Category Archives: Bergen Bar Tax Bulletin

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

Current Items:                                                              

1. Tis the Season to be …Fraudulent

1) Well, it all started with that: “It was the night before Christmas and all through the house…” You know the business about the place being real quiet and the stockings were hung by the chimney with care in hopes that you know who would soon be there. Kids of all ages set out cookies and milk and perhaps treats for reindeer as well. My son-in-law who happens to be Jewish, one year dressed up as Santa Claus and snuck outside around his house at night so that he would be recorded on his ring system.

The next day the kids were incredibly wide-eyed to see Santa Claus actually stomping around their neighborhood. At my age, I don’t remember having much belief in Santa Claus, but then again, I did become a lawyer. Frankly, I think the kids hate to put their parents on the spot so they go along with their parent’s silly conduct. After all what’s the damage? Just a tiny bit of kid fraud. Then there is the gift business. That didn’t even start with ole St Nick but maybe thousands of years before. You know just as well as I do that every consumer product is decked out with holly and is offered for sale with special discounts during the Christmas season. Things that nobody really wants or needs. So the whole ball of wax is based upon us fooling each other. Acting well, fraudulently. Is it any wonder that cybercriminals would jump on this season to capitalize on the foolhardy snow sled, ice-skating, snowmen-making dreamers we turn into at this time of year? While visions of sugar plums dance in their heads, crooks say, is the best time to relieve them of their excess dollars and assets.

If you haven’t already received a phone call, you’ll be getting it soon. Your kid has been taken by some cop in a distant place and the poor kid needs bail money immediately. They even have his voice mimicked just enough so you’re convinced. Even though sensible people know it’s not possible, you’d be surprised at the millions of dollars that are forked over. So it’s the peace on earth and goodwill to men that gets us every time. We lower our guard thinking we hear angels in our belfry when it’s really just the wind whistling through the hole in our head. Now annually the IRS reaches out to taxpayers to alert them to the common scams that are going around while the snowflakes are falling. These include all variety of emails and telephone scam calls as well as fraudulent promises by tax return preparers for exaggerated refunds that seem to fall out of the snow laden clouds. Fake deductions and credits for childcare and employee retention are the icing on the evergreen tree.

For those who may have an IRS tax debt, greasy looking phony lawyers and accountants pop up promising $.10 on the dollar reduction in the tax bill. Many of the scams are aiming for your Social Security number. Recently at a doctor’s office I was given a form to fill out and there was the line requesting by Social Security number. I looked around the office to see whether my doctor was part of a cabal stealing Social Security numbers and selling them to some faraway land for unimaginable amounts. I didn’t fill it in. No one seemed to notice. There’s another reason to remain vigilant about tax and business scams of all kinds. You could actually make a buck. Legally. IRS says that anyone experiencing scams or encountering promoters or tax preparers peddling schemes should file Form 14242, Report Suspected Abusive Tax Promoters or Preparers. Send that form with any supporting materials to the IRS Lead Development Center IRS, 1973 N. Rulon White Blvd., Ogden, UT 84404. The lead development center within the office of promoter investigations follows up on each referral. By the way, to get yourself out of the credit card hole you’ve dug buying all those gifts, consider filing Form 211 to request a possible monetary award. You see, there really may be a Santa Claus after all.

2) Not to be outdone by the fat guy in the red suit with the long white beard, IRS recently announced that the interest rate it applies to taxes owed has dropped to 7%. That’s the same rate they pay on overpayments/refunds.

Enjoy Your Holiday. Be Grateful at Thanksgiving and Generous at Christmas and Chanukah

If You Were a Turkey

Wouldn’t it be pleasant
To perhaps be a pheasant?
Or maybe a goose
Out on the loose?
But when leaves turn red,
You’d be filled with dread,
If you were a turkey.

Why, if you were a turkey,
You’d be on the phone all day,
Talking with your lawyers,
Having bills to pay
To settle up the life jams,
Waiting for the roast yams.

If you were a turkey,
You’d be gobbling with your friends
Kissing good bye to hens;
Wishing if somehow
You could be some other fowl.

So when it’s time to sup and sip,
Include this prayer upon your lip:
Be grateful for all you see
And that a turkey you will never be.

 

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

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

Current Item:

1) Just How Smart is AI?

