Tax Relief Blog

Tax Attorney – Get the power of attorney for tax representation

A tax relief attorney may represent taxpayers with a tax deficiency, which is the excess of the correct tax liability over the tax shown on the taxpayer’s return plus amounts previously assessed (or collected without assessment) as a tax deficiency, and minus any credits made to the taxpayer.

The IRS is mainly authorized to assess taxes to individual and business taxpayers. The tax attorney would usually get involved as the collection process begins when a notice of deficiency is sent to the taxpayer’s last known address by registered or certified mail. In each deficiency notice, the IRS must provide a description of the basis for the assessment, an identification of the amount of tax, interest and penalties assessed and the date determined to be the last day on which the taxpayer may file a petition with the Tax Court. However, the failure by the IRS to specify the last day on which to file a petition will not invalidate an otherwise valid deficiency notice if the taxpayer was not prejudiced by the omission.

Within 90 days after the IRS’ notice of the deficiency is mailed, the taxpayer, or the tax attorney, may file a petition with the Tax Court for a redetermination of the deficiency. Payment of the assessed amount after the deficiency notice is mailed does not deprive the Tax Court of jurisdiction over the deficiency.

If the taxpayer, or the tax attorney, does not file a Tax Court petition within the required time period, the tax may be collected by the IRS. A taxpayer’s property may be seized to enforce collection if there is a failure to pay an assessed tax within 30 days after notice of levy. However, the notice and waiting period does not apply if the IRS finds that the collection of tax is in jeopardy. Notices of levy must provide a description of the levy process in simple and nontechnical terms.

Compromise and settlement of tax and penalty

The IRS may compromise the tax liability in most civil or criminal cases before referral to the Department of Justice for prosecution or defense. The Attorney General or a delegate may compromise any case after the referral. However, the IRS may not compromise certain criminal liabilities arising under internal revenue laws relating to narcotics, opium, or marijuana. Interest and penalties, as well as tax, may be compromised. An offer-in-compromise is submitted on form 656 accompanied by a financial statement on form 433-A for an individual or form 433-B for businesses (if based on inability to pay). A taxpayer who faces severe or unusual economic hardship may also apply for an offer-in-compromise by submitting form 656. If the IRS accepts an offer-in-compromise, the payment is usually allocated among tax, penalties, and interest as stated in the collateral agreement with the IRS. If no allocation is specified in the agreement and the amounts paid exceed the total tax and penalties owed, the payments will be applied to tax, penalties, and interest in that order, beginning with the earliest year. If the IRS agrees to an amount that does not exceed the combined tax and penalties, and there is no agreement regarding allocation of the payment, no amount will be allocated to interest.

Partial payment requirement. Taxpayers are required to make nonrefundable partial payments with the submission of any offer-in-compromise. Taxpayers who submit a lump-sum offer (any offer that will be paid in five or fewer installments) must include a payment of 20 percent of the amount offered. Taxpayers who submit a periodic payment offer must include payment of the first proposed installment with the offer and continue making payments under the terms proposed while the offer is being evaluated. Offers that are submitted to the IRS without the required partial payments will be returned to the taxpayer as non-processible. The required partial payments are applied to the taxpayer’s unpaid liability and are not refundable. However, taxpayers may specify the liability to which they want their payments applied. Any offer that is not rejected within 24 months of the date it is submitted is deemed to be accepted. However, any period during which the tax liability to be compromised is in dispute in any judicial proceeding is not taken into account in determining the expiration of the 24-month period.

Tax Attorney for Tax Court

The primary function of the U.S. Tax Court is to review deficiencies asserted by the IRS for additional income, estate, gift, or self-employment taxes or special excise taxes imposed on taxpayers . The Tax Court is the only judicial body from which relief may be obtained without the payment of tax. The Tax Court also may issue declaratory judgments on the initial or continuing qualification of a retirement plan, a tax-exempt organization, a private foundation, a private operating foundation, or a tax-exempt farmers’ cooperative. However, a revocation of tax-exempt status for failure to file an annual information return or notice is not subject to an action for declaratory judgment relief. The Tax Court also may rule on the tax-exempt interest status of a government bond. Declaratory judgment powers are also provided for (1) estate tax installments, (2) gift tax revaluations, and (3) employment status determinations.

The Tax Court’s offices and trial rooms are located in Washington, D.C., but trials are also conducted in principal cities throughout the country. At the time of filing a petition, the taxpayer, or the tax attorney, should file a request indicating where he prefers the trial to be held. In any Tax Court case, other than small tax cases, the findings of fact and opinion must generally be reported in writing. However, in appropriate cases, a Tax Court judge may state orally, and record in the transcript of the proceedings, the findings of fact or opinion in the case . In such cases, the court must provide to all parties in the case either a copy of the transcript pages, which record the findings or opinion, or a written summary of such findings or opinion.

Also refer to our popular article of Enrolled Agent vs Tax Attorney.

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Basic Trust Taxation Rules It is estimated that $4.8 trillion in wealth will be inherited or transferred from one generation to the next by 2015, with much of it transferred through a variety of trusts. Filings of trust returns (Form 1041) are now the third most frequently filed income tax return behind individual and corporate returns. Although the vast majority of these transfers are legal, there is widespread potential for fraud.In the last few years, the Internal Revenue Service has detected a proliferation of abusive trust tax evasion schemes. These promotions are targeted towards wealthy individuals, small business owners, and professionals such as doctors and lawyers.Abusive trust arrangements typically are promoted by the promise of such benefits as:

  • Reduction or elimination of income subject to tax.
  • Deductions for personal expenses paid by the trust.
  • Depreciation deductions of an owner’s personal expenses paid by the trust.
  • Depreciation deductions of an owner’s personal residence and furnishings.
  • A stepped-up basis for property transferred to the trust.
  • The reduction or elimination of self-employment taxes.
  • The reduction or elimination of gift and estate taxes.

Abusive trust arrangements often use trusts to hide the true ownership of assets and income or to disguise the substance of transactions. Although these schemes give the appearance of separating responsibility and control from the benefits of ownership, as would be the case with legitimate trusts, the taxpayer in fact controls them.

These arrangements frequently involve more than one trust, each holding different assets of the taxpayer (the taxpayer’s business, equipment, home, automobile, etc.), as well as interests in other trusts. The trusts are vertically layered, with each trust distributing income to the next layer. Funds may flow from one trust to another trust by way of rental agreements, fees for services, purchase and sale agreements, and distributions. The goal is to use inflated or nonexistent deductions to reduce taxable income to nominal amounts.

Although the individual abusive promotions vary, two basic schemes have been identified:

  • The domestic package, and
  • The foreign package.

These schemes are often promoted by a network of promoters and sub-promoters who have charged $5,000 to $70,000 for their packages. This fee enables taxpayers to have trust documents prepared, to utilize foreign and domestic trustees as offered by promoters, and to use foreign bank accounts and corporations. In some instances, tax return preparer services are also made available.

Taxpayers should be aware that abusive trust arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of trust arrangements. Furthermore, in appropriate circumstances, taxpayers and/or the promoters of these trust arrangements may be subject to civil and/or criminal penalties.

To understand fully the trust schemes offered today, it is important to focus on some basic trust taxation rules.

A valid trust is a legal arrangement creating a separate legal entity. The duties, powers and responsibilities of the parties to this arrangement are determined by state statute and the trust agreement. To create a trust, legal title to property is conveyed to a trustee, who is then charged with the responsibility of using that property for the benefit of another person, called the beneficiary, who really has all the benefits of ownership, except for bare legal title. The IRS recognizes numerous types of legal trust arrangements, and they are commonly used for estate planning, charitable purposes, and holding of assets for beneficiaries. The trustee manages the trust, holds legal title to trust assets, and exercises independent control.

