Category Archives: Bergen Bar Tax Bulletin

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……

Questions or Comments   should be sent to:

e-mail: Tdavidlawyer@gmail.com

Written by: Theodore M. David

Current Items:                                                                                    

1) Hurricane Scammers   

2) Adjust Withholding?

3) Annual Turkey Tribute

1). September 28, 2022, was a nasty day for South Florida. What has become known as the largest and strongest hurricane ever to hit Florida made landfall over some really beautiful places like Captiva and Sanibel islands? In Naples, seawater, rainwater and sewer discharge made for an ugly glop they say may take years to remove before things can get back to normal. The losses are in the billions. If you have seen the pictures of a place like Fort Myers Beach, you know the extent of the damage that a nasty hurricane can do. Relief centers were set up almost immediately and neighbors trying to help neighbors were out amidst the devastation. Now I don’t know about your feelings about scammers, but I can guess you feel as I do. The IRS declared October 17-21 to be charity fraud alert week. It seems these lowlifes have been contacting people and fraudulently requesting money donations to help in the Florida relief. Organized charities lose about 5% of their annual donations every year to scammers. This is an international problem and IRS continues to work with global agencies on the issue. IRS says cybercrime is on the rise including attacks on charities, their supporters and beneficiaries. If you are thinking of making a donation to any charity, IRS encourages donors to verify a charity’s tax-exempt status at IRS.gov/TEOS before donating goods, services or money. Fake charities are part of the IRS’s dirty dozen tax scams for 2022. If apprehended, I would suggest taking these fine folks to some of the places that have been hardest hit by the hurricane and allowing neighbors who have lost everything to have a chat with them.

2). The Internal Revenue Service has suggested that taxpayers take a look at their withholding to make sure there will be no surprises during tax filing season in 2023. Changes in withholding will be treated as made during the entire tax year and should avoid any underestimation penalties. The IRS provides a tool at its website called the “tax withholding estimator,” which can help taxpayers determine if they have too much income tax withheld and how to make an adjustment to increase the cash in their own pocket. It will also guide taxpayers to increase withholding or make an estimated tax payment if necessary. According to IRS, about 70% of taxpayers withhold too much every year. This results in a refund which averages about $3000. For some people, this may be a forced savings plan, but it amounts to an interest-free loan to your favorite tax agency.

With regard to 2022 tax returns to be filed in 2023:

• The standard deduction for married couples filing jointly for tax year 2022 is $25,900. For single taxpayers and married individuals filing separately $12,950, and for heads of households, $19,400
• The personal exemption for tax year 2022 remains at 0, as it was for 2021
• Marginal Rates: For tax year 2022, the top tax rate is 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly). The other six brackets are 35%, 32%, 24%, 22%, 12%, and the lowest rate is 10%.

There are new inflation-adjusted amounts that will apply to tax year 2023. The standard deduction for married couples will be $27,700. For single individuals and those filing married, filing separately $13,850 and for heads of household, $20,800. There will continue to be the seven tax brackets but there are increases for inflation at the breakpoints. View them in detail at IRS.gov.

 Thank God You’re Not 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.

So when it’s time to dine and sip,

Include this prayer upon your lip:

“Be grateful for all you see

And that a turkey, you will never be.

Thank God for birds* who don’t mind the loss,

When plucked and stuffed

And cooked in sauce.

*It may be time for a soybean alternative. Just ask any turkey what they think.

Be Thankful and Do Some Good

Questions or Comments should be sent to:

Theodore M. David, e-mail: Tdavidlawyer@gmail.com.

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

Current Items:

1) Fun Times at the FBI
2) IRA? Or Whatever You Call It

1) You may have noticed that no bar bulletin filled your inbox for June, July or August. I have dealt with the onslaught of my lawyer colleagues demanding answers to why I have been so lax. I have responded to each of them in a handwritten letter, including a fist full of sand as an explanation. During the summer, laziness is more contagious than the coronavirus. It starts with one ice-cold beer and before you know it, it’s September. Read More

Written by: Theodore M. David, Well Retired

Chair, Tax Law Committee

Current Items:
1) Can’t Pay Up?
2) Justice on Fire
3) Crowdfunding?

