October 15, 1994

New York State Raises Interest Rates

          New York State has raised interest rates by 1% on tax overpayments and underpayments for the fourth quarter of 1994. The interest rate on tax refunds for the period October 1, 1994 through December 21, 1994 rises to 8% and on underpayments to 9%. The taxes affected include but are not limited to income, sales and use, withholding, estate and gift taxes.

IRS Will Forward Correspondence

          An ongoing problem for estate attorneys is the inability to locate heirs or legatees who may be entitled to estate assets. A similar problem may arise for a pension plan administrator who is unable to find certain plan participants, their spouses or beneficiaries in order to distribute plan benefits.

          Now, there is help from an unlikely quarter, the Internal Revenue Service. If the requestor knows the missing person`s social security number, the IRS will search its records to determine if it has an address and, if so, forward the requestor`s letter. This letter-forwarding program is available in "humane situations" or where the letter provides beneficial information that could not otherwise be relayed to the individual.

Software for Salespeople

          If your work involves selling, direct marketing, or just keeping in touch with people, then Contact Ease 2.0 is for you. This Macintosh software helps you to automate your entire follow-up process; generate letters and follow-up reminders as well as compiling a complete contact history.

Series E Bond Deferred Interest May Become Taxable in 1994

          U.S. Series E savings bonds were sold until December 31, 1979, after which they were replaced by Series EE Bonds.  Series E Bonds issued before December, 1965 reach final maturity 40 years after their issue date.  This means that Series E bonds issued in 1954 reach final maturity this year.  Not only do these bonds stop earning interest but any accrued interest is taxable in 1994 (except for E bonds which were exchanged for HH bonds).  Holders of Series E bonds that are reaching final maturity should consider exchanging them for HH Bonds.  Interest on the HH Bonds is paid semi-annually and is currently taxable.  However, the accrued interest on the surrendered E bonds continues to be deferred.

 

Limited Liability Corporations

          First there was the Regular Corporation, then the S-Corporation; now, there is a newcomer, the Limited Liability Corporation. We will be writing about this newcomer in the weeks to come. This month I will be attending a special seminar that will discuss and analyze this new vehicle. So, I will entertain all questions on the LLC (but starting in November).

New York City Tax Amnesty

          New York City is conducting a tax amnesty from September 1, 1994 to November 30, 1994 for the following taxes:

• Commercial Rent Tax (for periods ending on or before May 31, 1993)
• The Utility Tax (for periods ending on or before March 31, 1994)
• The Real Property Transfer Tax (for taxable events occurring before April 1, 1994)
• The Hotel Room Occupancy Tax (for periods ending on or before February 28, 1994)

          If you think you qualify and want to take advantage of the amnesty call Howard Lisch.

Limited Phaseout of Commercial Rent Tax

          Mayor Guiliani increased the threshold for taxation of commercial rent in Midtown and Lower Manhattan from $11,000 to $21,000 for tax periods beginning June 1, 1994 and to $31,000 for tax periods beginning June 1, 1995. In addition, the tax is scheduled to be eliminated in Manhattan north of 96th Street and in the outer boroughs beginning June 1, 1996. If you are affected and did not pay a reduced tax, please call us as to obtaining a refund.

Tax Systems and People

          In light of this year`s discussions of the health care debate and last year`s tax law debacle we find a need to explain the effect and importance of tax systems. In each newsletter we will discuss the role of taxes in determining the course of history.

          Tax systems are important causes of the rise and fall of empires. Human rights are always about the first victims of bad tax systems. How good is ours? In some respects poor and getting worse. Its sheer complexity multiplies its burden while the energy it diverts from productive uses may be incalculable.

          People will pay fair taxes with a willing spirit, but when tax systems grow arbitrary and unfair, taxpayers rebel and lose trust. Rampant tax evasion and flight are the early signs of trouble; to protect its revenues government revokes more privacy and civil rights.

           Bad tax regimes cannot survive. A tax system reflects a tacit compact between government and people that is based upon respect and trust. When the system goes sour, the government loses the most. The injured party-as in the American Revolution-divorces the unfaithful spouse.

The Rosetta Stone

          This summer, while in the British Museum in London we saw the Rosetta Stone, a slab of black basalt, which is the greatest Egyptian archeological discovery. A Frenchman used its message, which is inscribed in three languages, including Greek to unlock the secrets of hieroglyphics. The message on the stone was a proclamation of a tax amnesty for rebels; it shows that Egypt`s rulers were desperate to end the chaos caused by their excessive taxation. When Augustus conquered Egypt he reformed its tax system and ushered in one of Egypt`s most peaceful and prosperous periods.