1) On the eve of the most historic presidential election in the history of the United States it does seem a little silly putting together a bar bulletin dealing with taxation. Now all the polls have been done and results tabulated and it’s clear one or the other of these candidates may actually be elected. You don’t need AI to understand that. So instead of trying to come up with something truly witty I thought I would just employ AI to do it for me. Now I will confess that my young nephew married and a new father gave me the idea. Holding his new baby with one hand he said as a matter of fact, if you can’t think of something why don’t you let AI write your bulletin? So not to kill a lot of your time as well as mine I took his advice. Now Chat GPT and things like it seem to be the future. So I downloaded the app and asked a simple question: Why do people cheat on their income tax returns? In a matter of one or two seconds this is what AI had to say:
People may cheat on their income tax returns for a range of reasons, from financial pressure to personal beliefs about the tax system. Here are some common motivations:

1. Financial Strain: For some, tax payments create a heavy financial burden, and they may feel that misreporting income or claiming unearned deductions is necessary to make ends meet.
2. Opportunity: The self-employed, freelancers, and those who receive cash payments may have more freedom to underreport income since it’s harder for tax authorities to track these earnings compared to salaried employees.
3. Belief that “Everyone Does It”: If people perceive tax evasion as common, they may feel less guilt about doing it themselves, rationalizing that it’s a widespread, socially acceptable act.
4. Distrust in Government: Some may cheat on taxes if they feel their money isn’t being used wisely by the government or that they’re paying more than their fair share. They might justify it as withholding support from wasteful or ineffective spending.
5. Perceived Low Risk of Getting Caught: If people believe the risk of being audited or penalized is low, they may be more willing to take the chance.
6. Complex Tax System: A complicated tax code can lead to mistakes, intentional or otherwise. Some people may take advantage of gray areas, interpreting laws in their favor or under-reporting simply because it’s difficult to understand exactly what’s required.
7. Sense of Entitlement: Some may feel they deserve a break from paying taxes, perhaps because of a perceived contribution to society or a belief that they’re unfairly burdened by the tax code.

Ultimately, while the motivations vary, cheating on taxes often involves a mix of personal financial considerations, beliefs about fairness, and perceptions of the system’s enforcement effectiveness.

So there you have it, unedited straight from cyberspace. I have no clue who wrote this, but it wasn’t me. Frankly, it’s a damn good response. Very scary. Can it write briefs, memorandums, an essay, a book, some poems, some jokes. So who has been writing all these bulletins for the last bunch of years? Makes you wonder.

2) BTW the tax brackets for 2025 are on the IRS website and the standard deduction limits too…or you can just go to AI and ask it.

Questions or Comments should be emailed to [email protected].

 

 

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

Current Items:

1) CLE Sting?
2) Tax by the Numbers

1) Scott Joplin was born November 24, 1860, in Linden, Texas, and died on April 1, 1917, at age 48, in New York City. He was the son of a slave. He is remembered as an American composer and pianist. He was called the “King of Ragtime” and composed more than 40 ragtime pieces, one ballet and two operas. One of his first and most famous written in 1899 was called the Maple Leaf Rag. Joplin considered Ragtime to be a form of classical music meant to be played in concert halls, but it found its way to honky tonks and smoky bars as well.

Some say his death in 1917 marked the end of the ragtime era. If I could hum a few bars of the Maple Leaf Rag to you right now you would immediately recognize it unless you’ve been living under a rock for the last 50 or 60 years. Many people rediscovered Joplin’s music in the early 1970s when Robert Redford and Paul Newman starred in a classic “revenge” movie called “The Sting”. Now, I am sure lawyers who are reading this get daily notices of CLE seminars on every imaginable topic. I saw one the other day on dog law.

But I suggest that you put this bulletin down right at this moment, stop reading, and watch The Sting. This is especially true if you happen to be involved in criminal defense work. More so if you are advising a certain person about a sentencing to occur on July 11, 2024. The movie is set in 1936. Redford and Newman are professional grifters. They are looking to revenge a mob killing of a friend. The movie was inspired by the true life brothers Fred and Charlie Gondorff and the 1940s book called “The Big Con.” In the movie, an elaborate plot is contrived to fool Robert Shaw as Doyle Lonnegan, the mobster; yes, Shaw is the same guy from “Jaws” who didn’t do well there either. Very cautiously, Newman, as the older and wiser Henry Gondorff, councils Robert Redford, the young Johnny Hooker, that they must take their time in erecting an elaborate horse racing betting parlor.

