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Taxpayer Bill of Rights 2

          Congress passed Taxpayer Bill of Rights 2 and as of today it is expected that the President will sign this Republican initiative. The Bill provides taxpayers with the following new rights and protections:

  • Extension of interest free period for payment of tax after receiving a notice and demand for payment to 21 days from current 10.
  • Taxpayers can use private delivery services (i.e. Federal Express) to prove timely filing of tax return under the timely mailing is timely filing rule (IRS will publish an approved list of delivery services)
  • Joint tax return may be filed after separately filed returns without full payment of existing separate tax return liability.
  • Abatement of payroll deposit penalty on an inadvertent failure to deposit any employment tax if the depositing entity meets the net worth requirement as a small business
  • Offers in compromise expedited
  • A taxpayer who is injured because a fraudulent information return has been filed with the IRS asserting that payments have been made to the taxpayer will be able to sue the person filing that tax return.
  • If Form 1099 or W-2 is wrong and the filer refuses to correct it then any injured party who has cooperated with the IRS in trying to rectify the problem will, in any court proceeding be relieved of the IRS` presumption of correctness and the IRS will have the burden of proof of the reasonableness of the amount on the filing.
  • Levy exemption amount increases-property exempt from levy had included personal property with a value of up to $1,650 and up to $1,100 in books and business tools. Limits are raised to $2,500 and $1,250 respectively.
  • Taxpayer Advocate will replace the Taxpayer Ombudsman
  • IRS can abate interest resulting from unreasonable error or delay such as IRS loss of records, personnel transfers, extended illnesses, personal training or leave.
  • Increase on limit on attorney`s fees to $110 per hour from $75 per hour
  • IRS allowed to withdraw a public notice of tax lien before payment in full if:

a) the filing of the Notice was premature
b) the taxpayer has entered into an installment agreement to satisfy the liability
c) withdrawal of the lien would facilitate the collection of the tax liability
d) withdrawal of the lien would be in the best interest of the taxpayer and the government as determined by the Taxpayer Advocate
e) IRS must make reasonable effort to give notice of withdrawal of lien to creditors, credit reporting agencies and financial institutions specified by the taxpayer

  • Telephone numbers will be required on information returns so the IRS can resolve erroneous information return matters quickly.

Jackie Redux

          In our May newsletter we ruminated that many who purchased her possessions had ulterior motives. The Franklin Mint which purchased her Faux Pearls for $211,500 just announced-you can buy the only exact reproduction of the 139 European faux pearls for $195, exclusively from the Franklin Mint. Cheap publicity! Maybe a depreciable or deductible expense.

Don`t Tolerate It!

          There is a common thread to all the Clinton scandals. Files, billing records, checks, etc. floated in and out of bureaus, offices, bank accounts, hotel rooms, and residential quarters without anyone keeping track of how, or at whose real directive, the paper moved. The only acknowledged movers are construction workers, secretaries, amnesiacs and a dead man. The wrong files got to all the wrong places; but nobody can say how.

          You wouldn`t tolerate it in our business, or in yours!

Six Basic Tax Planning Techniques

          There are no great secrets where tax planning and tax cutting are concerned. The principles around which all tax-cutting strategies revolve can be reduced to six basics:

  • Income splitting. Taxes are reduced for the total family unit by shifting income among several family members or legal entities in order to get more of the income taxed at lower rates.
  • Shifting income. Certain kinds of income (bonuses, dividends and year-end payments, for example) can be shifted from one year to another in order to have the income fall where it will be taxed at lower rates.
  • Shifting deductions. As with some income, certain deductible expenses can be paid in one year or the next in order to place them where the tax benefit will be greater.
  • Deferring tax. Putting your money into certain investments or making pension plan contributions allows you to defer the tax on some income until future years.
  • Tax-deductible expenditures. Certain expenses can be tax deductible if you meet specific requirements in the tax code. Structuring your affairs to obtain a tax deduction for things you enjoy (within stringent IRS guidelines) is an example of this tax-cutting technique.
  • Tax-exempt investments. You can select investments that produce income that is exempt from either federal or state income tax, or both. Many mutual fund investments, for example, have tax advantages.

          At this time of changing tax laws, become aware of how changes can affect you, and make adjustments necessary to lessen the impact of new laws on your earnings.

          If you have any questions about this or any other financial matters, please call me.