Stay Up to Date with the Latest Notices

Written by: Theodore M. David, Chair, Tax Law Committee

Current Items:                                                              

• Debt Be Gone
• IRS Rates
• Turbo Tax Terror
• Make More Taxpayers

1. The old joke goes: I can’t be overdrawn at the bank… I still have checks. I was all prepared to write a long narrative about how bad things were going to be when the United States actually defaulted on its debts. Janet Yellen convinced me that China would end up owning at least Rhode Island and Delaware as soon as we skipped a single payment on any of our debts. Interest rates would rise like an ugly tsunami swallowing up the entire real estate industry, and taxpayers would be on the street once again selling apples like they did in the Great Depression. But these damn politicians ruined everything by coming up with some kind of agreement. Let’s be clear on one thing. If you did what the US government does, you would probably get a minimum 10-year sentence vacationing in New England, as low-risk criminals refer to their low-security prisons. But all is well with the United States getting deeper in debt with the rest of the world. We have been around for about 247 years so far. We will have to survive at least another 800 to pay off the massive debt we have accumulated. The British in the War of 1812, I think, actually burned the White House. If they waited until we got deeper in debt, they could have just bought it instead. Sort of a fire sale without the fire. It seems that that is the way we are headed. Down deep, no one really seems to be all that concerned. Personally, I’m more upset by having this bar bulletin later than usual because of all the governmental hijinks. I should have known that only a madman would take on a woman as smart and powerful as Janet Yellen. So, for the time being, the government will just continue writing more checks and printing more money. And those people living in Rhode Island and Delaware can rest easy.
2. You may have terrible credit with creditors chasing you down. Even your brother-in-law has denied you even the smallest loan. What to do? The Internal Revenue Service is still open as a reasonably available creditor willing to lend without any financial documentation of any kind. That is the beauty of our self-assessment tax system of voluntarily filing tax returns like Johnny Carson did with Karnac the Magnificent. Find the number that you need, and you and your accountant fill in whatever figures are necessary to get to that number. The tax savings that result is the document-free loan from Uncle Sam. Now, of course, in the age of computers, IRS may eventually wise up and track you down. So understand that in addition to other penalties for things like negligence and perhaps fraud, both of the civil and criminal nature IRS charges a measly 7% annually these days on tax underpayments with no points or vig like the mob. Still better than your local bank or any of your relatives.
3. Intuit is the company that puts out TurboTax. It is an ingenious computer AI.and although the tax law keeps changing, it’s not very hard to change the program once you get it running. Besides, there are lots of folks overseas who charge virtually nothing for their computer skills. Intuit has been making a lot of money with Turbo Tax. I don’t own any Intuit stock. But it did send a chill down my back to learn that IRS is intending to give Intuit a run for its money. What I understand is that IRS has a goal of allowing most taxpayers to use an IRS program to file all types of tax returns at no cost. So this may be a good time if you happen to be an Intuit stockholder to rethink your investment position. But certainly, don’t take my advice. I thought Microsoft was a flash in the pan.
4. Avoid listening to NPR radio. The stuff they broadcast can really shake you to the core. They all sound so incredibly smart. I confess I like it. Recently a spot on one of their shows talked about the scientific potential of creating artificial sperm and artificial eggs. They said we are no more than maybe a decade away from being able to make babies outside of the womb, if necessary. Now I was driving at the time and frankly didn’t pay attention to all the details, but one scientist was convinced that no matter government policy here in the United States, the world would work toward this result. Now with taxes as the angle for this bulletin, it dawned on me that this could be the biggest boon to tax collection ever. Simply make more taxpayers. All those folks who have not had children for whatever reason will someday be able to purchase a version of themselves containing their own DNA with fake sperm and fake eggs. Designer taxpayers who like paying taxes could be next. If you are science-minded, the process is called IVG…look it up.

Questions or Comments   should be sent to:

Theodore M. David, e-mail: [email protected]

 

WRITTEN BY: Theodore M. David, Chairman

TAX LAW COMMITTEE

Current Items:                                                             

•  Know When to Fold Them
• How You Do-in’?
• A Sweet Spot                                                                    

1) Congratulations you’ve been a good citizen. Survived another tax season and you join the other hundred and 60 million individual tax returns that were filed. This year the tax filing deadline was April 18, 2023 and it is now safely behind us. Of course there are those who file for extensions and will get their stuff together in time to get those papers filed properly. But there are approximately on the other hand 1.5 million people who are about to fold their cards with regard to tax refunds they are entitled to for tax year 2019. That year IRS extended the filing date to July 17. What this means is that about $1.3 billion is about to go unclaimed by those millions of people. So should you have a client or perhaps actually be one yourself it’s time to get that return filed for 2019 before July 17, 2023. The average refund that is going unclaimed is about $900 per taxpayer. IRS does not create a return for taxpayers who are owed any money. Ours is a self-assessment system and you just have to file. The confusion comes in because single taxpayers with income less than $12,200 and married couples with income less than $24,400 for 2019 were not required to file tax returns. And they are still not required to file. However, if those taxpayers were subject to withholding that money is sitting waiting to be claimed as a refund with IRS. Even in cases where no withholding or other payments were made some taxpayers will qualify for “refundable” credits. This could be $6000 or more for 2019. So even if no payments were made during the tax year a taxpayer can still receive a refund as the refundable credit is treated like a payment. There are some special rules about filing a 2019 return now. Taxpayers cannot use the IRS Free File Tool on the IRS website. It is available only for current tax year returns. Taxpayers must also file a paper tax return so no electronic filing is permitted. Filing a paper tax return guarantees that any refund will take longer to receive. Lastly a “hold” may be placed on the issuance of the refund if the taxpayer has not filed subsequent tax returns for 2020 and 2021. You can get the necessary forms for tax year 2019 at IRS.gov. The July 17, 2023 date can’t be extended under federal tax law.

