TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

NJ Division of Taxation seizes Melange Cafe Holidays in Haddonfield are Dreary without Melange @ Haddonfield As the holidays approach us, we renew our quest for a delicious meal that awakens the palate served in a relaxing atmosphere far removed from the hustle and bustle of garish chain restaurants serving mediocre food slapped on a plate. As the town of Haddonfield, NJ brings to life its Christmas shopping season filled with candlelit streets, we are left without its shining star, Melange @ Haddonfield café. Why? Because Chef Joe Brown did not have an attorney that understood his need to be a chef – and his struggles as a restaurateur. After owning Melange Café in Cherry Hill, NJ and achieving much success, Chef Joe Brown opened his Melange @ Haddonfield in 2008, eventually focusing full time on the Haddonfield location and closing the Cherry Hill location. With those moves and multiple issues that could have arisen (and obviously did arise), Melange received a Divisio...

Freddie Mitchell Dropped The Ball and the IRS Catches him My daughter is an avid, ahem rabid, Eagles fan. At 5 ft, barely 2 inches, she can go head to head with the big guys and knows football inside and out. Me? I hate football. I don’t get why people love such violence. Its nasty and I don’t want my son playing it. But, as December 6 th approaches and Freddie Mitchell, former WR for the Philadelphia Eagles, a simply presented tax fraud case is anything but simple. After taking a plea deal and receiving 37 months in prison for playing a role in a tax fraud scam, Freddie Mitchell presented medical documentation stating he has CTE, chronic traumatic encephalopathy, a possible result of his 8 documented concussions. CTE can have symptoms of memory loss, motor skills impairment, depression, aggressive behavior and confusion.  As it is in the research stages, not everyone agrees that CTE can be properly diagnosed unless postmortem. Mitchell clearly states that he did not want...

Expiring in 2013 The tax credit for Research and Development (R&D) is set to expire in 2013. Even if you are not a tech company, this credit could apply to your business. New processes and developments could count toward this credit. Check with a qualified tax attorney. This credit has been extended before, but why hope and wait to see if it will be extended again? Drastic Changes in the Section 179 Deduction Waiting until the new year to buy a new truck for your business? Don’t. Need new servers and computers? Waiting for the after Christmas sales? If you snooze, you lose. Your items must be purchased and used/installed before the end of 2013 to potentially qualify for the 2013 $500,000 deduction. This deduction will be reduced to $25,000 in 2014. Depreciation The First-year bonus depreciation for equipment is set to expire, so make sure you  have your attorney review your 2012 and 2013 purchases.

Columbus - taxes, the government shutdown and ObamaCare Today is Columbus Day. Growing up it was an important holiday but now Columbus is being derided for all of his various faults. My son, who is in 8th grade and has an extremely inspiring history teacher, came home and told me that "Mrs. M does not think we should celebrate Columbus Day." He went on to tell me that Leif Erickson actually discovered America and that Columbus spread disease and tortured Native Americans. What he didn't say was that Columbus also demanded tribute from the Indians, stole their gold, enslaved some of the Indians and brought them back to Spain as objects of curiosity. He also didn't discuss the brutality and all of the other negative things that can be brought up about Columbus. Thank heavens! Those who pooh-pooh Columbus bring up the fact that most educated Europeans in the late 15th century knew that the world was a sphere and not flat. But the fact was, like the great inventors...

The IRS has finally announced that it will stop the automatic issuing of federal tax liens, levies and executions during the government shut down.  Unfortunately, many automatic levies have been issued by the IRS and there is no one in the IRS to talk to or negotiate with to set up installment agreements or take other actions to remove the levy.  This results in great hardship for taxpayers. The IRS has been issuing notices, some dated October 7, 2013, even though the office was to be shut down by October 1, 2013.  It is hard for me to believe that this was not designed to have maximum impact upon taxpayers.  In fact all the IRS services that normally assist taxpayers, whether its at a service center, or on the telephone, as well as the normal collection and auditing function, have been terminated during the shutdown.  This intentional design clearly is to put a maximum negative impact upon taxpayers. Because of the complaints, the IRS is now issued a revise...

