News and miscellaneous legal topics – 2013
The current fee in effect since 2007 for entering into an installment agreement is $105, except that it is $52 for a direct debit installment agreement under which the taxpayer authorizes IRS to debit the payments monthly from the taxpayer's bank account, and $43 for low-income taxpayers regardless of their method of payment. The current charge for restructuring or reinstating an installment agreement that is in default is $45.
After Jan. 1, 2014 the fee is $120 for entering into a regular installment agreement; $52 for a direct debit installment agreements; $43 for installment agreements by low-income taxpayers (Reg. §300.1); and $50 for restructuring or reinstating an installment agreement (Reg. §300.2).
Since 2003, the offer in compromise fee has been $150, $0 if an offer is based solely on doubt as to liability or is made by a low-income taxpayer. After Jan. 1, 2014 the fee is $186 (Reg. §300.3).
The IRS determined the full cost of an offer to compromise, including examination of the taxpayer's financial position, processing payments, and monitoring compliance, is $2,718.
Gov. Nixon executive 13-14 orders DOR to accept combined Missouri tax returns from all legally married couples 11/19/13
WHEREAS, following the United States Supreme Court's decision in United States v. Windsor, 570 U.S. _______, 133 S.Ct. 2675 (2013), the Internal Revenue Service issued Revenue Ruling 2013-17, in which it announced that "[f]or Federal tax purposes, the terms 'spouse,' 'husband and wife,' 'husband,' and 'wife' include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term 'marriage' includes such a marriage between individuals of the same sex"; and
WHEREAS, the Internal Revenue Service has announced that, under Revenue Ruling 2013-17, same-sex couples legally married in a state that authorizes such marriages, regardless of their place of domicile, may file a joint federal individual income tax return; and
WHEREAS, the tax code of Missouri is coupled to the federal tax code, and Missouri tax filers are required to utilize information from their federal tax return when completing their Missouri state income tax return; and
WHEREAS, section 143.031.1, RSMo, mandates that "[a] husband and wife who file a joint federal income tax return shall file a combined [state] return"; and
WHEREAS, section 143.091, RSMo, requires that "[a]ny term used in sections 143.011 to 143.996 shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes...."; and
WHEREAS, the Department of Revenue, under section 143.091, RSMo, must apply the same meaning to the phrase "husband and wife" as is applied under federal law pursuant to Revenue Ruling 2013-17; and
WHEREAS, married individuals, including same-sex couples legally married in a state that authorizes such marriages, who file a joint federal income tax return must file a combined income tax return with the State of Missouri.
NOW, THEREFORE, I, JEREMIAH W. (JAY) NIXON, GOVERNOR OF THE STATE OF MISSOURI, by virtue of the authority vested in me by the Constitution and laws of the State of Missouri, do hereby Order the Missouri Department of Revenue to follow sections 143.031.1 and 143.091, RSMo, and require all taxpayers who properly file a joint federal income tax return to file a combined state income tax return. IN WITNESS WHEREOF, I have hereunto set my hand and caused to be affixed the Great Seal of the State of Missouri, in the City of Jefferson, on this 14th day of November, 2013.
Jeremiah W. (Jay) Nixon Governor
IRS issued proposed regulations that, effective January 1, 2014, would increase the user fees charged to taxpayers who seek to pay their taxes either through an installment agreement or an offer in compromise (OIC). The IRS currently charges $105 for an installment agreement, reduced to $52 for a direct debt agreement, authorizing monthly payments, and $43 for low-income taxpayers. The charge is $45 to restructure or reinstate a defaulted agreement. The IRS determined that the full cost of an agreement is $282; $122 for a direct debt agreement; and $85 for a restructure or reinstatement. The IRS proposes to raise the installment agreement fee to $120, and the restructuring fee to $50. Other fees would not be increased. The IRS currently charges $150 for processing an OIC. No fee is imposed on a low-income taxpayer. The IRS claimed that the full cost of an OIC is $2,718. The IRS proposes to raise the user fee for an OIC to $186.
Governor Nixon cited the bill as "an ill-conceived, fiscally irresponsible experiment that would inject far-reaching uncertainty into our economy, undermine our state's fiscal health, and jeopardize basic funding for education and vital public services[, that] … would increase taxes on prescription drugs and college textbooks, provide special treatment for some businesses while discriminating against others, and make our tax code less economically efficient and less fair."
EFF is partnering with leading lawyers to bust a key patent being used to threaten podcasters 6/1/13
EFF is partnering with the Harvard's Cyberlaw Clinic to investigate a challenge to this patent at the patent office. The most likely procedure will involve a new legal tool called the "Inter partes review" introduced by the America Invents Act. If we are successful in this process, the patent gets invalidated and Personal Audio would be unable to assert it against anybody.
