THE TAX ATTIC with Jerry Coon

April 14, 2011 // 0 Comments

Filing an extension? This is the last tax article I will be writing before the end of the 2010 tax filing season. All individual returns are due to be postmarked or e-filed by midnight on the 18th of April. Returns can be e-filed right up until midnight from any computer, but it’s up to the local post office if they will accept tax returns put in their box and still postmark it on the 18th. Why do we get to file returns until the 18th this year when the 15th is on a Friday and the 15th is the traditional due date for tax returns? Thanks can be sent to President Abraham Lincoln for this one. On January 1, 1863, Lincoln issued the Emancipation Proclamation freeing all slaves in states that had succeeded from the Union. A constitutional note here: if you think the Presidential office doesn’t have some horsepower behind it, Congress did not pass the Emancipation Proclamation. President Lincoln issued the Emancipation Proclamation as an Executive Order under his authority as Commander in Chief of the Army and Navy. That power was granted to the President by Article II, Section 2 of the United States Constitution. No one at the time argued with Lincoln even though it was an aggressive order. He had the power to issue the Executive Order and, besides, it took Congress off the hook. They didn’t have to pass a law freeing the slaves. Lincoln took the heat. That heat ultimately cost him his life. The Emancipation Proclamation, even though it was issued on January 1, is celebrated this year on April 15 in Washington, D.C. as a holiday. The national office of the Internal Revenue Service is located in Washington, D.C., so that office is closed because of the holiday. When the national office of the IRS is closed, all of the IRS offices are closed, including the various processing centers. Since the last day of tax season can’t be on a day the IRS is closed, which includes Saturday and Sunday, we have until Monday, April 18 to finish up and file all available tax returns. About 80% of all returns are filed on or before April 18. Of course, that means about 20% of returns will […]

THE TAX ATTIC — with Jerry Coon

April 7, 2011 // 0 Comments

Changes not always fair It must be baseball season. Even George Will, the conservative columnist, devoted his Sunday column to baseball trivia. I don’t always agree with Mr. Will, but I make it a point to read his column. I am one of those life-long baseball fans, but when George said trivia, he wasn’t kidding. They were very tough questions. A couple of them did involve the Detroit Tigers and I did get those right. Ernie Banks, Hank Aaron, and Dave Winfield were answers to three questions that I knew, but the other questions all would have required me to get out the latest edition of Baseball Digest to get the answers correct. Right now, as we close in on April 18, I don’t have the luxury of time, so I just looked at George’s answers. That is one reason I love baseball. The rules haven’t changed so much that a Lefty Grove, who was a dominant pitcher in the 1920s and 1930s, can be compared to a Bob Gibson, who was a dominant pitcher in the 1960s, and they both can be compared to a Randy Johnson, who is of recent vintage. Pitching is still throwing a ball 60 feet, 6 inches over the home plate and trying to either get the hitter to swing and miss or get him to hit the ball to a fielder. All the hitter wants to do is hit it where the fielders aren’t. Hitting it hard where the fielders aren’t feels better than blooping it where they aren’t, but it’s a hit in the record books all the same. Not that much has changed in the 100-plus years of baseball other than the games take a whole lot longer to finish and the players make a whole lot more money today. A hitter like Ty Cobb, one of the Detroit Tigers from early in the 1900s, can be statistically compared to a Ralph Kiner of the 1950s, to a Wade Boggs of the 1980s and to a Joe Mauer of today. That’s what makes the game fun. Sitting around and talking baseball with some guys while perhaps drinking a beer is my idea of heaven down here on Earth. It’s something I’m convinced will happen in the […]

THE TAX ATTIC with Jerry Coon

March 31, 2011 // 0 Comments

Rules for owning two residences It’s time to review the rules for taxpayers who are unlucky enough to own two residences at the same time. Dating back to when Proposal A passed, we voted that every homeowner can designate one principal residence for the Principal Residence Exclusion (PRE). The advantage of having the PRE designation is that the 18 mills of school operating millage is waived. For taxpayers who have a home with a taxable value of $80,000, the PRE saves the taxpayers 18 times 80, or $1,440. For taxpayers with a house with a taxable value of $125,000, the tax savings are 18 times 125, or $2,250. Needless to say, for all of us homeowners, that PRE designation is extremely important. In normal times, because the PRE does save so much tax money, we are only allowed to have one home at a time designated as a PRE. Sell one home and lose the PRE on that home. At the sale, one of the many pieces of paper that gets signed is a Form 2602, Rescission of Principal Residence Exclusion. The closing company passes that form on to the local assessor. Buy another home and at that closing, one of the many pieces of paper signed is the Form 2368, Application for a Principal Residence Exclusion. The closing company also passes that form on to the local assessor and the buyers get the PRE on the new home. I do recommend that taxpayers check with the local assessor to ensure the PRE application was received. Some things are important enough to follow up with a telephone call and it may be a $1,440 or $2,250 telephone call. We also all know we are not living in normal times. For example, a Grand Rapids job for a Rockford resident that was thought to be secure on Friday afternoon is eliminated on Monday morning. A replacement job, after a lengthy search of a year, is found in the Port Huron area. The taxpayer rents an apartment in Port Huron while the family stays in Rockford just to make sure the job is going to work out. After two months, it is apparent the job is going to work, so they look for a home there and […]

