As of this writing, efforts by some members of Congress to revive dozens of tax breaks that expired on January 1, 2014 have stalled. However, there are still some items of interest in the federal tax arena worth mentioning. In this regard, we note the following:
1. IRS Announces New Taxpayer Bill of Rights - In news release IR 2014-72, the IRS has announced the adoption of a "Taxpayer Bill of Rights". This initiative is intended to help taxpayers better understand their rights in dealing with the IRS. After getting input from the National Taxpayer Advocate, Nina Olson, and because existing taxpayer rights were scattered throughout the Internal Revenue Code, the IRS has set forth in one publication ten broad categories of a taxpayer's rights. These rights apply in dealing with the Internal Revenue Service on any tax matter. These rights are as follows:
These rights have now been incorporated into a revised version of IRS Publication 1, which is available in print and online at www.irs.gov.
2. U.S. Tax Court No Friend To Professional Gamblers - In a case styled Lakhani v. Commissioner, 142 T.C. No. 8 (2014), the Tax Court ruled against an accountant who tried to deduct a portion of his net gambling losses from his gross income on his Form 1040. In that case, Mr. Lakhani bet on horse races, and tried to deduct his net gambling losses on his 2005-2009 tax returns. The IRS denied the losses based on the express provisions of Section 165(d) of the Internal Revenue Code. Mr. Lakhani made two arguments before the Tax Court in seeking to reinstate all, or at least a portion, of these deductions. First, Mr. Lakhani took the position that a large part of his gambling losses could be said to be attributable to the track's "takeout" from the pari-mutuel betting pools before paying off any winning bets. Secondly, Mr. Lakhani argued that IRC Section 165(d) unreasonably discriminates against the business losses of professional gamblers, and therefore constitutes a violation of his constitutional right to equal protection under the law. Unfortunately for Mr. Lakhani, the Tax Court rejected both arguments. As to the "takeout", the Court held that the hold-back by the track represented the track's share of the pari-mutuel pool, and the expenses that the track paid from the takeout represented obligations imposed on the track, not the bettors, such as Mr. Lakhani. The Court then dismissed in short order Mr. Lakhani's “equal protection” argument, based on a long line of case law precedent.
3. Who Would Have Thought? - England Becomes a Favorite Spot For Relocation of U.S. Companies Intent On Cutting Their Corporate Income Taxes - In 2012, a corporate taxpayer with a market value of $4 billion, shifted its legal (and tax) domicile from the United States to England, but not much else. Their headquarters and management team remained in the U.S. Simply shifting its domicile has reduced its effective income tax rate to 3.3% in 2013 from 34.6% in 2008.
Historically, when U.S. companies wanted to cut their income tax bill, they usually reincorporated in one of the tax haven Caribbean island countries, or in Switzerland. But, following recent legal changes in England's tax laws (by which England has largely stopped taxing corporate profits realized outside of England), companies are increasingly choosing England as their tax domicile. This has not set well with President Obama and Congressional Democrats. While they have proposed steps to stem the flow of these so-called " corporate inversions", Congressional deadlock on tax reform means that any new barriers to inversions by tax-motivated companies are unlikely to be imposed anytime soon.
Stephen Shay, Professor of Law at Harvard University, remarked that "The UK has made a very clear policy decision to engage in tax competition for multinationals. It's fair to say it's rivaling Ireland."
For additional information regarding these topics, please contact your local UHY LLP professional.