All income a trust receives, whether from foreign or domestic sources, is taxable to the trust, to the beneficiary, or to the grantor of the trust unless specifically exempted by the Internal Revenue Code (IRC).

Foreign trusts to which a U.S. taxpayer has transferred property are treated as grantor trusts as long as the trust has at least one U.S. beneficiary. The income the trust earns is taxable to the grantor under the grantor trust rules. Grantor trusts are not recognized as separate taxable entities, because under the terms of the trust, the grantor retains one or more powers and remains the owner of the trust income. In such a case, the trust income is taxed to the grantor, whether or not the income is distributed to another party.

A legitimate trust is allowed to deduct distributions to beneficiaries from its taxable income, with a few modifications. Therefore, trusts can eliminate income by making distributions to other trusts or other entities as long as they are named as beneficiaries. This distribution of income is key to understanding the nature of the abusive schemes. In the abusive schemes, bogus expenses are charged against trust income at each trust layer. After the deduction of these expenses, the remaining income is distributed to another trust, and the process is repeated. The result of the distributions and deductions is to reduce the amount of income ultimately reported to the IRS.

Filing requirements for legitimate trusts are discussed below:

  • A domestic trust must file a Form 1041, U.S. Income Tax Return for Estates and Trusts, for each taxable year. If the trust is classified as a Domestic Grantor Trust, it is not generally required to file a Form 1041, provided that the individual taxpayer reports all items of income on his own Form 1040, U.S. Individual Income Tax Return. Thus, the individual pays the total tax liability upon the filing of his return for that taxable year. All income received by a trust, whether from foreign or domestic sources, is taxable to the trust, to the beneficiary, or to the grantor unless specifically exempted by the Internal Revenue Code.
  • Foreign trusts are subject to special filing requirements. If a trust has income that is effectively connected with a U.S. trade or business, it must file Form 1040NR, U.S. Nonresident Alien Income Tax Return. Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Foreign Gifts, must be filed on the creation of or transfer of property to certain foreign trusts. Form 3520-A, Annual Information Return of Foreign Trusts With U.S. Owner, must also be filed annually. Foreign trusts may be required to file other forms as well.
  • In addition to filing trust returns as just described, a taxpayer may be required to file U.S. Treasury Form TD F 90-22.1, Foreign Bank and Financial Accounts Report, if the taxpayer has an interest of over $10,000 in foreign bank accounts, securities, or other financial account. Also, a taxpayer may be required to acknowledge an interest in a foreign bank account, security account or foreign trust on Schedule B, Interest and Dividend Income, that is attached to Form 1040.

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About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES . You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

Senate Unveil Tax Reform Bill

Senate Finance Committee members Ron Wyden, D-Ore., and Judd Gregg, R-N.H., on February 23 unveiled a broad tax reform proposal that they say would create a simpler and fairer system by lowering tax rates and eliminating narrow tax breaks that benefit special interests. The plan would also simplify tax returns into a one-page Form 1040.

The most significant individual provisions of the Bipartisan Tax Fairness and Simplification Bill of 2010 would reduce the number of income tax brackets from six to three –15 percent, 25 percent and 35 percent –increase the amounts of the standard deduction, eliminate the alternative minimum tax and allow an exclusion for capital gains. On the business side, the proposal would establish a single corporate income tax rate of 24 percent and allow a simplified cash flow accounting for businesses with gross receipts of less than $1 million per year.

“By simplifying the tax code and scaling back tax breaks for special interests, we can give everyone an opportunity to get ahead. Businesses of all sizes will be in a better position to compete and grow jobs. Working families will keep more of their hard-earned dollars, and everyone will spend a lot less time filling out tax forms,” said Wyden.

Preliminary revenue projections for the measure provided by the Congressional Research Service and based on Joint Committee of Taxation estimates of similar legislation introduced in 2007 (the Fair Flat Tax Bill of 2007 (Sen 1111)) indicated that the proposal would be deficit neutral. Much of the revenue for reform would be generated by closing corporate tax loopholes and eliminating what Wyden and Gregg termed “corporate welfare.”

The legislation also would eliminate incentives for companies to export jobs and keep their foreign earnings overseas by repealing the rule that allows U.S. companies to defer taxes on their foreign income. The bill would also require banks to identify all individuals who benefit from foreign accounts and to withhold 30 percent of all withholdable income, such as interest sent to beneficiaries that disguise their identities.

The Senate is unlikely to address the proposal in the near future given the abbreviated legislative calendar due to the 2010 elections. House Ways and Means Committee Chairman Charles E. Rangel, D-N.Y., and Senate Finance Committee Chairman Max Baucus, D-Mont., have said that comprehensive tax reform is on their agenda.

About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES . You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

IRD – Income In Respect of a Decedent

All income the decedent would have received had death not occurred that was not properly includible on the final tax return is income in respect of a decedent.

If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent’s tax year (determined without regard to death) is excluded from the recipient’s gross income. This exclusion does not apply to certain income. For more information, see Publication 3920.

How To Report

Income in respect of a decedent must be included in the income of one of the following:

  • The decedent’s estate, if the estate receives it;
  • The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it; or
  • Any person to whom the estate properly distributes the right to receive it.

If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. See Estate Tax Deduction, later.

Example 1.

Frank Johnson owned and operated an apple orchard. He used the cash method of accounting. He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. The proceeds from the sale are income in respect of a decedent. When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. When Frank’s widow collects the $2,000, she must include that amount in her return. It is not reported on the final return of the decedent or on the return of the estate.

Example 2.

Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. The amount accrued from the sale of the apples would be included on his final return. Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid.

Example 3.

On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. His adjusted basis in the tractor was $2,000. Mr. High died on February 15, before receiving payment. The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent’s basis in the property and the sale proceeds. In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived.

Example 4.

Cathy O’Neil was entitled to a large salary payment at the date of her death. The amount was to be paid in five annual installments. The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. The payments are income in respect of a decedent. None of the payments were includible on Cathy’s final return. The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them.

Example 5.

You inherited the right to receive renewal commissions on life insurance sold by your father before his death. You inherited the right from your mother, who acquired it by bequest from your father. Your mother died before she received all the commissions she had the right to receive, so you received the rest. The commissions are income in respect of a decedent. None of these commissions were includible in your father’s final return. The commissions received by your mother were included in her income. The commissions you received are not includible in your mother’s income, even on her final return. You must include them in your income.

Character of income. The character of the income you receive in respect of a decedent is the same as it would be to the decedent if he or she were alive. If the income would have been a capital gain to the decedent, it will be a capital gain to you.

Transfer of right to income. If you transfer your right to income in respect of a decedent, you must include in your income the greater of:

  • The amount you receive for the right or
  • The fair market value of the right you transfer.

If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift.

If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. See Installment obligations, later.

Transfer defined. A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation.

Installment obligations. If the decedent had sold property using the installment method and you collect payments on an installment obligation you acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Include in your income the same profit the decedent would have included had death not occurred. For more information, see Publication 537, Installment Sales.

If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you.

Transfer to obligor. A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) had sold property using the installment method and the installment obligation is transferred to the obligor (buyer or person legally obligated to pay the installments). A transfer also occurs if the obligation is canceled either at death or by the estate or person receiving the obligation from the decedent. An obligation that becomes unenforceable is treated as having been canceled.

If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. The basis of the obligation is the decedent’s basis, adjusted for all installment payments received after the decedent’s death and before the transfer.

If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value.

Specific Types of Income in Respect of a Decedent

This section explains and provides examples of some specific types of income in respect of a decedent.

Wages. The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. The income is not reduced by any amounts withheld by the employer. If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC and give the recipient a copy of the form or a similar statement.

Wages paid as income in respect of a decedent are not subject to federal income tax withholding. However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. These taxes should be included on the decedent’s Form W-2 with the taxes withheld before death. These wages are not included in box 1 of Form W-2.

Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxes.

Farm income from crops, crop shares, and livestock. A farmer’s growing crops and livestock at the date of death normally would not give rise to income in respect of a decedent or income to be included in the final return. However, when a cash method farmer receives rent in the form of crop shares or livestock and owns the crop shares or livestock at the time of death, the rent is income in respect of a decedent and is reported in the year in which the crop shares or livestock are sold or otherwise disposed of. The same treatment applies to crop shares or livestock the decedent had a right to receive as rent at the time of death for economic activities that occurred before death.

If the individual died during a rental period, only the proceeds from the portion of the rental period ending with death are income in respect of a decedent. The proceeds from the portion of the rental period from the day after death to the end of the rental period are income to the estate. Cash rent or crop shares and livestock received as rent and reduced to cash by the decedent are includible in the final return even though the rental period did not end until after death.


Alonzo Roberts, who used the cash method of accounting, leased part of his farm for a 1-year period beginning March 1. The rental was one-third of the crop, payable in cash when the crop share is sold at the direction of Roberts. Roberts died on June 30 and was alive during 122 days of the rental period. Seven months later, Roberts’ personal representative ordered the crop to be sold and was paid $1,500. Of the $1,500, 122/365, or $501, is income in respect of a decedent. The balance of the $1,500 received by the estate, $999, is income to the estate.

Partnership income. If the partner who died had been receiving payments representing a distributive share or guaranteed payment in liquidation of the partner’s interest in a partnership, the remaining payments made to the estate or other successor in interest are income in respect of a decedent. The estate or the successor receiving the payments must include them in income when received. Similarly, the estate or other successor in interest receives income in respect of a decedent if amounts are paid by a third person in exchange for the successor’s right to the future payments.

For a discussion of partnership rules, see Publication 541, Partnerships.

U.S. savings bonds acquired from decedent. If series EE or series I U.S. savings bonds that were owned by a cash method individual who had chosen to report the interest each year (or by an accrual method individual) are transferred because of death, the increase in value of the bonds (interest earned) in the year of death up to the date of death must be reported on the decedent’s final return. The transferee (estate or beneficiary) reports on its return only the interest earned after the date of death.

The redemption values of U.S. savings bonds generally are available from local banks, credit unions, savings and loan institutions, or your nearest Federal Reserve Bank.

You also can get information by writing to the following address.

Bureau of the Public Debt
P.O. Box 1328
Parkersburg, WV 26106-1328 Or, on the Internet, visit: If the bonds transferred because of death were owned by a cash method individual who had not chosen to report the interest each year and had purchased the bonds entirely with personal funds, interest earned before death must be reported in one of the following ways.

  1. The person (executor, administrator, etc.) who must file the final income tax return of the decedent can elect to include in it all of the interest earned on the bonds before the decedent’s death. The transferee (estate or beneficiary) then includes in its return only the interest earned after the date of death.
  2. If the election in (1), above, was not made, the interest earned to the date of death is income in respect of the decedent and is not included in the decedent’s final return. In this case, all of the interest earned before and after the decedent’s death is income to the transferee (estate or beneficiary). A transferee who uses the cash method of accounting and who has not chosen to report the interest annually may defer reporting any of it until the bonds are cashed or the date of maturity, whichever is earlier. In the year the interest is reported, the transferee may claim a deduction for any federal estate tax paid that arose because of the part of interest (if any) included in the decedent’s estate.

Example 1.

Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. He had bought the bond for $500 and had not chosen to report the increase in value each year. At the date of death, interest of $94 had accrued on the bond, and its value of $594 at date of death was included in your uncle’s estate. Your uncle’s personal representative did not choose to include the $94 accrued interest in the decedent’s final income tax return. You are a cash method taxpayer and do not choose to report the increase in value each year as it is earned. Assuming you cash it when it reaches maturity value of $1,000, you would report $500 interest income (the difference between maturity value of $1,000 and the original cost of $500) in that year. You also are entitled to claim, in that year, a deduction for any federal estate tax resulting from the inclusion in your uncle’s estate of the $94 increase in value.

Example 2.

If, in Example 1, the personal representative had chosen to include the $94 interest earned on the bond before death in the final income tax return of your uncle, you would report $406 ($500 − $94) as interest when you cashed the bond at maturity. This $406 represents the interest earned after your uncle’s death and was not included in his estate, so no deduction for federal estate tax is allowable for this amount.

Example 3.

Your uncle died owning series HH bonds that he acquired in exchange for series EE bonds. You were the beneficiary on these bonds. Your uncle used the cash method of accounting and had not chosen to report the increase in redemption price of the series EE bonds each year as it accrued. Your uncle’s personal representative made no election to include any interest earned before death in the decedent’s final return. Your income in respect of the decedent is the sum of the unreported increase in value of the series EE bonds, which constituted part of the amount paid for series HH bonds, and the interest, if any, payable on the series HH bonds but not received as of the date of the decedent’s death.

Specific dollar amount legacy satisfied by transfer of bonds. If you receive series EE or series I bonds from an estate in satisfaction of a specific dollar amount legacy and the decedent was a cash method taxpayer who did not elect to report interest each year, only the interest earned after you receive the bonds is your income. The interest earned to the date of death plus any further interest earned to the date of distribution is income to (and reportable by) the estate.

Cashing U.S. savings bonds. When you cash a U.S. savings bond that you acquired from a decedent, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Your Form 1099-INT should show the difference between the amount received and the cost of the bond. The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or, if elected, by the personal representative on the final income tax return of the decedent, or by the estate on the estate’s income tax return. Your Form 1099-INT may show more interest than you must include in your income.

You must make an adjustment on your tax return to report the correct amount of interest. Report the total interest shown on Form 1099-INT on your Schedule 1 (Form 1040A) or Schedule B (Form 1040). Enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Show the total interest that was previously reported and subtract it from the subtotal. Identify this adjustment as “U.S. Savings Bond Interest Previously Reported.”

Interest accrued on U.S. Treasury bonds. The interest accrued on U.S. Treasury bonds owned by a cash method taxpayer and redeemable for the payment of federal estate taxes that was not received as of the date of the individual’s death is income in respect of a decedent. This interest is not included in the decedent’s final income tax return. The estate will treat such interest as taxable income in the tax year received if it chooses to redeem the U.S. Treasury bonds to pay federal estate taxes. If the person entitled to the bonds (by bequest, devise, or inheritance, or because of the death of the individual) receives them, that person will treat the accrued interest as taxable income in the year the interest is received. Interest that accrues on the U.S. Treasury bonds after the owner’s death does not represent income in respect of a decedent. The interest, however, is taxable income and must be included in the income of the respective recipients.

Interest accrued on savings certificates. The interest accrued on savings certificates (redeemable after death without forfeiture of interest) that is for the period from the date of the last interest payment and ending with the date of the decedent’s death, but not received as of that date, is income in respect of a decedent. Interest for a period after the decedent’s death that becomes payable on the certificates after death is not income in respect of a decedent, but is taxable income includible in the income of the respective recipients.

Inherited IRAs: If a beneficiary receives a lump-sum distribution from a traditional IRA he or she inherited, all or some of it may be taxable. The distribution is taxable in the year received as income in respect of a decedent up to the decedent’s taxable balance. This is the decedent’s balance at the time of death, including unrealized appreciation and income accrued to date of death, minus any basis (nondeductible contributions). Amounts distributed that are more than the decedent’s entire IRA balance (includes taxable and nontaxable amounts) at the time of death are the income of the beneficiary.

If the beneficiary of a traditional IRA is the decedent’s surviving spouse who properly rolls over the distribution into another traditional IRA, the distribution is not currently taxed. A surviving spouse also can roll over tax free the taxable part of the distribution into a qualified plan, section 403 annuity, or section 457 plan.

