Archive for the ‘General’ Category

Tax Alert for Upcoming Ohio Tax Amnesty

Thursday, May 10th, 2012

Background:
 
The recent Budget Bill passed by the Ohio General Assembly included two tax amnesty programs: (i) the General Tax Amnesty program, and (ii) the Consumer Use Tax Amnesty program. These programs are in addition to the Voluntary Disclosure Program already available to Ohio taxpayers. Prior to determining whether a particular program makes sense for you, it is important that you work with a qualified tax professional experienced in these matters to ensure you minimize, as much as possible, the negative impact a disclosure may have on you personally, or on your business.
 
The Voluntary Disclosure Program ("VDP")
 
A.            Period Covered 
 
The VDP is an ongoing program and available for various tax years for which a taxpayer may have a liability.
 
B.           Eligible Taxes include
 
  • Sales Tax
  • Commercial Activity Tax
  • Personal Income Tax
  • Seller’s Use Tax (out of state vendors collecting Ohio sales tax)
  • Corporate Franchise Tax
  • Employer Withholding

 

C.          Restrictions
 
The restrictions may vary depending upon the type of tax involved. But, in general, as long as the taxpayerhas not been contacted by the ODT prior to disclosure, the taxpayer should qualify for the VDP.
 
D.           Payment Requirements
 
The payment plans will vary depending on the facts and circumstances. Generally, however, it is recommended that payment be made with the final agreement signed by the taxpayer and the Tax Commissioner.
 
E.           Benefits and Terms
 
Although the benefits and terms vary depending on the type of tax, the general benefits and terms include:
 
  • The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.

 

  • The taxpayer waives the right for refund for those three previous years. Refund requests will be honored for the returns due in the current year.

 

  • The Tax Commissioner is precluded from assessing the taxpayer or requiring it to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by the ODT.

 

  • The Tax Commissioner will waive all penalties associated with the years covered by the agreement.

 

  • The Tax Commissioner may audit the tax returns filed by the taxpayer for the years covered by the agreement.

 

 Click here for information on ODT's website.

 

General Tax Amnesty

 
A.           Period Covered
 
The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid. The program is open from May 1, 2012 to June 15, 2012.
 
B.      Eligible Taxes include

 

  • Sales Tax
  • Commercial Activity Tax
  • Personal Income Tax
  • Seller’s Use Tax (out of state vendors collecting Ohio sales tax)
  • Corporate Franchise Tax
  • Estate Tax
  • School District Income Tax
 
C.       Restrictions
 
Although certain taxes are eligible, the General Assembly has placed restrictions on eligibility. As an example, the General Tax Amnesty is not available if:
 
  • A notice of assessment has been issued.
  • A notice of audit has been issued.
  • A tax bill has been issued.
  • An audit has been conducted.
  • An audit is currently being conducted.

D.           Payment Requirements

The participant must pay the full amount of the delinquent tax and one half of the interest between May 1, 2012 and June 15, 2012.
 
E.           Benefits and Terms
 
The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:
 
  • The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.
  • Any penalties on delinquent taxes paid under this program are fully abated.
  • Participants cannot be criminally prosecuted.
  • No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty program.
 
Nardone Law Group Comment: This is a very taxpayer friendly provision. It allows taxpayers to come in from the cold that were intentionally not paying their taxes, as well as those taxpayers that simply did not realized the taxes were owed. But, not all taxpayer's should run in and attempt to avail themselves of this program. It is important to consider all facts and circumstances and the potential unintended consequences.
 
Consumer Use Tax Amnesty
 
A.           Definition of Use Tax
 
Many taxpayers—both individuals and businesses—struggle with the concept of use tax. The ODT explains it as follows:
 
Consumer’s Use Tax must be paid on all taxable purchases of tangible personal property or services used, stored, or otherwise consumed in Ohio unless Ohio sales tax has been paid to a vendor or the tax has been properly paid to another state. In general, if you have paid Ohio Sales Tax on the purchase of tangible personal property or a taxable service, you do not owe consumer’s use tax on that transaction. Examples of tangible personal property subject to use tax are computer equipment, printers, fax machines, office supplies (paper, envelopes, folders, pens, paper clips, etc.), furniture and cleaning supplies (mops, brooms, cleaners, paper towels, etc.). Consumer’s use tax is also due on the use of taxable services in Ohio. Examples of taxable services include, but are not limited to, installation, repair, employment services (temporary labor), automatic data processing, janitorial and maintenance services, storage services and maintenance contracts.
 
B.  Period Covered
 
The Use Tax Amnesty applies to use tax due for periods from January 1, 2009 through May 1, 2011. The program is open from October 1, 2011 to May 1, 2013.
 
