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Thursday
Jan292015

Will Obama's SOTU Lead to Tax Change? Tax Attorney Rob Wood Is Doubtful

 

President Obama has delivered his State of the Union address for 2015. The question always arises, after a speech by the President, whether any new legislation will result from presidential suggestions. Tax attorney Rob Wood offers his opinion in this report based on his Forbes article “State Of The Taxing Union? Platitudes So General They Could Be Pitching Flat Tax.”

 

Wood says that there were some interesting suggestions but that they are more relevant to the next two years than to the immediate future. Given that Republicans control both the Senate and the House of Representatives, an increase on the capital gains tax rate to 28% “is not likely.” Some of the other matters discussed by the President were not new, including a bank tax proposal. But “most of it is just posturing for a presidential election,” in Wood’s opinion. It’s unlikely that there will be a major tax bill “in the next year or so.

Both political parties seem to be interested in reducing the corporate tax rate to 28%, and that might be are area where there could be agreement. America’s tax rate of 35% is high compared to tax rates in other countries. However, Wood suggests that many companies, large and small, are not actually paying the 35% rate. “They are finding a way with transfer pricing or other . . .  international strategies” to avoid the full tax rate. And that sort of revision takes time.

Wood believes that the IRS might actually collect more corporate taxes by having a lower corporate tax rate. The question is, how would such a reduction be implemented? Wood feels that it is unlikely that such a change could be brought about by a one-line change to the tax code; more likely, it would involve comprehensive revision of the code.

Wood hopes that the onset of campaigning for the presidential election in 2016 will bring about renewed interest in a flat tax. Wood supports the idea of the simplicity of a flat tax. However, he doubts that such a plan has a chance because it is viewed as regressive.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Monday
Dec292014

How Long Can The IRS Audit?

Most taxpayers are familiar with the three-year statute of limitations on IRS audits. Filing an amended return does not extend that three-year limit. However, there are times when the time is greatly extended. Tax attorney Rob Wood discusses the rule and the exceptions in this report, based on his Forbes article “How Long Can IRS Audit? It All Depends On You.” The subject is also discussed in an earlier report by Wood.

Wood points out that the time deadline for audits is a matter of concern for all taxpayers, who dread getting mail from the IRS. The good news, Wood says, is that the three-year statute applies in most cases. If it has been three years since you filed your return and paid your taxes, “it’s usually too late for the IRS to collect” if they send a notice wanting to perform an audit.

Wood notes that there are times when the IRS will ask a taxpayer for more time to complete an audit, and he is inclined to grant those requests. “It’s a little counter-intuitive” to grant such a request. The reason to grant the request, Wood explains, is that failure to agree will probably cause the IRS to send the taxpayer a bill, which will escalate the dispute. The taxpayer would then have the burden of proving that the bill was unreasonable.

Wood says that the income is more than three years in certain specific circumstances. For example, a taxpayer omits more than 25% of income or has certain types of foreign accounts, the statute of limitations is more than three years. If a taxpayer has a foreign company and does not file the right kind of form, there is an unlimited amount of time for the audit.

And a separate issue taxpayers should be aware of is the statute of limitations for collections. If the IRS has sent a bill, they have ten years in which to collect. For more by Rob Wood on the subject, see his Forbes article “IRS Can Audit For Three Years, Six...Or Forever.”

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

 

Thursday
Nov202014

Soda Tax: The War on Sodas Begins in Berkeley

After efforts in several cities to tax or limit the consumption of sweetened carbonated beverages, opponents of sodas have managed to pass a tax on sodas in the city of Berkeley, California. Tax attorney Rob Wood discusses the tax in this report and in his Forbes article “Death To The Soda Tax, Long Live The Soda Tax.

 

The impetus for taxing or otherwise limiting the consumption of sodas by Americans relates to the high sugar content of these drinks and the obesity problem in America. Wood says that taxes like this, often called “sin” taxes, are really excise taxes—the charge is per ounce or per unit.

Wood says that there was a bitter and hard-fought campaign to pass the tax in Berkeley. There was a similar effort in San Francisco, across the bay from Berkeley. The soda industry spent large sums of money opposing these taxes, apparently spending more in San Francisco. The tax failed in San Francisco. Wood notes that Berkeley is a smaller city and “historically very liberal.”

