Michael Gray, CPA's Tax and Business Insight

June 5, 2015

© 2015 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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Minerva Siemer with Grandma Janet at the Wave Exhibit at the Monterey Bay Aquarium.
Minerva Siemer with Grandma Janet at the Wave Exhibit at the Monterey Bay Aquarium.

Congratulations graduates!

This is the time of year for graduations. Congratulations to all graduates and their families. Education is a lifetime experience, so you graduates have only completed an important stepping stone. Your next challenge awaits you. Go for it!

With graduations also comes summer vacation. Be careful when driving for more kids on the streets.

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Family celebrations.

My daughter, Holly Baker, and her husband, Dan are celebrating their 16th wedding anniversary this month. Time has certainly flown. Happy anniversary, Holly and Dan!

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Michael Gray out of office.

Michael Gray will be out of the office June 10 through 12, returning June 15.

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Second quarter estimated tax deadline is June 15.

The second estimated tax due date for calendar-year taxpayers is June 15. Federal estimated tax payments (for estimated tax exceeding withholding) can be based on 110% of 2014 tax on your income tax return if your adjusted gross income exceeds $150,000. Alternatively, you can make payments based on your income and deductions for 2015.

The California payment is 40% of estimated tax for the year. Like federal estimated tax payments, California payments can be 110% of 2014 tax, unless your adjusted gross income is $1 million or more. In that case, your estimated tax payments should be based on your actual income and deductions for 2015.

If you want our help computing your second quarter estimated tax payments, call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment for a consultation.

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Foreign account reports will soon be due.

The due date for FinCEN 114, the report of foreign accounts for 2014, is June 30, 2015. It applies for foreign bank and brokerage accounts and certain other financial accounts exceeding $10,000 at any time during 2014 owned by the taxpayer or for which the taxpayer had signature authority. The form must be efiled. If you have any questions about this form, consult with your professional tax advisor.

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Michael Gray gives a LIVE seminar presentation for tax professionals.

Michael Gray will present Part 2 of a two-part series of lunchtime presentations of a "Survey of lifetime gift planning and Form 709" for the Estate & Trust Group, Silicon Valley San Jose chapter of CalCPA. The presentation will be from noon to 1:30 p.m. on Thursday, June 18 at Abbott Stringham & Lynch, 1550 Leigh Ave. in San Jose. Lunch is included. The investment with an advance reservation is $20 for CalCPA members and $30 for nonmembers. For reservations, call Stephanie Stewart at 408-983-1122 or register online at www.calcpa.org/events-and-programs/event-details?id=fcd554ea-507b-46c7-b23d-fd4d841851b6

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The IRS gets hacked - taxpayers exposed to identity theft.

The IRS has warned taxpayers that identity thieves have accessed tax return transcript information of 104,000 taxpayers. The hackers had to have Social Security information, birth dates and street addresses in order to access the IRS site.

The hackers were using the IRS's "Get Transcript" application, which has since been temporarily shut down by the IRS. Taxpayers can still write to the IRS for their transcripts.

The hackers were unable to access the records for about 100,000 additional taxpayers.

The IRS believes the information might be used for filing fraudulent income tax returns to get a refund.

The IRS will notify the taxpayers whose information was accessed. They will receive free credit monitoring and the IRS will monitor their accounts for potential identity theft.

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IRS reevaluating corporate spinoff rules.

The corporate reorganization rules were designed to allow active trades and businesses to be divided or combined without imposing income taxes on the shareholders. In recent years, the IRS has been relaxed in allowing tax deferred reorganizations when one or more of the entities have little or no active trade or business activity. A recent high-profile example is the spinoff of an affiliate holding Alibaba stock to Yahoo shareholders.

The IRS Office of the Associate Chief Counsel (Corporate) has announced that it is reevaluating whether it will continue to issue private letter rulings approving spinoffs when the corporation being spun off owns minimal assets in a trade or business.

As I understand it, Yahoo has indicated it will proceed with its spinoff because it was announced before the IRS announcement of a possible change in policy.

(TRC CCORP:39,252.10.)

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Supreme Court says retirement plan fiduciaries must monitor investments.

The Supreme Court has held the six-year statute of limitations doesn't apply when an employer doesn't offer low-cost investment alternatives to its employees for its retirement plan. The Ninth Circuit Court of Appeals previously applied a six-year statute of limitations for employees to be compensated for excessive fees. The Court found the employer had violated its fiduciary duty under the Uniform Prudent Investor Act.

"The duty of prudence involves a continuing duty to monitor investments and remove imprudent ones under trust law."

Smaller employers may find this standard too burdensome and discontinue offering 401(k) plans. In the past, some brokerage firms have waived administration fees when plans have offered specified investments from which the brokerage firm received commission income. These arrangements will probably have to be converted to fee-based arrangements and more low-cost alternative investments offered to employees.

(Tibble v. Edison International, Supreme Court, May 18, 2015.)

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Franchise Tax Board withdraws Notice of Proposed Assessment for taxpayers who moved to Nevada.

A business owner and his wife moved to Nevada during April 2007 before receiving $8 million in dividends.

The Franchise Tax Board initially claimed the taxpayers had enough connections to California that they were still domiciled in California and subject to California income tax on the dividends.

The taxpayers appealed to California's State Board of Equalization. When the Board of Equalization questioned the Franchise Tax Board's position, including disregarding a calendar and 200 pages of supporting documents submitted by the taxpayer, the Franchise Tax Board withdrew its Notice of Proposed Deficiency and the Board of Equalization dismissed the case.

The case demonstrates that retaining some connections with California isn't fatal to proving your change of residence provided you can provide good explanations of the reasons for those connections and can establish the legitimacy of your new residence in another state.

For example, in this case, the taxpayers didn't sell their California residence until 2010 because real estate prices were down in 2007. They lived in a 2,500 square foot Nevada residence that they purchased for $900,000. It was more than sufficient for the two of them.

(Appeal of Lau, heard March 25, 2015, California State Board of Equalization, Case No. 739838, dismissed May 7, 2015.)

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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 April and May.

Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 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 April and May:

June 5, 2015, Tom W. Anderson, President, Retirement Industry Trust Association, "Making alternative investments besides real estate using a Roth or IRA account"
June 12 and 19, 2015, Don Pollard, CLU, ChFC, Advanced Professionals, "Health care plans for small businesses update"
June 26, 2015, Michael Desmarais, attorney at law, "Your rights as a beneficiary"
July 3, 2015, Michael Desmarais, attorney at law, "Your rights as a beneficiary"
July 11 and 18, 2015, Jeffrey Hare, APC, attorney at law, "Settling legal disputes our of court"
July 25, 2015, Lori Greymont, CEO, Summit Assets Group, "Real estate investment alternatives"

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 www.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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