Tax Law Blog | IRS Tax Attorneys

ATHENS, Greece — Greek unemployment rose to 10.3 percent in the fourth quarter of 2009, the country’s statistics agency said Thursday — the highest since 2005 and the largest jump in 11 years.

Unemployment had stood at 7.9 percent in the fourth quarter of the previous year, the statistics agency said. This quarter’s rate is the highest since the fourth quarter of 2004, when unemployment stood at 10.4 percent.

The figures come as Greece is under intense pressure from its European Union partners to reduce its massive budget deficit from 12.7 percent to 8.7 percent of gross domestic product. It has announced a tough austerity program slashing civil servants’ pay, freezing pensions and hiking taxes — measures which have led to a backlash from labor unions, who have responded with a series of strikes.

Taxi drivers and gas station owners were the latest to walk off the job, staging a 24-hour strike Thursday to protest an overhaul of tax laws that will force them, as well as kiosk owners and street fruit and vegetable vendors, to give customers receipts in an effort to fight tax evasion.

The center-left government is due later Thursday to finalize the proposed legislation, which will increase the burden on the rich, landowners and the powerful Orthodox Church.

The government has called on its EU partners for a firmer eurozone bailout plan to lift market pressure and lower its borrowing rates, which currently stand at about double those of Germany’s.

Prime Minister George Papandreou told a European Parliament Committee Thursday that failure of the EU to agree on a plan would force Greece to go to the International Monetary Fund for a financial rescue.

On Wednesday, government spokesman George Petalotis said the March 25-26 EU summit will be crucial, indicating a decision on whether to go to the IMF would depend on its outcome.

“I believe the summit is when it will become evident whether the European partners want to support a country … or whether we have to resort to some other solution,” Petalotis said.

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Louisiana’s Supreme Court said Tuesday that several interstate gas pipeline companies have failed to prove a state tax law unconstitutional, a decision a lawyer for state tax assessors said eventually could free about $70 million in taxes the companies paid under protest.

The companies challenged state law that subjects them to taxes on property assessed at 25 percent of its market value at the same time that some companies that transport gas only within state lines are taxed based on a 15 percent assessment.

Defendants in the case were the Louisiana Tax Commission and sheriff’s and tax assessors around the state.

The court ruled Tuesday that the plaintiffs failed to prove the tax law violates the U.S. Constitution, reversing a 2009 appellate court ruling.

Brian Eddington, a lawyer for the state’s assessors, said issues in the case are involved in several lawsuits filed by pipeline companies in various parishes during more than a decade of litigation. The companies paid taxes based on the disputed assessments under protest, meaning local taxing bodies could not use the money while the legal disputes dragged on.

Eddington said the Tuesday ruling doesn’t automatically free all of that money but was a crucial step in wrapping up pending litigation and eventually freeing about $70 million in disputed tax revenue for use by the various local taxing bodies. “I can finally see the light at the end of the tunnel with this ruling,” he said.

The state Tax Commission was examining the ruling late Tuesday. Messages seeking comment were left with the Louisiana Sheriff’s Association, the Louisiana Mid-Continent Oil and Gas Association and two plaintiffs in the case, Transcontinental Gas Pipeline Corp. and Florida Gas Transmission Co.

According to the ruling, the 25 percent assessment applies to interstate pipeline companies and intrastate pipeline companies that sell natural gas to local distributing systems for resale — companies regulated either by the Federal Energy Regulatory Commission or the Louisiana Public Service Commission. Intrastate companies that do not sell gas to distribution systems for resale are not regulated by the PSC and are therefore assessed at 15 percent, the opinion said.

Pipeline companies argued in court filings that the state taxing practice “imposes an impermissible burden on interstate commerce by imposing a greater tax burden on interstate natural gas pipeline companies than it does upon intrastate natural gas pipeline companies.”

But the court, in a 6-1 decision, said the companies “failed to carry their burden of proof that the tax scheme discriminates against or burdens interstate commerce.”

Judge Bernette Johnson was the dissenter, saying the disparate assessment percentage applied to some in-state pipeline companies results in higher taxes for interstate pipeline companies.

The dispute is more than 20 years old.

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State tax grab efforts more and more are pitting governments against big Internet retailers.

Who gets forgotten, though, are the little guys and gals making a go at the American dream by running small retail businesses from their garages or Internet businesses from spare bedrooms.

Laws like the one passed recently in Colorado apply to all — from the smallest to the giants like Amazon and Overstock.com.

Colorado House Bill 1193, in fact, isn’t even specifically about Internet sales. The bill “concerning the collection of sales and use taxes on sales made by out-of-state retailers” addresses any sales activity in the state including solicitation by representatives and advertising.

It calls on businesses to pay state sales tax, or notify customers that they owe the tax and turn over sales reports to the state.

The law, like those passed in other states, seemingly ignores Supreme Court rulings in the 1990s regarding mail-order companies and probably shouldn’t have passed.

