Tax Archives

Self-Directed IRA Purchase of Real Estate is Taxable

Self-directed IRAs present a number of opportunities. But what if the self-directed IRA custodian chooses to limit the account holder’s options? Can the IRA account holder go around the custodian’s wishes? The recent Dabney v. Commissioner, Docket No. 14566-12, provides an example where the purchase real estate by a self-directed IRA was a taxable distribution from…

Self-Directed IRA can Flip Houses & Share Ownership of Property

In In re Cherwenka, the U.S. Bankruptcy Court for the Northern District of Georgia concluded that house flipping activities in a self-directed IRA and shared ownership of property with the IRA and the account holder were not prohibited transactions. Facts & Procedural History Mr. Cherwenka was in the business of flipping houses. Mr. Cherwenka established…

Promissory Notes Distributed by Self-Directed IRA Were Not Worthless

Self-directed IRAs are usually profitable. But there are times when they lose money. In Berks v. Commissioner, Docket No. 26883-11S, the U.S. Tax Court addressed a situation where the IRAs held promissory notes that may have been worthless. Facts & Procedural History The Berks rolled over money from pre-existing IRAs to self-directed IRAs, with the…

Car and Truck Expenses Allowed Based on Mileage Not Actual Costs, Absent Records

In Aivatzidis v. Commissioner, T.C. Summary Opinion 2013-105, the U.S. Tax Court concluded that a professional driver could deduct expenses based on mileage, but not for actual expenses. This case provides an example of why drivers should compute car and truck expenses based on mileage if they do not have sufficient records. Facts & Procedural…

Insurance Agent Denied Depreciation Deduction For Airplane

In Brown v. Commissioner, T.C. Memo. 2013-275, the U.S. Tax Court denied an insurance salesman’s bonus depreciation deduction for his private jet as it was not placed in service in the tax year. The case highlights the highly factual nature of determining when an asset is deemed to have been placed in service for tax…

Fashion Retailers Business Expenses Disallowed as Routine Substantiation Case

In Heinbockel v. Commissioner, T.C. Memo. 2013-125, the U.S. Tax Court considered a routine substantiation case and disallowed business expense deductions for a fashion clothing retailer. This case presents an opportunity to consider how to present routine substantiation cases to the IRS and to the courts. Facts & Procedural History Mrs. Heinbockel was in the…

Personal Guarantees for Self-Directed IRAs Are Prohibited Transactions

If you have a self-directed IRA, the IRA invests in LLCs, can you personally guarantee a loan for the LLC? The court addressed this in Peek v. Commissioner, 140 T.C. 12. Facts & Procedural History Mr. Fleck identified a business opportunity that he intended to invest in. Mr. Peek, Mr. Fleck’s lawyer, approached Mr. Fleck about…

Parking Garages: Parking Lot Depreciation Life

In recent Chief Counsel Memo #20125201F, the IRS concludes that open-air parking garages are considered buildings rather than land improvements for tax purposes. The IRS attorneys go on to say that the taxpayer’s conclusion to the contrary warrants the assessment of a negligence penalty. That is a pretty harsh result given that the tax law…

What Gross Receipts are Used in R&D Credit?

For the research tax credit, what gross receipts do you include in computing its tax credit? Despite the credit being on the books for several decades, this is an open question. The court addressed this in Hewlett-Packard Co. v. Commissioner, 139 T.C. 8. Facts & Procedural History Hewlett-Packard Co. (“Hewlett-Packard”) is a global technology and service…

Does Work to Validate Prior Research Qualify for the R&D Tax Credit?

For the research tax credit, does work to validate prior research count as a qualified research expense? The court recently addressed this in United States v. Davenport, No. 3:09-cv-02455-L (N.D. Tex. 2012). Facts & Procedural History Morris and David Davenport (collectively, “Davenports”) were fifty percent owners of Burly Corporation (“Burly”). Burly manufactures residential metal roofing and…