Tax Attorney: OKC tax attorney urges CPA awareness of new rules

Tax Attorney

Legislators, judges and the Oklahoma Tax Commission have been busy this year making changes that CPAs and their clients need to keep up with, Oklahoma City tax attorney Richard Kells said Thursday.

Kells also told the 2008 Oklahoma Tax Institute that the Oklahoma Bar Association and Oklahoma Society of Certified Public Accountants are working for an independent tribunal to hear initial disputes involving state taxes, rather than Tax Commission administrative law judges.

As Kells pointed out, currently state tax cases are heard by an ALJ, then by the three-member commission, with adverse rulings appealed to the Oklahoma Supreme Court.

Kells, with Hartzog Conger Cason and Neville, said a ballot issue approved last month by voters provides an exemption from household personal property taxes for totally disabled military veterans. It also applies to surviving spouses. Kells said only 13 counties still assess household personal property taxes. Oklahoma County does not do so.

Another law change requires that applications for ad valorem tax exemptions be filed by March 15, he said. Supporters of this particular ballot issue said it was needed to prevent counties from having to pay refunds for retroactive exemptions.

Kells also reported that Oklahoma's $2 million estate tax exemption is scheduled to rise to $3 million next year, before being repealed in 2010.

Legislators extended the qualifying period for a 48-month gross production tax exemption for wells 15,000-17,499 feet deep and a 60- month exemption for wells 17,500 feet or deeper to July 1, 2011, he explained.

They also extended Quality Jobs incentives to professional sports teams with a payroll of at least $2.5 million, and expanded the program's benefits to 15 years, he said. The existing limitation was 10 years.

Kells also reported on the success of the state's "Clean Slate" tax amnesty program, which provided a window of time for Oklahomans to pay back taxes without interest or penalties. He said the program, estimated to pull in about $30 million, actually garnered state coffers some $81.9 million.

The attorney said he thinks it is questionable whether the law actually provides for double penalties after the program concluded, but Tax Commission officials say it does. However, Kells said Oklahoma tax law still allows an offer and compromise procedure for all but trust fund taxes.

Kells also outlined the results of several court cases, including one in which the Oklahoma Supreme Court held that natural gas stored in Oklahoma is tangible personal property subject to ad valorem taxation.

The case involved taxation of gas stored in Woods County by a Missouri company.

Kells, who said the court found no constitutional problems with taxing the gas, said he understands there is a good chance the case may be appealed to the U.S. Supreme Court.

In another case, Kells said, the Oklahoma justices ruled that a natural gas gathering company is not a public service corporation for purposes of ad valorem taxation.

The distinction is important because public service companies are centrally taxed by the state, at about double the rates of other ad valorem taxpayers who are taxed at the county level.

He said the case involved a gas gathering company that was carved out of a larger company that was a public service corporation.

In an October decision, the justices held unconstitutional an Oklahoma law that prohibited changes in the way gas gathering systems are valued and assessed for ad valorem tax purposes, effective Jan. 1, 2003. the court said the statute unreasonably required different methods for similarly situated companies based on a company's status at an arbitrary past date.

Kells also explained several recent Tax Commission orders to the CPAs, including one from March that involved an out-of-state firm that acquired all the assets of an Oklahoma company, retaining all employees. He said the commission denied the company a jobs credit, reasoning that the jobs already existed in the state, but gave the company an investment credit.

In another ruling, he said, the commission determined that two mechanical workers who signed independent contractor agreements were not employees for purposes of withholding taxes. The panel said the workers had no specific work times and could accept or refuse work, among other factors. Kells said the commission ruled that the two workers who testified about their job status were not employees, but that others who did not appear before the panel were employees.

The tax institute continues Friday at the Clarion Convention Center.

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Tax Attorney: Attorney evades tax, goes to prison

Tax Attorney

A federal judge Friday ordered a former attorney from Cottonwood Heights to spend three years in prison and to pay a total of about $307,000 for his attempt to circumvent taxes.

A jury convicted Thomas Wood in August after a week-long trial for corruptly impeding the IRS and failing to file taxes for two years.

Although evidence at trial showed Wood hadn't filed taxes since the 1980s, he was only prosecuted for 2000 and 2001. His income totaled $236,000 for the two years, according to a press release by the U.S Department of Justice.

But much of those funds during the two years weren't his and in fact were skimmed from investors' accounts being held in a Canadian Ponzi scheme, the MyCor Investment Club.

Friday's prosecution addressed hundreds of thousands of dollars that Wood spent for himself as well as millions of tax-free dollars he spent and hid on behalf of two other convicted tax criminals, Glenn Ambort and John Benson.

Ambort and Benson floated millions of dollars from the MyCor scheme and Wood hid it by funneling the funds into offshore accounts and high-priced real estate. The funds from duped investors bought the men homes in Deer Valley, Draper and Roosevelt, as well as homes in Malibu and San Luis Obispo, Calif., according to evidence at trial.

While Wood was buying homes and shifting funds to debit card accounts in the Bahamas from 1998 to 2002, Ambort and Benson were awaiting trial on federal charges of tax fraud.

