text:
- 22.214.171.124 Related Party Transactions (IRC 482)
- 18.104.22.168 Adjustments Between Correlative Taxpayers (a/k/a Whipsaw Issues)
- 184.108.40.206 Activities Not Engaged in For Profit - Hobby Loss (IRC Section 183)
- 188.8.131.52 Change in Accounting Method
- 184.108.40.206 Real Estate Developers: Alternative Treatment of Common Improvements Under Rev. Proc. 92-29
- 220.127.116.11 Self-Rented Property and Renewable Options
- 188.8.131.52 Personal Holding Company Deficiency Dividends
- Exhibit 4.10.13-1 Computing Working Capital Needs Using the Bardahl Formula
- Exhibit 4.10.13-2 Bardahl Manufacturing Formula - Modified by The Empire Steel Casting Decision
- Exhibit 4.10.13-3 Bardahl-Apollo Formulas Compared
- Exhibit 4.10.13-4 Pattern Letter (P-572)
- Exhibit 4.10.13-5 Activities Not Engaged in For Profit Check Sheet
- Exhibit 4.10.13-6 Court Cases - Change in Accounting Methods
- Exhibit 4.10.13-7 Personal Holding Company Worksheet
In order to have an agreed IRC section 482 issue, all related parties must be in full agreement with the IRC 482 issue.
Obtain a signed agreement (Form 870) or payment of the deficiency for the primary adjustment taxpayer.
Make the correlative adjustments and obtain agreements for the overassessment.
The taxpayers will be advised that their cases can be more expeditiously adjusted and closed if the taxpayer scheduled to receive refunds will voluntarily consent in writing to have the refunds applied against the proposed deficiencies.
The taxpayer's written statement can be incorporated in Form 870. The examiner's report in the overassessment cases must include a statement of whether consents as provided for in this paragraph have been furnished and, if not, the reason. The suggested format for the written statement is as follows:
"The undersigned taxpayer also consents and agrees to the application of so much of the overassessment as represents an overpayment, together with allowable interest thereon, as a credit to the deficiency in tax in the amount of ($amount), together with interest thereon, due from ________________ for the year ________. This is provided that the amount of the overpayment, if any, together with allowable interest, which is in excess of the said deficiency and interest, is otherwise credited or refunded in accordance with section 6402 of the Internal Revenue Code of 1986, or the corresponding provisions of prior revenue laws."
The examiner should refer to Rev. Proc. 65-17, as amended, in situations where the taxpayer requests permission to receive payment from the correlative taxpayer to the extent of the IRC section 482 adjustment, without further Federal income tax consequences on that payment.
The examiner will note Form 3198 appropriately.
In unagreed IRC section 482 cases where the correlative adjustment is the only adjustment on the related entity, do not write a complete report for the correlative adjustment. Submit the files on related entities with tax computation sheets in each case file. Prior to closing, the examiner will draft a letter inviting the related entities to file a claim.
In unagreed IRC section 482 cases when there are other adjustments on the related entities, take an inconsistent position. Do not make the correlative IRC 482 adjustments, but explain fully the reason for not making the correlative adjustments. This explanation should be made in the taxpayer's portion of the Revenue Agent's Report (RAR).
In all unagreed IRC section 482 issue cases, the correlative taxpayer should be advised of the period of limitations under IRC section 6511 for filing a claim. If the period for filing a claim for refund expires in less than 180 days, the examiner should solicit a Form 843, Claim Refund and Request for Abatement, from the taxpayer. Such claims should be picked up and submitted with the case, if possible.
To ensure that overpayments resulting from the correlative adjustments are not scheduled and refunded to the taxpayer, the examiner will appropriately note Form 3198.
When a return is examined in one office and an issue is the transfer of income or deduction to a related taxpayer under examination in another area office, the office making the initial examination will (except in cases arising out of partnership and/or fiduciary return or S corporations) immediately, upon identification of a potential IRC section 482 adjustment, advise the examiner of the issue(s) and amount involved.
Immediately upon conclusion of the examination, a notice should be issued to the outside office that will contain sufficient information to enable the receiving office to make the correlative adjustment(s) to the related return(s). The initiating office examiner's case files will contain copies of the notification.
Upon receipt of notification, the receiving office will take prompt action to make adjustments for the transfer of income or deduction resulting from the initial examination. In the event the return has been examined and closed, reopening procedures will be considered.
If the corresponding return is not under examination, the examiner should secure the return and prepare the report.
Transactions that effect the income, deductions, or credits of two or more taxpayer's returns should be treated consistently between the taxpayers. If the examiner determines the transaction is not treated consistently on the returns of the taxpayers involved in the transaction, corresponding adjustments must be made to ensure proper treatment. The taxpayers that are effected by this transaction are considered "correlative taxpayers." Also see IRM 22.214.171.124.9 on Whipsaw Issues.
Adjustments made between correlative taxpayers will usually increase the tax liability of one taxpayer and reduce the tax liability of the other.
Service policy (Policy Statement P-4-34) requires that the case of the taxpayer whose tax liability has been reduced will not be closed until the taxpayer whose tax liability was increased agrees to the corresponding adjustment(s) and signs a consent agreeing to the increase in tax or a court establishes the correctness of the adjustment(s). Adjustments of this type occur most frequently in the returns of:
Husband and wife filing separate returns;
Taxpayers claiming duplicate dependency exemptions;
Grantor, trust, and beneficiaries;
Parent and child:
Decedent and decedent's estate;
Taxpayers in which the Commissioner has invoked the provisions of IRC section 482 as described above;
Parent and subsidiary corporations; and
Taxpayers involved in whipsaw issues.
If at all possible, correlative taxpayer's cases should be associated and remain together until the taxpayer whose report reflects a deficiency has been assessed, or until the correlative taxpayer's case is placed in suspense. If this is not possible, the procedures in the subsection Related Taxpayers Controlled in More than One Area, below, will be followed.
Procedures for disposition of related cases for flow-through entities will be closed using the procedures in IRM 4.31, Flow-Through Entity Handbook.
Primary Adjustment - The adjustment, which generally increases the tax liability of the initial taxpayer, and generally creates a corresponding decrease in the tax liability of one or more taxpayers involved in the transaction.
Primary Taxpayer - The taxpayer whose tax liability is affected by the primary adjustment.
Correlative Adjustment - The adjustment that generally creates a corresponding decrease in the tax liability of the taxpayer(s) involved in the transaction with the primary taxpayer.
Correlative Taxpayer - The taxpayer who is involved in the transaction with the primary taxpayer whose tax liability is affected by a correlative adjustment.
The examiner for the primary taxpayer will request the return(s) of all correlative taxpayer(s) in the Area if a manageable number of correlative taxpayers are involved. The cases will remain associated until the primary and correlative adjustments have been proposed and assessments have been made, or until the correlative taxpayers' cases are placed in suspense pending the resolution of the primary taxpayer's case.
If a large number of correlative returns are involved or if the correlative taxpayers reside in other PODs within the Area, PSP's assistance will be requested in ordering and controlling the related taxpayers.
If the correlative taxpayer resides in another Area, both cases may be controlled by an examiner by requesting a CC ESTABD to obtain the return not on AIMS or through the transfer of the related return(s) if:
the adjustment is of major importance,
it is for convenience of the government, or
it would promote the effective and efficient conduct of the examination.
If the above are not applicable, the procedures outlined in the subsection Related Taxpayers Controlled in More Than One Area below should be followed.
If a return must be transferred from one Area to another, the provisions of the subsection Transfers of Returns Prior to the Initial Appointment in IRM 4.10.2 will be followed. If this is not possible, contact the Area PSP in which the correlative taxpayer is controlled.
The correlative taxpayer(s) will be given notice of the examination (using the procedures outline in 4.10.2, Pre-Contact Responsibilities) as soon as it is known that adjustments proposed for the primary taxpayer will affect the tax liability of the correlative taxpayer.
A protective claim, Form 1040X or 1120X, will be solicited from taxpayers with correlative adjustment(s) that reduce the tax liability and the period for filing a claim for refund expires in less than 180 days. This will hold the taxpayer's statute open to receive any refund or credit that is due up to the amount of the claim. Letter 897 will be sent to the taxpayer each year requiring protection. Once a protective claim is received, Form 895, Notice of Statute Expiration, will be attached and the statute will be updated according to IRM 25.6, Statute of Limitations.
Prepare the correlative taxpayer's report concurrently with the primary taxpayer's report. Solicit the agreement from the primary taxpayer, whose tax liability has been increased, prior to the agreement for the correlative taxpayer, whose tax liability has been reduced.
The primary taxpayer's report will include a statement that " a separate examination report reflects correlative adjustments to the taxable income of the correlative taxpayer(s)."
Rules regarding the disclosure of information apply to correlative adjustments, despite the relationship between primary and correlative taxpayers. The correlative report should not disclose tax return information of the primary taxpayer except to the extent explaining the correlative adjustment is necessary.
If agreements are secured from the primary and correlative taxpayers, note Form 3198 so that overassessments resulting from the correlative adjustments are not refunded to the taxpayer prematurely.
The correlative taxpayer(s) must be given the option of applying any overassessment against the deficiencies of the primary taxpayer as follows:
If the correlative taxpayers are agreeable to the adjustments, the examiner will tell the primary and correlative taxpayers that their cases may be closed more expeditiously if the taxpayer's report reflecting an overassessment would agree to apply the overassessment and any interest to the deficiency of the taxpayer(s) reflecting deficiencies.
