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Monthly Archives: April 2019

US S.C. Heard Oral Arguments on Whether States Can Tax Out-of-State & Foreign Trusts

April 17, 2019

On February 27, 2019 we posted US S.C. To Decide Whether States Can Tax Out-of-State & Foreign Trusts,  where we discussed that more than $120 billion of our nation's income flows through trusts and the Supreme Court will hear a case that may clarify how much states are able to tax and that in April, the Supreme Court of the United States will hear an appeal against North Carolina's practice of taxing the undistributed income of an out-of-state trust that has a beneficiary living in the state. North Carolina is one of 11 states that consider trusts taxable when they hold income for a person who is using the state's services, but US courts have reached different results about whether due process prohibits these taxes. 

According to Law360, the U.S. Supreme Court justices questioned on April 16, 2019 whether a North Carolina beneficiary’s expectation of distribution from a trust gave the state taxing rights, even though its settlor and initial trustee were out of state and distributions weren't guaranteed.



The justices heard oral arguments in a case pitting North Carolina’s Department of Revenue against the Kimberley Rice Kaestner 1992 Family Trust, whose beneficiary lived in North Carolina. The state Supreme Court ruled last June that North Carolina’s taxation of the trust based on the beneficiary’s residence was unconstitutional, prompting the Department of Revenue to appeal to the U.S. Supreme Court.

The justices were advised that the beneficiary had no guarantee of receiving money from the trust during the four years that the state taxed the trust. The mere presence of a beneficiary did not give the state the right to tax the trust, whose settlor and initial trustee were in New York, he told the justices. During the tax years, when the beneficiary received no distributions, the trustee was a Connecticut resident, and the money belonged to him, not the North Carolina beneficiary.

Justice Elena Kagan seemed skeptical. She advised that eventually the beneficiary would likely get the money from the trust and questioned why it shouldn’t be her state that taxes it. Why should New York or Connecticut have the taxing authority when a North Carolina resident would receive money from the trust, including accrued interest.

David A. O’Neil of Debevoise & Plimpton LLC, representing the Kaestner Family Trust, told the court had for decades protected a trust from taxation by the state where the beneficiary resides, if the trust has no other contacts with that state, and it should look to those precedents, including Brooke v. City of Norfolk from 1928, Safe Deposit & Trust Co. v. Virginia from 1929 and Guaranty Trust Co. v. Virginia from 1938.

“They are every bit as valid today as they were then,” O’Neil said. “The court said, using the same principles of trust law that apply today,  the beneficiary really isn’t the owner of the property there, so we’re not going to allow taxation of that.”

Earlier, Justice Stephen Breyer seemed sympathetic to O’Neil’s position when he questioned Matthew W. Sawchak, solicitor general of North Carolina. He didn’t seem disposed to accept an argument from Sawchak that “the trust has no situs” and that North Carolina should impose taxation because “benefits and protections” were extended by that state to the beneficiary.

Key To The North Carolina Supreme Court’s Finding That Taxation Of The Trust Was Unconstitutional Was That Kaestner, The Beneficiary, Did Not Receive Distributions From The Trust During The Years At Issue. The Revenue Department Collected $1.3 Million In Taxes From The Trust Over Four Years.

Sawchak told the justices that the state Supreme Court got it wrong, and that discarding beneficiary contacts and focusing only on trustee and administrative contacts, is “a recipe for tax avoidance.”

“Let’s say I don’t find that distinction particularly significant,” Justice Gorsuch said. “It’s slicing the baloney a little too thinly.”


The outcome of NC Department of Revenue vThe Kimberley Rice Kaestner1992 Family Trust will determine whether individuals are able to avoid state taxes by placing assets with trustees in states with no income tax liability. 

This may also impact Foreign – Non-US trusts, who have US beneficiaries, living in states which tax the income from Out-of-State Trusts.

More than $120 billion of our nation's income flows through trusts, and this case that may clarify how much states are able to tax.

 

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According to Ostrow Reisin Berk & Abrams (via Mondaq) in April, the Supreme Court of the United States will hear an appeal against North Carolina's practice of taxing the undistributed income of an out-of-state trust that has a beneficiary living in the state. North Carolina is one of 11 states that consider trusts taxable when they hold income for a person who is using the state's services, but US courts have reached different results about whether due process prohibits these taxes.

The outcome of NC Department of Revenue vThe Kimberley Rice Kaestner1992 Family Trust will determine whether individuals are able to avoid state taxes by placing assets with trustees in states with no income tax liability.

 

 

This may also impact Foreign – Non-US trusts, who have US beneficiaries, living in states which tax the income from Out-of-State Trusts.

