US Treasury and IRS Recognize Same-Sex Marriages for Federal Tax Purposes

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Category: Constitutional Law, Public, Tax Law
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accounting-calculatorYesterday the U.S. Department of the Treasury and the Internal Revenue Service (IRS) announced that legally married same-sex couples will be recognized and treated as married for all federal tax purposes. As long as the couple is legally married it does not matter if they live in a jurisdiction that does not recognize same-sex marriages. The announcement comes just months after the Supreme Court’s decision in United States v. Windsor, which held that a key provision of the Defense of Marriage Act (DOMA) violated principles of equal protection under the Due Process Clause of the Fifth Amendment. The ruling gives married same-sex couples the freedom to move throughout the United States without having to worry about federal tax implications. However, the ruling does not apply to couples in domestic partnerships or civil unions.

Yesterday’s “ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.” IR-2013-72. The ruling is to be applied retroactively so married same-sex couples have the opportunity to file or amend federal tax returns for the 2010, 2011, and 2012 tax years. Before amending returns, couples will want to determine if their combined income will subject them to the “marriage penalty” which could place them in a higher tax rate bracket.

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Ending Agricultural Use Assessment Abuse

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Category: Public, Tax Law, Wisconsin Law & Legal System
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Agriculture is one of Wisconsin’s most important industries, and various state laws are intended to protect existing farms from urban encroachment. For example, Wisconsin, like many other states, assesses agricultural property for property tax purposes based on its use value rather than its market value. Assessing farmland by its use value protects existing farmers from forced sale of their land when urban encroachment raises the market value of the farmland.

Existing farmers are not the only ones benefiting, however, from agricultural use assessments. Both local and national media outlets identified a growing problem: agricultural use assessment abuse. [See here ; here ; and here.] Wealthy developers and property owners put their property to agricultural uses so that the property benefits from a use value assessment instead of a market value assessment. The use assessment often results in considerable tax savings. Most coverage of the issue criticizes the practice, but either describes the practice as a loophole or implies that local government units are powerless to do anything about it.

Most coverage fails to recognize, however, that local communities can put a stop to much of the abuse. Many new agricultural uses implemented simply for the tax benefit violate existing local zoning ordinances. The Wisconsin Department of Revenue says that tax assessors must assess agricultural land by its use value even if the agricultural use violates local zoning ordinances.

The Wisconsin Department of Revenue also says that local communities can stop the abuse by enforcing zoning ordinances. There are various reasons why communities choose not to pursue enforcement. Communities may fear that an enforcement action could bankrupt a developer which would then prevent the completion of a stalled project. Local leaders may not want the political risk involved in taking on wealthy developers or residents. Regardless of the reason for avoiding enforcement, communities are not powerless to reduce agricultural use assessment abuse.

Agricultural use assessment abuse is not a victimless transgression. Illegal agricultural use assessments harm other property owners by either shifting the tax burden to other property owners or forcing local governments to reduce services. During these difficult economic times, local governments must make many difficult choices. Local governments should not, however, allow illegally obtained tax breaks.

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Who Says There Is No Such Thing as a Second Chance?

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Category: Tax Law
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It has now been several years since the Swiss banking giant UBS found itself in trouble for impeding the IRS and conspiring to defraud the United States. The outcome was a negotiated settlement between the U.S. government and UBS that called for the disclosure of the names of U.S. taxpayers holding money overseas. This result was significant due to the commonly overlooked/ignored filing requirements of U.S. persons that have overseas financial interests.

Any U.S. person who has a financial interest in, or signature authority (or other authority) over, any foreign financial account may have to file a Report of Foreign Bank and Financial Account Form TD.90-22.1 (commonly referred to as an FBAR). The requirement is triggered if the aggregate value of these accounts exceeds $10,000 at any time during a calendar year. Failing to file an FBAR can result in civil and/or criminal penalties. If the failure to file is deemed “willful,” a penalty equal to the greater of $100,000 or 50 percent of the account balance can be imposed for each failure to file. This means that if someone willfully fails to file the form for three years in a row, the penalties can equal an aggregate of 150 percent of the account balances, wiping out the entire account.

Capitalizing on the publicity of an end to Swiss bank secrecy and the severity of the penalties, the IRS offered an amnesty-like voluntary disclosure option for taxpayers to come clean.  Read more »

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The Social Security Tax Cut And A More Direct Route To Job Growth

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Category: Federal Law & Legal System, Tax Law
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The first pay day of 2011 is fast approaching and just about everyone is going to see an increase in the amount of their take home pay.  The amount of the change depends on how much money a person makes, but there will be a change that stems from the December passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act).

With the passage of the Act, the Republicans claimed victory by extending most of the “Bush Tax Cuts” for another two years.  This move was necessary to avoid an increase in the amount of tax most employees would pay each week.  To achieve a reduction in the amount paid the legislation includes a temporary two-percentage-point reduction in the employee’s share of Social Security Tax.  This reduction replaces the now expired Making Work Pay tax credit, but is slightly more expansive and will put a little more money in the pockets of the taxpaying public.

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Encouraging the Working Poor to Save for Retirement

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Category: Federal Law & Legal System, Legal Scholarship, Poverty & Law, Tax Law
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Are you saving enough for retirement?  It can be a struggle even for those of us who do not live paycheck to paycheck.  For the working poor, the challenge must seem truly daunting.  Yet, Social Security payouts average only a little more than the poverty line, and benefits seem far more likely to decline than to increase in the future.  For those on the margins of poverty, putting money aside today may be critical to avoid a financial crisis in old age.

Should government step in to promote retirement savings by the working poor?  Vada Lindsey thinks so.  In a new paper on SSRN, she proposes reforms to the earned income tax credit that would push recipients to put a portion of their tax refunds into retirement savings.

Vada’s proposal has many intricacies, but the core features include an automatic allocation of ten percent of EITC benefits to a retirement plan, IRA, or other investment vehicle, plus a matching contribution from the government for additional savings beyond the automatic ten percent.  EITC recipients could opt out, but the default position would be in favor of savings.  Read more »

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