The new punitive tax bill that is intended to recoup bonuses paid by the federal relief money is absolutely legal, despite detractors who say the law can be construed as unconstitutional for targeting specific groups like AIG.
The legislation would tax 90% of the amount received from any institution that took at least $5 billion in taxpayer aid. And from the looks of things, the only reason the bill isn’t taxing 100% of the bonuses is to leave 10% for the states to take.
Is it bad tax policy?
It’s certainly unnerving to think of this narrowly targeted law as a weapon. And how effective will it be in the end as a deterrent? Are we better off just nullifying the bonuses?
There is definitely precedent for assessing punitive taxes for objectionable behavior, and this tax would be very similar to the excise tax levied on corporate raiders in conjunction with greenmail. And since there is so much outrage across the nation over the use of federal aid money to pay out corporate bonuses, the legislation has a good chance of passing in Congress and could help prevent further abuses while stimulating morale.
Nevertheless, it is still bad tax policy as it is aimed at a certain group of people, which some lawyers and Law School Professors will tell you – if you read the constitution – is unconstitutional. Ultimately the courts will decide after someone files a lawsuit against the government, which ultimately would be very costly.
Under the NEW IRC Section 165 Safe Harbor Rules the IRS estimates it will refund victims of the Bernard Madoff’s massive ponzi scheme around $17 billion!!
The Safe Harbor provisions are crucial to obtaining relief for victims of investment stock fraud because it converts what would ordinarily be a capital loss (which is offset against capital gains and any unused capital loss is then limited to a deduction of only $3,000 a year indefinitely) into an ordinary loss allowing the victim to offset ordinary income (such as W-2 and self-employment income, as some examples) in the year of discovery.
What Safe Harbor Really Means for Ponzi Victims
Safe Harbor makes it easier for victims to obtain a relief, but they will still need a specialized tax expert to prepare such returns and even more importantly -to represent them when the IRS challenges these returns (and the IRS will!). So when taxpayers are audited after following the safe harbor guidelines, they will need someone knowledgeable, assertive and aggressive in their corner to do battle with the IRS.
Investment gains and losses are always generally considered to be “capital” not “ordinary” which is a word in IRS lingo that describes non-passive income. If presented a choice, one would always chose to have a loss considered “ordinary” vs. “capital” as it can be used to offset ordinary (non-passive) income.
Remember: The IRS is not in the business of giving away money!
I am not surprised that the IRS has gone public with its “safe harbor” procedures for fraud victims. However, I would be surprised if the IRS actually follows through on their statements. I think we will see these returns being audited (challenged) left and right, as the IRS is not in the business of giving away money, as especially to the tune of $17 billion! It is not unusual at all for the IRS to do one thing while stating another. I see it happening every day of the week in my practice.
While Benrie Madoff was jailed last week after pleading guilty to charges surrounding his $65 billion Ponzi scheme, the IRS is busy issuing new guidelines for filing tax theft loss deductions.
In addition to simplifying and clarifying the filing process for those seeking refunds on taxes paid on “fictitious income,” the safe harbor provides relief for victims who complained they would have to wait years for liquidation and litigation to end before they could calculate the amount of their losses and get relief on their taxes.
The good news for Ponzi victims is that by using the safe harbor, they can declare a theft loss on 2008 tax returns (the year the fraud was discovered) for 95 percent of the amount they invested with Madoff. This is in addition to any “earnings” they left under his control, minus any withdrawals and amounts that have a reasonable prospect of recovery (including monies recovered through filing claims with the Securities Investor Protection Corp., which can be up to $500,000).
For victims suing an investment adviser, the safe harbor is reduced to 75 percent, while those not suing will be able to recover 95 percent. Either way, the full loss may be deducted when disputes are ultimately resolved.
And to complicate things just a little more, victims who are part of partnerships, or small businesses, will be able to go back 5 years to recover investments and phantom monies. Previously, it appeared victims could only go back three years. With this new ruling, a theft loss deduction that creates a net operating loss for the taxpayer can be carried back five years and forward 20 years to generate a refund of taxes paid in other taxable years.