Example 1.

At the time of his death, Greg owned a traditional IRA. All of the contributions by Greg to the IRA had been deductible contributions. Greg’s nephew, Mark, was the sole beneficiary of the IRA. The entire balance of the IRA, including income accruing before and after Greg’s death, was distributed to Mark in a lump sum. Mark must include the total amount received in his income. The portion of the lump-sum distribution that equals the amount of the balance in the IRA at Greg’s death, including the income earned before death, is income in respect of the decedent. Mark may take a deduction for any federal estate taxes that were paid on that portion.

Example 2.

Assume the same facts as in Example 1, except that some of Greg’s contributions to the IRA had been nondeductible contributions. To determine the amount to include in income, Mark must subtract the total nondeductible contributions made by Greg from the total amount received (including the income that was earned in the IRA both before and after Greg’s death). Income in respect of a decedent is the total amount included in income less the income earned after Greg’s death.

For more information on inherited IRAs, see Publication 590, Individual Retirement Arrangements (IRAs).

Roth IRAs. Qualified distributions from a Roth IRA are not subject to tax. A distribution made to a beneficiary or to the Roth IRA owner’s estate on or after the date of death is a qualified distribution if it is made after the 5-tax-year period beginning with the first tax year in which a contribution was made to any Roth IRA of the owner.

Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner’s death unless the interest is payable to a designated beneficiary over his or her life or life expectancy. If paid as an annuity, the distributions must begin before the end of the calendar year following the year of death. If the sole beneficiary is the decedent’s spouse, the spouse can delay the distributions until the decedent would have reached age 70½ or can treat the Roth IRA as his or her own Roth IRA.

Part of any distribution to a beneficiary that is not a qualified distribution may be includible in the beneficiary’s income. Generally, the part includible is the earnings in the Roth IRA. Earnings attributable to the period ending with the decedent’s date of death are income in respect of a decedent. Additional earnings are the income of the beneficiary.

For more information on Roth IRAs, see Publication 590.

Coverdell education savings account (ESA). Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30 or dies, whichever is earlier. The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. If the decedent’s estate acquires the interest, see the discussion under Final Return for Decedent, earlier.

The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. If the decedent’s spouse or other family member is the designated beneficiary of the decedent’s account, the Coverdell ESA becomes that person’s Coverdell ESA. It is subject to the rules discussed in Publication 970.

Any other beneficiary (including a spouse or family member who is not the designated beneficiary) must include in income the earnings portion of the distribution. Any balance remaining at the close of the 30-day period is deemed to be distributed at that time. The amount included in income is reduced by any qualified education expenses of the decedent that are paid by the beneficiary within 1 year after the decedent’s date of death. An estate tax deduction, discussed later, applies to the amount included in income by a beneficiary other than the decedent’s spouse or family member.

HSA, Archer MSA, or a Medicare Advantage MSA. The treatment of an HSA, Archer MSA, or a Medicare Advantage MSA, at the death of the account holder depends on who acquires the interest in the account. If the decedent’s estate acquired the interest, see the discussion under Final Return for Decedent, earlier.

If the decedent’s spouse is the designated beneficiary of the account, the account becomes that spouse’s Archer MSA. It is subject to the rules discussed in Publication 969.

Any other beneficiary (including a spouse that is not the designated beneficiary) must include in income the fair market value of the assets in the account on the decedent’s date of death. This amount must be reported for the beneficiary’s tax year that includes the decedent’s date of death. The amount included in income is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the decedent’s date of death. An estate tax deduction, discussed later, applies to the amount included in income by a beneficiary other than the decedent’s spouse.

Keywords: IRD, Income in Respect of a Decedent, Inherited IRA tax help, tax help with stretch IRA

About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

Plane was crashed into Austin building by man angry at IRS, authorities say

A software engineer is presumed dead after flying his small plane into an office building. At least 13 people on the ground are injured and one is unaccounted for.

Source: LA Times

By Richard Fausset and Richard Serrano
Reporting from Washington and Austin, Texas
A disgruntled software engineer who had a beef with the Internal Revenue Service apparently set his house on fire, then slammed a small plane into an Austin, Texas, building where the federal agency had offices, authorities said Thursday.

Thirteen people on the ground were injured, two of them seriously, in an explosive crash that heavily damaged the seven-story building, said Austin Police Chief Art Acevedo.

One federal employee was missing, and the body of the pilot had not been accounted for, officials said.

The presumed pilot, identified by the FBI as A. Joseph Stack, 53, is believed to have died in the crash, which sparked fears of another terrorist attack when witnesses saw a low-flying plane heading for the building minutes before 10 a.m.

“There really truly is no cause for alarm,” said Acevedo at an afternoon news conference. “We want to stress that this appears to be the act of a single individual and this act is contained . . . to this building.” When asked why he did not use the word “terrorism,” Acevedo said, “I personally consider this a criminal act by a lone individual. . . . You can define it any way you want.”

The crash turned the facade of the building into a charred mosaic, the billowing black smoke and orange flames evoking distressing memories of the terrorist attacks of 9/11 in New York. Hundreds of workers fled the building. By late afternoon firefighters were still inside the glass-front building, dowsing spot fires in file cabinets and other pockets, officials said.

Emma Noriega, 38, a hairdresser, was in her hair salon across a busy Highway 183 when she heard the explosion, which was strong enough to shake her building.

“I was freaking out. I didn’t know what happened,” she said. Then she saw smoke pouring out of the building. When she heard reports that the explosion was an intentional act, she said, “it just brings you back to 9/11.”

Others nearby described seeing a fireball blooming up from lower floors and said the explosion sounded like a sonic boom.

Hundreds of emergency crew responded to the first call and, said Acevedo, “there were some heroic actions on the part of some employees” who saw the plane approaching the building and were able to warn others.

“It will be a testament to humanity, the good things. . . and what makes us special people,” Acevedo said of the workers.

The FBI is leading the investigation of Stack, whose North Austin house was engulfed in flames before his plane crashed into the office building.

He apparently left behind a six-page anti-government screed on a website, a communication that detailed his attempts over the years to get relief from tax laws he thought unfairly burdened him and that preached violence against an unfeeling government.

“I would only hope that . . . people wake up and begin to see the pompous political thugs and their mindless minions for what they are,” said the note. “Violence not only is the answer, it is the only answer.”

Between sobs, Stack’s former wife, Ginger Stack, reached by phone in Hemet, Calif., said: “He was a good man. Frustrated with the IRS, yes, but a good man. . . . I’m in shock right now. He had good values. He really did.”

Stack, to whom she was married for 18 years, was “extremely intelligent,” she said. He helped raise her adult daughter, even giving her away at the wedding. After their divorce in Riverside County, Joseph Stack moved to Texas, she said.

In the Web posting, which was dated Feb. 18 and signed “Joe Stack (1956-2010),” he wrote that he was distressed by a 1986 change in federal tax law that some independent technical professionals thought imposed an unfair burden on them. “I am finally ready to stop this insanity,” Stack wrote. “Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well.”

Early on, when it seemed possible the crash could be an act of foreign terrorism, federal officials scrambled two F-16s from Houston’s Ellington Field.

President Obama was briefed on the incident, White House spokesman Robert Gibbs told reporters on Air Force One, en route for a campaign appearance in Colorado. Gibbs said the Department of Homeland Security would continue to investigate.

Stack’s home on the 1800 block of Dapplegrey Lane — a two-story, partly brick structure where he lived with his wife and young daughter — caught fire about 9:18 a.m. CST, Austin fire officials said.

Neighbor Carlotta Hutchins heard a loud blast and initially thought a car had exploded. She ran outside and saw smoke pouring from the Stack home, two houses away. Windows had shattered and flames were licking the roof and frames.

“It’s pretty much a shell right now,” she said.

The home, purchased in 2007, was assessed at $232,066.

