10 Things Every Taxpayer Needs to Know About the Pension Law

The Pension Protection Act, signed into law on August 17, 2006, is designed to address the nation-wide problem of under-funded pension plans. The law penalizes noncompliant companies and encourages employee contributions, but many of the changes directly impact taxpayers of all ages, regardless of retirement status.

“Taxpayers will benefit from many of the act’s provisions, some of which come in the form of tax breaks, but individuals cannot take full advantage of the tax breaks until the new laws are fully understood,” said Michael Smith, Managing Authorized Taxpayer Representative at tax services firm FSI Tax Corp.

The following is a rundown of the most important tax code changes and how they will likely affect taxpayers, as well as retirees.

1. Direct IRA Tax Return Deposits

Taxpayers can now have their tax returns deposited directly into their IRA accounts. The IRS already offers taxpayers the option to automatically deposit returns into checking and saving accounts. By adding IRA accounts, legislators hope taxpayers will contribute more funds toward their retirement accounts.

2. 529 College Savings Plans

Many temporary tax laws enacted by the 2001 tax cuts were made permanent by the Pension Protection Act. This includes the ability to make withdrawals from 529 college savings plans without suffering tax penalties.

“Tax-free college savings withdrawals may seem inappropriate in a pension law, but this provision is welcomed by parents who would otherwise resort to tapping their IRAs to fund their children’s education,” said Smith.

3. Saver’s Credit

Another 2001 tax break that was set to expire this year is the Saver’s Credit, a tax credit matching up to $2,000 for lower-income workers who put money into their retirement accounts. This tax break benefits workers who earn less than $25,000 because pre-tax contributions lower the taxpayer’s reportable income and the Saver’s Credit provides additional tax relief with its matching funds.

4. Increased Contribution Levels

In 2001, the IRS temporarily raised employee-sponsored retirement plan contribution levels from $2,000 to $4,000 this year, $5,000 in 2008 and then adjusted by inflation. The higher limits were set to expire in 2010, but the act made them a permanent increase.

This change, also intended to encourage increased contribution amounts, applies to 401(k)s, IRAs, 403(b)s, 457s and catch-up contributions for workers aged 50 and older.

5. Direct Rollovers from a 401(k) to a Roth IRA

Employees who move from one workplace to another were previously permitted to transfer their 401(k)s to traditional IRAs, both of which require taxes to be paid once money is withdrawn. Only then was the individual allowed to transfer the account into a Roth IRA.

The law now permits former employees to transfer their employer-funded retirement accounts directly into a Roth IRA, a popular option due to the fact that contributions are made after taxes are taken from earnings, which means that there are no taxes due upon withdrawing funds.

“The tax code changes enacted by the Pension law benefit taxpayers and steer them toward contributing to their own retirements,” explained Smith. “While companies should be held accountable for funding employee pensions, each taxpayer should take advantage of changes that make it easier to ensure a secure retirement.”

Tax Deductions for Charitable Giving

Non-pension-related tax code changes include several provisions that significantly increase charitable giving regulations, some of which are unlikely to please donors.

5. Documenting Items

To discourage taxpayers from inflating the value of non-monetary charitable donations for inflated tax deductions, the IRS now requires taxpayers to fill out a form detailing the gifts. Additionally, any significant household item, valued at more than $500, must be appraised before the taxpayer can take a deduction.

Many charitable organizations, including Goodwill Industries International, say the new provisions will guard against worthless donations more suitable for the trash bins, but critics argue that increased regulation will discourage would-be donors and cause a decrease in charitable giving.

6. Documenting Monetary Gifts

Monetary donations will also require documentation. Regardless of the amount, a taxpayer should retain proof of any donation. Appropriate documentation can be a bank record, canceled check, credit card statement or receipt from the charity.

“These records are not required to be included in the tax return but they should be kept on hand should the IRS request proof,” advised Smith.

7. Direct Donations from IRAs for Seniors

Another tax law that many charities support affects only seniors. For the next two years, donors 70 ½ or older will be able to donate to charities directly from their IRAs, an accommodation that keeps the donated amount tax-free and avoids tax penalties for early withdrawals.

This provision benefits eligible taxpayers who take the standard deduction, which many older filers do because they receive larger standard deductions. This can also benefit individuals facing donation limits. Generally, people cannot donate more that 50 percent of their incomes, but the money does not count as income when it comes directly from the IRA.

