Category Archives: Federal Income Taxes

Federal income tax issues including IRS tax problems, installment agreements, offers-in-compromise, ways to lower your income taxes.

Does bankruptcy discharge IRS tax debts?

Does filing bankruptcy discharge federal Tax Debts?

Does filing bankruptcy discharge federal IRS tax debts?  Yes, some federal IRS tax debts can be discharged in a personal bankruptcy. Bankruptcy Code Section 523 provides exceptions to the general discharge order entered pursuant to Section 727 (Chapter 7) or Section 1328 (Chapter 13). Section 523(a)(1) does not discharge a taxpayer from income tax debt if the taxpayer violates any of the following 6-part test:

  1. Filed a fraudulent tax return;
  2. Willfully attempted to evade the payment of taxes or the government’s collection of the tax debt;
  3. Failed to file a tax return;
  4. Filed an untimely tax return less than two (2) years before the filing bankruptcy;
  5. Government assessed the income tax less than 240 days before the bankruptcy case filing; or
  6. The tax return due date is less than three (3) years before the bankruptcy case filing.

Tax debt and tax resolutions can be complex.  Therefore, you need a tax lawyer on your side.  Chicago tax lawyer and CPA Brian J. Thompson offers tax debt relief via installment agreements and offers-in-compromise. or 773-307-0181.

Wesley Snipes’ Tax Problems

Wesley Snipes’ Tax Problems . . . More money, more problems.  Not even Blade himself could slay these tax debts.

Wesley Snipes' Tax Problems
Wesley Snipes

Wesley Snipes has federal tax liabilities of approximately $23.5 million for tax years 2001-2006, largely as a result of his failure to file income tax returns.  The court convicted the movie star of three misdemeanor counts and he served three years in prison for failure to file tax returns.  He was released in 2013.  However, his tax problems did not end there as the IRS rejected his offer in compromise:


Cryptocurrency Taxation

Cryptocurrency Taxation

Cryptocurrency taxation – How is cryptocurrency taxed?  First of all, what is cryptocurrency?

A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature.

Cryptocurrency taxation






Bitcoin, Litecoin and Ether are poplular crypto currencies.

Cryptocurrency taxation is similar to the taxation of other investment gains and losses.  If capital gains tax applies to a taxpayer’s cryptocurrency transactions, the gain or loss is calculated as the difference between the taxpayer’s basis in the cryptocurrency and the net proceeds received in the sale of the cryptocurrency.

I am a Chicago CPA and tax lawyer.  Among other things, I prepare federal income tax returns which may include capital gains and losses from sales of stocks, bonds, real estate and cryptocurrency.  To report cryptocurrency gains or losses, the taxpayer needs to provide the basis, net proceeds, acquisition date and sales date.

Tax-Related Identity Theft Down Sharply

Tax-Related Identity Theft

The IRS’ Security Summit initiatives produced steep declines in tax-related identity theft in 2017. The number of taxpayers reporting themselves as victims of identity theft dropped 40 percent in 2017. This marks the second sharp annual decline. Since 2015, the number of tax-related identity theft victims has fallen by almost two-thirds. Therefore, the IRS’ efforts protected billions of dollars of taxpayer refunds from theft.

Unclaimed Tax Refunds Total $1 Billion

Unclaimed Tax Refunds Total $1 Billion

The IRS reported Wednesday it has a total of $1 billion of unclaimed tax refunds related to unfiled 2013 income tax returns.

The IRS estimates the median tax refund is $763.  Taxpayers can claim their refunds by filing a 2013 federal income tax return by Tuesday, April 18, 2017.  That is the same day as the filing deadline for the 2016 tax year.

IRS Commissioner John Koskinen, in a statement to Tax Pro Today, said, “We’re trying to connect a million people with their share of 1 billion dollars in unclaimed refunds for the 2013 tax year.  People across the nation haven’t filed tax returns to claim these refunds, and their window of opportunity is closing soon. Students and many others may not realize they’re due a tax refund. Remember, there’s no penalty for filing a late return if you’re due a refund.”

The Internal Revenue Code gives taxpayers three years to claim refunds for income tax returns they have not yet filed. If they don’t file a return within that time, the refund expires and becomes the property of the U.S. Treasury. To claim a 2013 tax refund, taxpayers need to properly address, mail, and postmark their federal income tax return by April 18, 2017.

However, taxpayers may not receive the refund. The IRS warned it may still hold onto the 2013 federal income tax refund money if taxpayers have not yet filed their tax returns for 2014 and 2015. The IRS will also apply the tax refund to any amounts still owed to the IRS or a state tax authority.  Finally, the government may apply the tax refunds to unpaid child support or other past due federal debts, such as student loans.

