Ref: Hargis, TC Memo 2016-232

The recent Hargis case serves as a reminder that losses from an S corporation can be used to reduce tax at the shareholder level only IF the shareholder has basis in that S corporation.  Furthermore,  guaranteeing corporate debt will NOT give rise to shareholder basis.

Simply stated, if the corporation is short of funds, the shareholder should either:

1. Directly deposit personal funds to the corporation as either Paid in Capital or a formal loan with written documentation OR
2. If borrowing is required: The shareholder should borrow funds personally and then deposit those funds into the S corporation.

The shareholder has no basis increase for loans to the corporation which he/she guarantees OR loans from other entities which he/she controls.

Reference: Malev v. Comm’r, No. 1282-16S

The Tax Court allowed Victoria Malev to deduct alternative medical procedures not provided by a licensed medical practitioner. The Court cited Tso V. Comm’r stating that nothing in Code Sec 213 or related regulations requires that medical-related treatments be furnished by an individual licensed to practice medicine in any particular discipline or that the services or treatments be provided in person rather than remotely, or that the treatment be successful or universally accepted as effective.  The Court was also positively affected by Malev’s belief as to the effectiveness of the treatments. Furthermore, the Court did consider collaborative statements by Malev’s doctor in support of “integrated medical treatment” crossing various disciplines.

Reference: FinCEN release dated 16 December 2016.

Public Law 114-41 had moved the annual deadline for reporting foreign financial accounts from June to April 15, with the ability to apply for a six month extension. With this release, FinCEN stated, “FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year.  Accordingly, specific requests for this extension are not required.”

Note that the FBAR filing is IN ADDITION to the IRS Form 8938 that accompanies individual and business tax returns filed with the Internal Revenue Service.  The two forms have differing filing “triggers,” so be sure to ask if you have any foreign accounts.

Reference: IRC Sec 25D and IRS “Residential Property Updated Q&A” [Aug 2016]

The 30% tax credit has been extended for installations completed prior to 12/31/19 for primary residence and second home. (This credit is not available on rentals). From 1/1/2020 through 12/31/2020, the credit is 26%. From 1/1/21 through 12/31/2021, the credit is 22%.

After 12/31/2021, the credit is not available unless extended further by Congress.

Reference: Lowe v. Commissioner, TC Memo 2016-206 & IRS Pub 504, Table 3

Since 2005, divorced parents have had to meet the “physical presence test” to claim their children as dependents.  The child must have lived with the parent for more than half of the year OR the parent who meets that test must give up his/her dependency exemption by filing Form 8332.

In this case, the mother wasn’t the custodial parent and lost the dependency exemption and child tax credit because she couldn’t prove that the child lived with her for more than half of the year as required under Code Sec 152(c).  KEEP GOOD RECORDS… and note that a “day” is counted based on where the child is at midnight.

Reference: IR 2016-141, 10/27/2016

While many qualified plan limits remain unchanged from 2016, some did change.  Here’s two common ones from that list:

Defined contribution plans: Code Sec 415(c)(1)(A) limit increases from $53,000 to $54,000.

Compensation limit: The maximum annual compensation taken into account for plan calculations under various code sections (401, 404, and 408) increases from $265,000 to $270,000. 

Other changes can be viewed in the Bulletin itself.

Ref: United States Tax Reporter Income paragraph 31,114.

For 2017, the Social Security wage base has increased to $127,200 (from $118,500 in 2016). This means that the maximum Social Security paid by an individual on his/her wages in 2017 will be $127,200 * 6.2% = $7,886.40.

Medicare remains unchanged at 1.45% of wages up to $200,000 and 2.35% on wages over $200,000 (without limit).  [The additional 9/10 percent was added as part of the ACA (aka Obamacare) to “wealthy individuals”]..