Tax Law Blog
Healthcare executives are advised to consider the significance of a ruling issued in 2024 by the Internal Revenue Service (IRS) which revoked the tax-exempt status of a non-profit organization. In Private Letter Ruling* 202437007, the IRS determined that a non-profit organization had failed the “operational test” and revoked its tax-exempt status.
The entity in question had indicated no charitable activities or related expenses, leading the IRS to conclude that the organization was not operating exclusively for tax-exempt purposes.
For businesses and individuals, preparing tax-related documents required by the Internal Revenue Service (IRS) or United States Tax Court can be a complex process, often requiring the assistance of outside advisors such as attorneys and accountants. As a recent case in the Tax Court demonstrates, the last, seemingly simple step in the process—filing a tax document —should not be taken lightly. Indeed, all of the analysis and number-crunching that goes into a tax document could be for naught if a document isn’t delivered before the relevant deadline.
Section 61 of the Internal Revenue Code establishes that all income, from whatever source derived, is included in gross income. If the income arises from a sale or exchange of property that is not a capital asset or property used in a trade or business then it is taxed as ordinary income.
Christmas music is back on the radio. If you’re a pointy-headed tax lawyer like me, that’s your reminder to start thinking about year-end tax planning considerations. Even if you’re not, you will want to start planning earlier than in years past to address all the changes brought by tax reform. We will hit the highlights here.
Each year a variety of items in the Internal Revenue Code are updated based on inflation, specifically the consumer price index.
The April 15 deadline to file taxes is almost here. Are you concerned about meeting the deadline? The IRS released an article titled "Five Things to Know if You Need More Time to File Your Taxes." The article was released on April 13, 2015.
The Michigan Department of Treasury has issued a release (available here (We have identified that the following link is no longer active, and it has been removed)) that highlights new developments affecting Michigan's individual income taxes for tax year 2014. The release notes the changes that Treasury has made to several forms, including Michigan Form MI-1040 and Schedule 1 (Additions and Subtractions). The release also notes that certain credit, deduction, and exemption amounts have been adjusted for inflation for tax year 2014. Finally, the release includes a number of reminders and announcements, including a reminder regarding the option to pay individual income taxes electronically. Please contact a member of Foster Swift's State and Local Tax (SALT) Practice Group if you have questions regarding Michigan taxes.
Tax-exempt organizations are exempt from many taxes, including federal income taxes. However, in exchange for exemption from income tax for charitable activities and for receiving tax-deductible contributions, Congress requires 501(c)(3) organizations to disclose the following information to the public upon request:
The principle that individuals have the right to worship as they see fit has been fundamental in the United States since the country's founding. However, while the government may be prohibited from establishing a religion or interfering with the free exercise thereof, that does not mean that government has no role in religion. Throughout history, organized religions have enjoyed special legal status, including in the Internal Revenue Code (the "Code").
The parsonage allowance, codified in Section 107 of the Code, has two parts. Section 107(1) grants a tax exemption on the rental value of a home directly provided to a minister as part of his or her compensation. Section 107(2) excludes from gross income rental allowances paid to a minister as part of his or her compensation.
In November 2013, the U.S. District Court for the Western District of Wisconsin declared Section 107(2) of the Code unconstitutional because it violates the Establishment Clause of the First Amendment. The decision was appealed to the U.S. Court of Appeals for the Seventh Circuit.
With holiday travel season upon us, you may be thinking about redeeming some reward points you’ve earned from your bank for a free airline ticket. After a recent U.S. Tax Court ruling, the ticket may not be as free as you think.
In the case of Shankar v. Commissioner, IRS, the U.S. Tax Court sided with the IRS and held that the value of an airline ticket purchased with “Thank You” reward points is taxable as gross income.
Parimal Shankar received 50,000 “Thank You” points from Citibank in 2009. Citibank sent him and the IRS a Form 1009-MISC, which reported the ticket value of $668 as “other income.” Shankar did not report the income. The IRS sought payment of the tax and assessed a $563 deficiency. Shankar disputed the IRS’s position, filed a petition with the U.S. Tax Court, and the case went to trial.
Dental, orthodontic, and other professional practices often use management fees to allocate compensation among professionals. This compensation strategy is sometimes tax efficient only if the management fee is tax deductible. The U.S. Tax Court recently ruled that a dental practice was not entitled to deduct purported management fees that the practice paid to a related, ESOP-owned entity because there was no indication that the entity actually performed services in exchange for the fees. Wiley M. Elick, Tax Court Memorandum 2013-139. The court also upheld the IRS's imposition of an accuracy-related penalty. Professionals who use management fees in their compensation plan should ensure that the relationship is properly structured and that services are well documented.
The Alternative Minimum Tax (“AMT”) was enacted in 1969 to ensure that high-income individuals paid at least a minimal amount of tax. The AMT operates parallel to the regular tax system and allows different deductions, credits, and exemptions.
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into law. Enacted to address the tax side of the “fiscal cliff,” the ATRA primarily addresses the expiration of certain portions of the Bush-era tax cuts. Below is a summary of the major tax provisions in the ATRA.
Tax withholding requirements in Michigan are set forth in MCL 206.703. Every Michigan employer that is required to withhold federal income tax under the Internal Revenue Code is also required to register and withhold Michigan income taxes. Effective January 1, 2012, companies that pay pension and retirement benefits are also required to withhold Michigan income taxes on those payments to retirees. The withholding rate is generally 4.35%.
The Corporate Income Tax (“CIT”) took effect on January 1, 2012 and replaced the Michigan Business Tax (“MBT”) for most taxpayers, except those electing to continue the MBT to claim certain credits. The CIT consists of a franchise tax for financial institutions, a premium tax for insurance companies, and a flat 6% income tax for C Corporations and entities taxed as C Corporations for federal income tax purposes. As discussed in prior blog postings, the CIT does not apply to pass-through entities, such as LLCs or partnerships.
In 2011, Governor Rick Snyder signed into law Public Acts 38 and 39 of 2011 (the “Act”), which make sweeping changes to Michigan’s business and individual tax landscape.
Relevant to individuals, the Act makes many changes, including taxing income from pensions and other types of retirement plans. This article summarizes the changes applicable to individuals.
In 2011, Public Act 38 was signed into law. Prior to Public Act 38, public pension benefits were completely deductible, private pensions were deductible up to $45,120 (for a single filer), and all taxpayers were entitled to a personal exemption of $2,500.
Public Act 38 changed that as follows:
In 2011, the Michigan Corporate Income Tax ("CIT") was signed into law. The CIT repealed the Michigan Business Tax and replaced it with a flat 6% tax on businesses that are taxed as C corporations for federal income tax purposes.
