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Showing posts from 2005

Jury Awards $9 Mil. against Apt. Owner

So you think your $1 million liability insurance policy is enough to protect you? Not anymore!

A woman who was beaten, raped and robbed at her Marietta, Ga., apartment was awarded $9 million in compensatory damages by a Fulton County State Court jury. One premises liability expert, Gilbert H. Deitch, said $9 million was the largest award he had ever heard for an apartment rape case. The sum also floored the lawyer representing the apartment owners. "Not to take anything away from that woman's suffering, but we were shocked at the amount," said defense attorney Charles Richard "Chip" Carson of Atlanta's Nall & Miller. "It was nine or 10 times larger than anything we'd contemplated during trial," added Carson, who made the unusual move in the middle of the trial of admitting the defendant was liable for the attack and focused only on arguing over damages.

Peter A. Law, the plaintiffs counsel, said the circumstances surrounding the attack -- an…

IRS Mileage Rate is 44.5 cents per mile

The Internal Revenue Service today issued the 2006 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2006, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
44.5 cents per mile for business miles driven;
18 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.

The new rate for business miles compares to a rate of 40.5 cents per mile for the first eight months of 2005. In September, the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gas prices, which topped $3 a gallon.

Medicare Prescription Drug Benefits

The new Medicare Prescription drug benefits are confusing and state specific. A plan that is great in New Jersey may be not so good in Pennsylvania. AARP has a free online brochure that does a pretty good job of addressing the general issue. Click here for a pdf file of the brochure.

New Bankruptcy Law Requires Tax Return Filing

As a response to the political pressure of banks and credit card companies, Congress passed the new Bankruptcy Law with many onerous provions to prevent debtors from being discharged. Most debtors will be forced into a payment plan, Chapter 13, rather than a discharge of debts under Chapter 7. In order to have their payment plan confirmed, Chapter 13 debtors must also file all tax returns with the IRS for the four-year period before the bankruptcy petition. The debtor must establish filing by the first meeting of creditors.

Seven days before the first meeting of creditors, debtors must provide trustees a copy of their most recently filed federal tax return or a transcript of the return. Similarly, copies of amendments to such returns, and any past due returns filed while the case is pending, must also be filed with the court if requested. The returns or transcripts must be provided to the court at the same time they are filed with the IRS.

If the returns or transcripts are not filed, a …

Senate Democrats Block Capital Gain Rate Reduction Extension

Senate Democrats on November 15, 2005 blocked extension of the reduced tax rates on capital gains and dividends. The provision called for capital gains and dividends to continue to be taxed through 2009 at 15 percent (5 percent for low and middle-income taxpayers, reduced to zero percent in 2008). Those rates are currently set to increase after 2008. Click here for the full article

PayPal releases information to IRS

Paypal Names Names As IRS Chases Tax Evaders

PayPal, the internet money-transfer arm of eBay, is to disclose the identity of customers who use the service to evade paying US taxes.The US Internal Revenue Service (IRS) is demanding records of customers using PayPal through offshore accounts in all tax havens, including Jersey, Guernsey, Isle of Man,Gibraltar and other UK dependencies, says The independent newspaper.

It is part of an American clamp-down on the use of offshore centers for tax evasion. According to the IRS, PayPal's services have proved very attractive to tax evaders and the problem is growing.Customers can buy goods from eBay and many other shopping websites, pay for them from untaxed income held offshore and get the goods sent to their home address, says the newspaper. Tax authorities are also concerned that PayPal can be used to "launder" untaxed money between an individual's offshore and domestic accounts.

Click here for the full article.

New 6-Month Extension to File Tax Returns

The IRS has issued final, temporary and proposed regulations pertaining to the simplification of procedures for obtaining automatic extensions oftime for filing certain returns.

The regulations:
(1) extend from four months to six months the period for which individuals may obtain anautomatic extension of time; (2) extend from three months to six months the period for which partnerships, real estate mortgage investment conduits (REMICs) and certain trusts may obtain an automatic extension of time; (3) provide an automatic six-month extension of time to taxpayers that previously were required to file Form 2758, Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns, in order to apply for extensions of time; and (4) transform current Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, which is used by corporations to obtain an automatic six-month extension of time, into new Form 7004, Application for Automa…

Power of Attorney for an Incompetent Person

===========Question: ===========1. If there are multiple names on checking accounts, bank statements, CD's, etc. and one of those parties is not a functioning party, can the state take that part of their money if that party needed the state to take care of them?2. How can I get Power of Attorney and what is the criteria?

===========Reply: ===========A Power of Attorney can only be created by a person who is mentally competent. Nevertheless, since you indicated the accounts are in joint names, if each party has the right to withdraw funds without the signature of the other, you could withdraw the funds. Whether the State or some other party may make claims is a different issue. Therefore, if you withdraw the funds, place them into a separate accont in your own name so they are available if a dispute arises. You will probably need the help of a good lawyer.

I you have further questions, please check my website at www.saveyourestate.comI hope this helps!

Ron Cappuccio

IRS Commissioner Brags About Increasing Tax Audits

At a November 3, 2005 press conference, IRS Commissioner Mark W. Everson reported that audits of high-income taxpayers, corporations and small businesses jumped dramatically in 2005. He proudly proclaimed IRS audits are "reaching the highest level in years for individuals and corporations." Everson said that the IRS has collected over $43 billion in revenues and increased audits by 20-percent over 2004.

Expect IRS audits to increase dramatically over the next several years so the government can wring out every last drop of tax dollars. For the full report, click here.

