Another trader tax court loss (Assaderaghi)
By Robert A. Green, CPA
Forbes blog (same article, but different heading): Knowing The Rules Keeps Traders Out Of Tax Trouble
The IRS is piling up victories in tax court against individual traders who inappropriately use Section 475 MTM business ordinary loss treatment for deducting large trading losses. Fariborz Assaderaghi & Miao-Fen Lin v. Commissioner is yet another IRS win that can be added to the list. According to Tax Analysts, “The Tax Court held that a husband's trading activity in securities didn't constitute a trade or business and, thus, he wasn't eligible for a mark-to-market accounting method election under section 475(f) and the couple was limited to a $3,000 deduction of losses from the purchase and sale of securities under section 1211(b) for each year at issue.”
Only traders who qualify for trader tax status (Schedule C business expenses) may elect and use Section 475. Lots is at stake since without trader tax status or a timely Section 475 MTM election, traders are forced to use a puny $3,000 capital loss limitation against other income.
We agree with the IRS that Assaderaghi did not qualify for trader tax status in any of the years examined. Assaderaghi had many day trades, and he used professional trading equipment and charts. But he had a demanding full-time career as an engineer/executive and the IRS is more skeptical toward part-time traders claiming trader tax status. Assaderaghi was unable to prove his hours spent in trading and his evidence lacked credibility in the eyes of the IRS and tax court.
Most importantly, Assaderaghi came up short on meeting our golden rules for 2008, the one year he had a chance to qualify for trader tax status. He had 535 trades and our golden rules call for 1,000 total trades. He traded just over 60% of available trading days and our golden rules call for trade executions on 75% of available trading days. In the other years examined, he came up far short of trader tax status and when you view the years together it’s especially weak.
Perhaps Assaderaghi could have fought harder to win trader tax status in 2008, and concede the other years, but that is generally not the main issue. A bigger issue is filing a timely Section 475 MTM election and Assaderaghi and his accountant did not do that. It’s significant since Assaderaghi’s CPA deducted $374,000 in trading losses for his 2008 Schedule C, but the IRS forced them to use a puny $3,000 capital loss limitation instead. Once again, a trader and professional go to tax court with a clear losing case on technical grounds, missing or botching a Section 475 MTM election, and there is nothing that can be done about it. They wasted their money and effort in tax court.
Assaderaghi made some tragic rookie tax mistakes which sealed his fate as a loser with the IRS. He made the common mistake of asking his local CPA tax preparer to elect trader tax status and Section 475 MTM, but after not getting an answer from his CPA, he didn’t do anything about it. His accountant was clueless about trader tax benefits and rules — which is sadly still often the case. When it comes to timely Section 475 elections, there is no excuse allowed for relying on an accountant, and there is no IRS relief. The IRS is lenient on many things, but not Section 475.
His accountant grasped the idea of trading as a business — filing a Schedule C — but he jumped to the tragic conclusion that he could simply report trading gains and losses on schedule C like other types of businesses. He should have filed a timely election for Section 475 and reported trading gains and losses on Form 4797 Part II with ordinary gain and loss treatment. It’s clear the accountant did not know that Section 475 MTM had to be elected by April 15, 2008 for 2008 or perfected with a 2008 Form 3115 change of accounting filed in 2009 with the 2008 tax returns. Had Assaderaghi known the golden rules, perhaps he would have traded more to meet them.
Assaderaghi’s tax return screamed for an IRS beat down. The IRS computers see trades on Schedule C and issue a tax notice because trades don’t belong on Schedule C. The IRS tries to match broker 1099-Bs to Schedule D (in 2008 and Form 8949 after 2010), Form 4797 Part II (section 475 MTM) and Form 6781 (Section 1256). The IRS agent asked the CPA preparer about his filing of a Section 475 MTM election and the CPA did not even know what the agent was talking about. Case closed — it’s a loser! You can never file a Section 475 MTM election late (or with hindsight).
Lessons learned: Learn trader tax benefits and rules with our content and hire a proven trader tax CPA like our firm Green NFH, LLC to assist you with the election, Form 3115, Form 4797 and tax return footnotes.
