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Friday
Jul182014

Ten Tax Lessons from Seinfeld

 

The Seinfeld show debuted 25 years ago, but its comedy endures. Tax attorney Rob Wood suggests that it also teaches ten tax lessons. In this report, he discusses his Forbes article “Seinfeld's 10 Enduring Lessons---About The IRS.”

 

Wood notes that he views Seinfeld from the perspective of a tax lawyer. One of the lesson, aired in 1991, is that the IRS has power. Jerry is audited and has to produce a $50 receipt for the contribution. The byplay on the show compares the IRS to the mafia, a comparison the agency may not appreciate but which contains a grain of truth. The IRS is a powerful agency.

The incident also highlights the issue of fake charities, the kinds of things that pop up in the wake of any major disaster. But what about donations to such a bogus charity? Wood says that the taxpayer needs to verify that the charity is a legitimate one to begin with; the taxpayer also needs to retain good evidence of the donation in order to withstand an audit.

Wood also mentions independent contractors. One Seinfeld involves a maid, whose boss avoids paying payroll taxes by claiming that she is an independent contractor. The use of independent contractors as a way of avoiding the expenses of having employees is fairly common in the U.S. But employers should be aware that the IRS has rules about what makes someone an independent contractor. Wood points out that employers can face "taxes, interest and penalties, plus liabilities to their workers for violating the 'right to control' test."

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

Thursday
Jul172014

BNP Baribas Settlement—Are Terror Settlements Deductible?

 

The French bank BNP Baribas has pleaded guilty to illicitly transferring funds on behalf of Sudan, Iran, and Cuba, and it has paid almost $9 billion in penalties. Tax attorney Rob Wood has discussed the settlement in his Forbes article “The BNP Paribas $9 Billion Terror Settlement & Tax Deductions,” and he comments in this report on the question of deductions in cases like this.

 

The fact that this payment is a penalty for criminal behavior does not preclude it from being deductible, Wood explains. In this specific case, the settlement agreement prohibits a tax deduction. The inference is clear that the inclusion of this provision supports the notion that settlements like this might otherwise be deductible.

Wood notes that JP Morgan Chase’s recent $13 billion settlement was tax deductible. The idea of having an express provision in the settlement has become more common. There are many divisions in our federal government. “The Justice Department is not the IRS,” Wood points out. The various departments are sometimes involved in power plays with each other, so one department might not automatically include a provision in a settlement agreement that would rule out tax deductibility.

Wood says that there have been bills proposed to resolve the issue legislatively, but so far no bills have been passed that would require settlement agreements to have provisions precluding tax deductions.

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

Wednesday
Jul162014

Permanent Tax Depreciation Break—The House Says Yes

 

On July 11, 2014, the U.S. House of Representatives voted to make permanent a depreciation tax break that would encourage business investment and help the economy. The bill would make permanent a 50% deduction for many business purchases and other investments. The deduction has been in effect for much of the last decade, but always as a temporary measure. Tax attorney Rob Wood discusses this development and its long-term prospects.

 

Wood feels that this is a good thing for business. Section 179 of the tax code has always been looked to by businesses as a source for business deductions. Most people realize that many pieces of equipment depreciate almost as soon as they are purchased. Some items depreciate very rapidly. So, Wood opines, an ideal situation for a business would be to be able to deduct 100% of the cost immediately. However, a 50% deduction is a good thing.

Predictability in the tax law is a good thing, Wood adds. “We haven’t had a lot of that, and I think we need more of it.” Tax provisions bouncing back and forth are unsettling to business and thus bad for business.

The estate tax law is the classic example of the uncertainty of the law. The change to the law in 2003 led to the expiration of the tax entirely, and in 2010 there was no estate tax because Congress failed to act. The tax came back later, but the uncertainty was a bad thing. At the end of 2012, Congress fixed the law. Wood hopes that will happen across a broad spectrum of tax code sections.

Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Wednesday
Jul162014

Five Stages of Grief, IRS Version

Five Stages of Grief, IRS Version from Sequence Media on Vimeo.

The prospect of an IRS audit has always been frightening. With the recent push by the IRS to find every offshore account and punish taxpayers for trying to hide these accounts, what tax attorney Rob Wood describes as “IRS-induced grief” is a more common occurrence. Wood discusses the subject in his Forbes article “Five Stages Of Grief, IRS Version.”

 

The five stages of grief—denial, anger, bargaining, depression, and acceptance—were postulated by Swiss-American psychiatrist Elisabeth Kübler-Ross in her 1969 book, On Death and Dying. Wood draws an analogy between Kübler-Ross’s five stages and the things that taxpayers go through when they are acknowledging their offshore accounts.

“People do go through . . . peaks and valleys, emotionally and mentally” when they try to come to grips with their offshore account problem. “It’s an interesting emotional gamut.” Wood suggests that it is human nature to rationalize our behavior, to come up with theories that somehow the problem is not our fault.

Wood believes that it is helpful for taxpayers to talk about their tax problems, to actually tell someone about the problem. And the rules about offshore accounts are not difficult to understand. “The basic U.S. rules may be harsh, but they aren’t that complicated.” It may come down to how big a risk a taxpayer is willing to take. Thinking about these problems may produce the kind of emotional responses Wood discusses in his article.

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

Wednesday
Jul162014

Home Office Deductions—the IRS Makes It Easier to Claim

Home Office Deductions—the IRS Makes It Easier to Claim from Sequence Media on Vimeo.

The IRS is making it easier for taxpayers who work from home to claim a deduction for the home workspace. Tax attorney Rob Wood comments on the topic, also the subject of his Forbes article “Work From Home -- Yes, Even Cribside.”

 

Historically, claiming a deduction for working at home caused some people to fear that this would trigger an audit. However, things are changing. Wood says that the home office deduction has traditionally been more difficult to use than it might have appeared.

However, starting in 2013, the IRS developed a simplified program for home workers. There is a shorter list of things to keep track of, Wood explains. “It’s more of a square footage deduction.” Wood feels that the deduction is worth looking at for taxpayers who qualify. TurboTax or other similar programs should be able to walk a taxpayer through the process, as could an accountant.

Child care is also getting some attention. Wood notes that a bill called Working Parents Home Office Act has been introduced in the U.S. Senate. The bill would create an exception to the “arcane rule” that a home office workspace must be used exclusively for work. The bill would exempt child care activities and related furniture from the rather strict rule.

Changes in the home office rules are long overdue. Corporations are increasingly relying on home workers. “There are whole companies that are virtual.” Some companies have no workers actually in one office facility. Online commuting is here to stay. And, Wood notes, home office deductions don’t have stigma they once did.

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