IRS Investigates Tribe Gambling Payouts

Tax lawyers and accountants for the Miccosukee Indian are fighting an investigation by the IRS regarding the tribes’ allegedly unreported payments to its tribal members from its gambling profits. The IRS is demanding that the tribe hand over internal records they claim will show millions in unreported payments.

The Miccosukee Indians’ gaming distributions during 2006-2010 are under scrutiny, as are the council’s records of their discussions of tax matters from as far back as 1985. The IRS is asking for a long list of documents, including Miccosukee disbursement statements, check register reports, and any record of tax advice from lawyers and accountants of the tribe.

The tribe’s tax lawyers are lashing out against this aggressive probe by the IRS into the tribe’s finances. They claim that this is a blatant harassment of the Miccosukee tribes by the United States, according to court documents.

This contentious exchange between the Miccosukee tribe tax lawyers and the IRS is nothing new. The raging legal battle has been going on for the last decade. The IRS has won a series of victories in its fight to gain access to the tribe’s financial accounts that are held both by banks and by third parties. The tribe has attempted to use its sovereign status, which is the inherent authority the indigenous tribes have within the United States to govern themselves, as a way in which to block the investigation of the IRS. Now it seems that this plan may not be successful, as the tribe is facing the possibility of assuming the responsibility for taxes owed by many of the 600 members of the tribe.

As a sovereign entity, the tribe is not responsible for paying taxes under federal law. According to the IRS, it is when the tribe distributes profits made from its casinos to its members that they become individually responsible for reporting and paying taxes on their annual income tax returns. Responsibility also lies within the tribe’s domain to report and withhold a portion of any personal income from the casinos.

It was only a few months ago that the tribe admitted that more than 100 of its members owed the federal government about $25.8 million in back taxes, penalties, and interest on income that was received from profits made from its gaming operation in the years 2000-2005.

It seems that the outlook is not promising for the tax lawyers of the Miccosukee tribe. A federal judge has repeatedly denied the tribe’s requests to block probes, siding with the IRS in each case.

It remains to be seen what the outcome of this latest battle will be.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

More Drama in Celebrity Split-Ups: This time, it’s taxes.

Besides humiliating tabloid covers and media controversy, celebrity split-ups also cause devastating tax drama as they part ways. As discussed in the prior blog post, tax lawyers can be a surprising participant in marriage. They can also be essential in the event of divorce.

Let’s start with the 72 day adventure between Kim Kardashian and Kris Humphries. While it was Kim who first filed for divorce, Chris countered seeking an annulment on the grounds of fraud. The difference between the two is based on whether or not the marriage was valid when entered into. In order to be granted an annulment, the marriage must have been voidable, that is it couldn’t have legally taken place or one individual was incapable of consenting. This could mean that one was intoxicated or a victim of coercion or force.

Although those rushing to end things may not find the difference important, the IRS is closely at watch and sees an important distinction. If an annulment is granted, the couple was never officially married, and, therefore, had no right to file joint returns. If the couple already filed jointly, the IRS requires that that they “undo” their joint return by filing amended returns as unmarried filers. Thus, they would be hit with additional taxes. For those of you in similar situations, contact a tax attorney and tax professionals to assist you throughout the tedious process.

It is important to note that the IRS doesn’t ordinarily let people who file joint returns to switch to separate returns once the filing deadline of April 15th has passed. However, Revenue Ruling 76-255, which involves a one year marriage, deals with rare circumstances in which joint filers can switch to separate returns. For couples whose marriages have been annulled, refunds could be granted if there are reduced taxes paid as single persons.

A couple’s marital status as of December 31st determines their filing status for the year. Therefore, the IRS still considers Kim and Kris married for the entire year although they may not be together, as neither a divorce nor annulment has been settled. They are allowed to file a joint return or separate returns, however, they may not file as single persons. An experienced tax attorney may have advice regarding which would be most beneficial to the taxpayer.

If their divorce becomes final just before New Year’s Eve, the IRS will expect them to file as single the entire year before. Yet, if their wedding is annulled, to the IRS, they were never married. They must submit amended returns as unmarried filers. It would be beneficial to have a tax attorney on hand to consult in emergency.

