Tax Law Blog | IRS Tax Attorneys

The Internal Revenue Service and the Securities and Exchange Commission announced that the two agencies agreed to work more closely to monitor and regulate the municipal bond market and industry.

IRS Commissioner Doug Shulman and SEC Chairman Mary Schapiro today signed a Memorandum of Understanding designed to improve compliance with IRS and SEC rules and regulations related to municipal securities. The muni bond market currently totals about $2.8 trillion in outstanding securities and continues to grow in complexity and size.

“This memorandum reflects the commitment both agencies have in using all means possible to ensure the municipal bond market operates in accordance with all the laws that govern it,” Shulman said.

“Through cooperative relationships like this, we are better positioned to protect investors and ensure they are getting the information they need when investing in municipal securities,” Schapiro said.

The IRS and SEC will work cooperatively to identify issues and trends related to tax-exempt bonds in the municipal securities industry and to develop strategies to enhance performance of their respective regulatory responsibilities. To support this effort, the two agencies will work through a standing Tax Exempt Bond/Municipal Securities Committee to discuss policy, procedures and compliance issues.

The IRS and SEC will also share information as appropriate regarding market risks, practices and events related to municipal securities, among other things. In addition, the two agencies will collaborate on educational and other types of outreach efforts.

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.

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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.

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Nearly 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services for low-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help to people who earn less than $49,000. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.

Today, partners and local officials will be hosting news conferences or issuing news releases nationwide to highlight the Earned Income Tax Credit (EITC) and their free tax preparation programs. The EITC is already the government’s largest cash assistance program targeted to low-income Americans. However, not all eligible taxpayers may be aware or claim the EITC.

Taxpayers need to bring to the VITA/TCE sites the following items:

* Photo identification
* Valid Social Security cards for the taxpayer, spouse and dependents
* Birth dates for primary, secondary and dependents on the tax return
* Current year’s tax package, if received
* Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers
* Interest and dividend statements from banks (Forms 1099)
* A copy of last year’s federal and state returns, if available
* Bank routing numbers and account numbers for direct deposit
* Other relevant information about income and expenses
* Total paid for day care
* Day care provider’s identifying number

To file taxes electronically on a Married Filing Jointly tax return, both spouses must be present to sign the required forms.

Trained community volunteers can help eligible taxpayers with all special credits, such as the EITC, Child Tax Credit or Credit for the Elderly. Also, many sites have language specialists to assist people with limited English skills.

In addition to free tax return preparation assistance, most sites use free electronic filing. Individuals taking advantage of the e-file program will receive their refunds in half the time compared to returns filed on paper. Taxpayers who use e-file and direct deposit can receive their refund in as few as 10 days. This year, taxpayers also can use the refunds to purchase U.S. Savings Bonds.

Taxpayers who file electronically also can opt to file now and pay later. If taxpayers owe, they can make a payment April 15 by authorizing an electronic funds withdrawal (direct debit) from a checking or savings account, paying by credit (Discover Card, American Express, MasterCard or VISA Card), or by check or money order (made out to the United States Treasury) using Form 1040-V, Payment Voucher.
As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at nearly 7,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to people age 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP’s Internet site.

The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council (AFTC) consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. The AFTC oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. Volunteers are trained and equipped to address military specific tax issues, such as combat zone tax benefits and the effect of the EITC guidelines.

For taxpayers who want to prepare and e-file their own tax returns, there is IRS Free File. This is a free service offered by approximately 20 companies who make their software available for free. Taxpayers with incomes of less than $57,000 are eligible to use Traditional Free File, which is the easy-to-use, interview-style software. For people with incomes of more than $57,000 or people who need little assistance, there is Free File Fillable Forms. For either service, taxpayers must go through irs.gov/freefile to access the programs.

EITC-eligible taxpayers also can seek free assistance at the 400 IRS Taxpayer Assistance Centers nationwide. To assist EITC taxpayers, 167 IRS TACs will offer Saturday service on Jan. 30, Feb. 6 and Feb. 20.

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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.

