Wednesday, October 29, 2014

IRS Quarterly Interest Rates Remain Same for 4th Quarter 2014

IRS has announced the interest rates for the 4th quarter of 2014.  The rates remain the same across the board as:

-        3% for most overpayments (2% for corporation overpayments)
-        3% for underpayments
-        5% for large corporate underpayments
-        0.5% for corporate overpayments exceeding $10,000

These rates have not changed since October 1, 2011, and now continue through December 31, 2014.

Revenue Ruling 2014-23

This text has been shared with you courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).,,,

©2014 Ashwaubenon Tax Professionals.  No reproduction of this article is permitted without the express written consent of Ashwaubenon Tax Professionals, 2140 Holmgren Way, Suite 1040, Green Bay, WI  54304.

We do not sell, give, or in any way share email addresses with anyone.  If you would like to be removed from our email list, send us an email to that effect or use the word UNSUBSCRIBE in the subject line.  If someone else would like to be added to our list, have them send us an email to that effect or use the word SUBSCRIBE in the subject line.

Tuesday, October 28, 2014

Another Large Charitable Contribution Fails for Lack of Substantiation

Submitted by William Delaney, EA of Westwood, MA

If you would like to have, at your side, a primer dealing with how one must document and support a charitable contribution deduction, take a look at a very recent Tax Court case, Thad DeShawn Smith v. Comm., TC Memo 2014-203 (10/2/2014).  After reading this you would wonder why the taxpayer bothered to incur the costs associated with bringing this to court---why would he think that he had a shot at winning?

William Delaney, EA
The Court found that Mr. Smith failed to meet the substantiation requirements for any of his contributions (although the Court believed that some, at least, had been made), so all were disallowed!

One thing which jumped out at me was a discussion of clothing, furniture and electronic equipment donated to the AMVETS.  It is not unusual for such organizations to pick-up your donations and leave a signed, but blank receipt.  Often the receipts are not dated.  The donor would then complete the description area or attach a detailed listing.  The donor might also insert a date.

The Court commented that the AMVETS receipts did not contain a “…description…of any property…contributed.”  Because this type of form is signed in advance (i.e. before the actual donation takes place) the court wondered if they rise to the level of an acknowledgement by AMVETS that it received anything.  Lastly, the only evidence that this form was a contemporaneous receipt was the date which the donor himself inserted.  How much weight would one give to a donor inserted date?

The Court ruled that this “receipt” was insufficient to meet the substantiation requirements of the Code.  Your editor must confess that he has accepted this type of receipt, along with a donor prepared listing of the donations, as adequate substantiation for contributions of $250 or more.  The Court is telling us, however, that such a receipt does not meet the substantiation requirements.

2015 PTIN Renewal Period Underway for Tax Professionals

Renew or Sign up Now
WASHINGTON —The Internal Revenue Service today reminded the nation’s more than 690,000 federal tax return preparers that they must renew their Preparer Tax Identification Numbers (PTINs) for 2015. All current PTINs will expire Dec. 31, 2014.

Anyone who prepares or helps prepare any federal tax return or claim for refund , for compensation must have a valid PTIN from the IRS. The PTIN must be used as the identifying number on returns prepared.

“We ask that you renew your PTIN as soon as possible to avoid a last-minute rush, ,” said Carol A. Campbell, director, IRS Return Preparer Office. “It’s easy to let this slip as the holiday season approaches.”

For those who already have a 2014 PTIN, the renewal process can be completed online and only takes a few moments. The renewal fee is $63. If you cannot remember your user ID and password, there are online tools to assist you. Preparers can get started at

If you are registering for the first time, the PTIN application fee is $64.25 and the process may also be completed online.

Form W-12, IRS Paid Preparer Tax Identification Number Application and Renewal, is available for paper applications and renewals, but takes four to six weeks to process. Failure to have and use a valid PTIN may result in penalties. All enrolled agents, regardless of whether they prepare returns, must have a PTIN in order to maintain their status.

Issuance of ‘Annual Filing Season Program – Records of Completion’ to begin

PTIN holders who renew their PTIN for 2015 and have met the continuing education requirements for the new voluntary IRS Annual Filing Season Program will be contacted by the IRS with instructions on how to elect to participate and print their Annual Filing Season Program - Record of Completion.

Monday, October 27, 2014

TOMORROW!!! 2014 Annual Meeting & Seminar - Register at the Door

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 28th 2014

Join the Massachusetts / Rhode Island NATP Chapter on Tuesday, October 28th, 2014 for our Annual Meeting & Educational Seminar. This all day event will be held at the Holiday Inn in Mansfield, MA. Take a look at the details on our speaker and topics provided in this great 8 CE Hour opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities.This seminar is limited to the First 100 Registrants!

Seminar Check in is 7am-7:45am. Seminar runs 7:45-4:40.
  • After October 27, please register at the door.

