Tax Law Blog | IRS Tax Attorneys

The owner of a small transportation company on Long Island is arguing that it is not only unfair he has to pay a payroll tax that benefits a competitor of his — the Metropolitan Transportation Authority — but that its adoption was unconstitutional.

William Schoolman, president of Hampton Luxury Liner and Classic Coach, a luxury coach bus service that operates between Manhattan and various locations in Suffolk County, filed a lawsuit Dec. 14 in state Supreme Court in Suffolk County after having to pay $2,500 in payroll taxes in 2009 for the MTA fund.

Gov. David A. Paterson in May signed into law legislation that requires employers in the MTA’s service area to pay the payroll taxes. Lawmakers said the tax was needed to help bring MTA out of a $1.8 billion deficit.

“New York state is very unfriendly to businesses. It really is outrageous what the Legislature did,” said Schoolman. “They passed an illegal law.”

The Metropolitan Commuter Transportation Mobility Tax affects employers, including schools, hospitals and people who are self-employed, in the New York City boroughs and Rockland, Putnam, Nassau, Suffolk, Orange, Dutchess and Westchester counties. The tax amounts to 0.34 percent of every 1 percent of their payroll.

The 12 counties make up the Metropolitan Commuter Transportation District.

Schoolman’s lawsuit lists six causes of action, and five of them are claims of constitutional violations.

The suit alleges the Legislature failed to the pass the payroll tax law by the two-thirds vote required for legislation affecting property and the appropriation of money for local government: It passed in the Senate with 60 percent of the vote and in the Assembly with 52 percent.

The suit also claims the bill passed with more than one appropriation, which is unconstitutional under Article VII, Section 6 of the Constitution, which states: “… no appropriations shall be made except by separate bills each for a single object or purpose.”

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A legislative tax panel approved a bill Monday that would let state taxpayers deduct donations to Haiti earthquake relief efforts when they file their 2009 taxes this spring.

It would make state tax law match up with a federal law allowing taxpayers to deduct donations made by the end of February from their 2009 tax returns instead of waiting until next year.

The House Taxes Committee passed the bill from Rep. Ann Lenczewski (len-CHEHS’-kee) on a voice vote.

Lenczewski says the bill has received bipartisan support. She expects it to pass through the Legislature quickly.

The Haiti proposal is similar to a state law passed in 2005 to encourage donations to help victims of the 2004 Indian Ocean tsunami.

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Nearly 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services for low-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help to people who earn less than $49,000. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.

Today, partners and local officials will be hosting news conferences or issuing news releases nationwide to highlight the Earned Income Tax Credit (EITC) and their free tax preparation programs. The EITC is already the government’s largest cash assistance program targeted to low-income Americans. However, not all eligible taxpayers may be aware or claim the EITC.

Taxpayers need to bring to the VITA/TCE sites the following items:

* Photo identification
* Valid Social Security cards for the taxpayer, spouse and dependents
* Birth dates for primary, secondary and dependents on the tax return
* Current year’s tax package, if received
* Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers
* Interest and dividend statements from banks (Forms 1099)
* A copy of last year’s federal and state returns, if available
* Bank routing numbers and account numbers for direct deposit
* Other relevant information about income and expenses
* Total paid for day care
* Day care provider’s identifying number

To file taxes electronically on a Married Filing Jointly tax return, both spouses must be present to sign the required forms.

Trained community volunteers can help eligible taxpayers with all special credits, such as the EITC, Child Tax Credit or Credit for the Elderly. Also, many sites have language specialists to assist people with limited English skills.

In addition to free tax return preparation assistance, most sites use free electronic filing. Individuals taking advantage of the e-file program will receive their refunds in half the time compared to returns filed on paper. Taxpayers who use e-file and direct deposit can receive their refund in as few as 10 days. This year, taxpayers also can use the refunds to purchase U.S. Savings Bonds.

Taxpayers who file electronically also can opt to file now and pay later. If taxpayers owe, they can make a payment April 15 by authorizing an electronic funds withdrawal (direct debit) from a checking or savings account, paying by credit (Discover Card, American Express, MasterCard or VISA Card), or by check or money order (made out to the United States Treasury) using Form 1040-V, Payment Voucher.
As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at nearly 7,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to people age 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP’s Internet site.

The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council (AFTC) consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. The AFTC oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. Volunteers are trained and equipped to address military specific tax issues, such as combat zone tax benefits and the effect of the EITC guidelines.

