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Archive for August, 2013

Treasury and IRS Announce That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes; Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples

August 30th, 2013


The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

How to File a Claim for Refund

Taxpayers who wish to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return.

Taxpayers who wish to file a refund claim for gift or estate taxes should file Form 843, Claim for Refund and Request for Abatement. For information on filing an amended return, see Tax Topic 308, Amended Returns, available on, or the Instructions to Forms 1040X and 843. Information on where to file your amended returns is available in the instructions to the form.

Future Guidance

Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling.

Other agencies may provide guidance on other federal programs that they administer that are affected by the Code.

Revenue Ruling 2013-17, along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available today on See also Publication 555, Community Property.

Treasury and the IRS will begin applying the terms of Revenue Ruling 2013-17 on Sept. 16, 2013, but taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so, as long as the statute of limitations for the earlier period has not expired.

Courtesy of the Internal Revenue Service.
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Commercial Suspension Statutes Not Unconstitutional

August 29th, 2013

Argument first raised at hearing constitutes an amendment to the pleadings and, if not objected-to, is tried by consent. Constitutional argument so raised at the first opportunity is preserved. Federal statute withholding money to coerce policy change may violate U.S. Constitution’s spending clause, but Missouri statute passed to gain greater highway funding from federal government does not. Statutes require at least a year disqualification from driving a commercial vehicle for driver convicted of an alcohol-related traffic offense. Driver did not show that DWI in non-commercial vehicle is not rationally related to commercial driving and did not show that notice and opportunity for hearing are insufficient for due process.

Robert Brian Bone, Respondent vs. Director of Revenue, Appellant.
Missouri Supreme Court – SC93047

Courtesy of the Supreme Court of Missouri- Opinions.

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Give Withholding and Payments a Check-up to Avoid a Tax Surprise

August 28th, 2013


Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

  • New Job.   Your employer will ask you to complete a Form W-4, Employee’s Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
  • Life Event.  Change your Form W-4 when certain life events take place. A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. You can typically submit a new Form W–4 anytime.
  • IRS Withholding Calculator.  This handy online tool will help you figure the correct amount of tax to withhold based on your situation. If a change is necessary, the tool will help you complete a new Form W-4.

Self-Employment and Other Income

  • Estimated tax.  This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
  • Form 1040-ES.  Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to pay estimated taxes on a quarterly basis.
  • Change in Estimated Tax.  After you make an estimated tax payment, some life events or financial changes may affect your future payments. Changes in your income, adjustments, deductions, credits or exemptions may make it necessary for you to refigure your estimated tax.
  • Additional Medicare Tax.  A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. For additional information on the Additional Medicare Tax, see our questions and answers.
  • • Net Investment Income Tax.  A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. For additional information on the Net Investment Income Tax, see our questions and answers.

Courtesy of the Internal Revenue Service.
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Ten Tax Tips for Individuals Selling Their Home

August 26th, 2013


If you’re selling your main home this summer or sometime this year, the IRS has some helpful tips for you. Even if you make a profit from the sale of your home, you may not have to report it as income.

Here are 10 tips from the IRS to keep in mind when selling your home.

1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.

2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.

3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.

4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.

5. Use IRS e-file to prepare and file your 2013 tax return next year. E-file software will do most of the work for you. If you prepare a paper return, use the worksheets in Publication 523, Selling Your Home, to figure the gain (or loss) on the sale. The booklet also will help you determine how much of the gain you can exclude.

6. Generally, you can exclude a gain from the sale of only one main home per two-year period.
7. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most of the time.

8. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523 for details.

9. You cannot deduct a loss from the sale of your main home.

10. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

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Courtesy of the Internal Revenue Service.

Give Tax Records a Mid-Year Tune-up this Summer

August 23rd, 2013

A man doing his taxes using a calculator and pencil on a white background

During the summer, you may not think about doing your taxes, but maybe you should. Some of the expenses you’ve paid over the past few months might qualify for money-saving tax credits or deductions come tax time. If you organize your tax records now, you’ll make tax filing easier and faster when you do them next year. It also helps reduce the chance that you’ll lose a receipt or statement that you need.

Here are some tips from the IRS on tax recordkeeping.

