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Severance Pay not subject to Employment Tax Says 6th CA

September 10, 2012

The U.S. Court of Appeals for the Sixth Circuit today affirmed a federal district court decision that severance payments are not wages for purposes of the Federal Insurance Contributions Act (FICA) tax. In re Quality Stores, Inc., No. 10-1563 (6th Cir. September 7, 2012)

This tax decision could have wide business implications since the U.S. appeals court ruled that employment taxes should not have been imposed on severance pay in an involuntary layoff.

The 6th Circuit Court of Appeals said Quality Stores Inc, a retailer, and employees who participated in the suit, could claim a refund for employment tax imposed on the severance pay.

The taxes at issue were Federal Insurance Contributions Act, or FICA, taxes that help pay for the U.S. Social Security retirement pension program and the Medicare health program. FICA taxes are paid by a company and its employees.

This decision could trigger a flood of claims for severance-pay employment-tax refunds by companies that had involuntary layoffs.

This issue is one that has been is dispute for years and could end up before the Supreme Court because there is a split between appeals courts over it.  In 2008, a separate court ruled against railroad company CSX Corp, saying it was liable for FICA taxes on severance packages.
In CSX Corp., 518 F.3d at 1346, the Federal Circuit adopted the IRS’s eight-part administrative definition of SUB pay set out in Rev. Rul. No. 56-249 and Rev. Rul. 90- 72 rather than the express statutory definition provided by Congress in §3402(o). That court characterized the payments before it as “dismissal pay” subject to FICA tax.  

By contrast, we resolve the tension between the statutory enactments and the IRS revenue rulings in favor of the expressed will of the legislature.

In doing so, the 6th Circuit admitted their ruling created a conflict. "We acknowledge that this issue of statutory construction is complex and that the correct resolution is far from obvious".  "While the Supreme Court may ultimately provide us with the correct resolution ... only Congress can clarify the statutes concerning the imposition of FICA tax."

 
If you have Payroll Tax Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).
 
UnitedStates v. Quality Stores Inc, No. 10-1563.

 

Read more at: Tax Times blog

No Summary Judgement on Resonsible Party Penalty – CA 6

September 10, 2012

The Court of Appeals for the Sixth Circuit has reversed a district court's Summary Judgment decision that a company's President and CEO/Chairman were liable for the Code Sec. 6672 penalty, finding that there were legitimate factual disputes regarding whether they acted recklessly in failing to pay the trust fund taxes. 

Notably, although the two were clearly “responsible persons,” it was unclear at what point they became aware that the taxes weren't being paid and to what extent they actually controlled the company's finances.

If you have Payroll Tax Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREETax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

BYRNE v. U.S., Nos. 10-2080, 10-2319. United StatesCourt of Appeals, Sixth Circuit. Filed September 4, 2012.


Read more at: Tax Times blog

Changes in Criteria for Taxpayer Advocate Service acceptance of Cases

September 10, 2012

The Taxpayer Advocate Service (TAS) changed its criteria for accepting individual taxpayer cases for assistance, reducing the instances in which it will accept cases. The TAS said it took this action so that it can focus on cases “where we can add the most value.”

In a notice to taxpayers and tax professionals, the TAS described exceptions to a ase acceptance policy it adopted last year. Generally, the TAS said, it accepts four types of cases:

  1. Where a taxpayer is experiencing some financial difficulty, emergency, or hardship, and the IRS needs to move much faster than it usually does (or even can) under its normal procedures. In those cases, time is of the essence. If the IRS doesn't act quickly (for example, to remove a levy or release a lien), the taxpayer will experience even more financial harm.
  2. Where many different IRS units and steps are involved, and the case needs a "coordinator" or "traffic cop" to make sure everyone does their part. TAS plays that role.
  3. Where the taxpayer has tried to resolve a problem through normal IRS channels but those channels have broken down.
  4. Where the taxpayer is presenting unique facts or issues (including legal issues), and the IRS is applying a "one size fits all" approach, isn’t listening to the taxpayer, or doesn’t recognize that it needs new guidance for those circumstances.

Last year, TAS examined where their efforts have the greatest impact, and identified four types of issues in which the IRS seemed to get the right answer (though slowly). Those cases involve the processing of original tax returns, amended returns, rejected and unpostable returns, and injured (but not innocent) spouse claims. We determined that TAS generally won’t accept cases involving these pure processing issues so we could focus on higher-impact problems.
However, there are many exceptions to this policy. If the taxpayer is suffering an economic burden, TAS will take the case. If the case involves other issues, as in the example below, TAS will take the case. If the taxpayer is referred by a congressional office, TAS will take the case. And if the taxpayer specifically requests and insists, TAS will take the case.

We’ll continue striving to help tax professionals and their clients. But before you contact TAS, please remember that we’re a finite resource that Congress created not to substitute for regular IRS procedures but to help taxpayers who need special attention.

If you are having Problems With the IRS, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).

Source:

Taxpayer Advocate Program Website

Journal of Accountancy

Read more at: Tax Times blog

IRS’s Voluntary Disclosure Data-Mining Program

September 7, 2012

Attorney Jay Nanavati published “Why Holders of Foreign Bank Accounts Need to Worry About IRS's Voluntary Disclosure Data-Mining Program” in Bloomberg BNA's Daily Tax Report.

In this Article Navavati asks "Have you ever been surprised by Facebook or LinkedIn’s ability to suggest people to whom you may be connected, when even you had forgotten how you were connected to those people?"  

"Perhaps the social networks’ technology crunched data that you provided on your home town, Boy Scout troop, high school, first job at McDonald’s, or flyfishing hobby, to find latent connections between you and a long-lost acquaintance."

U.S. taxpayers who are still considering whether to disclose their accounts need to understand that IRS's data-mining software, E-Trak Offshore Voluntary Disclosure system, increases their risk of being detected.

"Use of such data-mining technology is widespread, and the Internal Revenue Service has adopted it to find taxpayers with undisclosed offshore bank accounts. U.S. taxpayers who are still considering whether to disclose their accounts need to understand that IRS’s data-mining software increases their risk of being detected. They should act accordingly and seek legal advice immediately."

Additionally, the phasing in over the coming year of the Foreign Account Tax Compliance Act (FATCA) will only increase the breadth and depth of the data available to IRS and E-Trak.

If you have Unreported Income From Offshore Banks, contact the Lawyers at Marini & Associates, P.A. for a FREE Consultation at www.TaxAid.usor www.TaxLaw.msor Toll Free at 888-8TaxAid (888 882-9243).

Call US before Uncle Sam finds you!

 
 

Read more at: Tax Times blog

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