Category Archives: Bergen Bar Tax Bulletin

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: tdavidlawyer@gmail.com

 

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

Current Items:

1) Barbie Alternative
2) The Dreaded Direct File
3) Money into Enforcement

1) My old roommates from college started getting together a bunch of years ago to hang out for a weekend with our respective spouses. We call it the Big Chill. Maybe you saw the movie from 1983. The soundtrack included soul, R&B, and pop rock music from the ’60s and ’70s with the likes of Credence Clearwater Revival, Aretha Franklin, Marvin Gaye, the Temptations, the Rolling Stones, and Three Dog Night. It’s a Bar Bull-recommended flick. We’ve gathered in Milford, Pennsylvania, for many of these years. With a little bit of luck, the Scarlet Knights of Rutgers find us cozied up with Afghans and quilts snug in the living room. We no longer root from the stadium on the Banks of the Ole Raritan, beer sloshing all over are neatly pressed pants and jackets and ties. It is hard to imagine that a college football game was in fact, a dress-up occasion. I especially liked going to Princeton, where the men there dressed in 1920s skimmers for effect and women wore skirts and blouses.

You may remember the first collegiate football game was between dear old Rutgers and Princeton. As has become our custom, after dinner a movie is selected to be watched on a huge flat-screen TV. It seemed only fitting that this year’s selection should be Barbie. After all, we had actually lived through that bomb business in Oppenheimer. Barbie is not a kids’ movie. Though the kiddies will delight in seeing Barbie prance around in the overpriced pink outfits, their parents had once bought them for their own Barbie dolls. The pink Corvette and the pink Barbie Dream House are front and center, too. Pink is everywhere. The movie is really a commentary about the social mess we live in today. It’s got a playful way of showing just how silly we have been. It hurt to cough up $25 to rent from Prime, but all agreed it was worth it.

But if you can’t seem to sink your teeth into Barbie, rejoice that the IRS nationwide tax forums online have been launched and include 18 new self-study seminars that satisfy continuing education requirements in the categories of federal tax law, federal tax law update and ethics. You may want to pay attention to one called: “Circular 230: Ethics and Tax Practice: How You Can Stay Out of Trouble.” Best of all the forums are free. And there is nothing pink in any of them.

2) It won’t be long before the IRS takes a bite out of the tax preparation services both of accountants and lawyers with its innovative Direct File Project. The pilot program, which would allow taxpayers to file many types of tax returns directly with the IRS, is a pilot option projected to be available for eligible taxpayers in 13 states. New Jersey is not one of them. Accountants can relax for the time being. The project will begin during the 2024 filing season. So far, nine states have joined the effort. Arizona, California, Massachusetts and New York have decided to also work with the IRS to integrate their state taxes into the direct file pilot for filing season 2024. All of the states have been asked to join the project. Time to sell Intuit short?

3) In a recent announcement, the IRS said simply that: “Prior to the Inflation Reduction Act (IRA 2022) more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide income and evade paying their tax share.” But you may recall that millions of dollars were funneled to the IRS to strengthen enforcement with that IRA. So now the IRS, with the extra dough, will seek enforcement focused on high-income, high-wealth individuals as well as ensuring large corporations pay taxes owed. Full employment of tax controversy lawyers seems guaranteed.

Questions or Comments should be sent to Tdavidlawyer@gmail.com.

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

Current Items:                                                             

