Catalyst finds mentoring isn’t enough – here’s what’s missing
Taking time to construct viable tax proposals
Saturday, December 18, 2010
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Friday, December 17, 2010
Does the Estate Tax Hurt Farmers and Family Businesses?
The battle cry against the estate tax usually rages around “farmers and family businesses.” Chuck Grassley (Iowa) has been insisting that the tax deal "makes sure the government can’t take more than half the estates of farmers and small business owners who have scrimped, sacrificed and saved their entire lives to build up a family business.” As it turns out, the estate tax only affects a small fraction of farms and family businesses.
According to a recent IRS report, these businesses account for a small fraction of estates worth $3.5 million or more:
The study shows that in 2007, investment real estate — which includes farms, undeveloped land, real-estate investment funds, real estate partnerships and other investments — accounted for only 15% of total portfolios for estates over $3.5 million. Farms are only a fraction of the 15%.
Limited partnerships and business assets account for about 5.5% of their total assets.
So what is in the big estates? Mostly publicly traded stock. The study found that publicly traded stock accounted for more than a third of the assets held by estates of $3.5 million or more.
Of course, some small businesses and farmers would get hurt from a $3.5 million rate. And there may be other good arguments for ditching the estate tax. But it’s misleading to say farmers and small businesses would bear the brunt of the tax. Unless of course, Paris Hilton’s brief stint on “Simple Life” makes her a farmer.
The real victim of the Democratic proposal would be wealthy shareholders and the stock market. Yet strangely, we don’t see politicians championing the rights of the stock market and big shareholders in their death-tax crusade.
Thursday, December 16, 2010
Obama: Get Corporate Cash 'Off the Sidelines'
Yesterday the President met with 20 prominent CEOs in a private session. The White House said the point of the meeting was to discuss getting the CEOs to use the money they have been holding to create more jobs.
"We focused on jobs and investment, and they [the CEOs] feel optimistic that, by working together, we can get some of that cash off the sidelines," Obama said as he walked back to the White House from the meeting.
The private discussion between the president and the leaders lasted several hours, with the White House saying issues such as trade, regulation, education and investment were covered.
Obama concluded the session "by asking the attendees to continue the dialogue with him on a shared agenda focused on moving our economy forward," the White House said in a statement.
The so-called CEO summit came at a time when corporate America is sitting on $1 trillion in cash reserves while unemployment remains stubbornly high.
The heads of some of the biggest holders of corporate cash attended the meeting. Cisco Systems has the nation's largest corporate cash reserve with a balance of $39.9 billion, according to Moody's Investors Service.
Four other companies with CEOs attending are among the top 20 in cash on hand. Google is holding $30.1 billion, followed by Intel with $18.3 billion, General Electric with $12.9 billion and Boeing with $8.7 billion.
IRS Audits Jump by 11 Percent; Wealthiest Targeted
The IRS increased the number of tax returns examinations by around 11% this past year. The agency released statistics yesterday showing that wealthy taxpayers are among those most likely to be targeted for an audit.
According to the Associated Press, the IRS examined more than 1.58 million individual returns in the budget year that ended in September, up from 1.43 million the year before. Of course, for most people the odds of being audited are still hovering around 1 percent.
The IRS collected $57.6 billion through enforcement actions, an 18 percent increase from the previous year.
Overall, a little more than 1 percent of returns were audited, either by mail or in person. More than 8 percent of the returns with incomes above $1 million were audited.
IRS Paid No Rewards in U.S. Whistleblower Program
The whistleblower program was enacted to help the government find tax evaders by offering a portion of the recovered taxes to people who report the illicit activities. Unfortunately, I doubt many people will be willing to blow the whistle after hearing this report.
According to reports, the IRS has not paid out rewards to any informants for the past three years. The federal agency has also delayed payments of awards from an older, less generous whistleblower program until the accused evaders have had ample time to appeal their cases.
The tax agency has come under pressure to pay rewards from lawmakers including Iowa Senator Charles Grassley, a Republican who championed the more generous rewards, and a growing industry of law firms that represent whistleblowers.
“Failure to provide whistleblowers awards is seriously jeopardizing the success of the program,” said Dean Zerbe, a former Grassley staffer who helped write the law and now helps people make claims. He also is a special counsel for the National Whistleblower Center, a Washington advocacy group. “The administration cannot be serious about fighting tax evasion and the tax gap if it doesn’t ensure the success of the whistleblower program.”
Congress changed the IRS whistleblower program in 2006 to make it easier for informants to collect rewards of 15 percent to 30 percent of taxes collected as a result of the information they provided.
