Did the Seniors You Know Get Their Tax Stimulus?

Category: Elder Law, Tax Law and Planning

As many of us who work with seniors blogged about when the tax stimulus package came to pass , while great in theory, the need to file a tax return to get the stimulus payment had a big hole from an action plan standpoint. Many seniors don't need to file tax returns, and haven't done so in years. This small fact is easy to forget about because for working folks the tax stimulus payment came as a matter of course from filing the return.

The result? PressofAtlanticCity.com reports that: "About 156,800 New Jersey retirees and disabled veterans, including about 1,300 in Atlantic City alone, have not yet submitted paperwork to claim their stimulus payments, according to the IRS. The IRS is asking the public for help in reaching this population with information on how to file. While 74 percent of eligible members of the group have filed, a substantial minority have yet to be contacted. The IRS this week announced a new summer campaign to reach them."

So, for those who have seniors as neighbors, clients, congregation members, or otherwise, see if they got their tax stimulus payment. It is up t0 $600 for singles and $1200 for couples. For details see prior posting: Economic Stimulus Package Now Law.

What's the Tax Plan Mr. President-in-Waiting

Category: Estate and Inheritance Tax, Tax Law and Planning

Now that the candidates are known, what is that next question? What they propose to do with your taxes of course. A quick summary rundown courtesy of National Center for Policy Analysis - YOUR TAX BILL: HOW MCCAIN, OBAMA DIFFER:

Income taxes:

• McCain wants to make permanent the current federal income-tax rates.


• McCain opposes Sen. Obama's plan to lift the earnings cap on the Social Security payroll tax, saying such a move would be bad news for the economy.


• Obama wants to raise the top ordinary income-tax rate from 35 percent to 39.6 percent on families making more than $250,000 a year.


• Obama's plan includes increased taxes not only on ordinary income such as salary but also on capital gains and most corporate dividends.


• Obama also plans to impose higher Social Security taxes on workers making over $250,000.

Investment income:

• McCain wants to keep the current structure of tax rates on capital gains and
  dividends.


• Obama wants to raise the long-term capital-gains rate for families making more than $250,000 from its current rate of 15 percent to around 20 percent, or even higher.

Estate taxes:

• Neither candidate wants to kill the estate tax permanently, as President
  Bush has proposed.


• Under current law, the federal estate-tax exemption this year is $2 million, and the top rate is 45 percent; in 2009 that exclusion is set to rise to $3.5 million, with the rate remaining at 45 percent.


• McCain proposes raising the exclusion to $5 million and cutting the tax rate to 15 percent.


• Obama proposes a $3.5 million exclusion while keeping the top rate at 45 percent.

Tax Evasion - If it sounds too good to be true, it probably is

Category: Tax Law and Planning


Actor Wesley Snipes has been given the maximum jail sentence of 3 years in federal prison for his failure to pay over $15 million in taxes. Snipes legal team essentially relied on the age old excuse of "but he said it was OK" in trying to sway the judge that he shouldn't be held responsible for following some one's advise to just stop filing tax returns. The "he" in this were a group of "tax protesters" who sold a system to thousands under the auspices of "taxes are illegal and you don't have to pay". There are more details in the Orlando Sentinel. Well, life is tough ladies and gentlemen, and just because you don't want to do something doesn't mean that you don't have to do it anyway (think of kids who have to eat their vegetables).

It is hard to say what is most offensive about the Snipes case. It could be that we all pay our taxes, and who are other people to simply choose not to participate? If you want the tax laws change, that is what the elective process and democracy (and hiring lobbyists) is all about. Or, it could be that some people (look at any recent story from Entertainment Tonight for a list) believe that because they have wealth, they don't have to play by the same rules. Well, let me clue you in on one of Benjamin Franklin's most lasting adages "Certainty? In this world nothing is certain but death and taxes" (and there wasn't even an income tax back then). Or maybe it is that the role of a tax professional is and should be to make sure a person pays their fair share under the law - not more, and not less. Here, "tax protesters" bilked thousands of people that they had the secret of getting rich quick - no more taxes. And I am sure they made millions by selling this idea to people with a lot less resources then Mr. Snipes, whose suffering for their bad decisions will never make the front page (not that there should really be any sympathy for those who bought into the system - but what about their spouses and families?).

Well, we will just have to see how Mr. Snipes looks in his orange jumpsuit what it is not coming from a Hollywood costume trailer.

Seniors - File a Tax Return with "Stimulus Payment" at the Top to get your Rebate

Category: Tax Law and Planning

Dailyrecord.com tells Seniors about the Tax Rebate: "Get this straight: If you can pick up an easy $300 or more by summer, it's worth the trouble."

