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Step Transaction Doctrine – Paul Gaulkin CPA


The step transaction doctrine means that two or more transactions are mutually dependent so that only the overall end result is significant for tax purposes. This means that, two or more steps, significant in themselves, if view in isolation, may be disregarded altogether or consolidated into one transaction. The Supreme Court has stated that “if one transaction is to be characterized as a ‘first step’, there must be a binding commitment to take the later steps.” The step transaction doctrine … Read more

Classifying Domestic Production Gross Receipts – Paul Gaulkin CPA

bar code saying made in usa

Domestic production gross receipts are defined under Code Section 199(c)(4) to include gross receipts from the following sources: 1. Any sale, exchange or other disposition, or any lease, rental or license, of qualifying production property that was manufactured, produced, grown or extracted by the company in whole or in significant capacity within the United States. Usually qualifying production property includes tangible personal property, computer software, and sound recordings. 2. Any sale, exchange or disposition, or any lease, rental or license, … Read more

Amount Realized for Gain or Loss Determination – Paul Gaulkin CPA

person holding for sale sign

The amount realized from the sale or disposition of property is the sum of any money received plus the fair market value of other property received in the transaction. This does not include any amount received from the purchaser as reimbursement for real property taxes which are treated as imposed on the purchaser. However, it does include amounts representing real property taxes which are treated as imposed on the seller, if they are paid by the purchaser. The amount realized … Read more

Stock for Stock Exchanges Non-recognition – Paul Gaulkin CPA


No gain or loss will need to be recognized in the event a taxpayer exchanges common stock in a corporation solely for common stock in the same corporation, or if preferred stock is exchanged solely for preferred stock in the same corporation. It is important to note that voting rights are not a factor when determining non recognition. Non recognition will apply even though voting stock is exchanged for nonvoting stock or nonvoting stock is exchanged for voting stock. How … Read more

Real Estate Professional Passive Loss Rules Exception – Paul Gaulkin CPA

a woman real estate professional

When it comes to passive loss rules that deal with real estate, a real estate professional may elect to treat all interest in real property trades and businesses as one activity. The IRS defines a real estate professional as a person who derives more than one half of all their personal services from real property trades or businesses in which they materially participate. A real estate professional must have rendered a total of more than 750 hours of personal services … Read more

IRS Offshore Voluntary Disclosure Program Updated – Paul Gaulkin CPA

currency from other countries

In early 2011, the IRS announced their second Offshore Voluntary Disclosure Initiative, which is designed to bring offshore money back into the United States tax system. The idea is to help those who have hidden accounts overseas to bring their money back to the US and become current with their taxes. Then again in early 2012, the IRS announced it would be reopening the voluntary disclosure initiative for the third time. This is in response to the US government’s ongoing … 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

IRS Statute of Limitations Disclosure of Foreign Transfers – Paul Gaulkin CPA


The normal three year statute of limitations period will not begin to run until the information that is requested from the taxpayer in regard to the following foreign transfers has been furnished to the IRS: 1. An election by a passive foreign investment company shareholder to have the passive foreign investment company treated as a qualified electing fund. 2. An annual report required by a U.S. person that is a passive foreign investment company shareholder. 3. A return of a … Read more

Reporting Foreign Financial Assets & Form 8938

foreign currency

Any individual taxpayer that holds specific foreign financial assets must file a Statement of Specified Foreign Financial Assets (Form 8938) starting with the 2011 tax year and all years moving forward. What Are Foreign Financial Assets Here are some examples of what the IRS considers a foreign financial asset: 1. Financial accounts maintained by a foreign financial institution 2. Any interest that you may have in a foreign entity 3. Stock or securities that have been issued by someone who … Read more

Penalty for Not Reporting An Employee’s SSN

When an individual initially becomes an employee, it’s the employer’s responsibility to request the employee for their social security number. This can either be by itself or through a completed W-4 form that each employee is required to complete for employment. The employer can assume that the social security number is correct and still be able to waive the penalty later for using an incorrect number. You must keep a record of the initial W-4 to verify later that you … Read more