Officials at charities such as United Way claim that despite being temporary, this provision will likely bring in tens of millions of dollars.

Other Pension Provisions

8. Automatic 401(k) Sign Up

Employers are allowed to automatically sign up employees for a 401(k). This change encourages participation from people who may not otherwise bother to sign up for the plan in the first place, though they will have the option to opt out.

9. Investment Advice

Because employees often choose safer investments for their 401(k)s, which generally result in modest returns, the act allows them to receive investment planning advice to encourage riskier investments with the potential for higher returns. The act also provides protection against dishonest advisers who steer employees toward decisions that could increase their own profit.

10. Non-Spousal Benefits

Two provisions that expand allowable withdrawals are pleasing gay rights activists. The non-spousal rollover lets retirement account assets be transferred to a designated beneficiary upon the retiree’s death and the hardship distribution allows retirement account assets be used for a medical or financial emergency of a beneficiary other than a spouse or a dependent.

The majority of the Pension Protection Act aims to ensure that companies fully fund traditional pension plans over a seven-year period, starting in 2008. But many provisions promote increased individual employee participation in retirement planning.

Smith said that while the new law expands allowances and makes it easier for individuals to increase retirement savings, it may be a step toward employee-funded retirement plans – a move that has many critics concerned.

Author: Maggie Beetz is a writer for FSI Financial Literacy based in Columbia, MD. FSI Financial Literacy aims to spread financial awareness to clients of FSI Tax Corp. (www.fsitax.com), Debt Shield, Inc. (www.debtshield.net) and the general public. For more information call 1-877-437-4669 or email mbeetz@fsiholding.com.

Basics of Tax Appeals in New Jersey

As real estate taxes skyrocket, many taxpayers have begun to look for ways to reduce their tax payments. One common method of accomplishing this is filing a tax appeal. However, since tax appeal procedure affords relief to very few taxpayers, the decision of whether to file an appeal will require a cursory understanding of how the process works.

Most real estate taxes are ad valorem – taxes based upon the assessed value of a person’s property. However, it is important to note that the municipality’s assessment of a property is typically much lower than the property’s actual value. This is in part due to the fact that municipalities infrequently conduct revaluations. Municipalities will therefore operate under the assumption that all properties are under assessed by the same ratio and will increase their tax rate accordingly. Your real estate tax bill is calculated by multiplying your assessment by the municipality’s tax rate. While a municipality’s tax rate is virtually incapable of challenge, your real estate assessment is. Some property owners who seek relief can demonstrate that their assessment, while not higher than the actual property value, is discriminatory in its application and is not even-handedly applied to other residents. This is a common situation; however, appeals made on this basis are relatively difficult to win, primarily because these appeals require that the property owner furnish evidence that his assessment exceeds the average ratio by 15%. Therefore, it is much easier to win an appeal upon a showing that the appellant’s property is over-assessed. Over-assessment is most likely to occur in a municipality that has either been recently revalued or has a high county equalization ratio (the ratio of assessed value to actual value). The tax appeal procedure begins with an application which is due on April 1st. Filing fees for the application range between $5 and $150 depending upon the assessed value of the property. Owners of rental property should keep in mind that in addition to an appraisal, the appeal should be supported by a statement of income and expenses. Usually the municipality will require the filing of this statement several months before the tax appeal deadline. In addition, while property owners may represent themselves in the tax appeal proceeding, the applicant must have an appraiser at the hearing in all cases where an appraisal will be offered as evidence. Our firm represents clients throughout New Jersey, very often on a contingency basis. While the new assessment is guaranteed for a minimum of three years, it is unlikely to change for several years until the next municipal revaluation. Because the amount of real estate tax that you pay is a function of your property value, it is essential that you file a tax appeal if you think the municipality has over-valued your property.

Michael Mirne, Esq., a sole practitioner, has an extensive real estate background and is also certified and licensed as a Tax Assessor in the State of New Jersey. Mr. Mirne received his B.S. Degree from Syracuse University and his J.D. from Seton Hall University. He is currently licensed to practice law in New Jersey as well as all Federal Courts.

How to Reduce Or Eliminate Your Estate Tax

I bet you probably didn’t know that your heirs might have to liquidate ( sell off ) your home or commercial/residential rental properties immediately after your death. This is unless you create an Irrevocable Life Insurance Trust or ILIT.
I bet you probably didn’t know that your heirs might have to liquidate ( sell off ) your home or commercial/residential rental properties immediately after your death. This is unless you create an Irrevocable Life Insurance Trust or ILIT.

