Sunday, March 31, 2013

DOMA’s Tax Hassles for Same-Sex Couples


DOMA's Tax Hassles for Same-Sex Couples

The annual income tax season is no fun for any of us but it can be a lot worse for same-sex couples in California, Nevada, and Washington. Those three states follow community property law and recognize either same-sex marriages or domestic partnerships. The combination makes tax filing an even bigger hassle than the rest of us face. 

Because the Defense of Marriage Act (DOMA) denies federal recognition of those relationships, the IRS applies special rules to same-sex couples in the three states, rules that don't apply to couples—same- or opposite-sex—in other states. Those rules complicate tax filing and can result in higher (or lower) income and payroll tax bills. (I blogged yesterday on more general issues concerning DOMA and taxes.)

Community property law generally requires that married couples split income evenly between spouses. That rule also applies to domestic partners in the three community property states that recognize them.

Splitting income makes little difference for opposite-sex married couples but creates tax issues for same-sex partners because of DOMA. Here are just a few of the problems that the IRS has explained in various publications.

  • Same-sex couples with children may or may not be allowed to file as heads of household. The issue revolves around the requirement that a head of household provide more than half the support for a dependent child. Because spending out of community property income comes equally from both partners, neither provides more than half the support, so neither can claim the dependent. Only if some support comes from non-community property may one partner file as head of household.
  • Domestic partners in community property states must split the income from a business operated by one partner, even if the other partner has no involvement. In contrast, in the case of opposite-sex couples, earnings from a business are attributed only to a spouse who is actively involved in the business. Further, each domestic partner must pay self-employment tax on her half of business earnings, a situation from which a special provision protects opposite-sex couples. As a result, same-sex couples could pay as much as double the payroll tax that finances Social Security that an opposite-sex couple would pay.
  • The IRS applies community property laws inconsistently with regard to tax credits. For example, the earned income credit, the dependent care credit, and the refundable portion of the child tax credit all ignore community property laws in determining a domestic partner's earnings but split all income in measuring adjusted gross income.

Same-sex couples may also benefit from being denied joint filing status. A person who adopts her same-sex partner's child may claim the adoption credit, a benefit not available to opposite-sex spouses. And as I explained yesterday, being denied joint filing status protects same-sex partners with similar incomes from incurring marriage penalties.

Taxpayer Advocate Nina Olson has pointed out additional problems for same-sex couples caused not by tax rules but rather by IRS procedures. For example, domestic partners in community property states must split both earnings and the income tax withheld on those earnings. But the IRS has rejected returns filed electronically because its software failed to allocate withheld taxes correctly between partners.

The IRS appears to have first offered guidance for same-sex couples in 2010, three years after California granted community property rights to domestic partners and shorter periods after similar action in Nevada and Washington. At that point, the IRS gave domestic partners the option of filing amended returns reflecting community property laws but did not require them to file new returns. Affected couples could recompute their taxes and file new returns, but in a final kicker, a partner owing more tax would have to pay interest on the underpayment (offset, at least in part, by interest paid on the refund presumably going to the other partner). At least the IRS waived penalties for underpayment.

Finally, the interaction between the federal income tax and California's tax complicates tax filing for same-sex couples. The state's tax return requires a couple to enter adjusted gross income from their joint federal return, even though they cannot file that return with the federal government. That means such a couple must prepare three federal returns—one joint for their state taxes and two individual to file with the feds—plus a state return.

Same-sex couples in Nevada and Washington are luckier—neither state imposes an income tax.


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Appeals Court Denies IRS Request for Stay in Return Preparer Regulation Case


Appeals Court Denies IRS Request for Stay in Return Preparer Regulation Case

The IRS lost another round in its court battle to regulate tax return preparers when an appeals court denied its motion to stay an injunction halting its return preparer regulation program, pending appeal of a lower court's decision.

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Sunday, March 17, 2013

May I Interrupt? Asserting Yourself Into a Conversation


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May I Interrupt? Asserting Yourself Into a Conversation 


Don't interrupt. While this may be an all-too-frequent childhood reprimand, you're now an adult, so how can you make a point or justify your position when you were taught not to interrupt?

Is it ever okay to interrupt a conversation? How do you do it politely without offending those involved and still get your point across?

