What to do when you receive a tax notice
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Thursday
Sep112014

Ice Bucket Challenge—A Primer on Charitable Deductions

The ALS ice bucket challenge has been wildly successful, raising $100 million in one month. Will donors get a tax deduction? Tax attorney Rob Wood discusses the subject in this report and in his Forbes article “$100 Million Later, The Ice Bucket Challenge May Not Lower Your Taxes After All.”

 

 

Wood notes at the outset that the donations should be deductible; “The question is, is it going to reduce your tax bill.” The caveat Wood raises is that a donation will be tax deductible if it was given with a charitable intent and not deductible if it was given just to avoid a bucket of ice water. There are a lot of tax law cases about the deductibility of a donation, and they all involve charitable intent. It is important to keep good records as to all donations a taxpayer wants to claim as charitable.

Wood also points out that the amount of a charitable deduction is sometimes reduced by the value of something a taxpayer gets in return for the donation. Wood uses the example of a $500 ticket to a charity dinner where the taxpayer gets a meal worth $100. The deductible amount is $400.

Wood opines that some charities have been known to bend the rules to encourage donations. “Many of us don’t want to know what the rules are,” Wood suggests. All kinds of promotions are designed to get people excited and encouraged to take part in the charitable fundraising effort. For example, at a charitable auction, you buy a trip to Europe valued at $10,000 for $12,000, you have made a $2,000 charitable donation. On the other hand, if you take part in a charitable golf tournament, hit a hole in one, and win a new car, you will owe taxes on the car (“the Oprah rule,” as Wood puts it).

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
Sep102014

Low Taxable Income + Lavish Lifestyle = IRS Trouble

A recent Italian tax case involves an Italian fish trader who claimed to make only €10,000 annually but was driving a Ferrari. Tax attorney Rob Wood discusses the case and situations like it in the U.S.A. The case is the subject of his Forbes article “Driving Ferrari But Reporting Low Income To IRS Gets Ticket To Jail.”

 

Other Italians have been caught by the Italian tax authorities, who are cracking down. As Wood notes, “This kind of thing does happen in the U.S.” Someone who is “living large” and reporting a very low income is likely to get into tax trouble, possibly even criminal problems. Apparently living beyond one’s income will require a very good explanation. Innocent mistakes may be forgiven by the IRS, but willful tax evasion will not be ignored.

Wood suggests that it is easy for a taxpayer to say the wrong thing in talking to an IRS agent about the taxpayer’s situation. If you are questioned by a federal or state tax agent who has a concern about your return, you should not answer questions but should instead get an advisor. You are likely to make a mistake or a misstatement. It is also important to have good records. Paying for things in cash may make the IRS suspicious. Bank records will be very important.

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.

Tuesday
Sep092014

FedEx Independent Contractor Ruling—Big Changes for IC Users

The Ninth Circuit has recently ruled against FedEx Ground in a case challenging the independent contractor status of its drivers. Tax attorney Rob Wood discusses the ruling in this report, also discussed in his Forbes article “FedEx Misclassified Drivers As Independent Contractors, Rules Ninth Circuit.”

 

The FedEx ruling could potentially affect many other companies who have similar arrangements with people who do work for them. As Wood notes, FedEx is a huge company with a number of subsidiary companies, and FedEx Ground is one of those companies. It has always used drivers who were treated as independent contractors, at least in the company’s point of view.

Wood points out that long haul trucking companies and transportation companies such as Uber (the ride sharing company) and many taxi companies might find themselves affected by this ruling should it stand up against possible further appellate proceedings. And it should be noted that the Ninth Circuit based its ruling on California law as to what distinguishes an independent contractor from an employee.

There are a number of factors the court considered in making the ruling. Wood believes the court decided the case correctly. Wood also says that FedEx seems to have made a real effort to work through the rules and meet the test of having independent contractors driving its trucks. The concurring opinion points out (quoting Abraham Lincoln) that “Calling a dog's tail a leg does not make it a leg." The concurrence also cites Estrada v. FedEx Ground Package System Inc., an earlier case that considered some of the same issues.

As Wood says, sometimes stepping back from the details and viewing the big picture gives an answer like the one arrived at by the Ninth Circuit.

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.

Friday
Sep052014

Colorado’s Marijuana Tax Revenue: Smoke, Mirrors, Not Enough Money

Colorado’s Marijuana Tax Revenue: Smoke, Mirrors, Not Enough Money from Sequence Media on Vimeo.

When Colorado legalized marijuana, there was rosy talk of $33.5 million in tax revenues during the first six months. The reality has turned out to be $12 million. Tax attorney Rob Wood discusses the situation, also the subject of his Forbes article “$21.5 Million In Marijuana Taxes Just Went Up In Smoke.”

 

As Wood points out, not everyone is purchasing legal marijuana, subject to various Colorado taxes that add up to 27.9%. Wood suggests that the tax projections made by Colorado are a little better than one might get using a Ouija board, but not much better. Wood notes a suggestion that only 60% of Colorado purchases will be through legal distributors.

A larger question has to do with the federal law classifying marijuana as a controlled substance regardless of any state law permitting marijuana use. Filing a federal tax return would be the equivalent of admitting to participating in an activity illegal under federal law. Wood says that the mismatch between state and federal law is a serious issue. Businesses selling medical marijuana in California, for example, could not deduct business expenses.

Wood says that many marijuana businesses feel targeted. Banking and credit card use is also a problem for them.

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.

Friday
Sep052014

Chris Tucker's $14 Million Tax Bill

Chris Tucker's $14 Million Tax Bill from Sequence Media on Vimeo.

Comedian Chris Tucker got hit with two tax bills from the IRS totaling over $14 million. He has reportedly reached a settlement. Tax attorney Rob Wood discusses the problems some celebrities have had with the IRS in this report, based on his Forbes article “Serious Lessons From Comedian Chris Tucker's $14 Million IRS Bill.”

 

Tucker has blamed “poor accounting and business management” for his tax woes. Wood notes that most of us are interested in what celebrities are doing and their various problems. A lot of celebrities are focused on their careers almost to the exclusion of everything else, so they are especially vulnerable to problems like these.

Wood points out that, when a tax problem reaches the lien stage, “it’s fairly far along.” The notices may have been delivered to the wrong place, or the celebrity may not even be aware of the problem.

Tucker’s case is supposedly settled. Settling a tax bill is a more serious issue than some television advertising would lead the public to believe. There are IRS programs offering compromise, but a very favorable settlement is probably only possible if the IRS concludes that the errant taxpayer is nearly destitute and has few prospects. This will not usually be true of a celebrity. The “pennies on a dollar” deals won’t be probably be available to big name stars.

Willfully trying to cheat the IRS is the kind of thing that might get someone sent to prison. Wesley Snipes fell into a situation where he got involved with the wrong people. He was very successful, but he seems to have hired the wrong people to advise him.

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.