Written by: Theodore M. David, Chair, Tax Law Committee
- The Sleep Test
- Estate Tax Going?
1.
They say if you become a teacher by your students, you will be taught. I subscribe to that homily. I spent 32 years teaching at the University ending up a tenured full professor in law and taxation. One of the most satisfying parts of being a tax professor and tax practitioner was having the opportunity to mentor a new tax lawyer. I had such an opportunity in the early 1980s when I encountered in my class Scott Novak. Many years later I think he would agree I helped him get on the path of practicing tax law. So it is with much pride that I cite for this bar bulletin a chunk of his recent article which appeared in the Bloomberg publication called Tax Management Memorandum dated April 28, 2025. The Article is entitled: Businesses are facing financial headwinds – a Practical Guide. The article is a long one and extremely helpful but one part of it draws my attention. Scott asked the question that many lawyers, accountants and I am sure clients as well probably have had over the years: When do you hire a tax lawyer? Needless to say, there are many intricate and complicated issues which suggest the answer but a simple version Scott has set forth in his article: “it often occurs to me that the best service that I can provide to a client is to help the client sleep better at night. When speaking to accountants, I will sometimes get asked the question, how do we know when it’s time to refer a client to a tax attorney. There are several answers to that question, but first and foremost, send them to an attorney when their tax issues keep them up at night.” Easy to use and on point. But this is a tax bulletin, and the rest of the Article I here summarize and excerpt:
Many of my clients make decisions when faced with tough times that haunt them for years to come. What follows are some thoughts from experience in the trenches. One caveat – neither my firm nor I condone the nonpayment of taxes, or unfiled returns. But we do understand the realities that businesses might face in the difficult times ahead and would like to help you make the best decisions possible.
Trust Fund Taxes — Always Pay These! There is a reason why this comes first, ahead of the topics that follow. The moment that you collect sales tax, you are personally responsible to turn that sales tax over to the state.
Filing Tax Returns Late or Not Filing Them at All — Federal. Your business is struggling, maybe you’ve fallen behind a bit and you’re very distracted with the minute-to-minute issues that you are faced with. Wouldn’t it be simple to just not file your tax returns right now, especially if paying the tax might be impossible at the moment or might force some hard decisions that you would prefer to put off? When a client comes to me with the question of whether or not to file, here is what I tell them. The penalties for failure to file a tax return on time are far greater than the penalties for failure to pay on time.
Annual Business Registration Fees Many smaller entities neglect to register and pay the annual fees required by the state that they were organized in. While the annual fees are not onerous, if you ever want to terminate that business, and those fees have not been paid along the way, it is likely that all of those fees will all have to be paid, in addition to a penalty in some states. Better to stay on top of those fees and to terminate a business as soon as possible when it no longer serves a purpose.
W-2 or 1099? Some business owners opt to treat certain workers as independent contractors (1099) rather than employees (W-2). Why might they do that when facing financial hardships? Two primary reasons. First, the burden of state and federal employment taxes is fully shifted from the employer to the worker. Second, the employer’s workers’ compensation burden may be reduced if the individual is not the employee of the employer. What some may not realize is that the question of employee vs. independent contractor is not a simple matter of choice or preference. There are tests at both the state and federal level that are used to determine the status of a worker. There also exists an entire body of law generally called “employee misclassification.” If reading that title leaves you with the impression that there is a bias towards classifying workers as employees, you are correct. And the states are much more invested in this than the IRS. Almost no one comes out of a state employment tax audit unscathed.
I am sure if you ask, Scott would be glad to send you the complete article that you may want to share with your business clients. He’s at a Scarinci Hollenbeck. PS He got straight A’s in my class.
2.
From Martin Shenkman this note: US representative Randy Feenstra, a Republican from Iowa introduced a bill called the Death Tax Repeal Act. It was introduced February 13, 2025 with more than 170 representative signing on. Senator John Thune introduced companion legislation in the United States Senate. Marty comments: “Tax seers have a batting average well below that of local weather forecasters and that it’s just not possible to predict what this Congress may do.” I add or anyone else in this current government.
Questions or comments should be emailed to Tdavidlawyer@gmail.com.