Tax Hikes Loom For Businesses

Congress is going to have a handful of tax issues to consider when they return from summer recess, many of which will affect American businesses. According to Forbes.com, legislators will need to take on bills dealing with expiring tax cuts, tax relief for businesses, and energy laws likely to have significant tax implications.

The difficult part: Paying for it all. No member of Congress wants to be viewed as raising taxes in the weeks before Election Day. Much of the work can--and probably will--be done in the "lame-duck" session following the election, but the dynamics of such sessions are notoriously unpredictable. At the same time, lawmakers will be feeling pressure to trim the $1.4 trillion federal budget deficit. The president's Fiscal Commission suggesting steps to do this is due by Dec. 1.

Business is watching closely. Congress is also cooking up an alphabet soup of tax measures to offset some of the outlays, and how it turns out is anyone's guess.

"Everything that has been in any bill that has been passed by the House or Senate is fair game and is at high risk of being done," warns Clint Stretch, managing principal for tax policy in the Washington office of Deloitte Tax.

The most debated item is whether to extend the Bush tax cuts, which expire at the end of the year. The Obama administration has proposed keeping them in place for about 98% of all Americans, but letting the top marginal income tax rates rise for individuals earning more than $200,000 per year and couples who make more than $250,000. The top two rates would be 36% and 39.6%, up from 33% and 35%, respectively, at present.

Continue reading at Forbes.com…

Up in the Air: Your Taxes

The year is now half over, and a handful finance experts have taken note of the huge tax to-do list on Congress’ agenda for the rest of the year. The Wall Street Journal recently put together a detailed and lengthy list of the tax issues Congress is scheduled to take on in the next six months. You can find a section of the WSJ article on the topic below, or click here for the full text.

"I've never seen so many tax issues that need to be addressed in so little time," says Lindy Paull, a former top congressional tax staffer now with PricewaterhouseCoopers.

If lawmakers don't act, estate taxes will rise, the alternative minimum tax will hit millions more taxpayers, and many useful benefits will expire. Tax rates also will rise for all, and for investors the top rate on dividends will jump to nearly 40% from 15%.

Congress has fewer than 40 working days left before the November election, with no lame-duck session scheduled.

Legislation is notoriously unpredictable, but here is where the big issues stand. If you are following the play by play, keep in mind that the Senate has been the bottleneck this year because of its leaders' difficulty in mustering a filibuster-proof 60-vote majority.

Estate tax. The now-lapsed estate tax will return in January 2011, with a 55% top rate and a $1.2 million exemption per individual, unless lawmakers act. It will hit about 44,000 estates, eight times as many as the 2009 version of the tax, according to the nonpartisan Tax Policy Center.

Tax Issues Confront Retirees

Although retirement is a time to relax, planning for your retirement can be stressful and difficult. However, by doing a little research you can make the most out of your retirement. Market Watch has put together a helpful article explaining tax issues related to retirement, and what states are better to retire in. You can find a snippet of their article below.

As you enter retirement, probably the largest and most daunting expense you encounter will be taxes. And we're talking not just of a benign single item of expense, but quite possibly many different kinds of levies. Each one of our 50 states can enact and enforce state and local taxes by the dozen, as well as property taxes by the hundreds, and countless more.

These taxes can vary so much in size and scope from place to place that they sometimes become key factors in your decision of where to retire -- indeed, whether you choose to retire at all.

People who retire to low-tax or no-tax states have an economic advantage over those who do not. But only nine states have no broad-based state income tax. Those states are: Alaska, Texas, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington and Wyoming. (In New Hampshire and Tennessee, income tax is limited to dividends and interest income.) See this Federation of Tax Administrators page for more details on state tax rates.

One means to determine which state is the least costly in terms of total taxes is to check a study called "Tax Freedom Day." That's the day on which the ordinary American's total federal, state and local tax bill is fully paid from his or her earnings for the year to date. Ostensibly, this is the day you stopped working for the government and started working for yourself; that is, the day you earned enough to pay your federal, state and local taxes and are now starting to make money you'll be able to spend on things for yourself. For more on Tax Freedom day, visit the Tax Foundation site.

In recent years, states posting the worst Tax Freedom Days; that is, the highest overall tax bills have included Maine, New York, Ohio, Minnesota and Hawaii. And states with the lowest overall taxes have included Alaska, New Hampshire, Delaware, Tennessee and Alabama.

Professional Athletes with Tax Problems

Over the past week two professional athletes have had their IRS tax problems splashed across the headlines. First on the list is professional golfer Jim Thorpe, who has pleaded guilty to failing avoiding over $2 million in federal income taxes.

According to the Associated Press, Thorpe was charged in February with seven counts of failing to pay federal taxes on income he earned in 2002, 2003 and 2004. He will face a maximum of two years in prison and a $4.1 million fine when sentenced.

