Direct Pay Offers Free Way to Pay Federal Taxes (IR 2026-109) The IRS reminded taxpayers with bank accounts that Direct Pay can be used to pay federal taxes from a checking or savings account. The service is available on IRS.gov, and taxpayers do not need to s...
IRS Warns of Fake Tribal Tax Credits (IR 2026-112) The IRS warned taxpayers, tribal communities, businesses and tax professionals about promoters selling fake “Tribal Tax Credits” that do not exist under federal law. Promoters may claim these cred...
NJ - Net operating loss deduction temporarily capped New Jersey is temporarily capping the corporate business tax net operating loss deduction at $1 million, for privilege periods ending on or after July 31, 2026 but before July 31, 2030. For privilege ...
PA - Utility surcharge set at zero for 2027 Pennsylvania has provided notice that the Public Utility Realty Tax Act (PURTA) surcharge calculation for tax years beginning January 1, 2027 is 0 mills. No PURTA surcharge will be imposed for the tax...
In light of a recent Tax Court ruling, we are currently reviewing the files of our clients who are S corporation officers. It is possible that the decisions of the Tax Court may affect your corporation in the future.
In light of a recent Tax Court ruling, we are currently reviewing the files of our clients who are S corporation officers. It is possible that the decisions of the Tax Court may affect your corporation in the future. In their ruling, the Tax Court held that the sole shareholder and president of an S corporation performed duties similar to those an employee would perform and, therefore, had the status of employee for employment tax purposes. The IRS held the taxpayer liable for FICA and FUTA taxes that it failed to pay because of misclassification of the officer as an independent contractor.
Shareholder distributions versus salary payments may raise similar issues. For federal employment tax purposes, a corporate officer is considered an employee, unless the officer performs no services or only minor services to the corporation and neither receives nor is entitled to payment for these services. The form of payment is immaterial, the only relevant factor being whether the payments were actually received as compensation for employment. Distributions to shareholders may be reclassified as wages subject to FICA and FUTA taxes where compensation appears to be insufficient. Determining the range of reasonableness of compensation for your business where shareholder compensation should fall within that range depends upon many variables. With proper planning, we hope that you and your business can avoid similar scrutiny.
Please contact our office to review and discuss your corporation’s compensation structure.
The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.
The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.
Qualified Personal Vehicle Loan Interest
For tax years beginning in 2025 through 2028, a noncorporate taxpayer may claim a deduction of up to $10,000 for qualified personal vehicle loan interest (QPVLI) paid or accrued during the tax year on a specified passenger vehicle loan (SPVL) incurred by the taxpayer for the purchase of an applicable personal vehicle (APV) for personal use. Generally, interest includes an amount paid, received, or accrued as compensation for the use or forbearance of money under the debt instrument.
The final regulations clarify that QPVLI also includes prepaid interest in the form of points and deferred or capitalized interest. In addition, it may include origination-related or financing-related charges, prepayment penalties, late-payment charges, default-related charges, and similar fees, if characterized as an interest expense for federal income tax purposes.
Secured by First Lien
Interest is QPVLI only if it is paid or accrued on debt for the purchase of an APV for personal use that is secured by a first lien. The final regulations clarify that an SPVL is secured by a first lien with the first voluntary security interest recorded against the vehicle. Any involuntary liens are disregarded even if given temporary higher priority at a later date.
A vehicle also may be considered secured by a first lien even if the lien has not yet been perfected or recorded due to short-term delays arising under State or local law. It may also be considered secured by a first lien where the lien is removed in connection with the taxpayer no longer owning the vehicle, but the taxpayer continues to be liable for the loan (repossession or insurance payout).
Purchase of Applicable Passenger Vehicle
An SPVL is qualified only to the extent the debt is incurred for the purchase of a new vehicle and any other items or amounts customarily financed in the same purchase transaction (for example, vehicle service plans, extended warranties, sales taxes, and vehicle-related fees). Any portion of a loan for items or amounts not customarily financed in the purchase are not qualified.