For taxpayers who want to prepare and e-file their own tax returns, there is IRS Free File. This is a free service offered by approximately 20 companies who make their software available for free. Taxpayers with incomes of less than $57,000 are eligible to use Traditional Free File, which is the easy-to-use, interview-style software. For people with incomes of more than $57,000 or people who need little assistance, there is Free File Fillable Forms. For either service, taxpayers must go through irs.gov/freefile to access the programs.

EITC-eligible taxpayers also can seek free assistance at the 400 IRS Taxpayer Assistance Centers nationwide. To assist EITC taxpayers, 167 IRS TACs will offer Saturday service on Jan. 30, Feb. 6 and Feb. 20.

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Governor Felix Camacho Friday signed bill 150 into law.

It will raise the current $1 dollar tax on a pack of cigarettes to $3 dollars. The higher tax taxes effect in 60 days, the first week of April.

Cigars will be taxed at .40 cents per mini cigar, .44 cents per regular sized cigar, and .50 cents per large cigar. Chewing tobacco will also cost an additional dollar per can.

Vice-Speaker BJ Cruz was the author of this legislation.He says that he knew it would make people upset but it was a piece of legislation that he had to push through when he heard that there is one diagnosis of lung cancer per week on Guam.

“This is a very important piece of legislation because it greatly supports with our attempt to discourage tobacco usage in our community,” said Governor Camacho. “Lt. Governor Cruz and I pledge to continue supporting all efforts that provide for a healthier quality of life for our people.”

“I want to commend Governor Camacho and members of the Legislature for ensuring that this became law,” said Lt. Governor Cruz. “This will help us decrease tobacco usage among our people, but more importantly, it will reduce the number of tobacco-related health issues we would otherwise have to address in the future.”

According to PL 30-80, a significant amount of revenue generated from the tax increase will be deposited into the newly created Guam Cancer Trust Fund to be used by programs that support cancer screenings, treatment, and support services.

Additionally, tax revenues will go to GMH, DPHSS, and DMHSA to support disease prevention programs and address future healthcare demands associated with tobacco use.

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While Congress dilly dallies, the states are racing to come to the aid of families whose estate plans have been thrown into disarray by the Jan. 1 lapse of the federal estate tax. That lapse could, among other things, lead to the unintended disinheritance of spouses, which could in turn lead to expensive legal fights among family members and, ultimately, the impoverishment of some widows or widowers. It could also, ironically, force some families to pay extra state estate taxes.

Legislators in a handful of states, led by Virginia, have already introduced legislation to try to head off such bad results. Virginia’s House of Delegates passed its “emergency” bill unanimously Tuesday and the state’s Senate is expected to take it up immediately. Similar bills are pending in Maryland, Nebraska, South Dakota, Tennessee and Washington. Other states, including Florida and New York, have somewhat different legislation pending.

Most of the new emergency laws would set a default rule for interpreting wills and trusts while the federal estate tax is repealed, if the document itself doesn’t spell one out. The rule: Any tax terms or formulas should be read as if the estate tax law of 2009 were still in effect. The proposed emergency laws also typically include a backstop provision allowing any potential beneficiary or executor to go to court, within a year from the date of death, if he or she doesn’t think that this default is what the deceased really wanted. (Florida takes a different approach; there’s no default rule, just the opportunity to go to court.)

“The primary benefit is going to be keeping families out of state court litigation,” says Dana Fitzsimons, an estate lawyer with McGuire Woods in Richmond, Va., who helped legislators draft the Virginia bill.

Estate lawyers have a keen interest in pushing through these laws, beyond just concern for the welfare of their clients. By clarifying poorly drafted, ambiguous documents, these laws could prevent a flurry of legal malpractice suits.

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GA Senator Chip Rogers says he wants changes to property tax law in light of the recent housing market downturn.

People who buy foreclosed properties at bargain values are being taxed at much higher county assessments, says Republican State Senator Chip Rogers.

So he’s proposing that counties can only tax on the price of a home.

“If you buy a home this year and you don’t do anything,” says Rogers. “Whatever you paid for it, should be your assessment for that year.”

Rogers says he also wants assessment notices sent out every year, and allow for assessment appeals year- round.

He admits that the measure could backfire in a booming market, but he says his ultimate goal remains eliminating all property taxes.

