Friday, September 18, 2015

Business Travel Per Diem Rates

The IRS released the 2015–2016 per diem rates for substantiating employees' business expenses under IRC Sec. 274(d) for lodging, meals, and incidental expenses incurred while traveling away from home. The Meal and Incidental Expense (M&IE) rates for the transportation industry increases from $59 to $63 for travel in the continental U.S. and from $65 to $68 for travel outside the continental U.S. The per diem for travel to high-cost localities increases from $259 to $275 ($68 for M&IE), while the rate for travel to other localities increases from $172 to $185 ($57 for M&IE). The incidental-expenses-only rate remains at $5 per day. The updated rates and list of high-cost locations apply to per diem allowances paid to employees after 9/30/15. Notice 2015-63, 2015-40 IRB .

Tuesday, September 8, 2015

Whisteblower's Award Is Ordinary Income

The taxpayer and one of his former associates filed a qui tam action (i.e., whistleblower suit) against their former employer, a medical device company, alleging that the company was involved in a Medicaid fraud scheme. After reviewing the case, the government reached a settlement with the company, requiring it to pay over $75 million. The taxpayer and his former colleague received a portion of the recovery, with the taxpayer's share being nearly $7 million. On his tax return, the taxpayer reported the award as a capital gain. The IRS sent deficiency notices, explaining that the recoveries were ordinary income, not capital gain. The taxpayer challenged the deficiencies in Tax Court, which sided with the IRS. On appeal, the Seventh Circuit upheld the Tax Court's decision, concluding that a qui tam award isn't the result of a sale or exchange of a capital asset. Instead, it's a reward intended to compensate the whistleblower for his or her work in bringing the suit, which is effectively payment for services and, thus, ordinary income. Craig Patrick, 116 AFTR 2d 2015-XXX (CA 7).

No Principal Residence Gain Exclusion after Seller Reacquires Property

A taxpayer sold his principal residence and claimed a gain exclusion under IRC Sec. 121. Upon the buyer's default of the installment agreement, the taxpayer (seller) reacquired the property. The Tax Court examined the interplay between IRC Secs. 121 (principal gain exclusion) and 1038 (disregarded gain for reacquisition of property upon buyer's default on a debt secured by the property other than payments received prior to the reacquisition). Although the cash in excess of gain previously reported on the installment sale was taxable, the question was whether the gain could be excluded under IRC Sec. 121. The Tax Court determined that the gain could not be excluded. On appeal, the Eighth Circuit affirmed the Tax Court, holding that because the taxpayer didn't resell the property within one year, which is required under IRC Sec. 1038(e) , he wasn't entitled to the principal gain exclusion. Marvin E. DeBough, No. 14-3036, 2015 WL 5059103, (CA 8)

Not Reconciling Advance Premium Tax Credits Could Result in Lost Eligibility

Individuals, who received advance payments of Premium Tax Credits (PTCs) from the Marketplace, must file Form 1040 and attach a Form 8962 [Premium Tax Credit (PTC)] reconciling the advance PTC received to the actual PTC even if not otherwise required to file. In a recent "Update on Health Care and the 2014 Tax Season" report, federal officials indicate, in addition to taxpayers who have yet to file, more than 760,000 households filed their 2014 individual returns without the required Form 8962 reconciling the advance payments. The officials note that there is still time to act, but taxpayers who do not file a return and reconcile the PTCs received last year will not be eligible for PTCs when they renew coverage for 2016. A fact sheet is available at