Stack’s wife and daughter were safe and, according to neighbors, were not at home when the fire was set.

Stack then apparently went to nearby Georgetown Municipal Airport, where the Federal Aviation Administration said his four-seater, single-engine Piper Cherokee PA-28-236 took off about 9:40 a.m. local time. The plane was registered by Stack in 1998 to an address in Lincoln, Calif., north of Sacramento. FAA spokesman Paul Turk said the pilot did not file a flight plan, nor was he required to since he was not in controlled airspace and the weather was sunny. The airport is about 23 miles north of the crash site.

Just before 10 a.m., witnesses said the small craft appeared to sharply bank from the east across a highway. The craft came in low, hitting the building in the lower floors.

“It’s very surreal,” witness Megan Riley said in an interview with KXAN-TV.

The building was engulfed in flames after the crash. Firefighters poured into the structure to fight the blaze.

“There’s lots of smoke, lots of heat, lots of fire,” Assistant Chief Harry Evans said at a televised news conference. More than 100 first-responders arrived at the scene, he said.

The fire burned about 90 minutes before officials said it was contained.

The structure, known as the Echelon 1 Building, has business and government offices, including those of the IRS. In a statement, the IRS said 190 employees worked in the building.

Other federal law enforcement officials in Washington said that contrary to initial news reports, an FBI building is not located next to the structure that was hit. Rather, they said, “it’s a generic office building that the FBI has space in.” That space is used by the FBI’s resident agent in Austin.

According to the website for Stack’s company, called Embedded Art, he claimed to have more than 20 years of experience in the software development consulting business.

“Founded by Joe Stack in 1983 (under the name of Prowess Engineering) in Southern California, the company thrived for 15 years until shifting focus to the Sacramento area to take advantage of growth in the Silicon Valley,” he said in his company profile.

He said he moved to Austin “expecting to lend a hand to the growing high technology industry” in that region.

About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

Entertainment Industry Income tax help

Every working Entertainer in the US is required to file his or her income tax returns on time and this means going through every receipt and transaction made throughout the previous year to make sure that everything is properly and accurately reported.

Unfortunately, filing your income tax return on time is a necessary hassle if you don’t want to be hounded by the IRS for neglecting your duties. Entertainers should obtain income tax help from a tax expert as an enrolled agent to make this much easier for you.

Income tax help for Entertainers can come in several forms. These days, you can find a number of software dedicated to helping taxpayers get their returns in order. There are also applications that are designed to calculate your tax dues and also provide you with easier ways of reporting deductions and income for the year.

Income tax help for Entertainers mostly come from experienced tax professionals. Enrolled Agents, CPAs and tax attorneys usually offer income tax help to high-income entertainers and businesses who may need more help in reporting complicated transactions related to their tax returns. An experienced tax professional will make sure that everything is accounted for and that the IRS will not find any reason to doubt the credibility of the data that you have presented in your income tax return.

If you’re a low-wage earner, you can also get income tax help free of charge through a local taxpayer assistance center. However, slots tend to fill up quickly so make sure to schedule an appointment as early as possible. There are also universities and non-profit organizations that establish tax clinics during the tax season to offer assistance to those who may be encountering tax problems with the IRS.

Going for professional services

Hiring an enrolled agent or a certified public accountant for Entertainer income tax help is the best way to survive the taxation season unscathed. It takes the load off your shoulders because you will have someone else to help you file the right documents and fill out the forms correctly.

It’s important to note that certified public accountants and tax lawyers are only allowed to operate in the state where they are licensed. If you have businesses or transactions outside the state, you may not be able to obtain proper representation with your local accountant. On the other hand, an enrolled agent is allowed to provide income tax help in practically every state. This is why going for an enrolled agent for income tax filing assistance can be a wiser move.

Tax guidelines for the entertainment industry

Here are a few tips on filing your income tax return:

  • Make sure to gather all your pertinent tax documents long before the deadline for filing for this year. This will include your Form W-2 as well as 1099 forms as they apply. You will also need to have other documents with you such as gain/loss reports for investments that you have sold or obtained during the previous year, as well as your summary of tax deductibles.
  • Set aside some time to focus on your tax return. Schedule an appointment with your enrolled agent in advance to get this settled. You might want to do this as soon as possible because your tax pro is going to be really busy as the deadline looms near.
  • You might also want to note the important dates surrounding the filing of income tax returns. Mark the deadlines on your calendar so you don’t forget them.

For entertainment income tax help, contact Mike Habib, EA. Mike Habib is a Los Angeles Enrolled Agent who can help you get your income tax return properly prepared, or resolve any tax problem. Contact us at 1-877-788-2937 through this website for more inquiries.

Music Related Links – Entertainment
Billboard is for everyone doing business in, or with, the music and video industries.

Music Industry News And Events – Chart Attack
Chart Attack is a publication that follows the Canadian Music industry.

For over 25 years, Pollstar has provided music business professionals with worldwide concert tour schedules, ticket sales results, music industry contact directories, trade news and unique specialized data services.

American Federation of Musicians (AF of M)
The American Federation of Musicians of the United States and Canada unite professional musicians through their Locals.

American Guild of Musical Artists (AGMA)
The American Guild of Musical Artists (AGMA) is a democratic union, governed by its members.

The Songwriters Guild of America
The Guild takes a stand on every issue of importance to songwriters and the music industry in general, including home taping, source licensing, derivative rights, author’s moral rights, the deductibility of business expenses, compulsory license, and copyright registration fees.
The founding members of the Recording Academy wanted to recognize and celebrate the artistic achievement of not only talented musicians and singers but also important, behind-the-scenes contributors such as producers and engineers.

Recording Industry Association of America (RIAA)
The Recording Industry Association of America is the trade group that represents the U.S. recording industry.

National Music Publishers Association/Harry Fox Agency
Currently representing more than 600 American music publishers, NMPA has worked to interpret copyright law, educate the public about licensing, and safeguard the interests of its members.

National Association of Broadcasters (NAB)
The National Association of Broadcasters is a full-service trade association that promotes and protects the interests of radio and television broadcasters in Washington and around the world.

American Society of Composers, Authors and Publishers (ASCAP)
ASCAP is a membership association of more than 120,000 U.S. composers, songwriters and publishers of every kind of music and hundreds of thousands worldwide. ASCAP protects the rights of its members by licensing and distributing royalties for the non-dramatic public performances of their copyrighted works.

Broadcast Music Inc. (BMI)
BMI is an American performing rights organization that represents approximately 300,000 songwriters, composers and music publishers in all genres of music. The non-profit-making company, founded in 1940, collects license fees on behalf of those American creators it represents, as well as thousands of creators from around the world who chose BMI for representation in the United States.

SESAC was founded in 1930, making it the second oldest performing rights organization in the United States.

Motion Picture Related Links – Entertainment

Academy of Motion Picture Arts & Sciences (AMPAS)
The Academy of Motion Picture Arts and Sciences is a professional honorary organization composed of over 6,000 motion picture craftsmen and women.

American Film Institute (AFI)
The American Film Institute (AFI) is the nation’s preeminent arts organization dedicated to advancing and preserving the art of the moving image. Since 1967, AFI has served as America’s voice for film, television, video, and the digital arts, with innovative programs in education, training, exhibition, preservation, and new technology.

Independent Film & Television Alliance
The Independent Film & Television Alliance ®, formerly known as the American Film Marketing Association (“AFMA®”), is the trade association for the independent film and television industry .

Association of Film Commissioners International (AFCI)
The Association of Film Commissioners International acts as a liaison between the production industry and member film commissions, provides assistance in the development of film commissions globally, and other services for its members.

Independent Media Arts Alliance – Canada
Membership is open to any non-profit organization in Canada whose mandate is to encourage, promote and facilitate the independent production, distribution and exhibition of films, videos and electronic media works.

