Tax Law Blog | IRS Tax Attorneys

Gordon Brown is considering following Barack Obama in imposing a fresh tax on banks to compensate for the huge state-funded bail-outs they received during the financial crisis.

Downing Street sources said a plan for an annual insurance fee in Britain remained on the table, despite Alistair Darling yesterday ruling out the move.

President Obama last week introduced a 0.15 per cent tax on the liabilities of the 50 largest financial institutions, which have assets of more than $50bn (£31bn).

The President criticised the “obscene” bonuses paid out by banks and said the levy would recover $90bn over 10 years spent by the taxpayer on bailing out Wall Street.

The Obama plan is similar to the “systemic risk levy” drawn up by UK officials last year. The levy was one of four options proposed in Whitehall for getting banks to bear some responsibility for the financial crisis – on top of the windfall tax on bonuses unveiled last month.

The proposals were contained in a 70-page document calling for global measures to shift the risk away from taxpayers and on to the banks, which was published alongside the pre-Budget report.

A No 10 source said last night: “We’re certainly still looking at all these options. Clearly the US measures move the argument on and will get engagement.”

But, suggesting another split between No 10 and the Treasury, Mr Darling yesterday appeared to rule out the move, saying the UK had introduced the windfall tax on bankers’ bonuses, unveiled in the PBR. Asked if he was considering following the US Treasury plan, the Chancellor told The Scotsman: “No, the Americans are doing something different.”

In a separate interview, Mr Darling said the Government had taken shares in RBS and Lloyds Banking Group and that the money would be recouped when the banks are sold.

The shadow Chancellor, George Osborne, said yesterday that the Tories would introduce an insurance tax on banks if there was agreement across the G20.

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From the IRS Website:

Most businesses may use losses incurred during the economic downturn to reduce income from prior tax years, under a revenue procedure issued today by the Internal Revenue Service.

The relief provided under the Worker, Homeownership, and Business Assistance Act of 2009 differs from similar relief issued earlier this year in that the previous relief was limited to small businesses.

The current relief is applicable to any taxpayer with business losses, except those that received payments under the Troubled Asset Relief Program. The relief also applies to a loss from operations of a life insurance company.

Taxpayers under the procedure may elect to carry back a net operating loss (NOL) for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer’s taxable income in that fifth preceding year.  This limitation does not apply to the fourth or third preceding year.

The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.

The state tax department is cracking down on dishonest tax preparers and refund-anticipation lenders with a new law.

The measure requires individuals and businesses who meet certain criteria with regard to tax preparation and refund loans to register annually.

Some commercial preparers will also be required to pay an annual $100 fee. Fines for violating these new amendments to the state Tax Law could reach $5,000.

The tax department says nearly 60 percent of New York personal income tax returns are prepared with the assistance of someone who’s paid to do it.

Anyone, regardless of education, training, or criminal background, can call themselves a tax preparer and charge for their services.

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Catholic bishops did nothing wrong in pressing Congress to bar federal funding of abortion in the Democrats’ health care reform bills, and any IRS investigation resulting from the bishops’ stance would be construed as harassment, the Catholic League said on Wednesday.

The Catholic League was responding to a Democratic lawmaker, who questioned whether the U.S. Conference of Catholic Bishops (USCCB) violated federal law by lobbying for an amendment banning federal funding of abortion.

Rep. Lynn Woolsey (D-Calif.), in a November 9 op-ed on the Politico Web site, said that in light of heavy pressure from USCCB against federal funding for abortion, the Internal Revenue Service should investigate whether the organization exceeded the limitations of its tax-exempt status – a move that could lead the Internal Revenue Service to revoke that status.

Woolsey’s comments came after USCCB lobbied pro-life Democrats to support the efforts of Rep. Bart Stupak (D-Mich.), who sponsored an amendment prohibiting federal funding of abortion through any of the health insurance subsidies created by the House health care bill.

