Tax Law Blog | IRS Tax Attorneys

A tax exemption is an exemption from all or certain taxes of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone.
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If you’ve ever wondered how employers became responsible for most Americans’ health care, here’s your answer. The tax code essentially gives you a discount on insurance, as long as you buy it at work. The better your plan - and the higher your tax bracket - the bigger the benefit.

There’s one huge social advantage to this setup: Company health plans pool risk, with healthier employees’ premiums covering the costs of sicker folks. A downside, many economists say, is rising costs overall. With most of us paying for our health care indirectly via insurance, we have less incentive to seek out cheaper treatment options.

As every realtor will remind you, you can deduct the interest you pay on up to $1 million in mortgage debt on a first or second home. Does this promote home ownership? Doubtful. As a presidential tax reform panel noted in 2005, our 69% ownership rate is about the same as in Canada, Britain and Australia, which don’t have the deduction.

Many would-be buyers enjoy no subsidy because they don’t earn enough to itemize - Burman says they may even find it harder to buy insofar as the subsidy raises prices.

If anything, said the panel, the deduction may simply encourage higher-income people to take out bigger loans for bigger houses. This overinvestment in real estate might actually hurt the economy because it soaks up money that could have been put to more productive use.

Again, you can’t quibble with the goal: The government should do everything it can to encourage people to prepare for retirement. Yet these programs have proved most valuable for affluent families, who likely would have saved anyway.

According to a study co-authored by Burman, about 70% of the break for 401(k)s and similar vehicles goes to the top 20% of earners. Low- and middle-income earners just aren’t putting a lot into 401(k) plans.

Now I’ve picked on three programs that are worth a lot to most Money Magazine readers. Before you get your hackles up, rest assured that they’re all pretty safe. Few politicians will touch these popular tax perks with a 10-foot pole. (Your taxes may simply be raised some other way.)

That’s partly cowardice. It’s also true that unwinding these things can create new problems. For example: John McCain wants to replace the current insurance subsidy with a tax credit for all, but his version could cause some people with health problems to lose coverage.

So why sweat this stuff? Because this country is facing big long-term deficits. That’s led to calls to cut spending on programs like Social Security and Medicare.

But as an analysis from AARP notes, those benefits are shared much more broadly than these tax breaks. If sacrifices are needed, shouldn’t it all be on the table?
From Money Magazine

(This letter was also sent to George W. Bush, Johnny Isakson, Saxby Chambliss and Paul Broun.)

I am writing to you as a constituent and a concerned citizen regarding the severe economic crisis that our nation is now enduring.

I’m sure that there are many very learned people working diligently to help resolve this situation and they are looking at it from every possible angle.

That said, here at Christmas time the American people need help more than ever. Our children and our families want desperately to help with this economic problem and also want equally desperately to provide a “Merry Christmas” for their families.

We all see, everyday, that the retail and consumer sector is expecting a particularly dismal Christmas shopping season this year, which will only exacerbate the financial crisis. Taking notice of all of the above, I would like to offer a suggestion.

While most stimulus plans would require a great deal of time, planning and bureaucracy to implement, the American working people have a pre-made mechanism upon which a stimulus could be accomplished with immediate results.

I would suggest that a moratorium, or immediate halt, be authorized in the collection of federal payroll withholding taxes from the weekly paychecks of working Americans for a period of time, the shortest of which would be until Jan. 1, 2009, and that such reduction in payroll taxes paid be reflected in IRS tax tables, etc. so that there would be no recapturing of those unpaid amounts at a later date.

The net result of this action by the federal government would be and immediate impact the financial situations of households all across America.

The funds would be given to those who are “producing” and keeping our economy strong and would hopefully be spent in the consumer retail environment right at this Christmas shopping season.

If the government can afford to consider the expenditure of billions of dollars to help large financial institutions and other concerns, it would only seem fair that some form of immediate relief be sent to those who will be carrying the load for all of us, the working people of America.

I hope that you will all work diligently together to get this measure passed in time for it to matter this year. I share your hopes and dreams for a prosperous America and offer this suggestion as one way of trying to make that a reality.

Dale P. Smith

Toccoa

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increased last year to $260 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

• The cost of qualified long-term care services during the period.
• The dollar amount for the period ($260 per day for any period in 2007).

Adoption credit. The credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more.

Adoption assistance program. You may be able to exclude up to $11,390 from your gross income for qualified adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.