After the Utah Division of Securities investigated Wood's role in the scheme, he pled guilty to a misdemeanor securities violation, according to court documents.

"Mr. Wood's case is troubling in that it arose from the legal profession. It is our hope that this prosecution... will help promote the integrity of the income tax laws by discouraging others from ignoring or circumventing their obligations," U.S. Attorney Brett L. Tolman said Friday.

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Tax Attorney: IRS ramping up collection efforts, tax attorneys say

Tax Attorney

The current tax season is tougher than most for Americans. With unemployment and home foreclosures at record highs, more can't afford to pay -- and won't pay -- their taxes.

This could prove to be a problem as local tax attorneys are reporting that in the past few years, the Internal Revenue Service has increased its collection practices. Those actions could be more pronounced during the economic downturn.

"There are huge revenue pressures on the federal and state governments," said Thomas Basset, a certified public accountant at accounting firm BKD. "Anything that can collect revenue will be funded. We're being driven by the state of the economy and a trillion-dollar deficit. There is a lot of underreported income out there, and it's more politically popular for Congress to tell the IRS to collect from people who already owe the government than to raise taxes."

Congress has played an integral part in raising IRS collection efforts.

"What I sense happened was that in the second Bush administration, law enforcement in the tax area took on a much higher authority, and more people were hired at the IRS from 2004 through 2008," said attorney David Capes, of Capes Sokol Goodman & Sarachan in St. Louis. "Congress specifically charged the IRS to do more in terms of criminal tax enforcement and gave them more resources to do that both in terms of more agents and new rules regarding rewards for people who provide information about people who cheat on taxes. As a result, the IRS is beginning to generate more criminal tax cases."

In a report issued last summer, the IRS said in fiscal year 2007 it increased its number of tax investigations and recommended more cases for prosecution. In 2007, the Justice Department prosecuted more tax criminal cases than any other year since 1998.

According to Michael Devine, IRS spokesman for Missouri and Kansas, the IRS has not put an emphasis on increasing its collections.

"Collection is what the IRS does and one of the key missions of the organization," he said.

Taxpayers can make mistaken assumptions about what they can do when they can't afford to pay.

"People don't realize that they have to both file and have to pay," Capes said. "But many who can't pay or get behind don't realize that even if they can't pay, they have to file. People wrongly try and decide to defer tax liability to keep the lights on and don't remit payroll taxes."

Harry Charles, a solo practitioner in Clayton who specializes in tax disputes, said that many of the clients he is seeing have been affected by the increase of IRS collection practices.

"There's a lot of broke people out there that are stretched too thin," he said. "[Taxpayers] may have been managing their debt in the past and playing catch-up when the IRS wasn't aggressive, but now they can't run anymore. Or there's been an increase in audit activity, and [the taxpayers] can't afford to pay the unexpected tax."

In January 2009, the IRS announced it would take steps to help distressed taxpayers pay their taxes. But one of its most touted programs is considered by many to be unmanageable.

The offer-in-compromise program is used when a taxpayer makes an offer to the IRS to pay off his or her debt. This offer can be accepted, and the rest of the debt is removed.

Charles said the program is almost impossible to use, citing the process and criteria that a taxpayer must meet to use the program. Kenneth Kleban, a partner with Bryan Cave, has also encountered issues, particularly in smaller cases.

"Under current law, taxpayers must pay 20 percent of the offer that they're making to the IRS at the time of submitting their application. This has discouraged taxpayers from entering the program," he said. "Also, the application for the OIC program is quite extensive, which isn't an unreasonable request by the government, but it still can be a hassle for a taxpayer to complete."

Sylvan Siegler, a partner with Shook, Hardy & Bacon, said he considers using OIC in his cases but normally doesn't because there isn't much hope in navigating through it.

"Because of the attitudes that IRS has taken, it's very often an elusive procedure," he said. "The bureaucracy doesn't favor resolution in offers-in-compromise."

According to Taxpayer Advocate Service spokeswoman Nina Olson, fewer taxpayers use the program than before, and the IRS accepts fewer offers as well. Olson testified before the U.S. House Ways and Means Oversight Subcommittee that the offers the IRS received declined 65 percent from FY 2001 to FY 2008 and that the offers accepted declined even more, by 72 percent. The Taxpayer Advocate Service is an independent organization within the IRS that assists taxpayers who need help with navigating through the IRS collections process.

But some changes are being made to the program with the IRS allowing a second review of applications of individuals who've experienced significant life changes, such as loss of a job or home. It's also giving leniency to those who may have missed scheduled payments for back taxes.

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Tax Attorney: When the economy falters, tax attorneys get busy

Tax Attorney

While the soft economy may mean hard times for many businesses, a virtual army of tax attorneys expect bad times to be good for business. When the going gets tough, tax attorneys say they typically see their business go gangbusters.

Tax attorneys said they're already seeing growing demand from people facing tax troubles or seeking strategies to reduce tax bills.

