Time For Estate Tax To Go

That’s what the Tax Foundation is saying, and it may just be that the powers that be are listening for a change.

Generally speaking, the Foundation says estate and inheritance taxes are poor economic policy, because for the most part they hit accumulated capital which makes America richer and more productive as a whole.  These taxes restrict job growth, hurt the economy and their repeal would lead to the creation of nearly 150,000 jobs and an increase in overall Federal tax receipts of $8 billion per year.Read More

IRS Still Muddling Around With The Identity Theft Problem

 

Victims of identity theft are still coming out on the short end of the stick insofar as the IRS is concerned.  So says the Treasury Inspector General for Tax Administration (TIGTA).

In an audit report released last week, TIGTA noted that IRS has not been providing quality customer service to identity theft victims, when it comes to ongoing delays and errors with respect to victims’ receipt of claimed refunds.

“Refund fraud adversely affects the ability of innocent taxpayers to file their tax returns and timely receive their tax refunds, often imposing significant financial hardship,” notes TIGTA J. Russell George.  “While the IRS is making some progress in assisting victims of identity theft, those who have been affected by this devastating crime deserve better.”

TIGTA made five recommendations to the IRS, including that it develop processes and procedures to:  ensure that case closing actions and account adjustments are accurate; accurately calculate the average time it takes to fully resolve taxpayer accounts affected by identity theft; and, accurately report the number of identity theft cases resolved to include only those taxpayers for whom the IRS fully resolves their account and issues any refunds due.

And if, like most of us, you donated household goods and other property to your favorite local charity, check out the recent Tax Court decision in the Kunkel case, which held that despite the  Court having no doubt that the taxpayer donated the property in question, none of his contributions totaling over $37,000 (as claimed) were deductible because the taxpayer failed the charitable contributions substantiation tests.  And, to add insult to injury, taxpayer Kunkel was slapped with the “accuracy related penalty” of 20%!

The rules with respect to the required substantiation vary with respect to the size of the contribution, and on whether the gift is of cash or property.  Contributions of property valued at less than $250 cause the taxpayer to obtain a receipt from the donee organization (unless impractical, in which case the donor must maintain reliable written records, including the name of the done, the date and location of the contribution, a description of the property and the method used to determine its fair market value.)  Contributions valued at $250 or more require the taxpayer to obtain a contemporaneous written acknowledgement from the done.

For noncash contributions in excess of $500, taxpayers are required to maintain written records that must include, among other things, (1) the approximate date the property was acquired and the manner of its acquisition, (2) a description of the property, (3) the cost or other basis of the property, (4) the fair market value of the property at the time of contribution, and (5) the method used in determining the fair market value.  Contributions of property valued in excess of $5,000 require the additional documentation of a “qualified appraisal.”

In addition to flunking these tests, the Court further found that most of the items Kunkel allegedly donated consisted of clothing and household items, and he failed to present credible evidence that these items were “in good used condition or better” as is also required.

No deduction!

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, and welcomes comments at jquinn@ashleyquinncpas.com.

Consumption Tax On The Horizon?

Who’s to say?  It could happen.

So saith The Wall Street Journal, last week, quoting Senator Ben Cardin (D, MD), co-chairman of a Senate Finance Committee working group looking into this plan in the context of the often-mentioned overhaul of the tax system, which should come sooner rather than later.

Cardin actually introduced legislation, last year, to enact a form of consumption tax known as a “value added” tax (essentially, a national sales tax on goods and services purchased by we and thee) while lowering business taxes and shelving income taxes altogether for lower income folks.

The rap on a consumption tax approach has always been, of course, that it hammers poor people, while favoring, in comparison, the rich among us.

We shall see.

And a recent decision of the Tax Court reminds us of the rules which allow taxpayers to deduct expenses of maintaining an office in their home.

In its decision to the detriment of taxpayers Mr. and Mrs. Arunas Savulionis, the Court zeroed in on the rule which permits the deduction of home office expenses only if the portion of the home in question is used exclusively and on a regular basis as the principal place of one’s trade or business.  The taxpayers claimed that their house was, indeed, the principal place of business and, more specifically, that the home’s entire living room was used exclusively for business purposes.

Choking back laughter, however, the Court makes mention of the fact that entry to and exit from the house was through a door in the living room.  Access to all other rooms in the house was through the living room.  Three individuals lived in the house (the taxpayers and their daughter) and likely congregated in the living room and “no doubt” otherwise engaged in other family activities in that room.

The taxpayers claimed, on the other hand, in justification for their deductions, that the entire living room was used exclusively for business purposes, which the Court found “wholly inconsistent with a commonsense notion of the everyday realities of family life of a three-person family residing in a dwelling unit.”

Nice try – no cigar.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.Read More