THE TAX ATTIC with Jerry Coon

March 24, 2011 // 0 Comments

Obscure Code Sections It seems that we have a slight problem in our tax system. This problem shouldn’t be a surprise to most of us. Prisoners are filing fraudulent tax returns, claiming various credits, and getting the refunds. On top of that, they are then arguing with the Internal Revenue Service about the validity of the claims once they are caught. The National Association of Tax Professionals’ Research Department passed on to us a Tax Court case that recently was decided in favor of the IRS. A Michigan prisoner, interred in one of our maximum security prisons since 1997, filed a 2007 tax return reporting wages earned of $15,640. This amount of wages resulted in him receiving Earned Income Tax Credit of $4,667. He was audited and the IRS disallowed the credit. There is a special Code Section, 32(c)(2)(B), that says “no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account” when calculating credits such as the Earned Income Tax Credit (EITC). I’m not amazed that the prisoner in question didn’t know about this Code Section. Heck, there are plenty of unique little Code Sections that most of us don’t know about. I am amazed, though, that the prisoner chose to appeal the original auditor’s ruling. I’m quite sure the auditor pointed out and backed it up in writing that this Code Section existed. There really was nothing to appeal. Of course, the prisoner really had nothing to lose and it probably gave him something to do. The Tax Court was not amused. They ruled that 32(c)(2)(B) does apply, as it should, and the prisoner not only wasn’t allowed to keep the EITC amount of $4,667 but he also owed an additional accuracy-related penalty assessed under Section 6662 in the amount of $933. At least common sense did apply in this situation. The other credit that prisoners have claimed en masse has been the first-time homebuyer credit. That credit was either $8,000 for a first-time homebuyer or $6,500 for a long-time resident homebuyer. Evidently, $8,000 or $6,500 was enough money for prisoners to cheat to get. The IRS indicates they believe that overall there was a few billion dollars of fraudulent […]

THE TAX ATTIC — with Jerry Coon

March 3, 2011 // 0 Comments

What would Washington think? It was 1783. The United States of America had just defeated Great Britain, the mightiest power on the face of the Earth. It was now free of the king’s tyranny. The Revolutionary War had lasted eight long years. America’s commander-in-chief, George Washington, was gravely concerned that eight years of effort would be wasted if America’s citizens didn’t step up and do the right thing. What was his definition of the right thing? He enumerated four “pillars on which the glorious fabric of our independence and national character must be supported.” Washington went on to write that these pillars were vitally important, in fact, “I may even venture to say, to the existence of the United States as an independent power.” The four pillars were: 1. “an indissoluble union of the states under one federal head;” 2. “a sacred regard to public justice;” 3. “the adoption of a proper peace establishment;” 4. “the prevalence of that pacific and friendly disposition among the people of the United States which will induce them to forget their local prejudices and policies, to make those mutual concessions which are requisite to the general prosperity, and, in some instances, to sacrifice their individual advantages to the interest of the community.” Washington was right. We needed a strong federal government and got it when the Constitution was ratified. We needed a sacred regard to public justice and got it when the Bill of Rights was passed. We needed a proper peace establishment and got that as part of both the Constitution and the Bill of Rights. Number four has been troublesome and has caused us problems since 1783. However, it may very well be the most important of the four. You can’t legislate number four. There is no constitutional amendment guaranteeing it will happen. Make mutual concessions? Sacrifice individual advantages? Tough stuff. I wonder what Washington would think of the events that have been occurring in Wisconsin or even the budget reform that Governor Snyder is proposing. That’s difficult to say. There was no such a thing as collective bargaining in 1783. There certainly was no complicated tax system like we have today. Pensions, health insurance, fringe benefits—nothing of the sort existed in 1783. Things are much, much […]

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