Here’s a hypothetical scenario that might help illuminate the procedure (published on Time.com).
A Madoff victim with a balance of $1.5 million, but who withdrew $500,000 over the life of the account, would multiply the resulting $1 million by 95% (provided they are not suing Madoff) to yield their NOL, or a “net operating loss” of $950,000. The NOL would then be reduced further by whatever claims recovered from SIPC. If, for example, a victim were to receive from SIPC $200,000, that victim’s net operating loss would be $750,000, which would be the number used on tax returns to go back five years and forward 20 years from 2008 to recover monies against taxes paid.
Today’s question comes from a reader who spends sleepless nights worrying about tax debt…
Given what you’ve said before, I don’t think I qualify for an Offer in Compromise. But that doesn’t mean I’m not in tax debt that’s keeping me awake at night. What can I do?
You’re right — partially. Not everyone qualifies for the Offer in Compromise program, but you’re making a huge mistake by assuming from the outset that you don’t qualify.
If you’re lying awake at night as a result of tax debt, the first thing you need to do is see a qualified tax professional. He or she will analyze your previous returns and current financial situation with a fine-tooth comb. If you do indeed qualify for an Offer in Compromise, you could reduce your tax debt by pennies on the dollar.
But, for the sake of your question, let’s assume you do not qualify for the Offer in Compromise program. That doesn’t mean you don’t have options. The best among those options for you is likely the Installment Agreement.
The Installment Agreement works as its name implies: Let’s say you owe a substantial amount in tax debt but cannot pay off that debt with a single check. The IRS, despite its reputation for being tough on taxpayers, understands this situation, and for that reason, the tax-collecting agency offers the Installment Agreement. You can enter into an agreement that will allow you to pay down your debt in monthly installments — just like a car loan, for example — in a manner that will eliminate your debt in the long run without significantly compromising your life. For example, if you’re putting a kid through college, there’s no reason you can’t continue to do that and enter into an Installment Agreement.
The most important message to take away from this, though, is that you do have option. In fact, all taxpayers do. I deal with taxpayers in similar situations every day.
Got questions about tax audits, wage garnishments, IRS bank levies, payroll tax problems, or tax relief in general? Visit the Tax Resolution Services web site for a free tax relief consultation or call 866-IRS-PROBLEMS.
I was recently interviewed by My Business Magazine for an article titled “Tools of the Tax Trade” – about how technology can help us take control of tax documentation.
Taking Control of Your Business Finances – and Protecting Yourself From IRS Audit Penalties
Cool new products like the Neat Co.’s NeatReceipts handheld scanner has helped many taxpayers by making it easier and less time-consuming to keep track of thier expenses. NeatReceipts comes with software that scans and categorizes receipts and documents that can be output to Excel, Quicken, QuickBooks or TurboTax. You can sync it with your accounting software and print out everything at tax time.
Keeping careful track of receipts and documentation is a must for any business owner. Plus, if you’re audited by the IRS–and more small businesses are being targeted by the IRS today than in the past–you’ll need to provide the IRS auditors with a full paper trail, or risk paying additional taxes and penalties.
Additionally, if you’re scanning original documents, make sure you have some sort of backup on a memory stick or a DVD. If your hard drive crashes, you need a way to retrieve all your data.
How Long Do You Need to Store Your Records?
Your tax documentation can pile up quickly. You should keep cancelled checks, credit card statements, charitable contribution receipts–anything you’re including on that tax return. But how long do you need to hang on to all of this stuff?
You should keep your documents for at least four years from the date you file a return. The IRS has three years from the date you file a return to audit you.
However, since during the course of an audit the IRS can go back and reexamine six years worth of returns, I advise my clients to keep everything for seven years.
** If you are in trouble with the IRS, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-IRS-PROBLEMS.
It’s tax time and the April 15 deadline is making many individuals and small businesses anxious. In this challenging economy, many people will be unable to pay their full tax bill on time.
I was recently interviewed by Entrepreneur magazine on options for struggling taxpayers and I offered expert tax tips on how to make a deal with the IRS.