Motion Picture Association of America (MPAA)
The Motion Picture Association of America (MPAA) and its international counterpart, the Motion Picture Association (MPA) serve as the voice and advocate of the American motion picture, home video and television industries, domestically through the MPAA and internationally through the MPA.

National Film Board of Canada
Created in 1939, the National Film Board of Canada (NFB) is a public agency that produces and distributes films and other audiovisual works which reflect Canada to Canadians and the rest of the world.

Box Office
Box Office is a publication focusing on the movies, film, movie stars, theatre, and the film industry.

Directors Guild of America
The Directors Guild of America represents more than 12,000 members working in U.S. cities and abroad. Their creative work is represented in theatrical, industrial, educational and documentary films, as well as, videos and commercials.

Hollywood Reporter
Hollywood Reporter is a publication that provides current entertainment news in film, television, music, international, and web/new media.

Guilds and Unions Related Links – Entertainment

AFL-CIO American Federation of Labor
The AFL-CIO’s mission is to enable working people to have a voice on the job, in government, in a changing global economy and in their communities.

AFTRA National Office
The American Federation of Television and Radio Artists (AFTRA) is a national labor union affiliated with the AFL-CIO. Its headquarters are in New York City and there are 36 local offices throughout the country.

Directors Guild of America (DGA)
The Directors Guild of America represents more than 12,000 members working in U.S. cities and abroad. Their creative work is represented in theatrical, industrial, educational and documentary films, as well as, videos and commercials.

International Alliance of Theatrical Stage Employees (IATSE)
The IATSE is the labor union representing technicians, artisans and craftspersons in the entertainment industry, including live theatre, film and television production, and trade shows.

Motion Picture & Television Fund
To enrich the lives of people in our Southern California entertainment community by continuously evolving to meet their heath and human services needs.

Radio and Television News Directors Association & Foundation
The Radio and Television News Directors Association & Foundation promotes excellence in electronic journalism through research, education and training for news professionals and journalism students.

Screen Actors Guild
The Screen Actors Guild and the people who represent it have become a powerful voice for performers. The Guild has come a long way over the years with the establishment of 20 distinctive branches around the country all serving actors.

SAG Pension & Health
The website for members of the Screen Actors Guild regarding their pension and health benefits.

Society of Singers
The Society of Singers is a nonprofit 501(c)(3) organization established in 1984. It is a group of concerned individuals devoted to addressing the needs of professional singers worldwide.

Women in Film
Women In Film’s purpose is to empower, promote, nurture and mentor women in the entertainment, communication and media industries to achieve their highest potential through a network of valuable contacts, educational programs and events.

Writers Guild of America
The Writers Guild of America, made up of two unions – the Writers Guild, East and the Writers Guild, West- brings together some 11,000 professionals who are the primary creators of what is seen or heard on television and film in the U.S.

Television Related Links – Entertainment

Academy of Television Arts & Sciences (ATAS)
The Academy of Television Arts & Sciences – founded one month after network television was born in 1946 – is a non-profit corporation devoted to the advancement of telecommunications arts and sciences and to fostering creative leadership in the telecommunications industry.

Association of Independent Commercial Producers Inc. (AICP)
Founded in 1972, by a small group of television commercial production companies concerned with a single issue, today’s AICP has grown to represent exclusively, the interests of United States companies that specialize in producing commercials on various media – film, video, computer – for advertisers and agencies.

Canadian Association of Broadcasters
The Canadian Association of Broadcasters (CAB) develops industry-wide strategic plans, works to improve the financial health of the industry, and promotes private broadcasting’s role as Canada’s leading programmer and local service provider.

Corporation of Public Broadcasting
CPB, a private non-profit corporation created by Congress in 1967, is a leader in public broadcasting’s transition to digital educational and programming services for the American people.

Hollywood Radio & Television Society
The Hollywood Radio and Television Society is an organization of West Coast executives from the networks, stations, studios, production companies, advertisers, ad agencies, cable companies, media companies, legal firms, publicity agencies, talent and management agencies, performers, services, suppliers and allied fields.

National Association of Broadcasters (NAB)
The National Association of Broadcasters is a full-service trade association that promotes and protects the interests of radio and television broadcasters in Washington and around the world.

NATPE- National Association of Television Programming Executives
NATPE’s mission is a commitment to furthering the quality and quantity of content, which means offering the wealth of our resources and experience to every content creator, no matter the medium.

Broadcasting & Cable
In print for almost 70 years, Broadcasting & Cable covers the television and radio business for the field s decision-makers. Along with its continually updated web site and daily fax newsletters, Broadcasting & Cable tracks developments in law, regulation, finance, programming, advertising and technology.

Directors Guild of America
The Directors Guild of America represents more than 12,000 members working in U.S. cities and abroad. Their creative work is represented in theatrical, industrial, educational and documentary films, as well as, videos and commercials.

Hollywood Reporter
Hollywood Reporter is a publication that provides current entertainment news in film, television, music, international, and web/new media.

Federal Communications Commission (FCC)
The Federal Communications Commission (FCC) is an independent United States government agency, directly responsible to Congress. The FCC was established by the Communications Act of 1934 and is charged with regulating interstate and international communications by radio, television, wire, satellite and cable. The FCC’s jurisdiction covers the 50 states, the District of Columbia, and U.S. possessions.

Theatre Related Links – Entertainment

Actors’ Equity Association
Equity negotiates minimum wages and working conditions, administers contracts, and enforces the provisions of our various agreements with theatrical employers across the country.

Society of Stage Directors and Choreographers
The Society of Stage Directors and Choreographers is a national independent labor union representing members throughout the United States and abroad.

If you have received an “Intent to Levy” letter or a “Notice of Levy” letter from the IRS then you cannot afford to wait any longer! Do something to resolve your tax debt. It makes far more sense, and will probably be less costly in the long run, to resolve your tax problem with the IRS now, rather than dealing with the potential embarrassment and financial burden of having your employer garnish and levy your wage paycheck or your bank levy and freeze your bank account after receiving an IRS levy order to withhold funds from your bank account or your paycheck.

Keywords: los angeles entertainment tax, entertainer tax relief, wage levy release, stop wage garnishments, irs tax audit, irs tax help, tax problems, irs tax liens, irs tax levies, tax preparation, tax representation, back taxes, trusted union members, entertainment tax relief service provider

Prepared Remarks of IRS Commissioner Doug Shulman to New York State Bar Association Taxation Section Annual Meeting in New York City, Jan. 26, 2010
It’s a great honor to address the New York State Bar Association Taxation Section. I look forward to beginning a dialogue with you that will start – but I trust – not end today.

Today, I want to discuss complexity…and more to the point, how we are trying to work smarter to manage complexity. Complex systems abound…from the structure of nature itself… to global economies and international trade…to legal systems…to our own complicated daily lives that seem to defy simplification.

Complexity has become a whole field of study and even a cottage industry for authors and consultants trying to make sense of complex business models and operations. Multinational companies need to manage complexity, whether it’s their own structures, products, processes, information …and yes, taxes which are steeped in complexity.

And as we do our best to understand and manage complexity, some joke that we have gone from complexity to perplexity.

Tax law complexity affects everyone today…from individual taxpayers filing a 1040 form… to wealthy individuals … to business and corporate taxpayers …to the IRS itself.

More than just collecting the revenue to run the federal government, the IRS has also been tasked with administering a number of large social programs through the Tax Code and implementing significant sections of major pieces of legislation, such as the Economic Stimulus bill and the American Recovery and Reinvestment Act.

Mind you, tax law complexity is nothing new. And the Tax Code is already four times longer than War and Peace and grows each year.

Now, if you were thinking I was leading up to a speech on tax law simplification, I am sorry to disappoint you. That’s a speech for another day and another time.

