Supreme Court Expands Congressional Tax Power

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Tax relief for people who buy certain things? — sure (like real property).  A tax imposed on people who buy certain items? — sure (like cigarettes).  But a tax imposed on people who do not buying something?  That’s definitely new!  Apparently penalizing citizens for not purchasing health insurance now passes constitutional muster as a “tax,” or so says the Supreme Court.

Roberts recast the [health care] mandate as a tax, a rationale that was not in the law or the government’s case. He rewrote the administration’s position, baptized it, and then blessed it. Roberts’ defenders argue that he did so to avoid a constitutional crisis, but he may have created another by judicially re-legislating policy, a policy paid for and enforced by what could be essentially the largest tax increase in American history.

~William J. Bennett, CNN Contributor

 I guess it’s true what they say about the government’s taxing power.  It’s sort of a “catch-all” for federal programs that seem unconstitutional in all other respects.

IRS Still Not Giving Proper Notice of Liens

Three years ago the Treasury Inspector General for Tax Administration (TIGTA) recommended that the IRS change its practices regarding tax lien notices, and from the looks of this year’s lien notice audit, it does not appear that the IRS has any intentions of doing so.

Today TIGTA released its 2012 lien notice audit to the public and some of the same problems they identified in 2009 still linger. The issue that the IRS has swept under the rug and ignored for the past 3 years has to do with notifying taxpayers’ representatives of a lien filing.  Specifically, they’re not consistently doing it.  The IRS promptly notifies taxpayers by mail when it registers a lien against them, and it is supposed to send the same notice to their attorney, CPA, or other representative with a Form 2848 Power of Attorney on file.

 [A]s noted in previous audits, the IRS did not always follow its own internal guidelines for notifying taxpayer representatives of the filing of the NFTL.  Therefore, the rights of some taxpayers may have been violated when the IRS did not notify their representatives of lien filings.

~ J. Russell George, TIGTA

Furthermore, the IRS does not always send lien notices to the taxpayers’ last known address.  According to the report, there are instances in which returned lien notices with bad addresses could be resent to the correct addresses, but nothing is done about it.  Just another instance of TIGTA needing more teeth to actually enforce rather than recommend.

Your 2012 and 2013 Federal Tax Returns Are At Risk!

Today, National Taxpayer Advocate Nina E. Olson reported to Congress the issues that the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year. Olson, expressed particular concern, among other issues, about the taxpayer impact of expired and expiring tax provisions.

“The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was … Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk. The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.” Wrote Olson.

You may be asking, “How does this affect me?” Well, if Congress doesn’t act soon you may need to hire an experienced tax attorney to fight for tax relief. As my Federal Income Tax professor repeatedly ordered in law school: “Read on, read on, read on…”.

The following provisions are among the tax provisions that expired at the end of 2011:

  • The so-called “Alternative Minimum Tax patch.” As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
  • The deduction for state and local sales taxes.  About 11 million taxpayers claimed this deduction last year.
  • The deduction for mortgage insurance premiums.  About four million taxpayers recently claimed this deduction.
  • A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.

According to the IRS website, Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for sure what will happen and taxpayers, therefore, cannot make educated tax planning decisions now.

In addition to the provisions that expired at the end of tax year 2011, an even larger number of provisions are set to expire at the end of 2012. Such rules include the Bush-era cuts in marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the earned income tax credit, and the adoption credit, and the moratoria on the phase-outs of itemized deductions and personal exemptions.

It's All Star Election Season – Vote Early and Often…. With Your Validation Code

It’s almost July…. This means that it’s time to get the BBQ ready, buy some fireworks, and get your votes in for the MLB All Star Game. Although I’m an experienced tax attorney, I’m not THAT old… but old enough to remember using the punch cards at the ballpark to cast my All Star vote. Now, eligible voters (fans) can cast their votes for starters up to 25 times at or via your mobile device until Thursday at 11:59 p.m. ET. So get your votes in for the National Leaguers who will play the Yankees, Red Sox, and Josh Hamilton.