2) When Ed Koch was mayor of New York he was fond of asking people: How am I doing? The IRS feels the same way about that stuff. So annually it publishes the IRS Data Book. And for those enthusiasts interested in exactly how IRS was doing from October 1, 2021 to September 30, 2022 the 2022 Data Book, available at IRS.gov, is for you. But if instead you have a decent life to lead and have other ways of squandering your time here are some tidbits from that report: IRS collected $4.9 trillion during that time period. That amounts to 96% of the cost of the entire government. As expenses go, for every $.29 spent funding the agency it collected $100. So it would appear that we are getting our money’s worth. IRS also says that in its survey of taxpayers it gets a 78% satisfaction rating! Not bad and way better than any of the recent sitting Presidents, indicted or not. IRS said 262.8 million tax returns were filed during the period which included 160.6 million individual tax returns. And taking their advice, 94% of those individual tax returns amounting to 150.6 million tax returns were e-filed electronically. The IRS also declared that it is continuing to pursue higher income taxpayers with no plans to increase audit levels for taxpayers whose income is less than $400,000. A Biden magic number? So now you decide how are they do-in’?

3). A healthy lawyer is a happy lawyer. A happy lawyer has happy clients. So what is the easiest way to become a happy lawyer with happy clients? Easy. Recognize the science behind chocolate. Fill client reception areas and your own office with chocolate not flowers and certainly not magazines declaring you as a Super Lawyer or boring ABA journals. You see cocoa is good for you. It contains high dosages of fiber and something called phytonutrients. Now before you think I have lost my mind let me tell you there are a number of medical journals which have concluded dark chocolate can assist in lowering blood pressure and reduce the incidence of heart disease. In one study there was a 27% reduction in heart related deaths. Now before you go and binge keep in mind that the fat, sugar and those extra calories that chocolate has may, in some cases, offset the advantages. Can chocolate ice cream be far behind?

 

Questions or comments should be emailed to: [email protected]

Written by: Theodore M. David,

Chair, Tax Law Committee

Current Items:                                                                                    

1) The Lemonade Stand Saga  

2) Filing Checklist Cocktail

1). On one balmy day, two enterprising kids in my neighborhood set up a lemonade stand. The hand-painted sign said a glass of lemonade cost $.50. I went over for a glass. Their parents had obviously gotten the stuff from a local Costco as the jug was right at their feet. That does reduce manufacturing costs, but nonetheless, I told the kids I thought they were selling their lemonade too cheaply. I also recommended that they move over to the corner on the sunny side of the street, where they would be more visible. They were unimpressed with my business acumen. I reached into my pocket and gave the kids a dollar. One of them began to root around a plastic bowl looking for change. I told him to keep it as a tip. One kid immediately stuffed the dollar bill into his pants pocket. This kid obviously had experience running a cash business before. I was about to lecture him about IRS Notice 2023-13, but I decided just to sip the lemonade and walk back home. Clearly, my young friend had no intention of reporting that tip income to the Internal Revenue Service. Like many people in service industries, tip income has been a tax-free emolument of doing all kinds of jobs. Now IRS is well aware that vast amounts of tip income goes untaxed. So it does not come as news that with the advent of credit card charges which in some places automatically include an 18 to 20% tip that the service would be able to attack the tip income problem. So Notice 2023-13 provides and advises of a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement Program (SITCA.) This is a voluntary tip reporting program between the IRS and employers in various service industries. SITCA is “designed to take advantage of advancements in point of sale, time and attendance systems, and electronic payment settlement methods to improve tip reporting compliance.” Yipes! According to the notice, the proposed program would also decrease taxpayer and IRS administrative burdens and provide more transparency and certainty to taxpayers. Is it any wonder restaurants have trouble finding servers? I wouldn’t be surprised that lemonade stands across the country will be folding in the near future when kids get word of this new reporting arrangement.

2). It’s tax filing season once again, and IRS puts out its annual “reminder” checklist. You can go to IRS.gov for more on this subject, but the checklist seems pretty simple. The IRS suggests: gathering tax paperwork and records for accuracy; reporting all types of income on the tax return; filing electronically with direct deposit to avoid refund delays and using online resources. To this well-crafted checklist, I would add at least two tumblers full of Tito’s vodka on the rocks.

3) The amended tax return form 1040 X is a powerful tool to correct tax returns you’ve already filed and screwed up. Tax professionals use them all the time. Actually, about 3 million amended returns are filed every year. There are statutes of limitations that limit when these forms can be filed and the amount that you can actually have refunded, but assuming you have already consulted those, you should be aware that if you file your form 1040 X electronically, IRS has now agreed to directly deposit any refund into your bank account. Up to now, refunds issued because of the filing of an amended tax return were required to be sent via an old-fashioned check. As you know, that process could take forever. So if you are trying to amend a tax return, do it electronically and get your dough back sooner rather than later.

 Questions or Comments   should be sent to: [email protected]