book method.

The final regulations (TD 9527) modifying Circular 230 are available on the Federal Register site at:

The official publication date will be June 3.

Our thanks to Patricia Ann Metzer, Attorney for the following email!

The Tax Code's deferred compensation provisions raise complex interpretative issues. The IRS pronouncements highlight the strong relationship between two of these provisions - 457 and 409A. Last year, the IRS came out with guidance (Rev. Rul. 2010-27) on unforeseeable emergency - one circumstance under which payments can be made to participants under eligible 457(b) plans before their severance from employment. Under the given conditions, an unforeseeable emergency is stated to include significant water damage to your home not covered by insurance, and funeral expenses for an adult child. The IRS adds that the same standards will apply to determine whether a distribution due to an unforeseeable emergency is permitted under a 409A nonqualified deferred compensation plan.

The approach is consistent with that taken by the IRS in 2007, when it said that concepts similar to those developed under 409A would apply to determine whether an arrangement providing severance benefits is not subject to 457, and when a benefit (not provided under an eligible 457 plan) is currently taxable because it is not subject to a substantial risk of forfeiture.

The upcoming seminar on 409A/Non-Qualified Deferred Compensation will deal with both 409A and the other Tax Code provisions you need to know about when it comes to deferred compensation. Items to be addressed include how mistakes in 409A drafting can be corrected on a timely basis without, in some cases, a toll charge. IRS correction procedures were most recently announced in Notice 2010-80.


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