Home Mortgage Deduction Doubled for Unmarried Co-owners

Home mortgage interest deduction doubled for unmarried co-owners.The Ninth Circuit Court of Appeals, reversing a Tax Court decision, concluded that the tax law’s limits on the amount of debt eligible for the home mortgage interest deduction ($1 million of mortgage “acquisition” debt and $100,000 of home equity debt) are applied on a per-individual basis, and not a per-residence basis as the IRS has long maintained.Thus, for the unmarried co-owners in the case, their collective limit for the home mortgage interest deduction doubled from a maximum of $1.1 million to a maximum of $2.2 million acquisition and home equity debt.

New accounting safe haven.The IRS has provided a new safe harbor that allows accrual method recipients of services to treat economic performance as occurring ratably for contracts where services are provided on a regular basis.Thus, under the safe harbor, a taxpayer can ratably expense the cost of regular and routine services as the services are provided under the contract.The IRS also provided procedures for obtaining the IRS’s automatic consent to change to this accounting method, which is effective for tax years ending on or after July 30, 2015.Absent an exception or safe harbor such as this, a liability is generally incurred and taken into account by a taxpayer under an accrual accounting method only in the tax year in which: (1) all the events have occurred that establish the fact of the liability; (2) the amount of the liability can be determined with reasonable accuracy (these first two items are collectively referred to as the all events test); and (3) economic performance has occurred.

HLB International Appoints Three Members in Costa Rica

HLB International, one of the leading global accountancy networks with presence in 130 countries, has recently signed three members in Costa Rica:

Esquivel & Alvarez -eyacpa-

Established in 1997 and based in Heredia, Esquivel & Alvarez -eyacpa- provides nationwide audit, accounting and tax services with special expertise in the following industries and services: agriculture and agro-industry (coffee, grapefruits), NGOs, trade, hospitality and tourism, manufacturing, franchises, international logistics, IFRS implementation, business advisory, transfer pricing advisory, business restructuring, internal control and international taxation.  More information on


D.T. Baltodano Coghi y Zayas

Established in 2007 and based in San José, D.T. Baltodano Coghi y Zayas provides audit and accounting, tax and corporate finance services with special expertise in the services, trade, hospitality, manufacturing, agriculture and insurance sectors, and to the following clients: foundations, trusts, cooperatives and associations, private companies and public entities More information on


J.C. & Asociados

Established in 1992 with offices in San José and San Carlos, J.C. & Asociados provides audit, accounting, tax and advisory services based on risk, due diligence, international funds administration and outsourcing to a wide range of clients and industry sectors nationwide.  More information on

These three additions will contribute to reinforcing HLB International’s presence in Central America, where the network is already established in Guatemala, Honduras, Nicaragua, El Salvador and Panama.

Tax Relief for Victims of Severe Storms and Flooding in South Carolina

Victims of the severe storms and flooding that took place beginning on October 1, 2015 in parts of South Carolina may qualify for tax relief from the Internal Revenue Service.

Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in South Carolina will receive tax relief.

The President has declared Berkeley, Charleston, Clarendon, Dorchester, Georgetown, Horry, Lexington, Orangeburg, Richland, Sumter and Williamsburg counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Oct. 1, and on or before February 16, 2016 have been postponed to February 16, 2016. This includes the Oct. 15 deadline for those who received an extension to file their 2014 return.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Oct. 1, as long as the deposits were made by Oct. 16, 2015.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area that was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Feb. 16, 2016 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Oct. 1 and on or before Feb. 16, 2016.

The IRS also gives affected taxpayers until Feb. 16, 2016 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Oct. 1 and on or before Feb. 16, 2016.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Oct. 1, and on or before Oct. 16 provided the taxpayer made these deposits by Oct. 16, 2015.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “South Carolina, Severe Storms and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation “Severe Storms and Flooding in South Carolina” in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website,, or order them by calling 800-829-3676. The IRS toll-free number for general tax questions is 800-829-1040.

April 18 Deadline for 2015 Individual Tax Returns

The due date for 2015 Form 1040 will be Monday April 18, 2016 since Friday, April 15 is a holiday in Washington D.C.  Residents of Maine and Massachusetts will have until April 19, 2016 since Monday April 18 is the Patriots Day holiday in those states.

Ongoing Responsibility for Retirement Plans


Another May 2015 Supreme Court decision may affect business owners. In Tibble v. Edison International (No. 13-550), the Court unanimously held that there is no statute of limitation on fiduciary responsibility for 401(k) plans.

In this case, employees of a utility company filed suit, alleging that the company had added some relatively high-fee mutual funds to the 401(k) plan’s menu of investment choices. In 1999, the plan added three funds that were sold to ordinary investors; another three similar funds were added in 2002. According to the complaint from plan participants and beneficiaries, versions of the same funds, with lower fees, were available to institutional investors, yet these versions were not in the Edison 401(k) plan. Thus, the plaintiffs said they paid higher fees than necessary, reducing investment returns.

In the Supreme Court, the case revolved around the funds added in 1999. The company said that such disputes related to employer-sponsored retirement plans have a six-year statute of limitation based on when the funds were selected for the plan. As the action was begun in 2007, the employees’ complaint regarding the funds added 8 years earlier was untimely. A district court and the Ninth Circuit generally agreed with this argument.

The Supreme Court reversed, siding with the employees. The high court found that the fiduciary of an employer retirement plan has responsibilities similar to those of a trustee: not only to exercise prudence in selecting investment options but also to continually monitor those options, removing those now deemed to be imprudent. Fiduciaries should exercise “care, skill, prudence, and diligence,” as the Court put it.

The Court further found that as long as the actions upon which the employees based their claim of a breach of this continuing duty was filed within six years of their occurrence, the employees’ claim was timely filed. Thus, the Court sent the case back to the U.S. 9th Circuit Court of Appeals to review whether the employer had breached its continuing duty of prudence within the relevant six-year period with respect to the 1999 funds. (Earlier, the district court had decided for the employees in regard to the 2002 funds, where the statute of limitation was not an issue.) Despite what may have been reported, the Supreme Court did not address the substance of the employees’ complaint about high plan fees and their impact on long-term investment returns.

Eternal vigilance

Apparently, based on the Supreme Court’s holding in this case, fiduciary responsibility for investment choices in employer sponsored retirement plans lasts as long as the investment choices are offered by the plan. If you offer your employees a defined contribution plan, such as a 401(k), investment choices should be well considered, and fees should be part of that consideration. Going forward, menu options that no longer pass muster should be replaced or dropped.

Employer responses

Business owners who sponsor retirement plans should take heed of the Supreme Court’s message. Meet with the advisers who help with your plan to make sure investments are chosen carefully and scrutinized regularly. Get formal reports supporting those efforts, review them to see if you’re comfortable with what you read, and maintain the reports in a secure location.

You also might want to meet with an attorney familiar with securities law to get a knowledgeable opinion. Would it make sense to limit plan choices to a few low-cost stock funds and high-quality bond funds? Are there ways to reduce fiduciary responsibility by outsourcing? Ultimately, the most important question might be whether all the benefits of sponsoring a retirement plan for employees are worth the time and expense involved in reducing perpetual liability for possible missteps.

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