It’s important to note that 2014 Section 475 MTM elections are due by April 15, 2014 for individuals and existing partnerships, and March 15, 2014 for existing S-Corps. “New taxpayers” (new entities) file a Section 475 MTM election in their own books and records (internally) within 75 days of inception of the new entity formation. We recommend Section 475 MTM on securities only, so you retain lower 60/40 capital gains rates on Section 1256 contracts like futures. Section 475 MTM does not apply to segregated investment positions. If you have capital loss carryovers, you may want to wait until you generate more capital gains to use them up first. Section 475 is complex and nuanced, so read Green’s 2014 Trader Tax Guide Chapter 2 on Section 475 and Chapter 1 on trader tax status.
Make sure you meet our golden rules for trader tax status based on tax court cases. The Assaderaghi case does not change our golden rules. The Assaderaghi court reinforced the notion that business traders must be consistent in trading volume and frequency and avoid sporadic lapses in active trading. The tax law requires “regular, frequent and continuous trading based on daily market movements and not long-term appreciation.”
It’s wise to stop trading as an individual and form an entity that qualifies for trader tax status and files an entity business tax return that resembles many active trading hedge funds. As pointed out in Green’s 2014 Trader Tax Guide, a high ranking IRS person in the trader tax status and Section 475 area recently warned at a tax conference that the IRS is going after individual traders inappropriately using trader tax status and Section 475 MTM ordinary loss treatment. Get the help you need to be a winner.
See the Tax Analysts PDF file on this case with our yellow highlights. February 1, 2014
Net investment tax
The Patient Protection and Affordable Care Act (also known as “ObamaCare”) has many new and different types of taxes to finance the law, starting on different dates.
One of these new tax regimes — the “ObamaCare 3.8% Medicare surtax on unearned income” — affects upper-income traders and investment managers as of Jan. 1, 2013. It only applies to individuals with modified adjusted gross income (AGI) exceeding $200,000 (single), $250,000 (married filing jointly) or $125,000 (married filing separately). (Modified AGI means U.S. residents abroad must add back any foreign earned income exclusion reported on Form 2555.)
Final IRS regulations and tax form 8960 instructions were late
The IRS released its final regulations for “net investment income” (NII) and “net investment tax” (NIT) in December 2013, and draft instructions for Form 8960 (Net Investment Income Tax) in January 2014. The IRS was late because the proposed IRS regulations were highly problematic for many CPAs and industry groups who submitted comments asking the IRS for many changes. The proposed regulations disenfranchised taxpayers from deducting their losses against NII which was unfair and against the spirit of the tax code.
Thankfully, the final regulations are better. We are pleased with the results for business traders, who went from being the most disenfranchised to the most enfranchised. Unlike most taxpayers with NII, business traders may deduct trading business net losses and expenses against NII.
What’s included and excluded from NII?
Notice the term “investment income” is used in lieu of “unearned income.” People who receive “earned income” from a job pay FICA (on the social security base amount) and Medicare on their wages or self-employment income. In general, unearned income includes interest, dividends, rents, royalties, capital gains and distributions from companies in which you are passive. Now, this type of income is subject to Medicare taxes, too — albeit at upper-income brackets only.
NII’s proposed regulations interpreted the tax code to require segregation of different types of unearned income into three different buckets, for the main purpose of disenfranchising taxpayers from using losses from any given bucket. The final regs make some serious amends here and the Section 475 MTM trader fares very well...
The NII buckets include the following:
Bucket 1: Portfolio income (includes interest, dividends and annuity distributions), royalties (net of oil and gas depletion expenses) and rents (net of depreciation);
Bucket 2: Passive activity income and loss from pass-through entities;
Bucket 3: Capital gains and losses from the sale of property not used in an active business. In the final regs, the IRS moved trading businesses into bucket 3, so trading business capital gains and losses are counted with investment capital gains and losses. Smart move!.....
THERE MAY BE EVEN BETTER NEWS, TOO
The regulations state: “To minimize the inconsistencies between chapter 1 and section 1411 for traders, the final regulations assign all trading gains and trading losses to section 1411(c)(1)(A)(iii). The final regulations also permit a taxpayer to deduct excess losses from the trading business of a section 475 trader from other categories of income. Part 5.C of this preamble describes the treatment of those excess losses.”
Consider the example of a Section 475 MTM trader who arbitrages securities trades against interest income......