The IRS is at it again going after famous people to make big publicity splashes about their criminal prosecutions.  This time, it involves 69-year-old H. Ty Warner, the inventor of Beanie Babies the craze of the 90s, for having Swiss bank accounts.  The Department of Justice and IRS love to attack popular and well-known people in order to demonstrate that the government uses force against people who are "tax evaders". I am not arguing that Mr. Warner did not violate US tax law, but the Government once again is using the prosecution of a famous person such as Mr. Warner (previously Lauryn Hill, Wesley Snipes, Leona Helsley, etc) to show that it will use the full force of the government to collect taxes. The really sad part of this is that if Mr. Warner were a citizen of almost any other country, earning income in a foreign country would not be considered taxable.  The US is one of only 2 countries that taxes of foreign earnings of its citizens.  None of the news a...

The IRS is scaling back operations during the Government Shutdown These are the things to remember: 1. FILE all tax returns on time. 2. PAY all tax deposits and balances on time. For example, the October 15 extension date for filing Individual returns still applies. 3. The IRS computers will be generating notices, levies, and other tax actions and the websites should be working. 4. AUDITS will be delayed until after the shutdown. 5. Some COLLECTION activities will be delayed. 6. All TIME DEADLINES remain in effect. If you have a letter stating you must respond in 30 days, 90 days, etc, and you do not, you will lose your appeal rights when the IRS does reopen. Here is a good excerpt for RIA Checkpoint: Government shutdown forces IRS to scale back operations IRS has announced on its website (irs.gov/uac/Newsroom/IRS-Operations-During-The-Lapse-In-Appropriations) that its operations have been scaled back due to the government shutdown. However, it emphasized that taxpay...

Talk about beating a dead horse!  Yes, that is the IRS position before the courts as to why it can regulate and control tax return preparers.  The district court properly struck down the IRS attempt to control tax preparers as being outside its authority under law.  Congress has never authorized the IRS to control tax return preparers, and frankly it is a truly bad idea.  Why should the IRS be permitted to regulate and control tax return preparers that are supposed to represent taxpayers who are truly adversarial to the IRS? In an attempt to show that they have authority to regulate tax return preparers, the IRS argued before the appellate courts yesterday that a law from the 1880s concerning the regulation of representatives of the people who lost their horses horses when they were killed by the government gives every government agency the right to regulate and control any paid person that has anything to do with the agency.  That would include tax return pre...

IRS provides updated guidance for equitable innocent spouse relief requests RIA, a large Tax Publisher, reported on revisions to Innocent Spouse relief requests. It has been extremely difficult (if not practically impossible) for married couples still living together to have one spouse qualify under the "innocent spouse" relief provisions. Even in situations where one spouse has illegal earnings, or has a huge increase in tax due to a business audit, the IRS almost always rejects the Innocent Spouse claim. The main argument is the spouse "benefited" from the income and higher life style and therefore should have known of the misreported income or expenses.  In addition to the usual denial of relief, the extremely long time for the IRS to process the requests, makes it costly and annoying. Supposedly, there will be a "streamlined" request. Usually, when the IRS announces such "reforms" they really do not mean much for most taxpayers. In ...

I f you converted a traditional IRA  into a Roth account last year and are now unhappy with the results, you can reverse the conversion as long as you get it done by October 15. Here's what you need to know as this deadline rapidly approaches. Reversal Basics When you converted your traditional IRA into a Roth IRA last year, the transaction was treated as a distribution from the traditional IRA followed by a contribution of the distributed amount to the Roth account. So the conversion triggered a 2012 federal income tax bill (and maybe a state income tax bill, too) based on the traditional IRA's value on the conversion date.  Please see further details here . Before you make this decision, call your tax lawyer! Ronald J. Cappuccio, J.D., LL,M.(Tax) Counsellor at Law www.TaxEsq.com 856 665-2121