Online voting is nothing new. It’s been around since… well the answer is actually not as easy to find as I thought it would be…. but it’s been around for some time. While stuffing the online ballot box today with various San Francisco Giants, under my various email addresses, completing a validation code for each vote; I began to ponder, is this another MLB annoyance similar to the Designated Hitter or Astro Turf, or do some people only cast one vote. Or, do people really change their votes. Really? More specifically, if MLB is going to give me 25 votes per email address to stuff the ballot, why make me spend 15 minutes to do it 25 times. Just give me the option to submit 25 votes one time per address. Alternatively, just give me the punch card at the ballpark.

As a side note, I know most San Francisco Giants fans want Matt Cain to start the All Star game. I’m never a fan of the Giant’s All Star game pitcher, ala Vida Blue, Atlee Hammaker, Rick Reuschel, Jeff Brantley, and Shawn Estes. On the other hand, in more recent years, with the exception of Tim Lincecum, there have been some decent All Star pitching performances. But why risk a pitcher from your own team? As a leaving note on Giants All Star Pitchers, the National League would have won the 2008 All Star game if Clint Hurdle would not have replaced Brian Wilson for New York’s lame arm extraordinaire Billy Wagner. Four years later, and it still bugs me.



IRS Promises to Start Showing Whistleblowers Some Love

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The IRS appreciates getting tips that help them catch people who seek tax relief illegally, but they haven’t done a very good job of showing it over the years.  The relationship between the IRS and whistleblowers has been strained, to say the least.

The IRS Whistleblower Office was established in 2007, and for all we know it was set up in an empty warehouse staffed by crickets.  The Whistleblower Office is notorious for dragging out cases far too long, failing to communicate with whistleblowers to obtain key information, not reaching the correct decision on cases, and not paying out when the decision is favorable for the whistleblower.

However, in a June 20th memorandum, the IRS declared that it would make some concrete improvements to the Whistleblower Program (outlined below).

“Let’s Kiss & Make up”:

  1. Improve communication with whistleblowers by debriefing in most cases
  2. Act on cases in a timely manner
  3. Comprehensive review of Whistleblower Office procedures
  4. Established interim guidelines imposing 90-day deadlines at key stages of the review process

AND, if you happen to be an “external stakeholder,” (whoever that might be) then the IRS says it will be working with you to establish more permanent guidelines.



AMA Supports Soda Tax, On One Condition

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While there is no silver bullet that will alone reverse the meteoric rise of obesity, there are many things we can do to fight this epidemic and improve the health of our nation.  Improved consumer education on the adverse health effects of excessive consumption of beverages containing added sweeteners should be a key part of any multifaceted campaign to combat obesity.

Where taxes are implemented on sugar-sweetened beverages, using revenue for anti-obesity programs and educational campaigns explaining the adverse effects of excessive consumption of these beverages will help to reduce the consumption of these caloric beverages and improve public health.

~ Dr. Alexander Ding, AMA board member

Its clear from this statement that the AMA is not fully embracing a soda tax.  The emphasis should be on educating the public about the health risks of chugging sugary soda day after day, and the benefits of replacing soda with water.

The AMA is saying that a soda tax may be effective as part of a comprehensive plan to reduce obesity in our nation, and it would not go very far on its own.  Also, if Dr. Ding’s statement is representative of the AMA’s position, the focus is not on whether or not a soda tax should be implemented, but what to do with the funds should that be the case.  Nobody believes that a soda tax would curb consumption to the point that we no longer have a problem with sugar and obesity.  The real value in a soda tax would be the projects and programs that could be funded if the money is spent responsibly.


Lien Subordination

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A Federal Tax Lien (FTL) is the government’s legal claim against a taxpayer’s real and personal property that arises by operation of law (automatically) when a taxpayer incurs a tax debt and fails to pay.  The taxpayer, other creditors, credit reporting entities, and the general public may only become aware of the tax lien when the IRS files a “Notice of Federal Tax Lien” — and it’s at that point that it can damage one’s credit.

Previously the only sure-fire way to get a FTL removed was to pay the liability in full.  However, under the government’s Fresh Start program the IRS will agree to withdraw a lien notice if certain requirements are met.  But even if you meet the criteria, you still have to request withdrawal of the lien by completing Form 12277.

