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Archive for July, 2012

The 3.8% Medicare surtax won’t apply to all home sale profits after 2012

July 30th, 2012

Many readers tell us they’ve received e-mails or read newspaper articles asserting that gains on all home sales will be hit by a 3.8% tax. This is incorrect.

Most gains on sales of primary residences will be exempt. Only the portion of profits that exceeds the $250,000 or $500,000 exclusion will be subject to the tax. And only higher-incomers will owe the surtax…singles with adjusted gross incomes over $200,000 or joint filer’s net investment income (including taxable capital gains) or the excess of the taxpayer’s adjusted gross income over the threshold amounts.

But profits on sales of rentals and second homes may be hit by the surtax.

Employer-provided cell phones are tax free fringes, the Service says

July 27th, 2012

As long as companies give the phones to workers primarily for business reasons, employees won’t be taxed on either the business or personal use of the phones. Thus, workers will not need to keep a log of their business and personal calls.

Ditto where employers reimburse for the business use of personal phones. The payments aren’t taxed to employees if the use of the phone is reasonably related to the firm’s business needs and the amounts paid are not unusual or excessive.

These same rules apply to iPads and other tablets, according to IRS officials.

Provin Notice to Debt Collectors

July 23rd, 2012

Debt collectors often dispute receiving communications, written or verbal, that consumers believe they conveyed. There is no certain way to avoid disputes over a debt collector’s receipt of a consumer’s communication, whether it be a TCPA revocation of consent, a FDCPA notice to cease communications, or other notice.
Mailed notices get the benefit of the longstanding, rebuttable presumption that a properly addressed letter is received by the addressee. The simplicity of that rule often collides with errors that prevent the presumption from arising. The presumption may not be available if the consumer forgets to keep a copy of the letter showing it was properly addressed or fails to include the ZIP code in the address. The use of certified mail gets the benefit of the presumption only as long as the return receipt is presented. Many courts extend the presumption of receipt to a fax with a confirmation generated by the sender’s machine, and some courts have extended it to emails. A consumer’s memory or notes affirming a verbal notice to the debt collector may often create at least a factual issue requiring trail. Debt collector’s notes are usually only a summary of any conversation and may not provide a convincing rebuttal. Using multiple methods may be the best way to avoid disputes.

Chapter 13- Confirmation of plan- Good faith

July 20th, 2012

Because Code §§1325(b)(1)(A), (B) give a chapter 13 debtor the option of either paying the debtor’s projected disposable income over the applicable commitment period or paying the debtor’s unsecured creditors in full, a plan that pays the debtor’s creditors in full over the applicable commitment period does not violate the requirement of good faith in Code §1325(a)(3) even though the debtor could pay the creditors in full more quickly by paying his or her full projected disposable income each month. In re Richall, 2012 WL 1657132.

IRS continutes to go after S corporations that pay low salaries to owners

July 19th, 2012

Many owners of S companies take low salaries so the bulk of the profits are passed through to their own returns free of Social Security and Medicare taxes. IRS and the courts balk at this practice. In a recent case, a CPA set up an S company to serve as a partner in an accounting firm. He took a $24,000 salary from the S firm in a year when its share of the partnership’s profits was $203,000. An Appeals Court agreed with the IRS that the pay was unreasonably low, relying on an expert’s testimony that the CPA’s services were worth $91,000. The Court held that $67,000 of the profits are properly reclassified as salary and subject to payroll taxes.

Job Search Expenses Can be Tax Deductible

July 18th, 2012

Summertime is the season that often leads to major life decisions, such as buying a home, moving or a job change. If you are looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return.

Here are seven things the IRS wants you to know about deducting costs related to your job search:

1. To qualify for a deduction, your expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation.

2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you received in your gross income, up to the amount of your tax benefit in the earlier year.

3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

4. If you travel to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area to which you travelled. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity unrelated to your job search compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

5. You cannot deduct your job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

6. You cannot deduct job search expenses if you are looking for a job for the first time.

7. The amount of job search expenses that you can claim is limited. To determine your deduction, use Schedule A, Itemized Deductions. Job search expenses are claimed as a miscellaneous itemized deduction and the total of all miscellaneous deductions must be more than two percent of your adjusted gross income.