Lawyers call it "succession planning." This simply means what do you need to do to organize your business to transfer it to the next generation, retire, or simply sell the business. Even though more businesses are becoming woman-owned, most of my business owner clients are men. What happens if the business owner gets sick? Is there a plan in place to take over the business? Who will run the business? Suppose the owner suddenly dies? The same issues apply. What if the owner wants to retire? Many times the most significant asset is the business and without selling it a satisfactory retirement is not possible. What are the taxes to be paid and how can we plan to minimize the take of the various State and Federal governments? I know thinking about death, disability and illness, old-age, and retirement can be difficult. Nevertheless, it is so much better to start planning when everything is okay rather than in the midst of a crisis. Ron Cappuccio

Well, the IRS was closed Friday, so tax attorneys were sending around some humorous comments. This video on the Affordable Care Act ("Obamacare") is irreplaceable: https://www.youtube.com/watch?v=ycjjM-Win8U&feature=youtu.be Happy Father's Day to all. Ron Cappuccio

Pres. Obama has been pushing for changes to the Internal Revenue Code that would limit the tax benefits of pass-through entities. Most small businesses are limited liability companies or S corporations and the profits and losses pass-through to the individual members or shareholders. These are merely preliminary proposals and most likely the House of Representatives will not let these proposals be pushed through Congress. There is been a lot of recent talk about the lack of small business loans and it is been pointed out that the Small Business Administration is a good source for guaranteed business loans for the smallest of businesses. That is simply not true! Since 2005, the average size of the Small Business Administration loan under its loan guarantee program has gone from approximately $160,000 to approximately $342,000. In 2005, the government backed loans totaled almost 96,000. Last year, only 44,000 loans were guaranteed. Also, the smaller banks, that are many times the best...

The head of the exempt organizations operation of the IRS has invoked her Fifth Amendment privilege not to testify before Congress. After giving a several minutes statement saying she was " not guilty of violating IRS rules and regulations .", Lois Lerner then declared her Fifth Amendment privilege. She is now been placed on leave , and actually replaced in the IRS. This just highlights an ongoing problem with exempt organization reviews by the IRS. There are no time limits requiring the IRS to start or complete a review of an application by an organization seeking to become a charitable organization for federal tax purposes. Also, there are no limitations on the questions that can be asked, nor the documents required. That Pres. Obama has use the IRS as a tool for his reelection campaign (joining former presidents Franklin Roosevelt, John F. Kennedy, Lyndon B. Johnson, Richard M. Nixon, and Bill Clinton) is not surprising. The lesson from this is clear. Congress must e...

President Obama now joins former Pres. Franklin Roosevelt , Kennedy, Johnson, Nixon and Clinton in using the IRS to hammer his political opponents. Treasury officials knew of the attack by the IRS against Tea Party Conservatives in June, 2012 in the middle of Pres. Obama's re-election campaign. The Treasury Inspector General, who is supposed to protect taxpayers from IRS abuse, knew all about TaxScam and did nothing. Congress is screaming, and President Obama fired the Temporary IRS Director (who was leaving in 3 weeks anyway.) Other than that, nothing changed at the IRS. This simply confirms that the IRS is a political arm of the government, not an objective and neutral agency to fairly administer tax law. Tax law is not fair and the administration of the law is tilted. Maybe, we need to start over?

IRS Non-Apology Over Harassing Tea Party Non-Profits Jon Stewart, on the Daily Show pegged Pres. Obama and the IRS for what they really are: "You've managed to show that when the government wants to do good things, your managerial competence falls somewhere between David Brent and a cat chasing a laser pointer," Stewart said. "But when government wants to flex  its more malevolent muscles, you're f—ing Iron Man."  The IRS is totally under the control of the politicians and bureaucrats and is being used as a political attack machine. Pres. Obama follows a long line of Executive Branch abuse of the IRS. President Clinton had his IRS hit list, President Nixon had a similar list. Now, the Obama Administration has upped the ante by attacking Tea Party Non-profits to stymie the opposition. Who knows what other dirty tricks lies in the halls of the IRS at the hands of which politicians. It is time to clean house. If Congress would do its job and reform the ...

