Friday, July 26, 2013

Taxes Take a Summer Vacation – At Least in Some States: Wolters Kluwer, CCH Updates Back-to-school Sales Tax Holidays for 2013 [feedly]

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Taxes Take a Summer Vacation – At Least in Some States: Wolters Kluwer, CCH Updates Back-to-school Sales Tax Holidays for 2013

Additional Savings on Energy-efficiency Purchases

(RIVERWOODS, ILL., July 25, 2013) – Getting a price break at the cash register on school supplies and other qualifying items is welcome relief for everyone looking to save a few dollars on back-to-school shopping. But to take advantage of these "tax holidays," shoppers need to know which states offer them, what items are covered as well as which specific days they take place. CCH, a part of Wolters Kluwer and a leading global provider of tax, accounting and audit information, software and services (, takes a look at current state tax holidays and updates for 2013.

How Does It Work?

There are currently 17 states offering sales tax holidays – where state sales tax charges are temporarily dropped on back-to-school items such as clothing, footwear, classroom supplies, computers and certain other products. However, local sales taxes may still be imposed in some communities.

"What's really important for consumers to know is the specific information about products that qualify for each state's holiday in order to maximize sales tax savings," said Carol Kokinis-Graves, JD, CCH Senior State Tax Analyst. "Typically several restrictions will apply and each state usually provides official, highly detailed rules on specific items that do or do not qualify for state sales tax exemptions on designated dates."

Massachusetts was the only state that discontinued its sales tax holiday in 2013. New York State does not offer a specific sales tax holiday, but items of clothing and footwear sold for less than $110 are exempt from the state's sales and use tax throughout the year.

Back-to-school Tax Holidays for 2013

Sales tax holidays timed for back-to-school shopping begin as early as July 26 and many take place in early August. While some limit the exemption to clothes and shoes, others extend exemptions to a wide range of personal items. All place dollar limits on the amount exempt from sales tax, from as little as $15 for school supplies in Florida to as much as $3,500 for computers in Missouri and North Carolina.

Alabama: On Aug. 2-4, the following are exempt: clothing (not accessories or protective or recreational equipment) with a sales price of $100 or less per item; single purchases, with a sales price of $750 or less, of computers, computer software, school computer equipment; noncommercial purchases of school supplies, school art supplies and school instructional materials with a sales price of $50 or less per item; and noncommercial book purchases with a sales price of $30 or less per book.

Arkansas: On Aug. 3-4, the following are exempt: sales of clothing items under $100, clothing accessories or equipment under $50, school art supplies, school instructional materials and school supplies.

Connecticut: On Aug. 18-24, clothing and footwear costing less than $300 per item are exempt. Not included are athletic or protective clothing or footwear, jewelry, handbags, luggage, umbrellas, wallets, watches and similar items.

Florida: On Aug. 2-4, the following are exempt: clothing with a sales price of $75 or less per item and school supplies with a sales price of $15 or less per item; and personal computers and related accessories with a sales price of $750 or less purchased for noncommercial use. The holiday exemption does not apply to sales of such items made within a theme park, entertainment complex, public lodging establishment or airport.

Georgia: On Aug. 9-10, the following are exempt: clothing and footwear with a sales price of $100 or less per article or pair, excluding accessories; single purchases for noncommercial use of $1,000 or less of personal computers and related accessories; and general school supplies priced at up to $20 per item.

Iowa: On Aug. 2-3, clothing and footwear with a sales price of less than $100 per item is exempt. However, the exemption does not include any special clothing or footwear that is primarily designed for athletic activity or protective use and not normally worn except when used for the athletic activity or protective use for which it is designed. The exemption also excludes accessories or the rental of any clothing or footwear.

Louisiana: On Aug. 2-3, the first $2,500 of the sales price of noncommercial purchases (not leases) of items of tangible personal property (not vehicles or meals). Although the holiday exemption does not apply to local taxes, St. Charles Parish will waive its local sales tax during the same weekend as the state holiday.

Maryland: On Aug. 11-17, items of clothing and footwear with a taxable price of $100 or less are exempt. Accessories are not included.

Mississippi: On July 26-27, clothing or footwear (not accessories, rentals, skis, swim fins or skates) with a sales price under $100 per item is exempt.