C.           Eligible Taxes
 
  • Use Tax only
 
D.           Restrictions
 
A taxpayer against which the Tax Commissioner has issued an assessment on or before the effective date of the Use Tax Amnesty section is not eligible to participate in the use tax amnesty program established under this section. Further, see below for those that are already registered for use tax compliance.
 
E.           Payment Requirements
 
The participant must pay the full amount of consumer use tax for which the participant has outstanding liability sometime between October 1, 2011 and May 1, 2013. If the participant makes an application, ODT may enter into an interest free payment plan for the delinquent use tax. The payment plan may be up to seven years. If the participant fails to comply with the terms of the payment plan, then interest will be due on the unpaid amounts.
 
F.            Benefits and Terms
 
The Consumer Use Tax Amnesty program categorizes potential participants into two groups: (i) those participants that were registered with ODT to pay consumer use tax as of June 1, 2011, and (ii) those that were not registered with ODT to pay consumer use tax as of June 1, 2011.
 
(i)   For those consumers that were registered with ODT for consumer use tax as of June 1, 2011:
 
·         Consumer use tax due for periods from January 1, 2009 through May 1, 2011 must be paid by the participant.
·         No tax, penalty, or interest for periods prior to January 1, 2009 will be assessed.
·         The participant is responsible for interest and penalty—if any—on the delinquent consumer use tax paid under this amnesty program (i.e., for January 1, 2009 and forward).
·         No criminal prosecution for those who participate.
 
(ii) For those consumers that were not registered with ODT for Consumer Use Tax as of June 1, 2011:
·         Consumer Use Tax due for periods from January 1, 2009 through May 1, 2011 must be paid by the participant.
·         No tax, penalty, or interest for periods prior to January 1, 2009 will be assessed.
·         Penalty and interest will be fully abated for the Consumer Use Tax paid under this program. This is a great benefit for this program.
·         No criminal prosecution for those who participate.
 
Nardone Law Group Comment: As part of determining whether or not to disclose and participate in one of the programs discussed above, it should be noted that the Budget Bill also enacted a limitation on ODT’s ability to assess outstanding consumer use tax. Under the new limitation, ODT may not assess consumer use tax for any period prior to January 1, 2008.
 
In sum, the various programs detailed above provide many benefits to taxpayers that want to come out from the cold and into compliance. Yet, one must review all of the facts and circumstances, including the timing, to determine what the intended and potential unintended consequences maybe. This includes running the actual calculations as to the dollar amounts owed, and determining whether this disclosure impacts any financial, tax, or accounting provisions related to your business or individual reporting requirements to various institutions, including the SEC, IRS, and lending institutions, or as part of your businesses' audited financial statements.

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Injured or Innocent Spouse Tax Relief

Tuesday, April 17th, 2012

Well, it’s tax filing season again.  And, as tax attorneys and tax lawyers in Columbus, Ohio, one of the issues that frequently comes up for married couples is whether to file a joint Form 1040 federal income tax return, or to file the Form 1040 as married filing separately.  As you might imagine, there are a number of planning ideas that address that question.  In this article we would like to focus on, and address, one of those planning issues specifically.  That being, whether or not filing a joint return would cause both spouses to be jointly and severally liable for a tax liability of one of the spouses, which will remain unpaid at the time of filing the return.  The answer to this is yes. By filing a joint return, both spouses will be jointly and severally liable for the unpaid liability on that return.  If there is a tax liability for which one of the spouses is solely responsible for, then the married couple should absolutely file their Form 1040s as married filing separately.  If however, the married couple files jointly, the spouse who is not responsible for the unpaid tax liability, may be able to show that an exception exists to the joint and several liability of the unpaid tax, which would include being an Injured Spouse.

If you are in injured spouse, it is possible that you can avail yourself of the innocent spouse relief provisions under the Internal Revenue Code.  Here are seven facts about claiming injured spouse relief:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

3. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.

4. You may file form 8379 along with your original tax return or your may file it by itself after you receive an IRS notice about the offset.

5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.

7. Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief. This relief from a joint liability applies only in certain limited circumstances. However, in 2011 the IRS eliminated the two-year time limit that applies to certain relief requests. IRS Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.

For additional information on this topic, click here to view a video from the Internal Revenue Service.