The agreement form of the taxpayer having the overassessment will be modified to add a consent to apply the overpayment to the related deficiency. This will be accomplished by adding a paragraph, as follows, to the agreement form:
"The undersigned taxpayer also consents and agrees to the application of the part of the overassessment that represents an overpayment, and interest allowable thereon, as a credit to the deficiency in tax, in the amount of $_________, and interest thereon, due from (related taxpayer) for the Year(s) ___________; provided the amount of any overpayment and interest allowable thereon that is in excess of the deficiency and interest, is otherwise credited or refunded in accordance with section 6402 of the Internal Revenue Code, or corresponding provisions of prior laws."
If the taxpayer(s) agree to apply the overassessment to the deficiency, annotate Form 3198, Special Handling Notice, for the taxpayer(s) with the overassessment: "Apply the overassessment and any interest thereon to (name of taxpayer with deficiency, the taxpayer identification number (TIN), and tax period)." An appropriate notation will also be made in the workpapers.
If the primary taxpayer whose report reflects a deficiency does not agree to the primary adjustment(s) and submits a protest to the 30-day letter, the correlative taxpayer(s) whose report(s) reflect an overassessment will remain associated.
Correlative adjustment(s) that reduce the correlative taxpayer's tax liability will be advised of the nature of the adjustment(s), the reason the overpayment cannot be refunded at this time and the possible need to protect the statute of limitations from expiring.
Primary and correlative taxpayers will be forwarded together to Appeals for consideration.
Prior to sending the protested case to Appeals the following action must be taken:
If adjustments other than the correlative adjustment(s) exist that result in a deficiency (instead of an overassessment), a partial agreement will be solicited for all non-correlative adjustment. A partially agreed report will be prepared using Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. It must specifically state that the correlative adjustment is not reflected in the computation of the deficiency or overassessment. The case will be sent to Case Processing for a partial assessment if the deficiency is agreed. Form 3198 will be noted "Make partial assessment and return to (group) to be associated with related case(s)."
The correlative taxpayer(s) will be invited to file a claim for refund (protective claim) if the period for filing a claim for refund expires in less than 180 days. Letter 897 (DO) will be sent to solicit a claim for each taxable year needing protection. Once a protective claim is received, Form 895, Notice of Statute Expiration, will be attached and the statute will be updated according to IRM 25.6, Statute of Limitations.
Form 3198 will be noted to ensure that overpayments resulting from the correlative adjustment(s) are not refunded to the taxpayer prematurely.
The statute of limitations will be protected by the office having custody of the case if a deficiency may result from a determination adverse to the Government in the related case.
If a statutory notice of deficiency is issued to the taxpayer whose tax liability is increased, due to the primary adjustments, and a timely petition is filed with the Tax Court, the Area will transfer the correlative taxpayer(s) cases (whose tax liability has been reduced) to Appeals to be associated with the case in which the petition has been filed with the Tax Court, if the procedures in item (4) of subsection IRM 220.127.116.11.2.3, above, have been followed.
If a statutory notice of deficiency is to be issued to the taxpayer(s) with correlative adjustment(s) that reduce the tax liability for other adjustments, do not include the correlative adjustments in deficiency computation. The statutory notice of deficiency must contain an explanation of the correlative adjustments so the taxpayer clearly understands the nature of the correlative adjustment(s). If the correlative adjustments completely offset the tax liability, you cannot issue a statutory notice because you have no deficiency.
If the examiner has not secured the correlative return in another Area according to the procedures described in IRM 22.214.171.124.2 above before the examination of the primary taxpayer has been concluded (agreed, protest received, or forwarded for statutory notice of deficiency) and the correlative adjustment(s) affect the tax liability of a taxpayer in another Area (except cases arising from flow-through entity returns), the correlative taxpayer's Area must be notified of the correlative adjustment(s) and the status of the primary taxpayer.
The primary Area will secure the name, address, and TIN of the correlative taxpayer and notify the correlative Area by:
Completing Form 5346, Examination Information Report,
Attaching an INOLES transcript of the correlative taxpayer to Form 5346, and
Attaching copies of the primary taxpayer's workpapers and to aid the correlative Area in proposing the correlative adjustments.
A copy of Form 5346 will remain in the primary taxpayer's case file. The original Form 5346 and attachments will be mailed to the correlative taxpayer's Area, addressed to the Area Director, Attention: Chief, PSP.
Upon receipt of Form 5346 in the correlative taxpayer's Area, PSP will determine if the correlative taxpayer is currently under examination.
If the correlative is not under examination, the return will be ordered, and assigned for examination of the correlative adjustments.
If the return is under examination, Form 5346 will be routed to the examiner conducting the examination for consideration and include of the correlative adjustments with any other adjustments in the examination report.
If the return has been examined and closed, it will be ordered and reopening to make the correlative adjustment(s).
The correlative adjustment(s) that reduce the correlative taxpayer's tax liability will be held open until the additional tax for the primary taxpayer has been agreed.
The case(s) of the correlative taxpayer(s) whose adjustment(s) reduce tax liability will be held and placed in IRC section 1254 suspense until the examination of the primary taxpayer whose tax liability was increased has been conducted. It will be held in suspense pending notice from the primary taxpayer's Area that the primary taxpayer's examination, whose tax liability was increased, has been concluded.
The following procedures must be completed before the correlative taxpayer's case can be placed in suspense, maintained and controlled in the Area Office:
The correlative taxpayer will be invited to file a claim for refund (protective claim) if the period for filing a claim for refund expires in less than 180 days. Letter 897 (DO) will be sent to solicit a claim for each taxable year needing protection. Once a protective claim is received, Form 895, Notice of Statute Expiration, will be attached and the statute will be updated according to IRM 25.6, Statute of Limitations.
Form 3198 will be noted to ensure that overpayments resulting from the correlative adjustment(s) are not refunded to the taxpayer prematurely.
All issues except for the correlative adjustments will be completed prior to forwarding the case for suspense. If possible, partial agreements will be secured for all non-suspense issues using Form 870. It must specifically state that the correlative adjustment is not reflected in the computation of the deficiency or overassessment. If a partial agreement was obtained, a partial assessment must be made by Case Processing prior to routing the case for suspense. The examiner will prepare an RAR (Form 4549-A, 4605-A, etc.) as far as the corrected taxable income line for any unagreed non-suspense issue, and Form 886, Explanation of Items, on all cases submitted for suspense. Form 3198, Special Handling Notice, will be noted "Partial Assessment - After partial assessment is made, forward to Technical Services for suspense. "
Inform the taxpayer that the case has been placed into a suspense status by sending Letter 1014, Letter to TP Advising Him of the Reasons for Suspended Action on his Tax Return Examination.
After the correlative taxpayer's Area has received notice from the primary Area on Form 5346 and has contacted the taxpayer concerning the correlative adjustments which result in a deficiency (instead of an overassessment), the correlative Area will notify the primary Area by letter of the correlative taxpayer's:
default after issuance of a statutory notice of deficiency, or
filing of a petition with the Tax Court.
If the correlative Area also has control of the return of another correlative taxpayer whose correlative adjustments produce an overassessment, the case will be associated with the related case containing a deficiency and the procedures in item (4) of subsection IRM 220.127.116.11.2.3 above will be followed.
When the primary Area receives notification that all correlative cases are agreed or have defaulted after issuance of the statutory notice of deficiency, then they will advise all correlative Areas to the process and close all related taxpayer cases consistent with the information that was previously sent to them.
If the primary Area receives notification that a related taxpayer has filed a petition with the Tax Court, the primary Area will advise all related Areas and will themselves suspense all correlative cases pending the final outcome of the taxpayer that filed a petition with the Tax Court. The instructions in subsection IRM 22.214.171.124.3.2 above will be followed in placing the case into suspense.
Once the case of the taxpayer that filed a petition with the Tax Court has been concluded, the Area will notify the primary Area of the resolution, which will in turn notify the correlative Areas.
If the deficiency of the correlative taxpayer becomes an overassessment:
the correlative Area will notify the primary Area if the correlative taxpayer agrees to the overassessment.
if the agreement is not secured, the primary Area will be notified of the forwarding of the case for processing the overassessment and the basis for closing the case. When the primary Area receives notice, they will close the overassessment case.
The primary Area will then notify all correlative Areas and similar action on overassessment cases will be taken.
IRC section 183(a) provides that no deductions shall be allowed in the case of an activity not engaged in for profit, other than those otherwise allowable under the Code, and supplies some criteria to be used in making the determination as to the profit notice. IRC section 183(d) gives the taxpayer a rebuttable presumption that an activity is a business and not a hobby, if profit results from the activity in three out of five (two out of seven in the case of horse racing, breeding or showing) consecutive years.
Since a full presumption period is not available when the taxpayer first begins the activity, IRC section 183(d) allows him to make an election which will defer the determination until he has had the opportunity to achieve the presumption during the first five (or seven) years of the activity.
Examiners should be aware that failure to make a profit does not in and of itself indicate a lack of a profit motive. This is true regardless of whether the taxpayer has made an election under IRC section 183(e) or not. The question of profit motive is a factual one, and all facts must be considered in making any determination.
Normally, business expenses must meet the requirements of either "carrying on a trade or business" (IRC section 162) or "for the production of income" (IRC section 212). If it fails to meet either of these sections, the activity is then considered under IRC section 183. In other words, first determine if the activity has a profit motive. The examination should not begin with consideration of IRC section 183.
Examiners should determine whether or not the activity is engaged in for profit from all available facts and circumstances without regard to the presumption under IRC section 183(d) or the possible election under IRC 183(e). This determination should take into consideration the "relevant factors" listed in Treas. Reg. 1.183-2(b) as well as all other pertinent facts. See Exhibit 4.10.13-5.