• No IRS Fun
• IRS Interest Rates
• Nickels and Dimes for Teachers

Boy, how things have changed. I started my career in the tax world as an IRS agent trained in Newark, New Jersey, and assigned to an IRS office on Ellison St., Paterson, NJ. It was one of the least sophisticated places you can imagine. The same door that led to a staircase to the second floor where the IRS offices were located made you walk past the barstools in the rather seedy bar downstairs. The big windows overlooking Ellison Street had gold lettering announcing Internal Revenue Service. I absolutely loved the place. It had a down-home environment and a certain esprit de corps among the agents who worked there. No one had cubicles everyone had the same government-issue gray metal desks in a big, wide open space. Those of us who were in the examination division also had a side chair designed for the poor taxpayers we dragged in for audit. I remember the light fixtures were oversized frosted glass bowls hanging from metal supports on the ceiling that reminded me of my days in grammar school at St. Joseph’s. But it was the people who worked there that really made the place special. For a relatively small office, we had representation in all three branches: examination, collection, and criminal division. I immediately started fantasizing about becoming an IRS special agent. They were the fraud investigators authorized to carry guns on special occasions and assigned to assist Secret Service should the need arise to protect the president. They were a pretty intense bunch. While I am sure they loved their work, it was serious going. On the other hand revenue officers assigned to the collection branch seemed to be having a damn good time. Way back then there were few women who became revenue officers. It was a tough job. These folks are unarmed and go out visiting taxpayers trying to wring additional dollars out of them for the taxes they owe. Whenever you see an IRS agent is assaulted or even killed the odds are it is a revenue officer. We’re talking ancient history now when IRS officers had the right to seize the taxpayer’s assets with little advance notice. These guys would leave the Ellison Street office on what amounted to a tax treasure hunt. I can recall one man carrying what looked like an oversized doctor’s bag with his various tools for snipping and cutting wires, locks and things of that sort. There was one story that circulated at our office that one unfortunate taxpayer called the police as his brand-new truck had been stolen right from his driveway. The police eventually got to us and the revenue officer assigned was pleased to tell them it was a federal seizure and that the truck would be offered for sale. Personally, I’ve always thought that this style of tax-enforced collection procedures produced the correct result. But like all things, many instances of abuse existed and led to the drawn-out procedures that now exist for revenue officers to complete the seizure process. Working on this side of things for the last forty years, it was my job to see to it that the seizure process was done correctly with perhaps as much difficulty as possible for IRS. Many revenue officers grew tired and frustrated and opted for retirement when the new statutes allowed collection due process hearings drastically taking the fun out of being a revenue officer. But it is about to get worse. As part of a larger transformation effort the IRS is now ending unannounced visits to taxpayers by agency revenue officers. They say the purpose is to reduce public confusion and enhance overall safety measures for taxpayers and employees. So a mailing advising that the revenue officer is coming must be given. Advance notice. Oh, Heck. I’m sure the guy with the doctor’s bag has already retired. If not this would certainly be the last straw.

• Interest rates that IRS charges for underpayments that is amounts taxpayers owe, as well as for overpayments for refunds that are due will rise to 8% for the quarter starting October 1.
• Demonstrating once again how teachers get the short end of the tax stick, the IRS issued a new school year reminder for educators. The maximum educator expense deduction is $300 for 2023. A whopping $50.00 increase. They can claim this miserable pittance even if they also claim the standard deduction. We should all be embarrassed.

Questions or Comments should be sent to:
Theodore M. David, Tdavidlawyer@gmail.com

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

Current Items:

