In its first visible outreach to small-business taxpayers, the Internal Revenue Service has unveiled a website tailored to the nation's 45 million small-business and self-employed taxpayers.
It represents the first stage in the agency's revamping of online resources in ways to help it deliver on its commitment to better serve the taxpayer.
Featured on the small-business-community website, accessible from the IRS' home page, irs.gov, is a page dedicated specifically to startup businesses.
There, new small-business owners are provided a checklist of startup requirements, answers to many business tax-related questions and access to an online tutorial to assist in the development of a business plan.
New small-business owners can also use the site to learn if they need an employer identification number, and how to obtain it.
The site also features a general page for small businesses and self-employed taxpayers, a page for practitioners and two pages designed for targeted industry segments: restaurants and construction.
It provides small-business and self-employed taxpayers with answers to many basic tax questions and a calendar of important deadlines, as well as providing online access to many IRS forms.
The IRS also provides links on the site to important federal and court opinions on tax issues, as well as links to rulings and regulations affecting specific industries.
Treasury chief
fudges on havens
* Treasury Secretary Paul H. O'Neill has dodged what he calls a "complicated question" - whether the Bush administration supports the Organization for Economic Cooperation and Development's drive to force low-tax jurisdictions to change their tax regimes.
"I guess I would take a pass at the moment on whether or not we, as an independent entity, want to be strictly allied with what the OECD has said," Mr. O'Neill announced at a recent press briefing.
Mr. O'Neill's comment, while seemingly innocuous, gives weight to rising suspicions that the new administration secretly disagrees with the OECD's hard-fought campaign to coerce so-called tax havens into imposing higher taxes.
The OECD is on record as hoping that the U.S. position won't change. The OECD comprises 30 countries, including the United States, Canada and the United Kingdom. But it is in a vulnerable position because it is not a government and thus lacks the ability to impose or enforce economic sanctions on jurisdictions that refuse to comply with its demands.
In a June report, "Toward Global Tax Cooperation," the OECD blacklisted 25 low-tax jurisdictions as tax havens and set a July 2001 deadline seeking cooperation from the jurisdictions. According to the OECD, jurisdictions that do not agree to cooperate by July 31 risk being subjected to punitive sanctions by OECD member countries.
Passive deduction
not transferable
* Under the tax code, a passive activity is considered to be any trade or business in which the taxpayer does not materially participate. Generally, losses from passive activities may not be used to offset other types of income such as wages, interest or dividends.
When the total deductions from passive activities exceed the total income from those activities, the excess (the passive activity loss) is not allowed as a deduction.That disallowed loss is suspended and carried forward as a deduction from the passive activity in the next tax year.
Now, in a field service advisory, the IRS has concluded that the interest in a passive activity held by an individual who was the sole income beneficiary of a qualified Subchapter S trust was transferred by reason of his death under the passive-loss-limitation rules, Section 469.
A son was the sole current-income beneficiary of the trust, established by his parents. The son died before age 40, and the trust was terminated. The trust property was transferred to his parents' living lineal descendants.
The IRS found that when the son died, his interest in the activity transferred. Under Section 469, the carry-over passive losses allocated to the son's interest were tax deductible on his last income tax return to the extent that the losses were greater than the excess of the basis of the property immediately before his death.
Also, because the trust was distributed to the parents' living lineal descendants at the son's death, the S corporation stock held by the trust was not includable in his estate.
Cite: Field Service Advice 2001106018
Depreciation limits
on luxury cars kept
* The tax laws contain a restriction on so-called luxury automobiles. That restriction limits the amount of depreciation that may be deducted on the automobile in the first and all succeeding years. Recently, the IRS announced the depreciation limits on automobiles first placed in service in 2001.
The limit will be $3,060 for the first year, $4,900 for the second year, $2,950 for the third year, and $1,775 for the fourth and each succeeding year. Those amounts are unchanged from the 2000 amounts. The same Revenue Procedure lists the inclusion amounts for lessees of autos where the fair market value exceeds $15,500.
For electric cars, the limitation is $9,280 for the first year, $14,800 for the second, $8,850 for the third and $5,325 every year thereafter.
Cite: Revenue Procedure 2001-19
Currency trader
loses on deduction
* In a recent field service advisory, the IRS concluded that an investor was not entitled to deductions for foreign currency losses until the loss amounts were paid.
An individual investor and a commodities broker engaged in foreign-currency transactions. Following a series of losses, the investor's collateral proved insufficient to satisfy the broker. The investor was then sued by the broker to satisfy the outstanding losses.
A U.S. district court eventually entered a judgment in favor of the broker for the outstanding losses plus interest. The investor then appealed the case. While the appeal was pending, both parties entered into a stay agreement. That agreement required that the investor deposit liquid assets, including cash, into a trust.
The district court's decision was eventually affirmed by the appellate court, and the investor paid the full amount to the broker.
The IRS pointed out that there had been insufficient collateral in the investor's account to absorb the losses sustained from the foreign-currency transactions. It explained that if there had been sufficient collateral, the broker would have been able to apply that to the losses.
That would have resulted in an actual depletion of the investor's account and would have entitled him to a deductible loss in that year. However, the IRS said, the investor did not suffer an actual loss until the broker was paid the loss amounts.
Additionally, the IRS noted, the investor had taken a loss deduction before paying the broker, based on his entry into the trust agreement.
The IRS observed that there were four requirements that needed to be satisfied before the investor could take the deduction. In reviewing the dispute, the IRS said that the investor had clearly contested the liability, which satisfied the first requirement. However, the IRS noted, the facts were unclear about the three other requirements.
It thus determined that the investor had not met his burden of satisfying all of the requirements for a deduction under the "year of deduction" rules, Section 461.
Cite: Field Service Advice 200106005