Presidental Panel Proposes Tax Simplification - Not Reduction

The Presidential Panel on Tax Reform proposed a complete overhaul of the Internal Revenue Code. The purpose would be to simplify the tax compliance process while collection the same taxes. Under the panel's plan, most deductions, credits and other tax breaks would be eliminated along with much of the paperwork and equations that baffle taxpayers under a drastically simplified income tax.

The proposal would abolish the Alternative Minimum Tax, a levy originally drafted to prevent wealthy individuals from escaping taxation but increasingly reaching into the middle class forcing them to pay at least 28% tax on their income. They also would eliminate federal deductions and credits for mortgage interest, state and local taxes and education, among others.

There is little chance this reform will be enacted in 2006 because it is an election year for Congress.


Click here for the complete report.

Tennessee Telecommuter taxed by New York

The US Supreme Court refused to hear an appeal from a Tennessee resident who telecommuted for a New York company. Even for the time the worker was not in NY, the Empire State taxed his wages. This certainly discourages telecommuting for NY companies and suggests that subsidiaries should be established in more tax friendly states. Click here for the full article about Huckaby v. New York State Division of Tax Appeals, 04-1734

Can a Managing Member Remove other LLC Members?

===========Question: I am the managing member of an LLC in New Jersey and have a question concerning other members of the LLC. Currently I have two members other than myself of my LLC and would like to know if I would be able to remove them from the members list without any repercussion from the members. Do I need a written consent that they acknowledge that they are being taken off or can I just remove them and notify them of it at a later time? There has been no signed agreement between me and the other two members concerning the LLC's practices, division of clients or division of profits. The other members and myself are not seeing eye to eye and I would like to take on a new member and remove the other two...is this possible?

===========Reply: Yours is a typical situation when people try to form businesses without the appropriate legal help. Unfortunately, you do not have a written Operating Agreement. This means that the terms of your LLC agreement are "oral." It doe…

Tax Protestor Irwin Schiff Jailed

Irwin Schiff, an antitax crusader, and an associate were found guilty on October 24, 2005 of multiple charges including conspiracy, tax evasion and tax fraud.

Mr. Schiff, 77, who argues that paying taxes is voluntary, was handcuffed and led from United States District Court after a jury found him guilty of all 13 charges. Schiff has written books and maintained a lucrative business convincing gullable people that his convoluted ramblings were valid legal research.

Should I Purchase a Franchise without an Exclusive Territory

===========Question: I am interested in a franchise for WSI (Internet Consultants) They only offer non-exclusive territories to their franchisees. My first reaction is that this is not a good thing, but I could be wrong. I realize that this is in the franchisor's favor, but is non-exclusive territorial rights something that I should deliberately avoid?

===========Reply: The exclusivity of a franchise territory depends on the business. Duncan Donuts can be located a mile or two apart without adverse impact. What you are buying in a francise is first a NAME. If you have not heard of the franchisor's name before, then all you are doing is building up their name. Secondly, you are purchasing a unique product or system. An example, once again is Duncan Donuts. If I go to a DD I know what doughnuts, coffee, etc. is available. It is an identifiable product. Finally, the training and business sytems, and ongoing support, can be valuable to the new business owner.

I have more information…

Cancellation of Indebtedness Income

===========Question: We have recently had our bankruptcy discharged. We are giving back the house, will the discharged debt be considered income? If so how are we supposed to be able to pay those taxes when we are broke?thanks,Josh
===========Reply: Normally, Cancellation of Indebtedness is considered Taxable Income. The exception is if the taxpayer is bankrupt or insolvent. Since you filed a Chapter 7 Bankruptcy Liquidation, you will not be taxed on the COD income. If you have any further tax questions, please check my website http://www.taxesq.com/

IRS Audits Focus on Executive Fringe Benefits

IRS Audits are now focusing on Executive Fringe Benefits. The purpose is to deny the deduction for the business and to include the expenses as income for the Executive. Areas scrutinized in the audits include:
Athletic Skyboxes and Cultural Entertainment Suites Awards Bonuses Club Memberships Corporate Credit CardsEmployee Discounts Paid Vacations Employer-Paid Parking Loans Executive Dining RoomRelocation CostsFinancial PlanningOutplacement ServicesChauffeursTransportation/ Company CarsSpousal/ Dependent Travel Private Jet UseTransfer of Property (such as real estate, stock, computers, furniture and cell phones)Personal Use of "Listed" Property (such as computers, cell phones, and home office items)

Tax Extensions increase to 6 Months for 2005

Form 4868 will get you anautomatic 6-month extension and Form 2688 will become obsolete.Additionally, Form 7004 will also give you an automatic 6-month extension and will also be used for extensions for trusts and partnerships as well.Forms 2758, 8736 and 8800 will likewise become obsolete. All effective Jan1 2006.

New Bankruptcy Law Defeats Asset Protection Trusts

One issue with domestic asset protection trusts is that the Section 548(e) of the Bankruptcy Act of 2005 specifically allows a bankruptcy trustee to avoid transfers within 10 years of the transfer to the trust,"or other similar device"such as Family Limited Partnerships and LLC, for existing or new creditors within the 10 yearperiod. This may effectively defeat many "Asset Protection Trusts" and may promote the use of offshore trusts.

LLC's Need Operating Agreement

LLC's Need Operating Agreement

Question:
I have formed a LLC corporation. I am trying to open up a bank acct in my business name. but they require an artile of incorpation, which I do not have. How do I obtain this.

