Tax Law Blog | IRS Tax Attorneys

WASHINGTON — The Internal Revenue Service today announced the issuance of proposed and temporary regulations and related revenue rulings addressing the use or disclosure of tax return information by tax return preparers.

The regulations and related revenue rulings under section 7216 enable tax return preparers to more effectively provide a range of services that taxpayers would ordinarily expect from tax return preparers. Generally, these services benefit taxpayers, increase voluntary compliance and improve tax administration.

The proposed and temporary regulations enable tax return preparers to use or disclose tax return information without explicit taxpayer consent in certain limited circumstances. Tax preparers can contact their clients regarding tax law developments that may affect the clients. They can also disclose information in connection with the potential sale or purchase of a tax return preparer’s business and during the process of conducting client conflict-of-interest checks.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed rules, how they can be made easier to understand and the administrability of the rules in the proposed regulations. All comments will be made available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments.

The expiration of the estate tax at the beginning of the year, and the threat of it returning with a vengeance in 2011 at a 55 percent rate for estates over $1 million, is giving estate planners fits.

Senate Finance Committee Chairman Max Baucus, D-Mont., had attempted to get at least a temporary extension in place by the Senate after the House voted to extend the estate tax at its current rate of 45 percent for estates over $3.5 million, but he was blocked in the effort by Senate Republicans, and some Democrats as well. Now he wants to get the estate tax fix passed sometime next year and make it effective retroactively, but that strategy might not survive the inevitable legal challenges.

Meanwhile, tax attorneys are reporting cases where clients are on life support and their families are trying to make decisions based on the prospects of tax law changes, according to The Wall Street Journal. Others are inserting provisions in their health care proxies that would let family members who decide on end-of-life care take into account the changes in estate tax law.

The doubts are sure to increase next year and pressure will mount on Congress to decide what to do as the days tick by.

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A fight may be brewing between supporters of a proposed Dubuque property tax hike and opponents.

A proposal presented to the Dubuque City Council earlier this month include a 2.47 percent increase for the average Dubuque homeowner, or about $27.57. Commercial and industrial property taxes are expected to increase 1.72 percent.

A factor contributing to the proposed tax hike are a state mandate requiring increased payment to the Municipal Fire and Police Retirement System.

A 1 percent increase in the utility franchise fee also is proposed. The fee hike would help offset $828,000 in spending.

David Resnick is one of two councilmen who voted against the budget guidelines. He says the city has to live within its means.

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This month, as the tax year nears an end, thousands of Arizonans are expected to donate money to private-school tuition groups and claim a tax credit
that reduces what they owe the state.

Many taxpayers will recommend that their money go to specific students as scholarships; many tuition groups will honor those wishes.

But these taxpayers, and the school tuition organizations that give out the scholarships, may be running afoul of federal tax law
.

The legal do’s and don’ts are not entirely clear because the IRS has not ruled specifically on tax-credit donations targeted to particular students. But disputes run deep among private-school and tuition-group operators and tax experts over the legality of recommending that specific students get the scholarships.

A typical scenario illustrates how such legal concerns arise:

• A married couple decide to make a maximum $1,000 donation using the tax credit. They send a check to a tuition group and indicate they want the money to go to the husband’s nephew.

• The tuition organization honors the recommendation and allocates a roughly $1,000 tuition scholarship to the nephew.

• Come tax time, the couple file an Arizona income-tax return claiming the $1,000 tax credit. Their tax bill is reduced by that amount. At the same time, they claim a $1,000 charitable deduction on their federal tax return because the donation went to a non-profit, tax-exempt tuition group. Their taxable income is reduced by $1,000. Without that deduction, the couple’s federal tax bill would increase because the donated $1,000 would still be considered taxable income.

• In a common variation, the couple also have a child in private school. State law bars them from making a donation to a tuition organization to directly benefit their own child. But the couple have friends whose child attends the same school. The two couples strike a deal to make $1,000 tax-credit donations for each other’s children, a practice called “swapping.” Both claim the state tax credit and the federal deduction.

Tax preparers and attorneys say this scenario raises three key legal questions: Are taxpayers allowed to claim a charitable deduction on their federal tax forms for a donation intended for a specific student? Is it legal for taxpayers to claim that same deduction when they swap donations with other parents? Are non-profit tuition organizations, which are 501(c)(3) charities under tax law, allowed to accept and honor requests from donors that the money go to particular students?

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The Internal Revenue Service today announced the 2010 inflation adjustments to the excise taxes on air transportation.

Excise taxes apply to the domestic segments of taxable air transportation and to the use of international air facilities. The Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II, signed into law on Dec. 16, 2009, extends these excise taxes to air transportation that begins or is paid for no later than March 31, 2010.

