While many of us were trying to enjoy some summer downtime before extension season hits, we may have missed some tax law cases that were decided this year and setting precedent for the rest of us.
Of course, it is a huge challenge to keep up with every tax law case decided, which results in most of us not looking for the precedent until we have an issue.
But here are a few recent decisions that you will want to take note of:
E-filing hours make a difference
Good old, certified mail still seems to reign supreme after reading this case. The Tax Court ruled that a return electronically filed in Alabama at 11:05 p.m. (CST), which was the location of the taxpayer, was not timely filed as the return was not received by the filing system in Washington, DC until 12:05 a.m. (EST). Ouch. However, certified mail still is deemed to be “timely filed if timely mailed.”
The lesson? Don’t wait until the 11th hour (literally) to be e-filing.
Interest on child support is taxable
While child support itself has never been taxable to the recipient, in a recent decision, the Tax Court ruled that the interest on back support was. Past due child support obligations often require that the recipient also receive interest as a result of the payments not being received in a timely manner. According to that Tax Court, that interest must be claimed as income.
Disaster relief taxability is state specific
States were left to their own devices to determine taxability of disaster relief received by taxpayers. This left a lot of confusion for tax preparers and resulted in a larger number of extensions waiting to determine what the state decisions would be.
For federal tax purposes, taxpayers in Georgia, Massachusetts and South Carolina must include in their federal taxable income any disaster relief amounts received unless the recipient claimed the standard deduction or itemized without receiving a tax benefit. The amounts received in those states were classified as state tax refunds subject to the same tax rules.
Cryptocurrency losses a no go
The IRS has stated that losses will not be allowed for cryptocurrency that has substantially declined in value. Typically, stock that has been deemed worthless or abandoned may be claimed as a loss at that time, however not so in a cryptocurrency case where the currency had been reduced in value to less than 1 cent. The IRS stated that in spite of the substantial loss, the currency did not meet the definition of worthless.
ERC ‘scams’
The IRS Release 2023-40 states a harsh warning related to fraudulent ERC claims. The IRS noted that the widespread marketing of the credits is now listed as a “tax scam” and it will be auditing as well as conducting criminal investigations into un-creditable claims.
Family business loans
The Tax Court held that loans to a taxpayer from a family owned business were taxable upon receipt mostly due to the lack of repayment terms. Because repayment was not considered, in addition to the fact that the taxpayer labeled the loans as “advances on future earnings,” the payments were considered income upon recent.
