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Tax Law & Planning - Old News

• Tax amnesty for NJ nonfilers

• Bogus IRS forms

• IRS provides documentation relief

• Tax equity for domestic spirits?

• IRS missing returns in Pittsburgh, PA

• Social Security's annual report news

• House passes tax cuts

• Student loans, federal assistance? Uncle Sam wants you!

• Thinking about retirement

• Philadelphia Eagles tax story - Part 1

• Living well on Social Security

topNew Jersey offers Tax Amnesty to Nonfilers

Tax Amnesty is an opportunity to clear up past due tax obligations for all taxes administered and collected by the New Jersey Division of Taxation. People who take advantage of Amnesty will pay only the amount of tax they owe, without any civil or criminal penalties, interest, or costs of collection.

The Amnesty period began on Monday, April 15, and ends at midnight on June 10, 2002.

Tax liabilities incurred for tax returns due on or after January 1,1996, and prior to January 1, 2002, are eligible for Amnesty. All taxes administered by the Division of Taxation - including the Gross Income Tax, Sales and Use Taxes and the Corporate Income Tax - are eligible for Amnesty.

After the Tax Amnesty period ends, an additional 5% penalty, which shall not be subject to waiver or abatement, will be imposed on all outstanding Amnesty-eligible tax amounts, and a collection service fee may be imposed. The 5% penalty and the collection service fee will be in addition to all penalties, interest and other costs authorized by law.

topBogus Forms Lead IRS to Issue Warning

The IRS has issued a warning of a scam that attempts to mislead taxpayers into disclosing their personal and banking data by asking taxpayers to complete bogus forms. The information is then used to steal the taxpayer's identity and bank account deposits.

In the scam, a letter from the taxpayer's bank states that the bank is updating its records in order to exempt the taxpayer from reporting interest or having tax withheld on interest paid on the taxpayer's bank accounts. Accompanying the letter is a phony form allegedly from IRS which asks for detailed personal and financial data. Recipients are urged to fax the completed form to a specific number within seven days or lose the reporting and withholding exemption, resulting in withholding of 31% on the account's interest.

One such phony IRS form is labeled W-9095, Application Form for Certificate Status/Ownership for Withholding Tax. The form requests personal data frequently used to prove identity, including passport number and mother's maiden name. It also asks for sensitive financial data such as bank account numbers, passwords and PIN numbers that can be used to gain access to the accounts.

Other fictitious forms include a Form W-8888 and a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, which has been altered from a legitimate IRS Form W-8BEN to ask for personal information much like the W-9095.

If you suspect that you are the victim of the fraud and are not sure, contact your tax preparer. If you are sure that you have received the scam letter, report it to the Treasury Inspector General for Tax Administration (TIGTA) by calling the toll-free fraud referral hotline at 1-800-366-4484, faxing a complaint to 202-927-7018 or writing to the TIGTA Hotline, P.O. Box 589, Ben Franklin Station, Washington, D.C. 20044-0589 or by accessing TIGTA's website at www.ustreas.gov/tigta.

topIRS Provides Documentation Relief

On 11 April 2002, the IRS announced that taxpayers who made charitable contributions of $250 or more between 10 September 2001 and 1 January 2002 will have until 15 October 2002 to obtain the required written acknowledgment from charities or get evidence of a good faith effort to obtain it.

Donors who do not receive documentation of their contribution can demonstrate good faith effort by requesting a written acknowledgment from the donee organization either by letter or email. A copy of the letter or email can be used as evidence of a good faith effort.

Generally, taxpayers must have contemporaneous written acknowledgment from a charitable organization before taking an itemized deduction for contributions of $250 or more. However, following the attacks on 11 September 2001, many charitable organizations were overwhelmed by the generosity of donors and were unable to supply the donors with the written acknowledgments in a timely manner. The IRS has extended the timeline for supplying this acknowledgment to 15 October 2001; however, donors must comply with all other requirements, such as maintenance of records to substantiate the amount of the contributions.

List of September 11th related charitable organizations. The IRS announced on October 9, 2001, that new tax-exempt charitable organizations formed to help victims of the September 11 terrorist attacks are now posted on the IRS web site. The IRS reviewed and granted tax-exempt status to these organizations under the special expedited procedure the agency announced on September 18 in the wake of the attacks. Currently, the list contains 22 new organizations and will be updated regularly as other disaster-related organizations are recognized as tax exempt. It is an addendum to the complete listing of tax-exempt organizations the IRS provides to the public. The new list can be found at http://www.irs.gov/bus_info/eo/sep11.html.

topA Spirited Debate

In the midst of some of the most significant changes to the tax code in recent memory, many industries are racing to be heard on the Hill. Among them are the alcohol and beverage industry, an industry traditionally subject to stringent regulations and high tax rates. An act has been introduced into the US House of Representatives designed to provide some tax relief to the beverage industry. Dubbed the "Domestic Spirits Tax Equity Act", the act, which has been introduced by Congressmen Mac Collins (R-GA) and Richard Neal (D-MA), seeks to reduce the burden of excise taxes on wholesales of domestic spirits.

