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$1.1 Trillion Budget Bill Remedies Tax Law Problems by Including the PATH Act

Congress recently passed—and President Obama signed—a $1.1 trillion budget bill. Among its many provisions were some relating to tax law, notably the Protecting Americans From Tax Hikes Act (PATH) which was tucked into the massive law. Tax Attorney Rob Wood explains what the new tax provisions will do for taxpayers in this report, based on his Forbes article “5 Things To Know About Year-End's Massive Tax Bill."

Wood says that one of the most important things about the new law is that “Congress agreed on something.” What is very important about the new law is its inclusion of the PATH Act. That act makes permanent a number of provisions that have been temporary for years and have been extended by a last minute extender bill in Congress, what Wood characterizes as a band-aid approach to the tax law. “There will be some predictability next year.”

The new law has no specific provisions aimed at helping trial lawyers, Wood says, noting the problems lawyers have with accounting for contingent fees. However, there are three provisions that will matter to trial lawyers and to any small business. The first provision has to do with expensing. Section 179 of the tax code permits a business to treat the purchase of business property up to $500,000 as an expense. During the past year, Wood says, the expensing amount had dropped down to $25,000. The amount is now back to $500,000, “and that is permanent.” Small businesses and law firms can now plan their purchases at year end knowing what the law will be in the future.

The second important provision has to do with bonus depreciation. Wood explains that, if a business goes over the $500,000 limit, the excess expenditures must be capitalized and depreciated over time. Equipment purchases might have a five- or seven-year life. The bonus depreciation provision allows a business to deduct 50% of the cost immediately. This is, says Wood, a “massive, massive benefit.”

The third important provision is the research credit. The research and development credit under the tax law was made permanent. This is a very large tax credit for businesses. Most lawyers probably don’t take advantage of it, Wood notes, but it is very important for businesses.

In addition to the three provisions already mentioned, Wood says that there are two delays worth mentioning. One of these is the Cadillac tax delay. This provision relates to the Affordable Care Act and the notion that it was to be funded in part by taxes on certain company health plans. It was set to take effect in 2018; now it has been delayed to 2020.

The other delay was the medical device tax. This was another tax that would help to fund the Affordable Care Act. The effective date of the tax has been delayed from 2016 to 2018.

As for average taxpayers, Wood says that the new law has not made big changes. However there are some provisions that affect lower income people, and there are some education benefits that might affect a number of people. But, as always, Wood suggests that people should plan ahead and pay for things before the end of the tax year. Trial lawyers need to pay attention to constructive receipt rules.

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.


Rob Wood Explains New Report on Tax Data Not Shared by U.S.

The U.S. government and the IRS have been aggressive in pursuing funds of U.S. citizens that are deposited in offshore banks. This has been especially true with the Foreign Account Tax Compliance Act (FATCA) enacted in 2010. The law forces foreign banks and governments to disclose information about money deposited by U.S. citizens. However, a recent report by the Tax Justice Network indicates that the U.S. doesn’t practice what it preaches. Tax Attorney Rob Wood explains the situation in this report, based on his Forbes article “U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data Despite FATCA.”

Wood says that there is some controversy about this, just as there is now fear among American citizens and “green card” holders about the worldwide reach of the IRS. Americans are required to file returns reporting income earned anywhere in the world. That is true even if an American is required to report income in some other country. The FBAR form has become an important document for American taxpayers. The form is not hard to fill out, but the penalties can be severe for failure to file. (Wood discussed FBARs in this Forbes article.)

Wood explains that all of the efforts by the IRS to sniff out foreign bank accounts over the last ten years is the background against which the Tax Justice Network’s report must be considered. There are differing views about how much the IRS is cooperating with other countries. Wood points out that the implementation of FATCA over the past three years has required a huge effort to get agreements in place with over 100 nations to share data.

As to how much heat the FATCA report will generate, Wood suggests that the story will fade away. The IRS and the federal government have said that they are being very careful in the sharing of data, in part because some countries are not careful with such data and are not as sensitive to privacy as might be desired. Still, Wood says, the government will have to develop a more transparent and cooperative approach.

Wood explains that there are two IRS programs worthy of mention. The Offshore Voluntary Disclosure Program (OVDP) and the Streamlined program are two disclosure techniques available to U.S. taxpayers. Wood says that many taxpayers have innocently failed to make some required disclosures because they were unaware of a requirement and because the rules are very complicated. Of course, there are also people who knew what was required but thought that no one would find out. Willfulness is an important consideration in making a filing. The two programs are different in scope.

Wood says that the OVDP requires eight years of amended tax returns, eight years of other forms (such as FBARs), taxes, interest, and penalties— sometimes very steep penalties. For example, on a Swiss bank account, a taxpayer might have to pay a 27.5% penalty on the highest balance over the eight year period. In the case of funds kept in “bad banks,” the penalty can go as high as 50%.

The Streamlined program is very different, Wood explains. It is a newer program than OVDP. It involves three tax returns, six FBARs, paying unpaid taxes, and possibly no penalty on the aggregate account balance (for those who lived outside the U.S. during the three years) or 5% for those who lived in the U.S. The Streamlined program sounds much better, but it may not be available depending on a taxpayer’s facts and conduct with regard to the foreign funds. Willfulness comes into play. Using the Streamlined program requires the taxpayer to sign a statement that rules out willfulness in past conduct. Taxpayers need to be very careful before signing that statement, lest the IRS discover willful conduct.

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.


The Rollout of FATCA Is Being Delayed to Help Foreign Banks. Tax Attorney Rob Wood Explains

The Foreign Account Tax Compliance Act, passed in 2010, is a tool devised to help the U.S. locate funds of U.S. citizens being held in foreign banks. (See this earlier FATCA report on LBN). The law requires foreign banks to report data about accounts owned by U.S. citizens to the IRS. Failure to report involves large penalties. However, the Treasury Department is delaying the rollout of part of the act. Tax Attorney Rob Wood discusses FATCA in this report based on his Forbes article, “IRS Delays FATCA To Help Banks, But Offshore Account Disclosures Continue.”

Before FATCA, Wood says, there was very little monitoring of foreign bank accounts owned by U.S. taxpayers. Of course, taxpayers were always required to report foreign income. “If you have rental income, or dividends, interest, or payment for services,” those monies are taxable by the United States. Wood says that some people didn’t realize this or didn’t agree with it, “but that’s the rule.” Taxpayers were always supposed to report interest earned on foreign deposits.

In addition to that requirement, since 1970, there has been a Report of Foreign Bank and Financial Accounts (FBAR). Wood explains that these are not IRS forms, but rather money-laundering forms by a different branch of the Treasury Department. When the Swiss bank controversy was erupting in 2007 and 2008, “the FBAR forms became very important, even though most people were not filing them. The point, says Wood, is that the passage of FATCA finally provided an enforcement mechanism for rules that were already in place.

A different set of rules might apply to a U.S. citizen who set up foreign accounts and subsequently renounced U.S. citizenship. Wood points out that “every year is judged by itself.” Tax reporting is an annual event. People who renounce their American citizenship are no longer subject to tax on the foreign accounts. A different question, Wood says, is how the foreign banks might treat such people. Still, a properly done renunciation of citizenship cuts off the tax liability.

As to the reciprocal question—are U.S. banks required to make reports to foreign governments?—Wood says that the question is hard to answer. FATCA has spawned a host of intergovernmental agreements between the U.S. and many foreign countries wherein the other countries have agreed to help the U.S. collect taxes on foreign funds. Wood believes that these agreements are reciprocal. That is, “the U.S. will get information from . . . the United Kingdom . . . and there are provisions for the U.S. to give information to the U.K.” The question is whether other countries will seek this kind of information from the U.S. Many of them, Wood says, don’t care. Wood suggests that there will be “reciprocity in name only.”

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.


Marijuana Tax: Revenue Windfall or Blood Money? Tax Attorney Rob Wood Discusses State Pot Tax

New Jersey governor and Republican presidential candidate Chris Christie has a solid record as an opponent of new taxes, having vetoed more proposed tax increases than any other governor in modern times. As to marijuana, Christie has said that, not only will there never be marijuana tax revenue in New Jersey, the drug will not be legalized while he is governor.

