IRS Gives Guidance On Personal That Won't Prevent Code Sec. 1031 Tax-Free Exchange Of Residence

The IRS has issued Revenue Procedure 2008-16 (2008-10 IRB). The Revenue Procedure provides guidelines for limited personal uses that won't prevent a dwelling unit from qualifying as property held for trade or business or investment use under the Section 1031 like-kind exchange rules.

The IRS says it recognizes that many taxpayers hold dwelling units primarily for the production of current rental income, but also use the properties occasionally for personal purposes. “In the interest of sound tax administration,'' the IRS has provided taxpayers with a safe harbor under which a dwelling unit (real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom, and cooking facilities) will qualify as property held for productive use in a trade or business or for investment for Code Sec. 1031 purposes even though they occasionally use the dwelling unit for personal purposes.

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IRS Criminal Prosecutions in the News

You wouldn't ordinarily think of the NYTimes as a hot source for new tax developments. But some recent actions by the IRS criminal division involve subjects that are high enough profile to warrant reporting by the NY Times.

First, there is the recent prosecution of Wesley Snipes, a well know actor. His case ended, for the most part, in a victory for Snipes. While he was found guilty of some misdemeanors, the jury apparently believed that he did not have the requisite criminal intent to be guilty of felony tax evasion. As noted in the article, it can be difficult to prove criminal intent where the accused has any reason whatsoever to justify his or her conduct.

Another case, with not quite a high a profile, involves what the NYTimes refers to as "penny-ante tax fraud." The case involves alleged "inflated appraisals" of property that was appraised at less than $5,000. Not exactly your normal "badge" of organized crime.

Makes you wonder if the IRS is spending its resources trying to turn civil tax cases into unwinnable criminal prosecutions.

Zero Tax Rate on Long-Term Capital Gain and Dividend Income

Beginning this year and continuing through at least 2010, a zero tax rate applies to most long-term capital gain and dividend income that would otherwise be taxed at the regular 15% rate and/or the regular 10% rate. The amount of income taxed at 0% depends on the interplay between an individual's filing status, his taxable income, and how much of that taxable income consists of long-term capital gain and dividends.
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Taxpayer Advocate Recognizes Conflict of Interest Between Return Preparers and Their Clients

The National Taxpayer Advocate has released its 2007 Annual Report to Congress in IR 2008-4. The Advocate highlights the issues raised by newly amended Code Sec. 6694, the return preparer's penalty, and how it may affect the way tax preparers dispense advice. The Report says that new standard may, in some cases, lead to conflicts of interest between preparers and their clients.
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