Tips Pouring In
Since then, tips have poured in. Steve Whitlock, the director of the IRS’s Whistleblower Office, told an audience of about 200 lawyers, investigators and government officials at a Miami Beach conference on offshore banking in May that his office receives 40 to 50 tips a month alleging tax liability in excess of $2 million. Americans submit another 200 tips a month alleging smaller violations, he said.
Tax Bill Heads to House for Hotly-Contested vote, President Obama Urges Passage with No Changes
The House of Representatives is expected to vote again today on the Obama-Republican tax compromise, which would extend tax cuts to all Americans for two years. The Senate has already approved the legislation, and the President has been pushing for Democrats in the House to get behind the compromise. Honestly, this entire process has become a nightmare. Here we are, 15 days from 2011, and we still don’t have the tax rates set in stone? Unbelievable.
From NYDailyNews.com:
"I know that not every member of Congress likes every piece of this bill, and it includes some provisions that I oppose," President Obama said on Wednesday. "As a whole, this package will grow our economy, create jobs, and help middle class families across the country."
The President wants the deal passed without any changes.
The bill is expected to cost $858 billion, reported The Associated Press.
The Senate backed the plan, passing it with an 81-19 vote on Wednesday.
The lame-duck House vote, however, is shaping up to be a battle as some Democrats believe the tax package gives too many breaks to the rich.
Before the plan goes to a vote, the House will first vote on whether to raise the estate tax, which, if passed, would force the bill to return to the Senate, a signal that the President is losing power over his own party.
Wednesday, December 15, 2010
Teddy Roosevelt on the Estate Tax, 100 Years Ago
Congress and the President are working out final details on a tax compromise that includes a revision to the estate tax for 2011. Over 100 years ago, Teddy Roosevelt gave his famous “New Nationalism” speech and discussed how America should deal with fortunes and inheritance.
TEDDY ROOSEVELT ON THE ESTATE TAX, 1910:
We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.
Hat tip: On Point Radio
2012 Hopefuls Challenged by Tax Deal
This story from Politico.com just shows you how messed up our current political system is. Republicans fear backlash after they worked with the president on a tax compromise. Should working together really be considered a political liability?
From Politico.com:
For a host of Republican presidential hopefuls, the White House-backed compromise to extend the Bush tax cuts presents an unlikely dilemma: How to agree with President Barack Obama.
That unfamiliar struggle unfolded Tuesday on the Senate floor, in media interviews and on newspaper op-ed pages, as the potential candidates sought to play the angles, with some taking bright-line positions in opposition and others hedging their bets with statements notable for their caution.
On the surface, the deal currently making its way through Congress gives GOP leaders much of what they wanted from the lame-duck negotiation: it keeps most 2001 tax rates in place while suspending Social Security payroll taxes and extending jobless benefits for unemployed Americans.
It's a proposal backed by the Republican leadership in both chambers of Congress and counts even Wisconsin Rep. Paul Ryan, the small-government conservative hero, among its supporters.
Tax Bill has Lots of Breaks for Special Interests
Hidden inside the $858 billion Obama tax compromise legislation is a plethora of tax incentives, or "tax earmarks" in addition to the extension of the Bush tax cuts and another unemployment benefits extension. These earmarks range from energy and education tax credits to tax-exempt bonds for areas damaged by Katrina.
The big question is: are we really surprised? What bill has come through our legislature without myriad tax gimmicks sprinkled throughout?
California's Democratic Sens. Dianne Feinstein and Barbara Boxer joined an overwhelming 83-15 vote Monday to move forward on the tax bill, the biggest bipartisan victory of the Obama administration so far. A Senate vote on final passage is expected today.
Ethanol subsidies are among the biggest earmarks. Feinstein waged a last-ditch effort Tuesday to reduce them, even as she sought to add tax breaks for wind and solar developers. She and Boxer and a dozen other Senate Democrats and 81 House members demanded the alternative-energy tax breaks in exchange for their votes for the tax bill.
An amendment by Feinstein to cut ethanol subsidies and extend a tax credit for alternative-energy manufacturers, which was part of the 2009 stimulus, failed. The $2.3 billion program has made nine awards to California companies, including Stion and Nanosolar in San Jose.
One program survives
But one big alternative-energy program that survived under pressure from Democrats would extend a subsidy to cover nearly a third of the cost of new wind and solar installations. It was the top goal for alternative-energy industry lobbyists.
In Nevada Prison O.J. Simpson Keeps Tax Break on South Florida Home
O.J. Simpson might be a resident of the Lovelock Correctional Center in Lovelock, Nevada, but that doesn’t mean he’s out of luck for tax breaks. The South Florida appraiser’s office has determined that despite O.J.’s incarceration, he is still entitled to the Florida homestead exemption for his home in Kendall, FL.