Reply:
In New Jersey, a Limited Liability COMPANY (not corporation) is started by filing a Certificate of Formation. This can be done online. If you filed online, in about a week you will get a copy from the State.The Filing of the Certificate of Formation is a Notice. The Operating Agreement and Organizational Resolutions are used to actually formalize the LLC. You should file for a separate Employer Identification Number and a State of NJ Number. Frankly, you need expert legal assistance. As a preliminary step, my web site, http://www.taxesq.com/ has a Choice of Entity Determinator which can help.Good luck!Ronald J. Cappuccio, J.D., LL.M. (Tax)

Tax Compliance costs 2% of Economy

Complying with the current federal tax code costs American taxpayers at least $100 billion annually, and lost economic efficiency associated with the tax system may top half a trillion dollars, auditors for the Government Accountability Office told Congress.

In a new report likely to add fuel to campaign for an easy-to-administer national consumption tax, the GAO said that the "lowest available estimates" of the cost of complying with federal income, payroll and excise taxes is $107 billion -- 1 percent of the nation's total gross domestic product. Other studies suggest compliance costs may be 50 percent higher than these estimates, the GAO told Congress.

Citing U.S. Treasury Department estimates that individuals, businesses and exempt organizations spent a total of 6.4 billion hours completing federal tax forms last year, the agency concluded that even those estimates might be conservative.

"If this burden were monetized at rates between $15 and $30 per hour, the tota…

NJ Computer Error cause mistakes in Unemployment Tax Rates

NJ Computer Error cause mistakes in Unemployment Tax Rates

The state of New Jersey issuing Amended 2005/2006 Unemployment Tax Rate Notices.
The state of New Jersey is in the process of issuing Amended 2005/2006 Unemployment Tax Rate Notices.

Some of the originally mailed (August 22, 2005) notices contained erroneous duplicated contributions (taxes), thus assigning employers a higher reserve ratio than required by the tax table. As a result, the state of New Jersey has now corrected their figures and is issuing the amended notices.

Please take note, not all NJ employers were affected by the programming error, thus, only those employers whose data has changed will receive the Amended Notice.

Has your company been assigned the correct rate? This is another example of why the US Department of Labor states there is a 50% chance you are overpaying payroll taxes.

Reporting Foreign Bank Accounts and Insurance Transactions

Taxpayers must use Form 8300 (see TD F 90-22.1) to report transactions over $10,000 in cash and to report a foreign bank account.

TD F 90-22.1 requires insurance companies to report if a taxpayer has cash surrender value in a insurance policy over $10,000 if the company is foreign company.

The policy could have been purchased in the USA with a foreign company or with a USA company that later got brought out by a foreign company or you may actually live out of the USA and brought your policy from a foreign insurance company.

This is part of the continuing attempt to by the IRS to tax all worldwide income of taxpayers.

IRS Raises mileage rate to 48.5 cents

In response to the sharp jump in gas prices, the Internal Revenue Service yesterday said it raised the standard mileage reimbursement rate by 8 cents to 48.5 cents a mile, the single largest increase ever.

The new rate will be retroactive, applying to business travel from Sept. 1 through the end of this year.

Workers who use their vehicles for business can deduct their actual expenses or the standard mileage rate on tax returns. The federal government and many private employers use the IRS rate when reimbursing workers who use their car on the job.

Big Accounting Firm Pays for Fraudulent Tax Shelter Advice

KPMG, the accounting firm under investigation for selling questionable tax shelters, will pay $456 million and accept an outside monitor of its operations under terms of an agreement with prosecutors that heads off an indictment of the firm, people briefed on the deal said yesterday.

The agreement means that KPMG has dodged a potentially fatal indictment and avoided the fate of Arthur Andersen, the accounting firm that collapsed after prosecutors charged it with obstruction of justice in their investigation of Enron, an Andersen client. See the full NY Times Article (free account registration required)

Facsimile Signatures Allowed for Some Employment Tax Returns

Facsimile Signatures Allowed for Some Employment Tax Returns

The IRS issued Revenue Procedure 2005-39 to clarify new rules for allowing corporate officers or duly authorized representatives to sign employment tax forms by facsimile or other allowable automated means.

The new procedure will reduce the burden in filing employment tax returns because it will make filing employment taxes simpler and reduce the number of returns the IRS rejects due to signature issues. Rev. Proc. 2005-39 applies to the following forms:

Any form in the 940 series, including Form 940, Employer’s Annual Federal Unemployment Tax Return (FUTA);
Form 941, Employer’s Quarterly Federal Tax Return;
Form 943, Employers Annual Federal Tax Return for Agricultural Employees; and
Form 945, Annual Return of Withholding Federal Income Tax;
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons;

Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;

Form CT-1, Employer’s Annua…

Do you have to live/work in the same state that you incorporate?

===========
Question:
===========
Category: Business Law
Location: NJ
Subject: Forming a Corporation

Question: Do you have to live/work in the same state that you incorporate? So, If I were to buy/rent a mailbox from a UPS store (the mail box would have a street address) would I be able to incorporate in a different state from where I live simply by using that address as the corporate address? This question comes from the fact that I want to start an e-commerce website so there wouldn't really be a brick and mortar store. I currently live and work full time in NJ but if I file to incorporate a business in say Delaware or any other state that has more favorable tax structure, would I then have to file a Non-Resident state income tax in Delaware?


===========
Reply:
===========
Category: Business Law
Location: NJ
Subject: Re: Forming a Corporation

No. As long as you have a local registered agent and registered office, you do not need to live or work in a state to set up a coporation or LLC. N…

IRS Must Pay Taxpayers for Diclosure of Private Info

An IRS investigation may be a business owner's worst nightmare. But here's a case in which the target turned the tables on the tax man.