This is an excerpt from Chapter 15 of Green's 2014 Trader Tax Guide). Read the full chapter for further details on what's included and excluded from NII, an NIT calculation example and more. January 14, 2014
New IRS guidance on SE tax deductions affects partnership AGI-deduction strategies
By Robert A. Green, CPA & Darren Neuschwander, CPA
Update on Mar. 4: Potential solution for 50/50 HW partnership returns. In general, we recommend 50/50 as that is how married couples generally share property. Pay administration fees during the year and if you need more cash flow, the husband and wife can reinvest capital to finance ongoing fee payments. Consult with us about your administration fee agreements and payment schedules.
Update on Feb. 21: With a two-spouse partnership return, you can maximize AGI-deductions (health insurance and retirement plans) with the active-trader spouse owning just 1% (or a minority) of capital, rather than 99% (or a majority) of capital. However, that may not be feasible or wise considering joint property issues. In these cases, it’s better to consider an S-Corp election, or add a C-Corp, so the partnership can remain 50/50. Active traders owning 99% (or a majority) should consider changes soon. 2014 S-Corp elections are due by March 15, 2014. Consult with us about these changes.
Update on Jan. 24: We published Green's 2014 Trader Tax Guide). See Chapter 7 Entities & Chapter 8 Retirement Plans for our updated strategies on entities and retirement plans.
(Watch our Webinar recording on this content from Fri. Jan. 17 Click here).
Business traders reporting an administration fee on an individual tax return Schedule C paid from their trading business partnership in order to unlock AGI deductions for health insurance and retirement plan contributions need to consider some changes as a result of new IRS guidance. The IRS released draft instructions to Form 8960 (Net Investment Income Tax) in January 2014. The instructions state that trading business expenses should be deducted against self-employment income (SEI), and any excess amount generating negative SEI may be deducted against Net Investment Income (NII). These draft instructions are based on the IRS’s final NII regulations released in December 2013.
Business traders using an S-Corp or C-Corp with payroll rather than a partnership administration fee are mostly unaffected by this new IRS guidance. But partnerships need to consider these suggested solutions. We’re adopting this new guidance for 2013 tax returns and subsequent years.
The partnership fee/AGI-deduction strategy can still work on some partnership tax returns.
Prior to 2013, the simplest entity for a husband and wife was a general partnership filing a partnership tax return. To unlock AGI deductions for health insurance and retirement plans, the partnership paid an administration fee to the trading owner’s individual Schedule C, creating the earned income needed for the AGI deductions. But the trading business expenses passed through from the partnership — including the fee payment — were not included in SEI. With new IRS guidance requiring an SEI deduction for partnership expenses, it’s harder to achieve the SEI that is necessary for purposes of maximizing these AGI deductions.
Consider this example of a husband and wife 50/50 general partnership or LLC filing a partnership tax return for 2013. The partnership has trading business expenses of $20,000 before paying an administration fee to the husband, who is the active trader (assume the wife is non-active). Before the new IRS guidance, the partnership could pay an administration fee of $30,000 to the husband to cover AGI deductions for health insurance (close to $12,000) and Individual 401(k) elective deferral ($17,500). Now, the partnership needs to gross up the fee to cover the husband's 50% share of partnership Schedule E SEI deductions. Therefore, the partnership needs to pay a fee of $80,000 to have a net SEI of $30,000. Fifty percent of the trading partnership’s loss (equal to $50,000 in this example) from trading business expenses ($100,000) is allocated to the husband. (The $100,000 is comprised of the $20,000 expenses and $80,000 fee.) The wife's 50% allocation with negative SEI has no effect, as SEI and SE tax is calculated separately.
This change is not as simple as it may sound. The partnership needs to generate more income to justify a higher fee — an increase of $50,000 — and it needs the cash flow to execute it. If the husband owned a lower percentage of the partnership, the fee increase can be lower. But, in many HWGP entities, the non-active owner holds 1% of profit and loss, and that is a problem for this potential solution. They should consider changing to 50/50 or even 20/80.
If you want net SEI of $30,000, calculate the fee payment as follows. Trading expenses x allocation percentage = a negative SEI. You want to add an amount to get to $30,000 positive SEI and divide it by the other spouse's allocation percentage to get the administration fee amount. For example, with 20/80, the negative SEI is: $20,000 x 20% = ($4,000). To get to the target $30,000 SEI, pay $34,000. Next, gross up $34,000 by dividing it by 80% which equals the administration fee of $42,500 (and is only $12,500 more than the $30,000 target). Total expenses are $62,500 ($20,000 expenses + $42,500 fee). Total expenses x the 20% allocation = a negative SEI of ($12,500) + the administration fee of $42,500 = target SEI of $30,000.