The issue was raised when one of O.J.’s neighbors complained that the former professional athlete's residence in prison should preclude him from receiving tax break. Hey, I guess if O.J.’s still paying the bills, more power to him.
Now the miffed neighbor, David Weston, thinks someone in Tallahassee should take another look.
What bothers Weston, he says, is not so much the fact that it's Simpson getting the tax break, but more generally that state rules allow felons serving prison sentences -- even those doing so out of state -- to keep their exemptions.
``It doesn't seem right,'' Weston said. ``It seems that's a privilege of good citizenship, no?''
Florida Department of Revenue rules, which govern the homestead exemption, require that the property be the homeowner's primary residence. But the rules also clearly state that a felony conviction by itself doesn't disqualify anyone.
Tuesday, December 14, 2010
Under Obama Tax Deal, 2011 Could Be Best Year For The Rich
From Forbes.com:
If the Obama-Republican tax deal passes, 2011 could turn into the best year yet to be rich, tax wise. The capital gains tax, a key rate for the very rich, will remain at its historically low 15%, while the top ordinary income tax rate will stay at 35%. The 2010 $800 per couple Making Work Pay credit, which wasn’t available to the better off, will be replaced by a Social Security tax cut that will save a two-high-earner couple $4,272 in 2011. Meanwhile, the estate and gift tax regime will become even friendlier to wealthy families.
Friendlier? How could wealth transfer taxes be any friendlier? After all, under the Bush tax cuts the estate tax disappeared in 2010 (for just one year) allowing families of billionaires who died this year, including Yankees owner George Steinbrenner and Metromedia founder John Kluge, to inherit free of federal estate taxes.
True enough. But for a family to benefit from that one year lapse, a (presumably) loved one had to actually die. For 2010, the amount a still breathing rich person can transfer to his kids or grandkids without owing taxes remains the same as a decade before: just $1 million.
By contrast, under the version of the Obama-Republican deal introduced late Thursday by Senate Majority leader Harry Reid, D-Nev., the exemptions from the gift tax, estate tax and generation skipping transfer tax (the tax imposed on gifts to grandkids if their parents are still alive) are “unified”–meaning they’ll all rise in tandem in 2011 to $5 million, from the $1 million or so they would have been next year after the Bush tax cuts expired.
IRS Releases Proposed Regulations that Would Reduce Enrolled Agent Fees
According to their newest press release, the IRS has proposed regulations that would reduce the fees enrolled agents pay to register and renew their status. Enrolled agents and enrolled retirement plan agents must renew their status, and pay the fees, every three years.
The reduction is related to the preparer tax identification number requirements implemented last month which establish a new registration process and fee for all return preparers.
The proposed regulations (REG-124018-10) would reduce the fee for application and renewal for enrolled agents and enrolled retirement plan agents from $125 to $30. The reduction reflects the fact that the processes used to review enrollment and renewal of enrollment applications are partially duplicative of the new process for reviewing a PTIN application, which costs $64.25.
Individuals granted status as an enrolled agent or enrolled retirement plan agent must renew enrollment every three years. The renewal schedule is based on the last digit of the individual’s social security number or tax identification number.
Tax professionals and other interested parties have until Jan. 10 to submit comments regarding the proposed regulations.
Delay of Renewal Period for Certain Enrolled Agents
In anticipation of these proposed regulations, the IRS recently announced in Announcement 2010-81 a delay of the renewal period for enrolled agents whose tax identification numbers end in 4, 5, or 6. The IRS is not accepting or processing applications for renewal of enrollment until further guidance is issued.
SNL on the Obama-GOP Tax Compromise
Check out this video from over the weekend where SNL mocks the Obama-GOP tax compromise. In a spoof of a Presidential address, “Obama” explains why after being taken hostage he changed his opinion on the trickle down theory, and expresses dissatisfaction about Bristol's stint on Dancing with the Stars.
Moody's May Cut US Rating on Tax Package
Yesterday Moody's sent out a warning that the proposed tax compromise could cost up to $900 billion, and that the resulting increase in federal debt could hurt the US government’s credit rating. Not exactly good news for the US.
The plan agreed to by President Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.
A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.
For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.
"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.
After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.
If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.
Monday, December 13, 2010
Questions for the Tax Lady: December 13th, 2010
Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!
Question: I have a tax debt stemming from 1997, and a failed Offer in Compromise attempt from 2005. Will attempting to resolve my tax problems extend the IRS' 10 year statute of limitations on the original tax debt?