As the way we transact business changes, national tax law also ought to change, too.

Any federal law, however, must be fair and equitable for governments and businesses, especially for the smallest entrepreneurs, who need not be drowned by burdensome paperwork to comply with hundreds of taxing districts’ rules.

Small-business owners deserve to work at home if they choose or to grow into the next big thing.

That’s the American way.

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The Internal Revenue Service today announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.

The steps –– an expansion of efforts that began more than a year ago –– include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday “open houses” offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.

“Times are tough for many people, and the IRS wants to do everything it can to help people who have lost their job or face financial strain,” IRS Commissioner Doug Shulman said. “We continue to make adjustments to key programs and expand ways for people to get help. We’re doing everything we can to help ease the burden on struggling taxpayers.”

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Threats against Internal Revenue Service workers and facilities continue to pour in following last month’s plane crash at agency offices in Austin.

IRS watchdogs are investigating more than 70 reported instances of inappropriate comments made to agency workers by taxpayers, union officials said earlier this week.

Despite earlier reports suggesting it was 70 actual threats, National Treasury Employees Union President Colleen M. Kelley clarified on Wednesday that workers have received a mix of inappropriate comments — including jokes or statements of support for pilot A. Joseph Stack III — and more serious threats. Kelley said she learned of the threats from the Treasury Inspector General for Tax Administration, which tracks threats against IRS workers.

Neither TIGTA nor the IRS would confirm an actual number of threats or share details of ongoing investigations.

“TIGTA is actively and aggressively investigating all threats made against IRS employees, infrastructure and property,” said J. Russell George, the treasury inspector general for tax administration.

IRS workers are instructed to report threats made against them to TIGTA immediately. The watchdog has established a toll-free hotline, e-mail address and internal messaging system for workers to quickly report potential threats.

“It would be a little naïve to think that we don’t get some threats over the course of doing business,” said IRS Communications Director Terry Lemons.

As The Eye has reported previously, attacks and threats against IRS workers and facilities happen frequently and are not confined to the annual tax filing season. The most recent attack at the Austin offices comes amid a wave of attacks at government and military facilities in the last six months.

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The IRS billion unclaimed funds total $1.3 billion in refunds from 2006. More than 1.4 million tax payers didn’t file a return. If you are one of those individuals, there are no penalties to pay if you have a refund.

The best thing to do is file your taxes by using a 2006 Form 1040. Yes, sometimes good things can happen. The average refund is approximately $800.

The refunds are owed in every state, as well as residents of U.S. territories and military personnel who didn’t file returns in 2006. California is home to the most taxpayers, almost 160,000, who didn’t send in returns. It accounts for $151 million of the total.

In addition to the regular refund amount, a 2006 return will get most taxpayers at least $30 and possibly up to $60 in extra cash back from the government. This money is courtesy of the repealed Telephone Excise Tax Refund. It was paid out based on the number of exemptions taxpayers claimed on their 2006 returns.

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The U.S. Department of Health and Human Services will provide a first installment of $61.2 million for the Florida Back to Work Initiative, Gov. Charlie Crist said Wednesday.

The $200 million government stimulus program aims to create jobs in Florida by paying for up to 95 percent of the salaries of employees who meet federal low-income guidelines and have a dependent child at home.

The Florida Agency for Workforce Innovation is offering the program in partnership with the Florida Department of Children and Families, Workforce Florida and regional workforce boards.

The funding will allow the workforce boards to finalize agreements with businesses to hire and train employees, according to a news release. Distribution of the remaining funds will follow.

Crist has been hosting ceremonial bill-signing ceremonies today in Tampa, Tallahassee, Orlando, Fort Myers and Miami to promote House Bill 7033. The Florida Legislature passed the bill on the first day of the legislative session, with the governor signing it into law the same day.

The bill changes the taxable wage base, which is used to calculate unemployment taxes, to $7,000 from $8,500 for two years.

The collected funds pay for 26-week state unemployment benefits.

The wage base is slated to increase to $8,500 in 2012 and revert to $7,000 in 2015.

The bill also allows employers to pay 2010 and 2011 unemployment compensation taxes in quarterly installments without interest or penalties, as long as the employers adhere to a schedule.

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Worried about a tax audit? Maybe you should be. More Americans than ever may be subject to unwanted attention from the Internal Revenue Service this season as the government pumps billions of dollars into tax collection.

More than 1.4 million Americans were audited last year, the most in a decade. Even more audits are expected as the Obama administration plans to spend $8.2 billion in tax enforcement initiatives in 2011, a nearly 10% increase over last year.

Being meticulous with your tax return may seem obvious, but many people aren’t careful enough. And with the IRS seeking to collect every penny it can this year, you could end up paying for even the smallest mistakes.

While the IRS doesn’t reveal its secret formula for flagging returns, here are some tips to avoid popping up on the auditor’s radar.