Despite what your mother may have told you, sometimes interrupting a conversation is okay. According to Professor Stephen Boyd, professor emeritus of Speech Communication at Northern Kentucky University, it is okay to interrupt in the following cases:

  • When introduced if you don't get the person's name. At a party or a business meeting, it is important to know who you are talking to before continuing the conversation. Simply insert Excuse me, or I'm sorry, I didn't hear your name.
  • To get a definition when you don't know the meaning of something or misheard a word the other person said. There is no point in continuing a discussion if you don't understand a key word or phrase in the conversation. You might say Sorry, I'm not familiar with that word. Can you me?
  • To clarify a point when critical decisions are being made or tasks assigned. It is important that everyone in the room understand what is being said, so if you have, for example, a rambler who has gone on and on during a conversation, it makes sense to interrupt to ensure everyone is on the same page. Examples of phrases might be: Excuse me, I want to make sure I understand or Just a minute, let's make sure we all know our roles on this project.
  • Confidential information that has the potential to harm others. In the break room or if you overhear a conversation in the hall, it is okay to interrupt conversations about someone's career or salary, or some other kind of confidential subject. This can be awkward, but it is important since everyone should conduct themselves as a leader in the company. Saying something like You might not realize this, but this is confidential information or Let's take this conversation into the conference room … it is confidential.
  • Gossip that is malicious and harmful needs to be stopped. Interrupt someone who is gossiping and either ask the person to take the conversation elsewhere. Perhaps you can redirect it with a business question: Oh, sorry to interrupt. When is that financial review due?

Sounds good, but what if your boss loves the sound of his or her own voice? How about when your colleague hijacks the meeting to make an obscure point? Who do you do when the interruption may seem rude or overbearing?

Here's a case example. How many times have you wanted to interrupt a colleague during a conference call who was speaking without making any kind of point? While this isn't against the law, you may sense that the client or customer on the call may be tuning out because he or she thinks the call is unimportant.

Interruptions can be particularly challenging when dealing with big egos or volatile personalities. The best way to approach this is to look for an opportune time in the conversation, such as when the speaker is slowing down. You can try to interject by saying Wait a second. Or, at a pause, just jump in.

Some other techniques may help when trying to make a point or change the direction the conversation is going:

  • Agree and change the subject. You're right, Bob, now how about the first quarter margins?
  • Disagree with the statement. I'm not sure about that, Bob, but it is interesting. I wanted to clarify roles in this project.
  • Ask to interrupt. If I may interrupt, I wanted to go back to another point you made earlier.
  • Use a question to interrupt. What do you think about extending the workday?

Make sure you are clear why you are interrupting before doing so and think about who you are interrupting. Your supervisor or manager may not think your interruption is needed and you may come across as disrespectful or self-serving. Think about it before you act. If needed, take a private moment with the person after the incident to discuss your reasoning for interrupting.

There are definitely wrong ways to interrupt. Disinterested looks may be a great way to curtail your sibling's long-winded story, but could be misconstrued. Loud talking over the speaker can lead to a shouting match in the conference room and put your reputation in the tank. Motor mouth interruption, where you jump in and talk as fast as you can, is an unprofessional approach to the situation.

Unfortunately, there are times when interrupting a colleague, client, and even a boss seem necessary. Don't do it often—you don't want to get a reputation for being unprofessional. Listen to your gut and interrupt only when you're sure it is the right thing to do.




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Saturday, March 2, 2013

Stockpiled Delayed Returns to Be Accepted on Sunday, Online Filing to Start Next Week


Stockpiled Delayed Returns to Be Accepted on Sunday, Online Filing to Start Next Week

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Stockpiled Delayed Returns to Be Accepted on Sunday, Online Filing to Start Next Week 

Published February 28, 2013

Late Wednesday, the IRS announced that it will begin accepting from e-file transmitters stockpiled returns containing the 29 forms for which acceptance was delayed beginning on Sunday, March 3, at 7 a.m. ET (Quick Alerts for Tax Professionals (2/27/13)).

E-file transmitters have been holding returns submitted with the delayed forms and not transmitting them to the IRS, which has not been prepared to accept them. The IRS says transmitters should send only their stockpiled inventory on Sunday, evenly spread out throughout the day; the Modernized e-File team will review reject trends to ensure everything is working properly. The transmitters should not yet enable online filing of forms.

Assuming there are no problems, the IRS says it will issue a Quick Alert early next week announcing the official opening of e-filing for all returns and forms. At that time, the 29 forms that have been delayed will be accepted for online filing.




