Year In Review: How Legislation And Cases From 2015 Will Impact Taxes

Legislation and cases from the year will impact tax returns.

The regulations and laws governing taxes are often changing. These changes can impact what can and cannot be claimed as well as available deductions and exclusions among other things. Taxpayers are required to fill out their taxes accurately, and a failure to do so can result in prosecution. As a result, it is wise to be aware of these changes.

Two Pieces Of Legislation That May Impact Your Taxes

Anyone that claims education tax credits and deductions after 2014 should be aware of the Trade Preferences Extension Act of 2015. This act became law in June of 2015 and in addition to addressing trade measures includes a number of provisions that impact other areas of taxes, referred to as offsets. One such offset requires taxpayers to possess a valid Form 1098-T from the applicable educational institution in order to receive the American Opportunity Tax Credit, Lifetime Learning Credit or tuition and fees deductions.

A second offset within this act involves the child tax credit. This law states that anyone excluding foreign earned income cannot claim the child tax credit.

Two Cases That May Impact Your Taxes

A finding in the case Holden v. Commissioner from earlier this year could impact your taxes. The case involved a physician who specialized in geriatric medicine in California. The physician attempted to claim the cost of pilot lessons for an educational deduction. The IRS reviewed the taxpayer's claims and took issue with the deduction. Taxpayers are generally allowed to deduct education costs in one of two situations:

  1. The education is needed to either maintain or improve skills required for the employment, trade or business of the taxpayer, or
  2. The education meets requirements by the taxpayer's employer or by law or regulation as a condition of continued employment, status or compensation

The physician claimed that he was taking these lessons to join a charitable organization and provide medical services to remote areas. Ultimately, the court held that the physician "failed to demonstrate that his flying lessons improved or maintained his skills as a doctor" and that he did not show "that his flying lessons were an ordinary and necessary business expense."

The court also pointed to a second, precedent case finding an accountant's flight lessons were not deductible as a continuing education expense even when the lessons improved the ability of the accountant to reach out-of-town clients. Taxpayers can take these cases as a lesson in the importance of ensuring claimed educational expenses meet the criteria listed above.

Importance Of Legal Counsel

These are just a few of the many pieces of regulation and cases decided over the past year that impact future tax filings. As a result, it is wise for taxpayers to seek the counsel of an experienced tax lawyer when facing tax issues with the IRS. This legal professional can review the details of your case and work to better ensure your legal rights are protected.