THE TAX ATTIC with Jerry Coon

May 26, 2011 // 0 Comments

IRS, Congress crack down on assets in foreign institutions Over the past many years, we have seen a concerted effort by Congress and the Internal Revenue Service to force United States citizens to disclose whether they have financial assets in foreign countries. The basis for wanting to know this information is very straightforward: as tax-paying citizens of the USA, according to Section 61 of the Internal Revenue Code, we are responsible for paying taxes on income from all sources “without regard to geographic location or source.” Since the IRS is in the business of not trusting people to report all income from all sources and, therefore to pay all of their tax due, it’s totally understandable why they would want to know who has what assets in which foreign countries. We saw the fruits of their labors in the newspapers last year when UBS, the Swiss bank, turned over the names of thousands of U.S. citizens who had upwards of at least $50,000 in the Swiss bank. It has to be noted that it is not illegal to have $50,000 or $150,000 or $1,500,000-plus in a Swiss bank or in a Canadian bank or in an Australian bank or in a Cayman Island bank. It is illegal, however, not to report the income that is generated by the money in the bank. There might also be a question of just how a taxpayer might have accumulated that $50,000 or $150,000 or $1,500,000 in the first place. The accumulation of that money might have created some taxable income. That’s what happened to Al Capone, the Chicago gangster, back in the depression. He ended up in jail because he didn’t report income earned or how he accumulated income. It didn’t matter how Capone accumulated income. The fact is he accumulated assets and did not report how he accumulated those assets nor did he pay tax on the income from those accumulated assets. To find out about these assets and the income associated with those assets, in 1972, Congress passed the Bank Secrecy Act. The Act requires U.S. persons to disclose if they have accounts in foreign financial institutions in which they have an interest or over which they have signature authority or are owners of a foreign […]

THE TAX ATTIC with Jerry Coon

January 27, 2011 // 0 Comments

Congress is using new tactic   It goes without saying that our tax system is very complicated. Our Congress helps to make that system more complicated when they pass laws that are not first and foremost tax laws. Buried within those non-tax laws, however, are tax provisions; sometimes very complicated tax provisions. The most glaring example of late is the Health Care Reform bill passed last year. In many ways, Congress tied Health Care Reform directly to the tax code. For example, all taxpayers will eventually be required to buy a health insurance policy. If a health insurance policy is not purchased, the taxpayer may pay a penalty on his/her tax return. The “may” part comes into play because if the taxpayer’s income is low enough, there won’t be a penalty. The taxpayer’s final out-of-pocket cost for the policy itself will also be tied to his/her level of income as reported on the tax return. The lower the income, the lower the taxpayer’s final cost of insurance. Congress has just given another incentive to keep total income down. A second example is the provision that requires all businesses to file 1099s to all other businesses from which they buy at least $600 of goods and services. I’m not exactly sure at this moment what filing 1099s has to do with Health Care Reform. What I do know is that if this provision is not repealed, an additional 40,000,000 form 1099s will have to be filed and will be clogging up an already overburdened tax system. Businesses will be paying for those additional 40,000,000 forms to be prepared and filed. We all know that businesses don’t pay taxes or for tax preparation—consumers pay those costs. Tax and tax preparation costs are just another part of the cost of doing business that a business simply passes on to the buyer of the product. When these types of costs go up, our costs go up as consumers. It’s a thought to keep in mind two years from now when this particular provision kicks in. A third example is the provision that requires all charge card companies to report to the IRS all transactions for all taxpayers. If you sell one item on e-bay and accept a credit card […]

The Tax Attic with Jerry Coon — January 14, 2010

January 14, 2010 // 0 Comments

My intent this week was to continue writing on what a taxpayer should do if he or she receives an incorrect W-2 or 1099. However, the Internal Revenue Service has interrupted my plans. Since the first day I entered the tax business in 1978, the IRS has, off and on, announced plans to formulate a plan to regulate all tax preparers. In the past year or two, under the direction of current IRS Commissioner Douglas Shulman, these plans have finally moved to the implementation stage. Since approximately 80 percent of taxpayers employ either a tax preparer or use commercial software to prepare their return, this is a very good thing for all taxpayers. Shulman said, “Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system.” These regulations will raise the competency of all tax preparers and will allow the IRS to better regulate all tax preparers. This means that, in theory at least, taxpayers will receive a better product when they pay a tax preparer to prepare their return. Three classes of tax preparers have always been regulated. Enrolled agents (EAs), certified public accountants (CPAs), and attorneys have been required to take competency exams, to take yearly Continuing Professional Education (CPE), to register with the IRS, and to abide by a professional code of conduct as laid out in IRS Publication, Circular 230. Oddly enough, other non-regulated preparers were not subject to any of these requirements. All of that changed on January 4, 2010, when the IRS issued News Release IR-2010-1, Fact Sheet FS-2010-1, Fact Sheet FS-2010-2, and the 57-page Return Preparer Final Report. Now, anyone who signs a tax return as a paid preparer will be subject to a full set of regulations similar to EAs, CPAs and attorneys. First, they will be required to register with the IRS and obtain a Preparer Taxpayer Identification Number (PTIN). As part of this registration process, the IRS does perform a background check and can refuse to issue a PTIN. The IRS is allowed to charge a “reasonable, non-refundable fee” for issuing a PTIN. The registration must be renewed every three years. The IRS retains the privilege and is considering expanding this registration process to […]

The Tax Attic

April 15, 2009 // 0 Comments

When is Tax Freedom Day? What a difference a year makes. No, I’m not talking about April 15. That day comes hell or high water, or maybe hell AND high water is the more appropriate way of stating it. I’m talking baseball in general and Detroit Tigers baseball in particular. I’m one of those lifelong Detroit baseball fans who grew up listening to Ernie Harwell and Paul Carey on the radio and watching George Kell and Al Kaline on the television. As a youngster, what a treat it was to get to watch a Tiger game on one of those rare weekday nights when the game was on TV. Today, all of the games are on Fox Sports or ESPN, but back then usually only weekend games were shown on Channel 3. I guess bumping a regular night of programming off the air for a normal regular season baseball game wasn’t all that wise of a choice. Last year, at this time, the Tigers were zero for April. They lost their first seven games. Their bullpen gave away many of those games. I, personally, was stunned. They had more hitting firepower than any other team in baseball. Their starting pitchers were dependable pitchers. The bullpen was stocked with veteran relievers. Granted, they had a few deficiencies in the field. They were going to make some errors, but out-hitting and outscoring the opposition can make up for not catching every ball. Things unraveled quickly last year. Getting off to a 0-7 start has a way of doing that. The dependable starting pitchers either injured their arms or seemed to just forget how to pitch. The relievers couldn’t throw strikes or injured their arms, or didn’t throw strikes and injured their arms. What a disaster. However, it’s a new year, and these Tigers are off to a great start. The fielders actually do catch the ball. The hitters are hitting. Other teams have more and better hitters, but not by much. The starting pitchers are back to being somewhat dependable. Most importantly, the relief pitchers seem to be able to throw strikes, get some people out, and protect a lead in the seventh, eighth and ninth innings. Go, Tigers. Maybe by the time October and the playoffs come […]