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The Iowa Department of Revenue (IDOR) has issued a policy letter to explain that a meat locker does not qualify as a manufacturer for sale and use tax purposes because its principal business is as a retailer and wholesaler of meats. IDOR noted that a meat locker serves three types of customers - farmers, other companies and the public. Farmers have their own animals processed for human consumption, and other companies also have animals processed for human consumption by the general public after purchasing the meat cuts at a retail outlet. Iowa law exempts from tax the sale of machinery a
The Iowa Department of Revenue (IDOR) has issued a memorandum dealing with several questions about Iowa-sourced income. In the memo, IDOR noted that a business conducted in Iowa is subject to Iowa income tax even though the person conducting the business lives out-of-state. Also, IDOR reasoned that a real estate commission for the sale of Iowa property that is earned by a real estate agent who was physically present in Iowa when the sale was made is Iowa-sourced income. Likewise, income earned from Iowa clients by an out-of-state accountant for services performed outside of Iowa is not I
Last summer, the USDA published in the Federal Register a Notice of Determination by the Secretary that all payments under the Conservation Security Program paid to farmers could be eligible to be excluded from income. Unfortunately, that statement is very misleading. To be excluded from income, the payments must be for a capital improvement. Cost-share payments for the adoption or maintenance of management or vegetative practices are not excludible from income.
A common tax and estate planning technique involves a sale of property coupled with debt forgiveness. The idea is to establish a "stepped-up" basis for the buyer. But, a recent IRS ruling casts doubt on such transactions. The typical scenario is this - a parent "sells" their home to their child for a promissory note and then later "forgives" the debt.
In mid-March the conference committee on the $70 billion package of tax cut extensions finally met for the first time. The delay stemmed from an item included in the House version of the bill that would extend for two years the lower favorable rates on capital gains and dividends. That would have resulted in a budgetary impact that would have triggered a Senate rule which would have allowed a point of order to be raised against the final conference report.
Now that H.R. 4297 has been signed into law, the Congress will turn its attention to a second tax bill (known as the “trailer” bill) that is expected to extend several other provisions that have either expired or will expire soon. It is anticipated that this bill will include a two-year extension of the research credit, the work opportunity tax credit, the deduction for qualified higher education expenses and the deduction for school teachers that buy supplies for their classrooms.
On May 17, the President signed into law the “Tax Increase Prevention and Reconciliation Act of 2005” (H.R. 4297). On May 9, House-Senate conferees reached an agreement on the bill and the House passed it the next day by a vote of 244 to 185. The Senate passed the bill by a 54-44 margin on May 11. The bill is estimated to reduce taxes by $70 billion over the next decade. The major provisions of the bill extend the current rates for capital gains and dividends as well as the enhanced expense method depreciation amount.
The IRS has asked that the following notice be disseminated to practitioners in Iowa and Nebraska:
Requests for estate tax lien discharges for decedents who were residents of Iowa should be submitted to the following address:
Internal Revenue Service
Attn: Estate and Gift Tax Group
210 Walnut Street
Des Moines, Iowa 50309
Requests for estate tax lien discharges for decedents who were residents of Nebraska should be submitted to the following address:
A class action lawsuit has been filed against H&R Block on the allegation that H & R Block, Household Bank and Beneficial National Bank misrepresent the terms of their refund anticipation loans (RALs) which often carry an interest rate as high as 800 percent. The action, filed in the Madison, Illinois, county court, claims that the defendants bait consumers with low fees and then switch. The bait and switch allegedly involves consumers who file tax returns electronically through H&R Block’s rapid refund program.
IRS has recently announced that it has completed a round of job cuts that has trimmed about 100 employees from its group that oversees gift and estate tax returns. The cuts mirror the diminishing number of estate tax returns that have been filed in recent years. IRS states that it will be able to still provide the same level and frequency of scrutiny of estate tax returns with the diminished staff. Eighty-four IRS employees (predominantly lawyers) took buyouts offered by IRS with a January 3, 2007, deadline to be off the payroll.
Concerning the federal estate tax, much of the focus in recent years has been on whether the Congress will repeal the tax. The U.S. House has passed several “full-repeal” bills, but the Senate has not gone along.