Most people have the expectation of passing on their wealth to their children or spouse. With the demise of the baby boom generation approaching there will be an enormous transfer of wealth, the government plans to capture some of that wealth with the estate tax. The estate tax is imposed upon death.

As of now if your assets net worth is less than $1.5 million dollars your exempt from the Federal estate tax. For married couples, their exempt up to $3 million dollars. Unfortunately, any amount over the exemption will be taxed under the Federal Estate Tax, which is usually around 45%. This tax must be paid within nine months of the day of your death.

Since few estates hold enough cash to pay for the estate tax, you will be forced to start selling off assets to raise enough money to pay the estate tax on time. The time restraints can sometimes cause people to rush into unfavorable transactions.

Fortunately though, you can use an Irrevocable Life Insurance Trust ( ILIT ) to reduce or eliminate your estate tax cost. ILIT’s can be used to generate enormous amounts of cash for your heirs, which you can use to pay the estate tax. When you purchase an ILIT the proceeds are not included in the estate of the insured. The proceeds are strictly for the decedent’s beneficiary, which completely avoids the estate tax. You get 100% of the money estate tax free.

Any ordinary life insurance policy is not the same as an Irrevocable Life Insurance Trust. An ILIT is estate tax free; a life insurance policy is taxed. This is because a life insurance policy is under the insured’s estate.

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Foreclosure Epidemic Likely Means Additional Tax Liability

The recent national surge in home foreclosures coming on the heels of the collapse of the sub-prime lending industry and decline in home values likely means additional bad news for those former homeowners who feel like they just lost everything: additional income tax liability.

Income tax liability? From losing your home? Such is the nature of the United States Internal Revenue Code.

Given the foreclosure epidemic and the huge losses to which lenders of all sizes are now exposed, many lenders are willing to enter into a variety of work-out programs with their borrowers to avoid foreclosure. Avoiding foreclosure does not necessarily mean keeping the home, however.

The foreclosure process is time-consuming for the lenders and often subjects them to the additional time and expense of physically evicting the former home owner from the home after the foreclosure sale. From the borrower’s perspective, a foreclosure is a huge blow to credit worthiness and will impact the borrower’s ability to finance major purchases for years to come.

Considering many lenders’ goals of reducing their losses on foreclosures, borrowers have met with success recently in negotiating “short sales” with their lenders. A short sale is the borrower’s reconveyance of the home to the lender for less than the amount owed on the mortgage.

For example: Joe obtained a creative home loan and purchased a home at the height of home values and during the most liberal period in sub-prime lending.

Eventually, the appraised value of Joe’s home began to drop and the “creative” part of his home loan kicked-in. Perhaps his interest rate adjusted or his interest-only payments ceased and he was required to commence paying both principal and interest.

In any event, Joe finds that he cannot afford to continue making the mortgage payments and, due to market circumstances, he now owes more on the mortgage than the home is worth. In other words, he is upside down in the home.

Joe defaults on the mortgage payments and is now subject to the foreclosure process.

Applied to the example above, the borrower might successfully negotiate a short sale with his lender. Many lenders are now accepting a reconveyance of the home and forgiving the remaining debt exceeding the value of the home.

In the example, Joe may have purchased the home for $300,000. He has made interest-only payments on the loan for a year, but due to the recent slump in the market, the home is now worth only $250,000. He still owes $300,000 on the mortgage. The lender, therefore, may accept a reconveyance of the home – in essence a $250,000 payment – against the $300,000 debt.

The sale is “short” because the value of the home does not cover the amount of the mortgage. The lender may forgive the additional $50,000 owed by the borrower in order to avoid the foreclosure process, or to avoid litigation expenses in pursuing the borrower for the deficiency balance, and essentially cut its losses.

For the borrower, he avoids foreclosure and its ramifications to his credit, as well as facing a likely judgment for the amount still owed on the debt.

The hidden drawback here, though, is that the tax code treats Joe’s debt relief as income. By being relieved of the obligation to pay $50,000, the IRS considers that Joe has in effect put $50,000 in his pocket.

The debt relief is subject to ordinary income tax. Joe may not even know of his additional tax liability until he receives an envelope in the mail from the lender containing a 1099 form reporting the debt relief income to the IRS.

