Category Archives: Tax Law

Section 332 Nonrecognition Liquidation of Subsidiaries – Paul Gaulkin CPA

person looking outside window

Under Code Section 332, no gain or loss is recognized by a parent corporation on the receipt of property distributed in complete liquidation of a subsidiary. Basically, the subsidiary’s basis for assets carries over to the parent corporation so that any deferred gain or loss at time of liquidation is recognized if the parent subsequently sells the liquidated subsidiary’s former assets. In order to qualify for Nonrecognition under Section 332, three requirements must be met. These requirements are listed below. … Read more

IRS Percentage of Completion Method Exceptions Form 8697 – Paul Gaulkin CPA

Constuction woker holding papers

A part of the Tax Reform Act of 1986 enacted the Internal Revenue Code Section 460 which requires the use of the percentage of completion method for long term construction contracts. Generally, a long term construction contract can be defined as a contract for manufacture, building, installation, or construction of property that is not completed in the tax year which it is being entered into. In addition to using the percentage of completion method, the taxpayer is also required to … Read more

Qualified Small Business Stock Gain Section 1202 – Paul Gaulkin CPA

blocks saying different financial items

Investing in qualified small business stock has many advantages, one of which is the ability to roll over proceeds from a sale into a new qualified small business and defer the gain under Section 1202. Recently, temporary qualified small business stock exclusion amounts have clients to 100% and incur a lower rate on gains subject to the alternative minimum tax. Benefits of Section 1202 The main advantage of Section 1202 is that the gain on any sale of qualified small … Read more

Deemed Distribution Definition & Examples – Paul Gaulkin CPA

Stock Certificate

A deemed distribution is a distribution that is different from other disruptions in that the participant is taxed as if the distribution was received, but the treatment of the loan as a distribution does not excuse the participant from the obligation to repay the loan. This means that the loan will be taxed by the IRS and the participant still has an obligation to repay the loan. Deemed Distribution Examples Certain events may be treated by the IRS as a … Read more

Willful Failure to File Tax Return – Paul Gaulkin CPA

crime

Believe it or not, it is a crime to willfully not file your tax return, pay tax or estimated tax, keep records, or supply information required by the laws or regulations. IRC Sec. 7203 makes it a misdemeanor to willfully not carry out the duties listed above. IRC Sec. 7203 misdemeanor is a lesser offence than Section 7201 felony of evading taxes because IRC Sec. 7203 involves the omission of a statutory requirement rather than an actually act of evasion. … Read more

Civil Penalty for Tax Fraud – Paul Gaulkin CPA

fraud

Section 6663 covers the information dealing with the civil fraud penalty and how it is administered. The penalty is equal to 75% of the underpayment of tax that is directly or indirectly due to fraud. The burden of proof rests with the IRS on proving that the underpayment was due to fraudulent activity. Defining Underpayment In this situation, underpayment means the difference between the correct tax liability and the amount of tax reported on the return plus the amount of … Read more

Constructive Dividend IRS – Paul Gaukin CPA

puzzle

In some situations, a corporation may enter into a transaction that is not typically considered a dividend, but may be considered a dividend by the IRS. Constructive dividends do not need to be formally declared by the corporation or designated as a dividend. All that is required according to the IRS is that a shareholder received some benefit from the corporation that was not paid for or reported on a Form W-2 or 1099. Since any benefit that was given … Read more

How IRS Allocates Tax Return Overpayments

allocation chart

Allocating Overpayment of Joint & Separate Returns If a married couple file a joint return, each spouse is responsible for their separate interest in the reported income on the joint tax return. In some situations, a spouse may pay the entire balance owed on the joint tax return. If this was to occur, the IRS would not be able to credit the overpayment to a separate tax liability owed by the other spouse for a previous tax year. If however, … Read more

Court Ruling on Health Care for Employers

Are you a business owner? Confused about the new health care law? Not a problem, we will discuss it here in easy to understand terms. Court Ruling on Health Care for Employers If you have 50 full time employees or an equivalent of such amount you will need to provide healthcare for them. If you have less than 50 you do not need to provide them with health care. However, you are still required to buy health care for yourself … Read more

How The Healthcare Bill Will Effect Small Businesses

Debate about the new Health Care Bill once dominated the airwaves and Internet. However, discussion has gone dormant. Better known as “Obamacare,” the legislation has been tweaked since its passage. Health Care Bill Cost Increases Those changes had no impact on most cost increases. So, a question remains unanswered. How much is the Health Care Bill really going to cost you? Small business owners face a variety of mandates. Employers will be required to report the value of an employee’s … Read more