The Iowa wine industry has been reborn in recent years. About a century ago, Iowa was the sixth largest grape producing state in the nation. With Prohibition, the expanding market for corn and soybeans, damage to grapevines due to chemical drift from row crops and a severe blizzard in 1940, the industry declined significantly. However, in the last few years, the industry has made a comeback. According to the Agricultural Marketing Resource Center (AgMRC) at Iowa State University, there are now more than 70 wineries in Iowa that produce more than 240,000 gallons annually.
Effective January 1, 2006, a tax credit for taxpayers who buy hybrid cars became available. In 2004 and 2005, hybrid car buyers were limited to a $2,000 deduction. But, some hybrid car buyers have discovered that they cannot claim the credit on their tax return. That’s the problem that generated this lawsuit. The plaintiffs bought hybrid vehicles from Toyota that IRS had certified as eligible for the credit, but later found out that they couldn’t claim the full credit (and in some instances none of the credit) when their tax returns were prepared.
Recently, an ex-wife requested an IRS ruling on whether the payments she was receiving from her ex-husband were alimony. The divorce decree called the payments “alimony,” but the ex-wife didn’t want them to be alimony because alimony payments would be taxable income to her (and would be deductible by her ex-husband). Under the Internal Revenue Code, to be “alimony” for federal tax purposes the payments must meet the following requirements:
On May 25, 2007, the President signed into law H.R. 2226, the war on terror funding bill known as the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 (Act). Title VIII of the bill contains numerous tax provisions that are designed, at least in part, to offset the impact on businesses and lower-skilled workers of the increase in the minimum wage which is also included in the bill.
Here is a short summary of the major tax provisions of the H.R. 2206:
The Iowa Department of Economic Development (IDED) has produced a new application form for taxpayer use when claiming the Endow Iowa Tax Credit. The revised form contains space for information on up to two donors, and includes space to list the taxpayer’s social security number or employer identification number (the revised form: EndowIowaTaxCredit.pdf).
On June 8, the IRS released a fact sheet on the reporting of farm income and expenses. The fact sheet, for the most part, is fairly innocuous. But, the last paragraph of the fact sheet is quite troubling, and inaccurate. In that paragraph, IRS says that business owners, including farmers, who pay at least $600 in rents, services and other miscellaneous payments in the course of their business to an individual who is not an employee or incorporated, must file an IRS Form 1099-MISC that reports the income to the recipient and the IRS.
The bulletin examines more than three million individual income tax returns for tax year 2004 with adjusted gross incomes of $200,000 or more, and highlights high-income individual tax returns as well as S corporations. The report also contains an article on farm proprietorship returns. It’s the first report IRS has published on such farm returns in over 20 years. IR-2007-119 (Jun. 19, 2007).
Here’s a brief summary of the farm portion of the report:
On September 11, 2007, Senate Finance Committee Chairman, Max Baucus (D-MT) discussed his goals for an agricultural tax package to be considered by the Committee. The package would include a series of agricultural tax credits, bonds and a trust fund as part of a farm bill that would provide billions of dollars in aid to farmers and pay for the nation’s nutrition programs. The cost of the tax proposals is estimated to be between $8 billion and $10 billion. That amount would be added to the bill’s baseline spending which is estimated to exceed $280 billion over five years. The next day, t
Disability insurance should be a part of any worker’s financial and estate plan, but from a tax standpoint, care must be taken as to how the premiums are paid. If the disability premium is paid from the insured’s personal resources, when the benefits are paid out, they will not be taxable. The same is true if the employer pays the premiums using after-tax earnings. If, however, the employer pays the premium on the insured’s behalf and doesn’t use after-tax earnings to make the payments, the benefits will be taxable when the insured receives them. That’s a key point to remember.
On October 4, the Senate Finance Committee approved, on a 17-4 vote, the Heartland, Habitat, Harvest and Horticulture Act of 2007. The bill was introduced into the full Senate on October 25, 2007.
The following is a summary of the major provisions of the legislation:
The tax code allows a deduction for any charitable contribution. That includes a qualified real property interest donated to a charity exclusively for conservation purposes. A qualified real property interest is a restriction granted in perpetuity on the use which may be made of the property, including an easement. In 2004, the Congress added reporting and substantiation requirements for non-cash charitable contributions and, under the Pension Protection Act of 2006, the Congress increased penalties for inaccurate appraisals and new definitions of qualified appraisals and appraisers for
Section 1031(a)(1) of the Internal Revenue Code provides for a tax-free exchange of “like-kind” property. Specifically, no gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment. To qualify for like-kind exchange treatment, the exchanged properties must be of the same kind or class.