Currently, when wholesalers purchase foreign produced spirits, such as single-malts from Scotland, those wholesalers pay the federal excise tax (FET) after the product is removed from a bonded warehouse for sale to a retailer. In contrast, when wholesalers buy domestic spirits, such as Kentucky's own Jack Daniels, the FET is paid by the distiller and passed along in the purchase price of the product, forcing the wholesaler to carry or finance a tax-paid inventory.

This additional burden on wholesalers accounts for 40% of the cost of a domestic spirits inventory. On average, wholesalers carry or finance this inventory for two months before it is sold to a retail establishment. Based on current interest rates, the industry estimates that for every 100,000 cases of domestic spirits sold, a wholesaler incurs about $20,000 in interest charges just to finance the FET. The bill hopes to alleviate this problem by granting qualified wholesalers of domestically produced spirits a "prepaid tax adjustment" (PTA), or credit, against their federal income tax for the cost of financing the FET.

The rationale for the bill, as explained by Congressman Neal is to provide some equity: "The bill we introduced presents an improved solution to the problem of unequal tax treatment under current law. This raises no compliance concerns and does not change the FET tax collection system. I believe it will bring much needed relief for the small family run businesses, which are unduly burdened by carrying this heavy financial weight."

topIRS Missing Returns, Payments

The IRS has just issued a notice regarding a problem with some tax returns, payments, and extensions which are missing from the IRS Pittsburgh Post Office Box address. This has affected a limited group of taxpayers who filed in New England and upstate New York.

If you sent a payment to the IRS Pittsburgh Post Office address and have found that the IRS payment has not cleared, you should stop payment on the check. A replacement check and any documentation (tax return or extension form) that was sent with the original payment should be sent to the Andover IRS Center Payment Tracer Unit at: IRS, PO Box 9936, Andover, MA 01810, Attn: Nancy Green, Stop 321

Your phone number (or your attorney's, if a Power of Attorney or checkbox is on file) should be included, so that Andover can confirm receipt of the replacement check and documentation.

The IRS Center will send a letter to each affected taxpayer giving further information, including how to be reimbursed for any bank charges incurred. Any taxpayer who is charged a fee by the bank for stopping payment on the check will be reimbursed by the IRS by filing a federal form 8546, "Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check."

For assistance with this and other tax matters, contact Kelly Phillips Erb.

topGood News?! Social Security still running out of money, just not as quickly.

The Social Security Board of Trustees recently released its annual report on the long-term financial health of the Social Security Trust Funds for the year 2001. The Report projects that the Social Security program will remain solvent until 2038--one year later than reported last year.

In response, William A. Halter, Acting Commissioner of Social Security stated: "The additional year of solvency is good news. However, we should both maintain fiscal discipline and move forward on a bipartisan basis to strengthen Social Security to face the challenges presented by the Baby Boom generation's retirement."

Social Security ran a surplus of $153 billion in 2000 and ended the year with $1.049 trillion in assets. Annual Trust Fund revenues are projected to exceed expenditures until 2016.

Beginning in 2025, assets of the combined Old-Age and Survivors Insurance and Disability Insurance Trust Funds will be drawn down to pay benefits until the funds are exhausted in 2038.

Acting Commissioner Halter stated, "Social Security is the major source of income for two-thirds of older Americans and virtually the only source of income for one-third of older Americans. In a real sense, Social Security is the most important income security program in American history. We should utilize this period of Social Security surpluses to fashion the legislative changes necessary to extend the solvency of the system for future generations."

topHouse Passes Tax Cuts

In what was hailed as a major victory for President George W. Bush, the House of Representatives voted 230 to 198 Thursday to approve a $1.6 trillion tax cut package. The bill, which would be retroactive to January 1 of this year, would lower the current five tax brackets of 39.6%, 36%, 31%, 28% and 15% into four brackets of 33%, 25%, 15% and 10% over a five year span. The bill would also create a 12% tax bracket for the first $12,000 of income for married couples and $6,000 for single people. The House will now begin work on other parts of Bush's tax plan, including increasing the child tax credit, easing the so-called “marriage penalty” and repealing the estate and gift tax. The next step for the approved portion of the tax plan is the Senate, where a scaled-down version of the plan is expected to be approved by summer. Democrats have accused Republicans of rushing the tax cut through Congress without regard to planned spending and potential deficits. Democrats further argue that the tax cuts only benefit wealthy Americans. Republicans counter that the tax cut benefits most Americans and that the rush is needed to prevent an economic downtown. Most experts agree that the final tax plan will be a hard fought and compromised version of the original.

topUncle Sam gets Tough on Student Loan, Federal Assistance Debtors

Do you owe an unpaid student loan? Have you received more federal assistance than you were entitled to? If you receive Social Security benefits, and you answered yes to either questions, Uncle Sam has figured out how to get back some of the delinquent debt that is owed to him.

