The increase of hotel room bookings by Internet has meant a decline in revenue for governments, tax officials say. Hotels are remitting tax on the net price of a room, which  was agreed upon between the online travel company and the hotel chain in advance. However, that price may be less than the official posted room rate. The key issue is whether the online travel companies are reselling the rooms, taking the role of a commissioned travel agent, or creating and providing a new and separately nontaxable service. The issue raises a host of secondary questions, including the differing definitions and applications between sales taxes and hotel and lodging taxes, questions of nexus, and the issue of substance over form. John Healy, M.S.T., CPA, and Bruce Nelson, CPA, explain this complex area in their column in the Journal of State Taxation.

 

Estate taxes, income taxes, and family inheritance considerations all play a critical role in deciding whether to make charitable contributions with hard-earned retirement plan dollars. Yet doing so has never been easier—for two reasons. First, the recent passage of the Pension Protection Act of 2006 allows individuals age 70 ½ and older to make limited direct gifts of IRA dollars to charity without incurring any income tax. Second, final regulations governing required minimum distributions from IRAs and employer-provided retirement plans, which were released by the IRS in 2002, eliminated inherent disadvantages in naming a charity as a beneficiary of a retirement account. Marvin R. Rotenberg and Mark S. LaVangie’s article in the Journal of Retirement Planning show how there has never been a better opportunity to use tax-advantaged retirement plan assets to make charitable gifts.

 

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Recent cases have emphasized the controversial application of the economic substance doctrine and how divided are courts, the government, and taxpayers in their interpretation of the doctrine. The last couple of years saw the occurrence of several important court decisions. Long Term Capital Holding (2004) was decided for the government. Yet subsequently, three district courts have held for the taxpayers in cases involving an economic substance development. Meanwhile, circuit courts and the Tax Court are applying the doctrine inconsistently, but even within a certain circuit inconsistent applications of the two-prong economic substance test occur. Yoram Keinan’s article in Taxes—The Tax Magazine examines the various cases that prove the need for a definitive U.S. Supreme Court ruling on the issue.

 

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Goodwill may be hard to put a finger on—and even harder to attach a price tag. Yet the issue arises in many contexts when a transfer of goodwill occurs: divorce, a death, a break-up of owners, bankruptcy, a sale, or gifts. An IRS list of factors to consider offers some guidance. In the final analysis, though, goodwill is based upon earning capacity. But how does a tax professional distinguish between professional goodwill and business goodwill? This and many other questions are answered as Phyllis Horn Epstein, J.D., L.L.M., expertly treats this subject in an article appearing in Corporate Business Taxation Monthly.

 

 

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For more than a decade, the IRS has attacked the use of family limited partnerships and similar closely held entities that have been used in the context of estate planning. The IRS has taken the position that a family limited partnership should simply be disregarded for estate and gift tax purposes, despite the fact that the entity was validly formed under state law or served a valid purpose. The IRS has used numerous arguments to undermine family limited partnerships, most based on Chapter 14, with moderate success. In the past few years, however, the IRS has refined its approach and turned its focus to the use of Code Sec. 2036. Michael Lee reviews the recent Circuit Court and Tax Court rulings involving the bona fide sale exception and then constructs a framework around Code Sec. 2036(a) and how practitioners should approach family limited partnerships in his article appearing in the Journal of Passthrough Entities.

 

 

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