 

Read more at: Tax Times blog

Tax Time Guide wrap-up: Tips on Payment Options, Penalty Waivers, Refunds and More – IR-2019 -60:

April 15, 2019

The Internal Revenue Service on April 2, 2019 urged taxpayers to file an accurate tax return on time, even if they owe but can’t pay in full.

Most taxpayers are being affected by major tax law changes. While most will get a tax refund, others may find that they owe taxes. Those who owe may qualify for a waiver of the estimated tax penalty that normally applies. See Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and its instructions for details.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019, for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17 to file their returns.

Checking on refunds

The IRS issues nine out of 10 refunds in less than 21 days. Using the “Where’s My Refund?” online tool, taxpayers can start checking on the status of their return within 24 hours after the IRS receives an e-filed return or four weeks after the taxpayer mailed a paper return. The tool has a tracker that displays progress through three phases: (1) Return Received; (2) Refund Approved; and (3) Refund Sent.

All that is needed to use “Where’s My Refund?” is the taxpayer’s Social Security number, tax filing status (such as single, married, head of household) and exact amount of the tax refund claimed on the return.

“Where’s My Refund?” is updated no more than once every 24 hours, usually overnight, so there’s no need to check the status more often.

How to make a tax payment

Taxpayers should visit the “Pay” tab on IRS.gov to see their payment options. Most tax software products give taxpayers various payment options, including the option to withdraw the funds from a bank account. These include:

  • IRS Direct Pay offers taxpayers a free, fast, secure and easy way to make an electronic payment from their bank account to the U.S. Treasury.
  • Use an approved payment processor to pay by credit or debit card for a fee.
  • Mail checks or money orders made out to the U.S. Treasury.
  • Make monthly or quarterly tax payments using IRS Direct Pay or through the Electronic Federal Tax Payment System.

Can’t pay a tax bill?

Everyone should file their 2018 tax return by the tax filing deadline regardless of whether they can pay in full. Taxpayers who can’t pay all their taxes have options including: 

  • Online Payment Agreement — Individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in payroll tax and have filed all tax returns may qualify for an Online Payment Agreement. Most taxpayers qualify for this option and an agreement can usually be set up on IRS.gov in a matter of minutes.
  • Installment Agreement — Installment agreements are paid by direct deposit from a bank account or a payroll deduction.
  • Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves.
  • Offer in Compromise (OIC) — Taxpayers who qualify enter into an agreement with the IRS that settles their tax liability for less than the full amount owed.
Owed Taxes - Can't Pay?  

Contact the Tax Lawyers at 
Marini & Associates, P.A. 
 
 
for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243

 


 
 

Read more at: Tax Times blog

Know Your Choices to Pay Your Tax Bill! – Part 2

April 15, 2019

On Friday, March 15, 2019 we posted Know Your Choices to Pay Your Tax Bill! - Part 1 where we discussed Paying in full within 120 days (short-term payment plan) and Installment agreements (long-term payment plan). In this Part 2we will discuss two other alternative for taxpayers who do not have the money to pay their current tax liability.

Offer in compromise (OIC). An OIC is an agreement between a taxpayer and IRS that settles the taxpayer's tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means, won't qualify for an OIC in most cases. IRS says that to qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. (IRS website)

IRS may compromise a tax liability on any of the following grounds:
  1. Doubt as to liability. There must be a genuine dispute as to the existence of amount of the correct tax debt.
  2. Doubt as to collectibility. Such doubt exists in any case where the taxpayer's assets and income are less than the full amount of the tax liability.
  3. To promote effective tax administration. An offer may be accepted on this ground if: (a) collection in full of the tax owed could be achieved, but (b) requiring payment in full would either create an economic hardship, or would be unfair and inequitable because of exceptional circumstances. (Reg. § 301.7122-1(b))

To request an OIC, the taxpayer must apply using Form 656, Offer in Compromise. The taxpayer also must submit Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC), Collection Information Statement for Businesses.

A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC).

The OIC application generally must be accompanied by a $186 application fee. However, the fee is waived for certain low income taxpayers or if the OIC is based on doubt as to liability. (Form 656-B, Notice 2006-68, 2006-31 IRB 105, Sec. 4.03)

Except with regard to offers filed by low-income taxpayers, or based only on doubt as to liability, an OIC must be accompanied by a nonrefundable payment that depends on how the taxpayer is offering to pay.
A taxpayer may propose to pay in a lump sum, i.e., an offer payable in five or fewer installments within five or fewer months after the offer is accepted. If such an offer is made, the taxpayer must include with the Form 656 a payment equal to 20% of the offer amount. This payment is required in addition to the $186 application fee.
A taxpayer may propose to make periodic payments, i.e., six or more monthly installments made within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment also is required in addition to the $186 application fee. (Code Sec. 7122(c)(1)
Currently Not Collectible - delay the collection process. Where a payment would create financial hardship, is to ask IRS to delay collection until the taxpayer is able to pay. If IRS determines that the taxpayer cannot pay any of his or her tax debt, it may report the taxpayer's account as currently not collectible and temporarily delay collection until the taxpayer's financial condition improves. Interest and penalties continue to accrue until the tax debt is paid in full. (https://www.irs.gov/businesses/small-businesses-self-employed/temporarily-delay-the-collection-process)

