PK Law Food Box Program – Another Successful Year of Helping Those in Need!

We want to thank all who participated in shopping, packing, donating and delivering to make this year’s Food Box Initiative a huge success. PK Law Food Boxes were donated to the following groups and organizations to distribute to families in need:

Maryland Coalition of Families, My Sister’s Place & My Sister’s Place Lodge, The Arc Baltimore, Safe Streets, Harford Family House, United Way’s Healthy Food Initiative, and the Maryland Food Bank.

Thank you all and Happy New Year!

2015 Standard Mileage Rates

The IRS has issued the “optional standard mileage rates” for 2015 used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. (IR-2014-114, Dec. 10, 2014)

Effective on January 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014;
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014; and
  • 14 cents per mile driven in service of charitable organizations.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

In some instances, the standard mileage rates may not be utilized.

Also, PK Law readers are cautioned that adequate records must be maintained to substantiate the mileage claimed in connection the calculation of deductible costs.

PK Law attorneys often work with clients’ accounting advisors to determine the propriety of deductible individual and business expenses.  Should you have a question about your business or individual or business tax status, do not hesitate to call a PK Law Corporate and Business Services attorney. To request an appointment via email at information@pklaw.com or call 410.938.8800.  

This information is provided for general information only.  None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.

 

 

TEFRA, Sometimes Forgotten But Not Gone

The Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), as codified in Internal Revenue Code. § 6221, et seq., (“IRC”) is sometimes lost in the maze of more recent tax enactments.  But, occasionally, it does rear its head, particularly in the field of partnership taxation.  A Legal Advice Issued by Field Attorneys from the Dallas Area Counsel of the IRS (20145001F, dated 8/13/14 and released 12/12/14) dealt with a question that arose from an IRS Revenue Agent’s query engaged in an Employment Tax Field Audit arising out of worker classification.

Partnerships are generally subject to TEFRA which imposes “special procedures” in partnership income tax cases.  (An exception exists for any small partnership, which is any partnership with ten or fewer members, all of which are individuals (other than a non-resident alien), subchapter C corporations, or estates of deceased partners.) The subject of the audit (the “taxpayer”) was a limited liability company treated as a partnership for income tax purposes.

A determination that a taxpayer owes a deficiency in taxes permits the IRS to send a notice of the deficiency to the taxpayer. The taxpayer may petition the United States Tax Court for a pre-assessment review of the deficiency determination. An entity that is classified as a partnership for federal income tax purposes usually owes no income tax as a “pass through” entity.  However, the partnership must still report its income. Each partner is liable for income tax on the partner’s distributive share of various items of income and loss from the partnership.  While an income tax examination of a partnership will not usually result in the partnership owing a deficiency, examination adjustments to a partnership’s income or losses could result in a partner owing a deficiency based upon the partner’s distributive share of the adjustments and the other items on the partner’s income tax return.

Prior to TEFRA, income tax examinations of partnerships involved a series of audits for each partner of the partnership.  However, TEFRA put in place unified audit and litigation procedures in order to avoid such multiple audits and tax cases and to provide consistent treatment for all partners.

Audits of partnerships usually involve “partnership” and “non-partnership” items.  The Internal Revenue Code and Regulations provide a list of “partnership items”. A “non-partnership item” is an item that is (or is treated as) not a partnership item.

For IRS to adjust any partnership items, it must send a final partnership administrative adjustment (“FPAA”) to the partners identified as notice partners on the partnership return for the year at issue. For 90 days after issuance of an FPAA, the partnership’s tax matters partner (“TMP”) has the exclusive right to petition the Tax Court, Court of Federal Claims, or a U.S. District Court for an adjustment of the partnership items. Thereafter, other partners have 60 days to file a petition for readjustment.

The IRC provides that, if, in connection with the audit of any person, there is an actual controversy involving a determination by IRS as part of an examination that (1) one or more persons performing services for such person are employees of the person for purposes of Employment Taxes and Collection of Income Tax; or (2) the person is not entitled to treatment under §530(a) of the Revenue Act of ’78 with respect to the individual (the Employment Tax “safe harbor”), then the Tax Court may determine the correctness of IRS’s determination and the amount of employment tax owed following the filing of an appropriate pleading.

TEFRA makes no mention of Employment Tax or worker classification issues on audit of a partnership.  As a result, the IRS need not send a final partnership administrative adjustment (“FPAA”) in order to make an employment tax assessment.  Any determination regarding Employment Tax or worker classification may be reviewed for correctness by the Tax Court upon the filing of an appropriate pleading by the partnership.

The moral of this article is that partnerships need to be particularly wary of an Employment Tax and worker classification audit by the IRS as the procedures are not the same as usual under TEFRA. 

PK Law tax attorneys and/or PK Law labor and employment attorneys can alert your partnership to the issues it may face in this regard should it be audited. To request an appointment via email at information@pklaw.com or call 410.938.8800. 

This information is provided for general information only.  None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.

 

ABLE Act Passes Congress

On December 16, 2014, Congress passed the “Tax Increase Prevention Act of 2014” (“TIPA”, or “the Act”), which consists of two Divisions—Division A (the “Tax Increase Prevention Act of 2014”) and Division B (the “Achieving a Better Life Experience Act of 2014” or “ABLE”).