If a taxpayer cannot pay the tax debt in full and does not meet the criteria for withdrawal of the lien, the taxpayer may want to consider requesting a “lien subordination.”  This does not remove the lien, but it allows other creditors to “cut” in front of the IRS in line and it is normally required before a lender will refinance a home loan.  Of course, if the IRS is allowing others to cut, then it is on their terms and with their permission.  You must either be willing to make a big payment — sometimes up to the amount of the lien — or you must be able to show that it would be in the IRS’ best interest to subordinate their lien.  From the IRS’ perspective, the only way it would be in their best interest is if it would result in them collecting more money from you.


The Soda Tax

It doesn’t rank all that high on our list of tax problems.  Maybe you don’t even know you’re paying it.  But at least 35 states already impose taxes on sugar-sweetened sodas.  Soda is believed to be one of the reasons we’re so fat here in the United States.

Tu can eat todos los donuts you quiero, pero tu better not wash it dowño con un 16oz beveragado!

~ Miguel Bloombito (via Twitter)

Until now, the American Medical Association (AMA) hasn’t taken any official position in the soda tax debate.  However, they are expected to put it to a vote this week at their annual meeting in Chicago.  Is there even any question which side they will take on the issue?  My mom never let me eat dessert before dinner, and I don’t think the AMA would pass up an opportunity to take a stand against soda.

If a soda tax is effective, it won’t be in its direct deterrence of soda drinkers.  At a rate of one or two cents per ounce, it would hardly make a difference to most soda addicts.  The effectiveness of a soda tax depends on how soda tax revenue is spent.  If the revenue is spent on programs aimed at curbing obesity, then it could make a significant difference.

One particular obesity program that I think makes sense involves improving access to good cold drinking water at schools and in public places.  Sometimes people are just thirsty and need something cold to drink.  If you put soda in front of them, they’ll drink it.  But if there’s water, they’ll drink that too.  Why is it that public water fountains (the kind typically found in schools and parks) usually produce either warm water or none at all.  And when they do work, the water pressure is normally so weak that you can get little more than a sip.  We should have the technology to build high-quality water fountains these days; ones that actually work.  And maybe a soda tax could help fund this sort of thing.

IRS Needs Facelift; Should Taxpayers Have to Foot the Bill?

You already know about the IRS and their search for the ideal marketing firm to help improve their image.  The top PR firms in the nation are salivating over the $15 million contract that is currently on the table.  But should taxpayers have to pay for this sort of thing?  At least one lawmaker believes they should not.

Kansas Senator, Jerry Moran, is seeking to amend a FY 2013 appropriations bill so that the IRS would have to find alternate funding for public relations services.

The IRS would not spend that kind of money if it didn’t think it would improve revenue collection, right?  Some see a correlation between a positive image and voluntary compliance.  Still, in this economy it’s hard to see how some taxpayers are going to find the money to pay their back tax debt simply because the IRS seems like a “nice enough” creditor.  According to Senator Moran, there are other ways to improve the IRS’ image:

As the nation’s tax collector, the IRS already has a relationship with every person in the country. It’s hard to imagine that American taxpayers would be pleased to know the IRS is spending their money on promoting itself and its products. If the IRS genuinely wants to improve its image with Americans, it needs to work with Congress to develop a simpler, fairer tax code.

~  U.S. Senator Jerry Moran (R-Kan.)

DEA and IRS Team up in Medical Pot Asset Seizure

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It was not your average bank levy. The Drug Enforcement Administration and the Internal Revenue Service collaborated to seize the bank account of El Camino Wellness Center this week. The government was after more than $800,000 that had been deposited over a period of a few months by El Camino, Sacramento’s largest medical marijuana dispensary. However, according to the Sacramento Bee, the government will only retrieve a fraction of that amount because the money is just not there.

The government raided the pot shop as well as the homes of the owners. They are being investigated for money-laundering and conspiracy to distribute a controlled substance.

Just how does the IRS become involved in the highly controversial medical marijuana industry? Although California has “legalized” marijuana for medical purposes, it is still illegal and considered a controlled substance under federal law. This particular pot shop was set up as a nonprofit organization, but the feds believe that this designation is a sham and the shop is in the business of making boat-loads of money off marijuana sales and then hiding the profits. And failure to report profits usually means failure to pay taxes; that’s how the tax problems emerge.

El Camino is just another casualty in the ongoing tensions between the federal and local governments on the issue of medial marijuana. The feds almost always win.