EFF posted a detailed call for prior art at Ask Patents. That includes the details about the patent claim being asserted and some examples of prior art we have already located.
What's so bad about the IRS investigating nonprofit applications? That's their job. The real scandal is that the ensuing hubbub will discourage them from doing it again, writes Former NPR CEO Ken Stern 5/28/13
… And it had good reason for doing so. As it has now been widely reported, the definition of "social welfare" organizations has historically meant civic leagues, employee organizations, or issue groups such as the Sierra Club, groups that have little in common with the plainly political and electoral goals of the Tea Party Movement and Karl Rove's Crossroads GPS. Congress long ago created a category for politically oriented groups under code provision 527. Just as with 501(c)(4) groups, political groups organized under Section 527 are tax-exempt, but unlike 501(c)(4) nonprofits, these groups have significant transparency and disclosure requirements. The Citizens United decision engendered a land rush for these groups seeking nonprofit status as 501(c)(4) organizations, with the sole purpose of avoiding the congressionally mandated donor-disclosure requirements of Section 527. …
The IRS is collecting personal information on taxpayers' digital activities, including eBay auctions, Facebook posts, credit card and e-payment transaction records, as it expands its search for tax cheats. The IRS has brought in private industry experts to employ digital tracking similar to "cookies", but with access to Social Security numbers, health records, credit card transactions and other privileged information marketers don't see. The IRS has said it will use a massively parallel computer system that can analyze data from different networks to find irregularities and suspicious activities. Report by U.S. News & World Report via msn Money 4/10/13. http://money.msn.com/credit-rating/irs-tracks-your-digital-footprint?page=0
The Missouri House of Representatives passed H.B. 253, "Broad-Based Tax Relief Act of 2013" on April 18, 2013 5/4/13
Corporate Income Tax Rate
For tax years beginning on or after January 1, 2013, the Office of Administration would determine the corporate tax rate if Missouri net individual and corporation income tax revenues for the preceding June 30 fiscal year equals or exceeds revenue for the fiscal year ending June 30, 2011. If revenues decrease, the rate would remain the same. In the 1st year revenues equal or increase, the rate would decrease from 6.25% to 5.625%. In the 2nd, 3rd, 4th, and 5th years in which revenues equal or increase, the rate decreases to 5%, 4.375%, 3.75%, and 3.125%, respectively. Once a decrease occurs the rate would not increase even if revenues are less than the fiscal year ending on June 30, 2011.
Also, notwithstanding the above, for tax years beginning on or after January 1, 2013, the corporation tax rate would be 3.125% if a corporation's average annual payroll exceeds 150% of the county average wage in the county where the corporation is located.
Business Income Tax Deduction
For all tax years beginning on or after January 1, 2013, the Office of Administration would determine the percentage of business income deductible by sole proprietors, partners, and S corporation shareholders on individual income tax returns using the same comparison used to determine the corporate tax rate. In the 1st year revenues equal or increase from the fiscal year ending June 30, 2011, 10% of business income would be deductible. In the 2nd, 3rd, 4th, and 5th years revenues equal or increase, the deductible percentage of business income would 20%, 30%, 40%, and 50%, respectively. Once an increase occurs the percentage will not be decreased even if revenues in any following tax year is less than the fiscal year ending on June 30, 2011.
Also, notwithstanding the above, for tax years beginning on or after January 1, 2013, if the average payroll for the tax year of the business generating the business income exceeds 150% of the county average wage in the county in which the business is located, 50% of business income would be deductible.
An employer could file an annual instead of quarterly withholding return when the aggregate amount withheld is less than $100 (currently $20) in each of the 4 preceding quarters, and the employer is not otherwise required to file on a quarterly or monthly basis.
Sales Tax Provisions
Sales tax on fees paid to places of amusement, entertainment or recreation, games and athletic events would be eliminated, BUT, the amount paid for admission and seating accommodations would still be subject to sales tax. Titled manufacturing or mining equipment would be specifically exempt from the local sales tax.
Missouri Department of Revenue Director Brian Long, originally appointed in December 2012, has resigned, effective immediately, and Deputy Director of Revenue John Mollenkamp was named acting director. Missouri Gov. Jay Nixon News Release, April 15, 2013
IRS Fresh Start Program Helps Taxpayers Who Owe the IRS 4/17/13
The IRS Fresh Start program makes it easier for taxpayers, including small business taxpayers, to pay back taxes and avoid tax liens.
The Fresh Start program increased to $10,000 the amount that taxpayers can owe before the IRS will generally file a Notice of Federal Tax Lien. The IRS may still file a lien notice on amounts less than $10,000.
The IRS may now withdraw a filed Notice of Federal Tax Lien when a taxpayer meets certain requirements and pays off their tax debt. Taxpayers must request this in writing using Form 12277, Application for Withdrawal.