The same result may follow if Joe simply walks away from the home, allows foreclosure to proceed, and then the lender elects not to pursue Joe for collection of the deficiency balance on the loan.

The ripple effect of the sub-prime lending market over the past couple of years has yet to reach its full effect. Individual homeowners must be wary of all consequences of divesting themselves of the homes they purchased in that market.

While financial planning might be the last thing on a borrower’s mind when he or she faces the harsh reality that the home will be lost in some way, the unforeseen consequences of a foreclosure or short sale can only be addressed through the sound advice of a tax professional, CPA, or, at the very least, the IRS website.

Of interest to us lawyers, however, is the approach the IRS will take to the likely spate of litigation that will proceed, alleging that these borrowers, now facing additional income tax liability through the loss of their homes, should not be responsible for the 1099 income tax burden, by virtue of alleged fraud or misrepresentation on the part of the sub-prime lenders.

As they say, “the Wheels of Justice grind slowly.” We will all have to wait to see how this shakes out.

Aaron Lovaas is a lawyer practicing in the areas of business litigation, business formation and planning, and real estate matters through his law firm, Shimon & Lovaas, P.C., in Las Vegas, NV. aaron@shimon-lovaas.com; website: http://www.shimon-lovaas.com.

Divorce Under Texas Tax Law

Normally, women in Texas suffer more financially than the men. This is especially true when both parties decide to a divorce. Why? Because by the time the couple decides to separate ways, the husband already has a stable job and the woman has already made a career as a perfect housewife –dish washing, cleaning, massaging the husband, and changing diapers. Thus, the woman’s standard of living decreases while the man’s increases. Most couples think that when they lead separate lives from their spouses, there’ll be no more financial difficulties. Actually, there are lots of financial matters involved in divorce. Consequently, most women suffer more when they are already separated than when they were still in the relationship. This consequence causes women not to pursue the divorce, thus, bears the pain of being in an unhappy relationship. Well, what women need to know to avoid this horrible event in her life is to seek legal counsel and learn about Texas tax law. Among the important Texas taxes that every couple must know is the area of divorce.

The divorce tax law is among the basic knowledge in the Texas tax law that everyone must know. Primarily because most young women of Texas do not realize that getting a divorce requires an extensive financial support; they just never thought that there might come a time that they need to be separated from their “loving” husbands. However, divorce is not automatic. Even the lawyers do not immediately file the case as long as they can still settle the issue between each party. If the lawyers see that the conflict would only bring more affliction to the family, then they would finally file the case. Needless to say, the attorney stands as the mediator of the two parties and their legal counsel. If no settlement is achieved, the case will be brought to court — surely causing thousands of dollars to be spent.

In Texas tax law, Dependency Exemptions are important. This law is only applied to the person who has custody of the children. This law means the tax deducted from the individual is lesser than the ordinary rate, depending on how many dependents that the person has. Another law is about the Selling of Personal Residence wherein the divorcing couple will not be taxed as much as $500,000 upon sale if they own the house for at least 5 years. Meanwhile, partnerships in the Transfer of Business Bonds, have certain tax issues like partnership gains and debt allocation. The transferee will only be taxed once the transferring process is done. The most important matter in divorce tax law is the Child Support System. The deduction of tax depends on the number of children that the person has. It ranges from 20%-40% of the person’s taxable income. Other payment that a voluntary party gives is not taxable and not considered as alimony.

Understanding the Texas tax law is not hard for all women who worry about their future without the support of their husband. It is also imperative to know the different Texas taxes to ensure financial security. Today, a lot of women in Texas are striving to increase their standard of living, separated or not, by finding ways on how to sustain their financial status. These women do these not only for themselves, but also for their children. Even though men usually support the children’s financial needs, more women strive to stand on their own to enable to give their children extra support when the spouses separate.

If you want more texas taxes and texas tax law resources such as this one, check out our website http://www.taxtexas.com

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Tax Attorney Help

Do you remember when everyone read the classified ads? You could buy or sell anything (legal) by placing an ad in the newspaper or the item-specific ad weeklies; of course you still can, but an even better option for most consumers and marketers these days is the online seek/find route. Someone out there is looking for a new home but dreads the process of driving to, walking through, and weighing options while a sales agent breathes down the back of their shirt. The buyer prefers to be their own “finder” but may retain a realtor as the transaction agent, the one who handles the paperwork after finding a new home. Wouldn’t we all like to omit the middleman (or woman) as often as possible, or rather omit their fee? A prospective buyer goes online and looks for a home for sale by owner. That buyer may be in your hometown or on the opposite side of Earth.

