Deducting personal interest.The Tax Reform Act (TRA TRA Training
TRA Tennessee Regulatory Authority
TRA Telecommunications Regulatory Authority (Oman)
TRA Tax Reform Act (1976, 1984, or 1986)
TRA Teachers Retirement Association ) of 1986 put an end to the deductibility of personal interest, except for a few exceptions, such as investment and mortgage interest. The deduction of business-related interest generally has not been a problem for unincorporated sole proprietorships A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation.
A person who does business for himself is engaged in the operation of a sole proprietorship. . However, Treasury regulation 1.163-9T(3) (2) (i)(A) said a deduction derived from a federal tax deficiency--whether or not it was a business-related deduction-- was personal interest and nondeductible non·de·duct·i·ble
Not deductible, especially for income-tax purposes.
Adj. 1. nondeductible - not allowable as a deduction
deductible - acceptable as a deduction (especially as a tax deduction) under Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. section 163(h).
In James E. Redlark v. Commissioner, 106 TC no. 2 (1996), taxpayers made errors when converting their unincorporated business from the accrual to the cash basis. They deducted the interest on the resulting federal deficiencies as a business expense on their personal tax returns for years after the 1986 TRA.
The Tax Court said the Treasury regulation did not apply to Redlark because the deficiencies arising from business-related errors, such as changing from cash to accrual and inventory valuations, were ordinary and necessary deductions. The court's decision does not apply to principals of pass-through entities.
The Tax Court did not go along with Miller v. Commissioner, 65 F3rd 687 (1995), an earlier Eighth Circuit Court case which considered interest on federal deficiencies related to an improper tax deferral tax deferral
The delay of a tax liability until a future date. For example, an IRA may result in a tax deferral on the amount contributed to the IRA and on any income earned on funds in the IRA until withdrawals are made. . The court said Miller's interest expense was not business-related and therefore not deductible.
Observation: The Tax Court made a distinction in the Redlark case for unincorporated businesses operated as sole proprietors: Interest on federal deficiencies related to normal business activities are considered ordinary and necessary deductions while interest on federal deficiencies caused by improper activities will continue to be considered nondeductible personal interest.
It is very possible that the Internal Revenue Service will appeal this decision. Practitioners should be alert to the possibility of filing claims for refunds for open years for their unincorporated business clients who did not deduct the interest on federal tax deficiencies caused by situations similar to those in Redlark. Those in the Eighth Circuit will not be eligible because of the Miller decision.
As for planning, preparers should deduct any interest on federal tax deficiencies if they meet the criteria of Redlark. This would include interest on income derived from unincorporated businesses reported on form 1040, and on Schedules C, E or E --Stanley Person, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , partner of Person & Co., New York City New York City: see New York, city.
New York City
City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. .
FYI "For your information." See digispeak.
FYI - For Your Information
* In private letter ruling 9628001, the Internal Revenue Service ruled that physicians who contracted with a general partnership that provided emergency room services were not commonlaw employees of the partnership for employment tax purposes, because the partnership did not exercise any control or discretion over how services were to be performed. The doctors were flee to and actually did provide services for other emergency care facilities. Also, the doctors were not required to work any particular hours, they were not supervised and they were paid on a percentage basis.
* A revised version Revised Version
A British and American revision of the King James Version of the Bible, completed in 1885.
Noun of IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Publication 1 (IR-96-32), Your Rights as a Taxpayer, is now available. Besides explaining taxpayer rights when dealing with the IRS, it explains how to file a claim for a refund and how to obtain forms, publications and other materials from the IRS.
* IRS Announcement 96-62 alerts taxpayers and preparers of the revision of many of the estate and gift tax forms and instructions. They should be available this month.