Tax Law Blog | IRS Tax Attorneys

A measure to temporarily suspend the tax-limiting constraints placed on lawmakers by a voter-approved initiative was signed into law by Gov. Chris Gregoire on Wednesday.

Gregoire signed the bill just days after the Legislature approved the measure. The measure takes effect immediately.

“I hope, I expect, the people of the state of Washington will understand we’re in unprecedented times,” she said.

The bill spurred two weeks of heated debate in both the House and Senate. Initiative 960 makes it harder for lawmakers to raise taxes or to close tax exemptions, which is why the Democratic majority needed the suspension.

Budget writers want a mix of spending cuts, tax increases and one-time fixes to fill a $2.8 billion deficit.

House and Senate Democrats both unveiled budget proposals Tuesday, with the Senate pushing for a temporary sales tax increase and an additional $1-per-pack tax on cigarettes, and closing numerous tax exemptions. House Democrats have not yet released the revenue-raising part of their budget proposal, though they are expected to do so by the end of the week.

Gregoire said extra revenue is needed this year to prevent further cuts to state programs for vulnerable populations, like the elderly or those with special needs.

While she’d like to avoid higher taxes, Gregoire said “the fact of the matter is I think that would be an immoral budget, a budget I couldn’t live with.”

“At the end of the day, I have to do not only what my head says but what my values are,” she said.

The initiative, approved by voters in 2007, requires two-thirds approval from legislators to raise taxes - a significant hurdle compared with the simple majority needed to pass other measures. The bill signed by Gregoire would pause most of the initiative’s provisions until July 2011, when the next two-year budget cycle begins.

The measure doesn’t suspend all of the initiative: e-mail notifications sent to the public about proposed tax increases, including 10-year cost projections of the measures, will continue. However, the requirement of a nonbinding advisory vote by the public on taxes passed by the Legislature is suspended until July 2011. Also suspended was listing how lawmakers voted on taxes in the voter pamphlet sent out before elections.

Republicans had asked Gregoire to veto the section of the measure that suspends the public advisory vote on tax increases, but Gregoire signed the measure as it was passed by the Legislature.

“I held out a little hope that at the end of day the majority is getting what they want but that they could let the public have a little win in this,” said Sen. Joe Zarelli, R-Ridgefield, one of the Republicans who signed on to the letter to Gregoire. “I’m disappointed.”

Lawmakers can amend initiatives with a simple majority vote after they’ve been on the books for two years, making this the first legislative session that Democrats can suspend I-960 with their current majorities.

Initiative sponsor Tim Eyman hovered behind Gregoire’s chair as she signed the bill, shaking his head several times and looking exasperated.

He got his picture taken with Gregoire after the signing, at first posing holding his nose and giving a thumbs down sign, getting a joking reprimand from Gregoire.

“You must behave,” she said.

After the signing, Eyman, said that it was “extremely disappointing” to watch Gregoire sign the measure.

“They know what they’re doing is not what the voters want, but they seem darn hell-bent to do it anyway,” he said. “Even though we saw it coming, it’s still absolutely galling to watch it actually happen.”

Gregoire has proposed about $759 million in tax increases. She’d also cut about $1 billion and use one-time fixes to bridge the rest of the budget gap.

The Senate plan assumes roughly $920 million in tax increases and about $840 million in spending cuts. About $500 million would come from fund transfers and other one-time fixes, with federal assistance penciled in for about $580 million.

The House Democrats’ budget plan calls for about $860 million in higher taxes and about $650 million in spending cuts. Some $550 million would be solved with fund transfers and other one-time solutions, while federal bailouts would account for about $640 million.

Both chambers must come to agreement on a final budget plan before they can pass it on to Gregoire for her approval. The legislative session is scheduled to end March 11 but could go into overtime if lawmakers are unable to reach an agreement before then.

Source

Two senators Tuesday introduced a proposal to vastly simplify the nation’s tax code by cutting the number of income tax brackets in half and flattening the corporate tax rate.

The plan put forth by Sens. Judd Gregg (R., N.H.) and Ron Wyden (D., Ore.) would lower the number of marginal income tax rates to three: 15%, 25% and 35%. It also would eliminate the alternative minimum tax, which lawmakers scramble to “patch” each year in order to minimize its impact on middle-income taxpayers.

The plan would create a single corporate income tax rate of 24%, but allow small businesses with receipts of up to $1 million to expense all of its equipment and inventory costs.

The plan would target “direct payments and indirect subsidies to businesses each year,” but would leave it to the nonpartisan Congressional Budget Office to identify “the least productive” of those subsidies. Politically, that would be a tough task, as lawmakers fiercely guard subsidies that benefit their states and districts.

President Barack Obama has also called for tax simplification, and last year he tapped former Federal Reserve chairman Paul Volcker to head a task force on the issue. That task force hasn’t issued any recommendations, however.

In a statement, Messrs. Gregg and Wyden said they were aiming to alleviate the headache the tax code causes individuals and businesses trying to sort through its minutiae.

“For far too long, our tax system has been overly complicated, burdensome and unfair to taxpayers and to small businesses that are the economic engines of our nation,” Mr. Gregg said in a statement.

