What is Circular 230?

That anyone would ask the question “what is Circular 230” might be surprising to tax lawyers and accountants. However, that is because Circular 230 provides a set of ethical rules that tax lawyers and accountants must constantly observe or be faced with the prospect of being prohibited from practicing before the Internal Revenue Service. That is, if us tax types do not follow the rules outlined by the IRS, they can kick us out of the club and prohibit our involvement in tax matters.

This brings us to the real question that I am periodically asked: “What is that Circular 230 disclaimer that regularly appears at the foot of a lawyer/accountant’s email and letters?” An example of such a disclaimer is:

“IRS CIRCULAR 230 DISCLOSURE: IRS regulations require that we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. If you would like an opinion that can be used for such purposes please contact the sender.”

Another example of the disclaimer can be found if you scroll down to the bottom of this blog site. The reason that these disclaimers appear all over the place is because of changes in the provisions of Circular 230’s ethical standards. The changes became effective as of June 21, 2005 and required that certain raised standards of diligence be used when providing written tax advice.

Unfortunately the time/work required to comply with these additional requirements made the cost of complying with the rules too expensive for many clients to tolerate. Therefore, tax practitioners sought to “legend out” of the new requirements where possible (i.e. see the disclaimer) to keep their services affordable. Tax types also sought to avoid inadvertently becoming subject to the heightened standards when giving run of the mill tax advice and started attaching the disclaimers to everything as a matter of course. Because the new ethical provisions were written so broadly, almost every written communication that you will see from a tax practitioner will include the Circular 230 disclaimer.

The disclaimer does not mean that the written advice is incorrect or should not be relied upon; it simply means that without going through the expanded diligence, you cannot avoid penalties by relying on the advice. Moreover, the disclaimer is a demonstration that the person you are working with is cognizant of the ethical rules that the IRS has issued and that he or she wants to continue working on tax matters for you and other clients.

The IRS Outlines its Plan for Distributing Economic Stimulus Tax Rebates.

The IRS has announced how it will distribute the economic stimulus tax rebates to taxpayers. To receive a rebate, eligible taxpayers must file a 2007 income tax return. This is true even if a person is not otherwise required to file a tax return. Essentially, if you do not file a tax return, the IRS will not know that you are supposed to receive a rebate or in what amount.

Most people that file their tax returns will receive $600 per person ($1,200 for those married filing jointly). Additional rebates will be given to those with children. Individuals with Adjusted Gross Income over $75,000 and joint filers with AGI of over $150,000 will receive smaller rebates. These people will have their rebates reduced by 5% of the amount by which their AGI exceeds the thresholds. This means that those with incomes exceeding the AGI thresholds will see significant declines in the amount of their rebate quickly. For every $100 by which your AGI exceeds the threshold, your rebate will be decreased by $5.

The IRS has yet to determine the payment schedule, yet it expects to start sending rebate checks in May. Those persons that have chosen direct deposit for any refund on their tax return will have their stimulus rebate directly deposited into their bank accounts. Therefore, filers will want to make sure that their account numbers and routing numbers are correct.

It is important that if you move after filing your 2007 income tax return, you should file a Form 8822 Change of Address with the IRS. (The form can be found at: http://www.irs.gov/pub/irs-pdf/f8822.pdf). If the form is not filed, people may miss out on the rebates entirely as the IRS will only be sending the economic stimulus tax rebate payments until December 31, 2008. If the IRS doesn't know where you are before then, you shouldn't expect to see the money.

Wisconsin's Estate Tax

Now that the new year is well settled in, it is time to reflect on some of the important changes that have happened in our lives. For Wisconsin residents, one significant change has been the death of the estate tax. Phil Miller of the law firm Weiss Berzowski Brady LLP has recorded a terrific podcast on the expiration of the Wisconsin Estate Tax. The pocast was recorded prospectively before the new year but addresses the important aspects of its end. The podcast can be found here: http://www.wbb-law.com/podcast/index.cfm?#412

(Phil's professional profile can be found here: http://www.wbb-law.com/index.cfm?p=4&s=1&id=8 )

Friday's Tax Quote.

"We must care for each other more, and tax each other less."

- William Reynolds Archer, Jr.

