Wednesday, October 31, 2018

Real Estate Professional {Sec. 469(c)} - A Win For The Taxpayer

William Delaney, EA
Westwood, MA

Taxpayers Roberta and William Birdsong claimed that real property rental losses were fully deductible (and not subject to the passive activity loss limitation of $25,000) because Roberta qualified as a real estate professional and met the requirements of Sec. 469(c) as to material participation, and at least 750 hours of services performed.

Under Temporary Reg. 1.469-5T(f)(4)…

“The extent of an individual’s participation in an activity may be established by any reasonable means.  Contemporaneous daily time report, logs, or similar documents are not required if the extent of such participation may be established by other reasonable means.  Reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such periods, based on appointment books, calendars, or narrative summaries.  (emphasis added)

In Roberta Birdsong and William H. Birdsong v. Comm. of Internal Revenue, T.C. Memo 2018-148 (9/10/2018), the IRS conceded that Roberta satisfied the material participation requirements of Sec. 469(c)(7)(B)(i) “because she was not otherwise employed in 2014.”  However, the IRS asserted that Roberta had not satisfied the 750 hour test under Sec. 469(c)(7)*B)(ii) because the logs presented “were not contemporaneous and contained inaccuracies.”  The Court disagreed---see below.

William is employed full-time as an emergency physician.  Roberta divides her time between “caring for their children and managing their rental properties.  The rental properties consisted of one five unit building and another four unit building.  Roberta introduced two spreadsheets – the first documents 844.75 hours managing rental properties in 2014; the second documents 1,136.25 hours for the same period.  The second adds “previously omitted tasks such as investor hours and driving time between the rental properties and…locations pertinent to the management of the units.”

Taxpayers used Roberta’s calendar and receipts to reconstruct time for the first half of 2014.  For the second half, a contemporaneous, detailed, phone log was used, together with receipts and invoices to support the entries.

“Petitioners testified credibly and in detail about petitioner wife’s activities and extensive management of their rental properties…We find petitioners’ narrative summary and thorough time logs convincing because petitioners owned numerous rental units that petitioner wife operated alone.”  Referencing Hailstock v. Commissioner , TC Memo 2016-146, “Although we caution petitioners wife to construct more strictly contemporaneous time logs for her future endeavors, we find her credible testimony and time logs to be a “reasonable means” of proof.  (emphasis added)

What to take from this Case.  It is important that satisfactory evidence which meet the test of material participation and 750 hours be maintained.  In this Case, the taxpayers also elected to treat both rental properties as one for purposes of the 750 hour rule.  While they easily met the requirement of the temporary regulation, the IRS auditor did not place great weight on the regulation and asserted that contemporaneous records were not maintained (even though they are not a requirement if other reasonable means will serve the same purpose.

Now that we have the new Sec. 199A pass-through deduction in place, it is important to note that this type of taxpayer will meet the trade or business definition of a pass-through entity (although a loss will be suspended and not pass-through).  It is the only non-Schedule C filer which meets the definition.

Monday, October 29, 2018

Annual e-file production shutdown and switch over is November 17. That will be the last day to e-file Rhode Island returns for tax year 2017

PROVIDENCE, R.I. – The Rhode Island Division of Taxation’s annual electronic filing shutdown and switch over will occur on November 17, 2018. Individuals and businesses seeking to e-file their Rhode Island returns for tax year 2017 must do so on or before Saturday, November 17, 2018. After that date, returns for tax year 2017 must be filed on paper. 

Each year, the Division temporarily closes its system to e-filing in order to prepare the system for the upcoming filing season. The Internal Revenue Service, and many other states, follow the same practice. This year, the Rhode Island modernized e-file (MeF) shutdown and cutover will occur on Saturday, November 17, 2018, the same date as the IRS’s. 

Transmission schedule  

To ensure that all e-filed Rhode Island returns for tax year 2017 on Form RI-1040 (resident and nonresident), Form RI-1120C, Form RI-1120S, and Form RI-1065 are processed in a timely manner, transmitters must abide by the schedule. 

All e-filed Rhode Island returns for tax year 2017 will have a transmission deadline of 10:00 p.m. Eastern Time on Saturday, November 17, 2018. To avoid any last-minute logjams, preparers and taxpayers should get their electronic submissions to their transmitters well in advance of the deadline.

