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BHBM Tax Alert 10/09/2009

Friday, October 9, 2009

FEDERAL

Roth IRA not eligible “S” corporation Shareholder

The Tax Court ruled on September 29, 2009 that a Roth IRA is not an eligible shareholder of an “S” corporation.    The company involved in this case, Taproot Administrative Services, Inc., was owned by one shareholder, which was a Roth IRA.  Taproot elected “S” corporation status and filed a 2003 tax return on form 1120S.   The IRS issued Taproot a notice of deficiency in 2007 claiming that Taproot was not an “S” corporation because it had an ineligible shareholder.

The Tax court held that Taproot could not properly elect “S” corporation status because there was an ineligible shareholder.  This affirms Rev. Rul. 92-73, which held that a trust that qualified as an IRA is not a permitted shareholder of an “S” corporation. 

In general, “S” corporation shareholder eligibility is limited to domestic individuals, estates, certain trusts and certain exempt organizations.  This case also highlights the importance of filing the proper elections for making trusts “S” corporation shareholders.


FIN 48 Update

The Financial Account Standards Board (FASB) issued interpretation No. 48-Accounting for Uncertainty in Income taxes in 2006 (FIN 48).  FIN 48 has only applied to public companies since its inception.  Private companies have successfully lobbied to delay the application of FIN 48 because of the expense and the time-consuming disclosure requirements.

FASB has recently issued Accounting Standards Update NO. 2009-06 entitled Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities, dated September 2, 2009, which reduces some of the burden on private companies.  FASB has eliminated some of the more onerous disclosures for private companies after input from banks and insurers convinced FASB that these disclosures were not necessary.  Private companies are now exempt from the requirements under FASB Accounting Standards Codification 740-10-50-15(a) and (b).  The update also included new definitions of tax positions and examples for the accounting treatment of tax positions by partnerships.
                           

Estate Tax Update

Since our last Tax Alert, there has not been much movement on the proposed estate tax bills.  However, there have been many reports and articles suggesting that there will be a one-year extension of the current estate tax exemption and other provisions.            


STATE

Louisiana School Tuition and Expense Tax Deduction

The Louisiana School Tuition and Expense Tax Deduction is in effect for educational expenses paid during 2009.  This tax deduction (not a credit) reduces the amount of Louisiana taxable income.  The deduction applies to tuition for private and parochial schools, uniforms, school supplies and study materials for all primary and secondary school students.  Home-schooling expenses are also eligible for this deduction.

A taxpayer may deduct up to fifty percent (50%) of the money spent on educational expenses at a maximum of $5,000 per student.  In order to claim the deduction, the taxpayer must be able to claim the student as a dependent on the taxpayer’s tax return. 


Louisiana Inheritance Tax Receipts

The Louisiana Department of Revenue has issued  Revenue Information Bulletin No. 09-025 regarding inheritance tax receipts.  Acts 2008, No. 822 repealed the state inheritance tax laws effective January 1, 2010.  The Act also provided that inheritance taxes due to the state for deaths occurring before July 1, 2004, shall be considered due on January 1, 2008 if no inheritance tax return was filed before January 1, 2008.  Further, the inheritance taxes shall prescribe, as provided by Louisiana Constitution Article 7 §16, in three (3) years from December 31 of the year in which the taxes became due.


LOCAL

Sales Tax Amnesty Program

The City of New Orleans Bureau of Revenue is offering a Sales Tax Amnesty program that began on October 1, 2009 and will end on December 4, 2009 for all delinquent taxes and licenses that qualify, which include sales, use, hotel/motel, parking, alcoholic beverage, mayoralty and occupational license taxes. 

Similar to the Louisiana Tax Amnesty program, the entire amount of penalties and fifty percent (50%) of the interest charged on delinquent taxes will be waived. 

If you would like to receive BHBM Email Tax Alerts to stay informed on the latest changes in tax law on the Federal and State level, please email Stacey Lala at slala@bhbmlaw.com.