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Vol. 3 No. 7: Updates & Other Tidbits

This month, “Tidbits” explores the following developments: (i) the extension of FinCEN reporting requirements by title companies involved in all-cash real estate transactions; (ii) a European Commission decision calling for Spain to recover over €30 million from seven Spanish soccer clubs that unlawfully received State Aid; (iii) other tax breaks involving Spain that are under consideration by the E.C.J. that could affect State Aid cases against U.S.-based companies; and (iv) new rules regarding the need to refresh I.T.I.N.’s issued to nonresident, non-citizen individuals.  Kenneth Lobo, Fanny Karaman, and Galia Antebi discuss these developments.

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German-Trained Lawyer Could Not Deduct U.S. Educational Expenses

Taxpayers generally may deduct all the ordinary and necessary expenses paid or incurred, during the tax year, in carrying on a trade or business.  Interesting questions arise when an individual moves to a new country of residence.  This was recently illustrated by a Court of Appeals decision involving a U.S. citizen who was German lawyer.  He returned to the U.S. and, in order to sit for the bar, was required to take additional law school classes. Elizabeth V. Zanet explores whether U.S. law school tuition was deductible.

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Alternative Basis Recovery Methods for Contingent Payment Sales

Basis recovery is important when a taxpayer sells property and recognizes gain over a period of time, or when a taxpayer acquires property – other than inventory that is used in a trade or business – and wishes to depreciate or amortize the cost of the property over its useful life.  When a selling price is contingent on future events, it is possible for income recognition – but not basis recovery – to be frontloaded, resulting in an expensive mismatch in the computation of income.  Galia Antebi explains how matching of basis recovery and income recognition may be achieved in various fact patterns.

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$3.1 Billion Scam – Hijacked E-Mail Accounts Invite Wire Transfer Fraud

In a public service announcement, the F.B.I. has publicized a new internet risk for business that goes beyond Russian hacking of political parties.  It is a sophisticated scam targeting businesses that work with foreign suppliers and that regularly perform wire transfer payments.  E-mail accounts are hacked, hijacked, and used by criminals to authorize bogus business payments.  The scam has been reported by victims in all 50 states and in 100 countries.  Fraudulent transfers have been sent to 79 countries, with the majority going to Asian banks in China and Hong Kong.  Simon H. Prisk examines how the scam works and advises caveat solventis.

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Crowdfunding: A Popular Way to Invest, but Watch Out for Taxes

Crowdfunding is an internet-based form of raising capital for businesses and other endeavors that is popular with millennials.  Millions of dollars are raised each month through crowdfunding, but it is unlikely that much thought has been given to the tax consequences for investors and the companies being funded.  The ways in which crowdfunding transactions are structured vary significantly, and as a result, the tax consequences vary.  In Information Letter 2016-0036, the I.R.S. explains its view of the tax consequences.  The tax consequences may not be benign for the company raising the funds unless certain conditions exist.  Philip R. Hirschfeld and Elizabeth V. Zanet explain the I.R.S. view.

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