The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain the best result, based on each clients' specific facts and circumstances. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

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Innocent Spouse Relief

Tuesday, April 10th, 2012

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Recent Tax Court Ruling a Victory for Professional Gamblers: Professional Gambler’s Business Expenses No Longer Subject to Loss Limitation

Tuesday, February 21st, 2012

In a recent announcement, the Internal Revenue Service (" IRS ") issued an action on decision ("AOD") indicating that it will follow the Tax Court's decision in Mayo, (2011) 136 TC 81, which held that business expenses of professional gamblers are not subject to the loss limitation rules of Internal Revenue Code §165(d).  This ruling and AOD is a victory for professional gamblers. The IRS now takes the position that a professional gambler may fully deduct those business expenses incurred in pursuing gambling professionally.  As a result, if you are professional gambler, you can now deduct all your business expenses in pursuit of your gambling activities on Schedule C.

As a quick background, an AOD is a formal memorandum prepared by the IRS’s Office of Chief Counsel that announces the future litigation position that the IRS will take with regard to a particular court decision.  They are issued to enhance consistency with respect to future litigation or dispute resolution.  The IRS has now set forth its position with respect to business expenses of professional gamblers in this recent AOD, such that taxpayers now have some assurance of the position that the IRS may take with respect to possible future litigation or other dispute resolution on this issue. 

 

IRS Action on Decision Only Applies to "Professional Gamblers"

  

Before you can take advantage of this gambling deduction, however, you must be a classified as a professional gambler; this AOD does not affect those who gamble as a hobby.  Case law defines a professional gambler as someone engaged in the trade or business of gambling. Nardone Law Group, LLC's article "Tax Deductions for Professional Gamblers in Ohio,"  provides guidance to determine whether or not you are a professional gambler.  Generally, the IRS looks to all the facts and circumstances around your gambling activities to determine whether you are a professional gambler.  If you are a professional gambler, you may deduct gambling losses to the extent of your gains from wagering transactions. Prior to the IRS's AOD, deductible gambling losses included both gambling losses and those business expenses incurred in pursuit of your gambling activities.  The Tax Court made it clear, and IRS now agrees, that a professional gambler's expenses incurred to engage in the trade or business of gambling are not subject to limitation, but are fully deductible as ordinary and necessary business expenses under Internal Revenue Code §162.

  

Case Study―The Mayo Case

 

The Mayo case involved a professional gambler from California.  In 2001, Mr. Mayo wagered $131,760 on horse racing but he only won $120,463.  As a result, Mr. Mayo lost $11,297.  He also incurred $10,968 in business expenses, which included automobile expenses for travel to the racetracks and fees for race handicapping information and other research purposes.  The IRS initially disallowed all $22,265 of expenses because they exceeded Mr. Mayo's gross receipts from winnings.  The IRS argued that both the $131,760 in wagers and $10,968 in expenses were subject to the loss limitations.  The Tax Court disagreed and allowed Mr. Mayo to deduct the business expenses of $10,968 in full.  The Tax Court ruled those expenses were not a wagering loss, but ordinary and necessary business expenses incurred in pursuit of his gambling activities.  The remaining $11,297 excess wagering losses were disallowed under the normal rules of the Internal Revenue Code §165(d). 

 

The Result for Professional Gamblers

 

The IRS's AOD will provide professional gamblers with greater deductions for expenses incurred in pursuit of their gambling activities.  It will also allow professional gamblers to amend their last three years of returns where business expenses were not claimed because those years had reported gambling losses. If you are a professional gambler, you should consult the experienced tax attorneys at the Nardone Law Group, LLC to analyze whether you can take advantage of the new IRS policy.  Our tax lawyers understand what it takes for a gambling activity to raise to the level of a trade or business.  There are limitations on the expenses that qualify under the new IRS policy.  For example, deductible gambling expenses are not only required to be ordinary and necessary to conduct your gambling profession, they must also be reasonable. 

Contact Nardone Law Group, LLC

 

If you consider yourself a professional gambler and you incurred business expenses in pursuit of your gambling activities, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today to discuss your case.

 

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IRS Reopens the Offshore Voluntary Disclosure Program

Wednesday, February 15th, 2012

Well, tax attorneys and tax lawyers in Columbus, Ohio should remain busy in 2012. On January 9, 2012, the Internal Revenue Service announced that it reopened the offshore voluntary disclosure program ("OVDP") to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.
 
Background
 
The first OVDP was announced by the IRS in 2009 and applied to those taxpayers that voluntarily and timely disclosed unreported offshore income for 2003 - 2008. In February 2011, the IRS unveiled a second OVDP to give taxpayers with undisclosed income from hidden offshore accounts for the 2003 - 2010 tax periods the chance to get current with their taxes. The 2011 OVDP was originally available through August 31, 2011 but was extended through September 9, 2011. It carried higher penalties than the original disclosure program but the penalties could be mitigated under certain circumstances.
 
