Harless Tax Blog

Harless Tax Blog

Operating Agreement Headaches Involving Limited Liability Companies

Tuesday, March 24, 2015

A limited liability company has become the entity of choice for many businesses throughout the United States for tax and liability purposes, but many of the operating agreements governing LLCs could have significant defects.

According to the Uniform Law Commission, which recommends proposed legislation that can be adopted in whole or in part by states and other jurisdictions, there are more LLCs being formed than corporations throughout the United States. The ULC found that every state has adopted some type of LLC legislation.

However, the existing state LLC statutes are far from uniform, according to the ULC. Many state LLC statutes have been amended on a patchwork basis and have not kept up with LLC cases and other legal developments.

One of the most important documents governing the rules involving the operations of an LLC is the operating agreement. An operating agreement is a written agreement of the members of the LLC that covers the rules regarding the operation of the LLC. It includes many items, including the rights, limitations and responsibilities of members and managers.

An operating agreement should be as specific as possible. To the extent agreed upon by the LLC members, it should cover issues such as:

1. What happens when a member dies;
2. What happens when a member becomes permanently disabled;
3. What happens when a member becomes legally incompetent;
4. What happens when a member voluntarily withdraws;
5. What happens when there is an involuntary withdrawal of a member;
6. Whether or not a member may transfer his/her membership interest by gift, assignment or bequest;
7. Whether or not a member may transfer his/her economic interest by gift, assignment or bequest; and
8. Whether or not a member may sell his/her membership interest.

If the operating agreement does not cover a particular issue, then the limited liability law of the particular jurisdiction is triggered. In essence the limited liability statute is for the most part a default statute.

A member’s interest in an LLC has two parts:

1. Economic interest: the right to receive distributions from the LLC and allocations of profits and losses.
2. Management interest: the right to vote and participate in the management of the LLC.

LLC Problem Areas
Many operating agreements for LLCs were done many years ago and may not have been amended to bring them up to date.

I have reviewed over 100 operating agreements for New York LLCs in the last four years and found that most of them have serious defects. The accountants who were involved in the estate planning for their clients who were members of these New York LLCs assumed that the operating agreements were well constructed. In fact the operating agreements were a disaster.

The accountants failed to read the operating agreements for their substantial clients who were members of these New York LLCs. The operating agreements in many cases either precluded bequests of membership interests to spouses or did not provide for bequests of membership interests to heirs or trusts for heirs.

In the event that an operating agreement is silent on what happens when a member dies, then the LLC statute of the jurisdiction must be looked at. For example, if a New York operating agreement is silent on what happens if a member dies, then legal headaches are triggered under the New York Limited Liability Act.

Under New York law, the default statute is Section 608 of the New York LLC Act. Section 608 covers powers of estate of a deceased or incompetent member and provides as follows:

“If a member who is a natural person dies or a court of competent jurisdiction adjudges him or her to be incompetent to manage his or her property, the member’s executor, administrator, guardian, conservator or other legal representative may exercise all of the member’s rights for purposes of settling his or her estate or administering his or her property, including any power under the operating agreement of an assignee to become a member. If a member is a corporation, trust or other entity and is dissolved or terminated, the powers of that member may be exercised by its legal representative or successor.”

On the death of a member of a New York LLC, he or she is no longer a member. The legal representative of his or her estate must then settle his or her estate regarding the disposition of the decedent’s former membership interest in the New York LLC. If the operating agreement does not permit a bequest of the deceased member’s economic interest or the decedent’s membership interest, then the legal representative must look to the estate’s rights under the operating agreement regarding the value of the deceased member’s interest.

If no provisions are provided for regarding the estate’s rights, then Section 608 is applicable. In that case, the legal representative of the estate of the deceased member would attempt to work out a settlement with the LLC.

In any event the economic rights of the decedent’s membership interest should survive the death of the deceased member in the absence of any contrary provisions in the operating agreement. The management interests do not generally survive the deceased member’s interest unless the operating agreement permits it.

If the surviving LLC members initially held minority membership interests, then they would now control the LLC after the death of the majority member. This would happen if the operating agreement failed to adequately protect the deceased member’s interest.

Revised Laws
The Uniform Law Commission drafted a Revised Uniform Limited Liability Company Act in 2006 to help clarify many open issues including fiduciary issues involving LLCs. Further amendments were made by the ULC in 2011 and 2013. The ULC recommends that all jurisdictions consider adopting the suggested changes.

A number of jurisdictions have enacted some version of the Revised Uniform Limited Liability Company Act. These include: Alabama, California, District of Columbia, Florida, Iowa, Minnesota, Nebraska, New Jersey, South Dakota, Utah and Wyoming.

Other states are considering adopting a Revised Limited Liability Company Act as well.

A number of the New York LLCs have problems with their articles of organization as well. An article of organization is the document that is filed with the department of state in order to form a limited liability company. Unfortunately I have found that the articles of organization for a few LLCs had specific dates of dissolution.

In essence, once that date hits, then technically the LLC protection for that LLC may become an issue. This issue can be fixed by amending the articles of organization to provide for the LLC to continue for the maximum period permitted by law or such other words to that effect.

Accountant’s Role
The accountant for an LLC is in a perfect position to review the operating agreement and articles of organization and to bring any obvious defects in the operating agreement and articles of organization to the attention of the LLC members. This is especially important since the operating agreements of an LLC client and articles of organization may have been prepared many years ago.

This could be a significant value-added benefit to the client as well as increase the accountant’s status as a trusted advisor to the LLC client.

Seymour Goldberg, CPA, MBA, JD, is a senior partner in the law firm of Goldberg & Goldberg, P.C., in Long Island, N.Y., and professor emeritus of law and taxation at Long Island University. He has taught many CLE and CPE programs at the state and national level as well as CLE courses for the New York State Bar Association, City Bar Center for Continuing Legal Education, New Jersey Institute for Continuing Legal Education, local bar associations and law schools. He is a member of the IRS Long Island Tax Practitioner Liaison Committee and the Northeast Pension Liaison Group. He was formerly associated with the Internal Revenue Service and has been involved in conducting continuing education outreach programs with the IRS. He has authored guides for the American Bar Association and the American Institute of CPAs on the trust accounting income and principal rules. His most recent guide in 2014 is entitled, “Can You Trust Your Trust? What You Need to Know About the Advantages and Disadvantages of Trusts and Trust Compliance Issues,” published by the American Bar Association. The guide will also be available through Amazon.com and Barnes & Noble on June 10, 2015

Missed breaks are costing you more in taxes

Tuesday, March 17, 2015

From start to finish, the average taxpayer filing a Form 1040 spends 16 hours on his or her taxes—including eight hours combing through records. Yet despite that scrutiny, you could still be leaving money on the table.

"Sometimes folks just automatically assume their taxes are going to be the same as they were in the prior year," said Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants. "That is dangerous." Changes in tax law, changes in your financial situation or a combination of both can mean you're eligible for a host of breaks that you weren't before. [Source: CNBC]

"The one I see that gets overlooked a lot is charitable contributions," said Labant. Consumers usually comb through their checkbook and credit card statements, but can miss cash donations and donations of physical goods. Some companies let workers donate from their paycheck, but that won't show up on your W-2, she said—you'll need to look at your year-end paystub for the total.

And volunteers might not realize they can deduct mileage driven to and from charitable activities, at 14 cents per mile.

The retirement savers credit is a bigger-ticket benefit that often gets passed over. "That's a tax break of up to $1,000, or up to $2,000 if you're married, for making contributions to retirement accounts," said Labant. Taxpayers just starting out don't often know about it, and so miss out. Others don't even consider the break due to its low income threshold—single filers making more than $30,500 and married filing jointly making more than $61,000 don't qualify. But if you were unemployed or retired for part of the year, or had a bad year as a freelancer, your income might have dipped enough to grab at least a partial credit, she said.

Another possible miss? The dependent care credit, which is worth as much as 35 percent of up to $3,000 in qualifying expenses for one child (or other qualifying person); $6,000 for two or more. Most parents know to grab the break for daycare and nanny services, but the IRS also allows some qualifying medical expenses and day camps.

Even after April 15, make sure you're not missing out on other valuable tax breaks for the rest of 2015—namely, pre-tax contributions to an employer-sponsored retirement plan or flexible spending accounts for medical, child care and transit expenses. "That's money left on the table," Labant said.

Identity Theft- It's Everywhere

Friday, March 06, 2015

By Steve Harless, CPA 
Of all the things that can be stolen, your identity is probably the most damaging. Identity theft occurs when someone uses your personal information to commit fraud, open accounts or make purchases in your name and brings with it a ripple effect of problems that could take a year or more to sort out. If you have been a victim of identity theft, you will need to repair your credit history and possibly your standing

By The Numbers

  • 12 million Americans were victims in 2012.
  • Florida has the highest per capita rate of reported identity theft complaints followed by Georgia (Miami-Ft. Lauderdale-#1).
  • 1 in 4 people receiving letters regarding a data breach become a victim of identity theft and fraud.
  • 32% do not notify the police of their theft.
  • The elderly are most susceptible to government benefit fraud and medical identity fraud.
  • The highest percentage of victims are between ages 20 and 29 due to their constant use of social
  • Mobile security thefts have risen 350% since 2010.
  • 68.4% of individuals use the same password for multiple websites.
  • The IRS processed $4B in fraudulent refunds for 2012.
  • There were 1.2M tax-related identity thefts in 2012 and 1.6M in the first 6 months of 2013.
  • The IRS sent 655 refunds to a single address in Lithuania and 343 refunds to a single address in Shanghai in 2012.

Commitment, Caution and Foresight

  • Keep all important documents secure, especially your social security card.
  • Be mindful of credit card use, keep your card in sight when it is used.
  • Secure gadgets and passwords, change regularly and use a unique password on every site.
  • Limit the information you use online, especially Facebook, Twitter, and other social media.
  • Keep open communication with your bank, inform them when you are traveling.
  • Avoid opening unfamiliar links.
  • Don’t miss out on your mail, pick up often and hold at post office when traveling.
  • Secure your receipts, scan and shred.
  • Keep your PIN secure.
  • Check your credit report regularly (www.creditkarma.com).
  • Don’t share personal information on the phone. The IRS will not call you!

In order to truly recover from identity theft, you must be diligent and take specific steps.

Generate a Report

  • Immediately after the discovery of identity theft, create an Identity Theft Affidavit through the Federal Trade Commission (FTC).
  • With your completed Affidavit, file a police report.
  • Together, your Affidavit and police report form your Identity Theft Report. You will need copies of this report to send to credit agencies and the IRS.

Repair Your Credit Report

  • Pull your credit report! (Equifax, Experian and TransUnion). These should be free because you have been the victim of fraud.
  • Have the credit reporting agencies place a fraud alert on your file. You will only need to contact one bureau, which will notify the others.
  • Write letters disputing each charge and send certified mail with a copy of your credit report highlighting the error. Do this for each error reporting from each agency.
  • Request to have information that was the result of the identity theft blocked from your credit report.
  • As problems are resolved, obtain a new credit report. Identity theft can have long-running ramifications, so keep up with your credit report regularly.

Contact Lending Institutions that Issued Credit

  • Get in touch with the fraud departments at the companies that erroneously authorized credit to the thief in your name.
  • Send these companies the same letters and credit report copies.
  • Ask the companies to block fraudulent information, and the company will have to stop reporting the fraudulent information and will not be able to sell the debt for collection.
  • Request copies of the documents that were fraudulently used to get credit or make changes in your name. This will enable you to have a copy of the fraudulent signature. The company is required to send it to you within 30 days of your request.

Inform the IRS

  • As indicated above, tax identity theft is also a problem. In this case, the thief has used a taxpayer’s identity and real or falsified W-2s to file fraudulent returns claiming a refund. You may not know this has happened until you file and find out your refund has already been taken.
  • If you think someone has stolen your refund or used your social security number, notify the IRS immediately.
  • Fill out the IRS Identity Theft Affidavit, Form 14039.
  • When you receive correspondence from the IRS, respond right away.

Why Small Businesses Get Big Benefits from Enlisting Outside Accounting Service Part 2

Friday, February 06, 2015

Previous Post
Restaurants also need to keep a tight control on inventory. It’s recommended that inventory be taken each week or once a month at the least to prevent theft and keep food cost under control. Another opportunity for theft occurs due to cash handling and discounts through the POS (point of sale) system. By using appropriate software like QuickBooks, it is possible to run reports to track all discounts, find out who is running them and create audit reports. Restaurants and retailers also need to keep up with sales tax returns.

Proper reporting of expenses throughout the year will make things simpler when it’s time to file annual tax returns. The type of return depends on what type of legal entity is used for the business, i.e. sole proprietor, Limited Labiality Company, Sub S Corporation, partnership or Regular Corporation. All expenses that are ordinary and necessary for the running of the business are deductable against the business income. There are new regulations coming out dealing with what payments can be deducted as repairs and what must be capitalized and depreciated. Also there are new rules as to how income from credit cards is reported and depending on the size of the business, the effect of the “Obama Care Health law.” These regulations can be confusing at best for small business owners.

Bringing in an outside accounting team means having an outside party keeping a watchful eye on operations. It keeps everyone more honest. The accounting team sets up controls, cash drawer counting methods, daily sales tracking and more, making sure that everything balances throughout the year. These experts will also understand complex issues like which payments can be expensed and what must be capitalized and what are ordinary and necessary business expenses. And this all means that tax reporting each year will become a breeze rather than a tornado.

Steve R. Harless, CPA is the Managing General Partner of Harless & Associates.

Why Small Businesses Get Big Benefits from Enlisting Outside Accounting Service

Tuesday, February 03, 2015

By Steve R. Harless, CPA
Small business owners like restaurateurs or retailers set up shop because they love food, clothing, birdhouses or whatever items they happen to carry. These folks do not typically go into business because they harbor a secret desire to spend hours pouring over spreadsheets and filing taxes. Thus, almost any small business owner will find much benefit in working with an outside accounting firm. Not only can the accounting team handle bookkeeping, recommend software and train staff to use it and help with everything from inventory tracking to tax reporting, but working with an outside accounting firm will force internal staff to be more accountable. This could result in avoiding pitfalls like embezzlement, waste and disasters at tax time.

For small business accounting, the easiest and least expensive software is QuickBooks, which is flexible for all types of businesses. For larger businesses, Microsoft Dynamics GP is a good choice. Software training is the next step because a package is only effective when used properly. If you put bad information in, you will get useless information out. Common small business mistakes include not reconciling the bank account or not properly costing the inventory, for example receiving inventory into the system but not selling it through the system. Business owners will often let the bookkeeping slide because truthfully, they hate it. Receipts, paperwork and invoices get thrown into a box and tax time turns into a nightmare.

With the help of a small business accounting firm, ongoing bookkeeping and accounting are handled without fuss, and everything gets easier. By using the software correctly, the business owner will even be able to receive helpful reports that can provide an accurate picture of what is going on with the company financially. They now have a tool to help them manage their business, and this will benefit the bottom line. For example, a restaurant will obtain a true cost of sales for each menu item and learn which ones are actually making the most money.

Continue Reading...

IRS Warns of Tax Refund Delays

Thursday, January 15, 2015

The IRS normally issues taxpayer refunds quickly. But this year, some filers are going to have to wait.

Due to budget cuts, people who file paper tax returns could wait an extra week for their refund — "or possibly longer," wrote IRS Commissioner John Koskinen in a memo to employees Tuesday. And filers with errors or questions that require additional review will also face delays. [Source: Money.CNN.com]

Last month, Congress approved a $10.9 billion budget for the IRS for fiscal year 2015, which ends in June. That's the lowest level of funding since 2008, Koskinen said.

Koskinen said the budget cuts would result in several other changes at the agency, including:

Fewer audits. Due to cuts in enforcement staff, collection efforts for individuals and businesses will be reduced.

Hiring freeze. The freeze, plus normal attrition rates, will result in 3,000 to 4,000 fewer full-time employees at the agency by the end of June. Including the headcount losses incurred since 2010, that means the agency's full-time staff will be reduced by as many as 17,000 employees over the course of five years.

Less taxpayer help. Cuts in overtime and temporary staff hours will not only delay refunds, but hurt correspondence with taxpayers as well. Koskinen said it's likely that fewer than half the taxpayers that call the agency will be able to get through.

A possible two-day shutdown after tax season. To minimize disruptions, Koskinen said a temporary shutdown, if needed, would likely occur closer to June. But, he added, the agency will do what it can to avoid this option, which he called a "last resort."

Delays in IT investments. Among the delays, will be technologies that offer new taxpayer protections against identity theft.

Uncertain Future for Expired Tax Provisions and Limited Time Remaining for Lame Duck Action

Tuesday, December 30, 2014

With only a few days remaining on Congress's 2014 legislative calendar, there is still no clear answer for whether and how Congress will deal with the nearly 60 "extender" tax provisions—the temporary provisions that have been routinely extended on a one- or two-year basis but were allowed to expire at the end of 2013.

Many, if not all, of the provisions listed below were most recently extended by the 2012 Taxpayer Relief Act (passed very early in 2013). At that time, the majority of the provisions had expired at the end of 2011 and were revived and retroactively extended by the Act through 2013. [Source: AccountingToday.com]

In this respect, some of the justifications underlying the provisions—such as to encourage certain types of behavior during the tax year—were weaker given the retroactive passage and amounted more to good fortune to those who had happened to engage in such behavior during the 2012 year. Both then and now, the delay hasn't just affected taxpayers' ability to engage in forward-looking tax planning, but has almost certainly influenced actual taxpayer behavior and had economic spillover effects.

Expired provisions. Below are the actual extender provisions in question, arranged by subject matter.

The expired individual extender provisions include:

•    Deduction for state and local sales taxes (Code Sec. 164(b)(5));
•    $250 above-the-line deduction for certain expenses of teachers (Code Sec. 62(a)(2)(D));
•    Above-the-line deduction for qualified tuition and related expenses (Code Sec. 222);
•    Deduction for mortgage insurance premiums treated as qualified interest (Code Sec. 163);
•    Parity for exclusion for employer-provided mass transit and parking benefits (Code Sec. 132(f));
•    Exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; (Code Sec. 108); and
•    Credit for certain health insurance costs (Code Sec. 35(a)).

The expired business provisions include:

•    Research and experimentation credit (Code Sec. 41);
•    Work opportunity tax credit (Code Sec. 51, Code Sec. 52);
•    increase in expensing to $500,000 and in investment based phaseout amount to $2,000,000 and expanded definition of Section 179 property (Code Sec. 179);
•    50 percent bonus depreciation (Code Sec. 168(k));
•    Exceptions under Subpart F for active financing income (Code Sec. 953, Code Sec. 954);
•    Look-through treatment of payments between controlled foreign corporations (Code Sec. 954(c)(6));
•    Special treatment of certain dividends of regulated investment companies (RICs) (Code Sec. 871(k));
•    Employer wage credit for activated military reservists (Code Sec. 45P);
•    Special expensing rules for film and television production (Code Sec. 181(f));
•    Special 100 percent gain exclusion for qualified small business stock (Code Sec. 1202);
•    Reduction in S corporation recognition period for built-in gains tax (Code Sec. 1374);
•    Election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation (Code Sec. 168(k));
•    Low-income housing 9 percent credit rate freeze (extended for allocations made before Jan. 1, 2016) (Code Sec. 42);
•    Treatment of military basic housing allowances under low-income housing credit (Code Sec. 42, Code Sec. 142);
•    15-year straight line cost recovery for qualified leasehold property, qualified restaurant property, and qualified retail improvements (Code Sec. 168(e)(3)(E));
•    Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (Code Sec. 199);
•    Modification of tax treatment of certain payments to controlling exempt organizations (Code Sec. 512);
•    Accelerated depreciation for business property on Indian reservations (Code Sec. 168(j)); and
•    Indian employment credit (Code Sec. 45A).

The expired charitable provisions include:

•    Enhanced charitable deduction for contributions of food inventory (Code Sec. 170);
•    Tax-free distributions for charitable purposes from individual retirement account (IRA) accounts of taxpayers age 70 1/2 or older (Code Sec. 408(d)(8));
•    Basis adjustment to stock of S corporations making charitable contributions of property (Code Sec. 1367); and
•    Special rules for contributions of capital gain real property for conservation purposes (Code Sec. 170(b)(1)(E), Code Sec. 170(b)(2)(B)).

The expired energy provisions include:

•    Credit for construction of energy efficient new homes (Code Sec. 45L);
•    Energy efficient commercial building deduction (Code Sec. 179D(h));
•    Construction date for eligible facilities to claim the production tax credit or wind credit (Code Sec. 45(d));
•    Credit for energy efficient appliances (Code Sec. 45M(b));
•    Credit for nonbusiness energy property (Code Sec. 25C);
•    Alternative fuel vehicle refueling property (Code Sec. 30C);
•    Incentives for alternative fuel and alternative fuel mixtures (Code Sec. 6426);
•    Incentives for biodiesel and renewable diesel (Code Sec. 40A, Code Sec. 6426);
•    Placed-in-service date for partial expensing of certain refinery property (Code Sec. 179C(c)(1));
•    Credit for electric drive motorcycles and three-wheeled vehicles (Code Sec. 30D).

Potential Courses of Action
In general, a main point of contention regarding extenders has been whether they should simply be re-extended on a cumulative basis to give taxpayers greater certainty, and then given a closer look on an individual basis as part of comprehensive tax reform, or whether each provision should be evaluated on its merits prior to any extension.

While most parties seem to agree on the ideological merits of addressing them as part of greater reform efforts, the fact that there has been little to no action taken on substantive tax reform over the last year—combined with the growing difficulty in finding political consensus—may undermine this approach.

In addition, there has been significant disagreement over certain provisions as of late (such as the wind credit) that may preclude passage of a cumulative extenders bill. Specifically, there have been reports that some House Republicans would decline to pass any extenders bill that contains provisions they find objectionable and instead take up the fate of extenders in January, when Republicans will also control the Senate.

Earlier this year, the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act had some momentum, but ultimately stalled in the Senate when Sen. Harry Reid, D-Nev., engaged in a procedural move that blocked senators from offering amendments to the bill. The bill, which was bipartisan but generally reflected what is viewed as the Democrats' approach to extenders, would have extended the above expired provisions for an additional two years. There has been some indication that the EXPIRE Act could serve as the basis of whatever agreement is potentially forged during the lame duck session.

There have also been a series of bills introduced throughout the year to extend or make permanent one, or several, of the extender provisions, including the research credit and bonus depreciation. These bills generally reflect the Republicans' approach to extenders—i.e., to make a select number of provisions permanent rather than a short-term extension of all of the provisions as a package. It is possible that these bills could also re-surface in the coming weeks.

The President had indicated at the time his intention to veto these bills on the basis that it made provisions permanent without budget offsets. (At this late stage in the game, however, the lack of an offset for extending provisions or even making some permanent might not be an impediment to passage.)

Potential Consequences of Inaction
IRS Commissioner John Koskinen, in a now annually expected warning, said that stalled extender legislation could result in a late start to the upcoming filing season. Further, he said that if Congress doesn't pass extender legislation until 2015, this could cause significant service disruptions and the need for millions of taxpayers to file amended returns. It could also delay refunds, which could in turn have a negative impact on the economy.

Additionally, numerous businesses and business organizations have spoken out about how they would be affected by inaction. In a letter sent to members of Congress, over 500 business groups stated that extenders are "critically important to U.S. jobs and the broader economy" and characterized the failure to extend them as a "tax increase" that would "inject instability and uncertainty into the economy and weaken confidence in the employment marketplace."

Obama Threatens Veto of Emerging Tax-Break Agreement in Congress

Thursday, December 18, 2014

President Barack Obama would veto a tax-break agreement being negotiated in Congress by Senate Democrats and House Republicans.

The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” Jen Friedman, a White House spokeswoman, said in an e-mail today.

Lawmakers are nearing an agreement on extending U.S. tax breaks that lapsed at the end of 2013 and making others permanent. The proposal would add about $450 billion to the budget deficit over the next decade, said a Democratic aide. [Source: AccountingToday.com]

A veto would require an override by two-thirds of lawmakers in the House and Senate, a high barrier for a deal that could draw opposition from some Democrats.

The biggest beneficiaries of the breaks would include corporations that conduct research, residents of states such as Washington and Texas that lack an income tax, and wind-energy producers concerned that their tax benefit would end all at once instead of being phased out. Tax breaks for low-income families that lapse at the end of 2017 wouldn’t be extended.

The tax break for corporate research, which would be expanded and made permanent, benefits companies including Intel Corp. and Johnson & Johnson. A benefit for small-business investments also would be locked in.

The plan would make permanent a provision allowing individuals to deduct state sales taxes, an issue important to Senate Democratic Leader Harry Reid of Nevada. In that state 22 percent of tax filers take advantage of the break, the second- highest percentage in the U.S., according to the Pew Charitable Trusts.

Wind Energy
The production tax credit for wind energy would be phased out over several years, said the aide, who spoke on condition of anonymity because the package wasn’t yet public.

A tax break for mass-transit commuters would be permanently extended as would a tax credit for college tuition, the aide said. Those are items championed by Senator Charles Schumer of New York, the third-ranking Senate Democrat.

Other breaks that may be made permanent include incentives for landowners to donate conservation easements and for individuals to make charitable donations directly from tax- advantaged retirement accounts.

Dozens of other tax breaks that expired at the end of 2013 would be continued through 2015. Among those that have lapsed are a provision that lets home sellers exclude from income the forgiven debt from short sales, as well as accelerated depreciation for motorsports tracks.