Missouri: On August 2-4 the following items are exempt: noncommercial purchases of clothing (but not accessories) with a taxable value of $100 or less per item; school supplies up to $50 per purchase; computer software with a taxable value of $350 or less; and computers and computer peripherals up to $3,500. Localities may opt out.

The tax holiday does not apply to any retailer when less than two percent of their merchandise offered for sale qualifies for the holiday. In such a case, the retailer must offer a sales tax refund in lieu of the holiday.

New Mexico: On August 2-4, the following are exempt: footwear and clothing (not accessories or athletic or protective clothing) with a sales price of less than $100 per item; school supplies with a sales price of less than $30 per item; computers with a sales price of $1,000 or less per item; computer peripherals with a sales price of $500 or less per item; book bags, backpacks, maps and globes with a sales price less than $100 per item; and handheld calculators with a sales price of less than $200 per item. Retailers are not required to participate.

North Carolina: On August 2-4, the following are exempt: clothing and school supplies with a sales price of $100 or less per item; school instructional materials with a sales price of $300 or less per item; sport/recreational equipment with a sales price of $50 or less per item; computers with a sales price of $3,500 or less; and computer supplies with a sales price of $250 or less per item. The exemption does not apply to clothing accessories; any item sold for use in a trade or business; educational software; furniture; luggage; stereo equipment; DVD players, and similar equipment; and protective equipment.

Oklahoma: On Aug. 2-4, items of clothing and footwear with a sales price of less than $100 are exempt. The holiday does not apply to the rental of clothing or footwear, the sale of special clothing or footwear primarily designed for athletic or protective use, or the sale of accessories.

South Carolina: On Aug, 2-4, clothing (but not rentals), clothing accessories, footwear, school supplies, computers, printers, printer supplies, computer software, bath wash clothes, bed linens, pillows, bath towels, shower curtains and bath rugs are exempt.

Tennessee: On Aug. 2-4, clothing (but not accessories), school supplies and school art supplies with a sales price of $100 or less per item; and computers with a sales price of $1,500 or less per item are exempt.

Texas: On Aug. 9-11, clothing and footwear and school backpacks with a sales price of less than $100 per item are exempt. The exemption does not include accessories, athletic or protective clothing or rentals.

Virginia: On Aug. 2-4, clothing and footwear with a sales price of $100 or less per item and school supplies with a sales price of $20 or less per item are exempt.

Tax Holidays for Energy-efficiency, Hurricane Prep Items

In addition to holidays timed for back-to-school buying, a number of states have enacted tax holidays offered at various times throughout the year to promote other kinds of purchases. Energy-efficiency is the most common theme and the three states with upcoming tax holidays for energy and water-efficiency purchases include:

Georgia: On Oct. 4-6, energy-efficient and water-efficient products purchased for noncommercial use with a sales price of $1,500 or less per product are exempt.

North Carolina: On Nov. 1-3, qualified Energy Star® products sold for non-business use, including clothes washers, freezers and refrigerators, central and room air conditioners, air-source heat pumps, ceiling fans, dehumidifiers and programmable thermostats are exempt.

Virginia: On Oct. 11-14, noncommercial purchases of Energy Star and WaterSense® qualified products with a sales price of $2,500 or less per item are exempt.

Maryland, Missouri and Texas held energy-efficiency tax holidays in February, April and May respectively. Alabama held its sales tax holidays for hurricane preparedness items in February. Louisiana and Virginia held similar sales tax holidays in May.

Firearms Sales Tax Holidays

Louisiana remains the only state that offers a state tax holiday for noncommercial purchases of firearms, ammunition and hunting supplies. From Sept. 6-8 in Louisiana, such purchases (but not the purchase of animals for the use of hunting) are exempt.

About Carol Kokinis-Graves, CCH State Sales Tax Expert

Carol Kokinis-Graves is an attorney and a CCH Senior State Tax Analyst specializing in the analysis and reporting of issues regarding state and local sales and use taxes. Kokinis-Graves has written several state and local tax articles, including those that have appeared in State Tax ReviewThe Journal of State Taxation and Practitioner Perspectives, has been quoted in various publications, and is a speaker on state and local tax issues.

Members of the press interested in speaking with Carol Kokinis-Graves should contact: Brenda Au at 847-267-2046, or Eric Scott at 847-267-2179,

CCH Sales Tax Solutions

To learn about CCH's sales tax solutions, please contact a CCH sales representative at 1-866-513-CORP (1-866-513-2677) or click here.