Unclaimed Refunds by State

Visit Tax Pro Today to get the state-by-state breakdown of unclaimed tax refunds:

So, contact Chicago CPA and attorney Brian J. Thompson to file your unfiled tax returns and claim your income tax refund.

Home Office Deduction

Home Office Deduction

To claim the home office deduction, a taxpayer must meet 2 requirements: 1) Regular and exclusive use for business – you must use part of your home regularly and exclusively for conducting business; 2) Principal place of your business – you must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.

Both self-employed taxpayers and employees can claim the home office deduction. However, if the taxpayer is an employee, there is an additional requirement that the home office also must be for the convenience of the employer. This generally means the employer does not have a local office.

How to Report the Home Office Deduction

As an employee, you must itemize deductions on Schedule A (Form 1040) to claim a deduction for the business use of your home and any other employee business expenses. Self-employed tax filers who use part of their home in a trade or business and file Schedule C (Form 1040), report the deduction for business use of their home on line 30 of Schedule C (Form 1040).

Actual Method for Home Office Deduction

There are 2 options for calculating the dollar amount of the home office deduction.

The first option is based upon the actual percentage of your home used regularly and exclusively for business. This option requires the taxpayer to track expenses such as utilities, insurance, depreciation (or rent) for the entire house and then allocate those expenses based upon the percentage of the home used for regularly and exclusively for business purposes.

Simplified Home Office Deduction

Beginning in 2013, there is a second option. The new simplified method permits a $5 per square foot deduction for up to 300 square feet. Therefore, the maximum home office deduction is $1500 under this method. The new simplified home office deduction is electable on a year-by-year basis


IRS CP2000 Notice

IRS CP2000 Notice

Did you receive an IRS CP2000 Notice?  What is the purpose of the CP2000 Notice?  This notice means the income and/or payment information the IRS has on file (from a 1099 or W-2)  doesn’t match the information the taxpayer reported on his tax return. This could affect your tax return; it may cause an increase or decrease in your tax, or may not change it at all.

What should you do upon receipt of a CP2000 Notice?

  1. Read the notice carefully – it explains the info the IRS received and how it affects your tax return.
  2. Complete the notice response form whether you agree or disagree with the notice.
  3. If the info is wrong, contact the business or person who reported it to the IRS and ask them to correct it.  Then, provide this corrected info to the IRS.
  4. Consider whether the mistake may have affected other tax returns such as your state income tax return.
  5. Contact a CPA if you need professional help.

For further details on the IRS CP2000 Notice, visit the IRS website:  Understanding your CP2000 Notice.

Contact Chicago CPA and business lawyer Brian J. Thompson at if you need professional tax help.

Passive Activity Loss Rules

Passive Activity Loss Rules

Passive activity loss rules may limit use of rental real estate losses. Can I deduct losses related to rental real estate for federal income tax purposes?  Maybe.   Losses from rental real estate may or may not be deductible in the current taxable year.  It depends upon the application of the passive activity loss rules to the particular taxpayer’s situation.

General Passive Activity Loss Rule

Generally, the passive activity loss rules permit deduction of passive activity losses to the extent of passive activity gains.   “Passive activity” means any activity— (A) which involves the conduct of a trade or business, and (B) in which the taxpayer does not materially participate.  Material participation means involvement in the operations of the activity on a (A) regular, (B) continuous, and (C) substantial basis. Federal law provides that the term “passive activity” includes any rental activity, except as provided in Section 469(c)(7).

Material Participation Exception

Section 469(c)(7) of the Internal Revenue Code provides the material participation exception.  A taxpayer can materially participate in real estate as a real estate professional if a) more than 50 percent of the personal services performed by the taxpayer are performed in real property trades or businesses in which the taxpayer materially participates, and b) the taxpayer performs more than 750 hours of services within the real property trades or businesses in which the taxpayer materially participates.  The term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

Rental real estate activity is not a passive activity if a taxpayer meets both of the foregoing tests of material participation.  Therefore, deductions for losses related to the rental real estate activity are not subject to the general rule disallowing losses in excess of income from passive activities.

Active Participation Exception

Finally, Section 469(i) of the Internal Revenue Code provides an additional exception to the general rule.  It allows deduction of up to $25,000 of rental real estate losses per tax year related to rental real estate activities if the taxpayer “actively participated” during such taxable year.  Active participation requires less participation than “material participation.”  Active participation may be shown by participating in management decisions such as approving new tenants, deciding on rental terms, approving capital or repair decisions, or similar decisions.

However, the $25,000 passive activity loss deduction phases out by 50 cents per dollar as Adjusted Gross Income exceeds $100,000.  The loss deduction allowance phases out completely at AGI of $150,000.  Carry forward disallowed passive activity losses to the next taxable year.

Report passive activity losses limitations on Form 8582.  Finally, click here for the full text of the section 469 rules.    Retain a Chicago CPA for further advice regarding passive activity loss rules.