Magnifying glass in front of an open newspaper with paper houses. Concept of rent, search, purchase real estate.Even if you are not a tax professional, many people have heard of a 1031 exchange or like-kind exchange. This tax deferral provision has been a permanent part of the Internal Revenue Code for a long time. Usually, if a taxpayer swaps an asset for another asset it is usually a taxable sale.  However, if the exchange comes within Section 1031, then it can generate no tax or limited tax due.  Essentially, a taxpayer can change their investment without, according to the IRS, cashing out or recognizing capital gain. Continue Reading IRS Issues New Rules for Gain Deferral in Business Exchanges of Real Property

Gold wedding rings so close and a dollar, love and moneyTexas is a “community property” state; but all property in Texas is not “community property”.

In Texas, each spouse can have his or her own “separate” property, which generally consists of property that was acquired by gift or inheritance, and that which was owned by the spouse prior to marriage.  All other property is generally presumed to be community property. Continue Reading Collecting Separate Tax Debts from Community Property

Texas statelineShortly after I moved to Texas from Washington, D.C., a federal judge called me about a potential conflict with a party in a lawsuit I just filed. Once the conflict was resolved, and recognizing I didn’t have a Texas accent, he asked if I was new to Texas and then welcomed me.  This was years ago and the numbers of those moving to Texas has only increased.  California, in particular, seems to generate many newly minted Texans.  The exodus from California is real and it involves high-profile moves like Elon Musk and hundreds of other Californians. The reasons for the exodus are usually cost of living and no state income taxes. However, the California Franchise Tax Board (FTB) is notoriously aggressive and may not let you go quietly.  If you are new to Texas here is what you need to consider when making the breakup with California official. Continue Reading Leaving California for Texas May Cause State Income Tax Headaches

Black friday gift, paper box with red silk big round ribbon bow isolated on white backgroundA good friend called me recently with a question for one of his clients.  The client, an elderly client with health problems, wanted to know if the payments she has been making to her caregivers could be treated as non-taxable gifts, or if she has to report the payments to the IRS as wages? Continue Reading Love Don’t Cost a Thing? Drawing the Line Between Wages and Gifts

Cryptocurrency SavingsCryptocurrency is more accessible than ever before. Banks are continuing to both implement procedures for and, in some cases, develop their own cryptocurrencies. Paypal allows users in the U.S. to buy, sell and hold select cryptocurrencies directly through PayPal and it will enable cryptocurrency as a funding source for purchases in 2021. Volatility in the price of cryptocurrencies continues, and is likely to continue, but it is becoming a more recognized investment and method of payment. As more taxpayers integrate cryptocurrency into their finances, they should consider tax implications. Here are some things to remember about current or future cryptocurrency transactions and investment. Continue Reading Taxpayer Guidelines for Cryptocurrency in 2021

irsThe Washington Post published an article on April 8, 2015 titled “In Dallas, the IRS says it can’t chase tax cheats who owe less than $1 million.”  Here is a section of the article (emphasis added):

If these taxpayers are delinquent on $900,000, for example, the IRS won’t go after them; budget reductions have forced the revenue collection staff to train its firepower on cheats who owe $1 million or more.

I have to say, sorry, we can’t get that money,” said Richard Christian, supervisory revenue officer for the Dallas area.  “Nobody’s ever going to knock on their door.”

Amazing that the IRS would publically say something like this.  That being said, if you are in a hole with the IRS, your best option is to work with them to get them paid ASAP.  Avoiding the IRS is never a good idea.

Bloomberg BusinessWeek authors Devin Leonard and Richard Rubin published a great article this month about the current dysfunction at the IRS caused by underfunding and IRS scandal.

The IRS is not at the top of anyone’s “favorite” list.  Now even IRS employees are hating life and moral is at an all time low.  Here are some interesting excerpts:

  • IRS employees are being vilified (thank you Tea Party Scandal)
  • IRS employees are having to buy their own pens and paper clips due to budget shortfalls.
  • Employees computers are constantly crashing due to insufficient tech support.
  • IRS will not allow employees to speak to other tax professionals without approval.
  • IRS annual budget has fallen 1.2 billion.
  • 40% of phone calls seeking IRS assistance actually receive it.
  • Walk-in Assistance at all time lows
  • 19% fewer criminal investigations
  • 46,000 fewer IRS audits

The way things are going Ted Cruz may get his wish and the IRS will be dismantled.

