Gift Tax For Virginia Property Transfers?
December 28th, 2011
The IRS started a gift tax examination project a while back. In Virginia, they received information of property transfers between non-spouses relatives. Many times parents may transfer real property to childen or other non-spouse relatives without receiving any payment. The IRS considers this transfer a gift and a gift tax must be paid. The gift tax is imposed on the transfer of money or other property by gift. The first $13,000 of gifts of present interests made annually by a donor to each donee is excluded from the donor’s taxable gifts. For a gift meeting the requirements, a donor must file a Form 709 and pay a gift tax. The IRS has gotten information about transfers of real property between non-spouse relatives from Connecticut, Florida, Hawaii, Nebraska and Virginia among other states.
The IRS recently got a court order to get the real property transfers made to non-spouse relatives from the California Board of Equalization. This was a major victory for the IRS. If you transferred real property to a non-spouse for no payments or consideration, you may get a letter from the IRS asking where is your Form 709–gift tax return. Remember to consult a tax professional if you get such a letter.
IRS Not Increasing Mileage Rate Even With Higher Gasoline Costs
May 16th, 2011
The IRS has spoken. It has has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven, despite the big boost in gasoline prices.
Simplified deduction method. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 51¢ per mile for business travel after 2010. (The 2011 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 19¢ per mile, 2.5¢ more per mile than the 16.5¢ for 2010.) ( Rev Proc 2010-51, 2010-51 IRB 883 )
The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance, and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. ( Rev Proc 2010-51 )
The standard mileage rate may not be used for a purchased auto if: it was previously depreciated using a method other than straight-line for its estimated useful life; a Code Sec. 179 expensing deduction was claimed for the auto; the taxpayer has claimed the additional first-year depreciation allowance; or the taxpayer depreciated it using MACRS under Code Sec. 168.
A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight-line depreciation over the auto’s remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. ( Rev Proc 2010-51 )
Additionally, employers may reimburse employees who are required to provide their own cars for business use at a rate that doesn’t exceed the standard mileage rate. A mileage rate that doesn’t exceed the standard mileage rate is treated as made under an accountable plan if the mileage is properly substantiated (time, place, mileage, and business purpose).
I handle IRS problems for my clients. If you get a letter from the IRS, and you are worried or have questions, send me an e-mail or, if urgent, call me.
April 15th, 2011
The IRS issued a press release advising taxpayers of payment options when you file your income tax return. The release is IR 2011-42. I have placed it in the blog below. The most important thing for you to know is if you owe taxes but you cannot pay the full amount file your tax return and make a payment. Fill out and attach to your return Form 9465 — Installment Agreement Request. The IRS will contact you to work out a payment plan. Read the information below.
Remember, I am a tax attorney having worked in Office of Chief Counsel, IRS. If you have questions or need help with the IRS, just let me know.
IRS reminds taxpayers with a balance due that there are several payment options available [IR 2011-42]: Taxpayers who have a balance due when they file their 2010 federal individual income tax returns have several payment options.
Payments can be made by electronic funds withdrawal, credit or debit card, the Electronic Federal Tax Payment System, or check or money order. According to IRS, some taxpayers who itemize their deductions may be eligible to claim as a miscellaneous itemized deduction the convenience fee charged to pay individual income taxes by credit or debit card.
Along with a check or money order, a taxpayer must include Form 1040-V, Payment Voucher. If a return has already been submitted but additional payment is due, a check or money order should be mailed to IRS with Form 1040-V. “For members of the military and others serving in combat zones, the filing and payment deadline is normally postponed until at least 180 days after the service member leaves the combat zone,” IRS said. “If you are eligible, you get the extra time without having to ask for it,” IRS added.
The agency advises taxpayers with a balance due to pay as much as possible by April 18 to avoid penalties and interest. Those who cannot pay in full have several options to consider. The first is an installment agreement. In most cases, this can be done in several minutes by using the IRS website, the agency said. The second payment option is an Offer in Compromise, which is an agreement between a taxpayer and IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. It is subject to acceptance based on legal requirements. The news release can be viewed on the IRS website.
