And do I have a special treat and surprise in store for those of you in the reading audience who have been checking in while I tended to mundane matters with a certain taxing agency. That said this is also continuing education season and the tax update I attended yesterday had some very interesting case law presented. My personal favorites were ABC Beverage Corp. v. U.S., 113 AFTR 2d 2014-2536 (6th Cir. 2014), which also made the Forbes list of the top ten tax cases of 2014 along with another of the Forbes 2014 top ten tax cases in Shea v. Commissioner, 142 T.C. 3 (2/12/2014).
In ABC Beverage, the company was paying exorbitant rent to its landlord, paying over $1.1 million in annual rent when the fair market value of that rent was in the neighborhood of $356,000 per year (“excess rent”). To get out of the bad lease, ABC exercised an option to purchase the building, with the purchase price to be determined by the fair market value of the building including the value of the remaining lease. ABC ultimately paid $11 million after conducting several different appraisals of the property that valued the property without a lease at $2.75 million. Upon purchasing the building, the corporation capitalized as the cost of the building only the $2.75 million value of the building without the lease, and currently deducted the remaining portion of the purchase price as the cost of terminating its lease with the landlord. The Service denied the deduction for the lease termination expense, contending that the entire amount paid for the building must be capitalized. ABC begged to differ.
Litigation ensued and ABC found a case from 1948, Cleveland Allerton Hotel, Inc. v. Commissioner, 166 F.2d 805 (6th Cir. 1948) which allowed the deduction of the cost of terminating the lease under almost identical circumstances. The IRS countered with three cases decided since 1948, that had a slightly differing fact set from Cleveland Allerton which required the costs associated with a real property purchase, such as professional fees and litigation expenses in connection with the purchase to be capitalized and written off over a period of years. In allowing the deduction the Sixth Circuit reconciled the 4 different prior rulings, three of which went in favor of the IRS and concluded that those previous decisions cited by the IRS and the three principles that emerged from them did not require modification of the Cleveland Allerton decision, explaining its view in the following manner: Continue reading “Good Morning Vietnam!!!!”
I’ve followed the unfolding Singing River Hospital financial disaster from afar and thus far have managed to not look at a single audit or financial report as I’m currently neck deep in paying work. That said I have seen woeful misinformation spread about Defined Benefit Pension Plans during the course of the reporting. Defined Benfit plans, if properly run, can still be an excellent and cost effective employee benefit and it is there we begin because many have been looted out and then dumped on the taxpayers:
Looting the Pension Funds ~ Matt Taibbi
‘Retirement Heist’: How Firms Trimmed Pensions ~ Interview with former WSJ Reporter Ellen Schultz, WTEST
At Singing River Hospital, the pension fund was not looted. Instead it was simply not funded by the hospital to the point now where management now claims that the plan is actuarially unsound. The implications of not funding a qualified defined benefit plan, which likely had mandated minimum funding requirements, are legion.
For instance, when most people think of qualified pension plans they think IRS, because it is the IRS that writes the regulations for plan qualification and actually approves the plans both when they are established and terminated. However it is not the IRS that Singing River Hospital needs to worry about in this instance as it is the Department of Labor, specifically the Employee Benefits Security Administration that would handle the potential ERISA violations associated with the media disclosures involving the Singing River defined benefit plan and that is the bad news because while the IRS “audits”, the DOL “Investigates”. Having handled a DOL Investigation once or twice in my time practicing public accounting, I can say first hand it is far better to have the IRS show up than the DOL when it comes to this subject matter.
All that said the Singing River financial debacle could keep an enterprising business writer busy for weeks as the ramifications of seeing yet another defined benefit pension plan crash and burn are literally legion. Here are a few things that come to mind: Continue reading “A few keys to understanding Singing River Hospital disaster: Part 1”
Not that long ago I wrote that the Occupy movement and the TEA Party had far more in common with each other than they ever will with the politicians that purport to represent them. Consider this Exhibit A:
IRS Targeted Progressive Groups, Too, Documents Reveal ~ Sam Stein
It is also equally true I’ve never had much use for political shills that drink too much of the Kool Aid they slop to the general public so I thought I would point out the right wing nuts at Human Events once again exhibit themselves as idiots and not even the useful variety.
Politicians keep the masses divided using bullshit issues that are in reality not salient to the lives of 99% of the populace. Keeping people divided enables politicians in both parties to lie, cheat and steal to their hearts content.
What will be interesting to see is if the right wing pols that have made a big deal of the IRS being a political extension of the executive offices of the President of the United States will be as interested in pursuing the targeting of perceived left wing groups.
I would submit not unless one truly has nothing to lose as we again welcome Hugh Sibley and Danny Bechnel Jr. to Slabbed. (Click to nab the entire pdf)
Kenner is a special kind of political cesspool and frankly it makes the folks in Jefferson Parish’s other major political cesspool aka the City of Gretna look like bush leaguers. I mention this because yesterday the T-P’s Mary Sparacello highlighted a clash between the Citizens for a Better Kenner and the city on whether “car allowances” count as compensation or are merely some form of advance reimbursement as the City Attorney contends. Given my day job profession, I was delighted to see this dispute make the paper because Mayor Yenni and his crony City Attorney could not be more wrong and frankly I hope the IRS shows up to collect the back social security taxes owed on the $90K plus paid by the City annually under the arrangement.
While the tax answer is different if you run a construction company and pay truck allowances which are conceptually considered rent and reported in box 1 of Form 1099, expense advances made under a “non accountable” plan are treated as supplemental compensation and is subject to all the taxes found on a regular paycheck. There is a rumor floating about that City actually has a couple of CPAs on staff that I would hope is familiar with these very basic tax rules but on the off-chance I can do a bit of educating, Circular E aka Pub 15 has all the skinny plus some.
The bottom line here is Walt Bennetti and the CFBK are spot on in their criticisms that Yenni’s car allowance plan is simply an attempt to resurrect portions of the now infamous Aaron Broussard “executive pay plan” which was both illegal and not prosecuted by DA Paul Connick, who is absolutely useless when it comes to prosecuting political corruption.
I could be wrong but I think the IRS pays up to 15% of any recoveries made from tips to its whistle-blower program. This one is ripe for the picking IMHO as it is clear-cut despite the protestations of the City Attorney.