The taxpayer must allocate the debt on a pro rata basis. Whether items are customarily financed and directly related to the purchase of the vehicle is determined on an industry-wide basis and not on the particular financing terms. The final rules, however, expand the list of examples of items customarily financed in an APV purchase. The final regulations also maintain that debt incurred for negative equity in a prior purchased vehicle is not incurred for the purchase of an APV.
The requirement that an APV must be a new vehicle under the loan documentation refers to the lender’s classification of the vehicle for purposes of its financing programs. The original use of the vehicle must commence with the taxpayer. However, original use does not commence with a dealer if the vehicle is held primarily for sale to customers in the ordinary course of its trade or business. Original does not commence with a lessee if the lessee purchases the vehicle during or at the end of the lease term.
Information Reporting
Any lender or other person who, in the course of that trade or business, receives from any individual interest aggregating $600 or more for any calendar year on an SPVL, must report the receipt of interest on Form 1098-VLI to the IRS and the payee. The final regulations affirm that lenders are required to include only interest received on an SPVL for the purchase of an APV, the first use of which begins with the payee. This is required by statute and may require the lender to collect information it currently does not collect. The lender must file Form 1098-VLI for each SPVL.
The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.
The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section501(c)(3)if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.
Racial Nondiscrimination
The proposed regulations would treat all race-based consideration in private education as contrary to a fundamental public policy, regardless of its purpose, including remedial or diversity-related objectives. This restriction does not inclulde policies or actions designed to eliminate prejudice or other forms of discrimination. The rules would cover private primary and secondary schools, colleges, professional or trade schools, and universities. The rules specifically do not include governmental units, any agency or instrumentality of a governmental unit, or any organization owned or operated by such an agency or instrumentality.
Application to Private Schools
To qualify for tax exemption, a private school could not consider race, color, or national or ethnic origin in:
(1) Educational or admissions policies
(2) Scholarship or loan programs
(3) Athletic or other school-supported programs
The proposal would not prevent religious schools from maintaining religious missions or selecting students based solely on religious affiliation. If finalized,Rev. Proc. 75-50would also be modified to remove provisions permitting certain race-based preferences for minority groups.
The proposed regulations would add§1.501(c)(3)-2and apply to taxable years beginning after May 31, 2027.
A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.
A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely underCode Sec. 6235because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period underCode Sec. 6235(a)(1)controlled because the statute permits adjustments until the latest of the periods specified inCode Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.
The partnership, which was subject to the centralized partnership audit (CPA) regime, challenged an FPA disallowing a charitable contribution deduction. The partnership argued that the FPA was issued outside the applicable limitations period because the 330-day period following the notice of proposed partnership adjustment had expired. However, the parties had previously executed an agreement extending the limitations period for partnership adjustments underCode Sec. 6235(b).
Further, it was concluded that the periods specified inCode Sec. 6235(a)were not sequential deadlines. The statutory phrase “later of” required use of the latest applicable period, and an agreed extension underCode Sec. 6235(b)extended the limitations period for making adjustments, including issuance of the FPA. Because the FPA was mailed before expiration of the agreed extended period, the FPA was timely.
The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.
The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.
The law (H.R. 5366) allows victims of federally declared disasters to deduct qualified losses above $500 per disaster without itemizing and removes the 10 percent adjusted gross income threshold for those losses. A fact sheet on the bill can be foundhere.
Under the law, this treatment of personal casualty loss is available until Jan. 1, 2027.
It also excludes wildfire relief payments from taxable income regardless of when they are received, so long as the wildfire disaster declaration occurs after Dec. 31, 2014, and before Jan. 1, 2027.
President Trump signed the bill into law on Sept. 11, 2026.
The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).
The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts.Rev. Proc. 2026-32modifies sections 7 and 19 ofRev. Proc. 2025-23to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).
For research expenditures, the procedure modifies accounting method changes underCode Secs. 174and174A.Code Sec. 174continues to require capitalization and 15-year amortization for foreign research expenditures.Code Sec. 174Agenerally allows a current deduction for domestic research expenditures paid or incurred in tax years beginning after December 31, 2024.
