Tax Law Blog | IRS Tax Attorneys

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 If the cell phone tax is repealed this year, taxpayers would be off the hook for all of 2010, said the official, who spoke on condition of anonymity because the budget had not yet been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.

Source

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.

Source

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.

More »

Several new tax laws could mean more money in your pocket this year.

“We spend the entire off season studying the new tax law updates and all the things that are coming down the pole,” said Jackson Hewitt Tax Service franchise owner, David Elkins. “It’s really been extended to include more people, to benefit more people than it has been in the past.”

More people can tap into the $1,000 education credit, including those who are currently in school and have taken out a loan.

“So whether you pay for it out of pocket, cash, check or credit card or get a loan for it, it qualifies the same for the education credit.” said Elkins. “Also new this year any additional expenses, such as buying a computer that’s required for school, such as books - books haven’t been deductible in the past. Books are now [eligible], and any supplies - those are all new deductibles.”

The earned income tax credit has been extended to include more children.
Internal Revenue Service

“In the past, the people with bigger families didn’t get a benefit from the earned income credit,” said Elkins. “If you had two children or four children, your credit was the same. That’s been extended this year to three children.”

The most recent change includes new guidelines to the first-time homebuyer tax credit.

“It gives people who have kind of been left out of the first time homebuyers credit situation, who have actually already owned a home, it allows them to sell their home buy a new home and also participate in the credit,” said Elkins.

People who sell a home that they’ve lived in for at least five out of eight years can cash in on up to $6,500 credit. You must sign your contract by May 1 and close by June 1.

Source

Get ready to dig a little deeper, Cook County homeowners.

Under a new state law, you’ll be forced to pay slightly more of your property tax bill up front so county agencies, municipalities, school districts and other local governments can improve their bottom lines.

The so-called “accelerated billing” law — which sailed quietly through the General Assembly last year and applies only to Cook County — requires that the first installment of property taxes due March 2 be computed based on 55 percent of the total taxes paid last year, instead of the usual 50 percent.

The change is being spotlighted by county treasurer Maria Pappas, who is including fliers headlined “CALCULATION CHANGE 55%” in this year’s tax bills. Those bills began arriving in mailboxes this weekend, just days before the Feb. 2 primary.

Pappas said Monday she opposes the law. But support from other county leaders and Chicago government officials apparently helped it win approval in the Legislature, where it passed 48-8 in the Senate on April 1 and 67-46 in the House on May 19. Gov. Quinn signed it Aug. 14.

“Right now, people’s income fluctuates month by month, particularly those out of jobs and in between jobs,” said Rep. Jim Durkin (R-Western Springs), who voted against the change. “For people in very difficult situations trying to make their mortgage payments and just getting by, that additional 5 percent is significant.”

A homeowner who paid a $5,000 tax bill last year, for example, would have a first installment of $2,750 this year — $250 more than under the old law. But proponents point out that the change won’t hike the total taxes property owners will pay over the course of the year and could result in lower tax payments on the second installments of their bills.

“When confronted with the fact [local governments] can’t pay their bills, you feel this is one way to get a little more money into their funds,” said Sen. Louis Viverito (D-Burbank), the plan’s lead Senate sponsor.

“Historically, taxpayers are faced with a second property-tax installment that is higher than the first,” said Ashley Cross, a spokeswoman for Quinn. “This slight change aims to provide relief to taxpayers by helping to better balance the two payment cycles.”

There’s a slight chance homeowners who escrow their property taxes could see increases in their monthly mortgage payments based on the new law, said Frank Binetti, president of the Illinois Mortgage Bankers Association. Most lenders, however, should have adequate funds in reserve to cover homeowners’ bills.

“It’s not going to impact the lenders as much as the individual homeowner who pays their own taxes,” Binetti said. “They’re the ones who probably haven’t anticipated this.”

Source

Our next tax trivia question for the giveaway is:

In 2008, the IRS began releasing rebate checks as part of President Bush’s stimulus package. The original version of the stimulus capped the number of children who could be claimed for purposes of the rebate checks at 3. When the package was finalized, what was the cap for the number of children who could be claimed for purposes of the rebate checks?

The first correct answer here wins free CCH tax prep software.

Few places have felt the twin challenges presented by Oregon’s broken state budget and its knotted tax system the way this old farm town has.

acing $3 million in state cuts and no way to raise money, the school district here cut back to a four-day week last fall. Teachers cram in curriculum. Parents juggle child care. Students sleep in on Mondays.

“The three-day weekends are nice,” said Joe DeFranco, who teaches at Mae Richardson Elementary School here, “but academically, we’re strapped.”

Still more cuts will come unless revenues rise. On Tuesday, voters here and across Oregon will have the chance to make that happen when they decide the fate of two ballot measures that would raise taxes on higher-income residents and on businesses to help pay for public education and other services. Known as Measures 66 and 67, the votes are referendums on $727 million in tax and fee increases that were approved last year by the Democratic-controlled Legislature.

Yet if the measures pass, it will probably not be because of support here in largely conservative southwest Oregon. Too many times the state has proposed too many taxes, many residents here say, and this is no exception, never mind the school troubles.

Instead, experts say, if the measures pass it will be because Oregon lawmakers found a way to narrowly focus a tax increase that more liberal parts of the state could tolerate, even at a time when a tax increase could not be harder to digest.

