James W. Rahmlow, The Daily Record Newswire
A California federal district court has agreed with the IRS’s determination that a taxpayer’s two online poker accounts were “bank, securities, or other financial accounts” as they were located in a foreign country and thus were required to be reported on the Report of Foreign Bank and Financial Accounts (FBAR).
The court held that the accounts, which were held at two separate gambling companies, effectively functioned as banks by “holding funds for third parties and disbursing them at their direction.” Prospectively, be aware that FBAR reports for the 2013 year are due by June 30, 2014.
Third and fourth quarter interest rates
In IR-2014-70, the IRS announced its overpayment and underpayment interest rates for the quarter beginning July 1. While unchanged from the second quarter, I will provide a summary below of the rates of interest on overpayment and underpayment of taxes that will continue into the third quarter.
For corporations: 2 percent for overpayments, except 0.5 percent for corporate overpayments that exceed $10,000. Corporate underpayments will be assessed at the rate of 3 percent, except that the rate will be 5 percent on large corporate underpayments.
For taxpayers other than corporations: For all others, the rates are much simpler. The rate is 3 percent for overpayments and 3 percent for underpayments.
The rates will be visited again and possibly revised for the fourth quarter of 2014.
FATCA compliance inexorably continues
The U.S. continues to reach intergovernmental service agreements regarding information sharing between countries. The Department of the Treasury recently announced that total agreements now are close to 190, the most recent agreements being with Azerbaijan, Barbados and the United Arab Emirates. Over 77,000 financial institutions have agreed to share account information under FACTA.
It’s not a law, and hopefully it won’t be
In May, over 100 members of the House of Representatives urged Dave Camp, chair of the House Ways and Means committee, to reconsider his proposal to repeal the Last In, First Out method of accounting. Citing in their letter deep concerns about the proposal and the potential adverse economic impact from having to pay tax on LIFO recapture, the legislators reminded Camp that LIFO has been part of the accounting and tax fabric for over 70 years, and that there is no way that a reduction in rates would offset the targeted consequences to a core group of America’s rank and file businesses.
Applicable federal rates and adjusted AFRs issued for July 2014
In Revenue Ruling 2014-20, the Internal Revenue Service released its short-term, mid-term and long-term applicable interest rates for July 2014. Below is a summary of the monthly rates.
Short Mid Long
Term Term Term
Applicable Federal Rates
0.31% 1.80% 3.02%
Adjusted AFRs
0.31% 1.40% 3.02%
IRS deems ‘Direct Pay’ online system a success
In Informational Release 2014-67, the IRS announced that more than $340 million has been paid by taxpayers through its new “Direct Pay” online system. As an example, individual taxpayers can make a tax payment for a Form 1040 for any of the last 20 years (1993-2013).
Additionally, taxpayers can make estimated tax payments as well as pay tax bills directly from their checking or savings accounts without any preregistration requirements or fees. To date, more than 150,000 taxpayers have taken advantage of the system. To use the system, go to www.IRS.gov and click on the “Pay Your Tax Bill” icon. Please note that only taxpayers with valid Social Security numbers can use the system.
Auto dealership upgrade payments must be included in gross income
In what is not particularly good news, the IRS chief counsel has concluded that payments from automobile manufacturers to independent car dealers to upgrade their facilities must be included in the dealers’ gross income under IRC Sec. 61. Previously, a treatment had been adopted by many dealers that the payments were a reduction in the basis of the newly upgraded facility and reduced future depreciation expense.
The chief counsel’s office concluded that the payments were not related to specific inventory items. It is interesting that chief counsel concluded that these items are includable in gross income even if there is a provision that the dealer may have to return part or all of the payments. The conclusion reached was that the dealer must recognize income, but could increase the basis of the property by the new construction and recover the cost as depreciation.
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James W. Rahmlow, CPA, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at jrahmlow@mmb-co.com.
