Gay Married Couples Must File Federal Returns Jointly

These are some of the questions that remained after the landmark Supreme Court decision (US v. Windsor) in June that struck down the Defense of Marriage Act.

  • What happens when couples marry in a state that recognizes same-sex marriage, but then move to a state that does not recognize it?
  • Will same-sex marriages be considered valid for federal tax purposes retroactively?
  • Will civil unions be treated as marriages for federal tax purposes?

Many questions were answered today in  Revenue Ruling 2013-17.  It states that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes” regardless of their current state of residence and regardless of what other state(s) they move to subsequent to that legal marriage.  It isn’t just about filing status, although that appears to be the focus.  There are over 200 code provisions having to do with “marriage” or “spouses” and now we can be sure those also apply to same-sex married couples.  Gay married couples may apply for refunds unless they are barred by the statute of limitations.  Civil unions will not be treated the same as marriages under the revenue ruling.

But just like marriage itself, it isn’t all rainbows and butterflies.  Same-sex couples who are legally married must file jointly; they no longer have the option of filing as single people.  They may, however, elect to file “married filing separately” as married couples have always had that option.  Also, as was pointed out by some tax professionals, many same-sex married couples are going to find that there is no tax advantage at all when they file jointly.  In fact, some couples with similar incomes will get hit with the “marriage penalty,” which is not an actual penalty, but is a common description of the situation in which their tax liability as a couple is much higher than it would be if they were single.

Blocking IRS Collections

If you do not develop a plan for dealing with your tax debt, the IRS will find a way to collect what you owe one way or another.  One way the IRS does it is through enforced collection actions such as wage garnishment, interception of federal and state refunds, levy on federal benefits like Social Security, bank levy, and seizure of property.  The IRS also encourages and persuades folks to voluntarily comply with tax laws through public outreach campaigns, phone calls, and letters.  Of course, those “nice guy” techniques only get them so far.  There are several different ways to block IRS collection efforts, but some I cannot recommend because they are illegal.

Recommended

  • pay what you owe
  • set up an installment agreement
  • prove hardship
  • file an Offer in Compromise

Not Recommended

  • hide assets
  • bribe an IRS revenue officer
  • give false information
  • dump a pile of dirt in front of an IRS revenue officer to prevent them from getting near your assets

Let me be perfectly clear.  I include the “not recommended” list only to give you a keen understanding of what you should not do.  And the dirt dumping sounds like a ridiculous example, but it really happened.  The guy that did it was sentenced to three years of probation just last week.  In an attempt to collect unpaid taxes from 45-year-old Walter M. Trizila, IRS revenue officers visited his property to see if there were any assets worth seizing.  The IRS set its sights on a certain dump truck, but Trizila didn’t want to part with it.  He entered a front-end loader, charged at the revenue officers, and then dumped a mound of dirt between them and his truck.

Trizila is apparently a very literal kind of guy.  He knew he had to “block” IRS collections and he did it the only way he knew how.  Unfortunately for him, it resulted in a misdemeanor conviction for assault, resisting or impeding a federal officer.

IRS Violating Software License Terms

The IRS is using some computer software that it hasn’t paid for, and is paying for other programs its employees aren’t even using, according to a new TIGTA audit released Tuesday that said the tax agency could be violating copyright laws.

The Treasury Inspector General for Tax Administration found serious problems with IRS software license management practices, many of which could be remedied if they would simply keep better records.  Read the full report here.

Software licenses are typically written in such a way that the software may be shared only on a certain number of computers.  The IRS appears to be doing what so many other private parties tend to do: sharing software on more systems than is allowed by a license.  And then they have also been doing what few people in their right mind would do: paying for licenses that they aren’t using.  This is a signature IRS move if I have ever seen one!

Online FATCA Registration Begins

The Foreign Account Tax Compliance Act (FATCA) was enacted in the wake of the UBS scandal to crack down on tax evasion overseas.  “FATCA requires foreign financial firms to report to the IRS offshore accounts held by Americans that are worth more than $50,000.

Foreign financial institutions that fail to comply with FATCA face a 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.