Bailout With A Price: Ohio Chapter 11 Bankruptcy

Mention a corporate bailout in the nation’s capital these days and chances are someone will offer a harsh condition to go along with it. Chapter 11 bankruptcy.

Lately, the term “prepackaged bankruptcy” has been gaining currency in the halls of Congress as lawmakers struggle with pleas for help from the auto industry.

The idea, embraced by some Democrats and Republicans, would extend taxpayer help in exchange for a company undergoing an accelerated Chapter 11 reorganization. The arrangement could represent a model, or a deterrent, for any other strapped companies considering seeking government help.

Bankruptcy protection has worked before to turn debt-saddled companies in the steel, airline and retail industries into leaner and meaner successes. But a frozen credit market and the rigors of a Chapter 11 reorganization make it a difficult option for struggling companies and an unpalatable solution for many lawmakers.

For now, the talk has centered on Detroit’s beleaguered automakers.

Company executives have spent the last two days fruitlessly pleading their case in Congress for at least a $25 billion bridge loan to pull them out of a near-death spiral. To a man, the Big Three executives rejected the idea of filing for bankruptcy even as some lawmakers began to warm to the concept.

Late Wednesday, the Senate canceled a showdown vote on an auto bailout package. But the idea of linking future aid to an accelerated bankruptcy protection plan did not die with it.

“I’m very much attracted to the prepackaged bankruptcy idea,” said Senate Banking Committee chairman Christopher Dodd, D-Conn., who held hearings Tuesday on a bailout. He was referring to a method of seeking Chapter 11 protection whereby a company would negotiate plans with creditors before filing for bankruptcy, thus speeding up the process.

Simply put, a Chapter 11 bankruptcy lets a company stay alive by paying off creditors over time, retaining control of its assets and reorganizing. In the process, they raise capital, downsize and renegotiate contracts to stay alive.

It’s what United Airlines did in 2002. The company filed for Chapter 11, shrank its fleet, cut 26,000 jobs and reduced wages for the rest of its work force. In 2006, it successfully emerged from bankruptcy protection.

But the current financial crisis has changed the bankruptcy terrain. With the credit markets frozen, companies would not find easy access to financing. That’s why, even as some lawmakers insist that General Motors file for bankruptcy, they acknowledge that federal aid should be part of the package.

New York bankruptcy lawyer Mark Bane recommends that government assistance would serve best during the prepackaging process, leveraging the company’s negotiations by setting an expiration deadline on the aid.

Still, bankruptcy is tough medicine. While creditors, suppliers and management take a hit, so do a Chapter 11 company’s workers. Besides cutting jobs, pay and benefits, United Airlines also eliminated its pension plans.

Labor unions wince at the idea. Testifying before Congress last year, AFL-CIO Treasurer Richard Trumka decried a bankruptcy system that he said “has become effectively a device for the wholesale transfer of wealth from workers to other creditors.”

When Dodd asked United Auto Workers President Ron Gettelfinger this week whether prepackaged bankruptcy backed up with federal guarantees was any more palatable, Gettelfinger cited risks to pensions and to retirees who could lose health benefits and are not yet eligible for Medicare.

What’s more, auto executives argued that the stigma of bankruptcy would drive customers away, eliminating a Chapter 11 company’s share of the market.

With an auto bailout dead for now, the bankruptcy debate is likely to rear up again next year.

President-elect Barack Obama had urged the Bush administration and Congress to find a way to help General Motors Corp., Chrysler LLC and the Ford Motor Co. In an interview with CBS’ “60 Minutes” that aired Sunday, he indicated that bankruptcy may not be the answer.

“What we have to do is to recognize that these are extraordinary circumstances,” he said. “Banks aren’t lending as it is. They’re not even lending to businesses that are doing well, much less businesses that are doing poorly. And in that circumstance, the usual options may not be available.”

Robert Reich, who was Labor Secretary under President Bill Clinton and is now on Obama’s board of economic advisers, has suggested that a company receiving federal aid at least pay a price similar to Chapter 11.

“In exchange for government aid,” he wrote in his blog last week, “the Big Three’s creditors, shareholders and executives should be required to accept losses as large as they’d endure under Chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts.”

From lexisONE

Contact the Ohio Bankruptcy Lawyers at Sheppard Law offices today for help with chapter 11 in Ohio.

AIG has revealed that they are suing the IRS for $329 million, claiming a refund for back taxes and penalties. Hmm, I wonder if they’ll return some of that bailout money if they win?

