Tax Law Blog | IRS Tax Attorneys

The state’s high court on Tuesday upheld a 3-year-old law that lets corporations divert some of their state income taxes to help students attend private and parochial schools.

Without comment, the Arizona Supreme Court rejected arguments by the Arizona Education Association and other foes of the law that the law amounts to the state providing illegal aid to these schools. The justices also apparently were unswayed by arguments that the law amounts to the state advancing religion, as most of the dollars collected end up in the coffers of parochial schools.

Tuesday’s ruling is the second time the high court has ruled that the system of credits does not run afoul of state constitutional provisions which bar state funds from being used in aid of private schools. The justices previously upheld a similar tax credit for individuals.

Source

Prospects are brightening for a tax-law change to allow victims who invested indirectly in Ponzi schemes through advisers or feeder funds to get bigger tax refunds for their theft losses.

The change would allow victims of swindlers such as Bernard Madoff to carry back their theft losses for as long as five years instead of the current three years. The change is being pushed by Sen. Charles Schumer (D., N.Y.), among others.

Mr. Schumer’s office said Sen. Max Baucus, the Finance Committee chairman, had signed off on the language, and that Mr. Schumer is planning to add it to the unemployment-insurance legislation that is expected to pass the Senate this week.

The change seeks to address a gap in efforts to extend relief to Ponzi-scheme victims. The Internal Revenue Service announced unprecedented tax relief for victims in March, but experts said that in many cases it was doubtful indirect victims would be able to benefit.

“This proposal, once approved, will finally bring smaller investors, many of whom lost everything, on par with direct investors in terms of receiving relief,” Sen. Schumer said in a statement.

Full Story

Health care reform supporters like Elizabeth Edwards, a breast cancer survivor and wife of former presidential contender John Edwards, cite research that both the insured and uninsured are facing bankruptcies for overwhelming medical bills.

The share of bankruptcies attributable to health care costs rose by 50 percent between 2001 and 2007. Some 62 percent of bankruptcies in 2007 were “medical.”

Fiscal conservatives question the study’s objectivity because the authors, like Edwards, are on record for taking sides in the contentious health care reform debate and urging a single-payer national health program.

With their eye on an estimated $1 trillion debt from President Obama’s health care reform plans, critics point to Federal Reserve reports that found medical debt rose slightly, from 5.5 percent of all debt in 2001 to 5.8 percent of all debt in 2007.

This week, Sen. Sheldon Whitehouse, D-R.I., chaired a Senate Judiciary subcommittee hearing on his bill to carve out an exception for people whose medical bills were the main cause of their financial distress.

Full Story: Change bankruptcy laws to help address medical financial stress

Nevadans have responded to the government’s offer of up to $8,000 in first-time-homebuyer tax credits with gusto, filing more claims and receiving more in tax breaks per capita than residents of any other state.

Nevadans have claimed $146 million in tax breaks from the credit.

But according to new federal reports released Thursday, the program nationwide is littered with potential fraud, threatening its future.

Claims for the tax credit are being filed by those who may not be first-time buyers, those who haven’t yet bought houses, and those who are under 18, according to an inspector general’s report. More than $500 million in claimed credits are being questioned.

The Internal Revenue Service has opened 115 criminal investigations, has frozen more than 110,000 refunds pending further examination and is stepping up audits of questionable claims.

Source

The government Wednesday geared up for the implementation of a law for pensioners that may cost some P11 billion in foregone revenues in the first year amid ballooning expenses for economic stimulus and reconstruction.

The Bangko Sentral ng Pilipinas, the Department of Finance and the Securities and Exchange Commission signed a memorandum of agreement on the uniform enforcement of the Personal Equity and Retirement Account Act of 2008 as well as its so-called “mother” implementing rules.

When the Pera law was still pending in Congress, the DOF expressed reservation on related bills as these would “complicate the present taxation of pensions and similar long-term savings and investment instruments.”

The finance department also argued that the then proposed preferential tax structure for the Pera would discriminate against other private retirement schemes and would not generate any new savings.

More »

On its Web site, Talbots boldly says it offers clothing “to flatter women of all shapes and sizes.” But the preppy Massachusetts-based retailer just failed in its effort to hide something else: taxable income from its home-state taxman.

In a recent little-noticed opinion full of fascinating detail, the Massachusetts Appellate Tax Board said Talbots ( TLB - news - people ) improperly avoided paying the 9.5% Massachusetts corporate excise tax on as much as $392 million of revenue by using “sham” transactions that “lacked economic substance.”

Specifically, the quasi-judicial board said the company set up a Delaware subsidiary with a single office in Illinois to hold the various Talbots trademarks. Making “royalty” payments to the subsidiary for use of the marks, Talbot then deducted the sums on its Massachusetts tax returns. Neither Illinois nor Delaware tax such revenue if legitimately structured in this fashion.

“Tax avoidance was the driving force,” and the “motive behind the formation of a wholly owned holding subsidiary,” the board declared.

It was not clear from the 54-page opinion how much Talbots might owe Massachusetts in back taxes covering 1994 to 2001, the years at issue in the case. Simple math using the $392 million figure at the 9.5% rate suggests $37 million, or 67 cents per Talbots share, plus any interest and penalties. However, in an e-mail, Julie Lorigan, a Talbots spokeswoman at the corporate headquarters in Hingham, Mass., said “only a portion” of the $392 million “is related to Massachusetts,” and presumably taxed there, and that any taxes owed would be further reduced by offsetting expenses.