I always say the most important thing to do if you can’t pay your tax bill is tell the IRS right away. Your also need to continue filing tax forms on time. If all your tax returns are filed, you may be able to work out a payment plan or settle your tax debt in another way.
Plus, filing your tax return on time will save you a 25 percent late penalty.
It’s also important to know that in this current economic situation, more taxpayers are likely to qualify for tax help. The IRS has indicated that taxpayers who make a strong case (for example, changes in home equity) may be able to reduce the taxes owed through the Offer in Compromise program. In 2007, the IRS accepted just 12,000 offers of 46,000 submitted. But the IRS has announced that it will be making an effort to help distressed taxpayers, and it will be reviewing changes in home values in rejected offers to see whether sinking home values now qualify the applicant.
For more tax resolution strategies, read the full article here.
** If you are in trouble with the IRS, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
I recently appeared on a “Hey! Are you Talking to Me?” with Paul Varga on WMLN 91.5 in Milton, MA. We talked about what taxpayers need to do if they can’t afford to pay their 2008 tax bill and how people in tax trouble can get help!
Most people get into trouble with the IRS by not filing when they should. On average, our tax relief clients come to us with 4 – 11 years of unfiled taxes. Often times, something life altering happens that puts taxes on the back burner – whether it’s a job loss, divorce, custody battle. And not filing your tax returns can lead to more serious problems down the road.
TIP: If you don’t have the money to pay what you owe the IRS, here’s what you need to do:
Even if you don’t have money to pay your 2008 tax returns, you MUST file the return. We tell our clients to send a check for $5 or $10 along with the tax returns.
This eliminates the 25% failure to file penalty and creates a record of good faith and a credible effort to pay your taxes.
When the Obama nominees have tax problems, I’m not surprised because they are part of the population. It doesn’t matter whether you are a billionaire of at the poverty level, 15% of us have tax problems. And that’s costing the government $345 billion a year.
Listen to the full interview with WMLN host Paul Varga here.
** If you are in trouble with the IRS, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
Listen to my interview with Mind Your Bizness Show host Danielle Hampson. On “Talk to the Tax Expert,” we discuss what to do if you find yourself in financial difficulty and can’t afford to pay your tax bill this year.
In 2009, we can expect more tax audits and IRS actions against tax cheats. It’s a remarkable statistic, but 50% of the American tax paying public either haven’t filed appropriate tax returns or owe money.
Listen to this segment to find out what to do or what not to do when filing your 2009 tax returns.
First of all, know that not filing your tax returns is the worst thing you can do.
Even if you don’t have any money to pay, send in a check for $5 or $10 with your return so you don’t get hit with a 25% failure to file penalty. And even if you file an extension, make sure you’ve paid in 100% of your tax liability.
And be sure to avoid some of the most common mistakes when filing your tax return.
** If you are in trouble with the IRS, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
About Danielle Hampson: As a multi-lingual international business consultant Danielle Hampson has traveled the world helping business executives develop and implement global marketing strategies. As the founder of a business networking organization – The Art of Networking, she has helped thousands of entrepreneurs develop and improve their networking skills. She frequently speaks on the art of networking to the private and public sectors. She is an author on that very topic and is an Advisory Business Education Council Member for the Arizona Department of Education.
As the KLOS Tax Man, I give free tax advice to listeners who need help with their tax debt. It’s a great way for be to share my IRS problem solving skills and help more Americans qualify for tax relief. Check it out!
Tax Tip #44: Individuals finally get a tax break. For 2009 and 2010, taxpayers will see an immediate increase in their take home pay by between $400 to $800 a year. But what about the Americans who are behind the 8-ball? What about the people who owe back taxes or have unfiled returns? I don’t see any help for them in this bill – just the opposite! Non-filers and people who owe back taxes are more vulnerable than ever before. Are you tired of those unfiled returns, the wage and bank garnishments, the certified letters? Then give the attorneys a call at Tax Resolution Services, Co., for a free confidential consultation to see if we can help. Be a man! And stand up for your rights. Call 866-477-7762 or 866-IRS-Problems.