On Tuesday, a federal judge ordered the government to pay more than $250,000 to three taxpayers after finding that an IRS agent had disclosed confidential information to witnesses in a criminal tax investigation.

Senior U.S. District Judge Scott O. Wright assessed statutory and punitive damages after finding that special agent Robert Jackson of the IRS' Criminal Investigative Division in Kansas City "knowingly, willfully and intentionally" made 78 illegal disclosures of taxpayer information. Click here for full article.

IRS Gets More $ for Audits and Collections!

The IRS is getting everything they asked for in their upcoming budget year.

While it has not been signed sealed and delivered even the IRS
Commissioner believes the IRS will get their full budget requested for
the forthcoming year.

So part of this means is they are getting an extra $500 million for
compliance work.

In other words the IRS will be perfoming more audits and significantly increasing collection activity in the coming year.

Non-Filing Tax Returns

Question: Non-filing of taxes

I have a friend who has not filed tax returns for a lot of years. All of his income comes ''under the table''. I want to help him get out of this situation. He wants to, but says at this point he will end up in jail. What is the best course to follow?


Reply:
Your friend should IMMEDIATELY contact a Tax Attorney. Because of the potential for criminal liability, your friend needs an attorney and not an accountant. Your friend would have attorney-client priviledge.

Tell your friend not to speak with the IRS.

Please see my website at http://www.taxesq.com

Tax Basis When Selling Gift Property

Question: Selling gifted property.
20 years ago I received a portion of recreational land as a gift from a relative. Now I am ready to sell. The property has greatly appreciated. What are the tax implications? How do I compute cost basis?Reply: Because you received a gift, your basis in the property for tax purposes is a "carryover" basis from the grantor. Essentially, whatever the grantor paid for the property, any improvements, and any gift taxes paid would increase your basis. Since it is land only, there would not have been depreciation. You would be subject to Capital Gains Tax rates and possibly the Alternative Minimum Tax.

Should spouse be owner of LLC?

Question: Business Law: Sole Proprietorship. My husband started his own construction/handyman business 3 years ago. It's an LLC and only his name is listed. He originally did not add my name to the business because he just didn't think to do it. Should he add my name to the business? Why or why not?Thank you for your assistance.Reply: answer is ABSOLUTELY CLEAR. You do NOT want to be a member. The idea of the LLC is to insulate the family assets from business liabilities. Even if a creditor or the government can successfully attack your husband, your assets would be protected. As a member of the LLC you would have potential liability for Sales and Use Tax, State and Federal Employment Taxes and NJ Disability and Unemployment contributions.
If you would like further information on the tax and legal issue, there is free information on my website http://www.taxesq.comI hope this helps!

Your Email Is Open to the Public!

An Internet service provider must hand over documents that disclose the identity of a person who sent an allegedly libelous e-mail about an executive director to the company's board, a Manhattan judge has ruled, finding that the First Amendment does not preclude discovery. The Public Relations Society of America and its director initiated an action against Road Runner High Speed Online, seeking all documents concerning the e-mail and the user of the originating Internet address. For the full article click here.

IncorporationShould an independent software consultant (independent contractor) incorporate himself?

Question: IncorporationShould an independent software consultant (independent contractor) incorporate himself?Reply:Probably not. The better choice in most states would be to set-up a Limited Liability Company. This is a disregarded entity for Federal tax purposes. The LLC "member" would simply file a Schedule C as part of the 1040 rather than an 1120 Corporate Income Tax Return. Please see my web site http://www.taxesq.com/ for more information on the best legal choice of entity.

US Supreme Court Strikes Down Restrictions on Wine Sales

The US Supreme Court determined that state laws banning mail order wine purchases from out of state suppliers while permitting local sellers to sell wine by in-state wineries is Unconstitutional. If a state permits direct sales from the winery to the customer, then it must permit the sales over the internet and from other wineries located in other states. This will give consumers more choice and price competition unless states try to flex their taxing and regulating authority banning all direct retail sales. For more information click here

IRS Smplifies 941

IRS has Simpler 941

If you've been preparing or even just signing quarterly employment tax returns for awhile, you probably recognize IRS Form 941. Also known as the Employer's Quarterly Federal Tax Return, this is the form used to report wages, tips and other compensation, as well as federal tax withheld and Social Security and Medicare tax due.

Recently, the IRS gave Form 941 a face lift. The tax agency found an abundance of mistakes made on the form by employers across the country. That's why the Office of Taxpayer Burden Reduction turned its spotlight on Form 941 in an attempt to make it more user-friendly. Beginning with the first quarter of 2005, the old, familiar quarterly report was replaced with a new, "easy on the eye" form.

The goal is to reduce: 1. The time required by preparers to complete the form. 2. The number of common errors, many of which can lead to penalties. Each year, 23 million 941 forms are filed by 6.6 million employers. The …

IRS Eliminates"Questionable" W-4 Form Requirement for Employers

Good News: IRS Eliminates"Questionable" W-4 Form Requirement for Employers

New federal payroll tax rules eliminate the requirement for employers to automatically forward to the IRS copies of all employee W-4 forms, Employee’s Withholding Allowance Certificate, that the IRS considered to be problematic. Previously, the IRS wanted to collect these W-4 Forms and review them to see if the employees in question were trying to dodge their federal income tax responsibilities.