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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

There are several tax changes for this year that will benefit almost everyone who files a tax return. Here is a sampling of things that you should know:

· Sales Tax Deduction for New Vehicles – Sales tax on a new car is deductible, whether or not you itemize your deductions. For those who do not itemize, the amount of sales tax is added to your standard deduction. If you do itemize, there is a new line for deducting sales tax. In the past most Massachusetts residents were never able to deduct sales tax on an automobile because their choice was to either deduct sales tax or income tax. In Massachusetts the income tax was usually higher than the sales tax amount. For 2009, anyone who purchases a new car after February 16,  2009 may deduct the sales tax.

· Unemployment Benefits – There is a little bit of good news for those of you who have been unemployed in 2009. For 2009, the first $2,400 of unemployment benefits received is not taxable.

· Standard Deduction - Most people will see an increase in their standard deduction for 2009 due to the cost of living increase. For 2009 the Standard deduction for married couples filing a joint return is $11,400, up by $450 from 2008. Joint filers can increase their standard deduction as much as $1,000 for real estate taxes, if they do not itemize their deductions.

For single filers, the amount is $5,700 for 2009, up by $250 over 2008. Single taxpayers may also increase their standard deduction by up to $500 for real estate taxes paid.

If you had the misfortune to be in a presidentially declared disaster area, your losses may be added to your standard deduction.

· Tax Rates – For tax year 2009, dividends and capital gains continue to have favorable treatments. For some, dividends and capital gains will be tax free. Rates on both dividends and capital gains are scheduled to increase for 2010.

· The maximum tax rate on capital gains continues to be 15% as in 2008. If you are in the 10% or 15% tax bracket, your capital gains are tax free. Single taxpayers with taxable income below $33,950 and married taxpayers with taxable income below $67,900 (the maximum to be in the 15% tax bracket) will pay zero on their capital gains.

· Dividends, like capital gains, can also be received tax free. If you are in the 10% or 15% tax bracket, qualified dividends are tax free. If your income is over the limits as shown above, then the tax rate jumps to 15% and stays there. The maximum tax rate on dividends, no matter how high your income, is 15%.

· This tax year is not much different from tax years gone past. You still need to bring your tax preparer the tax forms that identify how much income you received in the past year as well as your tax deductions. The common deductions are medical, taxes, mortgage interest and charitable contributions. Seniors should also inform their tax preparer of the amount paid for water and sewer for calculating the Massachusetts Senior Circuit Breaker Credit.

This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).

Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, MA. He also holds Masters in accounting and a Masters in tax law. He currently serves as the President of the Friends of the Saugus Senior Center and is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. For questions, call him at the Elder Law Center, One Essex Street, Saugus, MA 01906 at 781-233-4444. To view this or any prior article, visit www.elderlawcenter.org.

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Giant fraud insider trading case director pleads guilty

This year, the alternative minimum tax will gather $63 billion from American families with an income of as little as $75,000, according to the Senate Finance Committee. The AMT may now hit tax filers who are school teachers, construction workers and bus drivers. Call them the new rich.

The middle class will get soaked other ways, too. The new homebuyer tax credit goes away. That will hit working families with a $10.8 billion tab. The tax deduction for state and local taxes also disappears, so shoppers of all incomes will cough up $1.85 billion more.

Got a kid in college? The federal tax deduction for college tuition and fees has disappeared. That’s another $1.5 billion tax hike on the nonrich.

The nation’s employers are none too happy either with Congress’s failure to extend these tax cuts before the New Year. The research tax credit, which businesses depend on for new innovation and R&D, has been suspended. This will raise R&D costs by more than $7 billion in 2010.

The 50% write-off for small businesses for capital purchases—such as expanding their facilities, purchasing new equipment or machinery, or building a new plant—has vanished. Without those tax incentives, small businesses are likely to put any plans to expand their operations on hold. That means less jobs and fewer pay raises. A study by the National Center for Policy Analysis found that about 90% of the benefits from capital investment goes to workers in the form of higher wages due to increased productivity.

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