These excise taxes are adjusted annually for inflation:

• For 2010, the excise tax on the domestic segment of taxable air transportation is $3.70, up from $3.60 in 2009.
• The excise tax for 2010 for international flights that begin or end in the United States is unchanged at $16.10.
• The tax on use of international air facilities also applies at a reduced rate to departures of interstate flights that begin or end in Alaska or Hawaii. For 2010, the international air facilities tax on these flights is $8.10, up from $8.00 in 2009.

Further details on the excise taxes on air transportation can be found in Form 720, Quarterly Excise Tax Return, and its instructions.

Major legislation to modernize the state’s tax system may be postponed until 2011, Democratic leaders in the General Assembly say.

The delay would not be surprising, given that the legislature has been discussing major tax reform for years but has never come close to passing a tax overhaul. Also, the 2010 elections, in which all legislative seats are up for re-election, will make it politically difficult to pass a significant — and likely controversial — tax package.

“I wouldn’t rule it out, but I wouldn’t rule it in either,” said Rep. Hugh Holliman, D-Davidson, the House majority leader. “This is a monumental look at a change to our tax structure, and I don’t think we want to rush it.”

Legislators adjourned their 2009 session in August, after plugging a massive state budget hole with a combination of budget cuts and tax increases. The budget crisis was caused by the recession, but it was exacerbated by the state’s old-fashioned tax system and heavy reliance on the sales tax, which creates large fluctuations in state revenue.

When legislators adjourned in August, they promised to spend the fall and winter extensively studying tax reform with the goal of holding public hearings and passing a bill in 2010. Since then, the House and Senate finance committees have met jointly three times, each time hearing presentations from tax experts.

The full legislature will go back into session in May for a so-called short session, which normally lasts only about two months.

The Senate majority leader, Martin Nesbitt, said he believes it’s unlikely that tax reform could be passed in the 2010 session.

“The short session is designed really to go down there and make budget adjustments,” said Nesbitt, D-Buncombe. “It’s not really designed for any kind of major overhaul or major legislation. So it would be difficult to do it this summer.”

Many previous committees have studied tax reform without reaching broad agreement on the sorts of changes needed. For instance, most experts and legislators agree that the sales tax rate should be lowered but that it should be expanded to cover many more services. And many of the loopholes and exemptions currently in the state’s tax code should be closed, they say.

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The head of an Orthodox Jewish group was handed a  two-year prison sentence today in Los Angeles for his part in what prosecutors said was a decade-long tax fraud and money laundering scheme.

The 61-year-old rabbi, Naftali Tzi Weisz, pleaded guilty last August to  criminal conspiracy charges before U.S. District Judge John F. Walter.

“I’m embarrassed beyond words,” Weisz told the judge. “My remorse is  deep and heartfelt.”

Prosecutors said Weisz and other sect members helped donors avoid paying  federal income taxes by having them make contributions to charitable groups  run by Spinka, a Brooklyn, N.Y.-based Orthodox Jewish group led by the rabbi.

An assistant, Gabbai Moshe Zigelman, 62, pleaded guilty last year to  conspiracy and was also sentenced to a two-year federal prison term.

The operation, according to the government, had two goals: to obstruct  the Internal Revenue Service and to further an unlicensed money-transmitting  business.

Although Weisz had faced up to five years in federal prison, Walter  imposed the lesser penalty, determining that the rabbi did not undertake the  fraud to enrich himself.

“I’m convinced he never took a penny for himself,” the judge said.

Weisz, several associates and five charitable organizations associated  with Spinka were indicted by a federal grand jury in late 2007.

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Ohio Governor Ted Strickland has signed the delay in the income tax cut into law.

The move is designed to fill the 850-million dollar gap in the state’s budget for 2010.

Many Republicans called the proposal a tax increase, including Findlay State Representative Cliff Hite.

The 4.2-percent reduction was part of a 21-percent reduction that began in 2005. The bill also allows Ohio colleges and universities to test proposed changes in construction contracting procedures in pilot projects.

Officials at The Ohio State University claim to save hundreds of millions of dollars if those could be implemented.

Looking for an Ohio Tax Attorney?

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WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010.

Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.

Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee.

The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

The tax-filing deadline may be months away, but it’s not too early to start thinking about tax preparation.

There’s lots of help available for taxpayers, said Dan Boone, regional spokesman for the Internal Revenue Service. The official IRS Web site, www.irs.gov, includes IRS forms and publications and the latest tax tips and answers to frequently asked questions, he said. Services include a tax refund tracker, a withholding calculator, a payment agreement application and an employer ID number application.

“Be sure to go to IRS.gov, not .com or .org or anything else,” he said. “Taxpayers who do not have Web access can phone the IRS toll-free at 1-800-829-1040.”

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