Frankly, we need to deal with today’s messy reality that tax law complexity has put on all of our plates. And we must be realistic. In today’s global and diverse economy, business and tax laws are going to remain complex.

However, that does not mean we have to surrender to complexity or be reduced to tilting at windmills…quite the contrary. At the IRS, we’re trying to evolve our programs to deal with an ever more complex world. In short, we are trying to work smarter.

By working smarter, we can tease out more certainty and consistency in the application of the tax laws. This greater certainty can benefit both corporations and the IRS. By working smarter, we can be more efficient and make better use of precious resources. Let me give you some examples of how we’re trying to match deed to word.

In the individual taxpayer arena, we have a number of initiatives that we believe will produce positive results. For example, late last year, we launched the Global High Wealth Industry Group to centralize and focus IRS compliance expertise involving high wealth individuals and their related entities.

This is a game-changing strategy for the IRS. Initially, we will be focusing on individuals with tens of millions of dollars of assets or income. Going forward, we will take a unified look at the entire complex web of business entities controlled by a high wealth individual, which will enable us to better assess the risk such arrangements pose to tax compliance.

We want to better understand the entire complex economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise. We cannot do this by continuing to approach each tax return in the enterprise as a single and separate entity. We must understand and analyze the entire picture.

Our efforts to put a dent in offshore tax evasion also illustrate our working smarter strategy. As you know, we have a lot of activity in this area: from some groundbreaking cases, to our voluntary disclosure program, to legislation being considered by Congress, to increased international cooperation with other governments. We’re looking for and finding points of leverage – what some call “nodes” of activity – where multiple people not paying taxes can be detected. Financial institutions are one such potential node of activity. Promoters of evasion schemes are another.

Our international enforcement and detection efforts are expanding and becoming better informed. For example, mining for information from the more than 14,700 disclosures that came in during our recent voluntary disclosure program is a way to identify financial institutions, advisors, and others who promoted or otherwise facilitated US persons hiding assets and income offshore and attempted to shirk their tax responsibilities at home.

Let me also observe that the ramifications from our offshore compliance efforts and our voluntary disclosure program go far beyond the billions of dollars in revenues we will be collecting from these taxpayers. It will change the conversations that practitioners and tax return preparers will be having with many of their clients this coming tax filing season.

Moreover, the real watershed will come over the next 10, 20 and 30 years. Those who came in under the voluntary disclosure program will be in our tax system going forward, and the risk calculus of people thinking about hiding assets overseas to avoid paying taxes has changed dramatically. That protects the US Treasury and our tax base from erosion in the long-term.

Working smarter in the international tax arena also requires heightened cooperation and interaction with other countries’ tax authorities. Clearly, the success we seek in the international arena cannot be achieved by the US alone.

We’ve already seen positive steps towards greater cooperation among nations, such as in April, when the G-20 heads of state agreed in a show of unity to act against tax jurisdictions that impede legitimate tax enforcement.

In addition, we are going to try some new approaches in the international arena. One such approach is the work we are doing to develop a protocol to conduct joint audits with some of our treaty partners. In theory, a joint audit conducted with another country’s tax authority and IRS will reduce burden on a corporate taxpayer, who won’t need to go through a similar exercise twice, as well as allow for competent authority resolution earlier in the process. Perhaps, we could even have competent authority as part of the audit team itself. It will also ensure that the corporation gives the same information to both tax authorities, reducing opportunities for arbitrage.

We are also trying to work smarter in the area of transfer pricing. We have been exploring the transfer pricing area for some time and determined we needed to change the way we do business in this area. From a taxpayer’s perspective, it seemed that all too often we were taking too long to resolve transfer pricing issues… that it was difficult for the taxpayer or representative to know who at the Service was responsible for resolving the issue… and that we were not always consistent in our resolution of these issues.

From our perspective – while we have a phenomenal cadre of experts in this area – we needed more people with industry specific and transfer pricing expertise to match up with corporate taxpayers and to fully develop the issues, discuss them with taxpayers and their representatives, and ultimately resolve the issues for the large number of taxpayers with transfer pricing issues.

In order to address these issues, and ensure organizational consistency and focus, we are establishing a Transfer Pricing Practice within our Large and Mid-Size Business operating division so we can strategically and systematically administer transfer pricing issues. The idea here is to create a group of experts in the transfer pricing area that we can use to coordinate our handling of the most important issues to taxpayers and to us, identify emerging issues and trends, and provide consistency in outcomes in our transfer pricing cases.

I believe that at the end of the day, taxpayers and tax authorities pretty much want the same thing out of the tax system. They want certainty regarding a taxpayer’s tax obligations sooner rather than later. They want consistent treatment across taxpayers. They want an efficient use of government and taxpayer resources by focusing on the issues and taxpayers that pose the greatest risk. And that’s all about working smarter.

Working smarter also includes maximizing the use of our resources, while leveraging other players in the tax system to help us ensure compliance with the law. We recently unveiled a major initiative to oversee tax preparers who are an integral part of the tax system. With the complexity of the tax code, more and more Americans now turn to a preparer to help them file their taxes. We estimated that there are somewhere between 900,000 and 1.2 million paid tax return preparers. And making them an integral link to our service and compliance strategies will help us do our job.

We announced that we plan to require registration, minimum competency testing, and continuing education of paid tax return preparers. In addition, once we set up and administer a testing process, we will create a public database of preparers, so that taxpayers can find out if they are dealing with a qualified preparer. We are also shifting enforcement resources to focus on preparers. Beginning this filing season we are expanding our “knock and talk” and other programs to visit thousands of preparers to discuss their operations and ways to reduce preparer error rates.

The goals of the strategy are to improve service to taxpayers, increase compliance, and enhance the integrity of the overall tax system. I think this creates leverage for us, and is a smart use of our resources.

Another important player in the tax system is the Corporate Board of Directors. I have recently been reaching out to corporate board members to discuss the importance of appropriate oversight of tax compliance and I will continue to do outreach in this community. My proposition is simple: Tax expenses are like other major expenses. Manage them too loosely and you give up profit. Manage them too aggressively and there are bad consequences.

The board must oversee how management manages them. And that means some level of understanding, a set of policy principles and then a control system of review and reporting that assures the board that their policy is being carried out. Many corporate boards do have a regular dialogue regarding tax risk with their CFOs, tax directors and external tax advisors. My goal is to promote good corporate governance on tax issues and engage the corporate community in a dialogue about the appropriate role of the board of directors in tax risk oversight. This will continue to be a theme of ours.

Finally, I want to talk about Transparency….

We have been taking a hard look at transparency regarding business tax issues. Accounting for income taxes and tax risk has changed over the past several years. Accounting for uncertain tax positions is much more articulated now than in the past. And auditing firms are conducting much more extensive reviews of materials used to make decisions on tax reserves reflected in a taxpayer’s financial statement.

Several months ago, I announced that the IRS was studying these changes and was exploring ways to improve transparency regarding material tax issues so that we can achieve the three objectives of certainty, consistency, and efficiency for us and taxpayers.

The IRS is taking a major step towards transparency that I want to announce today related to changes we are proposing to reporting requirements regarding business taxpayers’ uncertain tax positions
The Announcement we are issuing today does two things. First, it describes proposed reporting requirement at the “time-of-filing.” Second, it highlights specific areas where we are requesting public comment and thus serves to further our continuing dialogue with practitioners, business taxpayers, and others regarding how to improve tax administration and compliance regarding many of our nation’s business taxpayers.
Before I get into the meat of the proposal, let me set some context.

Today, we spend up to 25 percent of our time in a large corporate audit searching for issues rather than having a straightforward discussion with the taxpayer about the issues. It would add efficiency to the process if we had access to more complete information earlier in the process regarding the nature and materiality of a taxpayer’s uncertain tax positions. The goals of our proposal are simple: to cut down the time it takes to find issues and complete an audit… ensure that both the IRS and taxpayer spend time discussing the law as it applies to their facts, rather than looking for information…and to help us prioritize selection of issues and taxpayers for examination.