Asked about the existence of similar tax litigation in other jurisdictions, Lorigan said, “There could be other states, but I have no further comment.”

Source

The Internal Revenue Service’s investigation into Americans who use foreign banks to evade taxes has all the elements of a Hollywood thriller.

Criminal indictments that have come from the investigation detail complex financial deals, complete with secret communications and people traveling to Hong Kong, Switzerland and the Cayman Islands to have secret meetings with their bankers. In turn, Swiss bankers traveled to the United States, posing as tourists, to advise clients on how to avoid tax laws.

The aggressive investigation by the IRS has turned up the heat on thousands of people who allegedly used the foreign banks to hide their money so they wouldn’t have to pay taxes.

In the middle of its investigation, the IRS gave people a chance at leniency. As USA Today recently reported, 7,500 people have applied for the program, which ended Thursday. They undoubtedly rushed to the IRS after UBS, the largest Swiss bank, agreed to turn over information on nearly 4,500 people who held an estimated $18 billion at the bank, out of the view of the IRS.

The leniency program, lawyers say, has helped people who were not intentionally evading taxes make things right. In the meantime, the IRS has been right to aggressively pursue charges against those who manipulated the system.

Source

Even if a homeowner’s property assessment magically soars in Prince George’s County amid a severe real estate downturn, the county won’t be able to reap the benefits next year because of a complex system of tax laws.

The County Council is poised to pass legislation regarding the Homestead Property Tax Credit, a statewide tax limit designed to protect homeowners from large jumps in their property assessments year-to-year. It works like this: Say you bought a house for $100,000, and in your next assessment, the valuation jumps to $120,000–a difference of 20 percent. Because of the tax credit, localities in Maryland can only tax you on up to 10 percent of that increase in value. In this example, that would mean being taxed on up to $110,000.

Each locality gets to set its own Homestead Property Tax rate every year, ranging between 0 and 10 percent. Here’s a list of all the current rates.

More: Pr. George’s Property Tax Cap to be Lower Next Year

Scheduled for Oct. 27, people will have an opportunity to discuss how farm families deal with the federal estate tax on Twitter’s #AgChat, a live, online chat where agriculturists and others discuss issues important to agriculture. The online discussion happens every Tuesday from 5 p.m. to 7 p.m.

The purpose of the Oct. 27 #AgChat will be to share general information about the issue of the federal estate tax, to allow farmers and ranchers to discuss how the tax has personally impacted their families and to provide general facts about the estate tax to educate others.

During the chat, pending legislation will likely be part of the discussion, such as the Family Farm Preservation Estate Tax Act, H.R. 3524. The bill would exempt farm and ranch assets from estate taxes, as long as the property remains as a family agricultural operation. This would enable farm families to continue farming without having to sell property or even their entire farm to pay estate taxes.

Introduced by Rep. Mike Thompson, D-Napa, and Rep. John Salazar, D-Colo., the bill would also exclude land enrolled in a qualified conservation easement from the estate tax.

“This discussion couldn’t come at a better time, since the fate of the estate tax will most likely be decided by the end of this year,” said Josh Rolph, director of congressional relations in the California Farm Bureau National Affairs and Research Division.

“My hope is that those taking part feel a sense of urgency that leads to increased support for the Thompson/Salazar bill,” Rolph said. “Members of Congress need to hear from us, and they need to hear from us now.”

The discussion will be moderated by Stanislaus County dairy farmer Ray Prock Jr., an active participant on Twitter who has a high number of followers subscribing to his online posts.

To participate in the live discussion, Twitter members may log on to www.tweetchat.com/room/agchat or twubs.com/agchat.

People who are not subscribed to Twitter, but would still like to monitor the live discussion, may do so at the latter site, twubs.com/agchat.

Governor Ed Rendell signed Pennsylvania’s budget behind closed doors just before 9 o’clock Friday night.

The governor barred the media from witnessing his signature on the spending plan.

“I believe there’s no reason to celebrate the signing of the budget,” Rendell said, trying to explain the private signing.

Rendell said the $27.8 billion appropriations bill cuts spending by more than one percent from last year’s budget by slashing state spending.

A compainion bill pulls about $1.5 billion from the state’s rainy day fund.

“It’s a responsible budget, and it does good things for the state of Pennsylvania,” Rendell said. “But it took entirely too long.”

The budget impasse lasted a record 101 days. Pennsylvania was the last state in the nation to adopt a budget this year.

The plan includes increased taxes on cigarettes and businesses, but there is no income tax or other broad tax increase.

It also increases education funding by $300 million, something the governor insisted must be included in the budget.

At the same time, it deeply cuts spending for both the governor’s office and the legislature.

“This is truly an achievement in holding down both administrative and programatic spending,” Rendell said of the budget.

“Although we have a lot of handshakes and relief that the process is over, we still have a lot of work ahead of us in the next two years ahead,” Senate President Pro Tempore Joe Scarnati said.

The assembly is scheduled to begin work on table games legislation on Tuesday. The legalization of table games in Pennsylvania’s slot machine casinos could generate 200 million dollars each year in fees and taxes.

Source