Some taxpayers may qualify to have their lien notice withdrawn if they are paying their tax debt through a Direct Debit installment agreement. Taxpayers also need to request this in writing by using Form 12277. If a taxpayer defaults on the Direct Debit Installment Agreement, the IRS may file a new Notice of Federal Tax Lien and resume collection actions.
The Fresh Start program expanded access to streamlined installment agreements. Individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (six years). While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer. The easiest way to apply for a payment plan is to use the Online Payment Agreement tool at IRS.gov. If you don't have Web access you may file Form 9465, Installment Agreement, to apply.
Taxpayers who need an installment agreements for tax debts over $50,000 or longer than 6 years must provide a financial statement to the IRS. The IRS may ask for 1 of 2 forms: either Collection Information Statement, Form 433-A or Form 433-F.
The IRS Fresh Start program expanded and streamlined the OIC program (and also made changes to the installment agreement and lien filing and withdrawal procedures), and the IRS has more flexibility when analyzing a taxpayer's ability to pay. Use the Offer in Compromise Pre-Qualifier tool on IRS.gov to see if you may be eligible for an OIC.
Additional IRS Resources:
- Online Payment Agreement tool
- Fresh Start Notice of Federal Tax Liens
- Form 12277, Application for Withdrawal
- Understanding a Federal Tax Lien
- Offer in Compromise Pre-Qualifier tool
- Offer in Compromise
- Electronic Payment Options Home Page
- Payments (payment options)
R.S.Mo Section 144.526.1 creates the "Show-Me Green Sales Tax Holiday." Beginning in 2009, during a seven day period from April 19th through April 25th, sales of qualifying Energy Star certified new appliances are exempt from state sales tax. Local jurisdictions can choose to participate in the Show-Me Green Sales Tax Holiday.
Information on the Show-Me Green Sales Tax Holiday can be found on the department's website at http://dor.mo.gov/business/sales/taxholiday/green/.
Missouri Senate Passes S.B. 26 on March 11, 2013, that Would Cut Income Tax Rates, Raise Sales Tax Rate, and more 13/27/13
S.B. 26 would decrease corporate and personal income tax rates, add income tax exemptions and deductions, increase the state sales and use tax rate, modify use tax nexus provisions, add click-through and affiliate nexus provisions, and require the Department of Revenue to enter into the Streamlined Sales and Use Tax (SST) Agreement. Gov. Jay Nixon has stated his opposition to the bill.
The corporate and maximum personal income tax rates would be reduced by .75% over 5 years, beginning with the 2014 tax year. The corporate rate would be 5.5%, and the maximum personal rate 5.25%, for tax years beginning on or after January 1, 2018.
If the federal government passes the Marketplace Fairness Act of 2013, or similar legislation, providing for a uniform method of collection of sales and use tax on purchases shipped into the state, the corporate and maximum personal income tax rates would be reduced another .25%.
Exemptions and deductions
The first $25,000 of corporate income would be exempt . A personal business income tax deduction for income would be phased in over 5 years, 10% of business income for 2014, increasing to 50% for tax years after 2017. S corporations shareholders and partners in partnerships would be allowed a proportionate deduction based on their share of entity ownership. Individuals with less than $20,000 Missouri adjusted gross income could deduct an additional $2,000 personal exemption.
Sales and Use Taxes State rate increase
Missouri sales and use tax rate would be increased by .1% each year for 5 years, beginning January 1, 2014. After January 1, 2018, the sales and use tax rate would be 4.5%.
Use tax nexus
Executive branch agreements with any person exempting them from sales and use tax collection would be void unless approved by both chambers of the General Assembly.
The definition of "engages in business activities within this state" would be modified. The use of media to exploit Missouri's market would no longer make a vendor meet the definition. Being controlled by the same interests that control a seller engaged in a similar line of business in this state would no longer meet the definition.
Click-through and affiliate nexus
A rebuttable presumption that a vendor engages in business activities within this state if:
- any person with a substantial nexus to Missouri performs certain activities in relation to the vendor within this state is added (rebutted by showing that the person's activities are not significantly associated with the vendor's ability to maintain a market in Missouri)
- by agreeing with a Missouri resident to refer customers generating more than $10,000 sales in the preceding 12 months (rebutted by showing that the Missouri resident did not engage in activity within Missouri that was significantly associated with the vendor's market in Missouri in the preceding 12 months).
Streamlined Sales and Use Tax (SST) Agreement
The Department of Revenue ("DOR") must enter into the SST Agreement, effective January 1, 2015.
Cities with sales taxes must notify DOR within 10 days of changing their boundaries. Any sales tax changes due to a boundary change, or a political subdivision changing its local sales tax rate or taxing boundary, would be effective the first day of the calendar quarter 120 days after DOR receives notice of the change.
