In the first week of May, 2016, the U.S. Department of the Treasury announced several actions to strengthen financial transparency and combat the misuse of companies to engage in illicit activities. Treasury announced a Customer Due Diligence (CDD) Final Rule, proposed Beneficial Ownership legislation, and proposed regulations related to foreign-owned, single-member limited liability companies (LLCs). Together, these efforts target key points of access to the international financial system – when companies open accounts at financial institutions, when companies are formed or when company ownership is transferred, and when foreign-owned U.S. companies seek to evade their taxes.
In early March, after a two-week trial and eight hours of deliberations, a Nashville jury awarded TV sports reporter Erin Andrews $55 million in damages for her lawsuit against a Nashville hotel after she was videotaped in 2008 without her knowledge. Andrews sued for $75 million in damages for negligent infliction of emotional distress and invasion of privacy.
A Florida jury awarded Terry Bollea, much better known as Hulk Hogan, $115 million in a lawsuit against Gawker Media for publishing footage of him participating in sexual activity four years ago. Jurors found that the defendant acted with reckless disregard publishing the video and awarded Hogan $60 million for emotional distress and $55 million for economic injury. This could increase as jurors still have to reconvene and deliberate whether punitive damages are appropriate.
When married taxpayers file jointly, which is often done because of certain benefits available to couples filing jointly, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise from the joint return, even if their marriage is later dissolved. Joint and several liability means that each taxpayer is legally responsible for the entire liability.
Thus, both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all the income or erroneously claimed deductions. This is true notwithstanding the provisions of a divorce decree regarding a former spouse’s responsibility for any taxes due on previously filed joint returns. However, in rare cases, a spouse may obtain relief from joint and several liability.
“Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned.” United States v. Sloan, 939 F.2d 499, 499-500 (7th Cir. 1991).
As long as the federal income tax has been with us, taxpayers have tried to argue that income taxes don’t legally apply to them. The reasons and bases for these arguments usually include the voluntary nature of the federal income tax system, the meaning of income, and the meaning of certain terms contained in the Interenal Revenue Code. Taxpayers hanging their hats on frivolous positions risk a variety of civil and criminal penalties for tax evasion and tax fraud . And taxpayers that adopt these frivolous positions may face more severe consequences than those who only promote them.
The United States Tax Court is a federal trial court established by Congress under Article I of the U.S. Constitution, section 8. The Tax Court specializes in adjudicating disputes over federal income tax, generally prior to the time at which formal tax assessments are made by the Internal Revenue Service. The U.S. Tax Court is not an agency of, and is independent of, the executive branch. The U.S. Tax Court is the only forum in which taxpayers may file a case without having first paid the disputed tax in full. Tax Court judges are appointed for a term of 15 years, subject to presidential removal for actions related to neglect, inefficiency, or malfeasance.
What does the IRS consider to be negligent or non-wilful conduct when it comes to tax-related activity like filing income tax returns and making deductions? What does it consider wilful conduct? When is such activity tax fraud?
Tax fraud is a general term which is defined as taxpayer’s intent to defraud the government by not paying taxes that the taxpayer knows are lawfully due. Tax fraud can be punishable either civilly, criminally, or both. Under federal law, civil violations are primarily located in Title 26 and criminal violations mainly in Title 18, respectively, of the United States Code (“U.S.C.”).
This past fall, IRS Commissioner John Koskinen admitted to the Finance Committee of the United States Senate that the IRS is tracking cell-phones. Apparently the IRS is using “stingrays”, also known as IMSI catchers or cell-site simulators, to sweep up the cell-phone signals of unsuspecting taxpayers. Recently, the IRS spent $71,000 to upgrade their cell-phone tracking equipment. Senators Charles Grassley of Iowa and Patrick Leahy of Connecticut demanded an explanation for the use of such equipment expressing their privacy concerns with such surveillance in a letter to Treasury Secretary, Jacob Lew. “The devices indiscriminately gather information about the cell phones of innocent people who are simply in the vicinity of the device,” the letter stated.
You’ve just received an award as the prevailing party in a lawsuit and it’s just a few weeks before the April 15th tax deadline. As you organize your documentation for the preparation of your taxes, you suddenly wonder if you have to pay taxes on the legal proceeds that you received a few weeks earlier. Are they indeed taxable? Whether you must include the amount of the proceeds in your income depends on all the facts and circumstances of each individual case. It also depends upon the type of injury incurred.
Is Your Income Taxable?
Generally, under IRS rules, all incomes are taxable, except if they are specifically excluded from income. Taxable income includes money earned, like wages and tips. It also includes bartering, an exchange of property or services
Certain incomes are usually excluded from income, such as
• Gifts and inheritances
• Child support payments
• Welfare benefits
• Damage awards for physical injury or sickness
• Cash rebates from a dealer or manufacturer for an item you buy
• Reimbursements for qualified adoption expenses
Under certain conditions, the following income may not be taxable::
• Life insurance. Proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that you get that is more than the cost of the policy is taxable.
• Qualified scholarship. In most cases, income from this type of scholarship is not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. On the other hand, amounts you use for room and board are taxable.
• State income tax refund. If you got a state or local income tax refund, the amount may be taxable. You should have received a 2014 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.