Whether you owe millions of dollars or only several thousand, our specialized staff of tax attorneys, CPAs and EAs can help you reach a resolution on your back taxes and obtain a fresh start towards financial freedom. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
According to National Taxpayer Advocate Nina Olson, the IRS Taxpayer Advocate Service (TAS) handled more than 274,000 taxpayer assistance orders in FY 2008.
The TAS was created by Congress to help taxpayers resolve their tax problems with the IRS and ensuring that taxpayer rights are protected in each case. Olson also recently addressed the authority of the National Taxpayer Advocate to help taxpayers navigate their issues through the IRS. Olson revealed that the TAS employees’ inventory is “the highest it’s ever been.”
With the current economic recession, Olson said the tax agency must consider the financial hardship facing taxpayers before it starts cracking down on delinquents.
“Taxpayers who previously were able to pay their taxes find themselves unemployed, behind on housing payments, and unable to meet their basic living expenses,” Olson wrote in the report.
Once again, tax complexity topped the annual Taxpayer Advocate list of the 20 most serious problems facing taxpayers. Check out Don’t Mess with Taxes for the full list from Olson’s 2009 Congressional report.
** If you are in trouble with the IRS, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
Last week, Sen. Carl Levin, chairman of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, examined the recent deferred prosecution agreement between the Department of Justice and UBS AG Bank of Switzerland, as well as the DOJ’s ongoing attempts to force the bank to identify its U.S. customers with secret Swiss bank accounts.
Recently, a senior executive of a large Swiss bank was charged with conspiring with other executives, managers, private bankers and clients to defraud the United States by concealing $20 billion in assets from the IRS.
Levin reintroduced his “Stop Tax Haven Abuse Bill” to “fight back and end the abuses inflicted on us by those tax havens.” IRS Commissioner Douglas H. Shulman testified at the hearing and responded to Levin’s suggestions for putting pressure on taxpayers using Swiss banks’ secrecy to avoid paying U.S. tax.
If you are in trouble with the IRS, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
I was recently asked to be the KLOS Tax Man! And as their go-to IRS expert, I give free tax tips to listeners who need help with their tax debt or IRS problems. Check it out!
Tax Tip # 28: More than ever, due to the current economy and the real estate meltdown, many hardworking Americans who never before qualified for tax relief, NOW QUALIFY.
Are you tired of those unfiled tax returns, the wage and bank garnishments, the certified letters and phone calls from the IRS? Then give the attorneys a call at Tax Resolution Services, Co., for a free confidential consultation to see if we can help. Be a man! And stand up for your rights. Call 866-477-7762 or 866-IRS-Problems.
The government estimates that unclaimed refunds totaling approximately $1.3 billion are waiting to be claimed by about more than a million taxpayers who neglected to file a federal income tax return for 2005 and are eligible for refunds. However, to collect the money, a return for 2005 must be filed with an IRS office no later than Tuesday, April 15, 2009.
The IRS also estimates that about half of the taxpayers who could claim refunds for tax year 2005 would get a refund of at least $581.
In California, about 154,500 people are owed a median refund of $537 (half can expect more, and half less), while in Texas, 103,000 taxpayers are owed a median of $624.
A state-by-state breakdown of estimates for individuals who failed to file a 2005 return with a refund due is below.
If you didn’t file a 2005 return, consider doing so soon: The deadline for claiming a refund for that tax year is April 15 this year, and you must file a return to get a refund. After that deadline, any unpaid refunds for 2005 are handed over to the U.S. Treasury. You will lose your tax refund if you do not file within 3 years of the due date of the tax return.
There is no penalty for filing a late return if you have a refund coming to you. However, to be eligible for a refund for 2005, you must also file your 2006 and 2007 returns as well. And, if you have any outstanding taxes owed or other federal debt, such as student loans, the IRS will apply the refund to that debt before sending any money to you.