About CCH, a part of Wolters Kluwer

CCH, a part of Wolters Kluwer ( is a leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer ( is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.


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Rules for Deferral of Income From Gift Card Sales Clarified [feedly]

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Rules for Deferral of Income From Gift Card Sales Clarified
The IRS issued guidance clarifying that taxpayers that sell gift cards can defer recognizing income from the sale of gift cards redeemable by an unrelated third party until the year after the payment is received.

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Another Lesson on Unreasonably Low Compensation [feedly]

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Another Lesson on Unreasonably Low Compensation

Payroll-taxPayroll tax collection continues to vex the Internal Revenue Service despite several court cases that have resulted in rulings favorable for the IRS regarding unreasonably low compensation. A recent high profile case was David E. Watson, P.C. v. United States on which the Eighth Circuit ruled in 2012. Watson was an indirect partner in a CPA firm, practicing through an S corporation that paid him $24,000 of salary per year and between $175,000 and $203,000 in profit distributions. The court adjusted his compensation to $93,000.

It isn't hard to see why shareholders of S corporations attempt to justify wage levels below what the IRS considers "reasonable compensation" (assuming the understated compensation is below the FICA wage base). Both the S corporation and employee save the 7.65% FICA and Medicare taxes on the wages not reported. Another recent case is Herbert v. Commissioner. Herbert received between $24,000 and $29,000 of wages for the years 2004 through 2006. In 2007, he received $2,400 of wages. Although the Tax Court noted that the corporation lost money or earned very little income in each of the years, and the corporation closed down in 2009, the Court increased the taxable compensation for 2007. The IRS wanted to reclassify all of the draws from the S corporation for 2007 as additional wages (i.e., an additional $52,600). Ultimately, the judge averaged the petitioner's wages for 2002 through 2006 to arrive at $30,445 as a reasonable wage. (The business was owned by someone else in 2002 and 2003.)

It didn't help matters that Mr. Herbert used the draws to pay corporate expenses personally. He lost, misplaced or never kept receipts for many corporate expenses he paid with cash. The Court accepted Herbert's testimony that he in fact paid significant corporate expenses with cash using funds received from the corporation. Nonetheless, the judge also believed that the wages of $2,400 were too low.

The result? Herbert was found to have under-reported his wages, even though the amount of cash drawn out of the corporation covered corporate expenses. If he had maintained a better set of books, paid all of the corporate expenses with corporate (rather than what became to be personal) funds, he wouldn't have had distributions from the corporation to himself.

Although the wages were quite low, the fact of the matter is the business was failing. There wasn't an adequate cash flow to pay wages and expenses. By shuffling funds and taking money personally, Mr. Herbert created a payroll tax liability where such liability shouldn't have existed.

Payroll tax reduction or avoidance is, perhaps, a major reason for the popularity of S corporation status for an operating entity, even though the formation of an LLC under state law provides similar liability protection for the sole proprietor. The IRS projects that 4.6 million Forms 1120-S will be filed for 2012, compared to 3.6 million Forms 1065 (partnership).

As part of its tax reform efforts, Congress is evaluating the continuing treatment of the bottom-line S corporation as not subject to payroll taxes or self-employment tax. The AICPA will be closely monitoring any developments and keeping you up to date through its tax reform page and other communications.

Chris Hesse, CPA, Partner, CliftonLarsonAllen. Chris is with CliftonLarsonAllen's Federal Tax Resource Group serving all offices of the firm. FTRG is a firm wide group that assists all offices of the firm on federal income tax matters, in addition to drafting CPE material for in-house presentation. Chris is also chairman of the S Corporation Technical Resource Panel for the AICPA.

Payroll tax image via Shutterstock

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Tuesday, July 23, 2013

Former H&R Block Manager Sentenced to Year in Prison for Identity Theft

The former manager of an H&R Block outlet has been sentenced to 12 months and one day in federal prison for using the identities of his former tax preparation clients to file false returns with the Internal Revenue Service seeking fraudulent income tax refunds.

Damon Charles Dubose, 40, of North Hills, Calif., was sentenced Monday morning by U.S. District Judge Dale S. Fischer.

Dubose pleaded guilty in March to one count of wire fraud and one count of filing false claims with the Internal Revenue Service (see Former H&R Block Manager Pleads Guilty to Stealing Clients' Identities). The court sentenced him to 12 months and one day on each count of the conviction, to be served concurrently.