Beginning in March 2001, the Department of the Treasury will begin sending letters to Social Security beneficiaries who owe money to the federal government. The letter will tell you the federal agency you are indebted to and whom to contact at that agency to answer questions you may have about the overdue debt.

If you receive such a letter, you will have two months to make arrangements to pay the debt. In May 2001, the Treasury will begin to deduct a maximum of 15 percent from your monthly benefit payment until you pay all the money. This affects only those beneficiaries who receive $750 a month or more.

In 1996, the Congress passed the Debt Collection Improvement Act to collect overdue debts to the government. The largest dollar amounts referred to Treasury for collection are from the Department of Education (student loan debt) and the Department of Agriculture (loan debt and food stamp benefit overpayments).

topToo Soon to Think About Your Retirement?

On November 30, 2000, Kenneth S. Apfel, Commissioner of Social Security, and Dallas L. Salisbury, Chairman of the American Savings Education Council (ASEC), announced an expansion of their partnership to educate Americans about the importance of financial planning for the future. "Americans need to make savings a personal budget priority, "said Commissioner Apfel. "I like to say that your dreams for the future begin now. Social Security will be there for you tomorrow, but the rest is up to you. Retirement security depends on personal savings." Some of the statistics that Apfel and Salisbury released included:

• Financial Planners say that a person needs about 70% of their pre-retirement income to live a comfortable retirement. For the average worker Social Security replaces only about 40% of pre-retirement income.

• Hewitt Associates recently conducted a study of 170,000 distributions from defined contribution plans. 68% of plan participants who changed jobs in 1999 took cash withdrawals from tax-deferred retirement accounts rather than leaving money in the plan or rolling balances into new plans or IRAs. The highest percentage of cash payments, 78%, occurred among 20-29 year-old investors.

• ASEC's 2000 Retirement Confidence Survey reveals that 45% of American workers have not calculated how much money they will need to save for a comfortable retirement.

"With rapid medical advances and new thinking about US life expectancy, growing longevity in the future may be much longer than is usually assumed with significant public policy implications for Social Security and public policy as the baby boom generation begins to retire," said Salisbury. "If elderly mortality rates continue to decline at historical rates, life expectancy in the US will increase to age 85 by 2070 three years beyond SSA's current estimate. Continued expansion of financial literacy must be a national goal if Americans are to achieve economic security in their later years. This partnership approaches those goals."

Fuel price increases force Congress to increase automobile deductions. On 23 November 2000, the Internal Revenue Service announced that the optional standard mileage rates to use for the taxable year 2001 for purposes of computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense would rise from 32.5 cents per mile to 34.5 cents per mile. The new rate is effective January 1, 2001. The primary reason for the mileage rate increase is due to the increase in fuel prices.

topEagles Defeated On Home Turf

The Philadelphia Eagles were dealt a blow in July when the Commonwealth Court affirmed the order of the Philadelphia Court of Common Pleas concerning local taxes.

At issue were fees that the Eagles received as part of their contract with the National Football League. The contract provides that the Eagles receive 1/28 (as one team of 28 in the NFL) of the total revenues received by the NFL from a separate contract that the NFL has with a television network. The Eagles played one-half of the games for the season in Philadelphia, and one-half of the games outside of Philadelphia. The Eagles argued that the revenues received were fees for services. However, the Commonwealth Court agreed with the City of Philadelphia that the payments received by the Eagles are not fees for services but rather are royalties subject to the Business Privilege Tax. The Business Privilege Tax taxes all patent, copyright and trademark royalties for Philadelphia businesses.

The Eagles also claimed that only one-half of the receipts paid by the NFL, those representing the games played, recorded and broadcast in Philadelphia, were subject to local tax, specifically the Business Privilege Tax. The Commonwealth Court agreed with the City that because the Eagles are domiciled in the City of Philadelphia, the total royalties should be taxed in Philadelphia. The Commonwealth also upheld the Common Pleas Court's ruling that the Tax Review Board did not abuse its discretion in refusing to abate penalties for improper deductions for airplane expenses. The Tax Review Board ruled that the Eagles should not have claimed a 100% deduction for airplane expenses when more than 70% of the usage of the airplane was for activities other than Eagles business opportunities.

The Eagles have appealed the ruling to the Pennsylvania Supreme Court. Read the outcome.

topSocial Security Administration reports on Living Well in Retirement

The latest edition of Social Security eNews reports that many financial planners advise that you'll need 70% of your pre-retirement income to live comfortably in retirement. On average, 40% of retirement income comes from Social Security.