The other was famed boxer Floyd Mayweather Jr. who recently agreed to pay $5.6 million in back taxes after the IRS threatened to take the money from winnings that resulted from his victory Juan Manuel Marquez. Check out the following article on Mayweather’s tax problems from Google News.

The IRS sent the Nevada Athletic Commission a levy notice on Sept. 4 ordering Mayweather's unpaid taxes from 2007 to be deducted from his $10 million fight purse, commission executive director Keith Kizer told The Associated Press.

Kizer said the IRS backed off one week later, after Mayweather agreed to pay the money. Mayweather won the fight in a unanimous decision.

Mayweather's tax attorney, Jeffrey Morse, told the AP on Tuesday that federal officials never intended to take Mayweather's purse, and the five-division champion has satisfied all his IRS debts.

"Floyd has — and I will absolutely attest to it — more than satisfied every tax obligation that he has," Morse said. "As of today, as of some time ago, which I can't tell you when, he owes zero to the IRS."

One Small Step for Federal Taxation, One Giant Leap for Same-Sex Equality

Earlier in the week the Tax Prof published a new blog entry explaining the recent revision to Section 2702 of the IRS code to apply to same sex couples. The article quotes the conclusion from a recent publication by Matthew Fry titled “One Small Step for Federal Taxation, One Giant Leap for Same-Sex Equality: Revising Section 2702 of the Internal Revenue Code to Apply Equally to All Marriages.” Check out the quote below.

This Comment suggests the revision of one specific provision of the federal wealth transfer taxation scheme as one small step in the direction of equality for all married couples, regardless of sexual orientation. It is true that this suggested change would be an economic setback for same-sex couples that currently use GRITs as a means of transferring wealth within their economic unit while avoiding tax liability. In the grand scheme of equality, however, many same-sex taxpayers might be grateful for the hint of federal recognition that has, for so long, been denied to their marriages and civil unions. Eventually every provision of the Internal Revenue Code should be revised to guarantee equal treatment of same-sex couples based upon the foundational principles of horizontal equity, taxation of the economic unit, and a recognition of--and taxation based upon--economic reality rather than labels and politics. Revision of the Internal Revenue Code in pursuit of legislators' guiding principles will result in a tax code with integrity, a code that treats all taxpayers under it equally and is not influenced by the political zeitgeist.

For more information on LGBT tax issues check out these two blog entries I published earlier this year: Taxes 101 For Domestic Parents & Same-Sex Couples and Top 9 Tax Tips for the LGBT Community.

Bankruptcy and IRS Tax Issues

Every month thousands of taxpayers call my law firm for help with IRS back tax debts. We get hundreds and hundreds of questions on a weekly basis, but one of the most common is whether tax debts can be discharged through bankruptcy or not. Although the exact “yes” or “no” answer will depend on your unique financial situation, the attorneys of my law firm have put together the following helpful article on bankruptcy and IRS tax issues.

Chapter 7 vs. Chapter 13

The two common types of bankruptcy for individuals are Chapter 7 (liquidation) and Chapter 13 (readjustment of debts). Although each are governed by their own set of requirements and conditions, tax debts are generally treated similarly under both proceedings. However, the basic concepts behind each bankruptcy type will dictate how the debts are settled.

In general – under Chapter 7 –if the debts meet all of the conditions below, then they can be discharged during the bankruptcy proceedings, but if even one qualification is not met, then the debts will remain after the bankruptcy. However – under Chapter 13 – there is almost always a distribution to creditors. Therefore, the court appointed trustee must negotiate with the IRS and decide on a settlement.

Qualifications for Discharge

Although many taxpayers are under the impression that tax debts cannot be discharged, some actually can! However, in order for tax debts to qualify to be discharged, they must meet a hefty list of requirements. According to bankruptcy laws, the follow conditions must be met:

1. Tax Return Filed

Even if you are unable to pay the taxes due, you must still file a tax return before a tax debt can be considered for discharge. Additionally, the tax return for the tax debt that you want discharged must have been filed at least two years prior to the bankruptcy filing, regardless of when the returns were originally due.

Continued at Roni Deutch.com…

State Taxation of Professional Athletes

Earlier today, I saw this interesting entry on the Tax Professor Blog that immediately caught my attention. The article by Alan Pogroszewski takes an in-depth look at the tax issues professional athletes face in different states. I’ve included a quote from the introduction below, but you can find the full article including a helpful graph, at Tax Prof Blog.

“This article will begin with a historical look at the states’ ability to tax both their resident and those nonresidents who earn income within their borders by reviewing the Supreme Court’s interpretation whether this is within the state’s constitutional power. This will be followed by an examination on how individual states came to determine the apportionment of income of a nonresident. This section reviews the individual state court decisions that define the tax implications to off season training, spring training the post season, and the allocation of athletes playing and signing bonus for a nonresident athlete. The article then examines the practical application of this tax in whether or not states increase their overall income tax revenue by this practice. Research in this section indicates that they in fact do. The article then concludes with the practical consequences on how these laws affect individual athletes. This Article concludes with the fact that there may be at least one reason why you may want to sign a free agent client with the Tampa Bay Rays rather than with the San Diego Padres.”