  Drone Attack In its continuing quest to collect more taxes, the IRS is targeting small business. For the past several years, individuals instead of being audited by a live human being, are being audited by computer and unresponsive mail audits. In order to get more money, the IRS is expanding this secret surveillance to audit small businesses. By using the Robo audits, the IRS can attack more small businesses, and attempt to collect more money. The way this works is the IRS uses many of its matching computer information documents. For example, if you are retaurant and tips are put on credit card receipts, the IRS will track those tips, determine an average percentage and apply that as additional wages to your employees. This way they can collect more taxes from the employer in the form of 941 employment taxes, and they can also go after the employee to collect more income tax. The problem with these audits is that there is no educated human being to speak to concerning t...

Congress, after failing in its duty to revise the Internal Revenue Code   for decades, has launched a tax reform website.  Is this a real attempt at soliciting ideas about tax reform, or just a new twist on getting an email list? To show they are really connected with social media, there is a new Twitter  feed. Let's see how they address the following: 1. Estate Tax Reform 2. Limiting Taxation on US citizens (including businesses) to US Source Income rather than Worldwide Income 3. Address the Earned Income Tax Credit and other refundable tax credits. 4. Adjust capital goods for inflation to eliminate tax on inflation rather than real growth. 5. Honest Tax Simplification. Ron Cappuccio www.TaxEsq.com

A lifetime trust, also known as a living trust, can be the difference between people controlling their estate and being subject to the expense, confusion, and problems that sometimes affect unplanned estates. Nevertheless, a whole industry has grown around overselling living trusts when they are not really needed. Now, AARP and Kiplinger have gone in the other direction proclaiming that trusts are expensive and not needed. In the June 2013 Personal Finance issue, the newsletter gives really bad advice to avoid trusts. Frequently, as a tax attorney, I get a call from clients saying "what can we do with Mom's assets? She has dementia, and is being influenced by an acquaintance or family member to give them chunks of money." Unfortunately, it is too late. Unless the family wants to go to court with an expensive and embarrassing lawsuit to prove that their mom is incompetent, there is not much that can be done. If, however, when the signs of problems first started appea...

Bitcoin transactions are Taxable Bitcoin has become the rage in the past few months by the so-called asset protection industry. There have been claims that this cryptocurrency cannot be detected by governments and transactions are not taxable. Not true!   Under the Internal Revenue Code, gross income means all income from whatever source. Trading Bitcoin currency for services or goods is clearly income for US Tax purposes. There is no argument. Just like bartering transactions, the question becomes "what is the value of the Bitcoin transferred?"  With Bitcoin, the answer is online . If you want to transact business in Bitcoin that is your option. But, the transactions must be included in gross income or you will be committing tax fraud that can be easily proved by the government. Anyone interested in tax planning and asset protection can get real results by consulting their tax lawyer. Ron Cappuccio www.TaxEsq.com

Lauryn Hill has learned that being a rock star, although it exempts you from many of the burdens of life, does not exempt you from filing taxes. Just like famous actor (Wesley Snipes) and hotel heiress (Leona Helmsley), Lauryn Hill has felt the full wrath of the US Government by being thrown into jail for failing to file tax returns. It seems, Miss Hill, through her bevy of tax and financial advisers, did not file tax returns for 2005, 2006 and 2007. Three years; that's the magic number for the IRS to have a presumption of "willful" failure to file. Even though she had big tax losses in 2008 and 2009, her late filing and late paying of tax means she is going to Federal Prison for 3 months. Let's look at the facts: Failure to File - 2005, 2006, 2007 LATE Payment - $1mil in taxes (note she actually paid the taxes, just late) Tax Loss - 2008, 2009 when she lost popularity. So let's see what really happened here. The US government probably sp...

