Tax Law Blog | IRS Tax Attorneys

Wanna light up? Oor drink up? Get ready to pay up, thanks to New Jersey’s new budget!

The rationale is simple. The Garden State pulls in nearly $50 million dollars in added tax revenue by raising the cost of products that - let’s face it - we can do without, reported Fox 29’s Bruce Gordon. But don’t tell that to border-area business owners or their customers.

When Governor Jon Corzine signed the state’s $29 billion dollar budget into law, he touted the spending cuts, but said little about the tax increases that helped balance the budget: a 25-percent increase on alcohol, a 17-percent hike on wine and a nearly 5-percent jump on a pack of cigarettes. Jersey’s cigarette tax is the second highest in the nation.

The budget even raises the tax on lottery winnings over $10,000!

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Disabled military veterans may be eligible to for more tax relief under a bill passed by the Texas Legislature.

House Bill 3613 provides an exemption of the total appraised value of homesteads for Texas veterans who have received a 100 percent disability rating or are considered unemployable by the U.S. Department of Veterans Affairs.

“Texas has done the right thing by providing property tax relief for our military men and women who have served their country and paid a heavy price,” Texas Comptroller Susan Combs says.

The new law is effective for the 2009 tax year. To take advantage of the exemption, veterans need to apply for the tax exemption through their county appraisal district. An application form can be found on the Comptroller’s Web site at this link.

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This week, President Obama signed into law the Car Allowance Rebate System (C.A.R.S.) - a  program that pays consumers up to $4,500 in tax credit for trading in their cars or trucks for more fuel efficient vehicles.

As the New York Times reports, you will need to check if your vehicle qualifies for the trade-in credit. You can check out The National Highway Traffic Safety Administration web site to see if you are eligible to participate in the program. Generally, to qualify your car must be:

• at most 25 years old.

• gets 18 miles a gallon or less.

• drivable.

• registered.

• insured for the past year.

The government, which is very focused on bailing out the devastated automotive industry, is allocating $1 billion for the program.

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From the IRS website:

This month, the Internal Revenue Service asked for comments on ways to simplify compliance with rules related to employer-provided cellular telephones. The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently. Some have incorrectly implied that the IRS is “cracking down” on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals.

Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses. Therefore, Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.

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Sovereign Bancorp Inc. is suing the IRS to recover $235.2 million in taxes and penalties it says it was “erroneously and illegally’’ required to pay on a loan arrangement with Barclays Bank of England, according to a lawsuit filed Wednesday in US District Court in Boston.

The tax dispute arose from $1.2 billion in financing Sovereign received in 2003 and 2004 from Barclays that was meant to produce tax benefits for both banks.

Sovereign borrowed the funds from the British institution at a lower interest rate than it could get at home, the bank said in the lawsuit. Sovereign paid British taxes that it incurred and claimed foreign tax credits on US tax filings from 2003 to 2005, to avoid what it called double taxation.

But the IRS disagreed and required Sovereign to pay the taxes. The case is being watched by tax lawyers; Barclays made similar deals with other US banks.

Sovereign, a unit of Spain’s Banco Santander with a large presence in Boston, declined to comment on the lawsuit. An IRS spokeswoman was not immediately available to comment.

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-IRS Commissioner Doug Shulman and Treasury Secretary Tim Geithner Tuesday asked Congress to repeal a 20-year old law that would tax personal use of employer-provided cell phones.

The request is a turnabout from last week, when IRS proposed measures to improve enforcement of the law, which is now widely ignored by employers and employees. One option proposed by IRS would have counted 25% of employee cell phone use as personal, and thus subject to tax as income to the employee.

“The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete,” Shulman said in a statement.

He said the IRS proposals were aimed at clarifying a poorly-understood law. “Some have incorrectly implied that the IRS is ‘cracking down’ on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals,” Shulman said.

IRS examiners have also challenged businesses and universities regarding personal use of employer-provided cell phones, in some cases leading to additional taxes being assessed.

But in Tuesday’s statement, Shulman said Congress should make sure that neither employers nor employees will be subject to additional taxes because of personal use of work cell phones by employees.

“Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses. Therefore, Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers,” Shulman said.

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The IRS defended its proposals to enforce a law that taxes personal use of employer-provided cellphones, saying the changes are aimed at helping businesses comply, not taxing individuals.

Dow Jones Newswires reported Thursday that an IRS proposal released this week could wind up taxing employees on 25% of the value of their work cellphone. The IRS notice was meant to make it easier to enforce a 1989 law that treats employer-provided cellphones as a taxable fringe benefit.

A senior IRS official Friday said the agency is more concerned about making sure employers deduct the correct amounts for cellphone equipment and services provided to employees, than it is about taxing those employees on benefits.

“The motivation for the notice is to clarify how employers can justify a deduction. It wasn’t aimed at employees,” the official told Dow Jones in a telephone interview.

The IRS notice dated June 8 discusses tax implications of employer-provided cellphones both for the employer and the employee.

