Caraker Law Firm Blog

Innocent Spouse Relief - Taxpayer obtains relief while still married

Posted by Chad Caraker on Fri, Aug 25, 2017 @ 06:33 PM

In Hudson v. Comm’r T.C. Summary Opinion 2017-7, filed February 8, 2017, the Tax Court granted equitable relief from joint and several liability under section 6015(f).  It is a rare case that the IRS grants relief to a taxpayer that requests innocent spouse relief, unless that individual is legally separated or divorced from the jointly liable taxpayer. The taxpayer and her husband remained legally married, but were essentially estranged.  Petitioner remained in the marriage because she “regards the vow of marriage as sacrosanct and does not believe in divorce.” The liability reported on the face of the return was largely from the early withdrawal penalty associated with Petitioner’s husband taking a distribution from his retirement account to finance the purchase of a piece of residential real estate – in his name alone. Though petitioner resided at this residence, the Tax Court did not believe she enjoyed a lavish lifestyle.  Petitioner held a bachelors degree and, while she was out of the workplace caring for their children during the year at issue, she later became employed in her field. At the time of filing the Petition in the Tax Court, she was unemployed and struggled with reasonable living expenses. The Court could not provide “streamlined” relief because the Petitioner remained married.  That triggered a facts and circumstances analysis where economic hardship and lack of significant benefit factored heavily into the Court’s grant of liability relief. 

Tags: Delinquent Taxes, Innocent Spouse Relief, Tax

IRS institutes Early Interaction Initiative for Employment Tax matters

Posted by Chad Caraker on Wed, Jan 06, 2016 @ 03:34 PM

 

Blog.January 2016

 

IRS institutes Early Interaction Initiative for Employment Tax matters

  It is expected that the IRS will be instituting swifter action against employers that are falling behind on their Federal Tax Deposits (FTD’s) for employment taxes.  Those taxpayers who have had interaction with a field Revenue Officer are likely hearing from those Revenue Officers more quickly if they fall behind on their required deposits.  However, the IRS announced in December 2015 that it is instituting efforts to identify employers who appear to be falling behind on their tax payments – apparently even before their employment tax return is being filed. 

            The IRS has indicated that their identification efforts will result in letters, automated phone messages, and other communications which could include a visit from a field Revenue Officer.  The IRS has indicated that this effort will reduce the likelihood of the problem becoming uncontrollable.  Many taxpayers simply do not realize how steep the penalties can be for failure to properly make tax deposits, pay employment taxes timely, or failure to file timely returns.  Further, it is unlikely that most taxpayers understand the personal liability that can be assessed from unpaid employment taxes.  A liability that is not dischargeable in bankruptcy.

            While the education efforts are beneficial, certainly there is an enforcement aspect of this activity by the IRS.  The IRS readily admits that two-thirds of federal taxes are collected through the payroll tax system.  With a reduced budget, this activity makes good sense for the IRS.  However, it is most likely going to be most burdensome for small businesses. 

            No doubt early action is best.  If you know you have been falling behind on your payroll tax obligations and need assistance planning before you hear from the taxing authorities, feel free to call. 

Tags: employment taxes, Tax, Tax Controversy, Federal Tax Deposits, Revenue Officer, IRS debt, IRS, Penalties, FTDs, Civil Penalties

2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

Posted by Chad Caraker on Mon, Dec 08, 2014 @ 01:42 PM

 

 

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IRS Announces 2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

The IRS recently announced annual inflation adjustments for several tax provisions, which will apply to the 2015 tax year. Some of the affected provisions include: income tax rate schedules, the estate tax exemption, long-term care adjustments, and retirement adjustments. Below is a summary of those adjustments.

