Category Archives: Tax News

Mark Your Calendars: IRS Closes for 5 Days Under Sequestration

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irs-logo.jpegFour Fridays and a Monday. Those are the days that the IRS will be closed under the budget cuts imposed by sequestration. Rather than rolling employee furloughs, the IRS has decided to take a few three-day weekends and close shop entirely for five days in 2013. Acting Commissioner Steven Miller make the announcement on Friday.

In addition to regular federal holidays, the IRS will be closed on the following days in 2013: May 24, June 14, July 5, July 22 and Aug. 30. IRS employees will not be paid for these days and IRS offices will not open.

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IRS Announces Special Filing Extension for Boston Area Taxpayers

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On Wednesday, the Internal Revenue Service announced a three-month tax filing and payment extension to Boston area taxpayers and others affected by Monday’s Boston Marathon explosions.

This relief applies to all individual taxpayers who live in Suffolk County, Mass., including the city of Boston. It also includes victims, their families, first responders, others impacted by this tragedy who live outside Suffolk County and taxpayers whose tax preparers were adversely affected.

The IRS will issue a notice giving eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. No filing and payment penalties will be due as long as returns are filed and payments are made by July 15, 2013. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline.

The IRS will automatically provide this extension to anyone living in Suffolk County, Mass. No further action is necessary for Suffolk County, Mass., taxpayers to obtain this relief.

Eligible taxpayers living outside Suffolk County, Mass. must call (866) 562-5227 starting Tuesday, April 23, and identify themselves to the IRS before filing a return or making a payment. Eligible taxpayers who receive penalty notices from the IRS can also call (866) 562-5227 to request penalties abatement. Eligible taxpayers who need more time to file their returns may receive an additional extension to Oct. 15, 2013, by filing Form 4868 by July 15, 2013. Visit irs.gov for more information.

Our hearts and prayers go out the victims and families.

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Can the IRS Read Your Email?

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IRS_logoThe IRS thinks that they can.

The IRS maintains that its agents can read taxpayers’ emails, texts, and other private electronic communications without a warrant according to a story by Brendan Sasso in The Hill. According to the story, the IRS has maintained that taxpayers “do not have a reasonable expectation of privacy in such communications.”

The report is based on documents acquired in a Freedom of Information Act request filed by the American Civil Liberties Union.

Read the story here:
IRS: We can read emails without warrant

Hat tip: Beau Howard

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Today: Supreme Court to Hear Arguments in DOMA Tax Case

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Seal_of_the_United_States_Supreme_Court.svgToday, the United States Supreme Court will hear arguments about the Constitutional rights of homosexual couples courtesy of the Internal Revenue Code.

The Court may rule on a variety of grounds in United States v. Windsor including standing (was the couple’s marriage recognized under New York law) and the proper Constitutional standard (does Intermediate Scrutiny apply to homosexuals) but the case started with a tax return.

Edie Windsor and Thea Spyer were New York residents and a couple for over 40 years. In 2007, they were married in Canada where same-sex marriage was legal. Upon Thea’s death, Edie filed a federal estate tax return, Form 706. Thea’s estate paid $363,053 in federal estate taxes because she was not eligible for the unlimited marital deduction under IRC §2056(a) – a benefit routinely applied to married couples of different sexes. Edie filed a claim for refund of the estate taxes paid. When that claim for refund was denied she filed suit in federal district court.

The refund denial was reversed by the U.S. District Court for the Southern District of New York and the Second Circuit Court of Appeals. Read opinions published in those cases here and here.

Whether not the Supreme Court issues a sweeping or narrow opinion on the rights of homosexuals, there is little question that the tax code touches everyone. After all, that’s where this case started.

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Petition for Writ of Certiorari Filed in Historic Boardwalk Hall Tax Credit Case

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us-supreme-courtThe taxpayers in Historic Boardwalk Hall are seeking review in the United States Supreme Court. As reported here last summer, the Third Circuit Court of Appeals reversed the Tax Court and denied the public/private partnership between the New Jersey Sports and Exposition Authority (“NJSEA”) and Pitney Bowes the benefit of historic rehabilitation tax credits because the two parties were not bona fide partners.

The petition faces an uphill battle to gain a hearing at the Supreme Court. There is no split in the Circuit Courts of Appeal on this issue and the high court seems reluctant to tackle tax matters without that prompt. The petition rightly argues that this is the first case “where the Internal Revenue Service has made a broad based challenge to the allocation of Congressionally-sanctioned federal historic rehabilitation tax credits by a partnership to a partner.” The public policy implications of the Third Circuit’s decision are broad and the impact has already been felt in the historic rehabilitation context and beyond. Many parties will be watching to see what happens with this petition.

Read the petition for writ of certiorari here:
Historic Boardwalk Hall Petition for Writ of Certiorari

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IRS Releases Proposed Regs and FAQs on 3.8% Net Investment Income Tax

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With tax provisions set to expire on payroll taxes, capital gains rates, income tax rates, AMT exemptions, estate taxes, and nearly everything else, the tax picture for 2013 is anything but clear.

One thing that we can expect with certainty on January 1, 2013, is the introduction of the 3.8% investment tax under new Internal Revenue Code Section 1411. The new provision adds a 3.8% tax on the “net investment income” of individuals, estates, and trusts with modified adjusted gross income in excess of the threshold amounts of:

  1. $250,000 for joint returns and surviving spouses;
  2. $125,000 for married taxpayers filing separately; and
  3. $200,000 for everyone else.

Until now, there was little guidance on the details of this provision from the Patient Protection and Affordable Care Act (Obamacare). The Internal Revenue Service has now provided guidance in the form of proposed regulations and Frequently Asked Questions (FAQs).

Ambitious practitioners have until March 5, 2013, to submit comments on the proposed rulemaking.

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U.S. Supreme Court Upholds the Healthcare Individual Mandate under the Taxing Clause

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The United States Supreme Court has just ruled that the individual mandate in the Patient Protection and Affordable Care Act (Obamacare) may be upheld as within Congress’s power under the Taxing Clause. The opinion of the court was delivered by Chief Justice John Roberts.

Read the full text of the slip opinion here:
NFIB v. Sebelius, Docket No 11-393 (U.S. Sup. Ct. June 28, 2012)

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California Supreme Court: Employer Must Prove Qualified Employees to Receive Tax Credit

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In a long-awaited decision affecting many large California employers and hundreds of millions of dollars of tax credits, the California Supreme Court reversed the Court of Appeal decision in Dicon Fiberoptics v. Franchise Tax Board, holding that the Franchise Tax Board (FTB) may require a taxpayer to establish that certain employees in specified enterprise zones are “qualified employees”, above and beyond the state’s certification process, in order to receive hiring incentive tax credits.

The Court of Appeal had held that the state-issued vouchers received by Dicon (and every other employer who participated in the enterprise zone tax credit program) were “prima facie” proof of a qualified employee and that the FTB had to establish that the employee was not eligible under the program before denying the employer the benefit of the associated tax credit. As a practical matter, the Court of Appeals case treated the state-issued certifications as conclusory evidence of the employee’s qualification. The Supreme Court reversed this crucial element of the Court of Appeal decision, thereby allowing the FTB to deny the credit where the only evidence of the employee’s qualification was the voucher and shifting the burden to the taxpayer to establish that the employee was otherwise qualified for the incentive tax credit.

Read the entire opinion here:
Dicon Fiberoptics v. Franchise Tax Board, No. S173860 (Ca. Sup. April 26, 2012)

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