Related Posts

Land Yachts and the Tax Law: Four Tips to Avoid “At-Risk” Pitfalls

If there’s one thing the economy offers to businesses nowadays, it’s opportunities to lose money. As unpleasant as that is, it at least will reduce your taxes, right?

Maybe.

Even tax loss parties have their poopers, and the “At-risk rules” of Code Sec. 465 are as poopy as can be. Drafted to fight the first generation of retail tax shelters in the 1970s, these rules have faded into obscurity, but remain available for annoyingly competent IRS agents to wield against your loss deductions. The rules are supposed to defer losses when it’s really the lender on the hook for them, rather than the nominal owner of the money-losing activity. The losses carry forward to offset future income on the activity, or gain on a sale someday.


These rules pooped all over the tax loss of CTI Leasing, an LLC owned by Kieth Roberts, an Indiana man, to lease trucks to his trucking company. He loanded the LLC $425,000 to buy a “Vantare H3-45 Super S2” RV. The Tax Court says “Vantare RVs are custom-built, fully furnished, luxury coach RVs known for their ‘yacht quality fit and finish.'”

The leasing business cranked out tax losses. The IRS disallowed $425,000 of them on the grounds that the $425,000 loan didn’t give the LLC owner “at-risk” basis in his leasing activity. The Tax Court said the taxpayer failed to show that the land yacht was used in the truck leasing business or was owned by it, so the $425,000 wasn’t “at-risk” in the leasing activity.

Not every business can afford a nice land yacht, but they all can lose money. Some pointers to help keep you from trippng over the at-risk rules:

• If your loan is “non-recourse” — if you don’t pay, all the lender can do is repossess the property — that’s an at-risk rule red flag.

• Limited partners and LLC members are likely to face at-risk issues; the whole point of a “limited liability company” is to limit owner liability, after all.

• Be careful of loans from related parties. If you borrow from the wrong person, the tax law will treat the loan as not “at-risk,” even if you borrow from a business partner who might leave you under an end-zone somewhere if you don’t pay up.

• If you are in the real-estate business, “qualified” non-recourse debt – generally third-party commercial loans – are O.K. under the at-risk rules.

If you trip over the at-risk rules, your losses may not be gone forever. Form 6198 tracks your deferred losses, and you can lose them if your activity generates income someday.

Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.

Now Non-CPAs Can Taste the CPA Exam Experience!

The IRS Commissioner and his subaltern for preparer regulation this week spilled some of the beans about the “competency tests” that they are imposing on the unwashed (non-CPA, non-lawyer, non-enrolled agent) preparers. Some key bits, as reported by Tax Analysts (sorry, subscriber-only link):


This confirms the obvious: the competency test will be a joke. It has to be, or too few preparers would survive to prepare the nation’s returns. It won’t be completely open-book, but it sounds like you will be able to pass if you have adequate skills at reading and using an index.
This all makes it look like the cynics are right – it’s all about extending IRS power over preparers.

Don’t believe me? Listen to Shulman’s own words:

Today, I want to talk for a little bit about some of our priority programs, such as the Return Preparer Program, the evolution of our relationship with our largest corporate taxpayers, including Schedule UTP, and our work on what we’re calling a real time tax system.

The common thread that runs through them is points of leverage and working smarter.

Points of leverage sounds like what a wrestler uses to pin an opponent. The IRS can use these “points of leverage” to make preparers more subjects of the government and less advocates for their clients. And in their own sweet time, they will.

Gird Your Loins, Unscrupulous Tax Preparers

The IRS is on you like white on rice.

The Internal Revenue Service is taking steps to stop tax preparers with criminal tax convictions or permanent injunctions from preparing tax returns. This is just one of several recent moves to improve the quality and oversight of the tax preparation industry.

More than 700,000 tax preparers nationwide have registered with the IRS and obtained Preparer Tax Identification Numbers (PTINs). This nine-digit number must be used by paid tax return preparers on all returns or claims for refund. Paid preparers must renew their PTINs annually to legally prepare tax returns.

“We owe it to all taxpayers and the many honest tax return preparers to remove the relatively small number of bad actors from the tax preparation industry,” said Doug Shulman, IRS Commissioner. “Just one unscrupulous tax return preparer can cause a lot of financial damage to both taxpayers and the tax system.”

Nineteen ne’er-do-wells have already gotten word that they’ll be stripped of their PTINs for unseemly behavior of some kind or another. Best get that CPA so you don’t have to mess with the whole thing…until you the IRS lumps them in too.

IRS Begins Enforcement of New Return Preparer Rules [IRS]