As the Article illuminates, the problem with the tax rebate ($300 for singles, and $600 for couples) is that to get the tax rebate you need to file a return. Many seniors haven't filed a return in years and have no idea how to go about it. Well, here's the answer:

From "Rebates could return some seniors back to filing taxes - Simplified steps in place to allow taxpayers on limited income to qualify for check"

If you normally file a tax return, file the return as usual. Otherwise, follow these steps.

• First, get a 1040A or 1040 form from a post office, local library, http://www.irs.gov/ or by calling the IRS at (800) 829-3676. If you're filling out a form by hand, get the 1040A. If you're using software, it might be easier to use a 1040.

• If you normally do not have to file a tax return, write "stimulus payment" on the top of the form.

• Fill out your name, address and Social Security numbers for you and your spouse at the top of the form.

• Fill out the tax filing status.

• Fill out exemptions for yourself, spouse and dependents. Be sure to list all qualifying children on line 6c to get any possible rebate money for them.

• Go to Line 14a of Form 1040A or Line 20a of Form 1040. Here's where you list Social Security benefits. See Form 1099-SSA, which the Social Security Administration sent out earlier this year to report 2007 benefits.

If you do not have a Form 1099-SSA, you may estimate your annual Social Security benefits. Take your monthly benefit and multiply it by the number of months that you received it in 2007.

If you normally do not have to file a return and do not owe taxes, you're going to fill out the entire amount of Social Security benefits, plus other benefits like some veterans' and Railroad Retirement benefits.

Supplemental Security Income, or SSI, cannot be used to count as qualifying income in order to get this economic stimulus rebate.
• If this applies to you, see Form 1099-RRB for Railroad Retirement benefits to report those benefits on Line 14a of Form 1040A or Line 20a of Form 1040.
• Or, if this applies to you, you're going to need the sum of veterans' disability compensation, pension or survivors' benefits received from the Department of Veterans Affairs in 2007. You can estimate the annual benefit by taking the monthly amount you receive and multiplying it by the number of months in 2007 that you received the benefits.

• Sign the return, date it, fill in your occupation and give a daytime phone number. If you're filing a joint return, your spouse must sign the return as well.

• Keep a copy of the return.

• Mail the return to Department of the Treasury, Internal Revenue Service Center,
at the address for your state.

Find that at the IRS Web site, click on Individuals in the tabs across the top of the page, then click on Where to File under IRS Resources in the left rail. Then click on the link that says "Individual Taxpayers -- Where to File Your Own Individual Return" and a map of the states will pop up. Click on your state.

Use the address for your type of form and the one where you won't be sending in any money.

• Know that the first rebate checks won't go out until May.

Economic Stimulus Package now Law

Category: Tax Law and Planning

President Bush signed the new Economic Stimulus Package into law today. For an excellent and detailed summary look to CCH 2008 Tax Alert.

Some quick hallmarks:

Tax Rebates for induvidual taxpayers with incomes less than $87,000/$174,000: At least $300 to almost everyone earning a paycheck, including low-income earners. Social Security recipients and disabled veterans making too little to pay income taxes would receive $300 checks as well, as long as they have at least $3,000 in income from various sources in 2007.

Families with children would receive an additional $300 per child. The full rebate would be limited to individuals earning $75,000 or less and couples with incomes of $150,000 or less, but a partial rebate would go to individuals earning up to $87,000 and couples earning up to $174,000. The caps are higher for people with children. Illegal immigrants are disqualified.

_Business tax write-offs: So-called bonus depreciation and more generous expensing rules to spur investment.

_Housing rescue: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on Federal Housing Administration loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year boost to the cap on loans Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.

Information Courtesy of:
Assocaited Press

The package amounts to about 1% of U.S. gross domestic product.

Taxpayers will not have to apply for the rebate; it would come automatically based on their 2007 tax return.

Economists who have analyzed the numbers say it will give the economy a much-needed boost in the middle of the year. But almost every economist agrees that the business tax breaks will have very little impact on the economy this year. See Capitol Report.

Surveys show most consumers say they'll save the tax-rebate money, or use it to pay down debts. Only a minority of consumers say they'll spend it. To be an effective short-term stimulus to the economy this year, the money would have to be spent.

Information Coutesy of:
marketwatch.com

Whats missing from the Candiates Quick Fixes for the tax code?

Category: Tax Law and Planning



Op Ed pieces about taxation are usually so "Opinion" and so "Editorial" that they might better be called infomercials for a better tax system. So, when I stumble on a piece that is equally critical of all of the candidates vying for the Oval Office in 08, I stop to take a look.



What's missing in tax talk - Opinion - USATODAY.com: "Set aside for a moment the biggest issue of all, which is uncontrolled spending. Tax revenues, even without further cuts, are nowhere near the level necessary to cover the massive increase in costs that will come with the retirement of the baby boomers and relentless health care inflation. Every candidate knows this, but fiscal responsibility is painful, so the campaign debate is focused mostly on tinkering."