For e-file purposes, Rhode Island accepts only current-year returns. Thus, November 17, 2018, is the deadline for e-filing Rhode Island personal and business tax returns for the 2017 tax year. 
When the switchover is completed, and the Division of Taxation reopens to e-filing, scheduled for January 2019, e-filing will be available only for returns for the 2018 tax year. 

Fiscal-year filers
How the annual e-file production shutdown will affect fiscal-year filers depends on the filer’s deadline. For example, a fiscal-year filer with a due date of November 30, 2018, can still e-file, but only if willing to file early, by the November 17, 2018, e-file shutdown. Otherwise, the entity will have to file on paper. 

Practitioners who, because of the e-file shutdown and cutover, must file their client returns on paper will not be penalized under terms of Rhode Island’s e-file mandate. For more on the mandate, see Rhode Island General Laws § 44-1-31.1 and Regulation 280-RICR-20-30-2 (“Electronic Filing for Paid Preparers”). 

Friday, October 26, 2018

Taxability of Long-Term Disability Benefits and Social Security Disability Benefits

William Delaney, EA
Westwood, MA
Your Editor rarely sees this issue, so I thought that this case and fact pattern would be useful to our membership.

Catherine Clay (petitioner) was employed as a teacher by the School District of the City of Saginaw, MI.  Her employer provided long-term disability insurance as part of her benefits package.  The benefit was equal to 2/3 of pre-disability compensation, less deductible income.  For this purpose, deductible income included any entitlement under  Social Security Disability.

If a long-term disability benefit were paid without an offset, and the recipient later received a Social Security Disability benefit, this deemed “overpayment” was required to be refunded to the disability insurance carrier.

Under the terms of the contract, disability benefits ceased at age 65 (subject to certain limited exceptions – see following paragraph). 

 On October 8, 2009, Ms. Clay, at age 49, was involved in an automobile accident.  She received sick pay from her employer through January 5, 2010.  After applying for long-term disability benefits, her claim was approved retroactive to January 6, 2010.  In September 2010, Ms. Clark received a lump-sum payment of $29,245 (8 months of benefits – 1/6/2010 thru 9/5/2010).  She continued to receive monthly payments until December 2011, when they ceased.  The insurance carrier relied upon an exception in  the contract which limited the payments to a maximum of 24 months if the disability was due to a “mental disorder.” 

On October 6, 2010, Ms. Clark had signed an agreement expressing her understanding that receipt of deductible income (such as a Social Security Disability benefit) was to be immediately repaid to the insurance carrier.  It was left unsaid how someone with a “mental disorder” could execute a valid agreement, but that is probably a story for another day.

The carrier issued W-2 forms for wages paid - $43,868 – for both 2010 and 2011.

Ms. Clay disputed the mental disorder determination; the carrier disagreed.  This dispute was ongoing as the tax dispute (below) went to trial.

Ms. Clay filed for Social Security Disability (SSD) benefits and her claim was denied (sound familiar?).  She engaged an attorney and her application was approved retroactive to April 2010.  She was advised, by letter, that there would be a retroactive benefit of $32,965, less $6,000 to be paid to her attorney for legal services.

When she received her adjustment check it also included one month of ongoing benefits, for a gross amount of $34,700.  Of the amount received in 2011, $13,880 was attributable to 2010 and the balance was attributable to 2011.

The carrier then invoked the repayment provision of its policy and issued a demand for immediate payment of $36,694.  Ms. Clay took the position that she need not repay anything at that time, since the carrier could recover the overpayment from subsequent benefits which were due (the non-continued payments, as you will recall, which were in dispute).  Instead, she used the SSD money to pay off an old tax debt and travel out of state for physical therapy.

Taxpayer (Ms. Clay) did not report her W-2 disability wages from the carrier on her 2011 federal income tax return.  She did report $34,700 of Social Security benefits (line 20a) and zero as taxable (line 20b).  On Schedule A. taxpayer deducted $6,000 (attorney fee) as a misc. itemized deduction not subject to the 2% floor (against zero taxable income – line 20b – as you may remember).

The IRS asserted on audit that…

Wednesday, October 24, 2018

Annual Meeting & Educational Seminar In Review

Our 2018 Fall Educational Seminar and Annual Meeting were held yesterday and to all in attendance we thank you for coming!