Specifically, the former rules required employers to send the IRS a copy of each employee Form W?4 that claimed: 1. More than 10 withholding exemptions or 2. Complete exemption from federal income tax withholding when the employer reasonably expected the employee’s wages from that source to be $200 or more per week. As of April 14, 2005, these old “automatic-copies-to-the-IRS” rules no longer apply. They won’t be missed by employers. Under the new rules, an employer is only required to submit cop…

Senator Lautenberg's comments on Bankruptcy Law

April 26, 2005Mr. Ronald Cappuccio
Cherry Hill, NJ 08002Dear Ronald:Thank you for contacting me about bankruptcy reform. I appreciate hearing from you on this issue. In recent years, I have voiced support for a comprehensive review of our nation's bankruptcy laws. In my view, it’s imperative that any reform should provide a balanced approach to both sides of the problem: irresponsible debtors and irresponsible creditors. Unfortunately, the Senate recently acted only on the first of those problems, and the Republican majority struck down any attempt to focus on the latter. As you may know, the Senate passed S. 256, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005", on March 10th, 2005. The House of Representatives recently passed this bill, and President Bush has signed it into law. The Senate had an opportunity to pass a good bankruptcy bill that would curb real abuses of bankruptcy while protecting consumers who fall on hard times because of …

Senator Lautenberg's comments on Bankruptcy Law

April 26, 2005Mr. Ronald Cappuccio
Cherry Hill, NJ 08002Dear Ronald:Thank you for contacting me about bankruptcy reform. I appreciate hearing from you on this issue. In recent years, I have voiced support for a comprehensive review of our nation's bankruptcy laws. In my view, it’s imperative that any reform should provide a balanced approach to both sides of the problem: irresponsible debtors and irresponsible creditors. Unfortunately, the Senate recently acted only on the first of those problems, and the Republican majority struck down any attempt to focus on the latter. As you may know, the Senate passed S. 256, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005", on March 10th, 2005. The House of Representatives recently passed this bill, and President Bush has signed it into law. The Senate had an opportunity to pass a good bankruptcy bill that would curb real abuses of bankruptcy while protecting consumers who fall on hard times because of …

Congress Passes Credit Industry's Bankruptcy Bill

Credit Card Companies and abusive lenders such as rental centers got their wish; a new anti-consumer Bankruptcy Bill. Congress passed a bill forcing debtors to repay debts instead of getting them discharged. The bill also adds provisions requiring lawyers for debtors to independently investigate and certify the values of the debtor's assets. This will greatly increase the legal fees and costs for those least able to afford it. For the full article, click here.

IRS wants to stay in business.

Taxpayers spent more than $90 billion to comply with the tax code in 2002, according to preliminary estimates using IRS data presented on April 11 by Eric Toder of the Urban Institute in Washington. The figure considers the monetary burden of complying plus a monetized time burden of $20 an hour. Under those parameters, the average tax return costs $684, according to Toder, who spoke during a tax reform discussion at the Urban Institute. Both Toder and National Taxpayer Advocate Nina Olson stressed that while there are monetary and time burdens associated with filing tax returns, the “ritual” should not be abandoned for a returnless system.Taxpayers like to have the experience of looking at what their finances were for the year, Olson said. Once again, the government is trying to excuse taking your money and forcing you to spend inordinate amounts of time on tax compliance as being "good for you." Please see the complete article.

IRS Penalizes 20% of Business for Payroll Taxes

The IRS recently published filing and penalty statistics for FY2004. A whopping 6.4 million penalties were doled out on the 30.4 million employer withholding returns filed -- a rate of over 20%. A total of $2.47 billion in penalties was assessed. Over 90% of the companies that fall behind in their withholding taxes do so because of cash flow problems. They may not plan to do it ahead of time, but sometimes find themselves without the cash to make the payment on the day it is due. It may take the IRS a few months to realize a payment has been skipped, so at first it seems like easy money. But the penalties are stiff: 2% of the amount due for being just one day late, 5% for being 6 days late. If an employer files late there is a 5% per month (up tp 25%) penalty. Paying late can also add another 25% penalty, plus interest.

Creditors Barred from Bankrupt's IRA

In a unanimous decision, Rousey v. Jacoway, the Supreme Court held that creditors may not reach IRAs for petitioners who file bankruptcy. This means IRA's are treated the same as other pension type plans for Bankruptcy purposes. As a basis for its decision, the US Supreme Court relies upon the access restriction to IRA assets under federal law. Specifically, the Court looks at the 10 percent excise tax penalty for premature withdraws prior to age 59 1/2 to say that, while the assets in the IRA are vested, the penalty is sufficiently draconian that the full value of the assets contained in the IRA is only available "on account of age" so it is excludable from the bankruptcy estate under 11 USC 522(d)(10)(E).

Claiming a Parent as a Tax Dependent

If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption (currently $3,100) for him or her.

There are five tests to determine whether you can claim a parent as a dependent:

The person you are claiming as a dependent must be related to you. This shouldn’t be a problem if you are claiming a parent (in-laws are also allowed). Keep in mind, however, that foster parents do not count as a relative. To claim a foster parent, he or she must live with you for a year as a member of your household.

Your parent must be a citizen or resident of the United States or a resident of Canada or Mexico.

Your parent must not file a joint return. If your parent is married, he or she must file separately. There is an exception if your parent is filing jointly, but has no tax liability. If your parent files a joint tax return solely to get a refund, you can claim him or her as a dependent.