Used- car salesman. That’s a term that evokes unpleasant images of a coarse loudmouth in a gaudy plaid sports coat, hawking lemons of various vintage. Our apologies to those professional auto salespersons out there; we know that many of you suffer daily because of that stereotype. A lot of us, male and female, enjoy a review of the auto classifieds; I personally always home in on the ones that indicate a car for sale by owner. Hoards of would-be car buyers search the online ads daily and nightly.

In the piney woods of a northern state where summer is a delight and winter is an endurance test, someone is looking for a change. Butterflies make them smile and snowdrifts send them into depression. Just for such a person is an ad that states “Time Share for Sale by Owner.” Equally anxious to escape the heat of the Deep South is someone who would love to partner with them on a home away from home, a man or woman who yearns to hop onto a snowmobile or strap on skis and cool off. Talk about making everyone happy…

His riding lawnmower blew its engine; the last time he tried to clean out the rain gutters on the eaves, he fell off the ladder, and when he was up there he also noted several loose singles. The fifteen-year guarantee on the roof is about to expire. Arthritis is gaining on him, making home and yard maintenance a real pain–literally. But I want a nice home of my own, he thinks. I don’t want to waste money pouring it down a rented rat hole. He is in the market for a condo; catch his interest and perhaps make a sale by listing your condo for sale by owner. His son works for a large sporting goods store in an affluent section of the city. Just as Dad is ready to move into a new home, his son is ready to move on and rid himself of the unreasonable dictator who is his boss, whose managerial style is causing so much stress that the son’s health is negatively affected. He is ready to become the boss and run his own business. He goes online to search for a business for sale by owner.

The Internet was the prime tool for all of the buyers and sellers in the above scenarios. It can be yours, too.

Simon is the “nom de net” for a professional writer on many topics. His work includes book authorship, TV producer and independent writer for many national magazines. http://tax-attorneys.mustsee.info

When To Get Help From a Tax Attorney

Not every one will need the use of a tax attorney but their usefulness cannot be underestimated when you do need to hire one. First understand that there is a big difference between a tax attorney and a person who prepares taxes, such as a CPA or bookkeeper. If you hire an attorney, anything you say to them is completely confidential. Unlike a CPA or bookkeeper that can be called to testify against you in court should you ever be audited and brought to trial. There are several reasons you may need to hire a tax attorney.

The first and most common reason to hire a tax attorney is that you are in trouble with the IRS. Being audited and dealing the IRS is many people’s worst nightmare. If you get in this situation, it means that your figures didn’t add up and the person who has prepared your original tax filings has at the least made an error or at worst was completely incompetent. By hiring an attorney, he/she will be able to give you the best legal ways of working with the IRS so you can come to a mutually agreed upon conclusion.

Another reason to hire a tax attorney is they understand that the tax laws are not just black and white. There are many shades of gray between the two. He/she can give you many different legal ways to solve the problem and get the IRS of your back.

He/she will also act as a go between you and the IRS. Everyone knows the intimidation tactics the IRS will use to try and get you to cooperate. A good lawyer understands these tactics and how to “fight” them on good legal reasoning. He/she is on your side and basically; he/she will fight your battles for you.

If you owe a significant amount of money in back taxes hiring a tax attorney is your best option. People who try to take on the IRS alone usually end up paying more than those who are legally represented. With attorney-client privilege, you will be able to honestly talk to your attorney about exactly what went wrong so they can find the absolute best options for you. He/she knows the tax law inside and out and can come up with a solution for both the short term and the long term. You cannot underestimate the bully tactics of the IRS. If you ignore them, they will pursue you even more aggressively.

If you own a business or have a larger estate, you should also consider consulting with a tax attorney. He/she will make sure all your assets are set up according to the required tax laws. This can save you thousands of dollars in tax deductions and give you the peace of mind that everything you are doing is above reproach.

The above situations are good reasons to hire a tax attorney. Not every person needs a tax attorney. For instance, if the IRS sends you a letter saying an error was made and you owe such-and-such amount, just pay it.

Visit tax http://www.taxattorneyguru.com for information on criminal and IRS tax attorney’s, as well as, to locate a tax attorney in your area.