The procedure also revises rules governing adjustments associated with accounting method changes. It coordinates certainCode Sec. 481adjustments with the OBBBA transition method for recovering unamortized domestic research expenditures. It also extends through tax years beginning before 2028 waivers of certain eligibility restrictions for specified automatic changes.
Further, the IRS provides automatic accounting method changes for residential construction contracts affected by the OBBBA amendments toCode Sec. 460. Taxpayers may change from the percentage-of-completion method to an exempt contract method for qualifying contracts entered into in tax years beginning after July 4, 2025. Certain taxpayers may also change their treatment of costs underCode Sec. 263A.
The modified procedures generally apply to Form 3115, Application for Change in Accounting Method, filed after September 4, 2026. Special transition rules apply to certain previously filed Forms 3115.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of June 2014.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of June 2014.
June 4 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 28-30.
June 6 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 31-June 3.
June 10 Employees who work for tips. Employees who received $20 or more in tips during May must report them to their employer using Form 4070.
June 11 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 4-6.
June 13 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 7-10.
June 16 Individuals. Individuals, partnerships, passthrough entities and corporations make the second installment of 2014 estimated quarterly tax payments.
Individuals. U.S. citizens or resident aliens living and working (or on military duty) outside the United States and Puerto Rico must file Form 1040 and pay any tax, interest, and penalties due.
June 18 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 11-13.
June 20 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 14-17.
June 25 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 18-20.
June 27 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 21-24.
June 30 Foreign Assets. FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly Form TD F 90-22.1) due. FinCEN Notice 2013-1 extended the due date for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity, to June 30, 2015.
July 2 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 25-27.
July 7 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates June 28-30.
Retired employees often start taking benefits by age 65 and, under the minimum distribution rules, must begin taking distributions from their retirement plans when they reach age 70 ½. According to Treasury, a 65-year old female has an even chance of living past age 86, while a 65-year old male has an even chance of living past age 84. The government has become concerned that taxpayers who normally retire at age 65 or even age 70 will outlive their retirement benefits.
Retired employees often start taking benefits by age 65 and, under the minimum distribution rules, must begin taking distributions from their retirement plans when they reach age 70 ½. According to Treasury, a 65-year old female has an even chance of living past age 86, while a 65-year old male has an even chance of living past age 84. The government has become concerned that taxpayers who normally retire at age 65 or even age 70 will outlive their retirement benefits.
The government has found that most employees want at least a partial lump sum payment at retirement, so that some cash is currently available for living expenses. However, under current rules, most employer plans do not offer a partial lump sum coupled with a partial annuity. Employees often are faced with an “all or nothing” decision, where they would have to take their entire retirement benefit either as a lump sum payment when they retire, or as an annuity that does not make available any immediate lump-sum cash cushion. For retirees who live longer, it becomes difficult to stretch their lump sum benefits.
Longevity solution
To address this dilemma, the government is proposing new retirement plan rules to allow plans to make available a partial lump sum payment while allowing participants to take an annuity with the other portion of their benefits. Furthermore, to address the problem of employees outliving their benefits, the government would also encourage plans to offer “longevity” annuities. These annuities would not begin paying benefits until ages 80 or 85. They would provide you a larger annual payment for the same funds than would an annuity starting at age 70 ½. Of course, one reason for the better buy-in price is that you or your heirs would receive nothing if you die before the age 80 or 85 starting date. But many experts believe that it is worth the cost to have the security of knowing that this will help prevent you from “outliving your money.”
To streamline the calculation of partial annuities, the government would allow employees receiving lump-sum payouts from their 401(k) plans to transfer assets into the employer’s existing defined benefit (DB) plan and to purchase an annuity through the DB plan. This would give employees access to the DB plans low-cost annuity purchase rates.
According to the government, the required minimum distribution (RMD) rules are a deterrent to longevity annuities. Because of the minimum distribution rules, plan benefits that could otherwise be deferred until ages 80 or 85 have to start being distributed to a retired employee at age 70 ½. These rules can affect distributions from 401(k) plans, 403(b) tax-sheltered annuities, individual retirement accounts under Code Sec. 408, and eligible governmental deferred compensation plans under Code Sec. 457.
