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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.

The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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  • Posts by George W. Connelly, Jr.
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    George Connelly is recognized as one of the leading federal tax litigators in the United States.  His practice focuses on IRS audit, collection and criminal matters including civil and criminal tax litigation matters, for clients ...

As my readers know, I focus my practice on representing people who have “misunderstandings” with the Internal Revenue Service.  I can’t count the number of clients who have made a comment along the lines of “get me Geithner’s deal” since it came to light that he had some significant and frankly embarrassing tax problems while working for the International Monetary Fund.  In point of fact, making a statement like that to an IRS employee is probably one of the worst things a taxpayer could say, because the rank and file IRS employees realize that if they did what Mr. Geithner did, they would be fired on the spot.

I suspect that the answer of most readers will be "why would I want the IRS to find me in any event?" In fact, I can recall one client who actually asked me to have him removed from what he described as "the IRS mailing list."

Believe it or not, while it's always nice to be left alone, there are situations where it is important that the IRS have your correct address. For instance, what if there's a refund you're due, and the IRS is about to send you a check? Similarly, if you are in an audit or owe the IRS money, there are a variety of notices that the Internal Revenue Code requires the IRS to send to your "last known address," and if it sends them to that address, but you do not receive them, you will miss the opportunity to respond, as the law does not require that you actually receive the documents for them to be effective.

Anyone paying attention to the media for the last month or so must be aware of the battle the IRS has waged with UBS in order to obtain information about owners of heretofore “secret” accounts in Switzerland.  This is part of an IRS effort to track down tax delinquents who are using overseas accounts to hide their income and assets.  A settlement was recently announced whereby the Swiss agreed to reveal a relatively small (in the grand scheme of things) number of the accounts—4,450 versus the 52,000 that the IRS originally alleged—in order to resolve the dispute.  At this point, the IRS has its eyes on other foreign institutions and one can be sure that this is not going to be the end of the IRS’ efforts.

Unfortunately, Congress has yet to create a deduction or tax credit for depression or stress, although many taxpayers would like to see it happen as part of Obamacare.  Right now, people who itemize deductions may be able to claim medical expenses for treatment of stress or depression, but the actual deduction is often disappointing because only the amount which exceeds 7% of your adjusted gross income can actually be used to reduce the taxable income. But what if you receive damages for stress or depression? A pair of recent cases decided by the United States Tax Court involving taxpayers with damages for problems in their work environment provides some insight into when and how these elements affect the taxability of the damages received.

Getting a Notice of Levy from the IRS is never fun, especially if you are the taxpayer.  However, it can be even more perilous when you receive one with respect to someone you employ that owes the IRS money, seeking to garnish the worker's compensation.

An employer would be making a serious mistake to simply ignore the levy, whether she tells the worker about it or not.  Any person who receives a levy but fails to honor it faces personal liability under I.R.C. § 6332(d) (1) in the amount of each payment that should have been turned over to the IRS.  Thus, the employer who ignores the levy could pay the worker the compensation, as well as have to pay the IRS a second time.  In addition, Subsection (d) (2) creates a second tier "penalty," up to 200% of the amount that should have been paid to the IRS, if the failure to do so was willful.

Since the passage of the first Internal Revenue Code, it has seemed as if the lion's share of personal income taxes have been paid by higher income taxpayers.  If high tax rates were not enough, Congress came up with a series of things to add to the burden. In recent times, it enacted the dreaded alternative minimum tax.  Then George H. W. Bush broke his “read my lips” promise, and signed legislation that phased out itemized deductions and deductions for exemptions as income levels rise.  Now, as the George W. Bush tax cuts are scheduled to expire after 2010, and the Obama administration and ...

The United States Tax Court has very recently issued opinions for two couples that highlight the problems that may arise from a tax point of view when someone settles a credit card debt.

As long as there have been credit cards, there have been situations where the cardholder has for one reason or another not paid the full amount billed, and has had to “settle” a debt with the credit card company.  It is probable that most people don’t think about this as an income producing event, but Internal Revenue Code Sections 61(a)(12) and 108 provide that any cancellation or forgiveness of debt ...

The Internal Revenue Code provides a basic exclusion from income taxation of the proceeds of a life insurance policy.  However, what happens if a taxpayer surrenders the life insurance policy with loans against the cash value?  The formal rule is that amounts received upon the surrender of a life insurance contract which are not received as an annuity are specifically included in gross income to the extent that they, when added to amounts previously received under the contract and excluded from gross income, exceed the investment in the contract.  How this works was illustrated in the sad ...

Let's face it: employees are wonderful.  We couldn't do without them.  However, they can be expensive.  Beyond their base compensation, employers must pay federal taxes – in addition to withholding the employee's share of income tax, FICA and Medicare, there is an employer’s share of Medicare and FICA that must deposited regularly.  There's also annual FUTA tax, as well as quarterly state unemployment tax.  And there are benefits, ranging from medical coverage, to vacations, to sick leave, to name just three, that employers must pay.

When business is down, it is natural to try to find ...