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IRS Appeals Arbitration Program

The IRS recently released Revenue Procedure 2006-44, which sets out the rules for the finalized IRS Appeals Arbitration program. This new program presents some new opportunities that taxpayers must consider.

The new IRS Appeals Arbitration program provides yet avenue to appeal factual issues that are cannot be resolved by the IRS appeals process. The program is not available for legal issues, issues that the IRS wants to litigate, and some collection issues. The program is available for factual issues related to rejected offers in compromise and responsible persons for purposes of the trust fund recovery penalty.

Both the taxpayer and the IRS must mutually agree to submit to arbitration and the issues, questions, and amounts can be limited in the arbitration agreement between the IRS and the taxpayer.

The taxpayer may initiate arbitration by submitting a written request, after consulting with the IRS appeals office that is handling the case. The Revenue Procedure specifies that the Appeals Team Manager “will” respond within two weeks (this is somewhat humorous, as it often takes months for a team manager to even return a phone call).

The IRS Revenue Procedure says that IRS refusal to arbitrate is not subject to judicial review (which may or may not be true).

The Revenue Procedure then says that after the IRS okay’s the request to arbitrate, the parties “will” enter into a written agreement to arbitrate. The Procedure does not specify what happens if the parties cannot agree on the arbitration terms.

The parties can then select an arbitrator, which can be an IRS Appeals Officer from a different Appeals Office or an outside third party who is registered with “any local or national organization that provides a roster of neutral [arbitrators].” (Just FYI: I might be willing serve as an arbitrator in this type of proceeding, so please contact me if you need this service). The Revenue Procedure also provides that the IRS and the taxpayer are to pay for the cost of arbitration, regardless of which party prevails.

This new program raises a number of issues. First, this new program seems to be an admission by the government that the IRS Appeals process is flawed. By law, the IRS Appeals Office is supposed to provide an independent third party review. There are even specific prohibitions on ex parte communications between the IRS and the IRS Appeals Office, etc. That begs the question of “why the unbiased third party IRS Appeals Office needs to bring in an unbiased third party to handle an IRS appeal?”

Second, if the IRS and taxpayer agree to enter into arbitration, what happens to the statute of limitations for the IRS to assess additional taxes or for the IRS to collect taxes? For example, the statute of limitations for collecting the underlying tax is suspended if the case is before the IRS Appeals Office pursuant to a collection due process hearing request. Is the IRS going to merely not issue a final determination in the collection due process hearing until after the arbitration hearing in order to extend the statute of limitations for collection beyond what is already provided for? If this is the case, is the IRS going to notify taxpayers about this issue in advance?

Can taxpayers use this program to delay IRS collection efforts? We all know that taxpayers are going to try this, yet the IRS Revenue Procedure does not provide any guidance on this. Does this invite taxpayers to use this new program to delay IRS collections?

By the way, are IRS collection efforts going to be suspended during the time that the arbitration hearing is pending (my guess is that in most cases it will not be suspended).

Third, can taxpayers use the new procedure as a sword and not merely a shield? For example, can taxpayers use the arbitration proceeding to get a ruling that the IRS’s position had no basis in fact or law to entitle the taxpayer to an award of attorney fees? Or can taxpayers get a ruling that an IRS employee has violated our tax laws and/or IRS policy (such as the Revenue Restructuring Act of 1998) which requires that the IRS employee be fired?

Even with these questions, the new program may be helpful for taxpayers who find themselves unable to get a fair appeals hearing because the IRS appeals officer has failed to comply with our tax laws and/or IRS policy. I personally have worked a number of cases where the IRS appeals employees’ have failed to give any consideration to any law or fact (In fact, in one case I had an IRS appeals employee tell me that she would not consider anything that was presented and she was going to deny the taxpayers claim – and that was before the taxpayer had an opportunity to submit any evidence, make any arguments, or even say one word).

While this new proceeding might be helpful in these types of cases, my guess is that the IRS will simply refuse any request to arbitrate in these types of cases – i.e., the types of cases for which the program was intended for.

Colorado Tax Attorney Kreig Mitchell helps taxpayers resolve IRS tax troubles and he helps structure financial transactions for tax efficiency. You can find out more about Mr. Mitchell at http://www.irstaxtrouble.com.

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Cover Your Assets

You’ve worked hard to develop your career. You did it for yourself. You did it for your family. You did it for your retirement. You did it for your family’s future.