In Notice 2008-34, IRS has indicated that certain transfers to trusts are listed transactions that will be subject to the reportable transaction rules of Treas. Reg. §1.6011-4 and also to the requirements in I.R.C. §§6111-6112 as well as the stringent Circular 230 written opinion rules for listed transactions.
An individual or business can claim a credit on IRS Form 4136 for various nontaxable uses of gasoline and other fuels. The credit can be claimed for various purposes including, mining, manufacturing, farming, mowing, aviation and home heating. Claims can also be made for sales to state and local governments and for alternative fuels. The taxpayer must be the one purchasing the fuel to file a claim.
In general, property is valued for federal estate tax purposes as of the date of the decedent’s death. However, the executor can make an election if the value of the property in the gross estate and the estate’s federal estate tax liability are both reduced by making the election and the gross estate exceeds $2,000,000 (for 2008). This is an alternate valuation election and is specifically allowed by the Internal Revenue Code – I.R.C.
The problems associated with the subprime lending abuses have given rise to numerous issues. One of those issues involves the deductibility of losses. Two types of losses could be involved – theft losses or losses on worthless securities.
Since their enactment as part of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) provisions, the TEFRA partnership audit procedures have presented difficulties combining concept with reality. IRS had long sought the rules as a means to bring procedural order to the chaos that resulted from the tax shelter boom in the late 1970s and 1980s. Even though many of these tax shelters were implemented through partnerships with many partners, the IRS was required to make determinations and monitor the statute of limitations for each partner individually. That led to different partner
IRS, in three Private Letter Rulings, has taken the position that a single-member LLC that is completely owned by an eligible S corporation shareholder (e.g., an individual), can itself be an eligible shareholder of an S corporation. The Internal Revenue Code provides that only an individual, estate (including a bankruptcy estate), charity, qualified retirement plan and certain types of trusts (grantor trust, qualified subchapter S trust or electing small business trust) are eligible to be S-corporation shareholders. An S corporation can also be a shareholder, but only when that S corpora
The IRS has issued a ruling denying the claim of an operator of a farmer’s market for tax exempt status as an I.R.C. §501(c)(3) organization. The IRS determined that the operator’s activities are conducted for the mutual benefit of its members and in a manner that is indistinguishable from commercial entities. As a result, the operator served no public interest and is not tax-exempt. That means that donors will not be able to deduct contributions to the operator, and the operator must filed federal income tax returns.
A provision in the 2004 Jobs Bill created a new section of the Internal Revenue Code (I.R.C. §409A) that dramatically changed the taxation of non-qualified deferred compensation arrangements – arrangements under which compensation is earned in one year, but is paid in a later year. As a result, school districts will have to examine how their teachers are paid, and ensure compliance with the new rules by the end of 2007.
For businesses that are starting up, it’s important to understand the rules governing the deductibility of start-up costs – those costs that incurred before the business begins, such as costs associated with the preparation of
necessary legal documents and the establishment of a business plan.
In yet another Congressional Research Service (CRS) report on the Conservation Reserve Program (CRP), the CRS focuses on the final CRP provision include in the recently enacted Farm Bill (P.L. No.
In the second of the Reports, issued on April 14, the CRS examined the tax treatment of CRP payments, including whether such payments should be treated as farming income subject to self-employment tax, rents from real estate, or neither. The Report notes that the historic position of the IRS was to subject CRP payments to self-employment tax only upon receipt by someone engaged in the trade or business of farming. However, the Report notes that the IRS position has changed such that the present IRS position is to always treat CRP payments as subject to self-employment tax irrespective of
The Congressional Research Service (CRS), in the first of two Reports involving the Conservation Reserve Program (CRP), has addressed the proposed Farm Bill provisions that would change the taxation of CRP payments. The Report gives some background of the history involving the current controversy over the self-employment tax treatment of CRP payments, and notes that the IRS has changed its position on the issue over the years. The Report also notes that the current IRS position of subjecting all CRP payments to self-employment tax (regardless of whether the recipient is an active farmer)
Overview
The IRS has published final regulations that address the treatment of funds that are used in deferred like-kind exchanges. The rules contain new provisions on commingled accounts, administrative fees, and the applicable federal rates (AFRs). The final regulations will impact taxpayers that engage in I.R.C. §1031 exchanges and escrow holders, trustees, qualified intermediaries and other that hold funds during a like-kind exchange.