1). So you owe back taxes. Big deal. Work out an arrangement with IRS to pay up. We have fine lawyers who can help all over the state. The amount you’ll be allowed to keep out of your income is determined by using forms on the IRS website taking into consideration some standard allowances. These Collection Financial Standards are used to help determine a taxpayer’s ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare and/or production of income. Read More

Written by: Theodore M. David,

Chair, Tax Law Committee

 

Current Items:

1) Join the IRS?
2) A New Tax Page
3) Don’t Do It
4) IRS Raises Rates

1) I know there are lawyers out there who are building their practices or trying to stay afloat in these difficult virus filled times. I get emails every day with suggestions how to expand a lawyer’s business. They come in right alongside those who advocate a keto diet so I can be healthier I guess while I am busy expanding my business. And then of course there are plenty of invitations to join match up applications guaranteeing a future and active love life. And it’s nice to know that if all else fails, Amazon is also interested in hiring me. I guess the headhunters don’t get the idea that I’m not expanding my business, nor looking for a mate or in need of the premium diet suggestion or a new career putting packages on a conveyor belt so some goof ball can go into space. But for lawyers who are in fact civic minded and willing to volunteer… (And for those not familiar with that term it means not being paid, and for most of you I know you’re not gonna read any further) I won’t argue with you except to say if you are in fact interested in making an IRS connection then a recent notice by IRS asking for persons to serve on the Taxpayer Advocacy Panel may be of interest. TAP, as those who need that sort of alphabet soup, is a federal advisory committee that works to improve IRS services and taxpayer satisfaction. You can go to IRS.gov for more information and to begin the application process. But before you do perhaps you should read an Op Ed article written by Commissioner Chuck Rettig for Yahoo money where he notes that “the IRS is facing enormous challenges this filing season related to the pandemic and resource limitations.” Frankly, I think those members of the bar with that part of the practice would conclude that the IRS would probably file for bankruptcy protection if it could. That would give them some time to sort out the tons of yellowing letters and taxpayer documents sitting in piles somewhere. With 45 years of experience and having been a former IRS agent and IRS lawyer I would in fact volunteer but I’m scared to death to think that they would accept my humble application and actually ask me to do something. And I must confess that taking a job with Amazon on the conveyor belt has more attraction as I am sure I could use the exercise and perhaps I could go along on the next space flight with what’s his name. Wasn’t that guy on one of those space TV shows years ago in a tight spandex get up? BTW the Keto diet doesn’t give rules for calories. That’s a lot like the tax code.

2) Your car is ensconced in ice. Walking out your door poses the threat of real harm. You have read all of the novels you have piled up over the years. What to do next? It is time to get to a new special page on IRS.gov to provide the latest details and information affecting the 2022 filings season. A number of tax issues that took place in 2021 are addressed at the new page. It is designed to raise awareness about these issues and provide people with the latest timely information. According to the tax Commissioner this new page provides a “one-stop-shop” for the latest key information people and the tax community may need. The tax filing season started officially on January 24 and IRS says it has already sent out 4 million tax refunds amounting to $10 billion. I promise I will get to that page but I still have a few books like War and Peace and the collected works of Ernest Hemmingway to get to first.

3). If you need to be reminded that helping clients commit tax fraud is a crime spend a few minutes looking at the recently released cases brought by the tax division of the Department of Justice. One lady got three years in prison and one year of supervised release for filing fraudulent tax returns for her clients. Another preparer was banned from ever operating a tax-preparation service again. What hurts more is that courts will also determine that these unsavory characters are required to disgorge the fees they obtained by preparing false and fraudulent tax returns. In one case it amounted to $353,000 payable to the United States. The wheels of the Department of Justice turn very very slowly but as most practitioners will attest they eventually grind those caught up in the mechanism.

4) The party’s over. The IRS is raising the rate it charges on underpayments. For the second quarter of 2022 that rate will be 4%. That’s the same rate for individuals on overpayments that is on refunds the IRS doesn’t make in 45 days. But IRS interest rates still offer a financial bonanza for companies and individuals who know how to play the game. Frankly IRS does not require you to submit bona fide financial statements like a bank would before it lends you money. Many taxpayers use the IRS tax money for all host of things including lavish birthday parties, air-conditioned dog houses and all the rest. So long as they don’t encounter any of the stiff penalties, paying interest at 4% without having to disclose their financial wherewithal is a bargain. Needless to say the IRS being overwhelmed and undermanned has no chance in curbing this kind of activity. Some employers don’t show the existence of their employees until the very last quarter of the tax year thereby saving taxes by delaying payment to the end of the year.. They say a tax-deferred is a tax saved. The tax system counts on the honesty of taxpayers and their tax preparers and advisers. Any questions?

Questions or comments should be sent to:

E-mail: Tdavidlawyer@gmail.com