If the above partnership approach doesn’t work for you, arrange salary not administration fees
The key issue for claiming health insurance and retirement plan deductions is to arrange these employee benefits in connection with a salary. The IRS does not allow partnership tax returns to pay a salary (payroll) to owners; it requires guaranteed payments or administration fees. The solution is to convert an LLC or a general partnership to an S-Corp, or add a C-Corp as a 1% partner, because an S-Corp or C-Corp pay salary to owner/employees.
An existing general partnership or multi-member LLC filing a partnership return can elect to be taxed as an S-Corp for 2014, by filing a federal Form 2553 S-Corp election by March 15, 2014. Some states rely on the federal form and other states have their own election form. Very few states don’t conform to federal “check the box regulations” allowing general partnerships or LLCs to elect S-Corp tax treatment. Consult with us about whether an S-Corp election is beneficial for you, and allowed in your state.
These solutions are less disruptive and lower in cost than opening, and closing entities. You can keep your existing trading business, including its trading accounts and bank accounts, in place.
S-Corp tax treatment is inappropriate for a hedge fund or trading company with special allocations like “carried-interest” to owners as that is considered a second class of equity and is not allowed. These types of partnerships should consider adding a C-Corp as a 1% owner.
A general partnership or multi-member LLC filing a partnership tax return can add a new C-Corp as a 1% owner of the partnership. There are few changes for the partnership: It keeps filing a partnership tax return and pays the C-Corp an administration fee and 1% or more allocation of profits. The C-Corp then has sufficient income to pay the owner a salary to unlock C-Corp-level employee benefits for health insurance and retirement plan contributions.
C-Corp owners have added benefits that are not available with partnership and S-Corp returns. The owner can have a medical reimbursement plan, which increasingly is an attractive idea considering higher deductibles and out-of-network health costs under ObamaCare plans. You can also shift individual income to lower C-Corp tax rates or operate the C-Corp close to break even if state corporate taxation is a concern.
Retirement plan changes
The other change you need to make is converting an individual-level retirement plan to the entity level. Salary-based retirement plans require entity-level retirement plans. This is fairly easy to accomplish, however some brokers may be confused about a general partnership electing S-Corp treatment, so consult with us.
For 2013, if you used a partnership and you reclassified distributions to administration fees, you may want to reclassify them back to distributions so you don’t need to file a 2013 Form 1099-Misc. by the end of February. But if you do file the 1099-Misc., it may not unlock many AGI deductions per the new guidance: The fee payments included in the partnership loss offset the fee income for both gross income and self-employment income purposes. It depends on the fee recipients share of the partnership loss.
If there is insufficient 2013 net self-employment income, you can’t fund retirement plans, so make sure there is no excess retirement plan funding for 2013 subject to IRS penalties. If you already excess funded a plan for 2013, withdraw those excessive funds as soon as possible to avoid penalties.
There’s time to fix 2014, but no time to fully fix 2013
Traders using partnerships can rearrange their tax affairs to get all the tax breaks for 2014 and subsequent years, but 2013 is a transition year so they get left holding the bag on fewer tax breaks such as no or limited AGI deductions based on their trading businesses. They do keep their business expense treatment, Section 475 and other trader tax benefits.
Unfortunately, you can’t reclassify administration fees to payroll, as payroll is a formal contemporaneous filing. It’s not a big deal to handle payroll with an outside firm like paychex.com. We have more information on these new entity strategies and how to handle payroll in Green’s 2014 Trader Tax Guide. In Chapter 7, see “New 2014 pathway towards trader tax success, including entities.”
Good news/bad news
This seems like positive news for business traders and other taxpayers, since SEI deductions are more valuable than NII deductions. SE taxes include FICA and Medicare tax, whereas Net Investment Tax (NIT) only includes the 3.8% Medicare tax. Deducting trading business expenses against self-employment income first is generally a good thing and we are not against this new guidance.
Sole proprietor traders with other earned income activities will generally be happy with this new IRS guidance. They can now deduct their trading business expenses from SEI and pay less SE tax. But they also have less earned income for retirement plan calculations.
The bad news is the new guidance causes issues for business traders using AGI-deduction strategies for health insurance and retirement plan contributions arranged through trading business partnership tax returns. Those strategies were constructed based on trading business expenses not being deductible against SEI. With the new IRS guidance, the partnership loss on Schedule E — increased by the administration fee payment — is also deductible against SEI, so the administration fee on Schedule C cannot generate positive SEI needed for the AGI deduction for a 99/1 HWGP.