Prior to passage of ABLE, there was no a tax-advantaged savings program specifically targeted to persons with disabilities, that was similar, for example, to a “529 plan”.  Also, a “qualified disability trust” was, and may still be used, to provide financial assistance to a disabled person as the trust’s beneficiary without disqualifying the beneficiary for certain government benefits.

Now, for tax years beginning after Dec. 31, 2014, the Act allows states to establish tax-exempt ABLE accounts to assist persons with disabilities in building an account to pay for qualified disability expenses. Similar to a 529 plan, a tax exemption would be allowed for an ABLE program.  Amounts in an ABLE account would accumulate on a tax-exempt (or, in some cases, tax-deferred) basis.

An ABLE account is generally exempt from income tax.  Any person may make contributions to an ABLE account. However, those contributions are not deductible for income tax purposes.  The ABLE account must be established pursuant to a “qualified ABLE program”, a program established and maintained by a state or state agency or instrumentality that meets certain rules as outlined in the Act.

Contributions are required to be made in cash and it is anticipated that means they may be made by check, money order, credit card, electronic funds transfer, payroll deductions, or automatic deductions from a bank account, similar to the rules for 529 plans.

The Act provides the following, in summary:

  • There may be only one ABLE account per designated beneficiary.
  • The state established ABLE program must only allow designated beneficiaries who reside in the state (a “program state”) or reside in a state that has not established an ABLE program but which contracts with a program state to provide access to the program state’s ABLE program to establish an ABLE account (a “contracting state”).
  • The designated beneficiary of an ABLE account is an “eligible individual” who established the account and is its owner. An individual is an eligible individual for a tax year if, during that tax year:
    • The individual is entitled to benefits based on blindness or disability under the Social Security disability insurance program (“SSI”) and that blindness or disability occurred before the date on which the individual reached age 26, or
    • A disability certification for the individual has been filed with IRS for the tax year.  A disability certification is one made by the eligible individual or his parent or guardian that certifies certain physical or mental impairment of the eligible individual and is supported by a diagnosis signed by a licensed physician.
  • No amount of a distribution from an ABLE account is includible in gross income if distributions from the account do not exceed the designated beneficiary’s “qualified disability expenses” as described in the Act.  Other rules apply for distributions over those allowed for “qualified disability expenses” as well as other income tax rules applicable in certain circumstances.
  • ABLE accounts (including earnings, contributions and distributions therefrom for “qualified disability expenses”) are disregarded for Federal “Means-Tested Programs” involving income and assets.  Certain exceptions apply in the case of the SSI program.

Passage of the ABLE Act was widely championed by advocates in the field of disability.  While the media “sound bites” make the ABLE Act sound simple, it is not a simple piece of legislation.  As of late December 2014, whether Maryland will be a “program state” or “contracting state”, as discussed above, is uncertain, as it is a point to be taken up in the 2015 legislative session.  Anecdotal evidence suggests that Maryland will be a “program state”.

Those wishing to establish an ABLE account should consult with a PK Law Elder Law attorney for current and timely information on the ABLE program. To request an appointment via email at information@pklaw.com or call 410.938.8800.

This information is provided for general information only.  None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.

 

Extenders, Extenders, Extenders

Wondering if your favorite individual “tax break” was extended by Congress on December 16, 2014?  This article sheds some light on that question.

The “Tax Increase Prevention Act of 2014,” (TIPA, or “the Act”), extends a number of individual tax provisions, at least for 2014.  The extender package, H.R. 5771, is contained in Division A of the Act. TIPA will expire after 2014 so that Congress may address the issue of tax reform in its entirety with a newly elected group of congress people.  So, stay tuned for further developments

Here are some highlights of those “tax breaks” extended for use in 2014 for individual filers:

  • Eligible elementary and secondary school teachers may claim an “above-the-line deduction” for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom.
  • Discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately) is excluded from gross income.
  • Increased monthly exclusion (by extending the inflation adjustment) for employer-provided transit and vanpool benefits to $250, the same as for the exclusion for employer-provided parking benefits.
  • Mortgage insurance premiums paid or accrued by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence are treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI).
  • Taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes.
  • A taxpayer’s aggregate qualified conservation contributions (i.e., contributions of appreciated real property for conservation purposes) are allowed up to the excess of 50% of the taxpayer’s contribution base over the amount of all other allowable charitable contributions (100% for qualified farmers and ranchers), with a 15-year carryover of such contributions in excess of the applicable limitation.
  • Eligible individuals can deduct higher education expenses, i.e., “qualified tuition and related expenses” of the taxpayer, his or her spouse, or dependents, as an adjustment to gross income to arrive at adjusted gross income.
  • Taxpayers who are age 70 1/2 or older can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000 per year. These distributions are not subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer’s return.

Contact PK Law’s tax attorneys or PK Law’s estate planning attorneys to help you with your year-end individual and business tax planning as well as tax and estate planning for the coming calendar year. To request an appointment via email at information@pklaw.com or call 410.938.8800.

This information is provided for general information only.  None of the information provided herein should be construed as providing legal advice or a separate attorney client relationship. Applicability of the legal principles discussed may differ substantially in individual situations. You should not act upon the information presented herein without consulting an attorney of your choice about your particular situation. While PK Law has taken reasonable efforts to insure the accuracy of this material, the accuracy cannot be guaranteed and PK Law makes no warranties or representations as to its accuracy.