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IRS Tax Assessment Process Defined – Paul Gaulkin CPA

Keys spelling taxes

Area Directors have the authority to immediately assess tax due on a properly filed tax return without issuing a Notice of Deficiency. However, the mere act of the taxpayer filing or the IRS receiving the tax return does not constitute an assessment of tax. The IRS must follow the appropriate assessment procedures before the tax will be considered to be assessed against the taxpayer. Common Assessment Procedure For most taxpayer, the assessment process begins when a tax return is filed … Read more

332 Liquidation Insolvent Subsidiary – Paul Gaulkin CPA

wallet with nothing inside

Sections 332 does not apply if the subsidiary is insolvent since the parent corporation does not receive any distribution in exchange for its subsidiary’s stock. A subsidiary is considered by the IRS to be insolvent if its liabilities exceed the fair market value of its assets. In this case, the parent corporation’s loss on its subsidiary’s securities is treated as a loss from worthless securities under Code Sec. 165(g). Ordinary Loss Treatment Although the resulting loss is generally a capital … Read more

Is Property Tax Deductible – Paul Gaulkin CPA

a chart of houses up and down

Local, state, and foreign real property taxes are generally deductible by the person who the tax is assessed to. In most cases this will be the property owner but it can be another person in some other situations. This property tax can be deductible in either the year in which they were paid or accrued. In the event that they are for non-business real property, they are deductible as an itemized deduction. Special Assessment Tax A special assessment tax paid … Read more

Basis of Property Acquired by Gift – Paul Gaulkin CPA

A farm of houses in a row

In order for a taxpayer to establish the basis of property received as a gift, the individual must know the adjusted basis to the person that made the gift, the fair market value at the time the donor gifted the property, and any gift tax that was paid on it. Basis Relationship The relationship between the fair market value and the donor’s basis determines the applicable rule. If a taxpayer receives a gift of property and the donor’s adjusted basis … Read more

Tax Return Audit Mathematical Error Correction – Paul Gaulkin CPA

Screen showing error message

When the IRS decides to audit a return, they have the ability to correct mathematical errors inside the Service Center when they process the return. The IRS has a program called the mathematical/clerical error abatement program which is designed to assess additional tax resulting from errors on a tax return. A key point to understand is that corrections made by the Service Center for mathematical errors are not subject to Notice of Deficiency procedures. Defining a Mathematical Error Typically a … 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

Federal Estate Tax Form 706 – Paul Gaulkin CPA

Last Will and Testament

The IRS will assess the federal estate tax upon the transfer of property when the death of an individual occurs. This requires the filing of Form 706 (Estate Tax Return) and a fair market evaluation of all the property owned at the time of death. This can include cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets. Federal Estate Tax Deductions Once the valuation of the gross estate has been established, certain deductions can be taken to … Read more

Statute of Limitations on Tax Returns – Paul Gaulkin CPA

Pocket watch

There are a variety of different statutes of limitations that apply to a variety of different situations. Below is a list of these situations and the proper statute of limitations that will apply. Statute of Limitations on Tax Returns 1. Assessment and collection of taxes on returns not filed on or before their proper due date – Statute of limitations expires three years after the return is properly filed with the IRS. 2. Assessment and collection of taxes on tax … Read more

Quick Refund of Corporate Estimated Taxes Form 4466 – Paul Gaulkin CPA

Tax refund check

A corporation that has an overpayment of its estimated tax for the year can file Form 4466 (Corporation Application for Quick Refund of Overpayment of Estimated Income Tax) to get a quick refund from the IRS. For purposes of a quick refund, an overpayment equals the excess of the corporation’s estimated tax payments over its expected final tax liability for the year. Form 4466 Form 4466 must be filed in paper form after the close of the tax year. The … Read more

Executor Tax Liability Discharge Form 5495 – Paul Gaulkin CPA

living trust and estate planning

The executor or administrator for a decedent can request a release from personal liability for the decedent’s income and gift taxes by filing Form 5495 (Request for Discharge from Personal Liability Under Internal Revenue Code Section 2204 or 6905). This request must be in writing and must be filed after the income or gift tax return has been filed with the IRS. After the tax return has been filed, the IRS has nine months to notify the executor of the … Read more