Broker Check

July 1, 1993

New York State Lowers Interest Rates

          The Commissioner of Taxation and Finance has issued interest rates for the period July 1, 1993 through September 30, 1993. The new rate for underpayment of income and withholding taxes is 7% and the rate for refunds is 6%.

Taxing a College Degree

          In a recent Tax Court case, Meredith, (TC Memorandum 1993-250) the Tax Court held that a college degree qualified a person for a new trade or business even where only the cost of separate courses was deducted on the tax return and the separate courses helped with the current job. Additionally, it did not matter that job duties did not change after obtaining the degree. Therefore, no deduction was allowed for any of the courses.

Receiving a Partnership Interest Might be Free from Tax

          Receiving an interest in partnership profits can be free of tax in many situations; the IRS concedes two years after an Appeals Court rejected an attempt to tax a promoter who received a share in partnership profits in return for services. One way is where the value of the interest has no current book value and is speculative based upon yet to be earned profits.

Lawyers Cannot Deduct Advanced Litigation Expenses

          The Tax Court upheld a prior IRS position that a law firm cannot deduct litigation expenses advanced for a client before a case is resolved. In Boccardo, (TC Memorandum 1993-224) it was determined reimbursement was likely and 90% of the costs were recouped though the firm had to win first. The IRS has stated they will include this issue in their new audit handbook for lawyers.

IRS Looks to Reclassify Employees

          The IRS will step up its employee-independent contractor audits despite complaints from small businesses. The IRS wants its field agents in every audit they conduct to look for independent contractors who are really employees. Under a 1978 law the IRS cannot reclassify workers after an audit, so to protect the government`s interest every business audit is supposed to cover issues dealing with worker status.

Trusts can Deduct Fees

          The Sixth Circuit Court of Appeals has stated trusts can fully deduct fees for investment advice just like trustee and trust accounting fees. The expense is not subject to the 2% rules that allows such deductions only to the extent they exceed 2% of the taxpayer`s adjusted gross income.

Interest on Tax Refund is Investment Income

          The IRS ruled privately that interest on a tax refund is counted as investment income for purposes of calculating the investment interest deduction limitation. Now the next question to ask is, is interest paid on a balance due, investment interest expense?

IRS Information Not Exactly Private

          The IRS has released a Notice in compliance with the Privacy Act of 1974 explaining the scope of a number of computer matching programs the IRS participates in. The computer matching programs are designed to provide federal, state and local agencies with tax information from IRS records that will help the agencies administer their programs and prevent or reduce fraud or abuse.

  1. Disclosure of unearned income to agencies providing Aid to Families with Dependent Children, Medicare Assistance, Supplemental Security Income, Unemployment Compensation and Food Stamps.
  2. Disclosure to the Social Security Administration of taxpayer filing status relating to whether a medicare beneficiary was married and if so, the spouse`s TIN.
  3. Disclosure of a taxpayer`s mailing address to federal agencies trying to locate a taxpayer to collect or compromise a federal claim.
  4. Disclosure to the Secretary of Education or Health and Human Services of the mailing address of taxpayers who have defaulted on specified types of loans.

Celebrate the Fourth

          We urge you to remember and celebrate our Independence Day in the spirit of Thomas Jefferson who advocated that it be celebrated with pomp and splendor. But do it safely!

          If you have any questions about these tax notes or any other matters, please call us.