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Acting Commissioner Outlines IRS Plans for Sequestration


Acting Commissioner Outlines IRS Plans for Sequestration

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Acting Commissioner Outlines IRS Plans for Sequestration 

Published February 28, 2013

With mandatory government spending cuts looming, Acting IRS Commissioner Steven Miller sent a memo  to all IRS employees on Thursday, outlining the agency's plans in the event sequestration occurs as planned on Friday. He outlined spending cuts the IRS plans to make, including employee furloughs, but emphasized that the furloughs would not affect tax season.

The IRS's largest expense is employee pay, and the agency plans to furlough employees, starting in the summer, if the mandatory across-the-board spending cuts take effect. Miller anticipates five to seven furlough days per employee through the end of the government's fiscal year. The furloughs would apply to all IRS employees and would amount to no more than one furlough day per pay period.

Miller listed three other ways in which the IRS will cut spending:

  1. Continue a hiring freeze; 

  2. Reduce funding for grants and other expenditures; and 

  3. Cut costs for travel, training, facilities, and supplies.

On Thursday, the Senate rejected two bills that would have averted the sequestration, thereby almost assuring that the automatic spending cuts will occur, as required by the Budget Control Act of 2011, P.L. 112-25.




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Friday, March 1, 2013

Stockpiled delayed returns to be accepted on Sunday, online filing to start next week


Stockpiled delayed returns to be accepted on Sunday, online filing to start next week

Late Wednesday, the IRS announced that it will begin accepting from e-file transmitters stockpiled returns containing the 29 forms for which acceptance was delayed beginning on Sunday, March 3, at 7 a.m. ET (Quick Alerts for Tax Professionals (2/27/13)). E-file transmitters have been holding

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The Sequester is Not Too Big, It is Too Stupid


The Sequester is Not Too Big, It is Too Stupid

The latest chapter in Washington's never-ending fiscal drama is about to play out in tomorrow's sequester–a word most Americans should never have had to learn. For all the partisan noise about these automatic spending cuts, it is important to keep in mind that they are both relatively small and very stupid.

First, the size. As the chart below shows, the amount of money at issue is modest–at least in federal budget terms. The blue bars represent CBO's total spending projections for 2013. The red bars (if you can even see them) represent the amount that would be cut as a result of the sequester.

2013 Sequester

To put it in more understandable dollar terms, 2013 defense spending would be cut by about $43 billion, or roughly 7 percent. Non-defense discretionary spending—the money for foreign aid and most federal agencies—would be cut about $29 billion, or roughly 5 percent. Mandatory spending would be cut by $13.9 billion off a base of more than $2 trillion, or 0.7 percent. Truth be told, the overall size of the spending cuts is not a big deal.

This, of course, is where stupid comes in.

The across-the-board nature of the spending cuts has been well-noted. Federal agencies have little or no discretion to target spending cuts by, say, getting rid of obsolete or poorly-run programs. They have to cut them all, the good ones and the bad ones alike. They can't lay off poorly performing workers, they must furlough everyone.

The cuts also suffer from poor timing. With the economy still struggling to find its footing, even modest fiscal austerity seems myopic at best.   

The division of the cuts is just as dumb. Mandatory programs represent 57 percent of all federal spending—and will absorb far more over the long run–yet only about 16 percent of the sequester will come from payments to Medicare providers and a small amount of other mandatory spending (Medicaid, Social Security, and Medicare benefits are entirely exempt from the sequester). The defense budget, by contrast, is about 18 percent of all federal spending yet the military will suffer half of the sequester cuts.

Keep in mind that the $85 billion reflects cuts in budget authority for 2013. Actual outlays, or dollars out  the door, will be cut by only half that much between now and the end of the fiscal year in September. On the other hand, because a year's worth of cuts would be squeezed into just seven months, agencies may feel them more severely.

Finally, revenues are totally excluded from this exercise. You'd think that a government that collects $2.7 trillion in taxes and other revenues might find a few billion more in inefficient and inequitable tax subsidies if deficit reduction is so important.

This exercise in mindless cutting is, more than anything, a plea for a serious budget process. Flawed as it was, the system in place over the past decades made a certain amount of sense. The House and Senate budget committees set  spending targets and instructed appropriations committees to work within those limits. The tax-writing committees were similarly given revenue targets to meet.

Those of us who lived through those budget years are hardly nostalgic. Congress shamelessly gamed and manipulated the targets, often aided and abetted by whoever was in the White House. Entitlements were largely exempt from the process. But it was better than what we've had in recent years—never-ending crises instead of an actual budget.

The sequester will neither solve the deficit problem nor help government work smarter. Instead, it will indiscriminately damage good programs and bad. That may be fine if you think of government as the enemy. For the rest of us, it is just another exercise in stupidity.     


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