Messrs. Gregg and Wyden assert that the average individual or family earning less than $200,000 would do “as well or better” under their plan than current tax law, in large part because the plan would nearly triple the standard deduction.

“Many taxpayers who currently itemize will find it more advantageous to switch to the standard deduction which will both reduce their tax bills and eliminate the burden of maintaining records and receipts needed to document itemized deductions,” the plan states. Most taxpayers would be able to use a one-page form to submit their taxes, according to Messrs. Wyden and Gregg.

The capital gains tax also would see broad changes under the plan. The legislation would exempt the first 35% of capital gains income from the tax. Also, the first $500,000 of investment would be held for at least six months to be considered long-term capital gains income, and the next $500,000 would have to be held for a year to be considered long-term.

Source

Taxpayers wishing to claim their Haiti relief donations on the tax return they are filling out this season must make those donations by the end of this month, according to the Internal Revenue Service.

Individuals and corporations have until midnight on Sunday, Feb. 28, to make cash contributions to charities providing earthquake relief in Haiti. These contributions can be claimed on either a 2009 or 2010 return, but not both. Contributions made after that date but before the end of the year can only be claimed on a 2010 return.

Contributions made by text message, check, credit card or debit card qualify for this special option. Donations charged to a credit card before the end of February count for 2009. This is true even if the credit card bill isn’t paid until after Feb. 28. Also, checks count for 2009 as long as they are mailed by the end of this month and clear your financial institution shortly thereafter.

Taxpayers can benefit from their donations most quickly 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.

This special provision, enacted Jan. 22, does not apply to contributions of property. Eligible contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Gifts made directly to individual victims are not deductible. Notice 1396 a one-page notice describing this provision, is available on IRS.gov and is printed in English, Spanish, French and Haitian Creole.

To get a tax benefit, individuals 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 this Web site 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. In addition, for text message donations of $250 or more, taxpayers must obtain a written acknowledgement from the charity. 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.

Source

In his suicide note, the computer software engineer who flew a small plane into a building with Internal Revenue Service offices in Texas on Thursday cited a 1986 tax law as a major motivation for his action.

The law, known as Section 1706 of the 1986 Tax Reform Act, made it extremely difficult for information technology professionals to work as self-employed individuals, forcing most to become company employees.

Many software engineers and other such professionals say that the law denies them the opportunity to become wealthy entrepreneurs and that it makes it harder to increase and refine their skills, eventually diminishing their income.

Harvey J. Shulman, a Washington lawyer who represented companies that supported the desires of software engineers to be independent contractors, estimated that the law currently affects at least 100,000 such people.

“This law has ruined many people’s lives, hurt the technology industry, and discouraged the creation of small, independent businesses critical to a thriving domestic economy,” Mr. Shulman said in an interview Thursday. “That the law still exists — even after its original sponsors called for its repeal and unbiased studies proved it unfairly targeted a tax-compliant industry — shows just how dysfunctional and unresponsive Democratic and Republican Congresses and our political system have been, even on relatively simple issues.”

More »

Joseph Stack’s methods were unthinkable — he is accused of ramming a plane into an Internal Revenue Service building in Texas — but his views on taxation follow a long line of protesters who believe tax laws don’t apply to them.

While their numbers aren’t large, according to experts, their arguments are so enticing that the IRS has published a guide to debunk their claims. In 2008, the Justice Department was concerned enough to start the “National Tax Defier Initiative” to better coordinate prosecutions.

“You would think a little light bulb would go on in their head and they would say, ‘Why in the heck is everybody else paying taxes?’” said Peter R. Zeidenberg, a former federal prosecutor who is now a litigation partner at the law firm DLA Piper in Washington. “There are people who are peddling this stuff. It’s a way to get people to believe something that’s too good to be true.”

A 3,000-word manifesto posted on a Web site registered in Stack’s name rails against the IRS and accuses the agency of ruining his life. Stack’s bitter feud with the IRS apparently drove him to commit suicide Thursday by slamming his single-engine Piper PA-28 into an Austin office building where the IRS has offices.

More »

Managing household paperwork, finances and taxes for military families just got easier thanks to the new Military Spouses Residency Relief Act, according to H&R Block (NYSE: HRB).

The act affects the tax status of families when they move on military orders by allowing more flexibility when it comes to state taxes. Servicemembers often retain their permanent residency throughout their military service. Prior to MSRRA, servicemembers could maintain their home state as their permanent residence for the duration of their military career, despite frequent moves during active duty.

Military spouses can now seek the same permanent residency status as servicemembers and have their income taxed only by their state of permanent residence. State taxes only would be due to the state of their permanent residence, provided the servicemember does not seek additional employment.

“In the past, spouses would have to establish new residency in the duty station state and be subject to that state’s income taxes. The Act lets spouses maintain permanent residency in the same state as the servicemembers they are married to and only pay state taxes for the state they call home,” said Zach Goff, manager of tax research of The Tax Institute at H&R Block.

Prior to MSRRA, upon arrival at the new duty location spouses would have to make address changes to titles, re-register their vehicles and obtain new driver’s licenses. Many times, this would lead to servicemembers and their spouses filing state income tax returns for different states.