According to documents filed with the court, while working as a manager of an H&R Block Preparation store in Van Nuys, Calif., Dubose used his access to H&R Block records to obtain the personal identifying information, including the names, dates of birth and Social Security numbers, of H&R Block clients. Dubose then used the information to create and submit to the IRS at least 12 false and unauthorized 2011 tax returns, generating fraudulent tax refunds of at least $48,593. 

Dubose filed the returns so that the refunds would be accessible by the "H&R Block Emerald Card," a pre-loaded Master Card. He then used the H&R Block Emerald Cards at automated teller machines to withdraw the fraudulent tax refunds as cash.

H&R Block spokesman Gene King reiterated the statement he gave to Accounting Today after Dubose was arrested. "H&R Block takes this matter very seriously," he said. "This was an isolated incident and we are cooperating fully with authorities on the investigation of a former employee. The situation involves a small number of clients who have been contacted and informed of the steps the company is taking to help them and correct the situation."

On Feb. 16, 2012, Los Angeles County Sheriff's Department deputies found Dubose standing near ATM machines wearing a beanie, a scarf and panty hose on his face, presumably to disguise his appearance (see H&R Block Manager Arrested for Identity Theft of Tax Clients). The deputies arrested Dubose after they recovered from his vehicle six envelopes with handwritten names and partial Social Security numbers that contained H&R Block information sheets and H&R Block Emerald cards; ATM withdrawal receipts; a printout that contained 12 Social Security numbers and dates of birth corresponding to the names and numbers on the envelope; and $4,078.16 in cash.

The wire fraud count stems from Dubose electronically transferring an unauthorized tax return from Van Nuys to Tennessee or West Virginia. The false claim count comes from an unauthorized tax return filed by Dubose on Feb. 6, 2012 for an individual using fabricated information to falsely claim a refund in the amount of $4,353.

The investigation of Dubose was conducted by IRS Criminal Investigation's Los Angeles Field Office, with assistance from the Los Angeles County Sheriff's Department.

Sunday, July 21, 2013

Who Should Take Advantage of the Home-Office Tax Deduction - Businessweek [feedly]


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The DOMA Ruling Explained [feedly]

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The DOMA Ruling Explained
On June 26, 2013 the Supreme Court ruled the Defense of Marriage (DOMA) act unconstitutional in a 5-4 decision. Specifically, the court struck down section 3 of the act which defines "marriage" as a legal union between one man and one woman and "spouse" as a person of the opposite sex who is a husband or wife. Upon repeal of DOMA, the federal government will now recognize all legal same sex unions in states that allow same sex unions. This aspect of the ruling is quite clear. 

What is not yet clear is the implication this will have on federal tax law and the affect this ruling will have on same sex couples immediately and moving forward. In some ways, this ruling will simplify tax law: same sex couples filing jointly in their state will now be able to file jointly with the federal government as well. Some aspects of the law are less simple and will require further clarification from the IRS as time passes.

Details of the Ruling
Traditionally, the regulation of marriage is an authority granted to the separate states. There are some examples where federal law regulates marriage in order to further federal policy, but generally the federal government seeks to limit the implications of these exceptions. The Supreme Court deemed DOMA §3 unconstitutional because of the far reaching implications of the provision—it affected over 1,000 federal statutes and many regulations.

Furthermore, rather than promote consistency, DOMA treated married couples within the same state differently, imposing restrictions, stigma and disabilities onto a state defined class. Those judges striking DOMA were concerned with the equal protection issues and they argued that the law makes unequal a subset of state-sanctioned marriages in areas ranging from taxes to Social Security and veterans' benefits. It is important to note that the scope of this ruling is confined to only "lawful marriages."

Immediate Tax Implications
The following are among the tax breaks newly available to legally married same-sex couples:
... the right to file a joint return;
... the opportunity to get tax-free employer health coverage for the same-sex spouse;
... the opportunity for either spouse to utilize the marital deduction to transfer unlimited amounts during life to the other spouse, free of gift tax;
... the opportunity for the estate of the first spouse to die to get a marital deduction for amounts transferred to the surviving spouse;
... the opportunity for the estate of the first spouse to die to transfer the deceased spouse's unused exclusion amount to the surviving spouse;
... the opportunity to consent to make "split" gifts (i.e., gifts to others treated as if made one-half by each); and
... the opportunity for a surviving spouse to stretch out distributions from a qualified retirement plan or IRA after the death of the first spouse under more favorable rules than apply for nonspousal beneficiaries.