Stupak said if House Speaker Nancy Pelosi (D-Calif.) didn’t allow his amendment to come to a vote, he would block the entire bill from coming to the floor. After lobbying by Stupak, USCCB, and other pro-life groups, Pelosi allowed the amendment to come to a vote, and it passed with bipartisan support.

USCCB made it clear that it would not support any health care bill that allowed federal funding of abortion in any way. “Abortion is not health care,” the bishops insisted.

Woolsey – who co-chairs the Congressional Progressive Caucus – said the USCCB should have stayed out of the legislative process: “The role the bishops played in the pushing of the Stupak amendment, which unfairly restricts access for low-income women to insurance coverage of abortion, was more than mere advocacy,” she wrote in the Politico piece.

Continued

Connecticut residents will no longer have to flee to Florida to avoid the Connecticut estate tax because of a new law enacted Sept. 8 (House Bill 6802).

Beginning with deaths occurring on or after Jan. 1, 2010, estates (and gifts) of as much as $3.5 million will be exempt from Connecticut estate (and gift) tax. That moves the threshold for taxable estates (and gifts) up from the current $2 million level.

Importantly, the new law will lift the Connecticut “cliff” where a single U.S. dollar bill counts as $101,700 in Connecticut.

The cliff, which will die on Jan. 1, 2010, is an unfair happenstance for estates a smidge over $2 million. Right now, an estate of $2 million pays no Connecticut estate taxes. But, an estate of $2,000,001 — just a dollar more — pays Connecticut $101,700.

These are two very important estate tax changes. And there is one more. The new legislation also reduces rates by 25 percent beginning in 2010.

“These changes are a step in the right direction,” says state Rep. Livvy Floren, R-149th Dist.

Under current law, an estate (or gift) of $3.5 million pays a Connecticut estate tax of $190,800, according to the state Office of Fiscal Analysis. Under the new law, for deaths occurring after the end of 2009, the tax will be zero, and there will be no cliff — that is, the tax for estates above $3.5 million will be taxed only on the amounts above $3.5 million. The tax rate is 7.2 percent for estates of $3.5 million to $3.6 million, down from 9.6 percent.

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The U.S. and Switzerland settled a Justice Department lawsuit against UBS AG seeking the names of Americans suspected of evading taxes through 52,000 secret Swiss accounts.

The governments have initialed agreements and will later sign a final accord, Justice Department lawyer Stuart Gibson told U.S. District Judge Alan Gold in Miami today. Gibson didn’t disclose details of the settlement or say when it would be delivered to Gold. Gibson told the judge July 31 that the countries reached an agreement in principle to settle the case.

Tax lawyers said they expect UBS to disclose thousands of accounts. UBS, based in Zurich, agreed on Feb. 18 to pay $780 million to defer prosecution for aiding tax evasion and also gave data to the Internal Revenue Service on 250 clients. Since then, three UBS clients have pleaded guilty in the U.S. to hiding their bank assets from the IRS.

“They made an agreement that will reconcile the IRS’s desire to get this information as quickly as possible and the Swiss desire to respect their own legal procedures and process,” said Scott Michel, a tax attorney at Caplin & Drysdale in Washington, which represents UBS clients.

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This week, President Obama signed into law the Car Allowance Rebate System (C.A.R.S.) - a  program that pays consumers up to $4,500 in tax credit for trading in their cars or trucks for more fuel efficient vehicles.

As the New York Times reports, you will need to check if your vehicle qualifies for the trade-in credit. You can check out The National Highway Traffic Safety Administration web site to see if you are eligible to participate in the program. Generally, to qualify your car must be:

• at most 25 years old.

• gets 18 miles a gallon or less.

• drivable.

• registered.

• insured for the past year.

The government, which is very focused on bailing out the devastated automotive industry, is allocating $1 billion for the program.

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A push for new taxes on soda, beer and wine to help pay for Americans’ health care is stirring up more than just the beverage industry.

Advertisers, corn refiners — even addiction treatment centers — have mobilized their lobbyists, reflecting how a tax increase for a handful of popular products can reverberate broadly across Washington’s interest groups.