The entire morning and early afternoon was spent with renowned speaker Cheryl Morse where we were engulfed in topics on "Divorce & Changes to Alimony", "Disability Tax Benefits" & "Education Credits". We then learned about "Education Debt" from Shelley Honeycutt, owner of College Advisors NE. Our day was capped off with a riveting talk on "Ethics" from one of our own chapter members, Bill Delaney.

Prior to our Annual Meeting, we heard from National NATP Board Member from Utah, Sherri Hosskisson. Here are some interesting facts about our chapter that she shared with us -

As part of our Annual Meeting, our 2019 Board of Directors were instilled in front of the crowd and here is the group -

2019 Board of Directors (L to R)
Christine Miarecki, Jeff Schweitzer, Sonny Drenen, Virginia Arlingon, June Massee, Paul DeBlois, Bill Delaney, Dave Johnson, Lous Vastano, Ron Fisher, Sharon Cummings (Jr BOD Member Emily), Joe Gniadek, Mary Ellen Fillo, Dot Dimo

Our Board also elected Chapter Officers for the 2019 year and they are as follows -

President - Ron Fisher
Vice President - Christine Miarecki
Treasurer - Bill Delaney
Secretary - Jeff Schweitzer

Hope to see you in January at our next educational session!

Monday, October 22, 2018

PTIN Renewal Season is Now Underway

It is now Preparer Tax Identification Number (PTIN) renewal season for 2019.


All PTINs expire on Dec. 31 and must be renewed annually. You must have a valid PTIN if you plan to prepare any federal tax returns for compensation or you are an enrolled agent.

Get started at

If you can't remember your User ID or password, use the "Forgot User ID" or "Forgot Password" links on the PTIN system login page. You will be asked to enter the email address associated with your account and the answer to your secret question.

To keep up with the latest info for return preparers, please subscribe to eNews for Tax Professionals.

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Internal Revenue Service

Sunday, October 14, 2018

Filing & Payment Information For Taxpayers Affected by the Recent Merrimack Valley Explosions

For taxpayers affected by the recent gas explosions in Andover, North Andover, and Lawrence, the Department recognizes that taxpayers in these areas might be unable to comply with their filing or payment due dates that occurred on or after the date of the explosions. The Department would like to assist taxpayers as much as possible.

Consequently, the Department will waive any penalties associated with any late-filed return or payment that was due on or after September 12th and before November 1st. The Department will waive penalties through November 15th, and will later revisit whether any further extensions should be granted. If any taxpayer in the affected areas receives a penalty for this period they should reach out to us at (617) 887-6367.

IRS extends Oct. 15 and other upcoming deadlines, provides expanded tax relief for victims of Hurricane Michael

WASHINGTON – Hurricane Michael victims in parts of Florida and elsewhere have until Feb. 28, 2019, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.

The IRS is offering this relief to any Major Disaster Declaration area designated by the Federal Emergency Management Agency (FEMA) as qualifying for either individual or public assistance. Currently, this only includes parts of Florida, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on

“The IRS has moved swiftly to announce this relief for taxpayers affected by Hurricane Michael in advance of the Oct. 15 extension filing deadline,” said IRS Commissioner Chuck Rettig. “We recognize the devastation this historic storm caused for many taxpayers, and IRS employees stand ready to support the disaster recovery effort as they have done many times in the past.”

The IRS is taking this step due to the unusual factors involving Hurricane Michael and the interaction with the Oct. 15 extension deadline.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 7, 2018. As a result, affected individuals and businesses will have until Feb. 28, 2019, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018, will now have until Feb. 28, 2019, to file. The IRS noted, however, that because tax payments related to these 2017 returns were due on April 18, 2018, those payments are not eligible for this relief.

The Feb. 28, 2019, deadline also applies to quarterly estimated income tax payments due on Jan. 15, 2019, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2018, and Jan. 31, 2019. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2018. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2017 extensions run out on Oct. 15, 2018.   

In addition, penalties on payroll and excise tax deposits due on or after Oct. 7, 2018, and before Oct. 22, 2018, will be abated as long as the deposits are made by Oct. 22, 2018.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 1-866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2018 return normally filed next year), or the return for the prior year (2017). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit

See also the Hurricane Michael Information Center at

Friday, October 12, 2018

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 23rd 2018 - Less Than Two Weeks Away!