Marianna Dyson, a lawyer at Miller and Chevalier who specializes in the taxation of employee benefits, said that as a practical matter, the IRS proposals would affect both the business and the employee.

For instance, if IRS implemented its proposal to limit business deductions to 75% of the value of the employer-provided cellphones, and deem the rest personal use, the remaining 25% would have to be counted in an employee’s gross income.
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Four Illinois riverboat casinos failed to get the U.S. Supreme Court to hear their challenge to a law requiring them to share their profits with the state’s ailing horse racing tracks.

The court’s Monday decision means Illinois tracks expect to share in an estimated $80 million — money set aside under a 2006 law requiring state riverboat casinos that gross over $200 million annually to give 3 percent of their take to the horse racing industry.

The boats — in Aurora, Elgin, and two in Joliet — asked the high court to review whether the law violated the U.S. Constitution’s prohibition on unwarranted seizure of assets. The Illinois Supreme Court ruled last year that the “takings” clause applies to government acquisition of private land, not taxes.

The casinos had paid the fee in protest and money was set aside in a special state account during the three-year life of the law. About $79 million was in the account at the time of last June’s state court ruling.

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Internal Revenue Service officials announced this week that they would allow taxpayers to rely on the definition of a United States person as set forth in the prior instructions to the FBAR form when determining their filing requirement.

This announcement affects those preparing for the coming June 30, 2009 deadline.

The IRS took this action to reduce burden after concerns and questions were raised regarding  the  new instructions issued last year on who must file the revised Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, or FBAR).

For this year, taxpayers and others can rely on the definition of a United States person included in the prior instruction: “United States Person The term “United States person” means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.”

All other requirements of the current version of the FBAR form and instructions (revised in October 2008) are still in effect.  The current version of the form must be used when filing an FBAR. This substitution affecting who must file the FBAR applies only to FBARs due on June 30, 2009.   The IRS will be following up with additional guidance on the requirement to file for future years.

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The General Assembly on Monday approved changing the state’s tax law with hopes it will result in Apple Inc. announcing a $1 billion investment within days.

The Senate voted 40-8 to go along with conditions including that the company invest in a rural area. The final round of debate lasted less than a minute.

Sen. Tom Apodaca, R-Henderson, urged rejection. He had previously lambasted business recruiters and lawmakers for focusing on high-profile, big companies and ignoring small businesses. Sen. David Hoyle, R-Gaston, said small companies near the site of a promised data center would benefit by providing services.

“There is a lot in this for small businesses,” Hoyle said.

The legislation was sent to Gov. Beverly Perdue, who was expected to sign the bill into law quickly.

An Apple spokeswoman said the company had no comment.

The bill would give the qualifying company a break on state corporate income taxes. The tax break could be worth about $46 million in the next decade, assuming the lone, unnamed company projected to qualify reaches its $1 billion investment target within nine years of starting, according to a memo by legislative fiscal staffers.

The Associated Press reported last month that the unidentified company being targeted by the tax break is Apple, which is seeking a site for its East Coast data warehouse. These facilities, also called server farms, are huge, climate-controlled computer warehouses that can process vast flows of data needed as business functions and everyday life increasingly depend on Internet traffic.

Data centers are heavy users of power and water and are usually spread over large spaces. Google Inc. opened one last year near Lenoir in the western North Carolina foothills. In 2007, state and local governments offered Google an incentives package worth up to $260 million over 30 years, one of the largest in state history, to land the $600 million data complex.

If the Apple project also remained active for 30 years, its server farm could save more than $300 million on its corporate taxes, based on legislative staffers’ estimates.

Sites in western North Carolina also are under consideration for the Apple facility, including in Catawba and Cleveland counties. Both counties posted April unemployment rates of about 15 percent.

Construction of the Apple site would be expected to employ hundreds of workers for more than a year, but the initial full-time work force of the data center would total fewer than 100, lawmakers said last week.

If ultimately approved by the General Assembly, the change would mean a significant tax break only to the rare company that meets all the conditions. The conditions are a sign the Legislature remembers a bad decision 21 years ago when the formula for calculating corporate income tax was changed to attract a single big company.

Qualifying companies would have to invest $1 billion within nine years, locate in one of North Carolina’s poorest counties, provide health insurance, meet a wage standard, and forego other state grants or tax breaks. If a company met those criteria, it would benefit from the change if it had a relatively large shares of its nationwide property and payroll in the North Carolina, but a small share of U.S. sales in the state.

The last time North Carolina changed how it calculates corporate income taxes was in 1988, and it was done to satisfy RJR Nabisco’s plans to build a large cookie plant in Wake County and create 600 high-paying factory jobs.

Nabisco never built the plant. But the revised calculation meant a tax break that wasn’t targeted, but primarily helped manufacturers, said Greg Radford, director of the state Revenue Department’s corporate tax division. He said he could not estimate how much companies have saved as a result of the 1988 revision, which remains in effect.

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