Treatment of Loaned Funds
Internal Revenue Code section 121 allows taxpayers to exclude up to $500,000 (on a joint return) of gain from the sale of a principal residence. To qualify, the taxpayer must have used the residence as the taxpayer’s principal residence for at least two of the five years immediately preceding the sale. The Housing Assistance Tax Act of 2008 has enacted a new limitation on the exclusion. That’s the law that the President signed on July 30 which also creates a new interest-free downpayment assistance loan of up to $7,500 for first-time homebuyers. Our summary of the new law is here:
The self-employment tax treatment of Conservation Reserve Program (CRP) payments has been confusing over the past few years because of the conflicting position that IRS has taken on the issue. Since 2003, however, the IRS position has been that all CRP payments are subject to self-employment tax. All it takes, according to IRS, is the taxpayer's name on the CRP contract. That's enough to constitute a trade or business, the income from which is subject to self-employment tax. Needless to say, that interpretation is open for discussion and is simply not correct (read here:
The IRS has publicly confirmed it's private position taken last fall that I.R.C. §179 elections can be made on amended returns through 2010. Here's the issue:
Over the past few years, the limited liability company (LLC) has become a popular choice of business structure both inside and outside of agriculture. Colorado and Wyoming were the first states to authorize LLCs, and did so in the late 1970s. In the early 1990s, the LLC concept caught fire. Presently, all states authorize the creation of LLCs. From a tax perspective, the LLC is unique. An LLC is a hybrid type of entity that resembles a corporation with respect to limited member liability, but is also characterized by partnership tax status.
In late March, the Iowa Senate unanimously approved changes to the state's existing tax credit scheme as applied to wind energy production. The changes are designed to allow more wind projects to be able to utilize renewable energy tax credits. The legislation (SF 456) would allow private colleges and universities, community colleges, Iowa Board of Regents-controlled institutions, K-12 schools, and public hospitals to generate power for on-site use and to qualify for the existing credit of one-cent per kilowatt-hour. SF 456 would also relax other restrictions on the type of facilities th
The Iowa General Assembly completed its 2009 session in the early morning hours of April 26. It will be a memorable session - one that included significant questions being raised about the extent of public input on a tax issue and the failure to take action to either legitimize homosexual marriage or clarify existing Iowa law concerning its illegitimacy. The legislature also approved a massive budget (the largest in Iowa history) of $6.258 billion and $765 million in new borrowing. Here's a rundown on the most important tax issues the legislature dealt with:
The IDOR has recently issued three policy letters concerning various aspects of the Iowa capital gains exclusion, the application of Iowa inheritance tax to trusts and whether the vehicle trade-in credit requires the same natural ownership.
The Iowa Department of Revenue (IDOR) has issued another ruling concerning eligibility for the capital gains deduction. Iowa law provides for a state income tax deduction for capital gains derived from the sale of real property that is used in a business or from the sale of a business. Iowa Code §422.7(21). To get the deduction, the taxpayer, with respect to the property, must have materially participated for 10 years immediately before the sale (or exchange) of the property. The requirements for material participation mirror the material participation tests under the passive loss rule
The Iowa Department of Revenue (IDOR) has ruled that sales tax is due on the purchase of an all-terrain vehicle (ATV) for use in seeding rented land that is enrolled in the Conservation Reserve Program (CRP). Iowa law (Iowa Code Sec.
The Iowa Department of Revenue (IDOR) was recently asked by Walgreens whether the flu vaccine is subject to sales and use tax. Walgreens is considering a promotional campaign involving the free distribution of the flu vaccine to uninsured persons. No prescription is necessary to get the vaccine, and persons wanting the free vaccine will be checked out to make sure that they are, indeed, uninsured. Once a person qualifies for the free vaccine, that person will get a voucher that they can use to get the vaccine for free. Under the program, Walgreens does not receive any reimbursement from
To read, download the PDF: IA Administrative Code Rules.pdf
On April 12, Governor Branstad signed into law legislation that finally settle Iowa’s tax law rules for 2010. By line-item vetoing the parts of SF 512 he found unacceptable (particularly the portion of the bill that would have allowed the Governor to transfer funds among agencies), the Governor was able to approve the rest of the bill, including the “code conformity” provisions for Iowa’s tax law. Here are the key points: