Wisconsin Estate Planning and Tax Law Blog

Widespread Fraud and Abuse of First Time Home Buyer Tax Credit

2009-10-22T14:48:55-05:00

This item can probably best be filed under the category, "News We Expected." As reported by the Wall Street Journal online in "Tax Credit Abuse and the Four-Year-Old Home Buyer" the Inspector General for Tax Administration, Russell George, testified before Congress today in regards to fraud and potential abuse of the home buyer tax credit. Mr. George testimony comes at a time when the current home buyer tax credit is set to expire in less than 6 six at the end of November and with the real estate lobby pushing for an extension.

It would be fairly naive in my opinion to not anticipate that some individuals would commit tax fraud or intentional abuse the system. I am certainly not condoning the illegal activity better known as tax fraud or tax evasion. Reading articles highlighting fraud and abuse such as this reinforces in my mind the truism, "One bad apple spoils the barrel," except that a number of the apples in this barrel are bad, which will only hasten the spoilage of the first time home buyer tax credit.

U.S. News and World Report also published an online article titled "First-Time Home Buyer Tax Credit: All Sorts of Sketchy Claims" that discusses the fraud and abuse news as well as five things to know about the development.

The Other Shoe Has Dropped on Executive Pay

2009-10-22T12:39:03-05:00

The Obama Administration pay czar, Kenneth Feinberg, has made it known that he will require each of the seven largest bailout recipients to reduce the total compensation for their top 25 highest paid employees by 50%, on average. These rules affect the likes of AIG, Citigroup, and Bank of America. The New York Times article, "Curbing Wall Street Pay, and the Corporate Boards that Set it," provides additonal overview and commentary on the topic.

It will be interesting to see how this news is received in the various circles. Wall Street will certainly exhibit a reaction. Politicians will spin it in a way most favorable to them and their platform. Individuals? Well, I am not sure how we the people will respond. I see two main reactions. The first is that this is exactly what the government needed to do to keep the greedy business executives in line. The second is that this is a classic case of government overstepping its boundaries in a free, capitalist economy. Which one is right? Probably neither, but we live in a polarized world where the "happy medium" is not an option.

Cost of Government Day - 2009

2009-08-12T19:28:00-05:00

For that last couple of years I have kept an eye out for the Cost of Government Day as calculated by the Americans for Tax Reform Foundation and the Center for Fiscal Accountability. The Cost of Government Day 2009 Report is now available. Today, August 12, 2009, is this years Cost of Government Day. This is 26 days later than 2008.

I am sharing this report and link because it is an interesting look at the current tax and government landscape in the U.S. The overall views expressed in the report of on the websites above are those of the Americans for Tax Reform Foundation and the Center for Fiscal Accountability and are not necessarily my views or the firm's view.

Happy 4th of July

2009-07-04T07:28:12-05:00

As we celebrate the 233rd birthday of our great country I thought it would be an appropriate time to take a quick look at the history of income taxes in the U.S. The U.S. Treasury website has a page titled: Fact Sheet: Taxes - History of the U.S. Tax System - that you might find interesting.

It is hard for me to imagine things without taxes being part of the equation, but as you can see the U.S. income tax system didn't exist with any permanency until the 16th amendment was ratified by the requisite number of states in 1913. With this version of income taxes being 96 years old there are still people living that might be able to imagine a world without them. We've come a long way since the days when rates ranged from 1 to 7 percent.

With that it is now time to celebrate the 233rd anniversary of America's independence. Have a fun and safe holiday weekend.

Wisconsin State Budget 2009-10

2009-07-02T11:06:25-05:00

The Legislature passed it, the Governor exercised a number of vetoes, and then Governor Doyle signed the state budget on June 30, 2009. It was the first time the budget has been done on time since 1977. I hate to date myself, but that is just slightly longer than I have been on this planet. I previously discussed three of the tax related items in Doyle's proposed budget. Those three items made the final budget. In fact, the capital gains tax exclusion dipped to 30% from the originally proposed 40%.

As a cynic would expect it did not end with the Governor's pen dashing across the paper. Apparently Doyle "inadvertently" used a "Frankenstein Veto" on one item in the budget bill. Up until last budgetary cycle that was not a problem, but the voters in Wisconsin amended the state constitution last year to make the "Frankenstein Veto" unconstitutional. In any event, Wisconsin has a budget so I thought I'd take a quick look at the tax aspects of it:

Change from a 60% exclusion to a 30% exclusion for capital gains taxes (100% exclusion for investments in certain Wisconsin start-up companies)
Cut $1 million off the tax credit for movie production in Wisconsin
$0.75 increase to the State's cigarette tax
$0.75 per line cell phone tax
Expansion of enterprise zone tax credits
High Earner Tax Bracket (additional 1% tax rate on individual income in excess of $300,000 for joint filers and $225,000 for individual filers)

That is very brief overview of a handful of tax related items in a massive budget bill. I will provide a link to the actual text of the budget bill as soon as one is available.