Christie has referred to marijuana tax revenues as “blood money.” Tax Attorney Rob Wood discusses Christie’s stance and the marijuana tax issue in this report, based on his Forbes article “Chris Christie Doesn't Like Taxes, Especially On Marijuana And Yachts.” [Wood has previously discussed marijuana taxes on LBN.]

Christie has commented on the less-than-expected tax revenues Colorado has received from its marijuana tax. Wood notes that the topic of taxing marijuana—medicinal and recreational—is a huge topic today. Wood says it’s not clear that Colorado’s results are enough to base a decision on, but the issue is a political one for Christie, and his effort is to speak to voters.

In that regard, says Wood, Christie has emerged as a stronger candidate than some thought he would be. “He’s kind of a fighter, and he’s able to pull out quotes from the experience in Colorado” and use them effectively. The thing to remember, Wood points out, is that Colorado made a lot of money on marijuana taxation but was expecting much more than it got. This caused Christie and others to point out that “a lot of the revenues that they expected went into the black market” and failed to surface as tax revenues.

As to a tax structure, Wood says that Colorado, Washington, and Oregon are all following a similar course. They tax medical marijuana at one rate and recreational marijuana at a higher rate. “And that ties into what the federal government has been talking about.” Wood notes that there have been federal efforts—unsuccessful as yet—to legalize marijuana and tax it at rates up to 50%. This is a subject that brings out a lot of controversy, and it will be years before the controversy is resolved.

And speaking of marijuana tax in Colorado, a lawsuit has been filed urging the proposition that requiring marijuana companies to pay taxes violates their Fifth Amendment right against self-incrimination. Wood says that this is a very clever argument. It has not been successful so far, but there may be some merit in 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.


IRS Chief Koskinen Should Go, Says Congressman Chaffetz. Rob Wood Discusses the IRS Scandal

The scandal involving the IRS, Lois Lerner, and missing emails has not gone quietly away. IRS Commissioner John Koskinen has recently gotten into very hot water in a lawsuit involving IRS targeting of conservative groups. On July 27, House Oversight and Government Reform Committee Chair Jason Chaffetz called on President Obama to remove Koskinen, who might face impeachment. Tax Attorney Rob Wood discusses the matter in this report, based on his Forbes article “Obama Is Urged To Fire IRS Chief Before Impeachment Looms.”

Wood notes at the outset that it is “not very likely” that the president will remove Koskinen. The political firestorm over the “targeting” of conservative groups by the IRS has raged on for two years at this point. Wood suggests that Koskinen’s handling of the problem and unapologetic stance have won him no friends. However, Wood says that President Obama is unlikely to remove Koskinen and feels that Koskinen is unlikely to resign on his own.

As to the targeting of conservative 501(c)(4) groups, Wood says the issue has become “sort of a he said she said” situation. Wood has no doubt that Lois Lerner had her agency giving close scrutiny to conservative groups. There were Democratic concerns ever since the Citizens United case that conservative groups would develop much more funding. “Something had to be done” was the conventional wisdom, Wood suggests. Conservative groups have not let go of the issue in large part because there has been no suggestion of apology from the IRS. The concern is that the IRS should not be a political tool of any presidential administration (whether or not this has in fact occurred).

When the dust settles, if it does, Wood “is not sure that anyone will be” held accountable for what happened. The hue and cry has passed, and the impetus for holding someone responsible has passed. However, Wood notes, there has not been a final resolution of possible criminal charges as a result of the targeting scandal. Lois Lerner apparently will not be charged. There may be more to come, but Wood notes that attention is now mostly focused on the run-up to the 2016 presidential election. Wood finds it “really distressing that the IRS, which is by and large a very good organization . . ., has been maligned.” For IRS employees, the situation must be demoralizing.

As to previous IRS scandals, Wood says that some political activity on the part of the agency apparently occurred during the administration of Richard Nixon. That is the only real comparison that is being drawn, and it is not a flattering one for the Obama administration.

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.