Tax Rates. Beginning in the 2015 tax year, the following tax rates will apply:

If the Taxable Income Is:

The Tax for Married Individuals Filing Jointly is:

Less than or equal to $18,450

 

10% of the taxable income

Over $18,450 but not over $74,900

 

$1,845 plus 15% of the excess over $18,450

Over $74,900 but not over $151, 200

 

$10,312.50 plus 25% of the excess over $74,900

Over $151,200 but not over $230,450

 

$29,387.50 plus 28% of the excess over $151,200

Over $230,450 but not over $411,500

 

$51,566.50 plus 33% of the excess over $230,450

Over $411,500 but not over $464,850

 

$111,324 plus 35% of the excess over $411,500

Over $464,850

$129,996.50 plus 39.6% of the excess over $464,850

 

If the Taxable Income Is:

 

The Tax for Heads of Households is:

Not over $13,150

 

10% of the taxable income

Over $13,150 but not over $50,200

 

$1,315 plus 15% of the excess over $13,150

Over $50,200 but not over $129,600

 

$6,872.50 plus 25% of the excess over $50,200

Over $129,600 but not over $209,850

 

$26,722.50 plus 28% of the excess over $129,600

Over $209,850 but not over $411,500

$49,192.50 plus 33% of the excess over $209,850

Over $411,500 but not over $439,000

$115,737 plus 35% of the excess over $411,500

Over $439,000

$125,362 plus 39.6% of the excess over $439,000

 

If the Taxable Income Is:

The Tax for Unmarried Individuals is:

Not over $9,225

 

10% of the taxable income

Over $9,225 but not over $37,450

 

$922.50 plus 15% of the excess over $9,225

Over $37,450 but not over $90, 750

 

$5,156.25 plus 25% of the excess over $37,450

Over $90,750 but not over $189,300

 

 

$18,481.25 plus 28% of the excess over $90,750

Over $189,300 but not over $411,500

 

 

$46,075.25 plus 33% of the excess over $189,300

Over $411,500 but not over $413,200

 

 

$119,401.25 plus 35% of the excess over $411,500

Over $413,200

 

 

$119,996.25 plus 39.9% of the excess over $413,200

 

If the Taxable Income Is:

The Tax for Married Individuals Filing Separate Returns is:

Not over $9,225

 

10% of the taxable income

Over $9,225 but not over $37,450

 

$922.50 plus 15% of the excess over $9,225

Over $37, 450 but not over $75,600

 

$5,156.25 plus 25% of the excess over $37,450

Over $75,600 but not over $115,225

 

 

$14,693.75 plus 28% of the excess over $75,600

Over $115,225 but not over $205,750

 

$25,788.75 plus 33% of the excess over $115,225

 

Over $205,750 but not over $232,425

$55,662 plus 35% of the excess over $205,750

 

Over $232,425

$64,989.25 plus 39.6% of the excess over $232,425

 

 

If the Taxable Income Is:

The Tax for Estates and Trusts is:

Not over $2,500

 

15% of the taxable income

Over $2,500 but not over $5,900

 

$375 plus 25% of the excess over $2,500

Over $5,900 but not over $9,050

 

$1,225 plus 28% of the excess over $5,900

Over $9,050 but not over $12,300

 

 

$2,107 plus 33% of the excess over $9,050

Over $12,300

 

$3,179.50 plus 39.6% of the excess over $12,300

 

 

Estate Tax Exemption. The Estate Tax is a tax imposed on the transfer of property at a person’s death, for any portion of the decedent’s gross estate that exceeds the Federal Estate Tax Exemption. This year the estate tax exclusion has increased from a total of $5,340,000 to $5,430,000. This means that decedents who die in 2015 have an estate tax exclusion that has increased by $90,000 from the previous year.

Long-term Care. Deductions for Long Term Care Insurance Premiums have increased slightly from 2014. The 2015 deductible limits under §213(d)(10) for eligible long-term care premiums are as follows:

Attained Age Before Close of Taxable Year

Limitation on Premiums

40 or less

$380

More than 40 but not more than 50

$710

More than 50 but not more than 60

$1,430

More than 60 but not more than 70

$3,800

More than 70

$4,750

 

Retirement Adjustments. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the government’s Thrift Savings Plan has increased from $17,500 to $18,000. In addition, if you are 50 or over you can contribute an additional $6,000 as a catch-up contribution. However, the limit on annual contributions to IRA accounts remains unchanged at $5,500 with the catch-up contribution limit remaining $1,000.