Our prior position excluding trading business expenses from SEI
To date, we’ve taken the position that trading business expenses — like related trading business gains and losses — should be excluded from SEI.
While Section 1402 (SE tax rules) first state that Section 162 “trade or business” expenses for individuals and partnerships are deductible against SEI, they go on to exclude trading capital gains. IRS publications, trader tax court cases and Website statements all clearly state that business trading gains and losses are excluded from SEI. Unfortunately, we don’t see trading business expenses discussed specifically anywhere. Leading tax publishers have also said this matter was unclear in the law.
We’ve taken a conservative position: Since trading gains and losses are excluded from SEI, so should their related trading business expenses. When tax law is unclear, it’s often appropriate to turn to general tax concepts and theory, which includes a matching concept. If the income is non-taxable, generally the expenses to generate that income are also non-deductible. That’s how it works with tax-exempt income — the investment fees and margin interest to generate that income are non-deductible.
To clarify this matter, we asked an IRS official involved with the new NII regulations about these questions. The IRS person unofficially said the IRS thinks trading business expenses offset SEI first, and then NII. He pointed to example 4 in “Reg §1.1411-9. Exception for self-employment income,” which was released in December. We conclude it’s prudent to adopt this new guidance on 2013 tax filings. We believe our tax filings for 2012 and prior years are correct based on existing tax law at that time. January 9, 2014
A major tax reform bill in 2014 is unlikely, and “tax extenders” may be history, too
By Robert A. Green, CPA
Postscript: Jan. 13, 2014 TaxAnalysts "Piecemeal Reform of Financial Products Tax Unlikely, JCT Economist Says." "Congress is unlikely to pass a stand-alone financial products tax reform bill without enacting broader tax reform legislation, Joint Committee on Taxation economist Karl Russo said January 9 at the Practising Law Institute's taxation of financial products and transactions seminar in New York."
Posted on my Forbes blog, too. http://www.forbes.com/sites/greatspeculations/2014/01/09/ambitious-tax-reform-unlikely-this-year-breaks-face-expiration/
Tax-writing Congressional leaders — Rep. Dave Camp (R-MI), chairman of Ways and Means and Sen. Max Baucus (D-MT), chairman of the Senate Committee on Finance — worked on a tax reform bill last year that included closing many tax loopholes and tax expenditures. Due to gridlock over ObamaCare and the government shutdown, they weren’t able to present the bill, so they punted tax reform to 2014.
Budget-writing Congressional leaders – Rep. Paul Ryan (R-WI), chairman of the House Budget Committee and Sen. Patty Murray (D-WA), chair of Senate Budget Committee — forged a last-minute budget deal enacted into law. While it was a small deal — leaving out the extension of expiring unemployment benefits and “tax extenders” — it did break the paralyzing gridlock.
On Jan. 8, TaxAnalysts published “Camp Remains Focused on Comprehensive Tax Reform, Not Extenders.” Camp is pushing forward in 2014 on completing his tax reform bill, and he doesn’t want to undermine it and get side tracked with budget-busting tax extenders in a separate clean bill. If you want tax policy like tax extenders, then include it, and pass the entire tax reform bill. Kudos to Camp. It will be hard to attach tax extenders to a deficit-ceiling vote coming up soon, since tax extenders cost $50 billion per year. Same reason Ryan left it out of his budget vote.
There is another path to retroactive renewal of “tax extenders”
After Ryan and Murray omitted tax extenders from their year-end budget bill — probably because they would have broken their bank — Senate Majority Leader Harry Reid (D-NV) sponsored a “clean bill” to continue all tax extenders for another year. Perhaps Reid will push it soon on the Senate floor.
While it’s hard to imagine Republican leaders balking at a clean bill for tax breaks, in my view, it would interrupt all tax and budget leaders work toward budget and tax reform. Republicans voted against extending expiring payroll tax cuts a few years back to make a bigger political point. In my opinion, extending tax loopholes and corporate welfare like R&D tax credits undermines concrete efforts underway toward meaningful tax reform. Are separate “clean bills” for extending unemployment insurance benefits and tax extenders meant to embarrass the other party or are they for realistic enactment?