Speaker - Mary Mellem, EA

Mary has 30 years experience as a Tax Professional and 21 years
experience teaching tax programs throughout the country. She and
her husband operate Ashwaubenon Tax Professionals. Mary holds a
Bachelor Degree in Secondary Education from the University of
Wisconsin in the field of Mathematics and Economics. In 1990, she
received the Enrolled Agent designation. Mary is a member of the
NAEA and the NATP.


Overview of bankruptcy laws and taxes ~ Taxes and their dischargability ~ Preparation of the tax return(s) for the individual who files bankruptcy: Short Years, Carryovers of capital losses, NOLS, and other attributes.  IRS #JSAQG-T-00010-14-I


What are HSAs and who qualifies? ~ How are HSAs established? ~ Contributions to the HSA ~ Distributions ~ Rollover ~ Employment Issues ~ A Hidden IRA.  IRS #JSAQG-T-00011-14-I

Schedule D & Form 8949

Stocks and Bonds ~ Mutual Funds ~ Wash Sales ~ Equity Options (puts, calls) ~ Stock Options.  IRS #JSAQG-T-00012-14-I

Audit Proofing Business Returns

Covers areas IRS has indicated it will be examining and what taxpayers need to have to justify information on tax returns.  IRS #JSAQG-T-00013-14-I

Special Offer for the January 8, 2015 State Update Seminar
Sign up on October 28, 2014 and pay by November 10, 2014 for ½ Price 

2015 IRA and Pension Plan Limitations Announced

The 2015 IRA and pension plan limitations have been announced.  Below are some of the more common amounts.

The defined benefit plan limitation remains at $210,000 (same amount applicable for 2014).

The defined contribution plan maximum increases to $53,000 (up from $52,000 for 2014).

The annual compensation limit for most employer contributions increases to $265,000 (up from $260,000 for 2014).

A year of service for SEP coverage increase to $600 (up from the $550 applicable for 2014).

The maximum elective deferral for §401(k), §403(b), §457, and SARSEPs increases to $18,000 (up from $17,500 applicable for 2014).  The catch up contribution limit for those aged 50 or older as of the end of the year increases to $6,000 (up from $5,500 applicable for 2014).

The maximum elective deferral to SIMPLE plans increases to $12,500 (up from $12,000 applicable for 2014).  The catch-up maximum increases to $3,000 (up from $2,500 applicable for 2014).

The maximum contribution to IRAs remains at $5,500.  The catch-up for IRAs is not subject to annual indexing and remains at $1,000.  The modified AGI phase-out ranges for 2015 will be:
$61,000-$71,000 (up from $60,000-$70,000 applicable for 2014)
MFJ = $98,000-$118,000 (up from $96,000-$116,000 applicable for 2014)

Roth IRA AGI phase-out limits increase to $116,000-$131,000 (up from $114,000-$129,000 applicable for 2014).  For MFJ these amounts are $183,000-$193,000 (up from $181,000-$191,000 applicable for 2014).

The IRS Notice also has the other pension related indexed amounts such as key employee, top heavy, and “control employee” limits.

A copy of Notice 2014-99 can be found at by clicking on irs-news and then clicking on IR-14-99.


This text has been shared with you courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).,,,

©2014 Ashwaubenon Tax Professionals.  No reproduction of this article is permitted without the express written consent of Ashwaubenon Tax Professionals, 2140 Holmgren Way, Suite 1040, Green Bay, WI  54304.

We do not sell, give, or in any way share email addresses with anyone.  If you would like to be removed from our email list, send us an email to that effect or use the word UNSUBSCRIBE in the subject line.  If someone else would like to be added to our list, have them send us an email to that effect or use the word SUBSCRIBE in the subject line.


October 28 – Massachusetts/Rhode Island Chapter of National Association of Tax Professionals in Mansfield, MA.  Mary is presenting Bankruptcy, HSAs, Schedule D & Form 8949, and Audit Proofing Business Returns.  For more information go to .

November 7 & 8 – Oregon Association of Tax Consultants.  David & Mary will be presenting Schedules K1 (S corporation, partnership, trust, estate) and basis, Corporation Liquidation, Schedule A Nuances, HSAs, Elections, and Net Operating Losses.  For more information go to .

November 10 – Utah Chapter of National Association of Tax Professionals in the Larry Miller Center at the Salt Lake Community College in Sandy, UT.  David is presenting Patient Protection and Affordable Care Act (i.e., ObamaCare); Schedules L, M1 and M2; and Audit proofing business returns.  For more information go to, click on Chapters, NATP Chapters, and Utah.

More details will be in future emails regarding the additional seminars listed below:
January 7, 2015 – Southeast Chapter of Wisconsin Association of Accounts for 4 CPE hours from 1pm-5pm.  Federal and Wisconsin Tax Update

January 9, 2015 – Wisconsin Society of Enrolled Agents for 8 CPE hours.  Federal and Wisconsin Tax Update.