What happens here may be closely watched elsewhere. While tax increases are probably coming in plenty of other states, most by executive or legislative action, Oregon will be the first this year to ask voters to raise taxes on themselves — or at least on some of themselves.

“What’s the saying? ‘Don’t tax me. Don’t tax thee. Tax the man behind the tree?’ ” said Tim Hibbitts, a longtime independent pollster in Oregon. “The measures were designed and have been sold with the idea that somebody else is going to pay, people who are high-income earners and businesses.”

Mr. Hibbitts added, “They were crafted pretty cleverly politically.”

Supporters, led by teachers and public employees’ unions, point out that the income tax increase affects less than 3 percent of the population: individuals who earn more than $125,000 a year. They say the state’s wealthier residents should pay more to help those with less. They also say that state businesses enjoy a relatively low tax burden and that most small businesses will pay only $140 more in fees.

Opponents say the proposals are the wrong fix at the wrong time. State income taxes for wealthier Oregon residents are already among the highest of any state. But the most notable opposition may have come from powerful business groups and prominent executives like Phil Knight of Nike, which is based near Portland.

Oregon unemployment is at 11 percent and new taxes will make it even harder to hire, opponents say. They say that supporters are underestimating how many people would be affected, and that while some of the increases are scheduled to fade out, some are not.

Complicating matters further, the Legislature has essentially already spent the $727 million in projected revenue by incorporating the anticipated tax increases into the current budget. If the measures fail, lawmakers will have to make new cuts or find another way to raise revenue.

What many people on each side agree on is that, recession or not, Oregon’s tax system is flawed and that passing Measures 66 and 67 is not a long-term solution.

Oregon is one of only five states with no state sales tax, and voters have repeatedly rejected ballot initiatives to create one. In addition, a statewide cap on property taxes limits how much local governments can raise rates each year.

Here in heavily forested Jackson County and in several others, there is another wrinkle. Property taxes were historically low here in part because the counties received payments from the federal government for timber production on federal lands. Yet timber production has declined substantially, and subsequent federal subsidies have not compensated for the decline. That aid, too, is set to phase out.

John W. Tapogna, a former economist with the Congressional Budget Office who now leads an economics consulting firm in the Pacific Northwest, said the situation facing counties in this part of Oregon could soon become a crisis that might help force the state to look more broadly at its tax structure.

Continued

IN the digital age, filing income tax returns should be a snap. The important data from employers and financial institutions have already been sent to the government’s computers. Yet taxpayers are still required to perform the anachronistic chore of preparing a return from scratch. And, in many cases, they pay a software company for the privilege.

Requiring taxpayers to file returns without being told what the government already knows makes as much sense “as if Visa sent customers a blank piece of paper, requiring that they assemble their receipts, list their purchases — and pay a fine if they forget one,” said Joseph Bankman, a professor at the Stanford Law School.

Many developed countries now offer taxpayers a return containing all information collected by the taxing authority — to “get the ball rolling by telling you what it knows,” Mr. Bankman says.

It’s a stunningly reasonable idea. When you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be? You’d have the chance to check whether the information was accurate, correct it as needed and add any pertinent details — that you’re newly married, for example, or have a new child — before sending it. Far better to discover problems early with the I.R.S., whose say matters more than third-party software’s best guess.

Full Story

Residents facing hardships during the recession could find a little financial relief through a number of tax law changes this year, according to local accountants.

A number of new credits and expanded deductions could translate into tax savings for families, students, homeowners and vehicle buyers.

Taxpayers with three or more children and married couples may be able to take advantage of the benefits expansion this year. The Internal Revenue Service revised the earned income tax credit formula for the 2009 and 2010 tax years, making the credit available to more low- and moderate-income families, according to the agency.

The credit is a refundable tax credit, so a taxpayer can claim the credit even if taxes were not withheld from their paychecks or they owe no tax.

The credit amount has been increased to 45 percent of the family’s first $12,570 of earned income, according to Cathy Fulmer, a general manager at Liberty Tax Service.

“Even as the recession drags on, a fourth of all eligible low- and moderate-income workers are overlooking their legitimate claims to the refundable earned income credit according to the IRS,” Fulmer said. “Others caught in employment downswing circumstances who may have accepted jobs with lower wages may also be eligible to take advantage of the EIC.”

New vehicle owners can deduct state or local sales taxes or excise taxes on new cars, light trucks, motor homes and motorcycles purchased bet-ween Feb. 16, 2009, and Jan. 1, 2010, according to the IRS. The deduction can be used on multiple vehicles but is limited to $49,500 of the purchase price on each new vehicle, according to the IRS.

More »

The Internal Revenue Service has appointed tax attorney Michael Danilack as deputy commissioner (international) of the IRS’s Large and Mid-Size Business Division.

Danilack comes to the IRS from the Washington, D.C., office of Burt, Staples and Maner LLP, a law firm that specializes in international tax law. Prior to that, he worked as a principal at Deloitte Tax LLP, focusing on cross-border tax matters. From the mid-1990s to 2000, Danilack served as IRS associate chief counsel (international) overseeing the legal staff responsible for the interpretation, enforcement and litigation of all international provisions of the U.S. revenue laws.

In his new position, Danilack will oversee a wide range of issues relating to international tax matters. These include ensuring consistent tax treatment of U.S. taxpayers concerning international issues, providing timely and effective implementation of tax treaty and tax information exchange and advising the Large and Mid-Size Business commissioner on issues involving international tax administration.

Source