Now, regarding the divorce of another high- profile couple, Tom Cruise and Katie Holmes have a different, yet peculiar case. Tom Cruise may face a huge tax mess in his divorce with Katie Holmes. Her plan to file for divorce in NYC might create huge problems for Tom, as he was doing his very best to avoid paying exceedingly higher New York taxes . Katie filed divorce documents in New York, primarily because she is more likely to be granted full custodial rights to daughter, Suri – a move that could hurt Tom over, tax-wise.

Despite Tom’s attempts to stay out of New York City legally (claiming he and Katie have been residing in California), documents have been found showing that Tom deeded their New York apartment to Katie last August, most likely for tax purposes. In addition to the status of their divorce at the end of the year, Tom will also be relying on the location to determine his tax situation, good or bad.

To avoid facing a similar drama to these two spotlighted split-ups, contact your knowledgeable IRS tax attorney today.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

The Superhero of the Tax System: The TAS Issues Warnings and Gives Protection

For those of you with absolutely no hope in dealing with the Internal Revenue Service, there is an administration out there on your side. The Taxpayer Advocate Service or TAS is an independent agency that is an ally rather than a nemesis to taxpayers. For those taxpayers who are experiencing economic hardships, a tax injustice, or other related issue, you are entitled to the services of the Taxpayer Advocate Service in order to assist you with your tax needs.

In addition to assisting taxpayers, the Taxpayer Advocate Service helps to recognize systematic problems/errors within the Internal Revenue Service in order to propose sensible changes to alleviate the complications between the IRS and taxpayers.

One of the major concerns of the Taxpayer Advocate Service is that taxpayers are not aware of recently expired provisions or ones that will be expiring this coming year. Although there has been a great deal of discussion about the expiring Bush tax cuts, there are many others of which taxpayers may still not be informed of. Some examples are as follows:

Alternative minimum tax: this expired in 2011 – If it isn’t renewed, around 27 million Americans will still have to pay this tax.

Deduction for state and local taxes – If your state requires state income tax, the deduction may not cause harm, as your state income tax is usually higher than the sales tax deduction you are allowed. But if you relied on this deduction, it expired at the end of 2011 and cannot be renewed.

Deduction for mortgage insurance premiums: This expired at the end of last year. Although about 4 million taxpayers claimed it and may in the future, it is no longer valid.

Deduction for charitable contributions from IRA accounts: This expired in 2011. For taxpayers over the age of 70 1/2, this meant that the distribution taken for the year was decreased by the amount paid as charitable contributions, resulting in a lower taxable income.

An IRS tax attorney can help you stay informed of what provisions are expiring and help you adjust your tax returns as needed. For immediate assistance in avoiding expired tax deductions, contact a knowledgeable tax attorney today.

One other issue within the report is that Taxpayer Assistance Orders (TAOs) and Taxpayer Advocate Directives (TADs) are being ignored. This is an issue that must be elevated to highest level of leadership within the IRS, as it violates the rights of taxpayers and inflicts excessive taxpayer burden.

In June 2011, a directive was issued by the Taxpayer Advocate Service requesting the implementation of procedures adjusting the accounts of those who had been victimized by fraudulent return papers. A final directive was issued in January 2012. Again, it was ignored.

Additionally, tax lawyers and other critics believe that the increasing use of automated examination and other tax adjustment procedures within the IRS limit opportunities for taxpayers to interact directly with the IRS employees, therefore, limiting the rights protections traditionally associated with audits. Since automated procedures are more likely to produce over-assessments, contact an IRS tax attorney you can trust in order to receive fair treatment from the IRS.

Finally, the TAS is also concerned about the amount of crackdown on taxpayers with offshore accounts. Punishments for honest mistakes are severe, although many of the taxpayers are not trying to evade any taxes. To avoid any punishments due to slight error, call an IRS tax lawyer today.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Transnational Tech Company’s Battle with the IRS

The Altera Group is in a battle with the IRS over its handling of employee stock-based compensation and a unit in the low tax Cayman Islands. Both parties are currently engaged in a battle within the walls of the U.S. Tax Court.

The dispute concentrates on “transfer pricing,” an accounting technique used by transnational companies to set the price of partially finished goods sent from one branch of the company to another. According to records made public, Altera Corporation allocated their assets and money globally with the goal of reducing their tax bills, most likely on the advice of financial advisors and tax attorneys. Because of the commonality of transfer pricing practices, many IRS tax lawyers believe many other tech companies will be closely watching the case.