Chapter 13- Confirmation of plan- Treatment of secured claims- Valuation of collateral

July 17th, 2012

Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure allocates the burden of proof as to the value of secured claims under Code §506(a). Concluding that a burden-shifting approach was the most appropriate, the Third Circuit Court of Appeals explained that the initial burden should be on the party challenging a secured claim’s value, because Code §502(a) and Bankruptcy Rule 3001(f) granted prima facie effect to the validity and amount of a properly-filed claim. It was only fair, then, that the party seeking to negate the presumptively valid amount of a secured claim—and thereby affect the rights of a creditor—bear the initial burden. If the movant establishes with sufficient evidence that the proof of claim overvalues a creditor’s secured claim because the collateral is of insufficient value, the burden shifts. The creditor thereafter bears the ultimate burden of persuasion to demonstrate by a preponderance of the evidence in both the extent of its lien and the value of the collateral securing its claim. In re Heritage Highgate, Inc., 2012 WL 1664174.

Chapter 13– Confirmation of plan– Calculation of projected disposable income

July 16th, 2012

Addressing one of the significant issues still open regarding the calculation of a Chapter 13 debtor’s projected disposable income, the court said that, while Code §1325(b)(3) requires that the determination of the expenses for an above-median debtor be made in accordance with Code §§707(b)(2)(A), (B), this does not obviate the Bankruptcy Code’s threshold requirements, in §1325(b)(2), that the amount of an expense be reasonable necessary. Here, the debtor’s monthly mortgage expense of $5,857 was not reasonably necessary where the applicable IRS Local Standard for monthly housing expenses for a one-person household in Burlington County, New Jersey, was $1,125. The debtor’s five-bedroom residence had a total of 6,100 square feet, as well as numerous luxury features such as a 300—plus-bottle wine cellar, a second kitchen, a pool table room, and a heated pool. Moreover, the debtor’s Form 22C deducted expenses for electricity, heating fuel, sewer/water, and home maintenance totaling $880, which was nearly double the local standard for non-mortgage housing utilities of $491. In re Konowicz, 2012 WL 1813410.

Credit counseling– Completion on petition date:

July 13th, 2012

As part of the Bankruptcy Technical Corrections Act of 2010, Bankruptcy Code §109(h)(1) was amended so that it now requires credit counseling “during the 180-day period ending on the date of filing of the petition.” Unfortunately, the drafters may have inadvertently created a new controversy; Collier on Bankruptcy suggests that the amended language of §109(h)(1) arguable opens the door to allow the credit counseling to be obtained at any time on the date of filing the petition, including after the petition is filed with the court. While the court agreed that an ambiguity remained in the language of the statute, the court adopted a rule that the credit counseling requirement must be met prior to the moment of filing the petition. Thus, here, the debtor failed to comply with §109(h)(1), where she filed her bankruptcy petition at 8:02 p.m., and she also filed a Certificate of Counseling indicating that she had received a briefing from an approved credit counseling agency at 9:09 p.m. of the same day. In re Lane, 2012 WL 1865448.

Missouri Supreme Court Requires Debt Buyer to Produce a Real Records Custodian to Prove Standing

July 12th, 2012

The Missouri Supreme Court recently reversed a judgment for a debt buyer for failing to provide competent evidence that it owned the debt on which it sued. In CACH, L.L.C. v. Askew, the debt buyer, CACH, L.L.C. offered the testimony of an employee of a corporation that owned CACH. CACH had no employees. The employee testified that. Providian Bank, a notorious credit card fee harvester, extended a credit card account to the defendant consumer. She also testified that Providian was acquired by Washington Mutual, a bank, which sold the account to Worldwide Asset Purchasing II, L.L.C., a debt buyer, which sold the account to CACH. She testified that she had no personal knowledge of these events and offered business records from the prior debt buyer. However, the witness could not claim familiarity with the assignor debt buyer’s procedures for creating business records. The consumer asserted that CACH failed to establish standing because of the foundation laid by the witness for CACH to show the chain of title was inadequate.
The Missouri Supreme Court agreed:
All of the requirements of §490.680 must be satisfied for a record to be admitted as competent evidence….To satisfy these requirements, the records “custodian” or “other qualified witness” has to testify to the record’s identity, mode of preparation, and that it was made in the regular course of business, at or near the time of the event that it records….For that reason, a document that is prepared by one business cannot qualify for the business records exception merely based on another business’s records custodian testifying that it appears in the files of the business that did not create the record.
To be a “qualified witness” who can lay the foundation for a business record pursuant to §490.680, Eakins [the records custodian] must have “sufficient knowledge of the business operation and methods of keeping records of the business to give the records probity.” … Eakins’ testimony was insufficient to meet this burden… Eakins lacked sufficient knowledge of when or how Exhibit 7 was prepared.
….Eakins failed to demonstrate that she had any knowledge of the standard procedures used by either Providian, Washington Mutual, or Worldwide.