Your parent must …

Telecommuters Must pay NY State Income Tax

Telecommuters Must pay NY State Income Tax

A closely divided New York Court of Appeals upheld a controversial tax policy that has made New York state the bane of telecommuters, and something of an outcast among its neighbors. The state's high court held in a 4-3 opinion that a telecommuter who lives and works in Tennessee but is employed by a New York-based company must pay New York taxes on 100 percent of his income even though he spends at most 25 percent of his working time in the Empire State.

The solution is for the company to establish a subsidiary or sister company in another state to minimize New York's draconian tax practices.


Click Here for complete Article

Can Trust Fund Penalties be Discharged in Bankruptcy?

Can Trust Fund Penalties be Discharged in Bankruptcy?

Some employment tax obligations are dischargeable in Bankruptcy. For instance, a proprietor employer's share of FICA tax more than 3 years old at time of bankruptcy petition would be dischargeable. 11 USC 523(a)(1), referencing 507(a)(8)(D).

1031 Exchanges in NJ

1031 Exchanges Exempt from NJ Non-Resident Withholding Tax

The tax law effective August 1, New Jersey P.L. 2004, C.55 (N.J.S. 54A:8-10), which demanded real estate tax withholding from nonresident New Jersey sellers, no longer applies to sellers in a §1031 exchange.

The new Seller’s Residency Certification/Exemption form (effective October 8, 2004) now includes exemption # 7, which applies to 1031 exchanges and other transactions not subject to Federal Income tax under I.R.C. Section 721

IRS Commissioner Brags About Profits from Increased Collections

IRS Commissioner Brags abour Profitablity of Increasing IRS Budget for Collections and Audits

Remarks of IRS Commissioner Mark W. Everson at National Press Club

IR-2005-30, March 15, 2005

"The Administration has called for a 4.3 percent increase in IRS
funding in the President's '06 budget, with a nearly 8 percent increase for
enforcement.

These investments will pay for themselves several times over. Last
year, the IRS produced direct enforcement revenues of more than $43 billion
from our collection, audit and document-matching efforts. This reflects
better than a 4 to 1 return for every dollar invested in the total agency
budget, including our service and outreach activities. And our direct enforc
ement revenues don't include the indirect impact of our work that occurs
when a neighbor hears about a friend's audit or reads about a criminal
conviction and then spurns the suggestion to inflate a deduction or
understate income. Increased enforcement funding makes good…

LLC vs. S Corporation

Question:

My accountant recommends an "S" Corporation rather than a LLC becasue LLC's are taxed as partnerships and that is more complex. What do you think?

Answer:

The LLC offers more flexibility than an S corp. Remember only qualified persons can hold S stockwhereas anyone or any entity can own a membership unit of an LLC. There is alimit on the number of shareholders an S corporation can have (75). While both an S and an LLC are generally small in number, the LLC can have an unlimited number of members.

An S can only have voting and nonvoting stock, which must otherwise have all other similar rights. An LLC can create whatever kind of membership interests it wishes, so long as the economics are properly reflected in each member's capital account.

Further, if you intend to put real property into a corporation, you will be subject to the problem of double taxation on the appreciation, whether it is a C or an S. The problem with having real estate in an S corporation aris…

Does a Single Member LLC offer Liability Protection?

There is no reason to believe that as to liability arising from
within the LLC, such as a slip and fall on the premises being held,
that a single-member LLC will offer any significantly less protection
from liability to the member than a sole shareholder corporation
would to its shareholder.

In most states, the law relating to sole shareholder corporations is
relatively well-defined and is found in the corporate veil piercing
and alter ego cases. While the "unity of ownership" element is
obviously met in the case of a sole shareholder corporation or single-
member LLC, there are other criteria which usually must be met
(entity undercapitalized for its liabilities or used to perpetrate a
fraud, etc.), such that historically sole shareholder corporations
have actually stood up pretty well to prevent the liability from
flowing to the shareholder.

So, while the use of a single-member LLC is not ideal from a liability standpoint (although it is better than a sole proprietorship) it …

My Mother Died without a Will

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Question:
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Category: Probate, Trusts, Wills & Estates
Location: NJ
Subject: My Mother Died without a Will

My Mom died in 2003 w/o a will. My siblings appointed me administrator, i am one of 9. The only property to be divided is the house. which comes with it's on set of problems,their is not a clear title. There are leins against the property, we were able to get $90,00 cleared with just a few thousand left.My husband and I would like to buy the property, we had it appraised and are able to pay cash to each of my siblings. 6 of us have signed QuitClaim Deeds.There are 3 hold outs (emotional hold outs)They feel my sister should have the house. she has no $ and can't get a mortage. I belive that my job is to settle it fairly 1/9 split is fair. It has been 20 months since my mom died and now the homeowners insurance is a problem, we have been dropped by the co. we were with for 30years. i found another co. for double the cost and short term,we must have a …

Congress Trying to Increase Small Business Taxes

Congress is trying to increase taxes on small businesses that are LLCs LLPs and S corporations. Presently, if a shareholder of an Scorporation or a Limited Parter of a Limited Liability Partnership or investor Member of a LLC has no participation in the management of the business, income received is not suject to the onerous Social Security/Medicare double tax. In order to raise taxes, some members of Crogress are trying to tax all of the distributions as if they were earning from work and therefore collect unwarranted Social Security and Medicare taxes.

More Details

Seniority vs the ADA

Your company's seniority system ordinarily takes precedence over accommodating the needs of disabled employees, according to a Supreme Court ruling.

