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“Taxing” is a word synonymous with “onerous” and “wearing.” Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance. We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
An estimated nine million people each year are subject to identity theft based on reports from the Federal Trade Commission. This is certainly an alarming figure and this type of fraud can take many forms. Thieves have been targeting victims to commit credit card, utilities and bank fraud. Most people are aware that checking your credit score and monitoring other online banking reports help to determine if your identity has been stolen.
Your tax returns can be subject to fraud, as well. Each year the IRS publishes the “Dirty Dozen Tax Scams” and the first scam on the list for 2012 was none other than Identity Theft. These thieves, typically, file a return under a stolen identity to claim a fraudulent refund. In a recent article in the NY Times written by Lizette Alvarez (link to the NY Times article), some light is being shed on the magnitude of this type of tax fraud. So, what is the IRS doing to help mitigate the theft?
Well, the IRS is taking this matter very seriously by going as far as creating a specific task force called the Identity Protection Specialized Unit and increasing their own internal reviews to discover these falsely filed returns. The IRS has joined forces with the Justice Department’s Tax Division and the U.S. Attorney’s office to help uncover these crimes across the entire U.S.
The Maryland Senate (on Tuesday) and the House (on Wednesday) passed a tax increase on individuals reporting income of more than $100,000 and joint filers reporting income of more than $150,000 in Maryland. The Governor is expected to sign the bill into law soon.
The increase is retroactive to January 1, 2012, and Maryland will issue new withholding tables in the coming weeks. The increase is a quarter of a percentage point (.25%) in tax on those higher-income earners. The tax increase does not affect local (county) taxes, just the state tax. Maryland local tax rates range from 1.25% to 3.2%.
Next year has the potential to bring big changes for taxpayers.
The Bush-era tax cuts are scheduled to expire on December 31, 2012 and a new Medicare tax will be established. However, there is great uncertainty as to what will actually happen because of the election in November and (in some economists' views) the potential adverse economic impact of large tax increases.
The Supreme Court issued a ruling on 4/25/12 that an overstatement of basis is not an omission of gross income for determining the statute of limitations that applies under Code Section 6501(e)(1)(A) (Home Concrete & Supply LLC (109AFTR 2nd 2012-661).
This means that the normal 3 year period in which the IRS can make tax adjustments will apply rather than the special 6 year period the IRS has been using . This issue has been litigated for several years with different results from different courts. This ruling puts the dispute to rest.
Cases have been litigated where the taxpayer has accurately reported the proceeds received in a sale but may have reported a higher basis in the assets than what was ultimately allowed. IRS issued Regulation 301.6501(e)-1 in 2010 to clarify that basis overstatement was an omission of gross income for purposes of the 6 year statute. This Regulation has been rendered invalid by the Supreme Court ruling.
DC passed emergency legislation last Friday, February 24, 2012, mostly repealing the new-for-2011 withholding requirements on retirement distributions to DC residents. Previously, DC required top-rate (8.95%) withholding on all retirement distributions to DC residents. Effective immediately, the withholidng requirement is repealed for periodic and non-lump-sum retirement plan distributions. The withholding requirement now only applies to lump-sum distributions, but excludes:
(1) any portion of a lump-sum payment that was previously subject to tax;
(2) an eligible rollover distribution that is done as a trustee-to-trustee transfer; and
(3) a rollover from an IRA to a traditional or Roth IRA that is done as a trustee-to-trustee transfer.
See the DC notice here.
Early last week, President Obama released the General Expectations of the Administration’s Fiscal Year 2013 Revenue Proposals, which outlines potential tax changes and is otherwise known as the ‘Green Book.’ This year many estate and transfer tax provisions were specifically mentioned. As you may be aware, the current estate tax laws are set to revert back to tax year 2001 rates on December 31, 2012. Current laws provide an estate tax exemption of $5.12 million and a top tax rate of 35%. In 2013, the law would permit an estate tax exemption of only $1 million and a tax rate of 55% for transfers above the exemption unless Congress takes action before the end of this year. Clearly, this is a significant change and it is not surprising the Green Book incorporates a revision to the estate and transfer tax rules.
However, some of the other modified estate and gift tax provisions outlined in the Green Book are a little more surprising. Below is a quick summary of those provisions along with the suggested change to the 2013 estate tax exemption and top tax rates.
• Restoration of the Estate, gift, and generation-skipping transfer tax parameters in effect in 2009
o The estate tax exemption would therefore be $3.5 million with a top tax rate of 45%
o The lifetime gift tax exemption would be $1 million
o These provisions would be made permanent.
o Also, there is a provision to make the portability of unused estate exemption permanent.
• Requirement for consistency in value and basis figures reported for transfer tax purposes to the IRS and those inheriting property
• Modification of rules by increasing restrictions on valuation discounts
• Requirement for a minimum term of 10 years for grantor retained annuity trusts (GRATs)
• Limited duration of generation-skipping transfer (GST) tax exemption to a trust’s 90th anniversary (limitation on dynasty trusts)
• Coordination between certain income and transfer tax rules applicable to grantor trusts providing potential for inclusion in the grantor’s estate
• Extension of the lien on estate tax deferrals for certain closely held businesses
Congress has come to an agreement on extending the payroll tax cut, and the deal is expected to be approved by the end of this week. The agreement would leave in place the 2% reduction (from 6.2% to 4.2%) in Social Security tax paid by workers for the remainder of 2012. It had previously been reduced only for the first two months of 2012. Social Security tax is paid by US workers on up to $110,100 of their wages this year, so the reduction can save a taxpayer up to $2,200 this year.
Co-authors: Dan Bottner and William Thomas
Picking up right where we left off, remember the Foreign Account Tax Compliance Act (FATCA) was part of the Hiring Incentives to Restore Employment (HIRE) Act from 2010. One of the goals of this Act was to develop a framework for the IRS to ensure disclosure of foreign (or off-shore) assets held by individuals and companies. Not to mention, off-shore asset disclosure has become a theme within our own blog.
There are many guidelines outlined in the Act set to take effect over the next few years. As a step towards the implementation of these disclosure requirements, the IRS has released a *new* tax form due with your 2011 individual income tax return. Other U.S. entities will most likely be required to file this particular form in future years, among various other foreign disclosure forms as more FATCA guidelines are put into practice.