News & Articles

Turning Down An Inheritance

Posted on Fri, May 26, 2017

It's not enough to put together an estate plan for your immediate family. You should also consider any inheritances you might receive from other family members. For example, you might stand to inherit a huge sum from your parents or in-laws. This can complicate matters if you're trying to reduce the size of your own taxable estate.

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Tags: Gifts, Estate Planning, Gift Tax Return

Green Tax Breaks: Are You Claiming All the Credits You Deserve?

Posted on Wed, May 24, 2017

In recent years, the IRS has offered "green" tax credits to individuals who purchase qualifying residential energy-efficient equipment and certain electric vehicles. Some of these breaks expired at the end of 2016. But others are still ripe for the taking in 2017 and beyond. Here's what you need to know to take advantage.

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Tags: Vehicle, Tax Credits, Energy-Efficient

Investigate Operations Before Signing an Employment Contract

Posted on Mon, May 22, 2017

When considering joining or merging with a medical practice, you need to perform a due diligence investigation into the operations of the practice, as well as the finances.

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Tags: Employers Hiring, New Employee, Medical

Capital vs. Ordinary: Classifying Income and Losses Affects Your Taxes

Posted on Thu, May 18, 2017

Most of the time, how to classify gains and losses from selling an asset is fairly straightforward. But there are some gray areas that require a closer look at the facts and circumstances, especially when real estate is involved, as a couple of recent cases demonstrate.

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Tags: Real Property Tax, Income, Capital Gains, Ordinary Gains

Wedding Bells and Taxes: Tax Issues to Consider Before Tying the Knot

Posted on Tue, May 16, 2017

Summer — the traditional wedding season — is just around the corner. Marriage changes life in many ways. Here's how it may affect your tax situation.

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Tags: Filing Taxes, Marital Status, Selling Your Home

Fine-Tune Marketing Efforts by Eyeballing the Competition

Posted on Mon, May 15, 2017

Chances are, you know who your business rivals are. But do you know what they're up to?

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Tags: Employers, Competitive Strategy

Writing Off Worthless Stock Investments

Posted on Fri, May 12, 2017

Over the years, many of us have bought stock in a company that later failed. Examples include Enron, Adelphia, Global Crossing, Worldcom and K-Mart (before its resurrection). While you may prefer to forget such ill-fated investments, don't forget to claim your rightful capital loss deduction on your tax return.

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Tags: Bankruptcy, Stocks

Become a Winner by Avoiding These 5 Mistakes

Posted on Wed, May 10, 2017

Establishing a winning position in the marketplace is obviously critical to your company's success. The position, however, must be based on a sustainable competitive advantage.

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Tags: Employers, Competitive Strategy

10 Simple (and Fun) Ways to Cut Taxes This Summer

Posted on Mon, May 08, 2017

It's already starting to feel like summer in many parts of the country. But the forecast for Washington remains unclear as officials continue to discuss various tax-related issues.

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Tags: Deductions, Tax Breaks, Meals & Entertainment

Employer Can Have Info about Whether Misclassified Workers Paid Tax

Posted on Fri, May 05, 2017

The U.S. Tax Court recently ruled that federal law doesn't prohibit an employer looking to reduce its tax liability on misclassified workers from receiving information on whether the workers paid tax on the income.

Background

Businesses often prefer to treat workers as independent contractors to lower their costs and administrative burdens. But the IRS may challenge an employer's classification. If an employer erroneously treats an employee as an independent contractor, the IRS may reclassify the worker. The employer could owe unpaid employment taxes, as well as interest and penalties, and may also be liable for employee benefits that should have been provided but were not. So, it's important to get worker classification questions right.

Facts of the Recent Case

As part of an audit, the IRS reclassified many of the independent contractors in a New Mexico Native American tribe as employees. The tribe sought to avail itself of the relief provided in the Internal Revenue Code, which allows an employer who fails to deduct and withhold the tax on wages to escape tax liability if it can show that the workers paid income tax on their earnings.

To gather this information, the tribe asked each worker to complete IRS Form 4669 "Statement of Payments Received," but it didn't get the form back from many former workers who had moved, and from other workers who lived in hard-to-reach areas.

The tribe filed a lawsuit against the IRS asking the tax agency to provide information about whether 70 workers had reported the income on their personal income tax returns and paid their tax liabilities. If so, the IRS would have to reduce the tribe's liability for failing to collect and pay withholding tax on the income.

The Law

The tax code provides a general rule that returns and return information should be kept confidential. The term "return information" includes the amount of an individual's tax payments. The IRS argued that the tax code prohibits the disclosure of information on the workers' income to the tribe.

There are, however, a number of exceptions to the general rule. One of those exceptions, states that: "A return or return information may be disclosed in a Federal or State judicial or administrative proceeding pertaining to tax administration, but only...(B) if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding; [or] (C) if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding."

The Court's Ruling

The Tax Court concluded that the tax code did permit the disclosure of the tax return information requested by the tribe. It analyzed the code in pieces. First it asked: "What is a transaction relationship?" The court stated that to "transact" means simply "to carry on business." Citing a large number of cases that looked at that question, it added that the wide variety of business relationships that other courts have held are transactional relationships led it to hold that the relationship between an employer and his worker is one that pertains to the carrying on of a business.

Second, the court asked whether the return information that the tribe was asking for "directly relate[d]" to this relationship. The court concluded that it did since whether the tribe's workers paid their tax liabilities in full is likely to show whether the workers considered themselves to be independent contractors or employees, and thus directly related to the workers' relationship with the tribe.

Finally, as to the issue of whether the return information affected the resolution of an issue in the proceeding, the court stated that it did. "If the Tribe's workers did indeed pay their tax liabilities, then the Tribe's Code Sec. 3402(d) defense would be proved and would be entirely resolved," it explained. (Mescalero Apache Tribe, 148 TC No. 11, 4/5/17)

The Implications

The court's ruling could have wide-reaching effect because it can be difficult for businesses to obtain a signed Form 4669 from a worker because:

  • IRS audits often take place years after the relevant payroll tax returns are filed,
  • A business may have high turnover and not be able to locate workers, and
  • Even if a business does locate workers, they may not want to fill out the IRS forms — especially if they no longer work for the business.

Therefore, this court ruling could often make the difference between the business being forced to pay the withholding tax even when the worker has already paid the corresponding income tax, and the business not having to make that payment. If your business is involved in a payroll audit, your tax professional may request that the IRS provide information on the workers' relevant tax payments. This court ruling can be used as support for this request.

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Tags: Employers, IRS, Independent Contractor