The IRC section 162 position (i.e., substantiation, personal use, etc.) must be developed before the case can be forwarded to Appeals or placed in suspense. Appeals has indicated concern about cases coming in with inadequate factual development of the issue. Discussion of IRC section 183(d) and (e) with the taxpayer should be postponed until, and if, the activity has been determined to be an activity not engaged in for profit.
Passive active loss rules of IRC section 469 should be also be considered. Since IRC section 469 adjustments are timing adjustment while IRC 183 adjustments are permanent adjustments, the IRC section 183 issue should generally be treated as the primary position and the IRC section 469 issue should be treated as an alternative position when both issues are present.
If a potential IRC 183(a) issue exists, check with the Technical Services IRC section 1254 suspense coordinator. If the earlier years are not in suspense, and the activity is determined to be engaged in for profit, allow the deductions to the extent they are otherwise allowable by the Code (i.e., IRC section 162). If the activity is not engaged in for profit and IRC section 183(e) is elected, the case must be placed in suspense.
IRC section 183(b) provides for two types of deductions allowed with regard to activities not engaged in for profit. They are the IRC section 183(b)(1) and section 183(b)(2) deductions.
Deductions under IRC section 183 are allowable only on Schedule A as Itemized Deductions. Deductions under section IRC 183(b)(1) would appear in the proper places on Schedule A (e.g., as mortgage interest or taxes) and any deduction under IRC section 183(b)(2) would be a miscellaneous Itemized Deduction subject to the 2% of AGI. The hobby income limitation is applied before the 2% rule.
Check with the taxpayer and/or the IRC 183 Suspense Coordinator in Examination Technical Services to determine if there is a prior election on file. See IRM 18.104.22.168.5, IRC § 183(e) Hobby Loss Suspense.
Requisition the returns for all open years not in the suspense file. Examine each of the years that have significant audit potential. If the returns for any years subsequent to the year of the initial IRC section 183(a) election do not show significant audit potential, they may be forwarded, unaudited, to suspend along with the year(s) of the initial IRC section 183(a) election.
Secure AMDISA, IMFOLT/R on all open years.
Prepare a report showing the audit results including the IRC 183(a) issue. The cases examined must be completely worked prior to going into suspense.
Form 3198 should indicate that the case is an IRC section 183(a) case and is related to a previously suspended case and should be routed directly to suspense.
Process the case in the normal manner.
If needed, secure a statute extension for any non-hobby loss issue(s) or statutory adjustment(s) from the hobby loss issue(s) not resolved prior to suspense.
Determine if the taxpayer wants, and is eligible, to elect IRC section 183(e). The election must be made before the statute of limitations of the return reporting the first year of the activity expires. If an election has not been made prior to the expiration of the statute on the initial year, an election cannot be accepted.
Inform the taxpayer of all the legal and procedural implications of the IRC section 183(e) election. If the taxpayer does not wish to make the election, the case and the issue should be processed based on the merits that have already been determined. When possible, a written statement should be obtained from the taxpayer or his representative stating that he does not elect the provisions of IRC section 183(e) with respect to the tax year(s) containing the IRC section 183(a) issue. (If the taxpayer declines to provide such a statement, the examiner should make appropriate comments in the workpapers.) Attach the statement to the return(s).
If the taxpayer wishes to made an IRC section 183(a) election:
Secure fully completed and properly signed Form 5213. See the back of each form for specific instructions.
Requisition all returns beginning with the initial year.
Obtain AMDISA, IMFOLT/R for all tax returns.
Perform audit functions as warranted, paying particular attention to the full development of the IRC section 183(e) issue. The open years that are examined must be completed prior to going into suspense.
Prepare a report on each of the open years disallowing the IRC section 183(e) loss to the extent required by Treas. Reg. 1.183-1(b).
Attach Form 3198, Special Handling Notice, to the outside of the case file and indicate "Suspense Case IRC 183(e) - Forward to Technical Services" . The group should forward the case direct to Technical Services with Form 3210.
Make appropriate comments in the workpapers to document the election and advise the taxpayer to retain all pertinent books and records for each of the presumptive period years.
Attach the election to the back of the first year's return with the form number showing above the tax return.
All partial assessments or unagreed issues should be resolved prior to suspensing.
If there are other issues which are agreed and generate a deficiency, two reports will be required. One report will contain the agreed issues and the other report only the IRC section 183(a) issue as unagreed. Include in the agreed report a statement regarding the IRC section 183(a) suspense issue as unagreed. On the unagreed report, the IRC section 183(a) issue should be written up as if the case will go directly to Appeals. Form 3198 should indicate "Partial Agreement - after assessment forward to Technical Services for IRC section 183(e) suspense."
If there are other unagreed issues besides the IRC 183(a) issue, the unagreed report will contain both the unagreed issue(s) and the " IRC 183(a) issue(s)" before the case is forwarded to Appeals. Note the F3198 for the case to be forwarded to Technical Services for suspense after resolution of unrelated issues.
Form 5213, Election to Postpone Determination, extends the statute of limitations for assessment of tax for all years in the presumption period until two years after the due date (determined without regard to extensions) for filing the return for the last year in the presumptive period.
The IRC section 183(e) election extends the period for assessment of the additional tax attributable to the IRC section 183 activity and automatic adjustments resulting from the change in adjusted gross income. Therefore, it is necessary that a separate Form 5213 be obtained for each separate activity which is in question. Unrelated IRC section 183 issues should be resolved before placing the case in suspense.
Changes in filing status should be considered. When individuals marry, remarry, or divorce in any of the years, a separate statute extension should be secured for that year.
A statute extension must be secured for any unrelated examination issues.
Upon the filing of all or a sufficient number of returns of the presumptive period, the cases will be returned to the examiner for a determination. The examiner should make sure that any profits have not been a result of income manipulation.
An accounting method is used to determine when and how a taxpayer reports income and expenses. During an examination, it may become necessary to determine whether a taxpayer is using a correct method of accounting and to propose changes to improper or incorrect methods.
A change in method of accounting includes a change in the overall plan of accounting for gross income or deductions, or the change in the treatment of any material item. This subsection covers the basic rules:
For identifying if such a change is required, and
For calculating the required audit adjustments.
Due to the rapidly changing rules for changes in accounting methods, examiners should also consult the Technical Advisor for Change in Accounting Method.
IRC section 446(a) requires taxable income to be computed under the method of accounting that the taxpayer uses to compute book income. A taxpayer may be allowed to maintain books under one method and use a different method to report taxable income as long as the taxpayer maintains worksheets to ensure that all book to tax entries have been made. However, if no method of accounting is used regularly or if the method does not clearly reflect income, then the computation of taxable income may be changed to a method that most clearly reflects income. IRC section 446(b).
The cash method of accounting is the most common method used by small businesses. The cash method is allowed for the following:
Most farming businesses,
Qualified Personal Service Corporations,
Any entity with average gross receipts < $1 million for the last 3 years (Rev. Proc. 2000-22 and 2001-10),
Any entity, other than C Corporations, with average gross receipts between $1 million and $10 million for the last three years except for retail, wholesale, mining, manufacturing or printing,
Any C Corporation with between $1 million and $5 million in average gross receipts unless involved in retail, wholesale, mining, manufacturing or printing (IRC section 446).
Given that most manufacturers maintain inventories, they are generally precluded from using the cash method of accounting. IRC section 448 does not affect the requirement to use the accrual method of accounting if necessary to use an inventory. There are some additional limitations on the use of the cash method. IRC section 448 provides that the cash method may not be used by:
C Corporations with average annual gross receipts in excess of $5 million:
1) If the entity was not in existence for the entire three-year period, the average receipts rule will be calculated based on the period for which the company was in existence,
2) Short years should be annualized,
3) Gross receipts should be reduced by returns and allowances,
4) Entities formed from previously existing entities under Section 414 will include the applicable years of the previous entity
5) The controlled group rules of Section 52 apply for purposes of the $5,000,000 test -
Partnerships, with a C Corporation partner, with average annual gross receipts of $5 million for the preceding three years,
Tax shelter defined in IRC section 461(i)(3)
If the taxpayer has gross receipts less than $1 million, the exceptions from mandatory use of the accrual method under Rev. Proc. 2001-10 may be applicable. Under this revenue procedure, taxpayers with average annual gross receipts of $1 million or less are not required to use the accrual method of accounting under IRC 446 and to account for inventories under IRC section 471. A taxpayer has average annual gross receipts of $1 million or less if, for each prior tax year ending on or after December 17, 1998 the taxpayer's average annual gross receipts for the 3 tax years ending with the applicable prior tax year does not exceed $1 million.
Procedures are provided whereby the taxpayer may obtain automatic consent to change to the cash method of accounting and account for inventory under Treas. Reg. 1.162-3. This regulation requires taxpayers with an inventory of materials and supplies (other than incidental materials and supplies) to deduct the cost of these items in the year that they are actually consumed or used in operations.
In addition, the Service has also issued Rev. Proc. 2002-28 that allows eligible small businesses with average annual gross receipts of $10 million or less to use the cash receipts and disbursements method of accounting. Qualified businesses may rely on the revenue procedure for tax years ending on or after December 31, 2001. This revenue procedure describes how qualifying small businesses may obtain automatic consent to change to the cash method of accounting, if they are not prohibited from doing so under other provisions, such as IRC section 448 or IRC section 460. Eligible trades or businesses are identified by NAICS codes. Manufacturers defined by NAICS codes 31-33 are typically not covered by this notice as well as retail trade defined by NAICS codes 44-45. NAICS codes may be found in IRM Exhibit 1.4.40-8.
Section 4.01(1)(c) of Rev. Proc. 2002-28 may provide some relief to manufacturers on a very limited basis if the rules of accounting for long term contracts under IRC section 460 do not apply.
