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Iowa Claims Tax Due On Consulting For In-State Client. An out-of-state consultant owes Iowa income tax on all the fees the consultant received from the Iowa Association of School Boards, the state’s Department of Revenue has ruled. Hilary LaMonte, who lived in Virginia, received more than $82,000 per year from the association in the years 2003 through 2005. The department said she performed 15 percent to 18 percent of her work during “on-site visits” to Iowa in those years, but it said she could not allocate a corresponding percentage of her revenue to the state because she was not an association employee. Instead, the department said, Iowa law holds that the receipts are entirely attributable to Iowa because the recipient of her services — the association — “receives benefit of the service in this state.” LaMonte did not file Iowa tax returns in the affected tax years, so the statute of limitations did not apply. 2011 STT 86-19.

Court Rebuffs IRS Summons For California Property Records. A federal judge in Sacramento has rebuffed an attempt by the Internal Revenue Service to obtain records of every gift of California real estate between 2005 and 2010, except for gifts between spouses. U.S. District Judge Morrison C. England, Jr., declined to order the state Board of Equalization to produce the property records. The IRS said it is trying to identify people who fail to file federal gift tax returns, and that authorities in at least 15 other states had turned over similar records. But California privacy law barred the BOE from releasing the data without a court order. England ruled that the IRS must first show that it cannot obtain the necessary information directly from the state’s 58 counties or from some other governmental source. And, while he left the door open for the Service to renew its request for a summons, he said he would require the IRS to demonstrate that a federal court has the power to compel a state agency to turn over its records to facilitate a broad-scale federal tax investigation. Case No. 2:10-mc-00130-MCE-EFB, U.S. District Court, Eastern District of California.

Venture Capitalist Entitled To Business Bad Debt Deduction. A venture capitalist who wrote off most of a $5 million loan to an Internet entrepreneur was entitled to claim a business bad debt deduction, the Tax Court ruled. Todd Dagres made the loan in 2000 to William L. Schrader, who had co-founded PSINet, Inc. Dagres forgave most of the loan in 2003, after the bursting of the Internet bubble had decimated PSINet’s stock price and cost Schrader his job with the company. In return, Dagres expected Schrader to continue furnishing information about promising start-up enterprises in which Dagres’ firm, Battery Ventures, could invest. The IRS disallowed a $3.6 million deduction and assessed nearly $1 million in tax and $200,000 in penalties, on grounds that the debt was either a personal loan or an employee business expense. But the Tax Court upheld Dagres’ treatment and canceled the tax assessment, interest and penalties. Todd A. Dagres et.ux. v Commissioner, 136 T.C. No. 12.

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