• You should keep copies of your filed tax returns as part of your tax records. They can help you prepare future tax returns. You’ll also need them if you need to file an amended return.
• You must keep records to support items reported on your tax return. You should keep basic records that relate to your federal tax return for at least three years. Basic records are documents that prove your income and expenses. This includes income information such as Forms W-2 and 1099. It also includes information that supports tax credits or deductions you claimed. This might include sales slips, credit card receipts and other proofs of payment, invoices, cancelled checks, bank statements and mileage logs.
• If you own a home or investment property, you should keep records of your purchases and other records related to those items. You should typically keep these records, including home improvements, at least three years after you have sold or disposed of the property.
• If you own a business, you should keep records that show total receipts, proof of purchases of business expenses and assets. These may include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices. Also include credit card receipts, sales slips, canceled checks, account statements and petty cash slips. Electronic records can include databases, saved files, emails, instant messages, faxes and voice messages.
• If you own a business with employees, you should generally keep all employment-related tax records for at least four years after the tax is due, or after the tax is paid, whichever is later.
• The IRS doesn’t require any special method to keep records, but it’s a good idea to keep them organized and in one place. This will make it easier for you to prepare and file a complete and accurate return. You’ll also be better able to respond if there are questions about your tax return after you file.

Courtesy of the Internal Revenue Service.
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If You Receive an IRS Notice, Here’s What to Do

August 21st, 2013

final notice

Each year the IRS sends millions of letters and notices to taxpayers. Although some people may feel anxious when they receive one, many are easy to resolve. Here’s what to do if you receive a letter or notice from the IRS:

1. Don’t panic. Follow the instructions in the letter.

2. There are many reasons the IRS sends notices to taxpayers. The notice usually covers a specific issue about your account or tax return. It may request payment of taxes, notify you of a change to your account or ask for additional information.

3. If you receive a notice about a correction to your tax return, you should review it carefully. You usually will need to compare the information in the notice to the entries on your tax return.

  • If you agree with the correction, you usually don’t need to reply unless a payment is due.
  • If you don’t agree with the correction the IRS made, it’s important that you respond as requested. Respond to the IRS in writing to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS.

4. There is no need for you to call or visit an IRS office to answer most IRS notices. If you have questions, call the telephone number in the upper right corner of the notice. When you call, have a copy of your tax return and the notice available.

5. Keep copies of any correspondence with your tax records.

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Courtesy of the Internal Revenue Service.

Appeal from Summary Judgment Discussed

August 20th, 2013

On appeal from summary judgment, rule requires “specific page references to the relevant portion of the record on appeal, i.e., legal file, transcript, or exhibits” that established the material facts. “[N]or can we determine which material facts, if any, pled by [such movements] were properly denied by [appellant’s] response[s].”

Missouri Court of Appeals, Southern District- SD32103

Courtesy of The Missouri Bar.
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Student loan debt should be treated like Detroit’s

August 15th, 2013


Last Thursday, Detroit gained the dubious distinction of becoming the largest municipality in American history to declare bankruptcy. In the days since, various partisan sources have weighed in on the story of a bankrupt major American city. Over at Slate, Matt Yglesias argues that municipal bankruptcy should be easier and more common, to provide cities and townships with the tools required to shed the odious burden of crippling debt often caused by long-departed, ineffectual politicians:

[…]a city is more like a company in the sense that the managers who created the problems are usually gone by the time the reckoning comes. And even the best managers can’t turn a city around unless they can direct a much larger share of the city’s revenue to current services rather than paying off old debts.

While this may be true, it highlights the absurdity of our current student debt crisis: practically all forms of debt (including gambling debt and credit card debt) can be forgiven through bankruptcy… but not student loans. While deeply dysfunctional multinational corporations can declare bankruptcy at the drop of a hat, and even municipalities as large as Detroit can resort to Chapter 9 protection as a last resort to avoid their creditors, regular Americans with student debt are afforded no such “luxury.”

Before the frantic “Reagan revolution,” filled to the brim as it was with (mostly bipartisan) deregulation, bankruptcy was still possible for discharging student loans. As the supply-side fever of Reagan’s presidency swept through America into the ’90s and the Clinton presidency, the deeply corrupted free market principles of deregulation and numerous blatantly pro-banking laws had washed ashore the massive (and fast-expanding) student loan system, with predictably disastrous consequences.

First, in 1976, Congress instituted a fairly reasonable reform to bankruptcy laws: To prevent unscrupulous students from amassing a number of expensive post-graduate degrees (only to immediately declare bankruptcy and simply wait out the seven years without credit), a five-year delay on bankruptcy protection was implemented for student loan debt. In 1990, that waiting period was extended to seven years. Hypothetically, by forcing students to delay dischargement, they would be given the necessary time to build equity, earn a good credit score, and acquire some wealth, which would in turn provide a key disincentive to the “moral hazard” that immediate bankruptcy might present to younger, less stable graduates.