1) IRS “Vacation”
2) Summer Reading

1) I woke up this morning and made the mistake of asking Alexa what was the news. I was frankly poking around looking for a hook for this bar bulletin. Apparently, a young and eager meteorologist was laying out what Americans could anticipate this summer. While he said millions and millions of people will take to the roads like never before, he warned of extreme heat rising into the hundreds with tornadoes, hurricanes and smoke from Canadian wildfires. I could just imagine the havoc trying to find that perfect family vacation. Now if you were around in 1983, you may remember one of the greatest comedy films of all time. It was the same year that Gandhi, Star Wars and Flashdance appeared. It ended up having five sequels earning about $60 million in its first year. How could anyone forget National Lampoon Vacation? There was Chevy Chase as Clark Griswold driving his family from Chicago to Southern California to visit Wally World. Their mishaps and near-death experiences, including cranky Aunt Edna strapped to the roof, is a storyline that is hard to forget. Anyone who is trying to do the same thing with their kids knows how close it is to reality. So maybe it’s time for you to consider something truly different and indoors as well, away from all that nasty weather. Besides, you can stuff the family station wagon and drive to these vacations. I know by this point, I’ve lost most of you. Where the hell is he going with this? This week the IRS released its seminar lineup for the 2023 nationwide tax forms! These meetings provide tax professionals with multiple opportunities to learn more about changes to tax law and IRS transformation efforts. Who needs Wally World? It gets even better. Forty seminars will be offered for which tax professionals can earn up to 18 continuing education credits. Each forum is a three-day session that will be held in one of five cities picked, I am sure, as family dream vacation itineraries: New Orleans, Atlanta, Washington DC, San Diego and finally Orlando. Just imagine dragging the kiddies to some of these seminars where they will learn soon enough just how lousy a tax system we have. Forgive me for not getting this to you sooner, as those who registered by June 15 could take advantage of the low early bird rate of $245 per person. Better yet all of this could be tax-deductible and not even Clark Griswold could claim that.
2) If instead of taking a summer road trip, you decide to plop yourself down, whether at the beach or in your own backyard, nothing is better than a good book to cozy up to. I just downloaded one called “The Wager,” a true story of high seas adventure. The subtitle is “a tale of shipwreck, mutiny and murder.” It’s the story of the boat which set sail from Portsmouth, England in 1740 on a mission as part of an ongoing conflict with Spain. The book jacket shows a square rigger being tossed about in an angry sea. It’s by David Grann. Stranded on an uninhabited island, it’s got a Robinson Crusoe appeal. And the reviews have been dazzling. But there are many tax professionals who instead may enjoy reading the Internal Revenue Service electronic tax administration advisory committee report. This page-turner features recommendations to Congress and the IRS that focus on electronic tax administration and cyber security. Among its 26 recommendations, the report advises Congress to provide timely tax legislation and consistent multiyear funding while it urges the IRS to prioritize modernization and search engine optimization. It’s not available on Amazon but on IRS.gov for free. So you decide. I’d rather sink with the “Wager.”

To my Faithful readers: No Bull for July and August. Taking a vacation with the Griswolds.

Questions or Comments should be sent to:  Tdavidlawyer@gmail.com

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: Tdavidlawyer@gmail.com

 

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: Tdavidlawyer@gmail.com

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: Tdavidlawyer@gmail.com

 

 

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

Current Items:

1) Einstein, Apples and IRS
2) A Closer Look

1). Albert Einstein, with his electrified hairdo feet up in an easy chair while at Princeton University, found time to make cracks about our beloved tax system. As I remember what Al had to say went something like this: “The tax code dances before my eyes in a meaningless gesture.” Now, of course, Al never studied federal tax law. And while he may have been a genius in theoretical physics, we all know he actually had trouble with mathematics while in school. But having grown up with Isaac Newton’s physics and the fact that apples were thought to fall straight down from trees, Albert couldn’t believe that any country needed over 1 million words to form its federal tax law. And that doesn’t include another 10 million words of interpretation issued by the Internal Revenue Service and case law of all varieties. When observed that way, it is more than an oddity. But as any student of taxation can tell you, our federal tax law does a hell of a lot more than just raising revenue. If, in fact, that was its only objective, a one-sentence tax code would go something like this:

“One for me and One for you.” Done. But it is all the economic tweaking and political assuaging that results in the monster we have. And the poor IRS, understaffed and underpaid, tries to make sense of it all. Add to that fact that IRS these days attempts to be more taxpayer “friendly.” Take for instance, its announcement on January 6, 2023, that it had recently completed the final corrections of the tax year 2020 accounts for taxpayers who overpaid taxes on unemployment compensation they received in 2020. Now the American Rescue Plan Act of 2021(You have to love these catchy names) excluded up to $10,200 of 2020 unemployment compensation. The exclusion applied to individuals whose modified adjusted gross income was less than $150,000. The new law became effective March 2021. But being so friendly, IRS took it upon itself to review the tax returns that were filed prior to the law’s enactment. IRS determined the correct amount of the taxable unemployment compensation. So some taxpayers received refunds while others had that refund applied to taxes owed. IRS says it corrected 14 million tax returns which resulted in 12 million refunds totaling $14.8 billion with an average refund of $1232. If someone feels they were entitled to a refund but haven’t gotten anything from this unemployment compensation exclusion, they may need to file an amended 2020 tax return. Getting back to Albert Einstein. You see, the federal tax law is whatever Congress says it is. You may
remember the days when unemployment compensation was simply not taxed at all. But with the stroke of a pen, it can be fully taxable, partially taxable, and everything in between. In the world of taxation, apples, Dear Albert, can fall from trees in any direction without consistency and end up in apple pie or applesauce. Sort of the direction physics has recently taken as well. Heck, we all can remember when there were just nine planets.

