Editorial comment: To guarantee proof of delivery of tax documents mailed to IRS, always use certified mail by the postal services. Hand delivered items to Federal Express (or other delivery services) is not a proof of mailing.

OWNERS MUST PAY IRS PENALTY FOR WORKER’S MISSED FILINGS

A bookkeeper’s failure to pay an auto-parts company’s taxes on time for four consecutive quarters does not relieve the company of its duty to file timely returns and payments, the US District Court for the District of Oregon ruled.
“A business cannot delegate the duty of timely filing taxes to an employee,” the court said in dismissing the company’s challenge to Internal Revenue Service penalties of nearly $22,500
Source: BNA, Inc.

MAIL CALL

Heed Limits On IRA Rollovers
Q. I am a teacher who has contributed to a 403(b) plan for the past 25 years. I’ve accumulated about $200,000 in the plan. I’m being charged an annual custodial fee, so I want to switch the funds to an IRA. Can I do it?
A. Not while you’re still employed at the same school. As a general rule, you can roll over funds tax-free from a qualified plan (including a 403(b) plan) to another qualified plan or an IRA as long as you meet the usual requirements. But you typically can’t roll over the money until you “separate from service”.
TIP: You didn’t say how much the custodial fee is, but take note: You might have to pay a comparable fee for an IRA if you roll over the funds in retirement. Or you might be able to switch investments in your current plan to reduce or eliminate the fee.

Double Home-Sale Exclusions For Duplex
Q. My wife and I are longtime owners of a duplex. We’ve always rented out the downstairs unit. (The basis is now zero.) If we split up and live separately in both units, can we claim the home-sale exclusion for the entire duplex when we sell?
A. Yes, with a few caveats. Technically, you’ll meet the requirements for the home-sale exclusion by converting the downstairs unit into a principal residence. To qualify, you must have owned and used the home as your principal residence for two of five years prior to the sale. If you’re married and filing jointly, you can exclude a $250,000 home-sale gain from each unit if one spouse meets the “ownership” and “use” tests for each unit.
TIP: You can’t exclude gain from depreciation claimed after May 6, 1997. Since your rental unit may have been fully depreciated by then, this rule may not apply to you.

Can I (Should I) Use IRA To Hold Real Estate?
Q. I know that IRAs can invest in almost anything. But my CPA has told me that I can’t buy real estate property through my IRA. Is he right?
A. You can invest in a real estate investment trust (REIT) through an IRA, but most financial institutions don’t allow you to hold actual real estate in the account although the tax law doesn’t prohibit this. Plus, it’s usually not a tax-wise move to buy real estate in an IRA, since your profit would ultimately be taxed as ordinary income rather than lower-taxed capital gain.
TIP: Also, you generally can’t invest in collectibles through your IRA.

Paperboy Must Deliver A 2004 Return
Q. My 15 year old son is a paperboy and does pretty well at it. He nets about $3,700 a year (the difference between the newspapers’ cost and what his customers pay, including tips), which is deposited directly into his savings account. Do I need to fill out a tax return for him?
A. Probably. If your son is considered an independent contractor of the newspaper, as he probably is, he must file a return because he has more than $400 of self-employment income from the activity. So, your son would be responsible for self-employment tax on his net earnings. However, he can shelter his earnings from the federal income tax with his standard deduction.
Bottom line: He must file because he owes self-employment tax, but probably not any income tax.
Source: Tax Management

 Caution  Do not adopt any of our recommendations without consulting a tax professional