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• More milestones
• Individual extended due date is August 15
• IRS busts tax protestor trusts
• Raised floor doesn't qualify as equipment for fast depreciation
• Ninth Circuit says IRS may not estimate tips for FICA tax
• Plan amendment needed to use new minimum distribution rules
• If you have employee stock options...
• PS Marché Aux Fleurs
• Visit our new articles.
• Subscribe/Unsubscribe from Michael Gray, CPA's Tax and Business Insight.

More milestones.

Last Saturday, my youngest child, James, celebrated his 21st birthday. All of my children are "legal" adults! James has been accepted at the University of California at Berkeley as a philosophy major, starting next spring. His summer project is reading the dialogues of Socrates. Sometimes he can drive us nuts with philosophical discussions, but we're proud of him.

Janet and I will be celebrating our 30th anniversary next week. I have a lot to be thankful for, including her putting up with me for 30 years.

As we deal with the issues of finances, taxes and business, let's remember what it's really all about and devote some time to our real values in life.

I know many of you are enjoying your summer vacations, because it's been quieter. Be sure to collect some "golden memories" along the way. My vacation will probably be this fall, after October 15.

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Individual extended due date is August 15.

For those individuals who haven't finished their tax returns, the extended due date is August 15. You can apply for an additional extension of time to file to October 15, but remember to give a reason. The second extension isn't automatic; it requires IRS consent.

For those clients who haven't given us their information, there isn't much time before October 15!

There is a reward for filing earlier this year. Those who file by the extended due dates will have their 2001 advance rebate checks issued this year. Late filers might have to wait to claim a credit on their 2001 income tax returns.

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IRS busts tax protestor trusts.

The courts have used five factors to determine whether a trust is a taxpayer's alter ego that should be disregarded. In Roy G. Powell, et ux; 87 AFTR2d ¶ 2001-616 (2/20/01) and James Boyce, S.D. CA No. 99cv0003-L (POR) (2/14/01), the courts found that trusts created by two taxpayers should be disregarded.

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The five factors are:

1. the taxpayer continues to treat the property transferred to the trust as though it still belongs to her or him;
2. the entity pays little or no consideration for the property transferred;
3. the taxpayer maintains active or substantial control over the property after its transfer to the trust;
4. a close relationship exists between the taxpayer and the entity to which the property was transferred; and
5. the taxpayer expresses an intent to shelter personal assets via the trust or corporate structure.

Some people have been promoting the idea of using trusts as a way to protect their personal assets and escape taxation. In the above cases, income tax returns weren't even filed for the trusts. The IRS wanted to have the trusts disregarded so it could access the trust assets for collecting unpaid income taxes. The taxpayers weren't successful in their assertions that the trusts weren't subject to tax and the trusts were legitimate.

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Raised floor doesn't qualify as equipment for fast depreciation.

The IRS has ruled that a raised floor that is part of a building's original design isn't eligible to be classified as equipment for a relative short depreciable life. The floor is considered a building component, subject to the same life as the building. (FSA 200110001) When a raised floor is added to an existing building to accommodate equipment, such as a mainframe computer, it is classified as equipment. (Revenue Ruling 74-391.) Even though an asset may look the same and have the same function, you can get different tax results in different circumstances.

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Ninth Circuit says IRS may not estimate tips for FICA tax.

The IRS has had a continuing battle with the restaurant industry about assessing employment taxes on unreported employee tips. In Fior D'Italia, Inc.( 87 AFTR2d ¶ 2001-605 (3/7/01)), the IRS attempted to extend the tip rate from the employer's credit card receipts to its total sales . The Ninth Circuit Court of Appeals ruled the IRS didn't have the authority to make this computation.

This is excellent news for restaurants in the western states covered by the Ninth Circuit.

The Seventh, Eleventh and Federal Circuits reached the opposite conclusion, setting the stage for a Supreme Court appeal or clarifying legislation.

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Plan amendment needed to use new minimum distribution rules.

Last January, the IRS issued new guidelines which will mostly result in smaller required minimum distributions from retirement plans. The IRS has issued a model amendment to allow the new minimum distributions from retirement plans other than IRAs, effective after the amendment is adopted. Distributions before the amendment may be based on the old schedule. (AdvAnn 2001-82.)

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If you have employee stock options, have you subscribed to the ESOAA Option Alert?

To subscribe, go to http://www.stockoptionadvisors.com. You can review past issues at http://www.stockoptionadvisors.com/optionalert.

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P.S. Marché Aux Fleurs

My daughter and her husband, Holly and Dan Baker, have opened 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. For the best meal of your life, call 415-925-9200 for a reservation and give them a try soon! For directions, visit our website on our directions page.

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Visit our new articles!

• "Grow Rich! With Peace Of Mind" Book Review
• "Two Ways To Get Things Done More Effectively"

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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.