The IRS argues that from the years 2004 to 2007, Altera falsely reported expenses for employee stock-based compensation in the US, where the expenses were actually tax deductible, according to court records. The IRS seeks $27 million in tax payments from the company.

The IRS claims that the organization should divide its employee costs between its US division and its Cayman Islands unit, which would, thereby, force Altera to lose their tax deductibility of employee costs appropriated for the Caymand Island extension. However, Altera is challenging rules in Tax Court that were written in 2003. These rules require stock-based compensation to be shared between a US company and a subsidiary, on the terms that the rule is impossible to follow.

According to tax lawyers, most companies are following the 2003 rule by splitting employee costs with foreign subsidiaries. Nonetheless, many companies have provisions in place that would bring about tax treatment adjustments if the 2003 rules are deemed invalid. Tax attorneys believe that this is a very important issue to many companies, especially technology oriented companies with money that crosses borders. However, Altera and its tax attorneys certainly face an uphill battle to be the first company to challenge the 2003 rules in the U.S. Tax Court.

The case is similar to a past case regarding Xilinx Company. Xilinx had sued the IRS in January 2003, prior to the issued rules on transfer pricing, and then, won on appeal in March 2010, earning a one-time tax savings.

But the IRS should not stay completely confident with the case…

Multinational companies continually move goods and assets between units in different countries with payments following. Although the transfers are done internally within the company, they have to be allotted for to reflect the separate legal status of foreign units. Transfer pricing manages the pricing of these transfers by shifting profits from high-tax countries to low-tax countries to reduce their total costs. This practice is legal, although the IRS points out that some procedures cross the line. International “arms length” standards were set to prevent abuse by keeping transfer prices near the open market price. With the guidance of a tax lawyer, IRS standards can be followed with the interest of the business in mind, as well.

Some tax lawyers believe that since the IRS lost the case with Xilinx in 2003 and another transfer pricing case in 2009, the IRS may have a difficult time litigating the case. This may potentially mark room for companies to alter their transfer pricing operations. Last year, Samuel Maraca, who revamped IRS policies on transfer pricing, began running the IRS transfer pricing division. Tax lawyers and companies alike are curious as to how this will affect the case.

Neither the attorneys for the IRS, nor the Altera’s tax lawyers accepted the offer to comment upon the case. No trial date has been set as of Tuesday. For now, translation technology companies nail-bitingly await the trail, and more importantly, the results of the case, as the future of their dealings with the IRS could be affected with the upcoming decision.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

How to Avoid the IRS “Marriage Penalty”

Summer marks the busiest season for weddings. During this time, couples are busy receiving advice form of variety of sources – wedding planners, caterers, and even tax lawyers?

For those of you waiting to tie the knot in fear of paying higher taxes as a married couple than if you were single, the so called “marriage penalty,” there are probably worse problems you have to worry about.

However, marriage certainly does entail numerous financial consequences, some good and bad. Several of these problems involve the dilemma regarding whether to file income taxes together as a couple or separately. Although your loyal IRS tax attorney can assist in sorting through these issues, here are some ramifications to sort through.

Progressive taxation means that as your income increases, the additional income gets taxed at increasingly higher rates. There are six federal tax rates ranging from 10% for low-income families/individuals to 35% for earnings over $388,350 a year.

The marriage penalty occurs when couples file a joint return and end up paying higher income tax than if they were to remain single. Here are some examples:

– If you have only a single household income or one spouse makes significantly more than the other, you normally receive a “marriage bonus.” This means that your combined income is taxed at a lower rate than if the higher earner were paying taxes as a single person.

– For those couples who enter the higher end of the tax bracket, the disproportion between filing as a couple or as a single person becomes more evident, more prominently if you earn amounts similar to one another or are both highly paid. A single person with $75,000 in taxable income would fall in the 25% bracket, while a married couple with a combined taxable income of $150,000 would bump up to the 28% bracket.

So for those of you still thinking marriage would be a financial disadvantage, here is what to keep in mind. Married couples are eligible for various tax breaks and benefits that would help compensate for a higher income tax that an IRS tax attorney may be able to assist you understanding and utilizing. Some of these include:

– Medical coverage through a spouse’s employer. Monthly premiums are not considered taxable incomes for couples as they would be for unmarried domestic partners.

– A spouse can pay for medical expenses on a pretax basis with a flexible spending account.

– One is entitled to 50% of a spouse’s Social Security benefits while he or she is alive, which can also be collected following death if it exceeds your own. This also includes a $255 spousal death benefit.