Federal tax law brought quite a few changes this year as the accompanying article explains. Your state return won’t require as much heavy lifting - and many of its changes are tied to the federal return.

The biggest surprise will be on Line 15 of your state form. You’ll be asked to figure out the surtax you owe. The surtax will - depending on your income - be either 2 percent or 3 percent of the amount on line 14.

You’ll owe a 2 percent surtax if you make: $60,000 up to $150,000 and your filing status is single; $80,000 up to $200,000 with head of household status; $100,000 up to $250,000 with married filing jointly status; $50,000 up to $125,000 with married filing separately status. Below those minimums you don’t pay a surtax. Above those maximums you pay 3 percent.

Here’s how Thomas Beam, spokesman for the state’s revenue department, explained it in an e-mail: If your filing status is “married filing jointly” and your N.C. taxable income shown on Line 13 of Form D-400 is between $150,000 you compute your “regular” state income tax on Line 14 and then multiply that amount by 2 percent. Add the result to your “regular” tax on Line 14 to give you your total tax liability. Then you subtract credits, withholding, payments, etc., to find whether you are due a refund or whether you have to pay additional tax.
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Ever make a personal call on your company cell phone? Did you record the value of that call as taxable income, as required by law?

Join the club, but don’t worry. President Barack Obama will propose repealing the widely ignored requirement as part of his 2011 budget plan, a Treasury Department official said Saturday.

The administration made a similar proposal in June, and it was well received in Congress. Lawmakers, however, became preoccupied by the health care debate for much of the year and a lot of their work on tax law was delayed.

Obama is scheduled to release his proposed tax and spending plan on Monday. If the cell phone tax is repealed this year, taxpayers would be off the hook for all of 2010, said the official, who spoke on condition of anonymity because the budget had not yet been released.

A 1989 law says that personal use of a company cell phone should be taxed like other fringe benefits, such as a company car. The law, however, was passed when cell phones were referred to as car phones and were considered a luxury. Today, workers increasingly use company-issued mobile devices for texting, e-mailing and browsing the Internet — sometimes for work, sometimes for personal use.

Last summer, the Internal Revenue Service issued a request for comments on ways to improve compliance with the tax, and there was such a backlash that the administration proposed repealing it.

At the time, IRS Commissioner Doug Shulman said the tax was “poorly understood by taxpayers” and acknowledged it was difficult to enforce consistently.

Some employers have faced big tax bills after failing to comply with the law.

In 2008, the IRS audited two University of California branches, in Los Angeles and San Diego. As part of a settlement, UCLA paid a tax assessment of $238,474 and San Diego paid $186,471.

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People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

“Americans have opened their hearts to help those affected by the Haiti earthquake,” said IRS Commissioner Doug Shulman.” This new law provides an immediate tax benefit for the many taxpayers who have made generous donations.”

Taxpayers can benefit from their donations, almost immediately, by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.

The IRS reminds donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.

Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

This year’s special Haiti relief provision is modeled on a 2005 law that, in the wake of the Dec. 26, 2004, Indian Ocean tsunami, allowed taxpayers to deduct donations they made during January 2005 as if they made the donations in 2004.

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Some tax law is going to make me rich? What is this stupidity?

It’s not stupidity at all. For a long time the Roth IRA rules —

Aaah. The Roth IRA. I hate that thing. You know that between the royalties on my invention and the dividends on those stocks you told me to buy like Waste Management (NYSE: WM) and BP (NYSE: BP), I have too much income to be eligible for a Roth. Everybody keeps telling me how awesome they are but I can’t play. Why do you keep bringing it up?

Wait. What invention?

The automatic ginger-mincer. It’s huge in Asia.

An automatic ginger-mincer? Is that like a turnip twaddler?

Don’t laugh, funny boy, I’m making money just sitting here. And I’m going to be making more, too — wait until you see our new infomercial.

Uh-huh. Anyway, that’s the point I’m trying to make. They got rid of the income limits; not for contributions, but for conversions. As of the beginning of 2010, you can take your other retirement accounts and convert them to a Roth IRA, no matter how much money you make.

Why would I want to do that?

In a traditional IRA, or a 401(k), you put your money in before paying taxes on it. Then, when you’re retired and making withdrawals, it’s taxed like income. But with a Roth, you put your money in after taxes, and then it grows over time, and all of your withdrawals are tax-free.

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