Nexus - When are you "Doing Business" in a State or Country? Google is one of the biggest collection of companies in the world. Wisely, Google has divided itself into many companies to deal with the different tax laws not only in the 50 States of the United States but in dealing with worldwide taxes. By using proper tax planning, Google is effectively avoiding taxes in many countries. In order to be subject to taxation in a given country, a business must have "nexus" in that country. The word Nexus comes from the same root as "connection". Typically that means a company must have an actual physical presence in the country. Google has been very wise in its tax planning. It has its main business in Bermuda, a low tax country, and in the Republic of Ireland, also a low tax country. Google has set up a separate entity in the United Kingdom as a "technology and marketing" company. The idea is that technical services are performed by the UK su...

IRS to Furlough Employees on Five Days; Operations Will Shut Down Entirely The IRS will be closed for business on five days falling between May 24 and August 30. NTEU Press Release (4/19/13). Late last week, the National Treasury Employees Union (NTEU) announced that the IRS is sending out furlough notices this week to the entire IRS workforce, identifying the five following furlough days where the agency will shut down entirely: May 24, June 14, July 5, July 22, and Aug. 30. The 30-day notices to employees also leave open the possibility of another two unpaid furlough days. On those furlough days, all public operations of the IRS will be shut down, leaving taxpayers without access to information and assistance from frontline workers. According to the president of the NTEU, on those days, phone calls to the IRS will go unanswered and Taxpayer Assistance Centers across the country will have closed' signs in their windows. The furloughs are being driven by the ongoing sequest...

1. Tax Returns .  ALWAYS keep tax returns.They take very little space and if there is ever an argument the return was not filed, at least you have a copy. 2. Backup records. Any written evidence that supports figures on your tax return, such as receipts, expense logs, bank notices and sales records, should generally be kept for at least the three-year period.   If possible keep the records for 7 years. Note: There are some cases when taxpayers get more than the usual three years to file an amended return. You have up to seven years to take deductions for bad debts or worthless securities, so don't toss out recoSecurities. To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, dividend reinvestment, and investment expenses, such as broker fees. Keep these records for as long as you own the investments, plus the statute of limitations on the relev...

Rev Rul 2013-11, 2013-20 IRB The Applicable Federal Rates for May 2013 are reproduced below. Table 1 Applicable Federal Rates (AFR) for May 2013 Period for Compounding Annual Semiannual Quarterly Month Short-Term AFR .20% .20% .20% .20% 110% AFR .22% .22% .22% .22% 120% AFR .24% .24% .24% .24% 130% AFR .26% .26% .26% .26% Mid-term AFR 1.00% 1.00% 1.00% 1.00% 110% AFR 1.10% 1.10% 1.10% 1.10% 120% AFR 1.20% 1.20% 1.20% 1.20% 130% AFR 1.30% 1.30% 1.30% 1.30% 150% AFR 1.51% ...

3% personal and 2% Corporate Overpayment Rates IRS has announced that the interest rates for tax overpayments and underpayments for the calendar quarter beginning Apr. 1, 2013, will remain the same as for the first quarter of 2013. For noncorporate taxpayers, the rate for both underpayments and overpayments for the second quarter of 2013 will remain unchanged at 3%. The 3% rate also applies to estimated tax underpayments for the second quarter in 2013. For corporations, the overpayment rate for the second quarter of 2013 will remain at 2%. Corporations will receive .5% for overpayments exceeding $10,000. The underpayment rate for the second quarter of 2013 for corporations will be 3%, but will be 5% for large corporate underpayments. Interest factors for daily compound interest for annual rates of 0.5% are published in Appendix A of Rev Rul 2012-32. 

IRS Issues Annual Advice on Missing Form W-2's Each year, the IRS issues annual advice on actions a taxpayer should take when the taxpayer has not received his or her Form W-2. IRS Website (2/8/13). According to the IRS, if a taxpayer has not received his or her Form W-2, the taxpayer should: (1) Contact the employer. Ask the employer or former employer to send the W-2 if it has not already been sent. Double check that the employer has the correct address. (2) Contact the IRS. After February 14, a taxpayer can call the IRS at 800-829-1040 if the taxpayer has not yet received his or her W-2. The IRS will require the following information: (i) the taxpayer's name, address, social security number and phone number; (ii) the employer's name, address and phone number; (iii) the dates the taxpayer worked for the employer; and (iv) an estimate of the taxpayer's wages and federal income tax withheld in 2012, based on the taxpayer's final pay stub or leave-a...

