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Lessons From the Tax Court

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in Small Business Tax

Tell the IRS you're on the move. The IRS is only required to send notices to your "last-known address." So if you don't send the IRS a change of address form (Form 8822), you usually can't claim that you weren't notified in time. But you may be able to rely on your other IRS filings. Recent case: The Tax Court ruled that a taxpayer had provided "clear and concise" notification of an address change when he filed a power of attorney (Form 2848). (Hunter, TC Memo 2004-81)

Lesson: To avoid such squabbles in the first place, send the IRS a Form 8822 whenever you move.

Don't shift personal expenses to your company. A taxpayer's corporation purchased a permanent seat license that allowed him to buy season tickets at a yet-to-be-built football stadium. The corporation made the payments, but the company's owner listed his home address and Social Security number on the application. He also indicated that he intended to use the license personally. Since the corporation was paying his personal expenses, the court said he received a taxable dividend. (Kerns, TC Memo 2004-63)

You can't hide in a tax shelter. Promoters of complicated tax shelter schemes often promote them by saying the IRS will never find out who's involved. Not so. A court ruled last month that the IRS could force a Big 4 accounting firm to cough up the names of the participants. (John Doe v. KPMG, 2004-1 USTC 50,223)

To deduct alimony, follow the rules. A taxpayer lost his chance to deduct alimony payments because the alimony plan didn't meet the IRS's criteria. (Mukherjee, T.C. Memo 2004-98)

Advice: To deduct alimony, payments must meet certain requirements. For instance, they can't be referred to as something else (such as child support) in the divorce decree; they must cease after your ex-spouse dies; they must be paid in cash, check or money order; they can't be reduced when a child reaches a milestone (say, age 18); and first- and second-year payments can't be excessive compared with the third year.

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