The taxpayer may be asked to complete a Collection Information Statement (Form 433-F, Form 433-A or Form 433-B) and provide proof of financial status (this may include information about assets and monthly income and expenses).
During a temporary delay, IRS will again review the taxpayer's ability to pay, and may also file a Notice of Federal Tax Lien to protect the government's interest in his assets.
Taxpayers requesting a temporary delay of the collection process or to discuss other payment options should contact IRS at 1-800-829-1040 or call the phone number on their bill or notice.
Remember to FILE YOUR RETURN,
Even if You CANNOT Pay Your Tax!
I know this is counterintuitive, since no one wants to bring attention to the fact that they cannot pay their taxes by filing a tax return showing a tax due and not paying the tax. However by filing your return,
  1. You begin the running of the Statute of Limitations for assessment & collection,
  2. You begin the running the two-year period for discharging this debt in bankruptcy and
  3. You reduce your associative tax return penalties from 5% a month for late filing to .05% for late payment penalty. 
    • The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
    • If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
Need Time To Pay Your IRS Taxes?  
   
Contact the Tax Lawyers at 
Marini & Associates, P.A. 
 
 
for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243

 


 

Read more at: Tax Times blog

Know Your Choices to Pay Your Tax Bill! – Part 1

April 15, 2019

As the April 15th deadline for filing 2018 income tax returns draws near, practitioners may encounter some clients who don't have cash to pay the balance due on their returns. Clients can avoid penalties but not interest if they can get an extension of time to pay from IRS. Financially distressed clients may be able to defer paying their income taxes, including installment agreements and offers in compromise with IRS.
 
Paying in full within 120 days (short-term payment plan). A taxpayer can pay the full amount owed within 120 days, without having to pay any fee, but interest and any applicable penalties continue to accrue until the tax is paid in full. Taxpayers can use an online payment application (IRS website) or call IRS at 800-829-1040.
Installment agreements (long-term payment plan). Taxpayers unable to pay the full amount owed within 120 days may be able to enter into an installment agreement with IRS to pay the tax. Apply using Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement. (IRS website)
There are different installment agreement rules for taxpayers who owe $10,000 or less, and for taxpayers who owe $50,000 or less.
Taxpayers are eligible for a guaranteed installment agreement-in other words, IRS is required to enter into the agreement-if the aggregate amount of the liability (determined without regard to interest, penalties, additions to the tax, and additional amounts) is not more than $10,000 and:
  • During the past five tax years, the taxpayer (and spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement under Code Sec. 6159 for payment of income tax;
  • The taxpayer agrees to pay the full amount owed within three years and to comply with all Code provisions while the agreement is in effect; and
  • The taxpayer is financially unable to pay the liability in full when due and submits information that IRS may require to make this determination (i.e., a financial statement). (Code Sec. 6159(c)(2); Reg. § 301.6159-1(c)(1)).
Despite the last condition, the Internal Revenue Manual 5.14.5.3, notes that as a matter of policy,
IRS grants guaranteed installment agreements even if the taxpayer can pay his or her liability in full.

 

There's a streamlined procedure for granting agreements for payment of tax in installments for amounts of $50,000 or less. IRS may accept streamlined installment agreements without requiring financial statements or managerial approval if the taxpayer
  1. has an "aggregate unpaid balance of assessments" (tax, assessed penalty and interest) of $50,000 or less, 
  2. has filed all returns, and 
  3. will pay up within 72 months, or will pay in full before expiration of the collection statute of limitations, whichever comes first. (IRM 5.14.5.2, IRS website)
Remember to FILE YOUR RETURN,
Even if You CANNOT Pay Your Tax!
I know this is counterintuitive, since no one wants to bring attention to the fact that they cannot pay their taxes by filing a tax return showing a tax due and not paying the tax. However by filing your return,
  1. You begin the running of the Statute of Limitations for assessment & collection,
  2. You begin the running the two-year period for discharging this debt in bankruptcy and
  3. You reduce your associative tax return penalties from 5% a month for late filing to .05% for late payment penalty. 
    • The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
    • If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
Need Time To Pay Your IRS Taxes?  
   
Contact the Tax Lawyers at 
Marini & Associates, P.A. 
 
 
for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com or
Toll Free at 888-8TaxAid (888) 882-9243

 

Read more at: Tax Times blog

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