Let me explain the Announcement and what it means to business taxpayers. Reporting uncertain tax positions would be required at the time a return is filed by certain business taxpayers: those who have both a financial statement prepared under FIN 48 or other similar accounting standards reflecting uncertain tax positions and assets over $10 million. Under the Announcement, these taxpayers would be required to annually disclose uncertain tax positions in the form of a concise description of those positions and the maximum amount of US income tax exposure if the taxpayer’s position is not sustained. By concise, we mean a few sentences that inform us of the nature of the issue, and not pages of factual description or legal analysis.

Let me say a few things about this proposal. We have taken what I believe is a reasonable approach. We could have asked for more…a lot more… but chose not to. We believe we have crafted a proposal that gives us the information we need to do our job without trying to get in the heads of taxpayers as to the strengths or weaknesses of their positions.

We will be looking only for a brief description of the issue and the maximum amount of US income tax exposure. The proposal does not require the taxpayer to disclose the taxpayer’s risk assessment or tax reserve amounts. We are asking for a list of issues that the taxpayer has already prepared for financial reporting purposes, in order to improve the efficiency and effectiveness of tax examinations. We are also looking for the maximum exposure, so we can allocate our exam resources appropriately. We need to have a sense of materiality and whether we should spend exam resources on an issue.

We do not believe we will be adding substantial new work or burden on taxpayers. These taxpayers are already required to establish tax reserves for uncertain tax positions in determining their financial statement income under US or foreign accounting standards, such as FIN 48. So the work is already being done. We are asking for more transparency.

Just to be clear again, this proposal would not require that taxpayers disclose how strong or weak they regard their tax positions or report to us the amounts they reserved on the books regarding those positions.

And as part of this proposal, the IRS would otherwise retain its longstanding policy of restraint as it applies to tax accrual workpapers.

I think this is a sound proposal that will significantly advance the ball in the transparency area. We understand this proposal will generate a good deal of discussion and debate, and we welcome that. We look forward to public comments and the upcoming dialogue regarding this important announcement.

Our mission with respect to our large business audit program, indeed our entire audit program, is to collect the proper amount of tax and to use our compliance tools to foster on-going compliance by all taxpayers, including our largest taxpayers. Our responsibility is the same as the responsibility of our taxpayers – apply the law as it currently exists, not how we would like it to be, and do so with neither a thumb on the scale in favor of the government, nor in favor of the taxpayer.

Our ultimate goal with respect to our large case audit program is to bring taxpayers into compliance and keep them there with strategies that are less time and resource intensive than our traditional audit process. Our work on corporate governance is part of this strategy as is the transparency proposal I outlined today. In fact, we have moved down this path with the Compliance Assurance Program or “CAP.” This program allows taxpayers that are transparent with us with respect to their tax issues to get certainty with respect to their tax obligations at the time their return is filed. Indeed, with regard to several of our CAP taxpayers that have been in the program for a number of years, we will be moving them to what we refer to as a monitoring program, where we address and resolve issues with a taxpayer as they arise. We are looking to expand and make permanent the CAP program in the near future.

While we understand that there will always be a need for our traditional audit process, we will continue to try to work smarter. We will use new techniques, and count on enhanced transparency, to help us maximize the use of our resources and spend our time on the issues and taxpayers who pose the greatest compliance risk. In the future, the IRS will depend more and more on information and new alternatives to the traditional audit process to ensure compliance with the tax laws.

In conclusion, I want to thank you again for inviting me today to share some ideas and plans with you that I believe can benefit both the corporate community and the IRS, and maintain the integrity of our tax system. Of course, the challenges I described today were not created in a day-and-a-night and cannot be solved in a day-and-a-night. I am a big believer that institutions like the IRS need to constantly evolve to keep up with an ever changing business environment. As the world has become more complex, we will continue to try to work smarter. And as we try new techniques and evolve our programs, we will look forward to hearing your feedback and having an ongoing dialogue.

Thanks for your time today, and I’d be happy to answer a few questions.

About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

President Announces Middle-Class Tax Relief and Retirement Incentives

President Obama plans to propose a near doubling of the Child and Dependent Care Tax Credit for middle-income families earning under $85,000, establishment of a system of automatic 401(k) enrollments and simplifying and expanding the Saver’s Tax Credit. These initiatives will be included in the president’s fiscal year 2010 budget and are among several recommendations made by the Middle Class Task Force chaired by Vice President Biden and announced by Obama and Biden on January 25.

The administration proposes to increase the tax credit rate for child and dependent care expenses from 20 percent to 25 percent for families making under $85,000 a year. The credit is phased down to 20 percent for families earning between $85,000 and $115,000, noted a senior administration official. Families could claim up to $3,000 in expenses for one child and $6,000 for two children. The maximum credit for a household with two children earning below $80,000 annually would increase from $1,200 to $2,100 under the proposal.

Under the automatic IRA proposal, employers who do not offer a retirement plan are required to automatically enroll employees in a direct-deposit IRA unless they opt out. According to a White House release, the voluntary contributions will be matched by a Saver’s Tax Credit for eligible families. The proposal indicates that the saver’s credit would match 50 percent of the first $1,000 of contributions by families earning up to $65,000 and offer a partial credit to families making up to $85,000. The administration also will propose to make the Saver’s Tax Credit refundable.

The White House billed the middle-class tax relief and retirement savings incentives as one of the key themes in the president’s State of the Union address on January 27. In addition, a senior administration official noted that the upcoming address will emphasize job creation efforts and measures to reduce the short- and long-term federal deficit.

The administration will offer greater details about the proposals when the president’s budget is released on February 1. The Middle Class Task Force will release its end-of-year report in February.


About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

IRS Announces Qualified Disaster Treatment for Haiti

The Internal Revenue Service today issued guidance that designates the earthquake in Haiti in January 2010 as a qualified disaster for federal tax purposes. The guidance allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Also, the guidance allows employer-sponsored private foundations to assist victims in areas affected by the January 2010 earthquake in Haiti without affecting their tax-exempt status.

Charities usually fall into one of two categories — public charities or private foundations. Under the tax law, a private foundation that is employer-sponsored may make qualified disaster relief payments to employees affected by a qualified disaster. These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.

Qualified disasters include Presidentially declared disasters and any other event that the Secretary of the Treasury determines to be catastrophic. The IRS has determined that the earthquake in Haiti that occurred this month is an event of catastrophic nature for purposes of the federal tax law.

The IRS will presume that qualified disaster relief payments made by a private foundation to employees and their family members in areas affected by the earthquake in Haiti to be consistent with the foundation’s charitable purposes.


About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

Tax problems do not go away unless you take some action! Get Tax Relief today by calling me at 1-877-78-TAXES You can reach me from 8:00 am to 8:00 pm, 7 days a week.

Also online at

Southern California Tax Relief Services

IRS tax Relief, FTB tax Relief, BOE tax Relief, EDD tax relief

At Mike Habib, EA, a SoCal tax firm, we understand that being notified that your tax return is being challenged by the IRS or the FTB can be scary. When you are faced with an audit, or a collection action, by the IRS, or the FTB, you may not know where to turn or what to do. We have the skill set and representation expertise to deal with the IRS and the FTB on your behalf. We understand their rules and are experienced in negotiating the lowest possible tax debt settlement allowed by law.

Tax Relief Services offered:

If you’ve received a notice from the IRS, FTB, BOE or EDD, or if you have any unpaid taxes or unpaid back taxes contact our office immediately at 1-877-788-2937 so we can jump start your case as soon as possible. Ignoring tax problems won’t help, don’t compromise on your representation.

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