Wood opines that it is too early to count the tax in Berkeley as “the first domino falling.” But the tax has been a long time coming. Limiting soda consumption was tried in New York City, where Mayor Michael Bloomberg’s plan to keep large sugary drinks out of eating places was thrown out by the New York Court of Appeals. The effort was popularly referred to as the “big gulp ban.”

Wood says that there are still a lot of lines to be drawn in the regulation of sugary drinks. There are many beverages that are high in sugar content, even though they are not classified as sodas—orange juice is one example. Litigation may be triggered by future decisions about what is covered by the tax and what is not.

Another issue to be decided is what to do with the tax revenues. Cigarette excise taxes have been earmarked for a variety of purposes related to health and smoking prevention. Wood thinks that, in the long run, taxes like this will be earmarked, even though that does not mean the money will be spent productively. It also does not necessarily mean that consumption will be reduced.

As Wood says, the many ads consumers saw on television during the run-up to the soda tax election were probably confusing to anyone trying to make a reasoned decision.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Thursday
Nov202014

IRS Loses Trip Hawkins Case; Lavish Spending Is Not Necessarily Tax Evasion

Trip Hawkins, founder of Electronic Arts, has been in the news because his lavish spending lifestyle was involved in both a bankruptcy case and an IRS tax case. Hawkins’s win in the tax case is the subject of this report by tax attorney Rob Wood and also the subject of his Forbes article “IRS Loses 'Lavish Spending Is Tax Evasion' Case, Big Spenders Rejoice.”

 

The complaint against Hawkins is that, instead of paying his tax bill, he spent a lot of money on lavish living. The government’s position was that the lavish lifestyle was evidence of willfulness, something that can lead to large penalties and even prosecution. Willfulness has been discussed in reports on Lionel Messi and Dolce & Gabbana.

As Wood points out, it is not a “typical fact pattern” for most taxpayers, but the story is an interesting one. Hawkins owed a lot of taxes because of tax shelter activities. The attack was on willfulness, and the IRS lost that point.

The question here, as Wood says, is not whether someone should drive a Prius rather than a Ferrari, but whether it is bad to drive a Ferrari and fly around in a private jet plane. “Willful is a hard thing to define,” Wood says. In trials involving willfulness, most taxpayers do not take the stand because the government must prove its case. These cases are very fact specific, and the Hawkins case is likely to be very helpful for taxpayers who are in his situation.

Another issue the Hawkins case brings up is the handling of taxes in bankruptcy proceedings. Generally speaking, says Wood, bankruptcy does not fix tax liabilities. There are some specific and somewhat complicated timing rules that apply as to dischargeability of debts, perhaps including taxes. In this case, there were debts that could be dischargeable, and the government sought to prevent that outcome by the willfulness argument.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Wednesday
Nov192014

Harold Hamm’s Billion Dollar Divorce: Taxation Possibilities

Harold Hamm, CEO of Continental Resources, has recently gotten a divorce that comes with a price tag of about $1 billion. That sounds like a big divorce payment, but it could have been as large as $5 billion. As always, there will be tax ramifications depending on how the money transfers are handled. Tax attorney Rob Wood discusses the situation in this report, based on his Forbes article “Harold Hamm's Billion Dollar Divorce And The IRS.”

 

Wood notes that stories like these are interesting because the numbers are so big. However, the tax rules are the same, no matter how big the divorce. The rules are clear, Wood says but things get fouled up in a surprisingly large number of divorces.

It appears that most of what Ms. Hamm receives will be in the form of a property settlement, and transfers like that are not taxable under Section 1041 of the tax code. Alimony, however, is taxable income. It’s important for everyone involved to clearly define the terms of the divorce settlement.

In the settlement, Ms. Hamm gets $320 million up front, with monthly payments of $7 million or more to follow. Monthly payments, as Wood explains, “sounds like alimony, or . . . spousal maintenance.” Child support payments (when there are children involved) are not taxable.

Wood suggests that, if the Hamms decided to split their assets, whether by agreement or because of a court order, there would be no tax on the property. Under the estate and gift tax law, spouses can make such transfers without tax, and the same rule applies in a divorce. However, property transferred in this way “keeps its historic basis.” Meaning, Wood explains, that shares of stock (for example) would be transferred with a low basis, so that the ex-wife would pay taxes on the higher value should she sell the stock. The same thing applies to real estate.

If the monthly payments are spousal maintenance, they are deductible by him and taxable to her. A problem can occur when the parties to a divorce do not characterize the payments in the same way and the IRS compares the returns.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.