Child Credit
After reports of an emerging agreement yesterday, the Obama administration issued a statement signaling that it opposed a package that doesn’t extend expansions of the child tax credit and earned income tax credit that lapse at the end of 2017.

“An extender package that makes permanent expiring business provisions without addressing tax credits for working families is the wrong approach, at the expense of middle-class families,” Treasury Secretary Jacob J. Lew said yesterday. “Any deal on tax extenders must ensure that the economic benefits are broadly shared.”

Congress returns on Dec. 1 to finish its post-election session, and lawmakers want to leave Washington by Dec. 11.

That time frame might make it difficult for Obama to veto any plan, especially because the Internal Revenue Service has warned that waiting could delay tax refunds next year.

If this proposal falls apart, House Republicans’ fallback plan is to extend the lapsed breaks through Dec. 31, 2014, Ways and Means Committee Chairman Dave Camp said yesterday.

That approach would require lawmakers to return to the issue next year, when Republicans will control the House and the Senate.

Can You Spot a Government Imposter?

Tuesday, December 16, 2014

Your caller ID says “FTC” or “IRS,” and the phone number has the “202” Washington, DC area code. You might even look the number up and see that it’s a real government phone number.

But the person calling isn’t really from the FTC, IRS, or any other agency. It’s a government imposter whose goal is to convince you to send money before you figure out it’s a scam. The big giveaway? The caller wants you to send money.[Source: Consumer.ftc.gov]

What imposters might tell you

A lot of imposters pretend they’re with the government to scare you into sending money. They say you owe taxes or some other unpaid debt, and, hoping you’ll panic, warn that you’re about to be arrested if you don’t pay up. Before you can investigate, you’re told to put the money on a prepaid debit card and tell them the number — something no government agency would ask you to do.

Other scammers promise you money — a big prize you need to claim. They say the FTC or some other agency is supervising the sweepstakes, and that the money will be released as soon as you pay for the shipping, taxes, or some other expense. But it’s all a fake. There is no prize and no money.

What you should know

  • Federal government agencies and employees don’t ask people to send money for prizes or unpaid loans. The FTC doesn’t supervise sweepstakes, and when the IRS contacts people about unpaid taxes, they usually do it by postal mail, not by phone.
  • Federal government agencies and employees also don’t ask people to wire money or use a prepaid debit card to pay for anything. Prepaid cards and money transfers are like sending cash — once it’s gone, you can’t get it back.
  • You can’t rely on caller ID. Scammers know how to rig it to show you the wrong information (aka “spoofing”). Scammers might have personal information about you before they call, so don’t take that as a sign they’re the real thing. If you’re not sure whether you’re dealing with the government, look up the official number of the agency. That way you know who you’re talking to.

Who you can tell

  • You can file a complaint with the FTC at ftc.gov/complaint under “Other” and then “Imposter Scams.” If it involves the IRS, add “IRS Telephone Scam” in the notes.
  • IRS imposter scams also can be reported to the Treasury Inspector General for Tax Administration (TIGTA) online or at 800-366-4484. If you think you owe federal taxes, call the IRS at 800-829-1040 or go to irs.gov.

Read Government Imposter Scams for more.

IRS Provides Cost-of-Living Adjustments for Retirement Savers

Thursday, November 13, 2014

While IRS and good news aren’t usually synonymous, the retirement contribution maximums the agency has just released might give you something to smile about. Several allowable contribution amounts have increased in order to reflect a rise in the cost of living for 2015.

Beginning with 401(k) contributions, employees will be able to put in $18,000 per year (an increase of $500 from 2014). For those over age 50, the catch-up contribution has gone up to $6,000. This means that in total, taxpayers over 50 can contribute up to $24,000 in retirement funds in 2015.

The phase-out adjusted gross income (AGI) amounts for taxpayers making contributions to a traditional IRA, but who are covered by a workplace retirement plan have increased by $1,000 for singles and $2,000 for married couples filing jointly. The $2,000 AGI increase is also true when only one spouse is covered by a workplace retirement plan. Roth IRA phase-out AGI levels have increased as well.

For low and moderate income taxpayers receiving retirement savings contribution credit, the threshold will rise $1,000 for married couples filing jointly, $750 for heads of household and $500 for individual filers.

What hasn’t changed is the maximum IRA contribution, which is holding steady at $5,500, with a catch-up amount of $1,000.

With these positive adjustments coming up next year, it’s a good time to check with your accountant to make sure you have everything in place to make your maximum allowable contribution.