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Revenue Rulings Questions

Revenue Rulings are public administrative rulings by the Internal Revenue Service (IRS) that apply to certain laws to particular factual situations. A revenue ruling can be used as precedent by all United States taxpayers. Many times the common person may have questions regarding revenue rulings if they do not have tax experience. Below are some of the most commonly asked questions about revenue rulings answered by the Experts.

What are the purposes of a balance sheet, and statement of cash flow why would a tax practitioner would not consult the Internal Revenue Code (IRC)?

A cash flow is a type of statement that shows individuals the amount of monies that have been brought into the company; also this statement will show the amount of money that has left the business. Where as a balance sheet shows what tangible and intangible assets a business has, including money that is owed. In some cases laws are not fluid, so a person might have different interpretations of them, and apply them to special facts and circumstances. Cases and rulings can vary district by district and sometimes calls for state definitions or laws to be used. Generally district rules apply within the district, appeals court rulings are binding over the districts and Supreme Court is just that; supreme.

Are ordained ministers required to pay Social Security and Medicare tax on contributions made to a TSA (Tax-Sheltered Annuity) under a salary reduction agreement?

In most cases the amount paid into the account in the minister’s behalf by the church would not be included in the minister’s pay, and therefore not subject to self-employment taxes. These links could be helpful in this matter: http://www.taxlinks.com/rulings/1968/revrul68-395.htm, http://www.taxlinks.com/rulings/1968/revrul68-395.htm.

If I were to put four names on a Quit Claim deed on a life estate and I am the tenant, if I decide to sell the house do I have to put my name back on the deed and who would have to pay tax on the house once it is sold?

If there was no money exchanged between the four people then when the original owner take their names off of the deed that means they are gifting their ownership interest. If the value of that interest is above $13,000 then each person would be required to file a gift tax return, however there would not be any gift taxes unless the lifetime limit of $5,000,000 is reached. Since the original owner will be the sole owner of the property they will not be responsible for any income taxes; however the original owner would be responsible for income taxes on the capital gain in most cases, unless they owned and used the property at least two out of the last five years before the sale. In this case the part of the gain attributable to the lifetime estate would not be taxable, but the part that is transferred as a gift will be taxable. To determine the percentage of taxable revenue a person would probably need a little help from a Certified Public Accountant (CPA). IRS publication 1457 - http://www.irs.gov/pub/irs-pdf/p1457.pdf could help in this matter as well.

Is there any legal recourse when someone has been trying to rollover funds from a 401k plan with a former employe however they will not allow access to the funds?

In many plans (including 401k retirement plans), the law requires these plans to pay benefits before retirement under certain circumstances such as termination of the employee. The plan’s Summary Plan Description (SPD) should lay out the plans rules for obtaining the distribution and the timing of the distribution after termination of employment. The person should request a copy of the SPD, if they do not have proof in writing that they are not eligible for the distribution on the SPD form; then they should receive a distribution that they can rollover into an Individual Retirement Account within 60 days.

If a person retires from their job, waits for 61 days from their retirement date, then starts a new job with the same employer does this give their retirement system the right to suspend retirement benefits, claiming that the person did not have a “bona fide separation” from their employer before beginning the new job?

Typically a “bona fide” termination of employment is when the employer/employee relationship is completely severed. Since the Internal Revenue Service (IRS) defines official retirement as “willful termination of employment with no intent to seek a new job after the age of 55,” then it would appear that since this person submitted an application for a new job, whether that person was under the age of 55 or not, prior to retiring they had the intent of working again. Therefore the relationship between the employer/employee was not completely severed. Revenue Rulings are an important part of the tax laws and in most cases can be binding on both the taxpayers and the IRS. There are several types of revenue rulings that can be useful in different situations involving the IRS. To be aware of these can be important in avoiding certain penalties incurred by the IRS on taxpayers all over the nation. Revenue Rulings questions are just one of the many questions that the Experts are ready to answer whenever and wherever they may arise.
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Recent Revenue Ruling Questions

  • I own an S corp (Im the sole owner and sole employee). A

    I own an S corp (I'm the sole owner and sole employee). A reasonable wage for my occupation is $80K. My question is about the 'easiest' way to pay myself wages that is still OK with the IRS--and my intent with this question is not to avoid or artificially minimize employment taxes.

    So the question is, instead of doing a w2 with 80k of wages, could I instead pay myself a 'director's fee' of 80k, then on my personal 1040 report that 80k as self-employment/1099 type income (and do all associated employment taxes at that point, via schedule c)? What made me think of this is I'd rather save myself some paperwork and not have to do the quarterly 941 filings or pay payroll taxes through EFTPS/941. Instead I could handle it all through 1040-ES (which I have to do anyway) and 1040/scheduleC.

    If that is OK (doing the directors fee thing) --
    (a) where on the 1120s return would I report the 80k directors fee (I am guessing line 7);
    (b) could I then still deduct my health insurance premiums above the line on the 1120s (the premiums are paid directly by the S Corp to the insurance co.)?
    (c) And if I can do (b) with the directors fee idea, what line on 1120s would I put the health insurance premium expense--would it be rolled into line 7 (keeping in mind there'd be no w2) or would I put it on line 18, "Employee benefits", or line 19, "Other deductions."

    Again the intent here is not to avoid employment taxes on the 80k. Rather, I just want to avoid the paperwork of 941, EFTPS of 941 payments, and creating w2/w3 at end of year--with a secondary goal of still being able to deduct health insurance premiums.

    Thank you
  • Here is the fact pattern: Client has money in an IRA Client

    Here is the fact pattern:

    Client has money in an IRA
    Client wants to use that money for purchase of a business
    The business is an "S" corp so he would be buying shares of that corporation
    The corporation is 100% owned by the taxpayer
    What is the process for him to be able to execute that transaction
  • My mother set up life estate on her home and gave two sons

    My mother set up life estate on her home and gave two sons title for love.She was 71 at Signing and has had to go to assisted living at 79. House valued at 104,000 at Signing. If property is sold(all sign)for 130,000 what is split of sale and how are taxes viewed( capital gains) for tenant and remainders?
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