2). Now it’s getting cold these days, and unless you have wisely purchased a ticket south of the border, you are going to be spending a lot of days indoors staring at your screen. If you have run out of good books to read, take heart in the fact that the IRS publishes a column called ”A Closer Look.” It is written by IRS executives and covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals. The latest issue is from Holly Paz, Acting Commissioner of Large Business and International Branch. She discusses her dedicated workforce and the important role it plays in IRS operations. Or you can reread “War and Peace.” As for me, I‘ve got one of those tickets southbound.

Questions or Comments should be sent to: Tdavidlawyer@gmail.com

 

Theodore M. David, Chair, Tax Law Committee                       

Current Items:                                                                                    

1) The Crime Season   

2) The Real “Holidays”

 1). Santa’s tiny reindeer clip-clop across your roof. Poor unsuspecting evergreens have been yanked out of the ground and covered by all manner of plastic doodads. Some folks light real candles nightly and pray that they don’t need their fire insurance. Oh, it’s the Holidays!

Once the celebration is over, the pain begins. I don’t mean just paying off all those credit card bills. No, not by a long shot. It’s the start of Tax Season! Now tax administration in the United States is based upon voluntary compliance. Every citizen has the opportunity to step up and deal directly with his or her government. Ben Franklin said a citizen must “Turn square corners.” I think he meant trying your best to be honest. These days behind baseball, football and now soccer is the annual sport associated with filing an income tax return. It is a wonderful game and can be played by anyone with a decent income. No particular training, affiliation or uniform is necessary. Whether you choose to use TurboTax or simply a well-sharpened number two pencil, the result can be the same.

The object of the game is to pay the least amount of tax possible under the most strained interpretation of federal tax law. Those players who are picked up for audit by the Internal Revenue Service Examination Branch are immediately disqualified. To be frank, many accountants are very good at this game and have earned a tidy sum over the years with not a disqualification in sight. Some tax preparation programs actually will give you the likelihood of a civil audit! This is a vast improvement over just guessing what your odds are of surviving tax audit season.

Now let’s be clear about one thing. IRS is well aware of the tax game. They play it too. They use a great deal of smoke and mirrors to convince taxpayers that they are there watching your every move. Those damn computers do, in fact, tend to match up information supplied by payers to items missing on individual tax returns. But in many cases, game players enjoy the suspense associated with not knowing whether they will be caught. In most cases, only a tiny bit of interest and a few dollars worth of penalty make the game worth playing. If interest and penalties were the only tools the IRS could use to get voluntary compliance, I am sure voluntary compliance would go the way of the Sony Walkman.

But there is more to this game! It is the IRS criminal division! Around the holidays, the IRS announces the results of criminal activity and the punishment of tax evaders. It is no accident. It is the IRS’s contribution to the tax game. This year is no exception. Just recently, the IRS declared that in the fiscal year 2022, IRS criminal investigation initiated more than 2,550 criminal investigations, identified more than $31 billion in tax and financial crimes, and obtained a 90.6% conviction rate on cases accepted for prosecution. You can go to the IRS website under the fiscal year annual report and get the details if you have the stomach for it. So do play the tax game but be aware that though the odds are small, there can be some nasty consequences. Enjoy the Tax Season.

2). Now, continuing the theme of honesty and trying to connect it to this Holiday Season, I submit this poem for your jaded enjoyment:

The Holidays

Holidays and conflict go together,

Like ribboned gifts and winter weather;

Christmas cheer with those who rate,

Who sit beside those you hate.

 

There’s snow and tension in the air;

Season’s Greetings yet tempers flare;

Who but Santa survives this blast?

And even he leaves rooftops fast.

 

Bells that jingle that all is well

Try to hide this Christmas hell;

New Year’s soon, toasts on high;

Resolutions to do or die.

 

All is forgiven for those so near

Let’s give them one more year!

The Holidays, thank God, last for but a week,

Then quiet times we are left to seek.

Make the Most of the Holiday……

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