FATCA does not take effect until July 2014, but there have been many steps leading up to it, including this latest step: the registration process.  Remember though, the registration process is not an individual tax requirement but, rather, is meant to secure the cooperation of financial institutions.  If you are a in charge of a foreign bank, investment firm, or insurance company and you need to know, the schedule of events appears to be as follows:

Registration may be done on paper, but the IRS highly encourages that it be done through their secure online web application.  Once a firm has registered, the IRS issues them a Global Intermediary Identification Number (GIIN).  Registration ensures that the IRS knows who to call when they have questions about suspected tax cheats.

 

IRS Launches New ACA Website

The IRS’ new Affordable Care Act website is up and running.  Most of the new content is organized into three main parts: (1) Individuals & Families, (2) Employers, and (3) Other Organizations.

The Individuals & Families page is further broken down into two subtopics designed to educate the public on what they need to consider immediately (in 2013) and what they should look forward to in 2014.  Individuals should explore and begin planning for open enrollment in the Health Insurance Marketplace, which opens October 1, 2013.

The Employers page has a separate set of instructions for small employers (fewer than 50 full-time employees) and large employers (50 or more full-time employees).  It helps to educate employers on their specific coverage and reporting requirements and also explains what employer credits might be available.

Some organizations will be subject to special rules under the Affordable Care Act.  These “other organizations” include insurers, miscellaneous business types, non-profits, and government agencies.

The ACA website features a nifty news bar so we can always stay informed of new developments related to the Affordable Care Act.  It also very neatly lists all the various tax provisions, both in layman’s terms and in the form of news releases, notices, regulations, revenue procedures, revenue rulings, and Treasury decisions for the tax lawyer and studious type.  Lastly, the new ACA website includes links to related federal government websites like the Department of Health & Human Services, the Small Business Administration, and the Department of Labor.

Did Lerner Mishandle Official Emails?

These days I think few employers would have a problem with their employees using a company email account for personal matters.  As long as they are not goofing off while on the clock, it doesn’t cost the employer anything.  Although I am sure it is often listed as a prohibited activity in employee handbooks, I do not imagine it to be the type of rule that is strictly enforced.

But using a personal email account for business purposes is a bigger problem.  It would be unprofessional to send an official email from a personal account or to accept business emails on a personal account.  Sending internal documents from work to your own personal email account is an even bigger problem.  The House Oversight and Government Reform Committee apparently has been informed that Lois Lerner did just this.

Lois Lerner is the lady at the center of the IRS Tea Party targeting scandal.  She was thrust into the spotlight back in May when she invoked her 5th Amendment rights, refusing to testify before Congress.  Presently, the Committee is asking Lerner to produce “all documents and communications housed in [her] msn.com account.”  She has until August 27th to comply, after which I would imagine she will be subpoenaed, after which I imagine her lawyers will dispute it as being overbroad.

What makes this behavior especially repugnant is that THIS IS THE IRS we’re talking about, not a private company!  This is a branch of the US Treasury that we trust will be able to play fairly and keep information safe and secure.  Let’s hope we find out that Lerner was actually only emailing herself an innocent meme or something…

Changes to Innocent Spouse Program may Become Permanent

Married couples who file jointly have “joint and severable” liability for any resulting tax debts (i.e., the IRS can come after both, or either of them individually, for the entire tax liability).  But if one spouse is successful with his/her innocent spouse claim, then the IRS ceases collection of the tax debt as to that spouse

Historically the IRS innocent spouse program was not available to spouses who failed to file their claim for innocent spouse relief within two years from the date of the return.  However, the IRS has not enforced the two-year deadline at least since 2011.  And this week a proposal has been set in motion that would eliminate the two-year statute of limitation altogether.  Instead, an innocent spouse would have the full 10 years on the collection statute to file for tax relief.

Many of the taxpayers who are granted innocent spouse relief are victims of physical and/or emotional abuse.  These are people who probably did not do their due diligence in knowing what was on the return when they signed, but who were not in the best position to question what was on the return either.  They are people (usually women) who probably should have confirmed that the taxes were being paid, but who feared the repercussions of asking about it.  One thing that innocent spouses all have in common is that they were left in the dark about important financial information and decisions, including taxes.  So, later, when they get a bill or a collection notice, they are caught completely off guard.  The IRS recognizes that it isn’t fair to enforce the standard “joint & several” liability in these situations, and they appear to be moving in the direction of opening the innocent spouse program up to a lot more people.  Also, under the proposed rules, the IRS would not be permitted to take enforced collection actions while an innocent spouse application is pending.