IRC section 460 defines a long-term contract as any contract for the manufacture, building, installation or construction of property if such contract is not completed within the taxable year when it was started. Treas. Reg. 1.460-1(b) defines a contract for the manufacture of personal property as a manufacturing contract. In contrast, a contract for the building, installation, or construction of real property is a construction contract.
The rules for manufacturing contracts are described in Treas. Reg. 1.460-2. Specifically, a contract for the manufacture of property shall not be treated as a long-term contract unless the contract involves the manufacture of:
Any unique item of a type which is not normally included in the finished goods inventory of the taxpayer (IRC section 460(f)(2)(A)), or
Any item which normally requires more than 12 calendar months to complete (without regard to the period of the contract) (IRC section 460(f)(2)(B)).
Per Treas. Reg. 1.460-2(b), items are not considered unique if:
They normally require 90 days or less to complete;
5% or less of the estimated total costs of the item are attributable to customizing;
The item becomes a part of the normal inventory.
In determining if the time to manufacture the item exceeds 12 months, all activities of the manufacturer and the related parties must be taken into account. This would include the time to produce components and other assemblies by the manufacturer and any related party, which could be an entity with more than 50% ownership (80% for a C corporation).
The production period for an item begins when the manufacturer incurs at least 5% of the total estimated costs, including the planning and design stages, and ends when the item is ready for sale, or assembled into an operable item (Treas. Reg. 1.460-2(c)). Reference the final regulations for manufacturers with long-term contracts.
To identify a long term contract issue:
Ask the taxpayer for a list of all contracts open at year-end.
Select contracts to review.
To determine if the taxpayer is a service provider or a manufacturer:
Review the bid file and statement of work.
Request contract files to identify the effective date, contract price, type of contract (fixed price, cost plus, cost share, time and material).
To determine if the length of the contract exceeds 12 months:
Identify the delivery schedule for the items produced under the contract.
Request a list of subcontractors because this may add to the total length of the contract.
To determine if the item is unique:
Request a copy of the proposal.
Review the proposal for customizing costs.
Under Treas. Reg. 1.471-1, a taxpayer must account for inventories if the production, purchase, or sale of merchandise is an income-producing factor in the taxpayer's business. A taxpayer that is required to maintain inventories must use the accrual method of accounting with regard to purchases and sales. Inventory includes all raw materials and supplies that have been acquired for sale, or that will be physically incorporated into the merchandise intended for sale, plus work in process, and finished goods. Accounting for inventories may be required even if the inventory balance is zero at the end of the taxable year. J. P. Sheahan Associates, Inc. v. Commissioner, T.C. Memo 1992-239.
Since the sale of merchandise is an income-producing factor for manufacturers, they must use the accrual method to account for sales and purchases. Determining whether merchandise is an income-producing factor requires computing a ratio of the total annual purchases to gross receipts. If the percentage is greater than 15, the courts have held that merchandise is an income producing factor. Wilkinson-Beane, Inc. v. Commissioner, T.C. Memo 1969-79.
The underlying principle of accrual method accounting is the matching of income and expenses in the proper year. If a taxpayer with inventory were to use the cash method of accounting, then purchases could be deducted in a different period from the recognition of income from the sale of those items. Under the accrual method, items are included in income when the following tests are met:
All the events fixing the manufacturer's right to receive the income have occurred. This right could be fixed when the goods are shipped, delivered, accepted, or when title passes to the purchaser. Treas. Reg. 1.446-1(c)(1)(ii)(C).
The amount of income can be determined with reasonable accuracy. This means that only an estimate of the amount is sufficient for income to be recognized. Treas. Reg. 1.451-1(a).
For expenses, Treas. Reg. 1.446-1(c)(1)(ii) states deductions are allowed when:
All events necessary to establish the fact of liability or deduction have occurred,
The amount of the liability can be determined with reasonable accuracy, and
Economic performance has occurred.
Generally, economic performance occurs when the property or services are provided, or the property is used. Note that there are other timing rules (i.e., the 3 1/2 month safe harbor or recurring item rules) in the Code that can take precedence over these generalized economic performance rules.
A deduction for accrued vacation pay and bonuses to unrelated taxpayers is allowed only if paid within 2 1/2 months of year-end (Temp. Reg. 1.404(b)-1T).
An employee must actually receive payment in cash for the corporation to get the deduction for the prior year (IRC section 404(a)(11)).
A corporation using the accrual method is allowed to deduct accrued compensation (including vacation pay and bonuses) payable to cash-basis controlling shareholders as of the day such compensation is received (actually or constructively) by the shareholder IRC section 267(a)(2).
Losses on sales or exchanges between related parties are disallowed (IRC section 267(a)(1)).
Once a method of accounting is adopted, the manufacturer must request permission to change methods. If the taxpayer files two consecutive tax returns using an improper method, the taxpayer must then request permission to change to a correct method. A correct method is considered adopted after one return is filed.
A change in method of accounting is a change in:
The overall method of accounting, such as cash to accrual, or
The treatment of any material item. A material item is any item that involves the proper time for the inclusion in income or expenses in a given period.
The most common accounting method changes for manufacturers include changes in inventory valuations, depreciation methods, and recording income from long-term contracts. A change in accounting method is handled differently from the correction of an error, which is remedied by filing an amended income tax return. Examples of errors are:
Posting errors,
Misclassification of items, and
Errors computing net operating losses.
Voluntary changes are initiated by the taxpayer by filing a Form 3115, Application for Accounting Method Change, using one of two Revenue Procedures:
Automatic: Rev. Proc. 2002-9. Form 3115 must be attached to the taxpayer's timely filed, with extensions, tax return for the year of change, or
Approval Required: Rev. Proc. 97-27 for all other changes. Form 3115 must be filed during the year of change.
User fees are generally not required when applying for one of the automatic changes in accounting methods. There is no acknowledgment under the automatic change procedures of Rev. Proc. 2002-9..
A Form 3115, Application for Accounting Method Change, filed under Rev. Proc. 97-27 should be filed as early as possible to allow for processing time prior to the due date of the return for the year of change. Normally, an acknowledgment will be mailed within 30 days of the filing date for Rev. Proc. 97-27 requests.
Advantages for making a voluntary change include a four-year spread of a taxpayer unfavorable (positive) adjustment under IRC section 481, audit protection for prior years, and no assessment of penalties and interest.
There are limited circumstances that give the taxpayer all of these benefits after being contacted for examination:
90-day Window: The 90-day window is available during the first 90 days of a taxable year if
(1) the taxpayer has been under examination for at least 12 months as of the first day of the taxable year, and
(2) the method which the taxpayer seeks to change is not an issue under consideration or an issue that has been placed in suspense. -
120-day Window: The taxpayer may file a Form 3115 within the 120-day period following the date an examination ends, provided that the change requested is not an issue under consideration or an issue that has been placed in suspense at the time the form is filed.
Consent of Director: If the taxpayer is under examination and not in one of the two windows described above, he/she may request the examiner's permission to submit a Form 3115. The team/group manager, as delegated by the Area Director/Director of Field Operations, will normally consent to the filing of the application unless the method of accounting to be changed would ordinarily be included as an item of adjustment in the year(s) for which the taxpayer is under examination.
In additional to these circumstances, a taxpayer under examination may file a Form 3115 without the benefit of audit protection for prior years (including the years under examination) if the method of accounting to be changed is:
Described in the APPENDIX to Rev. Proc. 2002-9, and that description provides that the change is not subject to the audit protection provisions of section 7 of that procedures, or
An "issue pending" for any taxable year under examination. For this purpose, an issue is pending for any taxable year under examination if the Service has given the taxpayer written notification indicating an adjustment is being made or will be proposed with respect to the taxpayer's method of accounting.
Both Rev. Proc. 97-27 and Rev. Proc. 2002-9 were modified by Rev. Proc. 2002-19 to provide for a one-year spread of taxpayer favorable (negative) adjustments under IRC section 481. Rev. Proc. 2002-19 should be reviewed for other specific adjustment requirements.
Involuntary changes are covered by Rev. Proc. 2002-18, which provides guidance to examiners initiating accounting method changes. Section 2.03 of the procedures states that the "taxpayer does not have a right to a retroactive change, regardless of whether the change is from a permissible or impermissible method." Accordingly, the examiner is not obligated to consent to a retroactive change in accounting method requested by the taxpayer either by a formal or informal claim. However, if the examiner initiates a change in accounting method issue that, upon development, results in a taxpayer favorable result, the examiner should follow through using the Service initiated change procedures.
The examiner has the authority to change a taxpayer's method of accounting when no method has been used regularly, or the method used does not clearly reflect income. The examiner also has the authority to select a proper method, and the selection may only be challenged by showing there was an abuse of discretion. Wilkinson-Beane, Inc. v. Commissioner, T.C. Memo 1969-79.
Examples of method change issues that may be raised during an examination include:
Changing from cash to accrual method as required by IRC section 448.
Improper depreciation methods under IRC section 167 and IRC section 168.
Expensing items required to be capitalized under IRC section 263 or IRC section 263A.
Changing the timing of accrual under IRC section 451 or IRC section 461.
When the examiner initiates accounting method changes:
The entire IRC section 481(a) adjustment ordinarily is taken into account in the earliest year of examination,
There is no four-year spread, and
Interest and penalties may be assessed.
See also sections 2.10 of Rev. Proc. 97-27 and Rev. Proc. 2002-9 for Changes Made as Part of an Examination.
The IRC section 481(a) adjustment prevents the duplication or omission of income and expenses. It is computed as of the beginning of the year of change (the earliest year under examination). The adjustment is the amount of income or expense that would be duplicated or omitted as the result of a change in the method of accounting.