To determine whether spouses qualify for relief under MSRRA, they must meet three requirements:

– The servicemember must be present at the duty state in compliance with
military orders
– The spouse is stationed with the servicemember
– The spouse is living in the same state as the servicemember

When spouses are applying for the same domicile as servicemembers, they must prove residency, which can be accomplished by activities such as registering to vote, voting via absentee ballot, owning land and maintaining a valid driver’s license.

Because MSRRA was passed to help military families, there are still other requirements for legally changing residency. In addition, a non-military spouse will not simply inherit the permanent residency of their spouse by marriage; they must declare it.

“Each state has different tax regulations and different filing requirements,” Goff said. “Before spouses attempt to change their state of residency, they should first contact the state taxation board to determine whether they meet the MSRRA requirements.”

Taxpayers should check their state’s department of revenue Web site for more information about MSRRA and other state tax changes.

Source

The Internal Revenue Service’s downtown office will be open Saturday to answer taxpayer questions regarding their 2009 returns.

IRS employees currently provide assistance for taxpayers from 8:30 a.m. to 4:30 p.m. Monday through Friday at the office at 324 25th St. The office will be open from 9 a.m. to 2 p.m. Saturday to help taxpayers who may not be able to come in during the week.

“This year, due to the American Recovery and Reinvestment Act of 2009, there are several tax credits, deductions and allowable expenses that may help individuals save money on their taxes,” IRS spokesman Bill Brunson said in a prepared statement. “For example, a person may qualify for Earned Income Tax Credit for the first time because their income dropped due to fewer hours worked, were laid off or worse — lost a job. The average Earned Income Tax Credit for Utahns last year was slightly more than $2,000. Don’t guess, find out if you qualify for this credit and other tax breaks by going online to www.irs.gov or calling the IRS toll-free or dropping by the Ogden IRS office.”

IRS employees are available to answer questions on the full range of tax law provisions, such as the new allowance for $2,400 of tax-free unemployment compensation benefits, said Brunson. The most commonly requested tax forms and publications can also be picked up, and assistance in Spanish is available, he said.

IRS employees will also offer, as time permits, free tax preparation and electronic filing for individuals who earn $49,000 or less.

Utah residents who are not able to pay all their taxes owed by the April 15 filing deadline can obtain information about payment plans. Individual taxpayers will also be able to get assistance with existing issues, such as levies on wages or bank accounts, IRS notices and letters.

In addition to help at the IRS Ogden office, there are several free tax preparation sites across Utah run by community organizations partnering with the IRS.

The Volunteer Income Tax Assistance program assists people who earn $49,000 or less, and the Tax Counseling for the Elderly program assists individuals 60 and older, Brunson said. Both programs provide free tax preparation for the 2009 tax return and free electronic filing.

Many of these sites have Saturday hours while others offer assistance at various times during the week. Call 211 to locate the free tax help site nearest you.

Source

1. Tax “custody” is different.

These days, family courts often award “joint” custody of a child–joint legal custody and sometimes joint physical custody too. In the tax world there is no such thing. Custody, meaning the $3,650 dependent exemption for a child and the $1,000 child tax credit belongs to the parent in whose home the child spends more nights.

What often happens in the real world is that parents with joint custody haven’t resolved who gets tax custody and so both claim the child. The parent who files his or her 1040 first gets the exemption/credit. When the second to file claims the child, his or her refund is held up. Both then receive an IRS notice saying a dependent was claimed twice, and requiring each to submit proof of entitlement to the dependent. So mark your calendars the nights your children stay with you so you will have “contemporaneous records” to prove your claim for tax custody. (Days may be used for parents who work nights.)

Full List Here.

The Internal Revenue Service today released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.

Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 80-page document, The Truth about Frivolous Tax Arguments.

The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.

Find an IRS Tax Attorney

Source

Members of the University of New Mexico Tax Law Club are preparing personal income tax returns at no cost through April 15. Those eligible for the service include members of the public, UNM students and UNM faculty.

The student tax preparers are IRS-certified and can offer e-filing and direct deposit options. Organizers are directing those who are interested to the UNM School of Law, room 2424. The law school is at 1117 Stanford Drive NE.

The free tax preparation will take place Mondays, Tuesdays and Thursdays from 3 p.m. to 6 p.m., Wednesdays from 2 p.m. to 6 p.m. and Fridays from 1 p.m. to 4 p.m.

The service will not be available during UNM’s spring break from March 15 to 19.

Organizers are requesting taxpayers bring the following:

* Tax forms and preparation booklet for 2010
* A copy of 2009 income tax return(s)
* W-2 forms from each employer
* Unemployment compensation statements
* All 1099 forms, including SSA-1099 form if you were paid Social Security benefits
* All forms indicating federal income tax paid
* Dependent-care provider information (name, employer, ID, Social Security number)
* Receipts and canceled checks (or written summary) if itemizing deductions
* Social Security cards or other official documentation for the taxpayer and all dependents

For more information, contact unm-tlc@law.unm.edu or call (505) 272-3521.

Source