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Bergen Bar Tax Bulletin: September 2020, Volume 36, No. 9

Current Items:                                                             

  • Hobby or Practice?
  • No IRS Notices?
  • CLE or Some Good Movies

  1. I don’t have to tell you that these are hard times for lawyers. Like the rest of the population we seem to be just surviving these days. I was talking to a friend of mine the other day who has been associated with a good-sized law firm for many years. He told me the firm is cutting back in everything they can. That means associates losing their jobs as well as paralegals. Trying to make ends meet partners of course look for ways to reduce all expenses which includes the percentage given to lawyers who bring matters into the firm. This of course starts a downward spiral for everyone. Lawyers lose their incentive to seek out new work and the firm suffers further. So lawyers like everyone else are finding they have more time on their hands. I know big corporations are discovering that they may not need large commercial space to continue their enterprise. Working from home is now in vogue. But people who study such things say workers generally only produce for about two or three hours out of an eight hour day. The rest of the time is spent daydreaming about what they would really like to do with their lives. So there is the advantage to be gained from these shut in days. With all that extra time the opportunity to turn a hobby into a business may be presenting itself. Let’s face it that the current tax law doesn’t give employees much of a chance to get in the tax avoidance business. Even our precious real estate and state taxes are but a crummy $10,000 limit. So where am I going with this point? It may be time for lawyers to soul search to find out what is their real passion. Some hobby they have enjoyed for years with a little tax planning may be able to be turned into some of the deductions that were lost and who knows perhaps a profit or two. Now the IRS is well aware of taxpayer attempts to snatch tax deductions for what would otherwise be personal expenses. From time to time they take the time to announce those things that would distinguish a hobby from a business. But frankly it does not take a great deal of effort to comply with their wishes. In short such an activity must pass the “Duck Rule.” Look like a duck, walk like a duck, quack like a duck, if so, it’s a duck. That is the hobby must be treated by the taxpayer as any other business would. These rules include:  the time and effort put in shows that they intend to make a profit, they have the knowledge to carry out the activity and the activity actually makes a profit.         But let’s be clear, there is no requirement that a profit be actually made. Keeping adequate business records is a must especially when no profit is being generated. There are plenty of IRS rulings and cases on the subject but it may be worthwhile for my colleagues to consider adding some other business interest to their revenue stream. Not only could it be fun but may help to take our minds off the rest of this mess.
  2. All of a sudden the United States Post Office becomes a political issue. Could it be that the postmaster general is in cahoots with the president to intentionally make mail in ballots a disaster? I guess it depends on which news channel you decide to watch. But that nonsense aside, it is true that the mail department at the Internal Revenue Service has been dealt a blow because of the virus. With employees not available for work mail received at the various IRS service centers has piled up unopened. Now for an agency that relies on scaring taxpayers out of their wits the prospect that they are not able to open taxpayer responses is earth shattering. So as the piles have gotten higher in recent weeks, the IRS response is a curious one. They are suspending collection notices to taxpayers immediately. This the agency says is designed to give the IRS the opportunity to open all of that mountain of mail they have received. Once that is sorted out again familiar threatening IRS letters will again be going out to taxpayers who owe back taxes. In the meantime this collection holiday does not suspend the running of interest or penalties, but it is a welcome break for those taxpayers involved.
  3. I received a notice the other day from my CLE provider that some of the courses I had ordered are still available for viewing. There is no doubt that such an activity rewards us with expanded legal knowledge as well as killing a few hours of our otherwise boring day. And like all bar associations I strongly recommend continuing that practice. But if however you have completed your CLE requirement and are looking about for something else to watch I suggest the following. If you are a dog lover do not miss “Pick of the Litter.” Grown men like myself may shed more than one or two tears in this movie about how guide dogs are taught to assist the blind. I warn you that you may be out buying a golden lab after viewing. If you need to feel uplifted “Euro Vision” may do the trick. Will Ferrell is the star of a nowhere Icelandic band winning a gigantic international competition. Lastly if time permits see “Don’t talk to Irene.” It’s about never giving up no matter your age. It is certainly good advice in these tough times. BTW these can all be watched with the kids or grandkids as well. Beats CLE hands down.