Many other tax provisions are affected by a taxpayer's marriage status, such as the deductibility of alimony paid to a spouse or former spouse and the availability of the innocent spouse protections.

Planning Tips
Married same-sex couples who filed separate federal returns due to DOMA should consider filing amended returns with claims for refund, where applicable. Filing jointly may produce a lower combined tax than the total tax paid by the same-sex spouses filing as single persons, but this can also produce a higher tax, especially if both spouses are relatively high earners. Tax professionals should calculate for their same sex couple clients their past returns to determine if an amended return will result in a refund.

Married same-sex couples should also amend their estate plans to take advantage of many of the favorable provisions listed above. It is estimated that there are more than 100,000 same sex marriages in the USA. This means that as many as 300,000 amended returns could potentially be required in the near future. Tax professionals should consider filing protective claims for tax returns for which the statute may be about to expire.

Areas for Further Exploration
Because the recent ruling limits its scope to "lawful marriages" it is yet to be seen how the federal government will handle domestic partnerships and civil unions of same sex couples. It is possible that the current ruling will only affect those couples living in states where same sex marriage is legal.

Additionally, the Supreme Court did not strike down section 2 of DOMA which allows states to refuse to recognize same sex marriages performed in other states. Because of this, a couple may be legally married in one state, but living in a state that does not recognize their marriage as valid. It is yet to be seen how the government will view these marriages on a federal level.

Tax professionals will have to wait for the IRS to issues procedures for dealing with these complicated situations.

The Gear Up Editorial Team

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Monday, July 15, 2013

CCH Weekly Report from Washington, D.C. [feedly]

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CCH Weekly Report from Washington, D.C.

On the heels of the announcement by the Treasury and the White House that the employer mandate provision of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148 ) is being postponed for a year, from 2014 until 2015, House Speaker John Boehner, R-Ohio, announced that the House will hold a vote during the week beginning July 15 to delay the implementation of both the employer and individual mandates of the health care reform law. The Treasury and IRS also announced a six-month extension to the initial start of the Foreign Account Tax Compliance Act (FATCA) withholding and account due diligence requirements.


Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Committee Chairman Dave Camp, R-Mich., on July 8 met with workers and executives at two St. Paul, Minnesota, businesses to discuss the need to overhaul America's tax code in an effort to provide a boost to the economy and create more jobs (TAXDAY, 2013/07/09, C.1 ). Baucus and Camp focused specifically on ways to improve the tax code to create new jobs and increase wages, according to a release from the lawmakers' offices. The meetings were the first in a series of conversations Baucus and Camp have planned as part of their Simpler Taxes for America Tour.

The Senate on July 10 failed to advance a student loan bill (Sen 1328) that would have been paid for with a retirement plan offset (TAXDAY, 2013/07/11, C.3 ). The measure failed to garner the 60 votes required in order to end a filibuster and begin debate, falling by a vote of 51 to 49. The Keep Student Loans Affordable Bill of 2013 would have required that inherited retirement plan accounts be distributed within five years as an offset to retroactively prevent federally subsidized Stafford student loan interest from doubling for one year. Interest rates increased from 3.4 percent to 6.8 percent on July 1.

Boehner announced on July 11 that the House will hold a vote during the week beginning July 15 to delay the implementation of both the employer and individual mandates in the PPACA (TAXDAY, 2013/07/12, C.1 ). The vote signals a renewed effort by Republicans to dismantle President Obama's comprehensive health care overhaul as they sense vulnerability in the administration after it delayed implementation of mandatory employer and insurer reporting requirements for big businesses following months of complaints from the leaders of large corporations.

The fiscal year (FY) 2014 budget for the IRS would be cut 24 percent to $9 billion, under legislation approved July 10 by the House Appropriations Subcommittee on Financial Services and General Government (TAXDAY, 2013/07/11, C.2 ). The FY 2014 Treasury/IRS appropriations bill sets spending at $4 billion below President Obama's request for the Service and includes specific restrictions on the IRS due to the Service's recent inappropriate targeting of certain political groups seeking tax-exempt status, as well as the improper use of taxpayer funds for employee conferences, the committee said.