Self-employed? Prove it’s legit

With a record-high jobless rate, many Americans have turned to self employment, making the IRS increasingly skeptical of the legitimacy of home-based businesses, said Robert Willens, a professor of taxation at Columbia Business School and president of Robert Willens LLC, a tax consulting firm.

More people are trying to turn hobbies into businesses in order to bring in a little extra money, but this won’t fool the IRS. In order to prove your business is legit, you need to keep consistent and accurate records of income and expenses, said Willens.

To be even safer, he suggests maintaining a separate bank account for the business, registering the business with the proper authorities and hiring an attorney and a good tax accountant.

An activity is considered a for-profit business if the gross income for any three of the most recent five years exceeds the deductions taken for the activity. If the IRS determines that a business is not engaged in for-profit, you won’t be allowed to take deductions of more than the gross income from that activity, said Willens.

High expenses of self-employed individuals will also provoke suspicion from the auditor, who will look closely at travel, entertainment and automobile expenses relative to an individual’s income.

Overseas bank accounts? ‘Fess up

As the government cracks down on offshore bank accounts, deposits abroad are likely to catch an auditor’s eye this year.

While the IRS will spend most of its resources going after people with the largest deposits, all taxpayers with foreign accounts should take precaution and comply with the rules in order to avoid huge penalties, said Maureen McGetrick, a tax partner with BDO Seidman.

“Foreign bank accounts have been all over the press lately — it’s definitely a big thing this year,” said McGetrick.

“People need to make sure they indicate on their tax returns if they have one, and make sure they include any interest income from that bank account on their returns,” McGetrick says. If you’re required to file a U.S. tax return, you must report foreign bank deposits that exceed $10,000 at any point during the year on form 90-22.1.

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Online retail giant Amazon.com notified web-based affiliate businesses across Colorado on Monday that it is dropping them in response to an eight-day-old state law applying state sales tax to such purchases.

Amazon.com Inc. (NASDAQ: AMZN) ‎ has a national network of bloggers and Internet-based businesses that generate commissions themselves by driving sales from links on their websites to Amazon.com

The Colorado Legislature passed a law that, starting March 1, requires retailers to notify purchasers how much money they owe from Colorado’s 2.9 percent state sales tax when their purchase originates from a business based in the state. Retailers are also supposed to pass that information to the state so it can collect the revenue.

Bloggers began posting copies of the Amazon.com letter, which said the company will continue to sell to Colorado residents online but will not longer market through online Colorado affiliates.

“We plan to continue to sell to Colorado residents, however, and will advertise through other channels, including through associates based in other states,” concluded the letter, as posted by tech blogger Nat Torkington.

Colorado Gov. Bill Ritter — who signed the Internet tax bill into law — issued a statement Monday criticizing Amazon.com’s move.

“Amazon has taken a disappointing – and completely unjustified – step of ending its relationship with associates,” Ritter said. “While Amazon is blaming a new state law for its action, the fact is that Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process.

“My office worked closely with Amazon’s affiliates and associates to modify House Bill 1193 to specifically protect small businesses, avoid job losses and provide a fair, level playing field for on-line retailers and Main Street, brick-and-mortar retail shops alike,” Ritter added. “Amazon’s position is unfortunate, and Coloradans certainly deserve better.”

Amazon.com’s reaction may have come as something of a surprise.

Affiliate marketing businesses in Colorado succeeded in getting an amendment to the original version of the bill, which could have made online business directly responsible for the tax. The affiliate marketing victory crowed about the amendment as a victory.

But now, with several other states debating laws applying sales taxes to affiliate sales, it appears Amazon.com isn’t happy about the measure.

The company has not responded to Denver Business Journal requests for comment.

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Massachusetts Tax Attorney Kevin Kilduff was barred from practicing before the Internal Revenue Service for 48 months for failing to file one federal tax return and for filing another five returns late.

“Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS,” said Karen L. Hawkins, Director of the IRS Office of Professional Responsibility (OPR).

The OPR had originally sought the 48-month suspension, alleging Kilduff’s conduct was willful and disreputable. OPR enforces standards of conduct under Treasury Circular 230, which governs enrolled agents, attorneys and certified public accountants. Kilduff formerly worked for the IRS Office of Chief Counsel.

The Administrative Law Judge (ALJ) subsequently set the penalty at a 24-month suspension. Kilduff appealed the ALJ decision to the Secretary of the Treasury’s Appellate Authority, which in fact ultimately imposed the harsher 48-month suspension.

Kilduff’s suspension is for a minimum of 48 months. OPR has sole discretion regarding his reinstatement to practice before the IRS. At the very least, Kilduff must file all federal returns and pay all taxes he is responsible for, or enter an acceptable installment agreement or offer in compromise.

The complete decisions of the ALJ and the Appellate Authority are available on the OPR page on this web site.

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