And yet, for the banks, this wasn’t enough: In 1998, the law was changed again, this time ensuring that federally backed student loans would be made completely and permanently nondischargeable through bankruptcy. But for the banks, even this wasn’t enough: In this system, private loans could still be discharged — albeit after a seven-year waiting period and the self-inflicted destruction of one’s credit and assets. Still, the banks continued the push to deregulate: In 2005, the law was changed a final time, shielding private student debt from bankruptcy just like their federally backed kin. Now, eight years after the law has passed, student loan collectors are some of the most predatory in the industry, and will take your car and your house, garnish your wages, and even go after your parents or other co-signers if you try to avoid repayment. If you’re fortunate enough to grow old in a world that offers the elderly Social Security while subsequently unfortunate enough to carry student loan debt all the way into retirement, predatory collection agencies can even garnish your Social Security check.

Bankruptcy law underwent a number of quick transformations, each systematically undermining the rights of students a little more than the last. These developments would also conspire — intentionally or not — to contribute to the rising costs of college, our ballooning debt levels, and the staggering default rate. That they’re enormously popular among the banks and public-private corporations profiting off these loans’ nondischargeability should surprise exactly no one.

In the shadow of these onerous, misguided policy decisions, we find ourselves facing a student loan burden so enormous that its present value has actually eclipsed our national credit card debt. Incredibly, the fundamental problem is quite simple: Our current system offers no incentives for loan originators to deny risky borrowers; consequently, student loans are much too easy to obtain. Huge amounts of cash are offered to students without regard to the school they might attend or the major they might choose. Colleges and universities happily raise prices (at a rate significantly faster than inflation), secure in the knowledge that larger loans will be provided to cover increasing costs. Faced with a glut of cash, administrator salaries have skyrocketed. Pricey new facilities are built for disgruntled students quite justified in their demands for improved amenities to match quickly rising tuition costs.

High school students are heavily coerced by the adults in their world to attend college by any means necessary, and this coercion is wrapped in the implicit threat of a life of poverty, shame and alienation for those foolish enough not to listen. At a moment when young people are incredibly suggestible, parents, teachers and administrators conspire to feed their children to the scores of predatory lenders more than happy to offer whatever loans these adolescents will sign for the promise of a brighter future. What’s worse, according to an article by Josh Freeman in The Atlantic, as enrollments rise and student become increasingly leveraged with debt, necessary aid packages aren’t keeping up with rising tuition costs:

On average, according to Andrew Gillen of Education Sector, only 60 percent of the increased revenue from a higher sticker price is recycled back to aid.

In practical fact, administrators are raising prices across the board, often justifying these increases by promising more aid to needy students (paradoxically to offset those same rising costs) – only to divert the new funds elsewhere, leaving the most desperate students with higher tuition but scant new financial aid.

All of these problems together contribute to the $1 trillion student debt crisis, and they all can be traced back to the disastrous bankruptcy deregulations of the late ’90s and early 2000s.

Others have noted that bankruptcy has exacerbated the student debt crisis. Time’s Martha C. White notes:

[…]the student-loan market has some quirks that could be contributing to the rising delinquency rate. “Lenders of credit-card debt, auto loans and mortgages have adopted tighter credit-underwriting criteria in the aftermath of the credit crisis. This has denied credit to financially distressed borrowers,” [Mark Kantrowitz] says. Most federal student-loan programs, though, will accept borrowers regardless of their credit history.

A recent report from the D.C. lobbying firm Hamilton Place Strategies titled “The Economics of Student Debt” suggests that we consider preventing loan originators from offering enormous debt packages to students unlikely to find work that will allow them the ability to repay:

Lending institutions largely ignore the difference in default risk between majors since the federal government guarantees the loans. Students and parents can likewise ignore the returns on different degrees and college more broadly, because culturally many see college as a “moral good.”

Offering desperate, impoverished students bankruptcy might seem like a cynical solution, a form of victim-blaming that largely punishes the naive children who took out bad loans. But the consequences would be enormously helpful to society as a whole and shouldn’t be blithely overlooked.

Banks love student loans because they aren’t dischargeable and are consequently extremely stable; in the post-Recession world, safe investment vehicles are relatively uncommon; with interest rates at historic lows and credit for all but the most desirable borrowers still hard to obtain, securitized student loans have become an extremely attractive financial product. The risk of bankruptcy would change this whole calculus: investors would suddenly need to be wary of lending out enormous loans to students highly unlikely to repay. With students unable to take on enormous debt for degrees of questionable value from overpriced schools, they’ll be forced to look to other options. A number of excessively expensive schools would probably be forced to shutter (one estimate suggests half of all universities could close by 2030), but this might be more of a feature than a bug, as fewer students are exploited by college administrators armed with dubious statistics purporting to defend the long-term value of college.