The IRS has made progress by reducing unnecessary data centers but needs a more formal plan to achieve future goals, according to the Treasury Inspector General of Tax Administration (TIGTA) Report: The Data Center Consolidation Initiative Has Made Significant Progress, but Program Management Should Be Improved to Ensure That Goals Are Achieved (Reference Number: 2013-20-013 ; TAXDAY, 2013/07/11, T.1 ).


FATCA Requirements. The Treasury and IRS announced a six-month extension to the start of the Foreign Account Tax Compliance Act (FATCA) withholding and account due diligence requirements (Notice 2013-43 ; TAXDAY, 2013/07/15, I.1 ). The Treasury Department explained that the extension will allow additional time to complete intergovernmental agreements (IGAs) with foreign jurisdictions and provide foreign financial institutions (FFIs) with the time necessary to better comply with FATCA.

"Employer Mandate" . The IRS followed up on the July 2 informal "blog" announcement by the Treasury and White House (TAXDAY, 2013/07/03, W.1 ) with formal guidance (Notice 2013-45 ; TAXDAY, 2013/07/11, I.3 ) that provides"transition relief" in the form of a one-year delay, from 2014 to 2015, for mandatory information reporting under Code Secs. 6055 and 6056 and the employer shared responsibility provisions under Code Sec. 4980H (the so-called"employer mandate" ). The transition relief will have no effect on the effective date or application of other PPACA provisions. Meanwhile, Kevin Knopf, senior technician reviewer, IRS Tax Exempt and Government Entities, observed during a July 9 on Tax Talk Today, that the postponement "will allow us to get more guidance out" (TAXDAY, 2013/07/10, I.3 ).

Boston Marathon Explosion. The IRS reminded Boston area taxpayers and others affected by the April 15 Boston Marathon explosions that their individual tax returns and tax payments are due Monday, July 15. The IRS also reminds affected taxpayers that additional extensions may be available upon application (IR-2013-65 ; TAXDAY, 2013/07/12, I.1 ).

Mortality Tables. The IRS released the static mortality tables to be used under Code Sec. 430(h)(3)(A) and Code Sec. 417(e)(3) for periods beginning in calendar years 2014 and 2015, as well as for others uses under Code Sec. 431(c)(6) . Comments were also requested as to what current studies on actual mortality experiences should be considered for future use (Notice 2013-49 ; TAXDAY, 2013/07/11, I.1 )

Housing Relief for Oklahoma Victims. The IRS amplified the extent of earlier emergency housing relief needed as a result of the devastation in Oklahoma caused by severe storms and tornadoes that occurred between May 18, 2013, and May 27, 2013. The update reflects actions by the Federal Emergency Management Agency (FEMA) subsequent to the release of earlier guidance (Notice 2013-47 ; TAXDAY, 2013/07/11, I.2 ).

Current Plan Liability Rate. The IRS released for pension plan years beginning in July 2013 the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2013, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under Code Sec. 430(h)(2) (Notice 2013-46 ; TAXDAY, 2013/07/10, I.1 ).

IRS Furlough Days. Daniel Werfel, the IRS's temporary leader, told Service employees in a July 9 email that he is moving to cancel scheduled performance bonuses for IRS executives, managers and employees in a trade for suspending the additional two furlough days scheduled for rank-and-file IRS employees in 2013 as the result of sequester (TAXDAY, 2013/07/10, I.2 ).

501(c)(4) Review and Certification Process. The IRS is instituting an optional expedited process for certain organizations applying for recognition of exemption under Code Sec. 501(c)(4) (TAXDAY, 2013/07/09, I.3 ). Organizations that have activities that involve possible political campaign intervention or issue advocacy, and that have an application that has been pending for more than 120 days as of May 28, 2013, may receive a Letter 5228, Application Notification of Expedited 501(c)(4) Option.

Transfer Pricing Safe Harbors. IRS officials presented a progress report on the status of the Service's work on transfer pricing and safe harbors (TAXDAY, 2013/07/09, I.4 ). Among the points made, they noted that members of the Organisation for Economic Co-operation and Development (OECD) had dropped their negative attitude toward the problem and are now recognizing the benefits of international cooperation.

Accounting Method Regs . The American Institute of CPAs (AICPA) has recommended that the IRS change its final regulations (T.D. 9534 , I.R.B. 2011-33, 144) regarding methods of accounting used by corporations that acquire the assets of other corporations in certain corporate reorganizations (TAXDAY, 2013/07/11, M.2 ). In a letter dated July 9, the AICPA identified ambiguities in the application of the final regulations under Code Sec. 381 .