Answer: Good question. The first thing you should do is check when the statute of limitation or CSED deadline is. Most tax debts will expire 10 years from the date of assessment, so you might be entirely off the hook. However, it is very important for you to find out how much time was tacked on to the liability during the Offer in Compromise process.
When your previous attempt at getting an Offer in Compromise was pending, the statute of limitations clock stopped running. So, if the IRS was reviewing your offer for 6 months, your statute of limitations would be extended by 6 months.
If your debt still hasn’t expired, then you should look at how to resolve your debts. Installment agreements and being placed on Currently Not Collectible status generally will have no affect on the statute of limitations.
Question: I got a letter from the IRS notifying me that I was selected for an examination. If I ignore the notification will the IRS keep trying to contact me? Is it possible they might forget about my account?
Answer: The worst thing you can do with any notice from the IRS is ignore it. Once you get notice that you are being examined (that means you’re being audited, by the way) the IRS will NOT forget about you. They will send a few more letters, then they will start calling and it only gets worse from there. Ignoring the notice could lead to some pretty nasty consequences, like the auditor hunting you down at your job when you fail to respond.
Your best bet is to read the notice, call your tax professional and follow the directions in the notice. Be especially mindful of any due dates; if the notice states they need to see your documentation by December 22, they are not kidding. Many examinations are pretty simple. If you get proactive and tackle the issue head on, you have a better chance of nipping this problem in the bud.
5 Common Questions About Bankruptcy and Tax Debts
It is not uncommon for those calling my law firm about their IRS tax debt to ask about Bankruptcy.
My law firm recently began offering bankruptcy services to residents of Northern California, this blog discusses the most common questions we receive about bankruptcy and tax debts—and their answers of course.
1. Will my tax debts be resolved by filing for bankruptcy?
Unfortunately, there is no straightforward answer to this first question, as it will depend on your unique financial situation. There are some basic parameters, but there are many exceptions to the general rule. You should always consult with a bankruptcy attorney to determine if your tax debs will be settled by filing bankruptcy.
If your IRS liabilities meet a strict set of conditions then they may qualify to be discharged through Chapter 7 bankruptcy. On the other hand, if you file for Chapter 7 and you have assets that are not exempt, they may be liquidated and the proceeds distributed to creditors. Since the IRS is considered a creditor, a court appointed trustee would examine any claim they might file and determine if it should be paid. If the tax debt is not dischargeable, you may still owe the balance of the tax debt even if they were paid in part.
If you file a Chapter 13 bankruptcy and you have tax debts that cannot be discharged in Chapter 7, you will be required to pay the taxes in full over a period of time up to 60 months, along with certain distributions to other creditors.
2. What are the qualifications to have my debts discharged?
In order to have unpaid tax debts discharged through Chapter 7 bankruptcy all of the following conditions must be met. If even one is not met, then the debts will remain after the proceedings have concluded.
- The debts must be related to a return that was last due at least three years prior to the bankruptcy filing. The limit also takes extensions into account; therefore if you requested a six-month extension on any of your returns it will add another six months to your wait time.
- The IRS assessed your tax debt at least 240 days before you begin proceedings.
- The tax debts must have resulted from unpaid income taxes. Other debts such as unpaid employer payroll taxes and trust fund recovery penalties cannot be discharged.
- The income tax debt cannot be the result of having filed a fraudulent return or from willfully attempting to evade or defeat the tax.
3. If my tax debts are discharged will it remove an IRS lien?
Again, this is going to depend on your unique financial situation. Generally having debts discharged through a Chapter 7 filing will prevent the IRS from pursuing any additional collection activities against you. However, it will not remove any previously recorded IRS tax liens on your property. You will need to pay the value of the lien in order to have it removed.
On the other hand, if your tax debts are settled through a Chapter 13 filing, then you can have the lien removed once you finish making payments to the IRS.
4. Is it true I need to have filed my tax returns in order to have IRS debts discharged?
Yes, as I mentioned above your tax returns need to be filed with the IRS in order to have the debt discharged by filing for Chapter 7 bankruptcy. If you never filed your own return, and the IRS filed a Substitute for Return on your behalf to assess the debt, then it will not be discharged. Then, after your proceedings conclude you will still have to find a solution to your tax debt problems.
5. If my tax debts are not discharged in bankruptcy, what other options do I have?
If your tax debts do not qualify to be discharged through Chapter 7 bankruptcy then you have a handful of additional options for settling the liabilities. The IRS offers tax settlement programs such as Installment Agreements, Offers in Compromise, or placement on the IRS’ Currently Not Collectible status. For more information on any of these programs you can read about them on my law firm’s website.
