Michael Gray, CPA's Tax and Business Insight

Table of Contents

• The Will Rogers Follies opens June 24
• Remember to share your story and receive show tickets as a thank you gift
• Prepare for a computer disaster
• Another milestone in the "Brave New World" of e-commerce
• Oops! CPA misses due date for retirement plan contribution
• Parsonage not limited to "fair market value"
• Deduction disallowed for interest charge on deferred DISC income
• Lottery ticket winner taxed when paid
• Visit our new articles
• Subscribe/Unsubscribe from Michael Gray, CPA's Tax and Business Insight

The Will Rogers Follies opens June 24.

Remember West Valley Light Opera will present The Will Rogers Follies - A Life in Review from June 24 through July 29. I will be performing offstage as the voice of Florenz Ziegfield. (Recordings of my voice will be used July 14 through 16.) The location is the Saratoga Civic Theater, 13777 Fruitvale Ave., Saratoga (across from West Valley College.) For tickets, call (408) 268-3777. For more information, visit the West Valley Light Opera Web Site at www.wvlo.org.

This is a great opportunity to learn about one of America's most beloved personalities and one of the most famous and influential persons of his time, in a fun, highly entertaining musical show. (It's also my last chance to remind you in this newsletter.)

Here are a few of Will's "quotable quotes":

"No man is great if he thinks he is."

"It's great to be great, but it's greater to be human."

"A remark generally hurts in proportion to its truth."

"Humanity is not yet ready for either real truth or real harmony."

"When I die, my epitaph or whatever you call those signs on gravestones is going to read: 'I joked about every prominent man of my time, but I never met a man I dident like.' I am so proud of that I can hardly wait to die so it can be carved. And when you come to my grave you will find me sitting there proudly reading it."

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Remember to share your story and receive show tickets as a thank you gift.

As our "Will Rogers" promotion, please write a letter to us telling about one or more challenges or situations you were dealing with and how we helped you. In other words, just write how working with us as your accountants has been helpful to you, your family, your business. Please be as specific as you can. Also, at the end of the letter, please give us permission to use the letter and your name in our written promotional material and on our web site.

Please send the letter as soon as possible, but no later than July 15, 2000. As a thank you gift, you will receive two tickets to the West Valley Light Opera show, The Will Rogers Follies. Please send your story early, because the best seats will be sold soon, and we can only honor this offer as long as tickets are available.

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Prepare for a computer disaster.

It seems like a cliché, but remember to back up vital information on your personal computer(s). Recently, my son Jimmy and my brother Steve each had computer problems which wiped out their files on their hard drives. A couple of years ago, my daughter Holly had a similar experience. Just getting things restored to operating condition is a major inconvenience, but some files couldn't be recovered. This is especially important for accounting files, such as Quick Books or Quicken. Back up your computers now and at least weekly from now on. You'll thank me later!

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Another milestone in the "Brave New World" of e-commerce.

President Clinton has approved legislation permitting contracts to be binding with "electronic signatures." As is often the case, this new development will be a blessing and a curse. The blessing will be the added convenience of eliminating paper confirmation of electronic contracts (possibly including tax returns.) The curse is the "Pandora's Box" of potential fraud we are opening for forged signatures. Electronic information is so easy to copy and abuse. Whether you are acting as a vendor or as a customer, we urge you to be careful in using this new technology and seek the best security you can find for your transactions.

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Oops! CPA misses due date for retirement plan contribution! (Non-corporate business owners take note!)

The Tax Court found a CPA doing business as a sole proprietor made a late contribution to a money-purchase pension plan, resulting in a substantial penalty excise tax for not meeting the minimum funding standards. The taxpayer, Mr. Wenger, filed two extensions for his individual income tax returns and made the contribution by extended due date of his income tax returns, October 16 following the end of the taxable year. According to the Internal Revenue Code Section 412(c)(10)(B), the due date for a money purchase plan contribution can't be extended later than the 15th day of the ninth month after the end of the plan year. This corresponds to the maximum extended due date for a corporation, but not for non-corporate taxpayers.

The Tax Court didn't accept Mr. Wenger's argument that he was following the instructions for the tax forms. (Wenger v. Commissioner, T.C. Memo 2000-156 (5/12/00).)

If you have a retirement plan for a non-incorporated business, be sure to review the extended due date rules with your tax advisors and plan administrator.

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Parsonage not limited to "fair market value."

An ordained minister was able to exclude from income the total amount received as a parsonage allowance. The amount received and used exceeded the fair market rental value of the home. The IRS tried to limit the exclusion to the fair market rental value. The Tax Court ruled in favor of the taxpayer. (Warren v. Commissioner, 114 T.C. No. 23 (5/16/00).)

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Deduction disallowed for interest charge on deferred DISC income.

The Ninth Circuit Court of Appeals has upheld a District Court decision that the interest paid by shareholders of an interest-charge DISC (Domestic International Sales Corporation) is non-deductible personal interest. (Tedori v. US, (CA9 5/1/2000) 85 AFTR 2d ¶ 2000-647.)

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Lottery ticket winner taxed when paid.

A cash-basis taxpayer tried to have his lottery winnings taxed when he presented his winning ticket, not when he collected the prize in order to avoid an increase in his maximum tax bracket. The taxpayer tried to apply an economic benefit doctrine under which some minors were previously taxed for sweepstakes winnings deposited in a court-supervised account. The district court rejected the taxpayer's arguments and the Sixth Circuit Court of Appeals affirmed. According to the Sixth Circuit, until the state completed the verification process, the taxpayer wasn't entitled to the award. (Roy V. Thomas v US, (CA6, 5/26/2000) 85 AFTR2d ¶ 2000-688.)

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.