Throughout the movie, Scott Joplin’s masterpieces are played in the background, including the Entertainer, which became a worldwide sensation. That’s another one you will know instantly from the first two notes. As the plot unwinds Redford gets more impatient all the time. Near busting, he turns to Newman and utters these words: “Why are we waiting? Those guys are not that smart,” referring to Shaw and his henchmen. Newman responds with the blockbuster: “Neither are we”.

This year, July 4 and July 11 are days that will be remembered. One will celebrate the birth of the United States, and the other the sentencing of a felon who used to be president of the United States. I’m not taking sides here, but from my work in criminal tax cases, after a conviction, the defendant has to take responsibility for his actions and show some remorse. Promising revenge, unless you happen to be Robert Redford or Paul Newman, will not work. Defense lawyers must get control of their clients. People do tend to make up stories that they may eventually actually believe. Others care little for the truth and deserve all that comes their way. Newman taught Redford to never insult the opposition, their intelligence or preparation, and to never refer to them as “thugs”.

The Sting was nominated for 10 and won 7 Oscars, including Best Picture, Best Director, and Best Screenplay. In 2005, the movie was preserved in the United States National Film Registry, being culturally historic and significant. In 1976, Scott Joplin was awarded a Pulitzer Prize posthumously for his ragtime compositions. The Sting should be allowed as CLE credit for lawyers as well.

2) To legitimize this bulletin as tax-related, I note the Social Security annual wage base for 2024 is $168,600. That’s an $8400 increase. The Social Security tax rate on employers and employees remains at 6.2%, and both pay the 1.45% Medicare tax on all compensation with no upper limit. The standard deduction for married couples is $29,200 and single taxpayers $14,600. The tax rates remain unchanged, but the brackets themselves are wider for 2024 due to inflation during the 2023 fiscal year. There, done. Now go watch the Sting.

Questions or Comments should be sent to: Theodore M. David, Chairman at [email protected]

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

Current Items:

1) Inheritance Time Bombs
2) IRS Interest Rates
3) Everybody Gets One?

1. Boy, how things have changed. There was a time when I looked forward to getting the Journal of Taxation, Estate Planning and New Jersey and County Bar Journal magazines. I would read them cover to cover if for no reason other than to check to see whether or not a professional article of mine had been published. Some of them were kind enough to put your picture. Looking back at some of the esoteric topics I wonder if even tax lawyers ever got around to reading them. I made a habit of never rereading them myself. I would order reprints and send some to clients in another act of vanity. At least one of my earlier essays on the role of disclaimers in estate planning ended up being cited in New Jersey Statutes Annotated. I kept that particular volume in my office for years. My secretary kept track of all of those publications in folders that grew to overtake filing cabinets over my more than 40 years of practice. I can’t remember the last time I saw any of these magazines. I know the New Jersey Bar Journal still appears in my mailbox from time to time but the others seem to be long gone. All those professional magazines that I paid such attention to have been replaced by the AARP magazine. The latest addition has a fetching Brooke Shields on its cover with two articles of interest that I have in fact read. One is a lengthy discussion of how to live much longer. “Your Total Guide to Health Risks in your 70s.” If you are not quite there yet, it still has some pretty good advice: Eat well, exercise, have some decent relationships, lower your stress and visit a doctor from time to time. It reminded me of an article I did for the ALI – ABA Journal called “Can Lawyers Learn to be Happy.” The second got my attention immediately it was called “Inheritance Time Bombs, Six Ways to Avoid Family Feuds.” Now I didn’t write this nor am I cited so my picture is absent but it still may be the kind of thing you may want to consider sending to your clients or considering for yourself. So here they are: #1 The caregiver conundrum. Should you leave the house to the kid who moved home to be cook/chauffeur/ nurse’s aide/ therapist for the past decade? What about the other children? #2 False expectations. Your kids think you will be leaving them caviar and champagne but all they will be able to afford is barely pretzels and beer; #3 Trust issues. You want to leave money for all of your kids but are concerned about one of the youngest who has a fondness for blackjack tables and fast living; #4 The blended family problem. You want to leave your assets to your new spouse and children from a previous marriage not to your stepchildren. #5 A business problem. Only one child has been involved but you have two other kids. How can you create a plan to avoid the drama? #6 Skipping generations. Your kids seem capable and secure as adults so you decided to mostly bypass them and give to your grandkids instead. The author of the article is Laura Petrecca and she says older Americans hold nearly two thirds of the country’s wealth which is about $93 trillion in assets that could pass to younger generations. It’s time, she says, to work out your “battle plans” that can help you avert disaster. I’ll add that it may be time to hire an estate planning lawyer before the bombs start bursting in air. And to join AARP… it’s got some pretty good articles.

