Hot Tax Topics
IRS Hobby-loss Rule
The IRS hobby loss rule covers the issue of what is a "business" and how it is different from a "hobby." As long as the taxpayer's intention is to make money, it can qualify as a business even if losses occur. The losses can be deducted against the taxpayer's principal occupation.
To minimize taxpayer abuse, the IRS Regulations set forth criteria for evaluating whether an activity is engaged in "for profit." The IRS uses the hobby loss rule mainly to analyze activities that bear features of recreation or pleasure, and where the taxpayer takes write-offs. The hobby loss rule has been extensively litigated in U.S. Tax Court. This course will review recent developments in this arena.
The types of activities under the hobby loss rule include many areas such as:
- writers, actors and musicians
- artists and photographers
- aircraft and boat charters
- dog breeding and horse breeding
- classic car refurbishment
- multi-level marketing
- bed & breakfasts
- stamp, coin and art collecting
- tree farming and greenhouses
- sports and games (fishing, golf, tennis)
Sometimes the IRS uses the hobby loss rule to attack sponsorship-management contracts between parents and talented children.
The presentation will provide an overview of the hobby loss rule and examine the following factors:
business-like manner of conducting the activity; expertise of taxpayer or advisers; importance of marketing and promotion of activity; appreciation in value of assets used in the activity; importance of business plans prepared by the accountant or CPA.
How to handle hobby loss audits will also be covered. The course will focus largely on case studies.
Tax Aspects of Foreclosures
The course will discuss the tax implications from the foreclosure and short sale of real estate. Topics will include:
- the difference between the treatment of recourse and non-recourse debt
- how gain or loss is calculated on the foreclosure of recourse and non-recourse debt
- understanding the tax implications from a short sale
- identifying when it may be advantageous to accelerate or delay a foreclosure
- discussing the treatment of cancellation of indebtedness income
The course will demonstrate how to report the foreclosure on the taxpayer's return and the preparation of the Form 982 - Reduction of Tax Attributes Due to Discharge of Indebtedness. Bankruptcy planning and the Trustee power of abandonment will also be covered. The presentation will examine making the Section 1398 short-year election and when the election should be made for a taxpayer that files for bankruptcy and has foreclosure(s) during the year of the bankruptcy filing.
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