Economic Stimulus Bill Goes To President Bush

On February 7, 2008, the House of Representatives and the Senate agreed on and passed the seemingly embattled economic stimulus package. The bill that passed is relatively stripped down from what had been debated over the past several weeks. As passed, the package includes a combination of business tax incentives and the much anticipated tax rebates. The package is substantially similar to that which President Bush previously approved and therefore, we can assume that he will sign it when it reaches the Oval Office.

For businesses, the incentives include: a 50 percent bonus depreciation deduction on most equipment placed in service in 2008 and doubles allowable section 179 deductions for both new and used tangible property (for 2008 expenditures).

For individuals, rebates would be given to individuals in an amount of $600 per person and an additional rebate of $300 for each child. The rebates equal $1,200 for married persons. The rebates are not, however, for everyone. There is a gradual faze out of the rebates for taxpayers with gross income exceeding $75,000 ($150,000 for married couples). The bill would also send rebates to social security and veterans disability recipients.

The purpose of this package is to stimulate the economy. The best way for the package to work is for businesses to invest in new property and for individuals to spend their rebate checks in the private sector. Of course, the best thing for the individual may be to save the money or pay down existing debt. However, if you choose not to do the best thing for you, when you spend the money, you can always tell yourself that you are spending it for the good of the U.S. economy. Personally, I think I’ll upgrade my iPod.

Wisconsin’s Film Tax Credits – More on the Film Production Company Investment Credit.

Returning to the series on Wisconsin's Film Tax Credits, below I describe in more detail additional aspects of the Film Production Company Investment Credit. This credit can be claimed for certain expenditures by Film Production Companies subject to the following limitations:

(1) The credit for 15% of the purchase price of depreciable, tangible personal property can only be claimed if the tangible personal property is purchased after December 31, 2007 and is used for at least 50 percent of its use in the claimant’s business as a film production company.

(2) The credit for 15% of the cost to acquire, construct, rehabilitate, remodel or repair real property can be claimed if the physical work to do so occurs after December 31, 2007 or the completed project is placed in service after December 31, 2007.

(3) To claim the credit, the property must not be property previously owned by the claimant and the property must have been acquired or placed in service after December 31, 2007.

(4) Importantly, the credits can only be claimed if the Department of Commerce certifies, in writing, that the credits claimed are for expenses related to establishing a film production company in Wisconsin.

Wesley Snipes and Richard Hatch

By now, many news websites and blogs across the internet have discussed the near accquittal of Wesley Snipes. For clarity, Wesley Snipes was not vindicated. He was convicted of 3 counts of misdemeanor failure to file. By any account, however, he managed to avoid some potentially severe consequences upon his acquittal on the more serious tax evasion felonies.

It will be interesting to see how Mr. Snipes is sentenced for the 3 misdemeanor convictions. It will also be interesting to see how the civil tax liability is resolved. Importantly, the reported defense that he was to use in the criminal trial was that "he didn't know he had to pay taxes" it was not that "he didn't have to pay taxes." As such, he may be facing down a tremendous tax debt in the coming years.

On a similar note, the same day that Wesley Snipes was partially acquitted, the 1st Circuit Court of Appeals handed down its decision in the Richard Hatch (CBS Survivor reality show winner) case. You may remember that Richard Hatch had argued that he thought someone else had paid the tax he owed on his Survivor winnings. Mr. Hatch's appeal contrasts the result in the Wesley Snipes case. The Court of Appeals disagreed with Mr. Hatch's argument that the government had deprived him of certain rights and his criminal conviction (including the sentence) was affirmed.

The text of the decision can be read here: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=1st&navby=docket&no=061902

Neither the Wesley Snipes case nor the Richard Hatch case says that people don't have to pay taxes. In fact, the cases suggest that you must obey the tax laws. The only thing to take from Wesley Snipes' accquittal from the tax evasion charges is this: based on the specific facts and circumstances presented to the jury, the government did not prove beyond a reasonable doubt that Wesley Snipes committed tax evasion.

Friday's Tax Quote.

"The term 'tax humor' is no doubt an oxymoron to many people; to the more cynical, it is an apt description of the entire tax code."

- John F. Iekel