2. IRS has announced that interest rates will remain the same for the calendar quarter beginning July 1, 2024. For individuals the rate for overpayments and underpayments will remain at 8% per year, compounded daily.

3. My grandson loves to play soccer. I’ve watched him as a little boy run all over the field with boundless energy. Alex just turned 16 and is more serious about the game. But I remember fondly when he was perhaps five or six running in every direction at the same time. My son-in-law, God bless him, has been an organizer of teams, coach, assistant coach and a scout leader to boot. When the kids were done knocking themselves out one of the parents would bring muffins or cookies for all to share. When the season ended without any consideration to who had won how many games every player got a trophy. Russell made sure of that. Therapists these days say such affirmation is good for any kid’s ego. It helps them recognize that hard work pays off and can be rewarded. So coaches dig into their own pockets and use their imagination and Internet surfing ability to provide those prized trophies. The kids feel good, the parents are proud and the coaches enjoy every bit of it. I’ve been told over the years that once you work for IRS in any capacity you will always be treated as family. So it is with some dubious parental pride I am proud to report that the IRS has recently won a Certificate of Excellence and Accountability Award for the second year in a row. I don’t know whether they got a trophy but there was a ceremony held on May 16. The award is the highest form of recognition in the field of federal government financial management and performance reporting. I’m not sure exactly what that means but it sounds like it was trophy worthy to me.

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

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

Current Items:                                                             

1. IRS Field Trip? 
2. Time’s Almost Up                                                                    

1. There are two things that all kids look forward to during the regular school year. The first, of course, is the snow day. You may be old enough to remember when they used a blast or two on the fire warning siren to let you know it was okay to roll over and stay in bed. These days, everything is connected to your phone or Alexa in every room of your house. Worse yet, in many school systems, the kids are never released to go out to play in the snow but are responsible for online work. I thought this technological revolution was supposed to result in us having fun and more time for it? Read More

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

Current Items:
1) Who Was That Masked Man?
2) Lawyer Well Being?