If bankruptcy laws were reformed, there would surely be unintended casualties, as some students would find themselves without easy access to adequate loans or local universities. But the social benefits would far outweigh the challenges faced by a small minority of disenfranchised students, particularly when costs start to drop across the board and tuition growth finally slows to the pace of inflation. Some students may be forced to reconsider their majors, find cheaper schools, or survive solely on private scholarships, Pell grants and paychecks, but the consequences of these sacrifices should end up best serving those same desperate young adults, otherwise coerced into taking deep debt from institutions that routinely obfuscate the value of the degrees they offer, and provide little help to students hoping to find relevant work after they’ve matriculated.

Reforming bankruptcy will not solve the student debt crisis, but it will provide a crucial first step by decoupling our politicians and our educators from the deeply seductive cash flow these predatory loans provide. Student debt (and particularly student debt default) provides an enormous revenue stream to colleges, banks and the federal government by robbing naive young Americans hoping to improve their economic position.

Congress needs to party (legislatively) like it’s 1997, and allow all student loans to be discharged through the same (onerous and punitive) bankruptcy process that other debtors enjoy. In a recent article here on Salon, David Dayen lets Senator Elizabeth Warren explain the problem with our current priorities succinctly:

“Why should students who are trying to finance an education be treated more harshly than someone … who racked up tens of thousands of dollars gambling?”

So, will the law be changed? Unfortunately, recent efforts have proven both unsuccessful and underwhelming. In January, Senator Dick Durbin introduced the “Fairness for Struggling Students Act,” which would make private student loans dischargeable just like any other form of private debt. While clearly insufficient (private loans only account for about 15% of total student debt), this would have at least helped: in the eight years since private loans were shielded from bankruptcy, delinquency rates have doubled. Unsurprisingly, Senator Durbin’s bill has floundered in the Senate, a major red flag even if this piece of legislation enjoyed broad support. (It doesn’t.) When considering the enormously powerful Wall Street banks — which combined to spend over $100 million lobbying Congress in just the first eight months of 2011 — this paints a portrait of a bill destined to die a quiet legislative death.

You want to fix our loan crisis? Provide struggling former students with the same protections afforded to Detroit: the promise that when all else fails, we’ll be thrown the vital life-preserver of bankruptcy, a last-ditch salvation from the turbulent waters of crushing, overwhelming debt. Until these wildly misplaced priorities are corrected, our mounting student debt crisis will only worsen.

Written by Tom Donovan and published on the National Association of Consumer Bankruptcy Attorneys.
Tim Donovan is a freelance author who blogs about Millennial issues at The Suffolk Resolves.

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Back-to-School Tax Tips for Students and Parents

August 14th, 2013


Going to college can be a stressful time for students and parents. The IRS offers these tips about education tax benefits that can help offset some college costs and maybe relieve some of that stress.

• American Opportunity Tax Credit.  This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of Dec. 2017.

• Lifetime Learning Credit.   With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.

You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.

You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for these credits. The tool is available at

• Student loan interest deduction.  Other than home mortgage interest, you generally can’t deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You don’t need to itemize deductions to claim it.

These education benefits are subject to income limitations and may be reduced or eliminated depending on your income.


Courtesy of the Internal Revenue Service.
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Small businesses slowly pick up hiring pace

August 12th, 2013

now hiring

Small businesses are gradually picking up the pace of their hiring, according to recent reports.
The payroll company ADP said that its small business customers added 58,000 jobs last month, up from 50,000 in April. The company also revised its March number to 74,000 from 60,000.
Nearly two-thirds of the jobs, 37,000, were at companies with fewer than 20 workers. The rest were at companies with 20 to 49 workers.
And software maker Intuit said its small business customers added 35,000 jobs last month. It revised its April reading up to 35,000 from 20,000.
Both reports indicate that although small companies continue to hire cautiously, their job growth is gaining momentum. Surveys this year have found that many owners plan to hire modestly or keep their employment levels unchanged because they’re not sure about the outlook for their revenue and the economy.
Small businesses accounted for 99.9 percent of U.S. companies and about half the nation’s employment. Many economists say the economic recovery can’t gain strength unless small businesses increase their pace of hiring.
Economists predict that the economy will grow by a 2 percent annual rate from April through June, down from 2.4 percent in the first three months of the year.
A third report, a survey by the National Federation of Independent Business, said employment at small businesses was virtually unchanged, falling 0.04 workers per firm after five months of gains. The survey questioned 715 of the advocacy group’s members.

Courtesy of The Legal Record.
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