The Senate Finance Committee is considering raising taxes on alcohol and imposing a new levy on soda and other naturally sweetened drinks to help pay for overhauling health care. The committee calls them “lifestyle tax proposals,” saying the levies would slow sales of unhealthy products that contribute to rising medical costs.

Soft drink and alcohol lobbyists have snapped into action, though so far their campaigns have been quiet compared to the blaring, multimillion-dollar battles that typify major showdowns.

Their low-key approach is due partly to committee leaders’ warnings to refrain from public attacks or be accused of sabotaging health care overhaul. They’ve also held back because they have faced only modest lobbying from tax proponents, and because they think the proposal may prove so unpopular that it ultimately won’t threaten their businesses.

“They don’t want to call attention to a quietly smoldering fire,” said Rogan Kersh, an associate dean at the Wagner School of Public Service at New York University.

Besides alcohol, drinks with sugar, high fructose corn syrup and similar sweeteners would be targeted, though diet drinks with artificial sweeteners would not. Other industries also are on alert, worried that the idea of “lifestyle taxes” could spread to other products deemed unhealthy.

“Are they going to hit couch manufacturers? School districts that have canceled physical education?” joked Neil Trautwein, health care lobbyist for the National Retail Federation, which opposes the plan and whose members include fast-food restaurants.

Sugar producers and manufacturers of sweetened foods are opposed, as are dairy farmers and milk processors, since chocolate milk would be hit. Alcohol retailers want to go the opposite way, pushing for a cut in the existing tax on their products. That tax ranges from 21 cents per bottle of wine to 33 cents per six-pack of beer to $2.14 per fifth of hard liquor.

Even local governments are following developments closely.

Pennsylvania, one of several states that profit from alcohol because it runs the stores where it is sold, is watching to see how the proposal might affect it.
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The IRS has filed a $819,848 tax lien against Sen. John Kerry’s 2004 presidential campaign for failure to file payroll tax forms, but Kerry on Wednesday blamed an IRS clerical error.  Tax Analysts reports that Sen. Kerry released documentation from the Paychex payroll service claiming that the tax forms were properly filed in January 2005 and then twice in 2008 after the IRS assessed the penalties for failure to file the forms.

• Associated Press
• Washington Times

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An investigation by The Daily Telegraph has discovered nine cabinet ministers and more than 30 junior ministers have claimed back the cost of personal tax advice on their expenses, whereas millions of voters forced to complete self-assessment forms are prevented from writing off the cost of employing an accountant.

Ministers have said their expenses claims for accountancy bills were allowed within parliamentary rules as stipulated by their ”Green Book’’.

However, in an unusual intervention, HMRC told The Daily Telegraph on Tuesday night that MPs were not exempt from tax laws and that tax must be paid on some expenses.

In a statement it said: “It’s a general principle of tax law that accountancy fees incurred in connection with the completion of a personal tax return are not deductible.

“This is because the costs of complying with the law are not an allowable expense against tax. This rule applies across the board.”

It also emerged that MPs had already been given specific guidance by HMRC prohibiting such tax- free claims, which accountants say constitute a “benefit in kind” and should be taxed.

Issued in 2005, the guidance states that “accountancy fees incurred in the preparation of the self assessment tax return or related expense claims” are “not allowed” as tax expenses.

Mike Warburton, an accountant at Grant Thornton, said: “HMRC produces very helpful guidance for MPs, which explains exactly what is allowable.

“MPs are responsible for their own tax affairs and for making their own declarations to the authorities.”

Dozens of ministers face the threat of a tax investigation into their claims. Senior Conservatives are not believed to have claimed for accountancy fees.

David Cameron said on Tuesday that he would force any Conservative MPs to repay any money they had claimed for tax advice. The Conservative leader said news of the claims for tax advice “beggars belief” and were “completely wrong”.

Speaking in North Wales, Mr Cameron said: “The thing about Government ministers getting the taxpayer to pay for accountants to fill in their tax returns, it never occurred to me that this was something people would do.
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