Oh wait. They won’t win.

That’s because the IRS has already labeled the transactions “abusive” and penalized the company for taking tax credits associated with “cross-border financing transactions.” Though details are sketchy, the WSJ suggests that AIG was allowing its overseas subsidiaries to pay foreign taxes and then claiming a US tax credit for paying those taxes which they then split with foreign lenders. The IRS claims this means that US taxpayers are effectively subsidizing the lending through the shared tax credit.

Former IRS commish Everson testified about these deals in Congress last year, noting that they are “designed to exploit inconsistencies between U.S. and foreign laws.” And, under proposed regulations passed last year, such transactions wouldn’t be allowed.

And yet AIG is pressing on with its claims.

The years at stake are 1997 through 1999. AIG noted in securities filings that it expects the IRS to expand its investigation to later years (of course it will). The taxes and penalties attributable to the first investigation total $329 million; neither the AIG nor the IRS has indicated the additional taxes and penalties which could be assessed for any later years. My bet is that it’s huge. Huge, huge, huge.

If that were to happen, it would mean additional funds that AIG would have to pony up this year. I say additional because AIG owes between $34 million and $100 million for a tax shelter dispute that was settled this quarter. The tax shelters, called Lilo (short for lease-in/lease-out) and Silo (short for sale-in/lease-out) allowed lenders to buy assets from municipal government agencies including those in Chicago, New York and San Francisco, and then lease those assets back to the agencies, often through sophisticated “on paper only” arrangements. The lenders, like AIG, took a tax deduction on the transaction. The IRS claimed that those deductions were not allowable and were eventually successful in banning Lilo and Silo altogether.

So let’s do the math. $329 million in “cross border financing transactions” + (up to) $100 million in tax shelter disputes = $429 million in taxes and penalties, so far.

But it will be fine, just fine. Don’t worry about those poor AIG execs scrambling to find coins under the sofa cushions. We’re buying, remember? We’re handing AIG more money so that they can pay off debts that they owe… to us. This whole scenario reminds me of the time that my brother wrecked my dad’s truck, so my parents bought him a new one so that he could work to pay them back. Some guys get all the luck.

Great post from The Tax Girl

An assessment is a determination by a government agency that you owe tax.

In general, an assessment must be made within 3 years from the date the return was filed.

In the case of a false return, a willful attempt to evade tax, failure to file a return, or pursuant to agreement between you and the government agency, the assessment can be made at any time.
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Generation Skipping Transfer (GST) Tax is repealed as of the year 2010 but reapplies in its entirety as of 2011. Until 2010, the exemption amount will be the same as the estate tax exemption amount.

The Generation Skipping Transfer Tax is 45% in 2007 through 2009.

The basic Estate Tax is designed to tax assets when they are passed from one generation to another, such as a parent to a child. The generation-skipping tax (”GST” in estate-planning jargon) on the other hand, is designed to impose tax on those who the Government has figured are attempting to circumvent the Government’s expectation that it will collect more Estate Tax sooner rather than later, and by-pass the usual “leave it directly to your children”, and, instead, leave the inheritance to someone in the next generation – hence “the skip”. A simple example is that of a grandparent leaving money to a grandchild where the grandchild’s parent is still alive, leaving out the middle generation. But generation skipping tax can also apply in non-family situations — generation skipping tax may be due if a beneficiary of a gift or estate is 37.5 years younger than the donor or deceased.)

Individuals also have a life-time exemption of $2 million in 2006 ($4,000,000 for married couples). Beginning in 2009, the exemption amount will be $3,500,000 and unlimited in 2010.

Gifts given outright that qualify for the $12,000 in 2006. Gift Tax exclusion are shielded from the GST as are education and medical expenses.
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The city of Nashua has had it’s tax rate increased by less than 1 percent, the mayor announced Wednesday, and one alderman said it couldn’t have come at a better time.

“This is one of our smallest increases over the last 10 years,” Mayor Donnalee Lozeau said. “I hope this provides some comfort for our residents in these uncertain times.”

Lozeau announced the tax rate during her remarks at the beginning of the board of aldermen’s meeting. The state Department of Revenue Administration sets the tax rate based on financial information provided by the city.

The new rate is $17.55 per $1,000 of assessed property value. It marks an increase of 15 cents, or 0.8 percent, over the current tax rate.

With the new rate, the owner of a home assessed at $250,000 would pay $4,387.50 in city property taxes this fiscal year, or $37.50 more than last year.
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