"You have people who get into trouble," said Michelle E. Espey an associate at Moritt Hock Hamroff & Horowitz in Garden City. "They haven't made tax payments or may not be able to pay at end of the year."

Espey said this time of year demand starts to surge. People discover problems when they talk with accountants at year end. Accountants refer them to attorneys who become part of their tax team.

"There's a spike in tax season, because accountants are meeting with their clients and asking what their needs are," Espey said. "They wouldn't only look at the information for their tax returns. Questions may come up for business planning, personal planning."

While accountants may be tax experts - handling compliance, preparing returns and advising on tax strategies - tax attorneys bring a different point of view regarding tax issues, preparing legal documents and offering advice.

"The lawyer and accountant tend to approach things from different perspectives," said Steve Breitstone, head of the tax department for Mineola-based Meltzer, Lippe, Goldstein & Breitstone, who obtained a master's in law specializing in taxation from New York University Law School.

According to Morris Sabbagh, partner at Capell Vishnick, in Lake Success, "Lawyers look deeper into the law in structuring deals," Sabbagh said. "Accountants might come up with plan or come up with a plan in conjunction with an attorney. There might be some technicalities."

Sabbagh said he crafted many trusts and handled estate planning where accountants' advice can be crucial. But the attorney has to get the document right.

"The accountant isn't really focusing on the technicalities in terms of how the trust agreement is drafted," Sabbagh said.

Espey said tax attorneys need to work with other lawyers and accountants rather than simply solving problems on their own.

"We don't operate in a vacuum," Espey said. "We're partnered up with other departments in the firms, so they can think more globally from a tax standpoint."

Tax attorneys also are being called on to develop strategies to deal with tumbling real estate prices. Breitstone said clients need to know how to handle distressed properties where bankruptcy might incur personal liability.

"You can't walk away from tax liability," he said of many cases. "A big mortgage can end up with big tax liability. In those situations, the biggest issue in negotiating an exit strategy for a distressed property is to deal with the tax problems. That's becoming increasingly what we're doing."

And falling real estate values also affect those that receive property as part of an inheritance.

Dennis Kucica, an attorney at Moritt Hock, said a bequest of property triggers an estate tax for the recipient. In order to pay the tax, the property is put up for sale, but at today's values, it would be sold at a deep discount. Kucica advises people who plan to will property to others to buy a life insurance policy. The proceeds from the policy can be used to pay the estate tax, precluding the need to sell the property at a discount.

"This way they're not forced into selling the real estate prematurely," Kucica said. "Especially in today's economic climate. You probably wouldn't want to sell your real estate investments."

Espey said the biggest problem she sees with clients are those who delay while tax problems grow worse.

"The biggest fault most people have dealing with the IRS is non- responsiveness," Espey said. "We all wish we had a client who knocks on the door when they get their first letter [from the Internal Revenue Service]. More typically, we get clients whose case has been through the processing pipeline for a while."

She said attorneys often can help even late in the process, making challenges or negotiating payments due to an inability to pay or by showing the liability isn't correct. But as filing dates approach, options may decrease.

"They may be more backed into a corner in terms of their ability to contest liabilities," Espey said, noting deadlines sometimes leave little time to make a case.

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Tax Attorney: Varnum Tax Attorneys Feel the Impact of New IRS Settlement Offer

Tax Attorney

NOVI, Mich. -- Varnum tax attorneys are taking calls and client engagements, due to IRS offers of settlement with offshore income, as overseas banks begin to turn over tens of thousands of names and account information to the IRS.

Paul L.B. McKenney, who specializes in federal taxation for Varnum, said between phones calls, “We are stressing to most of the callers two points: first, the IRS settlement penalty of a onetime 20% of account balance versus up to 50% per year is a great deal. Second, you better bite-the-bullet because it is only a matter of time before the IRS receives the investor’s names and other identifying information. If you do not take advantage of this once-in-a-lifetime offer, you will likely face criminal prosecution at some point and it will not be in a Martha Stewart federal facility.”

The tax group received numerous inquiries as countries started turning over US taxpayer account numbers and records over the past few months. But the “Last Chance Compliance Initiative”, just announced by the IRS, has really increased the number of calls into Varnum offices.

McKenney went on to say, "Those that have not disclosed the accounts and not claimed the interest or investment income of these overseas accounts better understand the wording of the IRS agreement before they sign on the dotted line. Phrases like, "fully cooperate with the IRS both civilly and criminally," sound simple but mean much more. So before you go in to meet with the IRS, you should see a good tax attorney. "

The IRS settlement offer is good for six months. Varnum strongly suggests that those who have not been reporting taxable income heed the advice of the IRS Commissioner, Doug Shulman, when warned that for those, “who continue to hide their heads in the sand, the situation will only become more dire.”

Background:

Established in 1888, the Varnum law firm is one of the leading firms in Michigan and the Midwest. With over 160 attorneys in five offices throughout the region, we have the resources to serve a wide range of clients. We pride ourselves on our ability to produce exceptional results through teamwork with our clients and our exemplary service.

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