The author goes on to tout simplification as the goal all the candidates are missing, and points out very valid items of "the other side" to all their tax plans. But to the author's main point, while having a "simplified" tax code is a wonderful goal, the idea that reducing the size of the tax code would solve all tax problems is, in a word, and "oversimplification." The tax code is the main means by which government can influence behavior - and whether you think they should be or not, government is in the business of behavior modification. Want to smoke? It will cost you more. Want to get a mortgage instead of a loan for your car? It will cost you less. So maybe the candidates need to better address the role of "governance" then use the tax code to take from one hand and give to the other.

Good - Avoiding AMT; Bad - Waiting for your Tax Refund

Category: Tax Law and Planning

As with all things dealing with tax law, when the government giveth, it also takes away. Per USATODAY.com - Tax change may mean delay in refunds : "More than 20 million taxpayers will escape the alternative minimum tax this year, thanks to a stopgap measure Congress approved Wednesday. But lawmakers waited so late in the year to vote that many early filers could have to wait until March to get their refunds."

The article contains a good explanation of the AMT or Alternative Minimum Tax - a tax originally designed to prevent very wealthy taxpayers from essentially "deducting" their tax returns down to a zero tax. The AMT is a parallel calculation of tax, that does not incorporate certain deductions. While the theory behind the AMT is sound, the problem is that the income levels that AMT impact were not legislated to be adjusted for inflation. As such, as income grows through inflation, such that salary is higher, but wealth is not necessarily greater, the AMT captures more and more taxpayers, but not necessarily those taxpayer the law was intended to address.

If you were counting on that refund any time soon, this is another example of why you should try to minimize your refund instead of giving the government an interest free loan.

Surprise! Forgiveness of a Debt is Taxable Income

Category: Tax Law and Planning

A recent New York Time article "After Foreclosure, a Big Tax Bill From the I.R.S." highlights a not well publicized fact of income tax law - discharge or forgiveness of debt is income to the taxpayer.

A simple fact pattern - You have a house with a mortgage of $100,000. You can't make your mortgage payments, and the house is foreclosed for $80,000 and total forgiveness of the mortgage. You now have no house and no debt obligation. However, you originally borrowed an additional $20,000 that the bank did not receive from the sale, and that you no longer have to pay back. Under Internal Revenue Code Sec. 61(a) (12), you have earned $20,000 dollars of income that you now owe tax on. The problem? You never got $20,000 in hand - instead, it is "phantom income" to you, upon which you need to pay tax in real cash ($4000 of tax at a 20% tax bracket).

Why are you deemed to have earned $20,000? Because your total net worth has increased as a result of not have to pay back the $20,000 (assets - liabilities = total net worth; if liabilities go down, total net worth goes up).

This fact pattern also applies where credit card or other debts are forgiven - ie: the creditor accepts as full payment less than the total amount borrowed.

IRC §61 - Gross Income Defined
61(a) GENERAL DEFINITION. --Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

61(a)(12) Income from discharge of indebtedness;

Where a debt is forgiven, is discharge of indebtedness income always the case? No. Where you have (1) filed bankruptcy under Chapter 11 (IRC Sec. 108 (a)(1)(A)), or (2) are insolvent at the time of the discharge (IRC Sec. 108(a) (1) (B)), then IRC Sec. 61(a)(12) does not apply.

The first exemption is easy - you either filed Chapter 11 or you haven't. The second is not so easy - you may feel you have no assets but not be insolvent under the Code.

To avoid a nasty surprise, make sure when paying off a debt for less than full value that you get in writing what they will be supplying to the IRS about the transaction.

Charitable Deduction Denied - Single Trust has Charities and Non-Charities as Beneficiaries

Category: Estate Planning, Estate and Inheritance Tax,

The U.S. Court of Appeals for the Third Circuit (which controls District Court decisions in New Jersey) finds that the Internal Revenue Code prohibits an estate from claiming a charitable deduction when the proceeds of a single trust are distributed to both charitable and non-charitable beneficiaries. Galloway v. U.S. (3rd Cir. 6-21-2007), No. 06-3007.

James Galloway created a single trust under which the beneficiaries -- his two children and two charitable entities -- would receive an equal, one-quarter share in the proceeds. Upon Mr. Galloway’s death, the Pennsylvania Department of Revenue determined that $399,079.33 would be distributed to charitable entities.

Before reading on, some better solutions to meet Mr. Galloway's goals might have been have been:

• Flat amount bequest to chartity
• Percentage bequest to charity before transferign the balance to a trust (ie - make the division to the charities and then directe that the amoun to the children go in a trust)
• Set up a Charitable Remainder Trust or Charitable Lead Trust, which are statuorially authortized divisions of bequests between a charity and one or more induviduals
• Name the charity as a beneficiary on a non-probate asset such as an IRA or other retirement plan

The trustee of the estate, Edmond Galloway, then claimed a charitable deduction in that amount on the federal estate tax return. Based on Internal Revenue Code § 2055(e), the IRS disallowed this charitable deduction and computed the estate’s liability to be $306,604.57. Mr. Galloway paid the additional tax due and then filed a refund claim, which was denied by the IRS.

