Recent Examples of Successful Tax Planning

Tuesday, April 1, 2014


Tax planning is typically fact intensive. The details count. Here are three recent successful examples of our tax planning that were approved by the Internal Revenue Service.


(1)   Sale of Real Estate. Several parcels of depreciable real estate are sold: some at a gain, and some at a loss. The taxpayer reports the gain using the installment method of tax accounting. The transaction is reported as a Section 1231 transaction whereby the losses are treated as ordinary losses that can be carried back; while the gains are treated as capital gains that are recognized ratably as the income is received. Thus, losses result in immediate refunds; while the tax on gains is deferred.


(2)   Sale of Functional Currency. The proceeds of sale of foreign assets is used to purchase United States dollars. The gain is deferred as the sale of an asset held for the production of income for another asset held for the production of income and the income tax on the transaction is deferred.


(3)   Foreign Tax Credits In Respect of a Decedent. Prior to his death, a decedent sold foreign real estate where the proceeds of sale were to be received in installments. Under the laws of the foreign jurisdiction, the decedent’s estate was required to pay foreign country and provincial income taxes on the entire transaction. Under United States tax law, the decedent was entitled to report gains under the installment method of accounting. The IRS allowed those who reported income in respect of a decent to report the related foreign tax credits in respect of a decedent.