The case involved Robert Barnett, a baggage handler for US Airways in San Francisco who injured his back on the job. Barnett wanted a job in the mailroom but two other co-workers with more seniority also wanted the position. He sued in federal district court charging that the airline didn't make a "reasonable accommodation" for him under the Americans with Disabilities Act. (US Airways v. Barnett, No. 00-1250, April 29, 2002).

The decision may take some of the pressure off employers to make special arrangements for disabled staff members. But the court didn't give companies a green light to make promotions based solely on seniority and ignore the ADA entirely.

"In our view, the seniority system will prevail in the run of cases," Justice Stephen Breyer wrote for the court. However, a disabled employee might be…

Ondian Company Opening US Branch Company

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Question:
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Subject: Opening branch office of Indian company in NJ

We wish to know the legalities involved in opening the branch office of an Indian manufacturer-exporter of home textiles. This company is already exporting to wholesellers in USA.
Now wants to have own branch office in New Jersey.


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Reply:
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You will want to set up a separate Limited Liability Company or Corporation in New Jersey to run the NJ business. This has the advantage of being a US based entity with US source income. Any profits could either remain in the US or be paid as management fees to the parent Indian company.

Please check my web site http://www.taxesq.com/ for more information about setting up a New Jersey company.

I hope this helps!

Ron Cappuccio

IRS Publishes New 941

Here is the address for the revised 941 just published by the IRS

New 941

Common Fraudulent Tax Schemes

Here is a report by the IRS of the 12 most common fraudulent tax schemes. If you have fallen vitim to any of these, call me at 856 665-2121 right away. For other tax frauds see mny website at http://www.taxesq.com

Ron Cappuccio

The Dirty Dozen
The IRS urges people to avoid these common schemes:

Trust Misuse. Unscrupulous promoters for years have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. More than two dozen injunctions have been obtained against promoters since 2001, and numerous promoters and their clients have been prosecuted. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.


Frivolous Arguments. Promoters have been known to make the following outlandish claims: that the Sixteenth Amendme…

S Corp Deadline Coming Up

"Beware the ides of March." That’s the March 15 date from Shakespeare’s Julius Caesar. It's also the tax return due date for corporations and a lesser-known tax deadline for business owners — the cutoff for electing S corporation status for 2005.

Background: An S corporation operates as a pass-through entity in much the same manner as a partnership. Items of income and deduction are passed through to the individual shareholders for tax purposes. Thus, the owners receive the protection from personal liability afforded to corporations, but avoid the “double taxation” pitfall of regular C corporations. This has made S corporations a popular entity for many business operations.

The election to be treated as an S corporation requires the irrevocable consent of every shareholder. Keep in mind:
If a husband and wife have a community interest in the stock, both spouses must consent to the election.
Consent of a minor may be given by a legal representative or a nat…

IRS Increases Audits

The IRS announced today that it is increasing audits. Even though a taxpayer reporting an income of $100,000 or more only has a 2% chance of a full audit, the IRS is agressively using computer record matching to do "mini-audit" type tax adjustment letters.

Some of the most common problems that generate letters can be avoided by filing electronically and letting the computer check for valid Social Security numbers and math errors. If you fill out the forms by hand, make sure to double- and triple-check your work.

The IRS has no single formula that determines which tax returns will be audited. The agency audits some taxpayers by mail and others in face-to-face meetings, depending on the complexity of the return.

Audits can be defended. Please click here for further information.

How can I find out about Federal and State Tax Liens?

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Question:
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Category: Tax and Taxation Law
Location: KS
Subject: Leins

I am getting ready to file my 2004 taxes and I want to know if there is a way for me to find out if there are any leins, judgements, etc against me that would prohibit me from receiving the amount of refund on my tax return (federal and state). Please advise. Thanks for your help.


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Reply:
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Category: Tax and Taxation Law
Location: KS
Subject: Re: Leins

Yes, you can find out if there are liens and judgments. The easiest way is to call you tax lawyer and have a judgment and tax lien search done. If you know you owe money to the state or IRS, you must assume that your refund will be taken for past due taxes. If the amount of refund is more than $200, you should increase your W-4 exemptions to reduce the amount withheld and increase your weekly take-home pay.

If you have more questions about the tax collection process, please see my website at:

http://www.taxeq.com/

I ho…

Wife is Liable for Husband's 401(k) Income not reported

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Question:
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Category: Tax and Taxation Law
Location: IA
Subject: Husband caused tax liability I was not aware of on tax returns

My husband filed federal and state tax returns that I signed, not knowing that he did not report income from the liquidation of his 401K plan and untaxed money from consulting work (neither of which did I know existed). The IRS and the State of Iowa has named me as equally liable because a joint return was filed. We are now separated but not yet divorced, because I do not have enough money to file for a divorce, and he said he is willing to be soley responsible for the delinquent taxes; however, he is now living out-of-state and is no longer employed. What can I do to avoid liability? He says he has contacted both the State of Iowa and the IRS to take sole responsibility, but I keep getting letters from both places. Help! I already do not have enough money from my own income to even pay for all of my living expenses. I tried to se…

W-2 Not Received by Jan 31

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Question:
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Category: Tax and Taxation Law
Location: IL
Subject: Employer not Delivering W2's by Jan. 31st?

My employer is not Delivering my W2's by Jan. 31st. Is there any action I can take or any taxpayers rights I have to retaliate against this?


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Reply:
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Category: Tax and Taxation Law
Location: IL
Subject: Re: Employer not Delivering W2's by Jan. 31st?

Sometimes, employers cannot provide W-2's by January 31. Most employees are understanding. If you are really in such a rush to prepare your taxes, you can get all of the necessary information from the "Year to Date" section on you last payroll stub for the year.