If you have any question about bankruptcy you would like to get answered then send them to me via Twitter, or this Questions for The Tax Lady contact form.
Trimming your Tax Liability Before the End of the Year
This year, end of the year tax planning has become even more confusing. Why? Because Congress continues to stall on taking any action on the Bush tax cuts; this inaction could result in significant tax increases on all Americans.
Obama's Compromise
President Obama put together a deal with Republican leaders last week to extend all of the Bush tax cuts for two more years. The compromise also included an extension of unemployment benefits and stopped the estate tax from increasing to 55% in 2011. However, the House of Representatives rejected the bill and have yet to pass any other tax legislation.
Why the Uncertainty is Problematic
Tax planning in prior years has always been pretty straightforward. Make donations to charities; make an extra mortgage payment, max out on your 401(k) contributions etc. However, with the possibility of a tax rate increase some experts are suggesting taxpayers wait until next year.
If your tax rate does increase next year, then it would be better to defer any deductions to 2011, when they will be more valuable. Deductions lower your taxable income, unlike credits, which are dollar for dollar benefits, so if tax rate goes up in 2011 then all of the standard end of the year deductions might be worth more if you wait until January.
What you CAN do
Although many tax laws are up in the air, there are some things you can do now that will help lower your tax liability without worry about next year’s tax rates. First of all, if you are a homeowner then you might want to consider making energy-saving improvements to your home such as adding dual pane windows or purchasing an Energy Star water heater or air conditioning system. The 30% (up to $1,500) tax credit is scheduled to expire at the end of the year. For more information on qualifying expenses, check out EnergyStar.gov.
Other Uncertain Tax Benefits
The energy credit isn't the only tax incentive currently in limbo. The new health care legislation will ban using funds from flexible spending accounts to purchase over the counter medication and claim it as a deduction starting in 2011. If you qualify for the medical expense deduction then it might be a good idea to stock up on your over the counter meds while you can still deduct the expenses.
Another deduction that might expire at the end of the year is the $250 deduction for educators. If you are a teacher, or work in a classroom then be sure to take advantage of this classroom expense deduction while you can.
Obama Directs His Staff to Analyze Options for Overhaul of U.S. Tax System
Over the weekend President Obama directed his team to begin considering options for a massive overhaul of the U.S. tax code. Officials say that it is part of the president’s long term plan to fix the deficit. If there’s anything our country needs, it’s a simplified tax code. Let’s just see if he can get the job done.
From Bloomberg.com:
No decisions have been made about what options to pursue or a timeline for presenting a plan to lawmakers, said the official, speaking on condition of anonymity because no formal action has been taken. Any changes likely would take years to implement.
Obama said this week that revamping the nation’s tax system will have to be considered to deal with budget deficits and make the tax code more “fair” and “efficient.”
“The idea is simplifying the system, hopefully lowering rates, broadening the base,” Obama said in an interview yesterday with NPR News. “What I believe is, is that we’ve got to start that conversation next year.”
The administration is focusing on the issue as Congress debates measures to extend tax cuts set to expire at the end of the year and the president considers a report by his commission on reducing the federal deficit, which included recommendations to change tax laws.
Will Rising Mortgage Rates Spur Home Sales?
The historically low mortgage rates we’ve seen over the last year or so haven’t done much to spur home sales, but raising the rates might? Seems strange, but some experts are predicting that increasing rates might just push Americans into buying.
According to CNN.com, rates surged to a six-month high this past week after President Barack Obama and congressional Republicans agreed to extend tax cuts for two years.
Though the deal is still being debated in Washington, financial markets interpreted the development as likely to accelerate the economic recovery but also swell the budget deficit. Though the yield on the benchmark 10-year bond has retreated some, it has still increased 21 basis points this week.
Because yields on Treasuries, especially the 10-year bond, largely influence mortgage rates, borrowing costs for mortgages have suddenly gone up. The average rate for a 30-year fix loan increased to 4.61% in the week ended Thursday from 4.46% the previous week, following a fourth week of increases, according to Freddie Mac (FMCC). The average 15-year rate rose to 3.96% from 3.81%. These rates are the highest they've been since June.
This follows a period of historically low mortgage rates. But even though borrowing costs for new home loans are cheap, they haven't exactly spurred the kind of home buying that one would expect. What's more, lower rates haven't spawned much refinancing, since many home owners are stuck holding property valued at less than what they owe on their mortgages. The latest Case Schiller Index reported that home prices nationwide declined 2% during the three months ending in September, after rising 2.4% during the previous quarter. According to Zillow, home prices have lost $1.7 trillion in value in the past year.
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