No IRS Furlough in August

The IRS had originally planned on five furlough days (unpaid days off) this year.  The first three went on as scheduled, the July 22nd furlough day was canceled somewhat at the last minute and turned into an optional work day, and now the final furlough day of the year (August 30th) is going to be postponed.  According to IRS Acting Commissioner, Danny Werfel, the IRS recently found ways to save money and was able to cancel the July 22nd agency-wide furlough day.  And the IRS hopes to be able to cancel the August 30th furlough too, but cannot make that determination at this time:

We have made substantial progress in cutting costs. … Our progress is such that we have decided to postpone the furlough day scheduled for Aug. 30. We still have more work to do on the budget and cost-savings, so we will reevaluate in early September and make a final determination as to whether we will need another furlough day in September.

Hopefully the IRS will continue to find ways to cut costs.  Furloughs are not good for taxpayers because they make it very difficult for taxpayers to obtain the information they seek.  Even if they are not calling on the exact date of the furlough, the backlog it creates  on the other days is somewhat of a burden.  Furloughs are obviously not good for IRS employees either.  Even if they are ultimately canceled or postponed, the mere announcement of a furlough day tends to disturb the morale and confidence of employees.

Deceptive FTL Mailers

If you have an IRS tax debt, chances are the government has filed a Federal Tax Lien (FTL) against you to protect its interests, especially if the debt is greater than $10,000.  The FTL becomes public information and any number of non-attorney tax relief companies begins sending advertisements.  Many of our clients have come to us with a sizeable stack of mailers, and I am rather disgusted by the way these bottom-feeders try to trick taxpayers into calling them.  Often these mailers are designed to look like official government otices.

Tax relief firms are normally successful in obtaining the following information from the public record:

  • name of taxpayer
  • address of taxpayer
  • lien type (i.e., Federal / State)
  • lien amount
  • lien filing date

The hope is that the taxpayer will recognize the information, see that it is accurate, and then call to get some kind of government-sponsored reduction of the liability.  At least that is what they would have you believe.

It is easy to identify a deceptive tax lien mailer if you know what to look for.  One of the “red flags” is repetition of information.  The sample mailer that I included in this post repeats a United States Code section three times.  The “personal ID number” is also repeated three times.  Phrases like “please read carefully” and “final notice” are also repeated to add urgency.  It is also common to see a phone number repeated two or three times, but often no address.  And finally, maybe the biggest red flag is an “estimated settlement amount.”  There is no way anyone could estimate what the IRS might settle a case for based on the limited information contained in a Federal Tax Lien.

Paying the IRS

Since the IRS exists to collect taxes, one would think that the process of paying them would be simple, but it’s not.  Follow these tips so that you get proper credit for your payment:

  • Send a check or money order.  Don’t send cash.  It is never a good idea to send cash through the US Mail.  Lost checks can be canceled, but if cash gets stolen or lost then you have no paper trail.
  • Make your check payable to the United States Treasury, not the Internal Revenue Service.
  • The IRS also suggests that taxpayers use all digits when writing out the check amount.  For instance, include the dollars and cents place even if it is a whole number (i.e., $100.00).
  • Do not staple, clip, glue, tape, or otherwise affix your payment to any other papers (such as a letter or a payment voucher) sent with your payment.
  • Be sure the following information appears on your check: name, address, daytime phone number, primary Social Security number (i.e., the SSN belonging to the first listed taxpayer on the return), tax period and tax form (i.e., 2004/1040).
  • If you were sent a payment coupon then you should mail your payment to the address on the payment coupon.  If you do not have a payment coupon, check here to look up the correct address.

As nitpicky as all this seems, the IRS is pretty forgiving when you are sending them money. I always recommend that payments be made according to the above guidelines, but I also know for a fact that many of these components can be missing and the IRS will still cash the check.  For instance, the IRS will have no problem cashing a check made out to the IRS, even though technically they prefer that it be payable to the US Treasury.  Also, a check without a phone number is usually fine.  Even if you happen to send your payment to the wrong IRS address, believe me, the check is going to get cashed.  It may take a bit longer if the service has to re-route the check, but it will get cashed.

Finally, for taxpayers who don’t use banks, the best option is a money order or cashier’s check.  But if you’re a “strictly cash” kind of person, you may be able to pay your tax bill or installment agreement payment in cash at your local IRS office.  Availability of this option will vary from office to office.