1. I still have an antenna on my roof. I’m sure passers-bye in my neighborhood scratch their heads in wonder why have I not taken the thing down. Little do they know the reason is simple: It still works. I know even as you read this you’re in disbelief. We’ve grown so accustomed to cable and Internet that the thought that free television would arrive by a silly-looking metal contraption is hard to imagine. I was talking to a good friend of mine who was beside themselves about the cable company that was ripping him, like the rest of us, off. I simply said “George, why not use an antenna?” He looked at me as if I had two heads. An antenna? Now granted you will not get the hundred-plus stations and all the fancy other Internet apps either but you won’t pay a dime and should the cable go out in your neighborhood and your Internet fails to work real TV from your antenna may then make you quite happy. And you never know what is going to pop up on the screen. There is no guide button. Last Saturday for example out of nowhere the Lone Ranger and Tonto in black-and-white leaped out of my set. It’s amazing how quickly we can go back in time to the 1950s when Clayton Moore, who was actually Jack Carlton Moore born in Chicago, Illinois, donned the mask of the Lone Ranger and Harold Jay Smith an indigenous Canadian from the Mohawk tribe had been born in Ontario, Canada became Tonto. If you were around in the 50s you may have caught one of the 221 episodes of The Lone Ranger. You may know that Tonto named the Lone Ranger’s horse Silver when he spoke the sentence “like a mountain with snow, silver white” in describing a horse he and his partner Lone Ranger had found in a canyon suffering from injuries. Tonto did not seem to be at all disturbed by playing second fiddle to the Lone Ranger. They were a team that wandered about Texas doing good and chasing evil. Harold took the name Jay Silverheels but before he was Tonto, Harry Smith was actually a lacrosse player for the Toronto Tecumsehs. He also played on teams around the country as well as right here in Atlantic City. In 1938 he was second placed Golden Gloves Middleweight champion. By the way, he was inducted into the Canadian Lacrosse Hall of Fame in 1997. Tonto got to wear that suede fringed jacket that hippies thought they invented in the 60’s. The show ran from 1949 through 1957 on ABC. It was the highest-rated TV program in the early 1950s and ABC’s first true hit. Even as a kid I wondered how was it that he and his partner seemed so well-clothed and fed with no apparent source of income. Recently I learned it had to do with the Lone Ranger finding a silver mine which then financed his wanderings. So here was a hero risking his life without pay. I warn that the 50’s vocabulary as it was used on the Lone Ranger may offend these days where mere words can be so upsetting. Tonto was referred to as an “Indian” and at times “Injun.” Women were “gals” or “girls” and senior citizens were “old-timers.” And just about every female in every episode was a damsel in distress. The producers probably never heard of Yardville, New Jersey’s own straight-shooting Annie Oakley who like women today needed no male savior. But it was the 1950’s after all and a much different view of the world. They say the show was inspired by a real Texas Ranger named John Hughes in the old Wild West but there is also another possible inspiration in the more likely Bass Reeves the first black deputy marshal west of the Mississippi. Reeves wore disguises and worked with a Native American as a partner. In the show, it was always clear who the good guys and bad guys were. Where are the Lone Rangers these days? They are out there. Like some of the IRS criminal agents that I met along the way. They seemed to be working for a higher purpose. Chasing the bad guys. The FBI says there are about 4000 known gangsters in the states. Mostly centralized in New York and New Jersey. I remember there being less than 200 IRS criminal agents in all of New Jersey with a population of nine-plus million people. That’s 45,000 per agent. They must feel at times like well…the Lone Ranger. IRS announced recently that the Chief of the Criminal Investigation Division, Jim Lee, will retire effective April 6. He has led the criminal division since October 2020 with a staff of more than 3200 criminal investigation employees which includes 2200 special agents. Another Lone Ranger rides into the sunset Kemosabe. So who was that masked man? Hi-Yo Silver! Away!
   2). The New Jersey Lawyer magazine, No. 346, February 2024 caught my eye with a cover “Lawyer Well-Being.” In the course of my 50 years in law, I had published more than 52 professional articles. Frankly, some were so esoteric and boring as to make your eyes bleed. But the one I got the most feedback on was called “Can Lawyers Learn to be Happy”. That one may still be out there in cyberspace. But the article in this February journal about “Stress” written by the Hon. Kevin G Callahan JSC (ret) provides 20 suggestions that may make the job of lawyering a lot more tolerable. It is equally valuable for any stressed-out professional in any field. I won’t rattle off all twenty and they are all fairly obvious. It’s their application that is the problem. The judge says: find quiet time; remember your family and friends; check your spending habits; have a long-term plan or goal; don’t lawyer 24/7; change careers within the law if it is truly driving you crazy; avoid excesses; watch for signs of burnout; stay organized and if your new to the business of law find a mentor. I’ll add: Money won’t really make you happy; try to be more Lone Ranger than Perry Mason.

Gather ye Rosebuds while ye may
Old time is still a-flying
And this same Flower that smiles today
Tomorrow will be a- dying.
Robert Herrick (1591-1674)

Questions or Comments   should be sent to:

Theodore M. David                        

e-mail: [email protected].

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

Current Items:                                                                                    

1) Here Come the Love Letters   

2) Happy Filing Season

3) IRS Report Card       

1). Pat Boone did “Love Letters in the Sand.” A sweet reflection on the very essence of the Love Thrill. Now, I’ve seen grown men weep with a love letter from the IRS. What do they want? “ I’m from the IRS and I am here to help you??? A friend of mine, out of nowhere, got a letter with an enclosed check with no explanation at all. He loved it. But most don’t provide a free dinner and there is no BOGO. So, what do you do when a pandemic hits and tons of taxes are due? Perhaps stop the letters for a while. But wait, this just recently from the IRS: Due to the unprecedented effects of the COVID-19 pandemic, the IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022. These reminders would have normally been issued as a follow-up after the initial notice. Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance-due notice.

Given this unusual situation, the IRS is taking several steps in advance of resuming normal collection notices for tax years 2020 and 2021 to help taxpayers with unpaid tax bills, including some people who have not received a notice from the IRS in more than a year.

To help taxpayers as the normal processes resume, the IRS will be issuing a special reminder letter starting next month. The letter will alert the taxpayer of their liability, easy ways to pay and the amount of penalty relief, if applied. The IRS urges taxpayers who are unable to pay their full balance-due to visit IRS.gov/payments to make arrangements to resolve their bill.