New program
 
The IRS says the new program is similar to last year's program in many ways. However, the IRS stresses that there are a few key differences. Unlike last year, there is no set deadline under the new program to apply. The IRS cautions, however, that it could change the terms of the program at any time. For example, it could increase penalties for all or some taxpayers or defined classes of taxpayers. In addition, the IRS may end the program entirely at any point. 
 
Penalty Structure
 
The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. Under the new program, individuals must pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years before the disclosure (up from 25%). As under the 2011 program, some taxpayers will be eligible for 5% or 12.5% penalties under the new program.
 
Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Participants face a 27.5% penalty;however, taxpayers in limited situations may qualify for a 5% penalty. Smaller offshore accounts face a 12.5% penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP qualify for this lower rate. Taxpayers who feel that the penalty is disproportionate may opt to be examinedinstead.
           
See the list below regarding frequently asked questions regarding the offshore voluntary disclosure program. It is important to note that these questions are likely not up to date. So, also please see the IRS News Release on the offshore voluntary disclosure program.

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Tax Deductions for Professional Gamblers in Ohio

Tuesday, January 17th, 2012

Tax Deductions for Professional Gamblers in Ohio

This article addresses the question of what tax deductions are available to professional gamblers.  On November 3, 2009, the citizens of Ohio passed the casino initiative authorizing legal gambling in four of Ohio's largest cities.  The passage of the Ohio Issue 3, also known as the "Four Casinos Initiative," amends the Constitution of Ohio and authorizes gambling casinos in Cincinnati, Cleveland, Columbus, and Toledo.  These new casinos mean that more and more gamblers here in Columbus, Ohio will need to understand what tax deductions are available to professional gamblers.  The State of Ohio expects to create over 20,000 jobs and increase revenues for state and local governments.The tax lawyers at the Nardone Law Group, LLC expect more disputes between taxpayers claiming to be professional gamblers and the Internal Revenue Service (the " IRS " or the " Service ") on the amount that may be claimed as deductible gambling losses.

Professional versus Recreational Gamblers

The tax deductions available to professional gamblers for their gambling activities are vastly different from the tax deductions available to recreational gamblers.  In general, gambling income is fully taxable and gambling losses may not exceed gambling winnings—unless the taxpayer is engaged in the trade or business of gambling. This means that if you are a professional gambler, you may be able to deduct all your losses, as well as incidental business expenses that are ordinary and necessary expenses in the pursuit of your gambling activities.  Therefore, the most important question for gamblers is to determine at what point a gambling activity raises to the level of a trade or business such that you would be considered a professional gambler. When you become a professional gambler, your gambling losses may be deductible in determining your adjusted gross income, as opposed to being taken as itemized deductions subject to limitations.  Deducting your losses from adjusted gross income can result in huge tax savings, so understanding what it takes to become a professional gambler is of principal importance.

What is a Professional Gambler?

The IRS and reviewing courts will find that a gambling activity constitutes a trade or business only after examining all relevant facts and circumstances.  Whether you play poker, slot machines, or are involved in horse racing, the facts and circumstances must show that your gambling activity is pursued full time, in good faith, and with regularity.  In addition, your gambling activity must also be your intended source of livelihood and cannot be recreational or a mere hobby.  If you have a job outside of gambling, you must show that you not only pursued your gambling activity full-time, but that your gambling activity was your main source of earning a livelihood.  It may not be immediately clear whether your gambling activity will qualify you as a professional gambler.  Thus, the tax lawyers at the Nardone Law Group, LLC recommend taking the following steps to ensure the greatest chance of success.

Recommendation for Professional Gamblers

If you consider yourself to be a professional gambler, you can increase your chances of being determined as such by the IRS by operating your gambling activities in a business-like manner.  This involves setting up a separate bank account designated solely for your gambling activities.  You should also have a detailed business plan outlining your strategy and indicating how you intend to make a profit from gambling.  The motive to make a profit is the key ingredient.  Therefore, your business plan should clearly provide your plan to make money and should reference any and all research you have done to increase your chances of making your gambling activities profitable.  Further, you should keep a log of the time you spent gambling also keeping track of the money you bring with you gambling, tracking your winnings and your losses.  Never rely on a casino's player's card or a Form W-2G to track your winnings.  You must maintain your own records.  You should also limit the recreational aspects of gambling.  If you are a professional gambler, you should treat gambling like any other job.  If you gamble with friends for casino perks, then it will be much more difficult to prove to the IRS you are truly a professional gambler. Finally, you must be able to document your expertise in your gambling activity.  You must be able to show what research you have done to show that you believed you could make a profit gambling, even if you have not done so.  Your research should be referenced in your business plan and the books you have read and experts you have consulted with should be cited to and referenced accordingly.

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler, and you have significant gambling losses that are greater than your gambling winnings, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today for a consultation to discuss your case.

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