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Tuesday, September 16, 2014

DOMA Tax Issues - Still Outstanding

Someone recently asked me what federal tax issues are still outstanding regarding DOMA and the effect of the June 2013 Windsor decision.  There are still a few income tax issues that come to mind (there are also estate and gift and state tax issues as well), that were not covered in the initial guidance (Rev. Rul. 2013-17).  Here is my list. Do you have any input or additional ones to add?

Amended returns
Will the IRS issue guidance to assist in the filing of amended returns? The current version of Form 1040X is not conducive to showing how two prior separate returns will now be treated as one MFJ return.

If a same-sex married employee tells his employer that he would like to get his FICA tax refunded by the employer, does that mean the employee must also amend his income tax form for that year to also use a married status? Notice 2013-61 and Rev. Rul. 2013-17 are silent on this question.

Assume a same-sex married taxpayer discovers an error on her 2011 return, such as omitted income. Can she amend it without changing her filing status? This likely depends on the proper interpretation of the effective date language of Rev. Rul. 2013-17. It includes this statement: “If an affected taxpayer files an original return, amended return adjusted return, or claim for credit or refund in reliance on this revenue ruling, all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted to be consistent with the marital status reported on the return or claim for refund.” [italics added]   Perhaps since the amended return is filed to correct an income omission, it is not filed "in reliance on this ruling". But if the taxpayer changes anything on the return to reflect a different filing status, then everything would need to be changed to reflect that status (including the spouse also amending if MFJ status will be claimed).

Audit of pre-2013 returns

If a same-sex married individual has a pre-2013 return audited, will the IRS change the marital status?

Will the individual be allowed to request such a change?
What do you think?

Friday, September 12, 2014

Truncating Taxpayer Identification Numbers - Enough?

In July, the IRS issued the final rules allowing most payee statements issued either in paper or electronically to use a truncated Social Security Number or Employer Identification Number. So, it would be XXX-XX-1234, or ***-**-1234.  The issuer's TIN can't be truncated and no truncation is allowed on the forms that go to the IRS - only to the payees. And, because of statutory wording, no truncated TIN on a Form W-2, something that about 85% of individual filers receive.

So, this is a good step among many in trying to reduce the ease of identity thieves obtaining your tax ID number.  But it is not enough. Consider the following:
  • Unlike truncating on receipts for credit or debit card purchases, truncating tax IDs on payee statements is optional, not mandatory.
  • Experts estimate that the easiest numbers of your SSN to figure out are the first 5, not the last 4.
  • It does nothing about the trillions of documents of all sorts that exist that have people's SSNs on them. People save old W-2s and tax returns (even those more than four years old), employment papers, etc.  Often, these get tossed without removing the SSNs.
I've got more in a short article published in the AICPA Tax Insider this week - "TTINs and protecting taxpayer identities."  I've got a few suggestions for further protecting taxpayer IDs.

What more do you suggest? What do you think?

Saturday, September 6, 2014

Is disclosure of corporate tax information a good idea?

Among the many stories about some U.S. corporations looking into becoming a foreign corporation through an "inversion" is the question of whether one possibly remedy is to make corporate tax return information available to the public. For example, an op ed by Catherine Rampell in The Washington Post (8/21/14)was titled: "Shareholders, public deserve tax transparency."  She suggests that all publicly-traded companies be required to make their tax returns available to the public.

I don't agree.  For a few reasons:
  1. Too complex to understand:  These corporate returns are complicated and few can truly understand them. In addition to the basic corporate forms, there will be numerous attachments on the details of miscellaneous expenses, inventory accounting, reconciling book-tax differences, and more. These returns can easily exceed 2,000 pages.  And the tax laws used to determine taxable income is complicated. The tax rules don't match the accounting rules as to which entities are included in the consolidated tax return. Some of the information also won't make sense unless you also look at the prior two years of returns.  It will take tax advisers very knowledgeable in the corporate income tax area to understand the many pieces of the returns. So, what would be the point?  There is some basic tax information already provided in the financial statements, already available since the companies are publicly-traded (available at the company's website and SEC website).
  2. Confidentiality: Tax return information is supposed to be confidential. If we want to know about the finances of a publicly-traded company - take a look at the financial statements, Form 10-K, etc.  The tax return has more detailed information that might expose business strategies to competitors. Why?
  3. How far?:  If we publicly disclose corporate tax returns, why not those of high income individuals?  Why stop there? Why not make every tax return public?  Of course, a publicly-traded corporation already has to make public its key financial data on sales and income. Individuals do not. But concerns about whether high income individuals are paying their "fair share" could lead to calls for them to disclose their tax information, particularly if we have already opened the door to making other tax data public.
  4. Helpful?: Even if tax returns of public companies were made public, we'd still have inversions. The public disclosure would not end the need to effectively manage all costs (including income taxes) in our globally competitive business arena.
What do you think?

Friday, August 29, 2014

Shakespeare, building your vocabulary ... and taxes

Library of Congress photo of statue in Main Reading Room
Tax cases can be interesting not only for the facts or legal issue involved, but also sometimes for how the judge writes the opinion. A recent example is Fresenius Medical Care Holdings, Inc. v. U.S., No. 13-2144 (1st Cir. 8/13/14).  The tax issue was whether any portion of $385 million paid by the taxpayer to the government under a False Claims Act matter should be treated as a non-deductible penalty. There was already agreement that $101 million of the total of $486 million was a non-deductible criminal fine.

The legal issue is interesting, but I'll save that for another post.

Here, I'll just focus on the intriguing language of Judge Bruce M. Selya in writing the opinion. It includes footnote 5:

"The government conjures up a parade of horribles suggesting, for example, that corporations may stall settlement negotiations in order to build up imputed interest. Despite these glum predictions, we are confident that the world will remain firmly on its axis. Viewed in real-world terms, we think that - if we may borrow a phrase - the government's "[p]resent fears [a]re less than horrible imaginings." William Shakespeare, Macbeth, act 1, sc. 3 (circa 1606)."

And one more phrase - "to paint the lily" which a Google search tells me is from Shakespeare's King John (page 16).

The case also includes vocabulary worthy of preparatory study for the SAT exam. Do you know what these terms mean?  (For assistance, check out
  • gallimaufry
  • umbrage
  • asseveration
  • infelicitous asymmetry
  • provenance
  • limning
  • remonstrance
  • calumnizes
  • patina of plausibility
  • praxis
And some poetic language, referring to a particular case as offering "an indistinct beacon by which to steer" (page13).

Despite the advanced vocabulary spread throughout the opinion, Judge Selya also uses some everyday terms that are often not used in legal opinions, such as referring to $95 million as "a large chunk of money." (page 2)

A Google search on Judge Selya will tell you he has used complex vocabulary in other opinions.

What words come to mind for you about the opinion?

Wednesday, August 20, 2014

Textbook sales tax exemptions

New York and a few other states allow a sales tax exemption for college textbooks.  That may be too broad of a statement - the exemption is for a college student buying a textbook noted on his/her course syllabus or a list from the college.  It is not simple for the buyer or seller due to definitions, restrictions and recordkeeping.  I've got more on this at a recent SalesTaxSupport policy blog post - here.

While the exemption might sound like a great thing for students, and California often introduces proposals for such an exemption, it is not. There are better ways for legislatures to help college students including targeting relief to those who need it and not imposing extra work on third parties (booksellers) to handle the program.

What do you think?