– If one dies without a will, the spouse automatically inherits he estate, tax-free. All others who are not spouses must pay taxes on estates valued over $5.12 million.

– Finally, if you are considering filing under the “married, filing separately” option instead of jointly, you will forfeit numerous tax credits and deductions available only to joint filers. These include the Earned Income Tax Credit, the tax credit for child and dependent care expenses, and deductions for tuitions, fees, and student loan interest. Additionally, the IRS states that one must either claim the standard deduction or itemize deductions.

If tax fears are postponing wedding plans, a tax lawyer can ease the tension and prevent any tax raise. Prevent the “marriage penalty” by contacting an IRS tax lawyer for assistance. Who knew that a tax lawyer could be a valuable addition to your wedding party?

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Art Advisory’s Bizarre Dispute over Collage

Robert Rauschenberg’s famous collage “Canyon,” which was part of the estate of art dealer Ileana Sonnabend, still faces IRS dispute regarding its true value. Although Sonnabend’s total worth was reported at $876 million at the time of her death in 2007, it included an appraisal of $0 for “Canyon,” based on outside appraisals. These appraisals were based on the fact that the collage’s stuffed bald eagle could not legally be sold and the seller would be violating two federal laws protecting bald eagles. Sonnabend received a permit in 1981 to retain the collage and lend it to museums. It is currently hanging in New York’s Metropolitan Museum of Art.

A Notice of Deficiency was sent to the estate last October, in which the IRS valued “Canyon” at $65 million and demanded an additional $29 million in tax. It also included an $11.7 million “gross valuation misstatement” penalty. The IRS determines values of art work with the assistance of the Art Advisory Panel, made up of independent experts appointed by an IRS official, the Director of Art Appraisal services.

The IRS went so far as to invent a Chinese billionaire as a conjecture to show how the piece of art could be sold. When Ralph E. Lerne, top art lawyer representing the estate, contacted Joseph Bothwell, the IRS Director of Art Appraisal Services at the time, to contest the tax, Mr. Bothwell responded by suggesting that “a recluse billionaire in China might want to buy it and hide it.”

The estate has since appealed the tax bill in U.S. Tax Court and the case has been put on hold to see if both parties can negotiate a settlement.

Although the government has asserted that contraband items in an estate can be valued for an estate tax at their black market value, the deceased normally demonstrates a preparedness to sell on the black market. This is far from Sonnabend and her heir’s case.

As those involved in the case demonstrated no disposition to violate any laws, paid over $331 million in Estate Tax to the US and $140 million to New York and resisted playing any games, the case is exceedingly sympathetic to the taxpayer. It would be best for the government to bend on this one.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Complaints, Part II: How do I Make a Complaint Against an IRS Officer?

In order to make a complaint against an IRS Officer, there are a few things you should know:

To whom do I submit my IRS complaints?

The Treasury Inspector General for Tax Administration (TIGTA) is part of the Treasury Department, but it is its own independent office within the Department. TIGTA’s focus is devoted to all aspects of work related to tax administration. It has audit and investigative arms that are aimed at promoting efficiency and fairness, protecting taxpayers and the IRS from fraud, and ensuring that the government is made aware of the shortcomings of the Internal Revenue Service. This is the place in which to file a complaint against IRS employees if you have been the victim of unscrupulous or unlawful actions at their hands.

If you have complaints with IRS system itself, you must contact the Taxpayer Advocate Service, the “watchdog” of the IRS discussed in Part 1 of this series.

What kinds of things should I report?

You should contact the TIGTA with allegations of violations that impact that integrity of Federal tax administration and IRS programs. This includes any allegations of misconduct by any IRS employee. When filing a complaint against an IRS employee, it is a good idea to provide as much evidence as possible to substantiate your claim.

Where can I submit my IRS Officer complaints?

You can submit your complaints through a variety of mediums. You never have to be fearful of any reprisals for filing this complaint, as the law is there to protect you.

By Online Form or by Email:

See the TIGTA Hotline Complaints Unit

By Phone:

Call Toll Free: 1-800-366-4484

By Fax:

(202) 927-7018

For more information, you can visit the TIGTA website at http://www.treasury.gov/tigta/index.shtml. It is important to keep in mind, though, that starting out your tax case with a competent, reliable tax attorney will ensure you an advocate in the IRS arena.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Complaints, Part 1: The Role of the Taxpayer Advocate Service?