To learn more about athletes who have had tax issues, check out this entry I posted to my blog a few months titled “10 Professional Athletes that had IRS Tax Problems.”

IRS Testing Fast Track Mediation

Remember the idea of a “kinder, gentler Internal Revenue Service?” You are probably rolling your eyes at the thought, right?

But it seems the IRS is trying to find ways of working with taxpayers, rather than fighting them. The IRS has been testing Fast Track Mediation in eight areas in the country. These mediations are designed to help resolve tax disputes quickly and with less paper flying.

Tax issues for which you may request mediation include:

• Examinations/audits
• Offers in Compromise
• Trust fund recovery penalties
• Collection actions

Taxpayers do not have to file written protests to request fast track mediation. If you disagree with the IRS’s findings or determinations on your tax account, ask for a mediation session. In order to expedite, make sure your tax filings are current, and you have provided necessary documentation to the IRS Compliance office.

On the appointed day and time, the IRS representative and you will meet with the mediator. Who is this mediator? Well, usually an IRS Appeals Officer who has been trained in mediation. This does beg the question, how impartial can mediators be when their paychecks come from one of the parties they are mediating?

The mediator’s job is to facilitate communication, guiding everyone to a mutually beneficial resolution. Like any dealings with the IRS a tax attorney or CPA with a Form 2848 Power of Attorney and Declarations of Representative on file is allowed to represent your interests. And since the mediator and the IRS representative know the laws, it would be a good idea to have someone familiar with taxation law on your side as well.

While mediation can not solve all tax problems, this is an interesting program the IRS is testing, and I’ll be interested to see how useful it is.

Labor Secretary Nominee Has Tax Problems Too

Web CPA recently discussed another of Obama’s cabinet nominee’s who is having tax problems, Hilda Solis. A snippet of the post can be read below, but the full text can be read here.

In the latest sign of tax trouble in the Obama cabinet, Labor Secretary-designate Hilda Solis’ husband had tax liens filed against him.

Confirmation hearings for Rep. Solis, D-Calif., were delayed after news of the tax problems surfaced. The White House admitted to the latest tax snafu after USA Today discovered 15 tax liens dating back to 1993 from the State of California and Los Angeles County totaling $7,630, some of which have since been paid. The tax liens had been filed against Solis’s husband, Sam H. Sayyad, and his business, Sam’s Foreign and Domestic Auto Center. Sayyad paid $6,400 this week to settle the outstanding tax liens, but still plans to appeal them.

Solis is the fourth nominee to the Obama administration to face tax questions in recent weeks. Earlier this week, former Senate Majority Leader Tom Daschle withdrew his nomination for secretary of Health and Human Services after he was forced to pay $140,000 in taxes and interest, mainly for the use of a car and driver provided by a private equity firm between 2005 and 2007.

Treasury Secretary Timothy Geithner also needed to pay over $42,000 in taxes, interest and penalties for self-employment taxes that he owed from work he did between 2001 and 2004 for the International Monetary Fund.

Departures Tarnish President’s Ethics Drive

The Financial Times recently posted an article discussing Obamas’ nominees that have recently withdrawn due to tax problems, and how they affect his presidency and the country. A section of the article can be read below, but the full post can be found here.

There could not have been a worse time of year for revelations to emerge about unpaid taxes by Tom Daschle and other prospective members of Barack Obama’s administration.

Over the next few weeks, millions of people will go through the onerous process of preparing their annual tax returns before the April 15 filing deadline.

The more sympathetic-minded might empathize with Mr. Daschle’s mistake, given the head-scratching complexity of US tax rules.

But many others are likely to feel angered that a Washington power broker skipped more than $140,000 of taxes, while ordinary people scramble to meet their liabilities at a time of mounting economic hardship.

“Tom Daschle, like Leona Helmsley, believes that only ‘the little people’ should pay taxes,” said Grover Norquist, president of Americans for Tax Reform, quoting a notorious New York real-estate investor. “He thinks he’s too important for that, and he gives the word hypocrisy a bad odor.”

Mr. Daschle is hardly the first nominee for high office to be tripped up by tax irregularities. President George W. Bush lost two nominees – Linda Chavez for labor secretary and Bernard Kerik for homeland security chief – after it emerged that they did not pay Social Security taxes on the salaries of domestic employees.

President Bill Clinton saw his first two nominees for attorney-general – Zoe Baird and Kimba Wood – withdraw because of similar “nanny tax” violations.

Mr. Daschle might have survived his scandal had he been the only Obama nominee to face tax problems.