One tax extender that may affect traders and investment managers the most is a significant reduction in Section 179 expensing. For 2014 the maximum Section 179 expense deduction for equipment purchases decreases to $25,000 of the first $200,000 of business property placed in service during 2014. The bonus depreciation of 50 percent is gone, as is the accelerated deduction, where businesses can expense the entire cost of qualified real property in the year of purchase.
Tax reform is unlikely in 2014
Tax reform as contemplated by Camp and Baucus will continue to be highly contested by many lobbyists in Washington campaigning to retain valuable tax breaks for their clients and industries. That’s just the half of it. Even more controversial is the partisan divide over the underlying goals of tax reform. Democrats want to raise revenue and Republicans want it to be revenue neutral.
Will Congress pass tax reform in pieces in 2014? President Obama has continued to campaign on closing the carried interest tax break for investment managers of hedge funds. It’s hard to envision hedge fund managers being sacrificed alone, with Wall Street’s Sen. Charles Schumer (D-NY) representing their interests and Chicago exchange’s Sen. Dick Durbin (D-IL) also in leadership — second and third behind Reid.
While Baucus is expected to leave his chair soon – President Obama nominated him for the next U.S. ambassador to China - Camp has expressed interest to finish his year as chairmain, and run for another one year term. Camp remains dedicated to completing his hard work on tax reform pushing for passage in 2014, no matter the political headwinds.
Camp’s proposals on investments
It is interesting to consider some of the tax reform changes promoted by Camp in connection with investments. He proposed using mark-to-market accounting more than it’s used now — in Section 1256 contracts and with business traders who elect 475 MTM and dealers. This would do away with complex provisions and opportunities for income deferral and tax rate arbitrage.
Camp also proposed connecting entities with their owners for wash-sale loss calculations, and he confirmed that is not the case under existing tax law. IRS Pub. 550 mentions individuals and their controlled entities are connected for wash-sale purposes. We agree with Camp that separate tax filing entities are not connected with individuals under current tax law for purposes of wash sale calculations. It’s important to note that IRS publications are not authoritative tax law.
Bowles-Simpson goes further than Camp
The Bowles-Simpson 2010 Plan (National Commission on Fiscal Responsibility and Reform) suggested one tax rate to do away with a material difference between ordinary income and long-term capital gains tax rates. While that change would surely simplify the tax code in a huge way, Republicans won’t agree to it unless Democrats agree to lower that individual tax rate to around 23% to 25%, which is highly unlikely.
Business traders seem on safe ground
There are no current indications that business traders should fear losing their current trader tax breaks. Of course, business traders are regular individual taxpayers, too, and Congress may further limit their itemized deductions. Trader tax status is more valuable than ever, turning investment expenses into business expenses, which are unlimited.
We have not heard of proposals to repeal Section 475 MTM ordinary gain or loss treatment for business traders, and again we feel it’s positive that Camp favors MTM.
Some progressive Democrats want to repeal lower 60/40 tax rates on futures and other Section 1256 contracts. In a July 11, 2011 New York Times article (An Addition to the List of Tax Loopholes), I defended 60/40 while Warren Buffett argued for its repeal. Will Durbin stand by to watch 60/40 be repealed by Congress? Infamous Rep. Dan Rostenkowski (D-IL) won 60/40 treatment for Chicago futures exchanges. President Obama was a Senator from Illinois, too.
Tax reform goals will certainly be political campaign fodder and platforms for the 2014 midterm election in November and perhaps for the 2016 Presidential election. With continued political infighting over ObamaCare, it’s hard for me to envision Congress enacting a meaningful tax reform in 2014. The November election doesn’t have consequence until the new Congress takes office in January 2015.
ObamaCare tax on investment income
Not all tax change has been favorable to traders and investment managers. The Affordable Care Act’s 3.8% Medicare tax on unearned income — otherwise called the net investment tax (NIT) on net investment income (NII) — takes its first bite out of your apple on 2013 tax returns. New IRS Form 8960 for the NIT will be a nasty surprise for taxpayers with AGIs over $250,000 joint and $200,000 single, providing they have NII. The IRS published instructions for Form 8960 in early January. We are satisfied that the IRS repaired some glaring problems in their proposed NII regulations, making it much more favorable for business traders and investment managers that it otherwise would have been in the proposed regulations. See our Dec. 4, 2013 blog “IRS final regulations for Net Investment Tax help traders.”
Tax breaks for business traders and investment managers are still alive and well.