By Jeff Carlson, Stephen K. Cooper and George Jones, CCH News Staff


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Thursday, July 11, 2013 Story - IRS Accidentally Exposed Tens of Thousands of Social Security Numbers

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Use, duplication, or sale of this service, or data contained herein, is strictly prohibited. Story - IRS Accidentally Exposed Tens of Thousands of Social Security Numbers

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IRS Accidentally Exposed Tens of Thousands of Social Security Numbers

The Internal Revenue Service has reportedly posted the Social Security numbers of tens of thousands of people on the Internet before taking down the information when a whistleblower pointed out the mistake.

The Web site, which specializes in posting government documents in the public domain, discovered the privacy breach and promptly alerted the IRS, as well as the Treasury Inspector General for Tax Administration.

Public.Resource.Org founder Carl Malamud said in a statement that his organization found the IRS had posted a database containing the filings of Section 527 political organizations such as campaign committees. “This Section 527 database is an essential tool used by journalists, watchdog groups, congressional staffers and citizens,” he wrote. “While the public posting of this database serves a vital public purpose (and this database must be restored as quickly as possible), the failure to remove individual Social Security Numbers is an extraordinarily reckless act.”

His site discovered the privacy breach on July 2 and notified TIGTA, documented its findings in an audit document, and sent copies to IRS officials and senior White House officials. On July 3 the administration removed the database from public view.

Malamud noted that Public.Resource.Org uncovered the data during an unrelated audit after the IRS notified the site last month that it had sent out an improperly vetted shipment of data on DVD for the January release of the Form 990-T, the Exempt Organization Business Income Tax Return. Because the IRS had publicly released the data in February, and had not notified recipients of the bulk data subscription of the privacy breach for several months, Malamud said Public.Resource.Org had conducted a systematic examination of the breach and how it was handled, and delivered that audit to the Inspector General on July 1.

“The tainted political money database run by the government on the Internet is just one symptom of a deeply broken dissemination strategy the IRS has insisted on pursuing,” he wrote. “The IRS deliberately dumbs down the e-filed returns of big nonprofits, many of which are able to hide lavish compensation schemes, excessive fundraising expenses, and other expenditures that have little to do with public benefit.”

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Singer Lauryn Hill Begins Prison Sentence for Tax Evasion

Every man want to act like he's exempt
When him need to get down on his knees and repent
Can't slick talk on the day of judgment
Your movement's similar to a serpent
Tried to play straight, how your whole style bent?
Consequence is no coincidence
Hypocrites always want to play innocent
Always want to take it to the full out extent
Always want to make it seem like good intent
Never want to face it when it's time for punishment
I know that you don't wanna hear my opinion
But there come many paths and you must choose one
And if you don't change then the rain soon come
See you might win some but you just lost one

-"Lost Ones", Lauryn Hill, from the album The Miseducation of Lauryn Hill

Singer and songwriter Lauryn Hill began serving her three-month sentence for tax evasion at a minimum-security federal correctional institution in Danbury, Conn.

Lauryn Hill
(photo by Lisa Liang)

The former lead singer of the Fugees who won a Grammy for her album "The Miseducation of Lauryn Hill" was sentenced in May to three months in prison and three months of home confinement for failing to file tax returns for five years and not reporting more than $2.3 million in income (see Fugees Singer Lauryn Hill Sentenced to Prison for Tax Evasion). In addition to the prison term and home confinement, the judge sentenced Hill to serve a year of supervised release and ordered her to pay a $60,000 fine in addition to her restitution to the IRS. Judge Arleo also ordered Hill to fully cooperate with the IRS, including payment of outstanding interest and penalties on her tax obligations. According to the Associated Press, she will be confined in an open dormitory type of facility with the general prison population. She reported to prison Monday.

In addition to being a singer and actress, Hill owned and operated four S corporations, and her primary source of income was royalties from the recording and film industries. She won Grammy Awards for her 1998 solo album "The Miseducation of Lauryn Hill" and had recorded several successful albums with her previous group, The Fugees.  During 2005, 2006 and 2007, Hill received more than $1.8 million in income from those sources, according to prosecutors, but didn't file her tax returns for those years. While Hill pleaded guilty to charges specifically related to those tax years, her sentence also takes into account additional income and tax losses for 2008 and 2009— when she also failed to file federal returns—along with her outstanding tax liability to the state of New Jersey, for a total income of approximately $2.3 million and total tax loss of approximately $1,006,517.