Employers - are you stuck with "Obamacare" Obamacare  is a disaster for employers that have low wage employees. Frankly, many companies will need to change how they conduct business in order to stay competitive . Number of Employees Does your business have emough employees to be subject to the pay-or-play  Obamacare tax? This is called the  shared responsibility requirement forcing employers to pay a huge penalty or provide health insurance. 50 Employee Requirement. The simple definition is employers with 50 or more full-time equivalent workers. Unfortunately, this is only a partial answer. The tricky term,   full-time equivalent (FTE) covers employees who average 30 hours per week .  Note: the normal 40 hour per week definition for full time is not applicable .  The time period is the prior year . Since the mandate begins in 2014, the year 2013 controls the determination of the number of employees. There are some exceptions for sea...

Relatives as Dependents You can  take exemptions for qualifying relatives.   Rule: A relative does not have to live with you and there is no age requirement. Support: First, you must be supporting the qualifying relative . Qualifying Relative:  In order to be a qualifying relative, the person must: Have earned less than $3,800 in gross income or unemployment benefits for the year 2012 Have received more than half of their support from you.  This does not have to be cash payments. It can be food, clothing, shelter, education, medical and dental care, recreation and transportation.  To calculate if the relative meets this test:   add all of your expenses for them; subtract   welfare, food stamps. government benefits and earnings. Be a U.S. resident or citizen, or a resident of Mexico or Canada Not be married filing jointly Qualifying relative s could be your: child parent sibling stepparent stepsibling half sibling grandpare...

You cannot claim your child as a dependent if: You are being claimed as a dependent by someone Your child is married and filing a joint tax return (unless he/she is filing just to claim a refund of withheld tax and isn't taking a personal exemption) Your child is not a resident of the U.S., Mexico or Canada Your child is over 19 and not a full-time student Your child is 24 or older on December 31 of the tax year Your child provided more than half of his or her own support Your child did not live with you for half the year, 183 days or more. Note: the exception to this rule -  illness, education, business, vacation or military services, or the child was born or died during the year You are separated or divorced, and your child spends more time at your ex-spouse's home.

Roth IRA Rollovers For the past few years, plans with designated Roth accounts could allow an individual to roll over an amount from a non-Roth account into the individual’s designated Roth account in the same plan, but only amounts the individual could have had distributed from the plan, usually because the individual had attained age 59½ or had severed from employment, according to the IRS. Beginning in 2013, The American Taxpayer Relief Act of 2012, or ATRA, allows a 401(k) plan can permit this type of rollover for an amount that is not eligible for distribution at the time of the rollover, such as an amount in an individual’s regular (pre-tax) elective deferral account when the individual is not eligible for a distribution from that account. A similar expansion applies to 403(b) plans and governmental 457(b) plans. The amendment to the in-plan Roth rollover rules was made by ATRA. The IRS said it anticipates issuing guidance later this year about the expanded in-plan Roth rollover...

Well-drafted contracts  prepared by your tax and business attorney can provide protection for the parties signing it. Contracts determine rights and obligations. Yet, many businesses enter into transactions with poorly written contracts or contracts with "boilerplate" or "standard" provisions that are not favorable to them.  There is no such thing as a "standard" contract! In some cases, business owners and managers make deals with no written contracts at all. When disputes occur, they are forced to rely on memory and find that verbal contracts are difficult to prove in court. Remember, an oral contract may be enforceable it is just difficult to prove.     Those signing contracts sometimes overlook important provisions, including clauses that lay out the "choice of law" and "venue." These clauses determine what law applies and the location where disputes related to the contract will be resolved. You don't want the inconv...