Monday, April 25, 2011

IRS relief for Corrosive Drywall

So many houses in the Tampa Bay area have been aflicted with Corrosive Drywall that I felt compelled to research the topic!
New legislation allows taxpayers to seek relief under IRS Revenue Procedure 2010-36, which addresses tax implications of corrosive drywall and the resulting economic loss. The procedure addresses what constitutes a deductible casualty loss, the tax year in which the loss is deductible, and how to compute the amount of the loss. It provides a safe harbor method for determining the amount of the loss.

Under the safe harbor, a taxpayer who does not have a pending claim for reimbursement of damages and does not intend to pursue reimbursement may claim a loss of all unreimbursed amounts paid during the tax year to repair damage from corrosive drywall to the taxpayer’s personal residence and household appliances. If there is a pending claim for reimbursement or an intention to pursue reimbursement, a taxpayer may claim only 75% of the unreimbursed amounts paid to repair the damages. Income or an additional deduction may arise in a subsequent tax year, depending on the amount of any reimbursement actually received.

The revenue procedure carries a drawback of basing the amount of the deduction on payment for repairs rather than a calculation of decrease in fair market value as a result of the casualty (limited to the taxpayer’s basis in the property), that is otherwise allowed as a method under Treas. Reg. § 1.165-7(b).

However, the revenue procedure gives taxpayers certainty that the IRS will not challenge treatment of the repairs as a casualty loss under the requirement that a casualty is the result of an “identifiable event” that is “sudden, unexpected, and unusual” rather than the result of “progressive deterioration.”

Wednesday, April 20, 2011

They got it right!

1. President signs bill repealing 2012 1099 requirements

Recent legislation repeals the requirement that businesses and rental property owners file Form 1099 if they paid more than $600 per annum to any single vendor for goods and services.

Note-most companies that would have been required to make this paperwork change already have other requirement in place that makes this requirement redudent. What you ask? Say you are a growing S corp and you seek bank financing for a loan based on growth. The company would want to show every penny it earned, not just the payments from customers over $600.