Got A Letter From The IRS? What To Do?
April 13th, 2011
The IRS just sent out IRS Tax Tip 2011-73. The notice gives you the IRS view of what to do if you receive a letter from the IRS. Read this over and do not panic. If you need assistance with the IRS, please contact me at 703 506 1600. I handle audits, examinations and litigation of IRS matters
Eight Things to Know If You Receive an IRS Notice
the Internal Revenue Service sends millions of letters and notices to taxpayers
Don’t panic. Many of these letters can be dealt with simply and painlessly.
Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry. It’s important that you keep copies of any correspondence with your records.
For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax (For Individuals). Both publications are available at the IRS website, www.irs.gov.
Divorce Tax 101 - What You Need to Know About Taxes & Divorce
March 31st, 2011
On March 22, 2011 I gave a lecture for the Fairfax Bar Association (Fairfax Bar) Tax and Family Law Section at the Fairfax County Courthouse on key issues of Divorce Taxation that supplied Continuing Legal Education Credit for all Virginia attorneys present. The event was very well attended. My presentation on divorce taxes, which may seem boring to some, was spiced up with unusual tax court opinions, anecdotes and humorous comments. I did not include a lot of Internal Revenue Code citations, though they did form the basis for my talk. Rather my goal was to explain a complex tax area in a clear, understandable manner.
The attendees left with a fresher, more accurate perspective of how to handle the realities of the divorce process in light of the client’s best tax interest. Topics included: filing status, alimony, child support, retirement benefits, the distribution of property, and other tax topics to include in a property settlement agreement such as household employer taxes, the kiddie tax, child tax exemptions and child tax credits.
Tomorrow I will upload the power point for the tax talk I gave, as well as the written foundation for the talk for your benefit. I am happy to discuss your particular divorce tax situation with you. Feel free to contact me by email, by telephone, or by mail. Please see the contact page on my website for the details.
Disclaimer: No legal opinion here.
Employment Tax Audit — Independent Contractor VS Employee
June 30th, 2010
Yesterday I attended the live broadcast of a legal education program put on by the American Bar Association discussing the IRS Employment Tax National Research Project. As part of this project, the IRS intends to audit 6,000 businesses, both small and large, per year between 2010 and 2013. Part of what the IRS will be examining in these audits is the classification of employees; namely, whether they are classified as employees or independent contractors. If the IRS determines that a business is misclassifying an employee, tax liabilities and penalties can be severe.
To avoid controversy, an employer must take the steps to determine whether their workers fall into the category of an independent contractor or an employee. This process is often very complex and involves analysis of work procedures and corporate organization, along with examination of banking records and other criteria. While such a distinction is often case-specific, the general guideline is that a worker is considered an employee if the employer has the right to control the worker regarding what job is performed and how it is performed. Whether this right is exercised is irrelevant.
If you operate under the assumption that you are working with independent contractors rather than employees, and therefore do not have to withhold federal income and payroll taxes, it is important to remember to send a Form 1099 for the contractor to file. If the IRS does audit your business and determines that you are working with employees rather than independent contractors, filing Form 1099s could mean your company is entitled to the statutory safe harbor provided by section 530 of the Revenue Act of 1978.
Now that the IRS is enacting its Employment Tax National Research Project, it is more important than ever to make sure your company is up to date with the filing status of its workers. Failure to remain up to date with stricter IRS policy could result in tax liabilities.
If you are notified of an IRS audit or you want to discuss your employment practices, please don’t hesitate to contact me for further information:
Bill Lowrance, (703) 506-1600, email@example.com
Spouse Not Report Income — Innocent Spouse Relief
June 28th, 2010
There are of course benefits to filing a joint tax return with your spouse: eligibility for tax deductions and lower tax rates come to mind. However, there can be severe repercussions that come from filing jointly, and those occur when items are improperly reported on or when income is even omitted from the tax return. If the IRS determines there are erroneous items in your return, such as unreported income or incorrect deductions, and you and your spouse have filed jointly, then both of you will be held responsible for the liabilities.