2). So when can you file and get the 2023 tax refund you so justly deserve? The Internal Revenue Service today announced Monday, Jan. 29, 2024, as the official start date of the nation’s 2024 tax season when the agency will begin accepting and processing 2023 tax returns.

The IRS expects more than 128.7 million individual tax returns to be filed by the April 15, 2024, tax deadline.

Although the IRS will not officially begin accepting and processing tax returns until Jan. 29, people do not need to wait until then to work on their taxes if they’re using software companies or tax professionals. For example, most software companies accept electronic submissions and then hold them until the IRS is ready to begin processing later this month. IRS Free File will also be available on IRS.gov starting Jan. 12 in advance of the filing season opening. The IRS Direct File pilot will be rolled out in phases as final testing is completed and is expected to be widely available in mid-March to eligible taxpayers in the participating states.

Taxpayers will continue to see helpful changes at the IRS following ongoing transformation work. Building off the success of the 2023 tax season, which saw significant improvements following the passage of the Inflation Reduction Act, the 2024 filing season will continue reflecting the focus on improving services to taxpayers.

“As our transformation efforts take hold, taxpayers will continue to see a marked improvement in IRS operations in the upcoming filing season,” said IRS Commissioner Danny Werfel. “IRS employees are working hard to make sure that new funding is used to help taxpayers by making the process of preparing and filing taxes easier.”

3). Every year IRS gets a report card showing how it is doing. Ed Koch started it all when he was Mayor of NYC. He’d asked, “So, how am I doing?” IRS latched on to the idea. National Taxpayer Advocate Erin M. Collins today released her 2023 Annual Report to Congress, describing 2023 as a year of “extraordinary transition for the IRS and therefore for taxpayers.”

The report credits the Internal Revenue Service with substantially improving taxpayer services and developing plans to transform the taxpayer experience in the coming years, but it identifies paper processing as an area of continuing weakness.

By law, the Advocate’s report is required to identify the 10 most serious problems taxpayers are experiencing in their dealings with the IRS and to make administrative and legislative recommendations to address those problems. Before cataloging taxpayer challenges, however, Collins praised the IRS for taking notable strides forward.

“Overall, the magnitude of successes exceeded the areas of weakness in 2023, and most metrics showed significant improvement from the depths of the [COVID-19] pandemic,” Collins wrote in the report’s preface. The report says the IRS virtually eliminated its backlog of unprocessed original individual income tax returns (Forms 1040) and substantially improved telephone service.

Many thanks to IRS for providing the stuff for this Bull this month, while I sit under a palm tree.

 

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

Current Items:

1) Library Vig
2) Mileage Gig
3) Estimate Big

1) In the 1960s, the way I remember it, there was a loan shark in just about every town. It all started with Benjamin Franklin and his idea of spreading culture and knowledge through the idea of borrowing. Initially, you could only get part of the action if you bought it. That’s the way the Family worked. Eventually, any kid over five years old was automatically a member and it was free. You got a card that identified you as being in the acceptable group. The person who ran the local operation did not look like Tony Soprano instead it was a gray-haired lady with wire-rimmed glasses. She sat at a big wooden desk above, which was a sign in big letters: Be All You Can Be… Read. But my library card had been ink stamped with a dire warning: “Late fees of two cents per day will be enforced after the due date of this book.” I didn’t realize that society was grooming me for the zillion due dates that I would encounter as I crashed through adulthood. But I took that two-cent warning seriously. Looking back, I didn’t give it the real thought it deserved. The library was not interested in punishing me for forgetting to return a book. It was more interested in getting the book back so that it could be lent to the next person.

Now don’t fret, an overdue book charge will not destroy your credit rating. But there have been some real doozies. Take for instance, a history book written in German which was borrowed in 1667 by Col. Robert Walpole. It holds the Guinness world record for an open return and overdue library book from the Sidney Sussex College, Cambridge, England. And a woman in Illinois paid the largest fine for an overdue library book when she returned in 2020, a book she had borrowed in 1955. She paid $345. At a library in Carbondale, Pennsylvania, a book entitled “The Cruise of the Esmeralda” was returned in December 2023. It was 120 years late. Piling up late fees can result in the suspension of borrowing privileges and, in extreme cases, legal action!

