Tax News Roundup 7/17/2010

Here's a roundup of some of the tax news from this week....

SNIPES SENTENCED
Actor Wesley Snipes has lost his appeal of his 2008 conviction for willfully failing to file tax returns. Snipes had said he failed to receive a fair trial and that the three-year prison sentence he received was not fair, but an appeals court in Florida this week disagreed. Snipes was convicted of failing to file tax returns and pay income tax on more than $37 million of income between 1999-2004. You can read more about his case in a variety of locations, including here and here.

Jason’s comments: Snipes aligned himself with dubious tax advisors who led him into frivolous tax positions. What is a frivolous tax position? Here’s a good example, from the Orlando Sentinel:

“(Snipes) claimed that as a "fiduciary of God who is a 'non-taxpayer,' he was a foreign diplomat and not obligated to pay U.S. taxes….”

Those kinds of arguments never work. Bottom line? File your tax returns!

RETURNED MAIL COSTS THE IRS $57.9 MILLIONThe Treasury Inspector General for Tax Administration (TIGTA) this week released a report showing that, of the 200 million pieces of mail the IRS sends out to taxpayers, more than 19 million of those pieces of mail were returned as undeliverable in 2009. The report says the returned mail costs the IRS $57.9 million, and can cause harm to taxpayers because penalties and interest can rack up when notices are not received.

The report recommends that the IRS provide more ways for taxpayers to update addresses. Currently, the IRS accepts changes over the phone or the internet only in limited circumstances. For most people, your address gets updated at the IRS when you file a tax return with a new address on it, or when you submit Form 8822. Form 8822 should be submitted if you move after you have filed your tax return for the year.

Brave souls can read the entire TIGTA report here.

Jason’s comment: If you move and are concerned about the IRS not having your current address, contact your tax advisor. You may want to file Form 8822.

ESTATE TAX RUMBLINGS
Another estate tax proposal was made this week, this time a bipartisan proposal from Democrat Senator Blanche Lincoln of Arkansas and Republican Senator John Kyl of Arizona. Their proposal calls for an exemption of $5 million (phased in over 10 years and indexed for inflation), and a flat rate of 35%. It appears their proposal would allow taxpayers to either use this year’s estate tax rate (0%) but not get a basis step up, or use the 35% rate with a basis step up.

There have been a number of estate tax proposals out there. Iowa Senator Tom Harkin recently co-sponsored legislation that would provide an exemption amount of $3.5 million. Estates valued between $3.5 million and $10 million would be taxed at 45%, estates between $10 million and 50 million would be taxed at 50%, and estates worth more than $50 million would be taxed at 55%. The proposal also calls for an additional “billionaire’s surtax” of 10%.

In 2009, the top rate was 45% with an exemption amount of $3.5 million. If Congress does nothing, the estate tax will return in 2011 with a flat rate of 55% and an exemption amount of $1 million.

Jason’s comments: It will be interesting to see what happens. I wonder if the death this week of billionaire New York Yankees owner George Steinbrenner will spur action on the estate tax. Speaking of Steinbrenner, here’s an article that talks about the estate tax implications of Steinbrenner’s death.

YOURS TRULY FEATURED IN ONE IOWA ARTICLEI recently had an article featured at One Iowa, talking about gift tax issues facing same-sex couples. You can read the article here.