You didn’t do it to become a target of some lawsuit designed to take it all away. But unless you protect your assets, you are just such a target.

THE PROBLEM: Litigation Epidemic & Lack of Financial Privacy

LITIGATION EPIDEMIC. There is a litigation epidemic in this country. Predatory contingent fee lawyers file thousands of lawsuits each day, many of them with little or no merit. However, juries are awarding unrealistically high verdicts in many of these cases.

Ever expanding theories of liability continuously fuel this litigation frenzy. Each successful case is a stepping stone for expansion of liability theory. A decade ago people would have laughed at smokers suing tobacco companies, but today it is a reality. The recent recall of the diet drugs Redux, Fen-phen and the pain drug Vioxx has resulted in an explosion of suits suing doctors for prescribing what was a government approved drug.

Also fueling this litigation fever is the modern day version of the “Robin Hood” attitude of “take from the rich and give to the poor.” Suits are rarely brought against someone with no assets or no large insurance policy. In determining whether to sue someone, attorneys will often try and determine whether or not the target of the suit has enough assets to make the suit worthwhile. As discussed in the section below on financial privacy, inexpensive computerized searches can show virtually every asset you own. If the potential pay-off is large enough, a suit will be filed.

Insurance is a two-edged sword. It is a necessary component of all financial planning, but large policies can actually attract litigation. Not only do large liability policies attract litigation, but they can provide a false sense of security. In a substantial number of cases, insurance coverage is NOT available to pay the claim due to policy exclusions for items such as punitive damages, intentional acts, discrimination or sexual harassment. Verdicts have also exceeded the coverage limits of policies that are available, and insurance companies even have gone broke.

Don’t fool yourself by thinking that you will be OK, because you won’t do anything wrong. You don’t need to personally do anything wrong to be held liable for damages. In many cases the person held liable had nothing to do with causing the alleged harm. For example, business owners can be liable for employee sexual harassment and auto owners can be liable for a teenage driver’s accident.

Lastly, rarely does anyone with wealth have a trial by a jury of their peers. Successful businessmen and professionals are often able to be excused or find a way to be excused from jury duty. Additionally, they are excluded from juries by attorneys that are trying to “stack the deck” in their favor. Take a look at the twelve people surrounding you next time you are at fast food restaurant and decide whether you want them to decide your financial future.

LACK OF FINANCIAL PRIVACY. Virtually every financial aspect of your life is currently being tracked, categorized, filed, numbered, referenced, documented, qualified, registered, indexed, recorded, listed and archived by private and government sources. This information can be retrieved almost instantaneously through computer searches by government officials, attorneys that want to sue you, and many other persons. If this is not enough, the federal government spends millions of dollars each year on informants. These informants provide information to the IRS, FBI, and other government agencies. Often these informants are disgruntled ex-employees, spouses, neighbors, or other persons that are close enough to you to be able to obtain vital information.

THE SOLUTION: Asset Protection Planning

VACCINE AND NOT A CURE. Unless you take proactive steps to protect your wealth, you stand a substantial risk of losing it. For asset protection to work, the planning must be done in advance of the occurrence of the event that is alleged to have caused the liability. Planning and transactions that occur after an event of liability can be considered fraudulent conveyances, and such planning will only compound your liability. In short, asset protection planning is an effective vaccine, but is not a cure to liability.

ASSET PROTECTION METHODS. In ALL business and estate planning arrangements care should be taken to create effective asset protection. You need to develop an asset protection mindset. Asset protection is a process, not a solitary act. Every good asset protection structure requires diligent maintenance to ensure its function.

Asset protection is accomplished by segregating personal assets from business assets and then segregating assets from liabilities. This compartmentalizing of assets and liabilities is done with corporations, limited liability companies, domestic trusts, offshore trusts and combinations of the same. It also usually includes proper insurance coverage.

Explaining all the tools available to protect your assets is well beyond the scope of this short article. Rather, the purpose of this article is to get you thinking about the need for asset protection and to reach a decision to take active steps to protect your wealth. Asset protection planning needs to be an important portion of your financial plan.

TAX COMPLIANCE. In addition to the pure financial aspect of protecting your assets, there is also a significant mental and emotional component. This component is the “peace of mind” that you get from knowing that you are financially secure. One very easy way to destroy this peace of mind is to get sideways with the IRS. If you intend to adequately protect your assets and your peace of mind, you need to be tax compliant.