IRC section 481(b)(1) provides a limitation on the tax for the taxable year of change that is attributable to the adjustments required under IRC section 481(a) if the entire amount of the IRC section 481(a) adjustment is taken into account in the year of change. If such adjustment increases the taxpayer's taxable income for the year of the change by more than $3,000, then the tax for such year this is attributable to the adjustment shall not exceed the lesser of:
The tax attributable to taking such adjustment into account in computing taxable income for the taxable year of the change under IRC section 481(a) and Treas. Reg. 1.481-1, or
The aggregate of the increases in tax that would result if the adjustment was included ratably in the taxable year of the change and the two preceding taxable years.
While IRC section 481(b) may limit the tax, it does not change the year in which the tax is due. This computation is mandatory.
IRC section 481(b)(2) provides a second alternative limitation on the tax for the taxable year of change. If the taxpayer establishes from his books and records what his taxable income would have been under the new method of accounting for one or more consecutive taxable years immediately preceding the taxable year of the change, then the tax attributable to the IRC section 481(a) adjustment will not exceed the smallest of the following amounts:
The tax attributable to taking the adjustments into account in computing taxable income for the taxable year of the change under IRC section 481(a) and Treas. Reg. 1.481-1;
The tax attributable to such adjustments computed under the 3-year allocation provided in IRC section 481(b)(1), if applicable, or
The net increase in the taxes that would result from allocating that portion of the adjustments to the one or more consecutive preceding taxable years under the new method of accounting and from allocating the balance thereof to the taxable year of the change.
Steps for computing the tax:
Compute the increase in tax for the year of the change that is attributable to the adjustments required under IRC section 481(a). Calculate this increase by taking the difference in tax that would be due in the year of change with the IRC section 481(a) adjustment and the tax computed for such without the IRC section 481(a) adjustment.
Compute the tax attributable to the IRC section 481(a) adjustments for the taxable year of the change and the two preceding taxable years as if an amount equal to one-third of the net amount of such adjustment had been received or accrued in each of such taxable years. Calculate this increase by taking the excess of the tax for such year computed with the allocation of one-third of the net adjustment to such taxable year over the tax computed without the allocation of any part of the adjustment to such year.
If the taxpayer satisfies the conditions set forth in IRC section 481(b)(2), compute the tax attributable to the IRC section 481(a) adjustment for the taxable year of change and the consecutive taxable year or years immediately preceding the taxable year of the change for which the taxpayer can establish his taxable income under the new method of accounting. Calculate this increase by taking the excess of the tax for such year computed with the allocation of the net adjustment to such taxable year over the tax computed without the allocation of any part of the adjustment to such year.
For the purpose of computing the increase in taxes, net operating loss under IRC section 172 or capital loss carryback or carryover under IRC section 1212 should be considered. This would include the net increase or decrease in tax attributable to any taxable year preceding the year of change to which no adjustment is allocated under IRC section 481(b)(1) or (2), but which is affected by a net operating loss or by a capital loss carryback or carryover determined with reference to taxable years to which the adjustments under IRC section 481(b)(1) or (2) are allocated.
In the case of a change in method of accounting by an partnership/S Corporation, the adjustments required by IRC section 481(a) shall be made on the partnership/S Corporation's return. However, the limitations on tax under IRC section 481(b) shall apply to the individual partners/shareholders. IRC section 481(b) applies to a partners/shareholder whose taxable income is increased by more than $3,000 as a result of such adjustments to the flow-through entity's ordinary income. See IRM 220.127.116.11.4 and IRM Exhibit 4.10.8-1 for report writing procedures.
Assume that 2001 is the earliest year under exam. This would be the year of change.
Account 1/1/2001 12/31/2001 Account Receivable $200,000 $250,000 Raw Materials 25,000 20,000 Work in Process 10,000 15,000 Finished Goods 15,000 10,000 Account Payable (50,000) (45,000) Total $200,000 $250,000 -
The IRC section 481(a) adjustment is $200,000 and the current year adjustment is $50,000. This is the difference between the balances at the beginning and the end of the year. It reflects an increase in income that would be reported under the accrual method of accounting.
In the preceding example, the IRC section 481(b) tax limitation is applicable because the IRC section 481(a) adjustment is over $3,000. For the IRC section 481(b)(1) computation, the adjustment should be spread evenly between the current year (2001) and the two prior tax years (2000 and 1999).
If the taxable income of two prior years is in the same tax bracket as the year of adjustment, including the total adjustment, there would be no benefit from applying the IRC section 481(b) limitation. Likewise, benefits could be limited if the taxpayer has a NOL carryback. The two prior year returns are only used for computation purposes. No tax is assessed on these tax years. Any difference in tax from completing this calculation will be shown as a credit in the tax due on the current year's examination.
IRC section 481(b) Computation: The IRC 481(a) adjustment is $200,000 and the current year adjustment is $50,000. The first computation is to calculate the tax for 2001:
IRC § 481(b) computation: 2001 1999 2000 2001 IRC 481(a) $200,000 $66,667 $66,667 $66,667 Add'l Tax $45,000 $6,667 $10,000 $11,667 \/ | / IRC 481(b) Credit ($16,666) Tax Due $28,334 $28,334 -
The total tax per IRC section 481(b) is $28,334, which is considerable less than the tax calculated on the entire IRC section 481(a) adjustment in 2001, the year of change ($45,000). The taxpayer will be allowed a credit of $16,666 against the IRC section 481(a) adjustment in 2001.
The taxpayer will still owe tax on the current year adjustment of $50,000. The current year adjustment is not considered in the IRC section 481(b) computations. Also, SE tax is not considered in the section 481(b) computation.
Remember the taxpayer's method of accounting must clearly reflect income. Second, if inventories are a material income-producing factor, the taxpayer must account for the inventories and the accrual method of accounting must be used.
It is important to note that any accounting method adjustment must conform to the applicable Code sections, such as 263A, 446, 448, 451, 460, 471, and 481(a). The case file should fully document consideration of all applicable code sections. Examples include:
Document the determination of the beginning and ending inventory balances for every year under examination.
Consider if the inventory includes all costs as outlined in IRC section 471 and Treas. Reg. 1.471-1.
Consider if the inventory valuation method is an authorized method.
If IRC section 263A applies, the inventory will need to be restated for the allocated costs.
Carefully review the accounts receivable and payable balances to include all appropriate amounts under accrual accounting method.
Consider the allocation of indirect costs under Treas. Reg. 1.451-3 for taxpayers using the completed contract method of accounting.
Consider if the taxpayer meets any of the exceptions for IRC section 460, accounting for long-term contracts.
Maintain consistency between the beginning and ending balances when more than one taxable year is affected by the change in method of accounting.
Before proposing a change in the taxpayer's method of accounting, examiners should consider the exceptions provided by Rev. Proc. 2001-10 and Rev. Proc. 2002-28.
For all taxpayers with gross receipts of less than $1 million, the exceptions from mandatory use of the accrual method under Rev. Proc. 2001-10 may be applicable.
For eligible taxpayers, Rev. Proc. 2002-28 allows small businesses with average annual gross receipts of $10 million or less to use the cash receipts and disbursements method of accounting.
Qualifying small business taxpayers that are permitted to use the cash method for an eligible trade or business and that do not want to account for inventories under IRC section 471 must treat all inventoriable items in such trade or business in the same manner as materials and supplies that are not incidental under Treas. Reg. 1.162-3. An inventoriable item is any item either purchased for resale to customers or used as a raw material in producing finished goods.
Examiners should review Change in Accounting Method information on the LMSB and/or the Digital Daily websites for current developments.
See Exhibit 4.10.13-6 for sample court cases for reference.
Real estate developers are allowed to use an alternative cost method of accounting for common improvements under Rev. Proc. 92-29, 1992-1 C.B. 745. Please refer to statute extension Forms 921, 921-A, 921-I, and 921-P and IRM 25.6.22 for additional guidance. A developer that fails to substantially comply with the provisions of this revenue procedure will not be permitted to use the alternative cost method, and therefore, may not include the common improvement costs that have not been incurred under IRC section 461(h) in the basis of properties for purposes of determining gain or loss from such properties.
A developer may allocate estimated costs of common improvements to the basis of lots sold despite the limitations imposed by section 461(h). Developers who wish to use the "10-year window " under Rev. Proc. 92-29 may receive an automatic consent by filing a timely and correct request with the Service, in particular, to the Director, Field Examination Policy, National Programs Exam, Houston, Texas. If the 10-year window will not be used, the developer must request a Private Letter Ruling to obtain permission.
Common improvements vary depending on the type of development. Examples of common improvements include streets, sidewalks, sewer lines, playgrounds, clubhouses, tennis court, and swimming pools. Common improvements must meet the following requirements:
Be real property or real property improvements that benefit two or more properties separately held for sale.
The developer must be contractually obligated or required by law to provide the improvement(s). For example, an agreement to provide improvements in exchange for a building permit is a common improvement (Herzog Bldg. Corp. v. Comr., 44 T.C. 694 (1965)), a statement in a buyer's Housing and Urban Development report that the developer will provide improvements does not qualify as a contractual obligation (Rev. Rul. 76-247, 1976-1 C.B. 217), and an oral promise to a buyer to provide improvements is not sufficient (Bryce's Mountain Resort, Inc. v. Comr., 50 T.C.M. 164 (1985)).
The improvement(s) must not be depreciable by the developer.
For any taxable year, the estimated cost of common improvements is equal to the amount of common improvement costs incurred under IRC section 461(h) plus the amount of common improvement costs the developer reasonably anticipates it will incur during the ten succeeding taxable years.