IRS Letters and Notices

2009-04-15T16:22:00-05:00

As the 2008 tax seasons comes and goes I thought it would be prudent to provide a link to the IRS website that describes various correspondence from the IRS that some clients have received in the past or may receive in the future. The IRS website provides a page titled Letters and Notices Offering an Appeal, which contains short descriptions of various IRS examination or collections letters. The five letters/notices that I typically see from new clients are the following:

Letter 525 – General 30 Day Letter

Letter 531 – Notice of Deficiency

Letter 11 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing

Letter 1058 – Final Notice Reply Within 30 Days

Letter 3172 – Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320

One of, if not the most important aspect of these letters is the deadline by which the recipient has to respond. In most cases the recipient has to respond within 30 days from the date of the letter. In the case of Letter 531 - Notice of Deficiency, the taxpayer has 90 days to petition the tax court. If the taxpayer does not file the petition with the tax court within 90 days, the tax court no longer has jurisdiction and cannot hear the case. This is extremely important since the tax court is the only forum (the other two options are the U.S. District Court for the taxpayer's jurisdiction or the U.S. Court of Federal Claims) that does not require the taxpayer to first pay the alleged tax liability before seeking a refund through the Federal District Court or the Court of Federal Claims.
Therefore, the main purpose of this post is very straightforward: Read the IRS letters and notices and strictly adhere to the deadlines contained therein. As always, please consult a qualified tax attorney or CPA to assist you with tax issues of this kind.

Wall Street Executive Bonuses: The Firestorm Rages On

2009-03-19T14:09:47-05:00

I have not had the opportunity to fully research and review all of the material involved with the executive bonuses saga that has engulfed all of us in recent weeks, but I wanted to provide some brief commentary on the topic. It is relevant to this blog because the most popular ideas currently discussed by the government involve the enactment of an excise tax on executive bonuses received after January 1, 2009. In fact a Bill was introduced by the Rep. Charles B. Rengel (D-NY) today. The legislation is referred to as H.R. 1586 and the full text can be found at the House Ways and Means Committee website in pdf here. The Taxgirl has a great discussion of this bill in her post, Legislation Introduced to Tax Bonuses at 90%.
According to Reuters.com, House votes to recoup bonuses from bailed-out firms, the House overwhelming passed the Bill by a 328-93 split. An article, House Opens Debate on Bill to Tax Wall Street Bonuses, by Martin Vaughan on CNNMoney.com , discusses some of the partisan debate on the topic including the argument from some Republicans that the Bill is unconstitutional and that more effective alternatives are available. This article by David Stout on NYTimes.com, House Passes Heavy Tax on Bonuses for Rescued Firms, also provided a nice overview of today's events and the debates that will no doubt linger for at least a bit longer.
As I read through the New York Times article I was struck by a number of things but nothing drew my attention quick as much as the comments made by Rep. Earl Pomeroy (D-ND). Rep. Pomeroy was as saying, “The people have said ‘no.' In fact, they said ‘hell no, and give us our money back.’” I am not intending to take sides in today's great debate, but I am intrigued by Pomeroy's comments for three reasons. First, I was born and raised in North Dakota so I always get a kick out of seeing the state's long Representative in the news. Second, until recently I have heard virtually nothing about or from Pomeroy. Now I see his name in regards to the Wall Street Bonuses topic and he has one of the most popular proposals regarding Federal Estate Tax in H.R. 436: Certain Estate Tax Relief Act of 2009. Third, I'm completely convinced that Pomeroy's "hell no" clearly eliminates any ambiguity as to his true feelings on the matter. That direct, no-nonsense delivery is what I attribute to the stereotypical North Dakotan.
One other quote that I thought was noteworthy is from the Bill's sponsor Rep. Rangel. According to FoxNews.com, Rangel said, "We figured that the local and state governments would take care of the other 10 percent." So let there be no confusion as to the government's intentions. While the bonus recipients may face a 90% tax at the Federal level they should also expect the states to gobble up the remaining 10%. That's one way to recoup the TARP money I guess.