The deduction for taxpayers making contributions to traditional IRA accounts is phased out gradually starting at an Adjusted Gross Income (AGI) of $61,000 for single taxpayers and heads of households, $98,000 for married couples filing jointly (when the spouse who makes the IRA contribution is covered by a workplace retirement plan), and $183,000 for an IRA contributor not covered by a workplace retirement plan but who is married to someone who is covered. 

The deduction for taxpayers making contributions to a Roth IRA is phased out gradually starting at an AGI of $183,000 for married couples filing jointly and $116,000 for singles and heads of households.

Lastly, the AGI limit for the saver’s credit (retirement savings contribution credit) for low and moderate income workers has also increased slightly for 2015. The credit is now $61,000 for married couples filing jointly, $45,750 for heads of household, and $30,500 for singles and married couples who file separately.

If you have any questions about how these adjustments might affect your tax situation, please feel free to contact our office for further assistance.

Tags: IRA, Roth IRA, Pension Contribution, Retirement, Financial Planning, Tax, Long-term Care, Thrift Savings Plan, Income Taxes, Tax Planning, Estate Tax Exemption, Tax Adjustments, Wealth Planning, Long Term Care Insurance

Texas Receives “High Performance Bonus”

Posted by Chad Caraker on Tue, Nov 18, 2014 @ 05:55 PM

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Texas Receives “High Performance Bonus” Under Federal Worker Misclassification Initiative:

The U.S. Department of Labor (DOL) recently awarded $10.2 million in grants to 19 states as part of the Department’s Misclassification Initiative. The Misclassification Initiative was created in 2011, as part of a Memorandum of Understanding (MOU) signed between the DOL and IRS.  The MOU formed an agreement between the two agencies to work together to reduce the incidence of worker misclassification, by sharing information and coordinating enforcement efforts.

A worker misclassification occurs when an employer or business owner classifies a worker on their tax returns as something other than an employee (such as an independent contractor), when they should be classified as an employee. Generally, the distinction between an employee and independent contractor is in how much control the person paying for the service has over (1) what work will be done and (2) how that work will be done. The more control the person paying has over the work being done, the more likely it is that the person providing the service should be classified as an employee.

From the worker’s perspective, misclassification can mean denial from benefits and programs such as family medical leave, overtime, minimum wage, and unemployment insurance. From the government’s perspective, misclassification leads to a substantial loss to the Treasury by way of lost Social Security, Medicare, unemployment insurance, and worker’s compensation funds.

While the Misclassification Initiative was started in 2011, this year is the first year that individual states were eligible to receive grant funding for their efforts to decrease worker misclassification. Although several states already had existing programs designed to reduce misclassification, under the federal Misclassification Initiative individual grants up to $500,000 were awarded to 19 states under a competitive award process.

The Misclassification Initiative also offers additional grant funding to states through its “High Performance Bonus” program.  This bonus program is based off the Federal Supplemental Nutrition Assistance Program (SNAP), formerly called the food stamp program, which also provides bonuses for high performing states. So far, four states (Maryland, New Jersey, Texas, and Utah) have received such bonuses. Of those states, Texas has received $775,529 in bonuses, which is almost $300,000 more than the next highest recipient, New Jersey. According to the DOL the bonuses are awarded to the states that are most successful in detecting and prosecuting employers that fail to pay taxes due to misclassification. The bonus program is designed to give states both an extra incentive to carry out enforcement actions and additional funds to upgrade their misclassification enforcement programs.

If you’re unsure how your workers should be classified and would like assistance, please contact our office.   

Tags: employment taxes, Department of Labor, High Performance Bonus, Misclassification Enforcement, W-2, Tax, Employee Misclassification, Grant Funding, 1099, Misclassification Initiative, DOL, Employee, Independent Contractor, Self-employment tax, IRS