But I have recently heard of a library in Boston that took the measured step of creating a book return amnesty. Hundreds of books showed up to take advantage of the policy. One, in particular, turned out to be a priceless manuscript borrowed in 1972 with no late fees. All very interesting, you say, but what does this have to do with tax law and tax administration? Here it comes. The federal tax system has billions upon billions of dollars that are not being contributed to the system because taxpayers are afraid of the penalties associated with coming clean. In particular are simple nonfilers who imagine incredible penalties, including jail time for their social misbehaving. So they simply do not file every year. We have never had a federal tax amnesty. We are in desperate need of one. A well-reasoned plan to get the library books back on the shelf. That is to welcome taxpayers back into the tax system. They say those who have properly met their tax obligations will feel slighted that their neighbors are getting such tax relief. But waving tax due, penalties and reducing or eliminating interest in the long run results in a much healthier tax system. Just like your local library. BTW there is a policy IRS calls “voluntary compliance” but you have to pay up to be in that one. It’s not an Amnesty.

2) I was talking to a guy in a gas station about the supersized Ford 150 pickup truck he was driving. He said he needed to tow stuff around. These massive pieces of machinery represent the ultimate in design gone mad. He told me his truck gets 7 miles to the gallon. I thought that has got to hurt when gasoline was approaching almost 5 dollars per gallon. But then it dawned on me that he wasn’t paying the same amount for his gas as I was. And I don’t mean lining up at a Costco service center to shave off five cents per gallon. No, it’s trickier than that. He is being allowed a tax deduction of $.67 per mile traveled for business purposes. That’s the new rate for 2024 IRS now allows. So if those are business miles .67/mile or charitable miles .14/mile or medical miles.21/mile, the taxpayer gets a break on their tax return. Please note IRS says you cannot claim these expenses as unreimbursed employee business expenses. A tax lesson to remember when a huge gas hog passes you by.

3) A friendly reminder. Now that the banks are offering 4% and 5% interest rates on CDs, that newfound wealth may be subject to the requirement to file estimated taxes. A taxpayer can avoid the estimated tax penalty by paying estimates equal to 100% of last year’s taxes or 90% of this year’s taxes. The last estimate for 2023 is due 1/16/24. The Banks give, and the IRS takes away.

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

WRITTEN BY: THEODORE M. DAVID, ESQ., CHAIR, TAX LAW COMMITTEE

Current Items:                                                             

• Garage Sale 1099-K… Wha?
• IRS Interest Rates
• Digital Signatures                                                                    

1) Everybody likes going to a garage sale now and then. You’ve see that Antique Road Show where some lady bought a picture for four dollars and it turns out to be worth $50,000. Most times it’s just junk. But there are those who make a living at buying and selling what could otherwise be called “old crap.” Now IRS, always looking for an additional buck, knows damn well that those sellers are not properly reporting their transactions. So to make life even more complicated a recent addition to the tax law (The American Rescue Plan) requires that taxpayers send form 1099-K to alert the IRS of those sale transactions. According to the IRS: The ARP required third party settlement organizations (TPSOs), which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and to taxpayers and would help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.

Unable to deal with the tsunami of forms, the IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).The casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales. That’s where your garage sale comes in. Granted most times people are paying a dollar or two for most items but when the sale transaction gets larger there is now this filing requirement which has been enacted. Whenever IRS resorts to having somebody send a form 1099 it is actually making taxpayers private IRS agents. Once the IRS gets its hands on this information it is a hop skip and a jump for it to compare the seller’s tax return with the 1099s that have been generated. The scary part about all this is there could be millions of transactions that would qualify under the new law and require taxpayers to file forms 1099-K! Needless to say with penalties for failing to do so as well. Think about that the next time you are browsing your neighbors junk pile they call a garage sale.

2)  The Internal Revenue Service has announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2024.

For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily. Here is a complete list of the new rates:

• 8% for overpayments (payments made in excess of the amount owed), 7% for corporations.
• 5.5% for the portion of a corporate overpayment exceeding $10,000.
• 8% for underpayments (taxes owed but not fully paid).
• 10% for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points.

3) Many forms filed with IRS have in the past required handwritten signatures by taxpayers. In slowly joining the 21^st century, IRS has begun accepting digital signatures.  The Internal Revenue Service has announced that it has extended certain temporary flexibilities. The acceptance of digital signatures is extended indefinitely until more robust technical solutions are deployed, and encrypted email when working directly with IRS personnel has been extended until October 31, 2025. Nice to see the IRS using the same sophisticated methods as the server did at your last restaurant meal.

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