The real issue is usually the employee is expecting a large refund. That is the problem. If your expected refund is more than $200, you should file a new W-4 with your employer increasing your exemptions. This will increase your weekly take home pay and avoid unnecessarily large refunds. Why let the …

How do I change a Partnership to a LLC?

Hi Ron
My husband and I started a small business two years ago, as a partnership, and we would like to change it to an LLC. Could you provide advise as to how to go about doing this.
Thanks

Answer:

Have you filed US Partnership Tax Returns - form 1065, or do you file a Schedule C on your 1040? THe steps would be to:
1. Establish a LLC
2. Use the same EIN as the partnership
3. Transfer the business assets into the LLC.

Depending upon filing, there should be no Federal Tax. You may be subject to state and local taxes and registration fees depending upon the assets.
I would be happy to help you!

Ron Cappuccio

Divorce Court Order Does NOT Stop IRS Collections

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Question:
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Category: Tax and Taxation Law
Location: MO
Subject: Spousal Defenses

What are the different types of spousal defenses? In my divorce decree it states that my exhusband is responsible for all of the tax debt on the joint account we had. The IRS says that they will take all of my income tax return even though it was court ordered for him to pay everything.


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Reply:
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Category: Tax and Taxation Law
Location: MO
Subject: Re: Spousal Defenses

Unfortunately, regardless of the divorce order, you are personally responsible for all of the taxes in a jointly filed income tax return. Many Family Court Judges are ill-informed and believe the IRS must abide by their order allocating tax responsibility. The IRS can collect the balance from either you or your former spouse.

You should immediately contact a tax lawyer to determine your collection defenses and whether you might qualify as an "innocent spouse." Please see my web s…

Can IRS Garnish Wages for Taxes Owed only by Husband?

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Question:
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Category: Tax and Taxation Law
Location: IN
Subject: Back Taxes owned by Spouse

My husband owes back federal taxes. This occured before the marriage. Can the IRS take money from my wages to pay for my husbands past debt?


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Reply:
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Category: Tax and Taxation Law
Location: IN
Subject: Re: Back Taxes owned by Spouse

The IRS cannot garnish your wages. Nor can the IRS levy against your separately owned property. Nevertheless, the IRS take all of your joint bank accounts and jointly titled assets. In addition, the IRS can file a Federal Tax Lien against your husband which becomes a lien on any jointly owned real estate. This would make it difficult to sell without paying the IRS.

Also, if upon your death, you leave any of your assets to your husband, or if he is the beneficiary of any life insurance policies, the IRS can take this.

If you file a joint return, the IRS will take all of the refund and make you fight to get your port…

7 years of non filing with the IRS

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Question:
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Category: Tax and Taxation Law
Location: TX
Subject: 7 years of non filing with the IRS

I've learned that my husband of 8 years has not filed taxes with the IRS (married filing jointly). He continues to say that ''it's ok'', but I have always been the responsible person prior to this marriage. This is causing me great stress and he doesn't seem to care. What kind of trouble can I get into with the IRS for non-filing of taxes? What are my options now?


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Reply:
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Category: Tax and Taxation Law
Location: TX
Subject: Re: 7 years of non filing with the IRS

You can be in significant trouble both criminally and civily. You should file a tax return every year. If you had income, you are responsibile for filing your own tax return. Filing jointly is an option for married couples; it is not required.

The first thing you need to do is contact a tax lawyer, not an accountant. There is confidentiality for your…

FRanchise Fee Deductions

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Franchise Purchase and tax deductionsI purchased a franchise in a home inspection business in 2004. What are my options regarding filing my taxes for 2004? Can I deduct the whoel thing, mortize it, depreciate it, what?
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Depending upon exactly what you bought, there may be some current deductions, although some expenses, unfotunately, may need to be amortized. The purchase of short term supplies and expendible materials would be immediatey deductible. Equipment would need to be amortized over the life in accordance with the type of property. The franchise fee may be amortized over 14 years. You will need to consult a tax and business attorney to review the documents you signed and to determine the tax treatment.Some of the tax issues are discussed on my website http://www.taxesq.com/

Is there a Form to Dissolve a Limited Liability Company?

QUESTION:
Category: Business Law
Location: NJ
Subject: articles of dissolution

i need info on dissolving a 50/50 partnership in an LLC to protect my assets in the co. i wish to remove myself from the LLC, leaving my partner/member to either end the LLCand liquidate/split assesets or to transfer membership interests by selling it to her. i need to know all my rights and personal liabilties if any in this matter.need to know how to apraise the worth of the company( machinery,stock,materials) to find the true value of the company. do i need an attorney? i had invested personally 12,000.00 in the company at start-up 2 yrs. ago by purchasing equipment for operating the business.it was a 50/50 investment. we have a vehicle that was purchased by a third party that we have been making payments to (5 yr. loan). we are still paying on.no agreement was made in writing on this loan with my partners personal friend. need to know how that vehicle loan can be transfered to my partner. need to know …

Where do Telecommuters pay Income Tax

The New YorkCourt of Appeals will hear a case Wednesday that focuses on the question: To whom does a telecommuter pay state income tax? Although Thomas Huckaby of Tennessee does not live in New York, does virtually no work there and spends little time there, New York claims it's entitled to tax 100 percent of his income because his employer is based there. The case is being closely watched by other states striving to reconcile old tax codes with contemporary work habits. http://www.law.com/jsp/article.jsp?id=1104154542160