Wisconsin Tax Summary 2009 to 2011

2009-03-13T14:29:38-05:00

Given the fact that we are approaching the tax deadline and that Governor Doyle's 2009-11 biennial budget includes a few important tax changes, I thought it would be worthwhile to summarize the tax climate in Wisconsin.
I admittedly did not read the entire budget bill or the budget adjustment bill, but I have reviewed portions of them and I have reviewed various summaries prepared by reputable people. It is beyond the scope of this blog post to launch into a full scale critique of the budget bill, so instead I have decided to focus on the tax related issues at a relatively high level, including the High Earner Tax Bracket, Wisconsin Capital Gains Tax and Combined Reporting. I have also provided a link to a post from The Tax Foundation that provides an overview of taxes in Wisconsin.
Wisconsin 2009-11 Budget
High Earner Tax Bracket
Governor Doyle's budget includes a proposed additional 1% tax rate on individual income in excess of $300,000 for joint filers and $225,000 for individual filers. The Individual income tax is applied to net income from the following business entities: sole proprietorships, partnerships, tax options (S) corporations and limited liability companies ("LLCs"). This will bring Wisconsin top income tax bracket to 7.75%.
Wisconsin Capital Gains Tax
The budget aims to reduce the amount capital gains income that is exempt from Wisconsin income taxes. It is important to remember that Wisconsin applies its normal income tax rate to capital gains. This differs from the federal government approach, which treats capital gains separately at lower tax rates. The proposal includes a reduction in the capital gains exemption from 60% to 40%. The Governor's office has felt it important to point out that the top 5% of earners in the state would receive approximately 78% of the benefit of the capital gains exemption. The top 1% earners would recieve 57% of the exemption benefit. Therefore, the cost of lowering the exemption will be borne by the state's top earners.
Combined Reporting
There are currently 20 states that require combined reporting. The Governor's office projects that 13% of corporations in Wisconsin will be affected by combined reporting. Combined reporting is a legal requirement that all related corporations that are operated as a single business enterprise, any part of which is being conducted in the state, be treated as a single taxpayer for apportionment purposes. Governor Doyle also made sure that Wisconsin implemented the single sales factor apportionment formula, which will be used to calculate the percentage of a corporation's combined reporting income is properly apportioned to Wisconsin. The corporation will then be taxed on that amount.
As mentioned above, I have provided the following link to an article from The Tax Foundation titled, The Facts on Wisconsin's Tax Climate. This articles provides an overview/summary along with national rankings in different tax cateqories for the periods of the 2008 through 2009.

Three Certainties in Life?

2009-03-10T12:09:37-05:00

It appears that I have discovered a third certainty in life during the time I have written (or more appropriately, not written) this blog. As you most likely surmised from that first sentence the third certainty to date has been my less then stellar updating of this blog. Well just as I have set out to address the two most notable certainties in life, death and taxes, by focusing my practice on those issues, I have decided to quash the third certainty as well.
It is nearly two and a half months into the new year and two weeks into the Lenten season, yet here I sit finally getting around to my resolutions. Amongst other things of course I intend to concentrate more time and energy on the development of informative content for this blog. As all of you know, time is finite and prioritization is essential.
My goal is to author a new post at least once a week. It is safe to assume that some weeks will be "better" than others, but I will do my best to provide information and commentary that I hope will be of value to you.

FDIC: Deposit Insurance Regulations; Revocable Trust Accounts

2008-10-04T23:40:00-05:00

The FDIC recently came out with an interim final regulation regarding deposit insurance for revocable trust accounts. The FDIC summarized the interim rule as follows:

SUMMARY: The FDIC is adopting an interim rule to simplify and modernize its deposit insurance rules for revocable trust accounts. The FDIC's main goal in implementing these revisions is to make the rules easier to understand and apply, without decreasing coverage currently available for revocable trust account owners. The FDIC believes that the interim rule will result in faster deposit insurance determinations after depository institution closings and will help improve public confidence in the banking system. The interim rule eliminates the concept of qualifying beneficiaries. Also, for account owners with revocable trust accounts totaling no more than $500,000, coverage will be determined without regard to the beneficial interest of each beneficiary in the trust.
Under the new rules, a trust account owner with up to five different beneficiaries named in all his or her revocable trust accounts at one FDIC-insured institution will be insured up to $100,000 per beneficiary. Revocable trust account owners with more than $500,000 and more than five different beneficiaries named in the trust(s) will be insured for the greater of either: $500,000 or the aggregate amount of all the beneficiaries' interests in the trust(s), limited to $100,000 per beneficiary.
Federal Register: September 30, 2008 (Volume 73, Number 190).
Attorney Neil Hendershot at the PA Elder, Estate & Fiduciary Law Blog provided a great post on the interim rule titled, FDIC's Interim Rule for Living Trust Deposits. Instead of reinventing the wheel I'm happy to defer to Attorney Hendershot on this topic. As you will see from Attorney Hendershot's post, this is not the first time that FDIC has attempted to clarify deposit insurance in regards to revocable trusts.
One item of note given the recent passage of the $700 billion dollar bailout plan is that the $100,000 per depositor limit was temporarily raised to $250,000 through December 31, 2009. Since the interim rule came out a week prior to the temporary increase it does not expressly state whether it is applicable to revocable trust. It is logical that the temporary $250,000 per depositor increase also applies to each beneficiary of a revocable trust. I will continue to research that aspect and report back any findings.