Michael Gray, CPA's Tax and Business Insight

July 2, 2014

© 2014 by Michael C. Gray

ISSN 1539-395X

A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!

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Clive Baker decorating a t-shirt.
Clive Baker makes an artistic tee shirt at the Coleman School International Fair.

Happy Independence Day!

Hooray! July 4 is on a Friday, so we will have a three-day weekend. With the drought, it's too dangerous to have fireworks at home. Thankfully, for the first time in many years there will be a great fireworks display in downtown San Jose.

In recent years, it seems our personal liberties have been under constant threat. The blessing of free global communication using the internet and widespread use of cellular telephones has enabled government snooping at an unprecedented level. We need to remember that our U.S. government design was as a limited federal government by consent of the governed.

Have a happy and SAFE Fourth of July.

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July celebrations.

My son James is celebrating his birthday this month. Happy birthday, James! My daughter Dawn and her husband John Siemer are celebrating their wedding anniversary this month. Congratulations Dawn and John!

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Pre-publication offer for Secrets of Tax Planning For Employee Stock Options, 2014 Edition.

I just finished an update of my book, Secrets of Tax Planning For Employee Stock Options, 2014 Edition. You can get a copy for half price if you order it by July 10, 2014. You can request information or call your order to Dawn Siemer Mondays, Wednesdays or Fridays at 408-918-3162, or here is a web page with some details www.employeestockoptionsecrets.com/prerelease.shtml.

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The year is half over!

The year is flying by. How is yours going? Tax planning is best done earlier when you can do something about it. Why not make a tax planning appointment today? Call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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Michael Gray will be out of the office part of July.

Michael Gray will be out of the office on July 28 and 29. Make your appointment now.

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Surviving spouse allowed to rollover Roth accounts.

A surviving spouse was the sole trustee of a trust that was the beneficiary of her husband's two Roth IRA accounts. She had discretion to distribute the accounts to herself "for any purpose" because to do so would be in her "best interest."

The IRS ruled that her powers were sufficient for her to be considered the beneficiary of the Roth IRA accounts and entitled to roll them over to her own Roth IRA account.

If she wasn't considered to be the beneficiary of the accounts, they would have been considered inherited accounts and required minimum distributions would have been required to be made from them.

(Letter Ruling 201423043.)

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IRS has an online payment system for individuals.

The IRS has an online payment system for individuals, called "Direct Pay." Using this system, you can pay your bills or make estimated tax payments directly from a checking or savings account without any fees or pre-registration requirements. (Another electronic payment system, EFTPS, requires pre-registration.)

To access "Direct Pay," go to the IRS web site at www.irs.gov. Then click the icon, "Pay Your Tax Bill." You must have a valid social security number to use the system.

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Inherited IRA isn't protected from bankruptcy.

The United States Supreme Court has ruled that an inherited IRA account is not "retirement funds" and therefore not protected in bankruptcy from a beneficiary's creditors.

As a result of the ruling, surviving spouses have an incentive to treat IRAs of their deceased spouses as their own.

(Clark v. Rameker, 2014-1 U.S.T.C. 50,317, June 12, 2014.)

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Offshore gambling accounts subject to FBAR reporting.

A United States person, John Hom, gambled on web sites maintained outside the United States, including PokerStars.com and PartyPoker.com. Both poker websites allowed the gambler to deposit money and make deposits.

Mr. Hom admitted that during 2006 and 2007 the total amounts in his accounts located outside the U.S., including FirePay, PokerStars and PartyPoker exceeded $10,000.

A U.S. District Court upheld the IRS in finding these accounts were foreign financial accounts subject to reporting on the annual foreign bank account (FBAR) form.

The IRS assessed a $30,000 civil penalty for 2006 and a $10,000 penalty for 2007.

(U.S. v. Hom, 2014-1 U.S.T.C. 50,307, June 4, 2014.)

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Taxpayer wins! Goodwill was personal, not corporate asset.

The IRS claimed that Bross Trucking should be subject to an income tax for transfer of corporate goodwill to its sole shareholder, Chester Bross. The IRS also claimed that Chester Bross made a gift of the goodwill to his three sons who organized a new trucking company.

The Tax Court found that any goodwill relating to customers or operations was personal to Chester Bross. He was not subject to an employment agreement or covenant not to compete and had never transferred his personal goodwill to Bross Trucking, Inc.

Further, the value of any goodwill was minimal because the operations of Bross Trucking were shut down by Chester Bross as a result of government regulation issues.

LWK Trucking Co., Inc., the corporation formed by Mr. Bross's sons, was independently formed and Chester Bross was not involved in the formation, management or operation of that corporation.