A developer may include in the basis of properties sold, their allocable share of the estimated cost of common improvements without regard to whether the costs are incurred under IRC section 461(h). There is an important limitation, however. As of the end of any taxable year, the total amount of common improvement costs included in the basis of the properties sold may not exceed the amount of common improvement costs that have been incurred under section 461(h).
Taxpayers must comply with certain requirements on a project by project basis in order to use the Alternative Cost Method:
File a request with the Service, in particular, to the Director, Field Examination Policy, National Programs Exam, Houston, Texas, (and attach a copy to the return) on or before the due date of the return for the taxable year in which the first lot is sold. The request must include a schedule of common improvements, costs, and estimated completion date.
Sign a restrict consent extending the statute of limitations on assessment with respect to the use of the alternative cost method for each year the alternative cost method is used.
Consult with Area Counsel if the entity is a TEFRA partnership.
File an annual statement for each project with the Service, in particular, to the Director, Field Examination Policy, National Programs Exam, Houston, Texas, (and attach a copy to the return) describing the project and updating the estimated costs of common improvements, how the costs were allocated, the number of lots sold, the costs incurred under IRC 461(h), and the costs included in the basis of lots sold.
Examiners examining developers who elect the alternative cost method should:
Review Rev. Proc. 92-29,
Secure information regarding any required filings by the taxpayer from the Rev. Proc. 92-29 Coordinator in Technical Services,
Ensure the taxpayer has made the proper computations, and
Verify that the taxpayer did not include in the basis of lots sold the costs of improvements that were never built or that do not meet the requirements.
Self-rental income is income from property leased by an individual taxpayer to a business where he works. Self-rentals are common business practice, primarily used to legitimately limit the taxpayer's liability.
While rental income is generally passive income, which can offset unrelated passive losses, certain types of rental income are recharacterized as nonpassive, the most common being self-rental income. If a taxpayer leases property to a business where he works, net rental income is treated as nonpassive under Treas. Reg. 1.469-2(f)(6). Stated differently, if a taxpayer materially participates in a business and that activity leases his real or personal property, income from the leasing activity is nonpassive. While the income is reportable on Schedule E, it should not be entered on the individual taxpayer's Form 8582, Passive Loss Limitations, where it will trigger otherwise nondeductible passive losses.
There is an exception to the recharacterization of self-rental income. Treas. Reg. 1.469-11(c)(ii) permits the rental income to be used as passive income if there is a written binding lease entered into before February 19, 1988. As a practical matter, the Service seldom sees leases signed prior to 1988, which bind current years. Thus, self-rental income is generally nonpassive and cannot be entered on Form 8582. However, the question often arises whether a new lease, signed after 1988 under a renewable option provision in a pre-1988 contract qualifies for the written biding lease exception.
A new lease as a result of an option to renew provision does not meet the exception in Treas. Reg. 1.469-11(c)(ii). The clear language of 1.469-2(f)(6) and 1.469-11(c)(ii) provides that the grandfather exception, which permits self-rented income to be treated as passive, applies only to rental obligations in existence before 02/19/1988. State law generally draws a distinction between options and the underlying enforceable obligation. While an option may exist, generally there is no underlying enforceable legal obligation until the option is exercised, which clearly is post-1988 for most renewable options in current years. Thus, rental income based on a renewable option is nonpassive. It cannot be entered on Form 8582 as passive income, which triggers deductibility of unrelated passive losses.
See Krukowski, 114 T.C. 25 (05/22/2000) for an example of a case in which the Court held that the renewable option did not constitute a pre-1988 binding contract.
A personal holding company (PHC) is a closely-held company whose income is derived from passive income and/or from payments received for personal services performed by a shareholder.
The PHC penalty tax is self-assessed and calculated on Part 1 of the Schedule PH, Form 1120.
The PHC is purely computational; there is no intent provision, unlike the Accumulated Earnings Tax, IRC section 531. See IRM 126.96.36.199.
IRC section 542(a) provides two objective tests for determining PHC status on a year by year basis:
adjusted ordinary gross income test and
a stock ownership test.
Under the provisions of IRC section 541, a tax of 15% is imposed on a PHC's undistributed income for tax years beginning after 12/31/2002. See Exhibit 4.10.13-7.
The personal holding company provisions were enacted to combat the use of "incorporated pocketbooks" by wealthy taxpayers as a means of sheltering investment income from taxation at the higher individual rates and enjoying the benefits of the graduated rate structure at both levels. The original intent of these provisions was to discourage companies from holding excessive accumulations of earnings by forcing distributions to be paid.
Personal holding companies are not subject to the accumulated earnings tax of IRC section 531.
The examiner should prepare an initial report recommending the assertion of the PHC tax, where appropriate. The report should reflect separate computations of PHC income, PHC tax liability, and income tax liability. The examiner should follow the procedures for "Excepted Agreed" cases, including preparation of Forms 4549-A, 4665, and 886-A. If the case is unagreed, this report becomes the final report and normal procedures for unagreed cases apply.
See IRM 188.8.131.52, Deficiency Dividends for detailed report writing instructions and sample forms in Exhibits 22.214.171.124-7.
If neither jeopardy assessment nor fraud is involved, and the taxpayer agrees to all adjustments including the liability for PHC tax in the amount proposed, the taxpayer may be relieved of the liability for the PHC tax by payment of "deficiency dividends" . If the corporation makes the payment of this deficiency dividend within 90 days following formal notification, the corporation is relieved of having to pay the PHC tax.
The examiner must notify the taxpayer regarding the deficiency dividend procedures of IRC section 547. The proper sequence is:
Securing a signed agreement from the taxpayer, where the taxpayer agrees to the amount of the tax liability, signing Form 870 to allow a proper assessment,
Payment of the deficiency dividend, and
The filing of a claim by the taxpayer claiming credit for a deficiency dividend deduction.
A determination of the taxpayer's liability for PHC tax must be made in the manner prescribed by IRC section 547(c). Two means of making a qualifying determination are:
Form 2198, Determination of Liability for Personal Holding Company Tax, an informal agreement as provided in the regulations.
Form 866, Agreement as to Final Determination of Tax Liability, a final determination under IRC section 7121.
The taxpayer's agreement to the additional tax shown on the initial report is indicated by signing Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. The Form 870 must include the following statements as outlined in IRM 188.8.131.52:
The waiver of restrictions on assessment and collection contained herein is subject to the approval of Form 2198, Determination of Liability For Personal Holding Company Tax, relating the taxpayer's liability for Income and Personal Holding Company Tax.
This waiver will not take effect until after the expiration of the 120-day period beginning with the effective date of Form 2198..
If the taxpayer complies with IRC section 547, relating to the payment of deficiency dividends, by paying the deficiency dividends within 90 days after the effective date of Form 2198 and filing a proper claim on Form 976 subsequent to the payment of the deficiency dividends and within 120 days after the effective date of Form 2198, then the amount of the deficiency stated on this waiver shall be reduced by the amount necessary to give effect to the timely paid deficiency dividends and the remainder, if any, will be assessed.
If, at the expiration of the 120-day period beginning with the effective date of the Form 2198, a Form 976 has not been filed or timely deficiency dividend payments have not been made, the entire amount of the deficiency shown in this waiver will be assessed.
The four conditions noted above should be placed on an attachment to Form 870 with a heading that reads: "This statement is attached to and made a part of Form 870 in the case of (Taxpayer's Name)."
After the Form 870 is signed, the examiner should prepare Form 2198, secure the taxpayer's signature on the original and one copy. The original should be initialed by the examiner and group manager to indicate their acceptance of the form. The case should then be submitted to Technical Services (TS). See IRM 188.8.131.52.2, Reviewer Responsibilities.
The reviewer will sign the Form 2198 provided sufficient time remains on the statute in addition to the 120-day period for filing a Form 976.
The original of the approved Form 2198 is attached to the return for the last taxable year covered by the agreement. The duplicate Form 2198, Letter 1152 (DO), and three Forms 976 are mailed to the taxpayer by registered or certified mail, as appropriate.
Treas. Reg. 1.547-2(b)(1)(v) provides that the date of determination is the date the Form is mailed to the taxpayer, with one exception. If the dividends are paid after the agreement is approved but before it is mailed, the effective date is the date the agreement was signed by the Service.
Form 866 is not routinely used in lieu of Form 2198 unless advised by Counsel for a unique situation. If Form 866 is utilized as the agreement document, the examiner should prepare the agreement and secure the taxpayer's signature. The Form 866 is then forwarded to Technical Services for processing as provided in the Closing Agreement manual section, IRM 22.214.171.124.1.
After the closing agreement is approved, a copy is forwarded to the taxpayer along with three Forms 976 by the designated review. Form 3198, Special Handling Notice, is attached to the case file identifying it as a closing agreement case.
The case is suspended by Technical Services until the earlier of:
Receipt of Form 976 from the taxpayer, or
120 days from the "date of determination" .
If the taxpayer files a timely Form 976, the claim is date stamped and the case is returned to the examiner to verify the accuracy of the information reflected on the claim.
If Form 976 is filed after the 120-day period, the case will be returned to the examiner for disallowance of the claim.
The disallowance of a Form 976 claim is effected by the issuance of a certified notice of disallowance of claim, unless the taxpayer has executed Form 2297 (Waiver of Statutory Notification of Claim Disallowance). A letter of explanation may also accompany the notices. The tax is then assessed per the full amount reflected in the initial report.