Tentative limitations
The IRS proposes to modify the RMD rules to allow a portion of a participant’s retirement account to be set aside to fund the purchase of a deferred annuity. Participants would be able to exclude the value of this qualified longevity annuity contract (QLAC) from the account balance used to calculate RMDs. Under this approach, up to 25 percent of the account balance could be excluded. The amount is limited to 25 percent to deter the use of longevity annuities as an estate planning device to pass on assets to descendants.
Coming soon
Many of these changes are in proposed regulations and would not take effect until the government issues final regulations. The changes would apply to distributions with annuity starting dates in plan years beginning after final regulations are published, which could be before the end of 2012. Our office will continue to monitor the progress of this important development.
A consequence of the economic downturn for many investors has been significant losses on their investments in retirement accounts, including traditional and Roth individual retirement accounts (IRAs). This article discusses when and how taxpayers can deduct losses suffered in Roth IRAs and traditional IRAs ...and when no deduction will be allowed.
A consequence of the economic downturn for many investors has been significant losses on their investments in retirement accounts, including traditional and Roth individual retirement accounts (IRAs). This article discusses when and how taxpayers can deduct losses suffered in Roth IRAs and traditional IRAs ...and when no deduction will be allowed.
Traditional IRAs
Losses on investments held in a traditional IRA, funded only by contributions that you deducted when you made them, are never deductible. Even when you cash out the IRA after retirement, losses cannot be deducted. The theory behind this rule is that you already received a tax benefit in your deduction for making contributions and any loss lowers the amount of taxable income you must realize when you make retirement withdrawals. The technical explanation is that you are presumed to have a zero basis in your account.
On the other hand, if you make nondeductible traditional IRA contributions, and liquidate all of the investments in your traditional IRA, a loss can be recognized if the amounts distributed are less than the remaining unrecovered basis in the traditional IRA. You claim a loss in a traditional IRA on Schedule A, Form 1040, as a miscellaneous itemized deduction subject to the two percent AGI floor.
Example. During 2008, you made $2,000 in nondeductible contributions to a traditional IRA. Your basis in the IRA at the end of 2008 is $2,000. During 2008, the IRA earned $400 in dividend income and you withdrew $600 from the account. As a result, at the end of 2008 the value of your IRA was $1,800 ($2,000 contributed plus $400 dividends minus $600 withdrawal). You compute and report the taxable portion of your $600 withdrawal and your remaining basis on Form 8606, Nondeductible IRA.
In 2009, the year you retired, your IRA lost $500 in value. At the end of 2009, your IRA balance was $1,300 ($1,800 balance at the end of 2008 minus the $500 loss). Your remaining basis at that time in your IRA is $1,500 ($2,000 nondeductible contributions minus the $500 basis in the prior withdrawal). You withdraw the $1,300 balance remaining in the IRA. You can claim a loss of $200 (your $1,500 basis minus the $1,300 withdrawn) on Form 1040, Schedule A. The allowable loss is further subject to the two percent adjusted gross income (AGI) floor on miscellaneous itemized deductions.
If you made significant nondeductible contributions to an IRA over the last few years, and may be considering withdrawing the entire balance in all of your traditional IRAs before the end of the year in order to recognize a loss, keep in mind doing so will mean losing the opportunity to defer gain if the value of your investments in the accounts increases. Those withdrawn amounts cannot be recontributed at a later date.
Roth IRA losses
When you experience losses on Roth IRA investments, you can only recognize the loss for income tax purposes, if and when all the amounts in the Roth IRA accounts have been distributed and the total distributions are less than your basis (e.g. regular and conversion contributions).
To report a loss in a Roth IRA, all the investments held in your Roth IRA (but not traditional IRAs) must be liquidated. Moreover, the loss is an ordinary loss for income tax purposes, not a capital loss, and can only be claimed as a miscellaneous itemized deduction subject to the two percent of AGI floor that applies to miscellaneous itemized deductions on Form 1040, Schedule A.
Since all Roth IRAs must be completely liquidated to generate a loss deduction, it generally provides only a small comfort to investments gone sour. Closing all your Roth IRAs generally forgoes future appreciation on that amount.