However, situations arise where one spouse may not have known about the erroneous items, or may have been coerced into signing for them. To combat such situations, the IRS created Innocent Spouse Relief. Provided you meet the qualifications, Innocent Spouse Relief allows you to be relieved of the consequences arising from a fraudulent return.
On the IRS website there is a tool for determining if you are eligible for Innocent Spouse Relief. It can be found here.
If your spouse has embezzled their income, or attempted to defraud the IRS without your knowledge in any other way, even if you signed a joint tax return together, you can avoid the penalties. Provided you meet the qualifications of Innocent Spouse Relief, by filing Form 8857 you will begin the process of detaching yourself from the liabilities. Keep in mind that the IRS requires this form to be filed within two years after they attempt to collect the tax.
Contact me for more information on your options:
Still Time To Report UBS — Foreign Bank Accounts
June 20th, 2010
There are many reports in the news media about the latest Swiss efforts to turn over formeraly “secret” Swiss UBS bank account to the IRS. The Boston Globe:
“Swiss lawmakers yesterday ended a standoff and approved the bank’s settlement with the United States, clearing the way for the names to be transmitted to tax authorities as early as this week. Lawyers said Americans who ignored an IRS offer last year to reduce penalties in exchange for voluntary disclosures now are flooding their offices with calls seeking advice on how to avoid possible sanctions that could include prison sentences.” See http://tinyurl.com/24jpfa9.
The Swiss Parliment approved the agreement to allow UBS to turn over thousands of bank accounts held by US citizents. The Washington Post:
“The Swiss parliament approved a deal Thursday to help the Internal Revenue Service obtain the names of Americans with secret accounts at Switzerland’s largest bank.
The approval averted a renewed conflict between the U.S. and Swiss governments over bank secrecy. If the deal had collapsed, Swiss banking giant UBS faced the threat of potentially crippling U.S. legal action.
Instead, the breakthrough paves the way for the Swiss government to turn over the names and account details of as many as 4,450 U.S. clients of UBS suspected of using undeclared accounts to hide income and evade taxes.” See http://tinyurl.com/2akzgc6.
There is still time for you go to the IRS and voluntarily disclose your “secret” bank account. There is a process and my law firm is actively engaged in handling such disclosure to the IRS. Contact me if you want to explore voluntary disclosure to the IRS or you want more information.
Special Sales Tax Deduction for Car Purchases 2009
October 7th, 2009
The IRS is reminding everyone that there are special, limited deductions for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don’t have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.
The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify. See IRS information at IRS Announcement
Check the IRS Video on You Tube at http://tinyurl.com/ydg9q69
No legal opinion here
IRS To Audit Companies — Employment Tax
September 21st, 2009
The IRS will audit 6,000 U.S. companies to determine whether they pay all their required employment taxes to fund Social Security and Medicare benefits. See Bloomberg News
The IRS said the audits will provide data for its first statistical analysis since 1984 of how often companies misclassify workers to duck tax obligations, fail to pay taxes on fringe benefits such as personal use of company cars, and improperly pay taxes for company executives. The audits will begin in February, and the companies will be randomly chosen.
IRS will be looking at employee classificaitons, meaning “Independent Contractor or Employee.” It is simple. Companies owe taxes for an employee–state and federal withholding, FICA, FUTA, Medicare etc. Many companies will carry workers as independent contractors in order to save money and not withhold taxes. Many independent contractors should really be classified as “employees” because they meet the working conditions tests used by IRS to determine a workers status.
If a company is audited and workers are found to be employees instead of independent contractors, past taxes will be owed by the company and the worker.
It is best to get legal counsel as soon as you get notice of an IRS audit.
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