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 23rd 2018

Join the Massachusetts / Rhode Island NATP Chapter on Tuesday, October 23rd, 2018 for our Annual Meeting & Educational Seminar. This all day event will be held at the Holiday Inn in Mansfield, MA. Registration details are below, and is handled online by National. Take a look at the details on our speaker and topics provided in this great Continuing Education  opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities. This seminar is limited to the First 100 Registrants!

  • For online registration with credit card, click here.
  • To register by phone, fax or mail, click for the registration form.
  • After October 22nd, please print the form (see link above) and register at the door.

Registration 7:30 am to 7:45 am (Continental Breakfast Included)
Education 7:45 am to 5:00 pm
Annual Meeting Prior to Lunch (Lunch Included)

CE Credits -
2 Ethics
1 Federal Tax Law Topics
4 Federal Tax Law Update

Speaker - Cheryl Morse, EA


Divorce & Changes to Alimony

Diability Tax Benefits

Education Credits

Cheryl Morse has been a tax practitioner since 1982 and an enrolled agent since 1996. She is a manager for Emerging Business Partners, Inc., which prepares over 1500 tax returns in three offices. Cheryl graduated Magna Cum Laude with a B.S. degree in accounting from Bentley College in Waltham, MA. In addition to speaking for NATP, she works on taxpayer education through various community outreach speaking engagements. She currently represents the Northeast Region as Area 1 Chair of the Taxpayer Advocacy Panel, is a contributor to the development of the IRS EA Examination, and a contributing writer to Forbes.

Speaker - Shelley Honeycutt

Education Debt

Shelley started her career in college admissions in the 1990’s. She enjoyed helping people and at the time could not imagine doing any other job. Shelley worked for two prominent Universities in Massachusetts and helping students achieve their educational goals was incredibly rewarding to her. Learning how to determine which students would be most academically successful was also very interesting. She learned a lot about college readiness and the state of high school education in our country during these years. She is the owner of College Advisors NE.

Speaker - William Delaney, EA, ATA

Ethics in Today's Topsy Turvy World

Bill received his BS in Accounting from Northeastern University in 1973 and then went on to receive his MS in Taxation from Bentley University in 1977. Bill has been in practice for years in Westwood MA and is the current Treasurer and Past President of our Chapter. He has held numerous speaking engagements over the years and has been published all over the place. He has also won numerous awards.

Thursday, October 11, 2018

Social Security Amounts for 2019

The Social Security Administration has announced the new amounts for 2019.  The gross Social Security benefits are increasing 2.8% for 2019.  Some of the other limits change by different percentages.  Here is the information for 2019 (followed by 2018 amounts):

The amount of earnings subject to Social Security taxes increases to $132,900 (up from $128,400 for 2018).

The amount of earnings required to be subjected to Social Security taxes in order to receive a quarter of coverage increases to $1,360 (up from $1,320).

Earnings limitations for taxpayers who have not reached full retirement age (before having to repay Social Security benefits) increases to $17,640 ($1,470/month) [up from $17,040 ($1,420/month)].

Earnings limitations for taxpayers who reach full retirement age in the current year (before having to repay Social Security benefits) increases to $46,920 ($3,910/month) [up from $45,360 ($3,780/month)]. (“Full retirement age” is age 66 for those born in 1943-1954.)

The amount of the SSI Federal Payment Standard increases to $771/month (up from $750/month).  For a married couple this increases to $1,157 (up from $1,125/month).  The SSI Student Exclusion Limits increases to $1,870/month with an annual limit of $7,550 (up from $1,820/month with the annual limit of $7,350).

The Substantial Gainful Activity earnings increase to $1,220/month for non-blind disabled recipients (up from $1,180) while the blind disabled recipient amount increases to $2,040 (up from $1,970/month).  The Trial Work Period earnings increase to $880/month (up from $850/month).

The full Fact Sheet can be found on Social Security’s web site by entering FACT SHEET in the Search box.

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

Wednesday, October 3, 2018

Rhode Island Division of Taxation - Seminar For Tax Preparers

The Rhode Island Division of Taxation is holding a seminar for paid preparers of tax returns.

It will take place on Friday, November 2, 2018, at the Community College of Rhode Island campus (main auditorium) in Newport.

It will be repeated on Friday, December 7, 2018, at the Community College of Rhode Island campus (Room 4080) in Warwick.

Both sessions run from 9:00 a.m. to 12:00 noon.

The seminar is free, but advance registration is required. To register, click here.