Therefore there were no transactions and no corporate tax or gift tax applied.

(Bross Trucking, Inc. v. Commissioner, T.C. Memo. 2014-107, June 5, 2014.)

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Part of purchase price for onerous lease was currently deductible.

The Sixth Circuit Court of Appeals upheld a federal District Court in granting a summary judgment against the IRS, allowing a current deduction for part of the purchase price of a building. The Sixth Circuit said an earlier decision by the Supreme Court, Cleveland Allerton Hotel, Inc. v. Commissioner (U.S.T.C. 48-1 9218) is still effective. The taxpayer had several appraisals indicating that the purchase price exceeded the fair market value of the property. The taxpayer was leasing the property, determined the rent was excessive and decided to exercise an option to purchase the property. The Sixth Circuit Court of Appeals and the U.S. District Court agreed that the excess of the purchase price over the fair market value of the property represented an amount paid to pay off an unexpired lease and was currently deductible.

(ABC Beverage Corporation v. U.S., 2014-1 U.S.T.C. 50,320, June 13, 2014.)

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Do you need help with your extended 2013 income tax returns?

The extended due date for calendar year business income tax returns is September 15 and the extended due date for calendar year individual income tax returns is October 15. We are already hard at work for these tax returns for many of our clients and we would welcome more. May we be of service with your extended returns? Call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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Do you need help with amended income tax returns?

We have already been meeting with folks who want a second look at their 2013 income tax returns for possible corrections. Call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.

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Does your group need a speaker?

We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as "How I created a public access television show broadcast on eleven Bay Area stations." To make arrangements, call Michael Gray at 408-918-3161.

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Please share your good experiences with Michael Gray, CPA.

As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm. Some of the sites where you can share your experiences include yelp.com, siliconvalley.citysearch.com, and Google+.

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Financial Insider Weekly broadcast schedule for July and August.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 8:00 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for July and August:

July 4, 2014, Mark Erickson, attorney at law, "How to work with a divorce attorney cost effectively"
July 11, 2014, Nancy J. Ross, divorce coach and mediator, Bauer, Shepherd & Ross and Associates, "How a collaborative approach can help make divorce a less painful process"
July 18, 2014, Bernard Vogel III, attorney at law, Silicon Valley Law Group, "Choices of forms for doing business"
July 25, 2014, Craig Martin, CFP®, The Family Wealth Consulting Group, "The role of emotions in investing"
August 1, 2014, Craig Martin, CFP®, The Family Wealth Consulting Group, "Using alternative investments to reduce risk"
August 8, 2014, Janis Carney, attorney at law, Carney, Sugai & Sudweeks LLP, "Life care planning"
August 15, 2014, Peggy Martin, CLU, ChFC, MSFC, FLMI, CASL, The Family Wealth Consulting Group, "Socially responsible & sustainable investing update"
August 22, 2014, Janis Carney, attorney at law, Carney, Sugai & Sudweeks LLP, "Veterans' Administration benefits for long-term care"
August 29, 2014, Naomi Comfort, attorney at law, Silicon Valley Elder Law, TBA

Financial Insider Weekly is also broadcast as follows:

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, and click on "Past Episodes."

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.

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Visit our new article!

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Follow me on Social Media!

Want to see new episodes of Financial Insider Weekly as soon as they're posted on Youtube? Want to see Michael Gray's blog posts as soon as they're live? We post them (and more) on social media!

If you enjoy Twitter, please follow me at www.twitter.com/michaelgraycpa. I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.

I'm also on Facebook, LinkedIn, and Google+.

you can also follow me on other social media sites, Facebook, LinkedIn, and Google+.

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

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Real estate investors, have you subscribed to Michael Gray, CPA's Real Estate Tax Letter at no charge or obligation?

For details, visit www.realestatetaxletter.com

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Check out my blog.

I have also started a blog at michaelgraycpa.com. Check it out!

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P.S.

My daughter and her husband, Holly and Dan Baker, have a Southern French Restaurant at 23 Ross Common, Ross, California, about 15 minutes north of the Golden Gate Bridge. The name of the restaurant is Marché Aux Fleurs and their website address is marcheauxfleursrestaurant.com. For the best meal of your life, call 415-925-9200 for a reservation and give them a try! For directions, visit our website at www.taxtrimmers.com/directions.shtml.

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Michael Gray, CPA
2190 Stokes St. Ste. 102
San Jose, CA 95128
(408) 918-3162
FAX: (408) 998-2766
Hours: 8am - 5pm PDT Monday - Friday

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