When you have IRS complaints, there are a few key things that you need to know in order to resolve your issue. The first tool that will be addressed is a service available to you as a taxpayer—the Taxpayer Advocate Service (TAS). The TAS is an independent organization within the IRS. The service was enacted in order to:

1. To assist taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food;

2. To help taxpayers who need assistance resolving problems with the IRS;

3. And to be a listening ear when a taxpayer believes that a system or procedure at the IRS is not working as it should.

The services of the TAS are accessible. Offices are located in each in every state, including the District of Columbia. If your case meets the requirements and is eligible for the service, they promise to do whatever they can to resolve your issues.

The Taxpayer Advocate Service is both your listening ear and “your voice at the IRS.” It is a free and impartial service that keeps a close eye on the workings of the IRS with the needs of the taxpayers as its guiding principle. Whether you have specific complaints about your particular case, or comments about the IRS system in general, the TAS is willing to listen. On a broader scale, as one of its tasks, the TAS compiles two reports regarding the IRS that it submits to Congress each year with information that has been collected from taxpayers and through extensive research and analysis. It is the “watchdog” of the IRS, ensuring that the practices of this essential government arm are in the best interest of the taxpayer.

On an individual level, if you have a complaint against the IRS in regards to the handling of your case within the IRS, the TAS, when contacted with a valid claim, can help. As noted above, the intrinsic complex nature of both the tax code and the entity itself, complaints against the IRS and its service are not uncommon. If you want to do something about it, the TAS is available to assist. The Internal Revenue Service, a large and often unapproachable government entity, is made more accessible through this service.

There are times when working with the IRS Officer assigned to your case becomes more difficult than beneficial. It is then that your tax attorney will file a Form 911 (appropriately named) with the Taxpayer Advocate service in order to move your case forward. With the extra push, not only will your complaints be heard but your case can get resolved with more efficiency.

As always, contact your competent tax professional to navigate IRS and its internal entities with greater ease and with less of a headache.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Tax Tips for Job Seekers

For those who are looking to find a new job in their chosen occupation, the IRS has some tax tips that will enable these individuals to deduct costs in their tax return.

1. In order to qualify for a deduction, the individual must be searching for a job in his current occupation. Expenses may not be deducted while looking for a job in a new profession.

2. An individual may deduct employment and outplacement agency fees incurred during a job search in a current profession. If the employer pays the individual back in a later year, the individual must include that reimbursement in his gross income, up to the amount of the tax benefit in the earlier year.

3. The cost of preparing and emailing resumes can also deducted if the prospective employer that is receiving the documents is in the individual’s current profession.

4. If the individual travels to another area to look for a new job in his current profession, those expenses may be deductible.

5. Job expenses are not deductible of there is a substantial amount of time between the end of the last job and the beginning of the search for another job.

6. Individuals looking for a job for the first time may not deduct job search expenses.

7. The amount of job search expenses that are deductible is limited.

For more information, and to be assured that what you are deducting as appropriate, please contact your experienced tax professional.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Summer Job Advice from the IRS

For those students who are starting their summer jobs, the IRS has some tips to ensure compliance. According to the IRS website, these tips are meant to remind young taxpayers that not all the money they make will be theirs to keep, as employers are required to withhold taxes.

1. Upon starting a new job, make sure to fill out Form W-4, Employee’s Withholding Allowance Certificate, the form used to determine the amount of tax that will be withheld from each paycheck. For those students who have more than one job, make sure that each employer with withholding an adequate amount to cover the total income liability.

2. If you receive tips as part of your income, be aware that all tips received are taxable income and must be reported.

3. Earnings you receive from self-employment—any of those odd jobs to make extra money—are subject to income tax.

4. For those who are earning more than $400 from self-employment, those earnings are subject to the self-employment tax. This tax will pay for your benefits under the Social Security system.

5. ROTC students participating in active training do not have to pay tax on food and lodging allowances, but any active duty pay is taxable.

6. Newspaper carries or distributors can’t be as carefree as the movies make it seem. If you are in the business of delivering newspapers , all your pay relates directly to the number of sales instead of the number of hours worked, and the written contract under which you work states that you will not be treated as an employee for tax purposes, you are considered a direct seller are considered self-employed.

The IRS would like for tax compliance to start early!

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999