If you are considering liquidating your Roth IRA or traditional IRA to take the loss, please contact our office and we can discuss the tax and financial consequences before finalizing any plans.
In order to be tax deductible, compensation must be a reasonable payment for services. Smaller companies, whose employees frequently hold significant ownership interests, are particularly vulnerable to IRS attack on their compensation deductions.
In order to be tax deductible, compensation must be a reasonable payment for services. Smaller companies, whose employees frequently hold significant ownership interests, are particularly vulnerable to IRS attack on their compensation deductions.
Reasonable compensation is generally defined as the amount that would ordinarily be paid for like services by like enterprises under like circumstances. This broad definition is supplemented, for purposes of determining whether compensation is deductible as an ordinary and necessary expense, by a number of more specific factors expressed in varying forms by the IRS, the Tax Court and the Circuit Courts of Appeal, and generally relating to the type and extent of services provided, the financial concerns of the company, and the nature of the relationship between the employee and the employer.
Why IRS Is Interested
A chief concern behind the IRS's keen interest in what a company calls "compensation" is the possibility that what is being labeled compensation is in fact a constructive dividend. If employees with ownership interests are being paid excessive amounts by the company, the IRS may challenge compensation deductions on the grounds that what is being called deductible compensation is, in fact, a nondeductible dividend.
Another area of concern for the IRS is the payment of personal expenses of an employee that are disguised as businesses expenses. There, the business is trying to obtain a business expense deduction without the offsetting tax paid by the employee in recognizing income. In such cases, a business and its owners can end up with a triple loss after an IRS audit: taxable income to the individual, no deduction to the business and a tax penalty due from both parties.
Factors Examined
The factors most often examined by the IRS in deciding whether payments are reasonable compensation for services or are, instead, disguised dividend payments, include:
The salary history of the individual employee
Compensation paid by comparable employers to comparable employees
The salary history of other employees of the company
Special employee expertise or efforts
Year-end payments
Independent inactive investor analysis
Deferred compensation plan contributions
Independence of the board of directors
Viewpoint of a hypothetical investor contemplating purchase of the company as to whether such potential investor would be willing to pay the compensation.
Failure to pass the reasonable compensation test will result in the company's loss of all or part of its deduction. Analysis and examination of a company's compensation deductions in light of the relevant listed factors can provide the company with the assurance that the compensation it pays will be treated as reasonable -- and may in the process prevent the loss of its deductions.
Note: In the case of publicly held corporations, a separate $1 million dollar per person cap is also placed on deductible compensation paid to the CEO and each of the four other highest-paid officers identified for SEC purposes. (Certain types of compensation, including performance-based compensation approved by outside directors, are not included in the $1 million limitation.)
The S Corp Enigma
The opposite side of the reasonable compensation coin is present in the case of some S corporations. By characterizing compensation payments as dividends, the owners of these corporations seek to reduce employment taxes due on amounts paid to them by their companies. In these cases, the IRS attempts to recharacterize dividends as salary if the amounts were, in fact, paid to the shareholders for services rendered to the corporation.
Caution. In the course of performing the compensation-dividend analysis, watch out for contingent compensation arrangements and for compensation that is proportional to stock ownership. While not always indicators that payments are distributions of dividends instead of compensation for services, their presence does suggest the possibility. Compensation plans should not be keyed to ownership interests. Contingent and incentive arrangements are also scrutinized by the IRS. The courts have frequently ruled that a shareholder has a built-in interest in seeing that the company is successful and rewarding him for increasing the value of his own property is inappropriate. Similar to the reasonable compensation test, however, this rule is not hard and fast. Accordingly, the rules followed in each jurisdiction will control there.
Conclusions
Determining whether a shareholder-employee's compensation is reasonable depends upon many variables, such as the contributions that employee makes to your business, the compensation levels within your industry, and whether an independent investor in your company would accept the employee's compensation as reasonable.
Please call our office for a more customized analysis of how your particular compensation package fits into the various rules and guidelines. Further examination of your practices not only may help your business better sustain its compensation deductions; it may also help you take advantage of other compensation arrangements and opportunities.
