Cost of goods sold isn't just a special category of expenses — for tax purposes, it's actually part of the definition of gross income, and only manufacturing, merchandising, and mining businesses qualify to report it. Jeremy breaks down what Treasury Regulation 1.61-3 actually says, why service businesses shouldn't have COGS on their returns even when the financial statements show it, and why getting this wrong can be catastrophic for cannabis businesses operating under IRC Section 280E.

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Jeremy walks through the case of a Florida surgeon who lost a $288,000 refund after his CPA failed to file three years of returns, exploring how the failure to file and failure to pay penalties work and why they matter so much. He breaks down the critical differences between these two penalties, explains why an extension to file is never an extension to pay, and covers the Supreme Court's position on taxpayer responsibility even when relying on professionals. The episode also details how first time abatement works, what qualifies as reasonable cause for penalty relief, and why the IRS applies its own administrative waivers before considering statutory reasonable cause exceptions.

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Jeremy breaks down the 2025 Besaw v. Commissioner tax court case, where a taxpayer lost a $6,760 charitable deduction despite everyone agreeing the donation actually happened. The case reveals why blank Goodwill receipts aren't sufficient, what "contemporaneous written acknowledgement" really means under IRC Section 170, and exactly what documentation taxpayers must maintain—whether they're filing Form 8283 or not. Learn the substantiation requirements for non-cash donations under $250, over $250, and over $5,000, plus how to properly value donated household goods and clothing using fair market value standards.

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Jeremy concludes the three-part series by examining the remaining four fringe benefits from IRC Section 132—qualified transportation, moving expense reimbursements, retirement planning services, and military base realignment benefits—many of which have been significantly limited by recent tax legislation. He also covers achievement awards, athletic facility exclusions, and provides essential guidance on accountable plans, explaining the three critical requirements employers must follow to ensure expense reimbursements remain tax-free for employees while maintaining deductibility for the business.

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Jeremy continues his series on IRC Section 132 fringe benefits, focusing on working condition fringes and de minimis benefits—two categories that help employees be more productive or boost workplace morale. From company vehicle mileage tracking and employer-provided cell phones to why office snacks are excludable but gift cards never are, this episode clarifies which everyday workplace benefits can legally avoid taxation. Jeremy emphasizes the critical importance of documentation and explains the strict substantiation requirements that apply to many of these benefits.

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Section 132 allows employers to provide certain fringe benefits tax-free, but only if they follow specific rules. Jeremy breaks down no additional cost services, like airline employees flying on empty seats, and qualified employee discounts, explaining the 20% cap on services and the gross profit limitation on products. He covers the critical "line of business" requirement, who qualifies as an employee beyond current workers, and why highly compensated employees face stricter rules.

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Jeremy explores the hobby loss rule through the landmark case of artist Susan Crile, who successfully defended her art business against IRS claims despite reporting losses in nearly all of 25 years. The episode breaks down the nine-factor test used to determine whether an activity has a genuine profit motive, examining how professional conduct, record-keeping, and business decisions matter more than consistent profitability. This case offers crucial lessons for practitioners working with creative professionals, startups, and any clients going through extended periods without turning a profit.

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Jeremy wraps up his two-part series on S corporation terminations by diving into what happens after an election ends, whether intentional or inadvertent. He explains the IRS's relief procedures for common mistakes like violating the one-class-of-stock rule, the crucial five-year waiting period before re-electing, and why a terminated S corp doesn't just revert back to an LLC but becomes a C corporation instead. The discussion includes real tax court cases and the specific steps needed to clean up termination issues before the IRS discovers them.

• (00:00) - Introduction and Recap of Part One
• (01:40) - Three Ways to Terminate an S Election
• (03:30) - Administrative Dissolutions at the State Level
• (08:00) - What Happens After S Election Termination
• (13:10) - Inadvertent Terminations Explained
• (17:00) - The One Class of Stock Rule
• (21:30) - Maggard v. Commissioner Tax Court Case
• (26:20) - Profit Interests and Phantom Equity Problems
• (29:40) - IRS Relief for Inadvertent Terminations
• (34:30) - Revenue Procedure 2022-19
• (39:20) - Missing S Election Acceptance Letters
• (42:00) - Filing the Wrong Return Type
• (44:10) - Six Areas of Relief Without a PLR
• (47:10) - Short Year Returns and Pro Rata Allocation
• (51:30) - The Five-Year Rule Explained
• (54:20) - Reverting from C Corp Back to LLC Status
• (56:50) - Final Thoughts and Episode Wrap-Up

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This podcast is a production of Earmark Media