- State and local sales taxes must have the same bases and identical state and local level exemptions
- uniform sourcing rules would be required
- political subdivisions could not out of sales tax holidays
- DOR must participate in an online registration system, and registration in the system could not be used as a factor to determine Missouri nexus
- DOR must accept electronic payments
- DOR must provide electronic databases for taxing jurisdiction boundary changes, tax rates, and a taxability matrix detailing taxable property and services. Sellers are relieved from liability if they fail to properly collect tax based upon certain information provided by DOR
- Sellers would receive amnesty under certain circumstances following registration with Missouri
- Sellers and certified service providers would retain 2% for collecting and remitting state and local taxes
- The entire price of bundled products with one item being taxable and the other nontaxable would be taxed unless the provider could identify the nontaxable portion. The entire price of bundled items with different tax rates would be taxed at the highest tax rate price for unless the provider could properly identify the lower taxed item
Tithing and college expenses are conditionally allowed and "necessaryand reasonable" only if taxpayer can pay in full within 5 years 13/21/13
An individual's church tithing expenses were only allowed as "conditional expenses" to determine how much he could pay in a partial installment agreement because the classification: (1) conformed to the Internal Revenue Manual guidelines; (2) did not violate the Free Exercise Clause of the First Amendment; and (3) did not violate the Religious Freedom Restoration Act of 1993 (RFRA). Tithing as a "condition of employment" is related to production of income, and it was not an abuse of discretion to limit "condition of emploment" to "compensated employment" (taxpayer was not compensated). The court found it was reasonable to interpret "health and welfare" as not including petitioner's "spiritual" health and welfare. Taxpayer's children's college expenses were also "conditional expenses". Taxpayers must be able to fully pay their tax liabilities within 5 years for "conditional expenses" to be classified as "necessary expenses." George Thompson v. Commissioner, U.S. Tax Court, CCH Dec. 59,469, 140 T.C. No. 4, (Mar. 4, 2013.
The House bill would provide amnesty from assessment or payment of penalties, additions, and interest for unpaid taxes inccurred on or before December 31, 2012, starting July 1, 2013, and end December 31, 2016. Taxpayers must apply for amnesty, file a return, pay the unpaid taxes in full from August 1, 2013, to October 31, 2013, and agree to comply with state tax laws for 8 years.
Amnesty is not available to taxpayers under criminal investigations, or with civil or criminal litigation pending in any U.S. or Missouri court for nonpayment, delinquency, or fraud relating to state tax. If a taxpayer does not comply with state tax laws during the 8 years, all waived penalties, additions to tax, and interest become immediately due and owing. The amnesty election expressly and absolutely relinquishment of all administrative and judicial appeal rights, and no tax payment under the amnesty program would be eligible for refund or credit.
A pilot project giving the public free, text-searchable, online-access to all federal appellate, district and bankruptcy court opinions pulls opinions nightly from the courts' Case Management/Electronic Case Files (CM/ECF) systems and post them on the FDsys website http://www.gpo.gov/fdsys/. Currently, more than 600,000 opinions dating back to 2004 are available.
Missouri Supreme Court Holds that Electricity of Apartment and Condominium Common Areas Exempt from Sales Tax 1/16/13
The Court reversed the Administrative Hearing Commission and held that utilities for residential apartments or condominiums common areas and facilities are exempt from sales tax as for "domestic use", and ordered a full refund of the sales tax paid, plus interest.
The Court held that the plain language of the exemption statute provides that utilities purchased for residential apartments or condominiums common areas and facilities are for "domestic use", whether purchased through a single meter or through a master meter. Seller's classification as "commercial" is conclusive as to whether the utility must charge sales tax, BUT, does not affect purchaser's ability to apply for and receive a refund for the domestic use exemption. (801 Skinker Boulevard Corp. v. Director of Revenue, Mo. S. Ct., Dkt. No. SC92401, 01/08/2013.)
CDP hearing request tolled the three-year lookback period long enough to render otherwise dischargeable taxes nondischargeable 1/9/13
The Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") amended Section §507(a)(8) to include an unnumbered paragraph 4 that provides in relevant part: "An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days … ." See In re Phillip Lastra, Debtor. Phillip Lastra, Plaintiff v. United States of America, Department of the Treasury, Internal Revenue Service, Defendant., U.S. Bankruptcy Court, D. New Mexico, 2013-1 U.S.T.C. ¶50,116, (Dec. 21, 2012). Taxpayer's bankruptcy case was filed more than 3 years after his 2007 tax return was last due, including extensions, and absent any tolling of the 3-year lookback period, the 2007 Taxes would have been discharged. Taxpayer's CDP hearing request tolled the three-year lookback period long enough to render his otherwise dischargeable 2007 taxes nondischargeable.