Often effective asset protection plans create a perception of hidden assets. This “camouflaging of assets” should not lead you to think that “out of sight” means you do not need to pay all applicable taxes. Taking such a position is tax evasion, and can lead to financial disaster and even criminal prosecution. A properly functioning asset protection structure will be tax compliant and all applicable taxes will be reported and paid.

The power of the IRS is vast and they have the ability to break many asset protection devices. Even if they cannot reach all your assets, the process of an IRS dispute can be mentally and emotionally draining. If you find your asset protection structure under audit or attack by the IRS, you need to immediately retain a qualified tax attorney to represent you.

CONCLUSION. The wealth predators are prowling. They know who you are and they know what you own. One slip can lead to a litigation feeding frenzy. You must protect your wealth or lose it. Develop a defensive mindset in all your financial affairs. Also, protect your peace of mind. Do not slip into the trap of being non-tax compliant. If your wealth is attacked, defend with the best litigation attorney you can find. Likewise, if your affairs are challenged by the IRS, hire the best tax attorney you can find. Cover your assets!!!

Copyright 2005 David Jacquot
Tax Attorney David Jacquot, JD, LLM provides aggressive representation NATIONWIDE to businesses and individuals with tax problems or facing criminal tax investigations and trials. A description of his education and experience can be found at http://www.4taxhero.com. He can be reached toll-free at 866-4-TAXHERO (866-482-9437), locally at 208-691-2479 or via email at dave@4taxhero.com.

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What Is An Inheritance Tax And When Is It Applied?

When an individual passes, on the federal government imposes an estate tax. This estate tax only applies to estate properties that are over one million fifty thousand dollars. The federal government is still likely to tax an estate even if all or a portion of the estate is being handed down to other family members. Instead of imposing an estate tax in this situation, there many states that impose an inheritance tax.

An inheritance tax is also commonly referred to as a death tax because it is a tax that is imposed on all estate money and property after an estate owner passes away and leaves their estate or a portion of their estate to another person. States that currently collect a tax on inherited estate money or property are Connecticut, Maryland, Massachusetts, New Jersey, Nebraska, Pennsylvania, Oregon, New York, Indiana, Kansas, Louisiana, Kentucky, and Iowa. Since each state is likely to tax their residents differently, individuals need to research the inheritance tax laws in their state or hire the services of a professional tax attorney. There are also many state governments who regularly update their inheritance tax guidelines, and many states are even considering completely dropping the inheritance tax. This is why it is important for taxpayers or their tax attorneys to keep up-to-date on the latest inheritance tax information.

When the federal government imposes an estate tax the amount of taxes owed generally comes from some of the estate money left behind or the sale of estate property. The state taxing process of money or property that was inherited is a little bit different. States that have an inheritance tax require that the individual who receives the inheritance file and pay any taxes due on the money or property they inherited. This money does not come directly from an estate because it comes from the individual who received the inheritance. http://www.taxhelpdirectory.com/federaltax/.

As previously mentioned, different states have different rules, guidelines, and restrictions surrounding an inheritance tax; however, there are several common circumstances that many states all consider. When an individual who has passed on leaves money or property to a close family member, the inheritance tax is likely to be lower than if the property was given to a friend or distant family member. Most states consider a close family member a mother, father, brother, sister, daughter, son, or spouse.

Individuals who are required to report an inheritance and pay a tax on it are required to fill out the necessary state forms. These forms can be obtained by contacting one of the state taxation offices. The phone numbers for these state offices can generally be found by doing an Internet search or by using the contact information from your last state tax return. It is also possible that the inheritance tax forms can be downloaded from the Internet. The majority of states that impose an inheritance tax have a tax website that may have a downloadable copy of the forms that can be printed, completed, and mailed in.

As with estate taxes and traditional state income taxes, there are a number of inheritance tax deductions that can lower the amount of tax money that an individual may owe on their inheritance. To determine these deductions individuals preparing their own inheritance gift tax forms are encouraged to fully read the form instruction booklet to determine what these exemptions are and if they qualify for them.
Gray Rollins is a featured writer for the Tax Help Directory. To learn more about the inheritance tax, visit http://www.taxhelpdirectory.com/inheritancetax/ and to learn more about estate taxes, visit http://www.taxhelpdirectory.com/estatetax/.

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