If the Form 976 claim is determined to be allowable in full or in part, the examiner should prepare:
A report to allow a credit for the deficiency dividends. This report will be the same as the initial report except that credits on Line 8 of Form 4549-A will shown "PHC Deficiency Dividend Deduction" and the applicable amount, and the "Other Information" section will state whether Form 976 has been allowed in full or in part (See IRM Exhibit 4.10.8-6),
Form 3189, Deficiency Dividend Case Transmittal, see IRM Exhibit 4.10.8-7,
Form 3198 should be flagged to identify the case as a PHC case. The restricted interest box should also be checked and "IRC section 547" annotated.
Neither Form 2198 nor Form 866 should be entered into unless sufficient time remains to allow assessment after the 120-day period and before expiration of the statutory period. However, a consent extending the period of limitation on assessment may be executed in the normal manner.
IRC section 6501(f) provides a six-year period of assessment instead of the normal three-year period if a corporation failed to file Schedule PH or a schedule setting forth specified information regarding its income and shareholders.
Deficiency dividends are deemed to be paid from earnings and profits of the year under examination rather than those of the current period. However, the dividends are taxable to the shareholders in the year in which paid.
Although the taxpayer is relieved of the liability for PHC tax by the payment of deficiency dividends, the liability for restricted interest and any applicable penalties remains.
The Section 465 at-risk rules only apply to corporation that meet the PHC stock ownership test (without regard to the income test).
Alternative minimum tax adjustment for circulation expenses applies only to PHCs (IRC section 56(b)(2)(C)).
Following is the formula used by the Tax Court to compute unneeded earnings in the Bardahl Manufacturing Corporation case.
1. Determine the amount of current and accumulated earnings.
2. Require justification of current and accumulated earnings only to the extent represented by the excess of current assets over current liabilities including Federal income taxes due.
3. Determine (a) the operating expenses for the full year, including the cost of goods but excluding depreciation and (b) the adjusted operating cycle in terms of percent of a year. Then, multiply (a) by (b) to get the amount of net liquid assets necessary to meet ordinary operating expenses. The adjusted operating cycle is the time required to convert cash into raw materials, raw materials to Inventory, Inventory into sales and accounts receivable and the period required to collect the outstanding accounts. In the Bardahl case the computation was based on the operating expenses of the succeeding year.
4. Ascertain the amount needed to meet specific and definite plans for expansion, extraordinary expenses, etc.
5. Compare the funds required or computed in (3) plus (4) with the funds available as computed in (2). If funds available exceed funds required the excess is unreasonable accumulation.
6. Check to see whether corporate funds were used for nonliquid investments which have no relationship to the business. Such investments are considered as additional working capital. If this amount when added to the funds available as computed in (2) exceeds the funds required as computed is (3) plus (4) the excess is an unreasonable accumulation.
Bardahl | Apollo | |
1. Cost of Materials | $800,000.00 | $800,000.00 |
2. Average beginning-ending inventory | 80,000.00 | 80,000.00 |
3. Material turnover per year | 10.00% | 10 times |
4. Months/days per material inventory turnover (12 X 10%) | 1.2 months | 36.5 days |
5. Average daily cost of material ($80,000/36.5) | No step | 2,191.78 |
6. Days cost of material tied up in inventory (36.5 x $2,191.78) | No step | 80,000.00 |
7. Sales | $2,400,000.00 | $2,400,000.00 |
8. One day sales ($2,400,000/365) | No step | $6,575.34 |
9. Trade accounts receivable at end of year | $600,000.00 | $600,000.00 |
10. Percentage of year sales uncollected | 25.00% | No step |
11. Average number of months sales uncollected | 3 months | No step |
12. Days sales tied up in accounts receivable ($600,000/$6,575.34) | No step | 91.25 days |
13. Cost of Sales | $1,000,000.00 | $1,000,000.00 |
14. Expenses (including estimated Federal Income Tax Payments) | 500,000.00 | 500,000.00 |
Total of 13 and 14 | $1,500,000.00 | $1,500,000.00 |
15. Less depreciation | 100,000.00 | 100,000.00 |
16. Annual operating expense | $1,400,000.00 | $1,400,000.00 |
17. Operating cycle percentage (Step 3 plus 10) | 35.00% | No step |
18. Ordinary operating expense (35% x $1,400,000) | $490,000.00 | No step |
19. Daily operating cost ($1,400,000/365) | No step | $3,835.62 |
20. Operating cost tied up in accounts receivable (91.25 x $3,835.62) | No step | $350,000.00 |
21. Material cost (line 6) | $80,000.00 | |
22. Operating cost during collection period | $350,000.00 | |
23. Working capital needs | $490,000.00 | $430,000.00 |
Treas. Reg. 1.183-2(b) lists certain relevant factors normally to be taken into account in making a determination regarding the purpose of an activity, it being intended that such factors are not necessarily all-inclusive and that no one factor shall be determination:
Are books and records accurate and complete? If not, why not?
Are books comparable to types of books kept by others in same activity?
What advertising and promotion activity did the taxpayer perform to gain clients/buyers (describe in detail)?
What other relationship did the taxpayer have with his clients/buyers (trace each transaction in gross receipts to the individual who paid the taxpayer the money)? with his suppliers? with his employees?
Has taxpayer abandoned the unprofitable methods? What method replaced them?
Does taxpayer have a license to operate?
Is taxpayer insured for business?
Is the activity conducted in an area zoned for business?
Does the city, country or state regulate the activity? Has taxpayer been investigated by them? Does he file sales tax reports with the state?
Was any element of the activity admittedly personal?
Is the activity still being conducted? With what result? What is the plan for future years?
How is the taxpayer's telephone number listed in the white/yellow pages?
Can taxpayer provide affidavits from witnesses?
Pre-activity research by taxpayer.
History of all similar activities by taxpayer and related family members.
Education background.
What did taxpayer tell preparer when first introducing the activity during the preparation of the return?
What is preparer's (and other advisor's) background?
What related organizations does taxpayer belong to? When did he join?
What related publications does taxpayer subscribe to? How long?
How many hours per day? What task?
What is the routine?
Which person does what part of the activity?
Analyze each asset, whether capital, depreciable, intangible or part of inventory. How much is each asset worth today?
Has the taxpayer ever offered to sell any of the assets?
Has anyone every offered to buy any of the assets?
See Treas. Reg. 1.183-1(d)(1) regarding appreciation of farmland.
Look at copies of taxpayer's returns (back 10-15 years if possible).
Did taxpayer ever have a hobby not shown on tax returns but of similar nature? Get details.
Chart Gross Receipts since beginning of activity (including any unclaimed amounts). Look for pattern.
Chart any expenses. Look for pattern.
Chart net profits/losses.
If the current examination year is the first year of activity, wait until the next year is filed before closing the first year (needs group manager approval).
For all years activity claimed, chart amount of profit/loss, other taxable income, other non-taxable income.
Chart the tax savings for all years (including credits claimed).
By the taxpayer.
By the members of the taxpayer's family.
By the taxpayer's friends.
Examples of court cases involving change in method of accounting:
Method Change v. Correct of an Error
Standard Oil Company (Indiana) v. Commissioner, 77 T.C. 349 (1981)
Gimbel Brothers, Inc., 1976-1 U.S.T.C. 9404 (1976), not followed per Rev. Rul. 90-38
Korn Industries, Inc. 532 F.2d 1352 (CT. CL. 1976), not followed per Rev. Rul. 77-134
Diebold, Inc. v. U.S., 90-1 U.S.T.C. 30,003 (Fed. Cir. 1989), cert. denied 498 U.S. 823 (1990)
Pacific Enterprises, Inc., 101 T.C. 1 (1993)
Northern States Power Co. v. Commissioner, 98-2 U.S.T.C. 50,671 (CA-8)
Amended Return Used to Make a Method Change
Knight-Ridder Newspaper, Inc., 743 F.2d 781 (11th Cir. 1984). Court ruled in favor of IRS and ruled it was a method change.
Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500 (1989)
Silver Queen Motel v. Commissioner, 55 T.C. 1101 (1971), acq. 1972-2 C.B. 3
Convergent Technologies, Inc., 70 T.C.M. 87 (1995)
Change in Facts or Law
Handy Andy T.V. and Appliances, Inc., 47 T.C.M. 478 (1983)
Decision, Inc. v. Commissioner, 47 T.C. 58 (1966), acq. 1967-2 C.B.2
Hallmark Cards, Inc. v. Commissioner, 90 T.C. 26 (1988)
Inventory/Accrual Method of Accounting
Thompson Electric, Inc., T.C. Memo 1995-292; has an excellent factual development of the issue involving the taxpayer's method of accounting for sales and materials.
Tebarco Mechanical Corporation v. Commissioner, T.C. Memo 1997-311; provides guidance with regard to the passage of title to goods.
Asphalt Products Co. v. Commissioner, 795 F.2d 843; discusses the substantial identity of results test which would need to be addressed if a taxpayer raises that issue as a defense to an accounting method change.
Galedridge Construction Co. v. Commissioner, T.C. Memo 1997-240.
Osteopathic Medical Oncology & Hematology P.C. v Commissioner, 113 T.C. 376 (1999).
Vandras Brothers Construction Co., Inc. v. Commissioner, T.C. Memo 2000-233.
Edward G. Smith, et. Us. v. Commissioner, T.C. Memo 2000-353.
Standards for Determining Abuse of Discretion
Thor Power Tool v. Commissioner, 79-1 U.S.T.C. 9139 (S.Ct.)
Mountain State Ford Truck Sales, Inc. v. Commissioner, 112 T.C. 58 (1999)
Prudential Overall Supply v. Commissioner, T.C. Memo 2002-103.