Mr. Galloway filed a complaint in the U.S. District Court for the Western District of Pennsylvania claiming that the trust did not fall under the purview of IRC § 2055(e). Mr. Galloway argued that the only kind of such “split-interest” trusts that Congress intended § 2055(e) to cover are trusts in which a non-charitable beneficiary has a life interest and the charitable beneficiary has a remainder interest. The complaint was denied and Mr. Galloway appealed.
The U.S. Court of Appeals, Third Circuit, affirms and holds that the clear, unambiguous language of IRC § 2055(e) disallows any charitable deduction where an interest in the same property passes to both charitable and non-charitable beneficiaries.

To download the full text of this decision in PDF format, go to: http://www.ca3.uscourts.gov/opinarch/063007p.pdf .

DWL Speaking at Financial Conferenece

Category: Elder Law, Estate Planning, Estate and Inheritance Tax, Business Law and Planning, Tax Law and Planning, Probate and Estate Administration, Financial Planning, Miscellaneous Musings

I am excited to be speaking at the Garden State Women Magazine 6th Annual Financial Conference & Networking Event on May 12 at the Park Avenue Club in Florham Park. This is an exciting day where New Jersey’s top insurance, real estate, legal and financial professionals will provide women with the information and guidance needed to take charge of their financial future. Click here for more details.

IRS E-File Suspensions/Terminations

Category: Tax Law and Planning

Recently, the IRS has been auditing and suspending Registered e-filers who are not in compliance with the regulations and publications promulgated by the IRS. Fein, Such, Kahn & Shepard, P.C. has become involved in defending tax preparers suspended from e-filing tax returns.

Dutch Tax Shelters for Royalties (from licensing intellectual property, not nobility)

Category: Tax Law and Planning

If you have income producing intellectual property, it turn out that the Netherlands may be the place to own it. Previously thought of only in terms of tulips and windmills, Dutch Tax Law is incredibly favorable to royalties (produced from licensing copyrights and patents) - so favorable in fact, that royalties are not taxed there.

The article The Netherlands, the New Tax Shelter Hot Spot from the New York Times describes how the Rolling Stones and others who derive huge amounts of revenue from licensing have significantly reduced taxation by taking advantage of Dutch Laws designed to attract royalty producing assets. The most impressive statistic from the article (and making it a worthwhile read): "Over the last 20 years, according to Dutch documents, the [three of the members of the Rolling Stones] have paid just $7.2 million in taxes on earnings of $450 million that they have channeled through Amsterdam — a tax rate of about 1.5 percent, well below the British rate of 40 percent." Wow.

LAST spring, Keith Richards, the craggy-faced and hard-partying lead guitarist for the Rolling Stones, fell from a tree at a beach resort in Fiji, slamming his head against the trunk on his way down. Mr. Richards was flown to New Zealand, where a surgeon provided emergency care to treat swelling in his brain. While the accident forced the Rolling Stones to cancel part of their summer tour, Mr. Richards, 62, handily survived his plunge.

“It’s not the first brush with death I’ve had,” Mr. Richards later told Rolling Stone magazine. “I guess what I learned is, don’t sit in trees anymore.”

What two of the other three Rolling Stones apparently learned, including Mick
Jagger and Charlie Watts, was that Mr. Richards’s near-death experience meant that it was time to think about their heirs. For that, the aging rockers turned to a reclusive Dutch accountant, Johannes Favie, whose company, Promogroup, has helped them minimize their tax bills for more than 30 years. (The fourth Rolling Stone, Ron Wood, handles his finances apart from Promogroup.)

And so, last August, according to details disclosed in documents maintained by the Handelsregister, the trade registry of the Netherlands, Promogroup helped the three performers set up a pair of private Dutch foundations that will allow them to transfer assets tax-free to heirs when they die. Other Dutch shelters that Promogroup has arranged for the three have already paid off handsomely; over the last 20 years, according to Dutch documents, the three musicians have paid just $7.2 million in taxes on earnings of $450 million that they have channeled through Amsterdam — a tax rate of about 1.5 percent, well below the British rate of 40 percent.

April 17 is the 2007 Tax Filing Deadline

Category: Tax Law and Planning

The IRS announced today that taxpayers will have until Tuesday, April 17, to file their taxes this year. This is because "April 15 falls on a Sunday in 2007, and the following day, Monday, April 16, is Emancipation Day, a legal holiday in the District of Columbia."