During the hearing, Hill compared her tax predicament to slavery. "I was put into a system I didn't know the nature of," she said, according to the Los Angeles Times. "I'm a child of former slaves. I got into an economic paradigm and had that imposed on me," she said. "I sold 50 million units ... now I'm up here paying a tax debt. If that's not likened to slavery, I don't know what is."

When Hill was originally charged by federal authorities, she wrote a lengthy explanation on her Tumblr blog of her rationale for not paying taxes, saying she had gone "underground … in order to build a community of people, like-minded in their desire for freedom and the right to pursue their goals and lives without being manipulated and controlled by a media protected military industrial complex with a completely different agenda." However, she added that she eventually hoped to straighten out her tax problems (see Lauryn Hill Explains Failure to Pay Taxes).

Tuesday, July 2, 2013


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IRS Statement on the Supreme Court Decision on the Defense of Marriage Act

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Post-DOMA Tax Issues for New York Same-Sex Married Couples

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Same-Sex Marriage Unions by State

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Tax Issues of the Supreme Court Ruling that DOMA is Unconstitutional

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Supreme Court Ruling on Defense of Marriage Act Cases

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Monday, July 1, 2013

AICPA - IRS Issues HSA Inflation Adjustments for 2014

IRS Issues HSA Inflation Adjustments for 2014 

by Sally P. Schreiber, J.D. 
Published July 01, 2013

From the IRS
The IRS issued the inflation-adjusted figures for the annual contribution limitation for health savings accounts (HSAs) and the minimum deductible amounts and maximum out-of-pocket expense amounts for high-deductible health plans for calendar year 2014 (Rev. Proc. 2013-25).
Under Sec. 223, individuals who participate in a health plan with a high deductible are permitted a deduction for contributions to HSAs set up to help pay their medical expenses. The limit on the contribution deduction is subject to an inflation adjustment each year. For 2014, the annual limitation on deductible contributions is $3,300 for individuals with self-only coverage and $6,550 for family coverage.
To be eligible to contribute to an HSA, individuals must participate in a "high deductible health plan," which is defined as a health plan with an annual deductible that is not less than a certain limit each year and for which the annual out-of-pocket expenses, including deductibles, co-payments, and other amounts, but excluding premiums, do not exceed a certain limit each year (Sec. 223(c)). As with the contribution deduction limitation, these limits are subject to annual inflation adjustments. For 2014, the lower limit on the annual deductible under a high-deductible plan is $1,250 for self-only coverage and $2,500 for family coverage, the same amounts that applied in 2013. The upper limit for these out-of-pocket expenses is $6,350 for self-only coverage and $12,700 for family coverage, amounts that have increased since 2013.

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AICPA - IRS Will Get Search Warrants When Seeking Taxpayer Emails



IRS Will Get Search Warrants When Seeking Taxpayer Emails 

by Alistair M. Nevius, J.D.  
Published July 01, 2013

From the IRS

The IRS announced a new policy regarding how it will request emails from internet service providers (ISPs) (IRS Policy Statement 4-120). Under the new policy, the IRS will obtain a search warrant "in all cases when seeking . . . the content of email communications stored by the ISP." In addition, the policy statement says the IRS will not seek emails during civil administrative proceedings.

The policy statement also says that the IRS will update any guidance "that is not in accord" with the new policy.

The issue of whether the IRS obtains search warrants before seeking emails from ISPs was raised in April, when the American Civil Liberties Union reported that documents it had obtained under a Freedom of Information Act request suggested that it was the IRS's position that it did not need to obtain a warrant before reading taxpayer emails during criminal investigations.

In response, House Subcommittee on Oversight Chairman Charles Boustany, R-La., asked the IRS to provide him with its policy and procedures for when a search warrant is needed to review private emails. He also asked for information about ways the IRS may gather taxpayer information from social media.

The report also prompted the introduction of a bill, the Electronic Communications Privacy Act Amendments Act of 2013, S. 607, that would prohibit ISPs from voluntarily disclosing customer emails to the government. The bill would also require the government to notify an individual when it obtains that person's email from an ISP.

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