Sample computation of PHC for 2002 based on the following sources
of income:
Mineral, Oil & Gas Royalties…$45,591.00


text:
Montecristo White Toro Reviews [view details]
Give us YOUR review!Showing 1 through 10 of 12 reviews
"Pleasant Smoke"
Nice V cut and purge and drew effortlessly after lighting with an even burn. Nice silver ash with black fleck; however the ash started to expand with small slits appearing in the wrapper after only 20% into the cigar. The ash was not tight and expanded like a flower before finally dropping off before it reached 25% into the cigar. Nice silver smoke and a good plume, but not happy with the wrapper! The draw was excellent and the flavour was pleasant and will definitely improve after 90 days plus in the humidor.
Panther in Melbourne Australia April 24, 2014
I bought the 5 pack Montecristo toro sampler just to try them out and I didn t expect much. The Montecristo Montecristo brown band white fleur de lis was the best I had up till this point including the Monte , but I saved the White and Platinum for last.
After over two months in the humidor I finally fired up my White tonight and was blown away. From the first light it was awesome and stayed that way until the end.
Like all Montecristo it has a perfect draw, smoke and ash - textbook in fact. However, this one has a great slightly sweet chocolatey flavor that is super smooth. The toro was a long smoke too - I dragged it out to nearly 1:45 mainly because I was savoring it and smoking it slow so it wouldn t overheat. I enjoyed the flavor so much I went extra slow.
I had a Arturo Fuente Hemingway Classic after because I m a Hemingway fan, but I was so disappointed with the Hemingway after smoking this that I m going to look for a way to trade my Hemingway s for the Montecristo White!
This beats the Monte, Epic, Classic aka Yellow Box nasty , and even the Montecristo Original.
This is a full flavor cigar but a mild cigar from a nicotine kick standpoint too.
Booyeah in Seattle February 18, 2014
"my new number 1"
Love this cigar. It's my new number one cigar now. The price is just outrageous for a box. I'm rating this 100 all the way
short in California January 16, 2014
"Great Mild-Medium Cigar"
I ordered a tin of the White Montecristos, because they were on sale. I'm very very glad I did. They're not as pungent or strong, in my opinion, as the Romeo y Julieta Reserva Reals I keep in my humidor, but they don't need to be. I actually enjoy them more as a weekly smoke, because they're not as strong. Everything about the cigar is superb. The only gripe I have is the particular tin of cigars I recieved were somewhat dry and had fairly large veins. They are very attractive, the draw is great as long as you make sure it is lit well, the consistancy is very good, and the burn is great. Regarding taste it is excellent. It is very smooth, creamy, and slightly sweet. These are definately going to be my weekly cigar that's for sure, and have a permanent place in my humidor along with Romeo y Julieta and Playboy
E Motley in December 5, 2011
"Great smoke"
Just got the box of 27. Excellent price compared to stores. Nice bonus, Montecristo packs a Humi-stik in each box. I'll be using it when taking a few of these Toros with me on vacation.
Eddie Y in New York June 13, 2011
"CREAM of THE CROP"
This cigar is bar none one of the best cigars out there, lately a lot of cigars out there were good but not anymore, but this cigars quality continues to be a perfect 10 just try them once and you will be glad you read this review.
Steve in New York April 25, 2009
"A superbly smooth, complex cigar"
The Montecristo White Label is worth every penny. A smooth draw, consistent burn, and creamy, complex flavors abound. While it is on the pricey side, and not an everyday smoke, it is a great cigar to pull out on occasion, or for special occasions.
Michael in Washington July 22, 2008
"A muust try"
The construction was flawless though the wrapper was full of stems, the burn was even reguardless, perfect draw as well..wonderful flavor that never changed, this cigar has earned its place in my humidor, next to the cuesta-rey centro finos, fuente hemingway classics, and onyx reserve mini belicosos...
TD in casper wyoming January 6, 2008
"Superb cigar"
In over 40 years of smoking cigars, I must say
that this is by far and away the best, in every
respect. (Why do they ask how the cigar "looks"
in ratings? Who cares, except maybe a girl?)
It has totally spoiled me for any other brand.
L. K. O'Drudy in August 30, 2007
"Great Cigar, It should be For the Cost"
I have been smoking the Monte White's for around two years, and they are one of the tops, in smoothness, and consistancy. They should be, for the price. I have had a few cubans, that were better, and I have to say the Fuente special reserve Hemingway, beats it, but it is even more expensive.
Brian Kennedy in OKC OK July 28, 2005

subset: commoncrawl


text:
Never one for moderation, in the months since Mimi redeemed her white linen furniture from E-Z Pawn, ditched losers from her pre-LeBron existence, and screwed around with a few very creepy and bizarre characters. We'll call it Mimi's Great Rebound — even if it existed only in her head.
Step one of the Great Rebound: spending LeBron's money before his moving trucks arrived.
To be completely honest, Mimi never did lead the life of a pauper. In the throes of the recession in 2008 and 2009, when her net assets were a $2 bill and three lime Skittles, our girl signed up for every 29.99 percent interest Capital One card in her mailbox and made Nordstrom her bitch on a twice-weekly basis.
But in relative terms, the last two years were austere. So with the combination of LeBron's arrival and the official announcement of the end of the recession, she dug up neglected issues of the Robb Report and parsed them with a red Sharpie, circling all the baubles that caught her eye. She's been tossing around cash ever since like a freshly jail-sprung Lil Wayne at a strip club.
For years, empty condos have lined Biscayne Bay like artifacts of some era that never actually occurred. But this summer, something crazy happened: A dude moved in. His name is Russell Wright, and he is — of course — a black country-music mogul who engineered devices that track Mexicans trying to sneak across the border. His claim to New Times that he bought a $4.2 million penthouse atop the Marquis skyscraper to be closer to the revamped Miami Heat sparked a frenzy of coverage in other newspapers. Before we knew it, it was like 1999 all over again. A Versace-hosted fashion show at the Icon Brickell, where chocolate-dipped strawberries were served and then regurgitated in the bathroom three minutes later, was heralded as the "return of glamour to real estate."
Speaking of vomit, a few thousand gallons flowed when South Floridians discovered Mimi's prized Fabergé egg — the Marlins' Little Havana stadium deal — is actually garishly painted ostrich dung. (The Marlins — they're a baseball team; baseball — it's like soccer but with jai-alai sticks... ah, screw it.) Yes, it was already common knowledge that our Miami-Dade politicians screwed the pooch by agreeing to a mostly taxpayer-funded stadium — total cost, including interest: $2.4 billion — for a miserly team nobody cares about. But it wasn't until sports blog Deadspin released the Marlins' secret financials, revealing the team turned eight-figure annual profits and owner Jeffrey Loria was, therefore, a giant, horrible liar, that it was understood how Marmadukian in stature the screwed pooch was. Thanks, Mayor Carlos Alvarez!
And because Mimi had a few sweaty bills stuffed in her cleavage, she decided to spend roughly $1 million ruining some teenager's life. In summer 2009, the notion that the news cycle slows to a Zydrunas Ilgauskas when it gets too hot proved true when the entire city went crazy over the appearance of dead and mutilated housecats. An 18-year-old high school student, Tyler Weinman, was charged with the deaths after an investigation that cost more than $2,000 a day and stretched for 16 months. Then, in November, prosecutors issued an official "Oops... our bad" to Weinman after determining it was most likely dogs who killed the cats. The kid's wealthy family vows to sue the county, which will undoubtedly result in a sizable settlement shipped their way. We're going to let our 12-year-old little sister sum up this sad story: WTF?
Then there was the $200 million Miami Art Museum (art — it's like Britto but with fewer butterflies; museum — it's like a consignment store where you can't buy anything) groundbreaking downtown, right next to LeBron's new workplace. Then came the $450 million Port of Miami tunnel project that looks an awful lot like a giant concrete funnel to builders' pockets. Oh, and let's not forget the Dubai-style subtropical ski slope. It was proposed for the North Miami site of the failed Biscayne Landings project, a foreclosed condo sinking into a landfill that's supposed to be protected land. It seems the town's mayor, Andre Pierre, is a fan of piling shit on shit and calling it a delicious club sandwich. The subtropical-skiing idea inevitably went belly-up, so developers are now proposing a combination hotel and old folk's home, which makes just as much sense.
Yep, Mimi swaggered into 2011 stunna-shaded and blinged out, having mortgaged LeBron's name to the hilt. She's always been the queen of keeping up appearances: Her stomach may be rumbling for a morsel of bread, but she'll don some rented diamonds and flash that winning smile when she picks up wealthy Europeans at the airport. Welcome to Art Basel! Would you like to buy a fabulous sculpture made out of ostrich crap for $87,000?
Step two: shredding her little black book of losers.
Anybody who's ever crawled back from rock bottom knows the drill: The first thing you do is cut ties with the creeps who dragged you there in the first place. You unfriend your heroin dealer on Facebook. You delete from your cell phone all those bad-news flings you call while hammered at 3 a.m. In short, you vow never again to speak to anybody you met at Churchill's.


text: When Brazilian submission ace Rousimar Palhares steps into the cage against Nate Marquardt in the main event of UFC Fight Night 22, he'll be competing in perhaps the most high-profile contest of his career. But don't for one minute believe that the Spike TV-broadcast bout is the toughest fight of Palhares' life. No, the UFC middleweight contender's biggest struggles came well before he ever set foot in the octagon - when a 10-year-old Palhares and his brothers and sisters siblings wor read news >>


text:
91% of Mobile Banking Customers Want Fraud Alerts
Monitise launched Alerting+ in March of this year. The objective was to allow financial institutions a superior product alternative to 1-way alert notifications that have been used for years. With Alerting+, banks and credit unions can engage their customers by expanding to 2-way actionable and multi-step conversational alerts that are delivered in real-time and are… Read more