It’s not always taxpayers with big tax bills that don’t file returns. Many people decide not to file if their income falls below the filing threshold. And many low-income workers may stand to lose more than their refunds, including those who may not have claimed the Earned Income Tax Credit (EITC). Generally, unmarried individuals qualified for the EITC if in 2005 they earned less than $35,263 and had more than one qualifying child living with them, earned less than $31,030 with one qualifying child, or earned less than $11,750 and had no qualifying child.
Current and prior year tax forms and instructions are available on the Forms and Publications page IRS we site or by calling 1-800-TAX-FORM (1-800-829-3676).
If you need help filing your back taxes, visit the Tax Resolution Services web site for a free tax relief consultation or call 866-IRS-PROBLEMS.
Today’s question comes from Doug P, an investment fraud victim interested in recovering his losses when he files his 2008 taxes…
In Dec. of 2007, I gave an independent broker some money to invest for me. About $30,000. Three weeks later (first part of Jan 2008 ) he sends me a check for the amount I gave him and in the letter told me this money was never invested.
UHHHMMMMM. Ponzi gone wild.
Several weeks later the Fed’s stepped in – he went to court—he is now in prison (long story short). Now the courts tell me if I give back 100% of the money they will divide it up and maybe send me a couple of dollars.
If I give back 60% of the money they just tell me thank you and good by.
If I give back 0% of the money they take my house.
I gave them 60% plus lawyers fees. What is the best way to handle this when I file taxes?????
Help –from a laid off worker that needs help…..
~Doug P
Hi Doug,
You can take a Section 165 deduction on the 60% (less what you get back) that you lost. This goes on your 2008 return as an “ordinary loss” (vs. a very limited capital loss). The ordinary loss reduces your taxable income in 2008, thereby allowing you, at least, to recoup the tax effect on the 60%. If the loss was greater than your income in 2008, you can elect to carry back the loss to the previous 3 years or elect to carry it forward for the next 20 years.
Make sure you have a competent CPA who knows what they are doing. This is a complicated process and your return may be audited so you need expert professional representation if you are going to undertake this process.
This is what I recommend to fraud loss victims, including former Bernie Madoff clients and other investors seeking relief from fraud.
Got questions about tax audits, wage garnishments, IRS bank levies, payroll tax problems, or tax relief in general? Visit the Tax Resolution Services web site for a free tax relief consultation or call 866-IRS-PROBLEMS.
The latest Obama administration nominee with tax troubles is Ron Kirk, the President’s choice to be U.S. trade representative. Kirk owes an estimated $10,000 in back taxes from earlier in the decade and has agreed to pay them. He has also agreed to file an amended tax return this week
According to reports, the former Dallas mayor failed to list speaking fees as income because he paid them directly to support a scholarship fund. He should have listed the income on his tax returns and claimed them as charitable donations.
Recently, it was disclosed that treasury pick Tim Geithner owed $34,000 in back taxes and interest on income he made while working for the International Monetary Fund. And former Senate Majority Leader Tom Daschle withdrew as a nominee to Health and Human Services Secretary after it was disclosed that he failed to pay $128,000 in taxes, while Nancy Killefer, Obama’s pick for chief performance officer, also bowed out amid tax problems.
With so many high profile people to making headlines with their IRS problems, it reminds us that 1 in 6 (or about 16%) of the taxpaying public has tax problems. And in this challenging economy, I expect the more people will be needing tax help.
If you owe back taxes or are in trouble with the IRS, our specialized staff of tax attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
News, commentary, insight, tips and humor from tax expert Michael Rozbruch
Michael Rozbruch is a Certified Tax Resolution Specialist, a member of the American Society of IRS Problem Solvers and a Maryland CPA.
IRS PROBLEMS?
If you find yourself in trouble with the IRS and need professional tax attorney and tax resolution services, call (888) 699-7630. Effective tax negotiation and representation means that your tax attorney, Certified Tax Resolution Specialist or CPA will take over all communications with the IRS, filing any delinquent tax returns to bring you to full IRS compliance while vigorously defending your rights as a taxpayer to permanently resolve your back taxes and IRS problems.