Friday, October 24, 2014

Tax Preparer Seminar

The Rhode Island Division of Taxation is holding a seminar for tax preparers. The chief focus of the seminar will be what’s new for the coming filing season and what’s new in state tax law, including the property-tax relief program (Form RI-1040H), the estate tax, and corporate taxes. There’ll also be an update on Notices that the Division of Taxation sends to taxpayers.

The seminar is aimed at paid preparers of Rhode Island income tax returns and is free of charge, but preregistration is required. The first session will be at CCRI’s Newport campus, in Newport, on November 6 from 9:00 a.m. to Noon. For those unable to make the Newport session, the seminar will be repeated in a session at CCRI’s Knight Campus in Warwick on December 3 from 9:00 a.m. to Noon. Click here for the seminar flier and for more information about registration.

Thursday, October 23, 2014

Home Office Deductions and Substantiation Requirements

William Delaney, EA
Westwood, MA
Taxpayer (Miller) was the only New York state based employee of BIW (employer), a company located in California.  Since the employer did not have office or other work space in NY, BIW asked Miller to work out of her home.  On its website, Miller’s address was listed, along with Miller’s phone number.  The taxpayer lived in a studio apartment which was one large room divided into three equal sections, one of which was used almost exclusively (more on this later) for BIM’s business operations.

At issue were various business expenses deducted on Miller’s 2009 return (Schedule A)
which totaled $34,933 against wages income of $48,680.  Matters were complicated by Miller’s testimony that she lost most of her business records when she moved to another apartment in 2011.  As a result, all of her 2009 expenses were disallowed by the IRS due to lack of substantiation.  [See Reg. 1.274-5T(c)(2)]

At trial, Miller admitted that she used portions of the office space for non-business purposes.  The Court found, however, that this personal use was de minimis and due to the practicalities of living in a small studio apartment.  She was, therefore, allowed a deduction for one-third of her rent and cleaning service charges.

Miller paid TimeWarner Corporation for a package consisting of cable television, telephone, and internet access.  Since the cable television was exclusively personal use, its cost was excluded.  Applying the Cohan rule, the Court found that one-half of the telephone cost was for local service (no deduction under Sec. 262(b) for the basic cost of the first phone) and could not be deducted.  The Court allowed a deduction for the remainder as business use.

The Court accepted as credible Miller’s testimony that she used wireless internet 70% for business, and found that the strict substantiation requirements of Sec. 274(d) were not applicable (see Noz v. Comm., TC Memo 2012-272).

Miller was unable to substantiate her utility expense with invoices and/or receipts, so no deduction was allowed.  Cohan could not be applied.  Likewise, she was unable to substantiate her cellular phone charges [which are subject to the substantiation requirements of Sec. 274(d)] because a cell phone (at that time) was listed property
and she could not produce invoices and/or receipts.

Lastly, and this is outside of the office in home issue, Miller was required to dress appropriately for BIW sponsored events which she attended.  She purchased three evening dresses at a total cost of $2,093 which she wore exclusively at employer sponsored events.  Since the cocktail dresses did not resemble a uniform, nor was she required by her employer to wear a uniform, the dresses were found to be suitable for personal use.  No deduction allowed.

Lauren Elizabeth Miller v. Comm., TC Summary Opinion 2014-74 (7/28/14)

Wednesday, October 22, 2014

RI Interest Rates Posted for 2015

The Rhode Island Division of Taxation has posted the interest rates that will apply for 2015 on overpayments and delinquencies. The rates are based on a formula set in statute.

The rates for the 2015 calendar year are the same as those that apply for the 2014 calendar year: 18% per annum on delinquent tax payments, 3.25% per annum on overpayments.

A complete listing of rates by year, can be viewed on the RI Division of Taxation website.

Tuesday, October 21, 2014

Final Regulations Under Sec. 162 Provide New Safe Harbor Rules For Certain Local Lodging Expense

The cost of local lodging is generally for the convenience of the employee and does not qualify as a business expense unless the employee reports the cost as additional compensation income.

Generally, an employee or self-employed person is not away from home (for purposes of qualifying the expense as a deduction) unless he is away overnight.

Under new Reg. l.162-32(b), the IRS has established a safe harbor rule for when local lodging expenses may qualify as ordinary and necessary (Section 162) expenses.  It’s a four part test.  All four parts must be in place.

1. The lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function.

2. The lodging is for a period which does not exceed five calendar days and does not recur more frequently than once per calendar quarter.

3. If the individual is an employee, his employer requires him to remain at the activity or function overnight.

4. The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation or benefit.

There are many situation specific examples in the new regulations.  One in particular
[Reg. 1.162-32(c) Example 5] has to do with someone who normally commutes two hours each way from home to work and return.  The employer wished to have the employee available for extra hours because of a special project, so the employee was provided with hotel accommodations for a period of time.  The IRS concluded that this provided a personal benefit to the employee (she was relieved of her long, daily commute) and was taxable to her as additional compensation.

See T.D. 9696, 9/30/2014; Reg. 1.162-32, Reg. 1.262-1