The Supreme Court is hearing oral arguments Wednesday, March 4 on certain aspects of the Affordable Care Act.  This has the potential to unravel President Barack Obama’s beloved health care plan.

Another aspect of Obamacare that will affect many people is the excise tax on “Cadillac” health care plans.  A Cadillac plan is one that costs over certain thresholds.  Those thresholds for 2018 are:

  • Self-Only Coverage – $10,200
  • Family Coverage – $27,500

The costs of health care are exploding and this has caused employers to move towards high deductible health care plans.  The idea is to promote more cost-conscious consumerism.  Many employers think this has succeeded.  These plans are cheaper for employers, but much of the burden of the plan when health care is needed falls on employees and their families.

For instance, it is not uncommon for a high deductible health care plan to have a $10,000 deductible for a family.  For most Americans – having to pay $10,000 (pre or post tax) is a very huge imposition.  Those types of plans are potentially Cadillac plans.  Hard to believe right…

So what happens if you have a Cadillac Plan?

If the aggregate cost of your employer-sponsored plan exceeds the limits above, then there is a 40% excise tax.

That is a huge cost for employers and will likely lead to the quality of health insurance being driven down further.

Maybe that is President Obama’s goal – he wants everyone to be driving a broken down Yugo – not that fancy Cadillac.

The IRS is currently asking for public comment on developing regulatory guidance.  Hopefully, changes will be made this may or this may be the death of Obamacare.

Every year the IRS sends out its “Dirty Dozen” list.  This is a compilation of the most prevalent tax scams, with the intent to inform and warn taxpayers of tax related rip-offs.

The very first on the list involves phone scams.  The IRS warning reads as follows:

Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

Just last week a client of mine received a call from such a potential scammer.  Fortunately, the client was not home when the call came in and the person left a message.  The message stated that they were about to institute a law suit to collect taxes and foreclose on their home.

All of this is a complete fraud – the IRS will never make such a call.  They operate by sending such documents via mail.

After the client told me about the message, I called the area code 202 (Washington, DC) number that was left for my client.  The phone rang about eight times before a person answered.  The person had a very thick foreign accent and the call quality was not good.  It gave me the impression this person was not in the United States.  Here is the play by play:

  1. What IRS office are you calling from? Answer – the main IRS office in Washington DC.
  2. What address is that? Answer – 1111 Constitutional Ave (which actually is an IRS address)
  3. What is your employee ID number? Answer – IRM2076 (IRS employee IDs do not have letters)
  4. Sorry didn’t get your name? Answer – hard to spell foreign sounding name.
  5. Can you spell that for me? Answer – first name is spelled “F-#-@-K” and last name is “Y-O-U” (real letters were used)

Then the man starts to laugh and quickly hangs up.

This type of criminal fraud is unfortunately rampant this tax season.  CBS This Morning had a news piece on this issue a few days ago.

It is a very common story for small businesses to get behind on paying employment taxes.  Federal employment taxes are largely made up of FICA and withholding taxes.  The IRS is especially keen on businesses who fail to pay these taxes.  Not only is the government out the money it should be receiving, but it also has to pay out refunds and provide benefits.  In many ways it is a double loss.

The Department of Justice issued a press release regarding the wireless technology company Distributive Networks LLC.  Its owner, Kevin Bertram, pleaded guilty in federal court to willfully failing to pay more than $900,000 in employment taxes.

According to the press release, Bertram neither accounted for nor paid employment taxes due and owed to the IRS.  Over a two year period Bertram failed to file IRS Forms 941 and failed to pay $927,922 in employment taxes that he had withheld from his employees’ wages.

He is now looking at spending up to 5 years in “Club Fed” and a fine of up to $250,000.  He will still likely be on the hook for paying back the tax bill as well.

Failing to take care of employment taxes is probably the worst decision a small business owner can make.  It is very enticing to take a “short term” loan on the back of the Federal Government – but this will lead to personal liability and potential criminal problems.

There are remedies for this problem, but quick action is needed.