The Truth about the IRS, Halloween and Secret Societies

They’re Hiding in Plain Sight 

Wikipedia defines a Secret Society as a club or an organization whose activities, events, inner functioning, or membership are concealed from non-members. The society may or may not attempt to conceal its existence. The term usually excludes covert groups, such as intelligence agencies or guerrilla insurgencies, that hide their activities and memberships but maintain a public presence. 

The exact qualifications for labeling a group as a secret society are disputed, but definitions generally rely on the degree to which the organization insists on secrecy, and might involve the retention and transmission of secret knowledge, the denial about membership or knowledge of the group, the creation of personal bonds between members of the organization, and the use of secret rites or rituals which solidify members of the group.

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A Hard Hitting Exposé: What the Hell Are the Gift and Estate Tax Rules After Tax Reform?

The Tax Cuts and Jobs Act, signed into law in December 2017, approximately doubled the federal gift and estate tax basic exclusion amount to $11.18 million in 2018 (adjusted for inflation in later years). After 2025, the exclusion is scheduled to revert to its pre-2018 level and be cut approximately in half. Otherwise, federal gift and estate taxes remain the same.

Gift tax. Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to $15,000 per recipient. Married couples can effectively make annual tax-free gifts of up to $30,000 per recipient. You can also make unlimited tax-free gifts for qualifying expenses paid directly to educational or medical service providers. And you can make deductible transfers to your spouse and to charity. There is a basic exclusion amount that protects a total of up to $11.18 million (in 2018) from gift tax and estate tax. Transfers in excess of the basic exclusion amount are generally taxed at 40%.

Estate tax. Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and to charity; there is a basic exclusion amount that protects up to $11.18 million (in 2018) from tax, and a tax rate of 40% generally applies to transfers in excess of the basic exclusion amount.

Portability. The estate of a deceased spouse can elect to transfer any unused applicable exclusion amount to his or her surviving spouse (a concept referred to as portability). The surviving spouse can use the unused exclusion of the deceased spouse, along with the surviving spouse’s own basic exclusion amount, for federal gift and estate tax purposes. For example, if a spouse died in 2011 and the estate elected to transfer $5 million of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of $16.18 million ($5 million plus $11.18 million) to shelter transfers from federal gift or estate tax in 2018.

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The Alter Ego Doctrine IRS ENFORCEMENT & YOU

The doctrine by which a court of law holds individual shareholders liable for a corporation’s debts if the corporation is deemed to be nothing more than an “alter ego” of the corporation’s owners.

"In a nutshell, the nominee and alter ego theory holds that when a taxpayer retains the benefit, use, or control of transferred assets, the IRS can legally seize those assets – and quite literally, put the financial boots to you!” says David Selig of Selig and Associates.

FYI Fraud is not a necessary element for the application of the alter ego doctrine. Ragan v. Ragan v. Tri-County Excavating, Inc., 62 F.3d at 508 (Under Pennsylvania law, “no finding of fraud or illegality is required before the corporate veil may be pierced, but rather the corporate entity may be disregarded ‘whenever it is necessary to avoid injustice.’”) (citations omitted) (non-tax case); DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 684 (4th Cir. 1976) (non-tax case) (“[P]roof of plain fraud is not a necessary element in a finding to disregard the corporate entity.”) (citing, among other cases, Anderson v. Abbott, 321 U.S. 349, 362 (1944); National Marine Service, Inc. v. C.J. Thibodeaux & Co., 501 F.2d 940, 942 (5th Cir. 1974)). The Eighth Circuit in Scherping, supra, also noted that “proof of strict common law fraud was not required” to apply the reverse piercing branch of the alter ego doctrine, and affirmed the district court’s holding that the trusts were “sham entities created on behalf of and used by the taxpayers to evade payment of their federal income tax liabilities.” 187 F.3d at 802 (citations omitted).

Courts that have been called upon to apply the alter ego doctrine in tax cases use objective factors in determining whether an alter ego relationship exists. See, e.g., Century Hotels v. United States, 952 F.2d 107, 110 n.5 (5th Cir. 1992) (listing numerous objective factors to be considered in alter ego case, including: (1) whether taxpayer expended personal funds for property titled in the name of the entity; (2) whether taxpayer enjoyed the benefit and use of the property; (3) whether a close family relationship existed between taxpayer and title holder of property; (4) whether taxpayer exercised dominion and control over the property; (5) whether the entity maintained its own books and records, including bank accounts; (6) whether funds are transferred between taxpayer and the entity showing commingling of assets; and (7) whether the entity has its own separate existence and identity); Horton Dairy, Inc. v. United States, 986 F.2d 286, 289 (8th Cir. 1993); Loving Saviour Church v. United States, 728 F.2d at 1086 (church was alter ego of taxpayers where taxpayers treated church assets as their own in that their residence, business and farmland comprised church property; insurance was in taxpayer’s name; taxpayer was the minister and trustee and was in control of the church; church funds used to pay personal expenses of taxpayer; close family relationship between church officers and taxpayer; taxpayers transferred property to church for little or no consideration; taxpayers supported by church funds); F.P.P. Enters. v. United States, 830 F.2d at 118 (listing objective factors); Zahra Spiritual Trust v. United States, 910 F.2d at 245; Lemaster v. United States, 891 F.2d 115, 117-119 (6th Cir. 1989); Grant Investment Fund v. IRS, 1993 WL 269617 (9th Cir. 1993); Towe Antique Ford Foundation v. IRS, 791 F. Supp. 1450, 1453 (D. Mont. 1992) (listing objective factors to be considered), aff’d, 999 F.2d 1387 (9th Cir. 1993).

The alter ego doctrine has been applied by numerous courts to a variety of relationships that exist between a taxpayer and a corporation, partnership, trust, proprietorship or individual. See, e.g., Ross Controls, Inc. v. United States, 164 B.R. 721 (successor corporations were alter egos of defunct corporate taxpayer); Today’s Child Learning Center, Inc. v. United States, 40 F. Supp.2d 268, 273-274 (E.D. Pa. 1998) (second corporation was alter ego of taxpayer); United States v. Scherping, 187 F.3d at 801-804 (trusts were alter egos for taxpayers); F.P.P. Enterprises v. United States, 830 F.2d 114, 116-117 (8th Cir. 1987) (trusts were alter egos of taxpayers where the residence was conveyed by the taxpayers to the trust and the taxpayers continued to treat the residence as their own by (1) continuing to live in the residence, and (2) paying the insurance, taxes and mortgage on the residence); United States v. Geissler, 1993 WL 625535 (D. Idaho 1993) (trust was nominee/alter ego of taxpayers where: (1) taxpayers, as trustees maintain an absolute position of trust; (2) taxpayers need not consult anyone else in making decisions for the trust; (3) there is no provision imposing a fiduciary responsibility on trustee; (4) there was no evidence of any consideration for transfer of property from taxpayers to trust; (5) and taxpayers continue to enjoy the benefits of the transferred property); United States v. Gerads, 1993 WL 114411 (D. Minn. 1993) (Trust was alter ego of taxpayers), aff’d, 999 F.2d 1255 (8th Cir. 1993), cert. denied, 510 U.S. 1193 (1994)); Loving Saviour Church v. the United States, 556 F. Supp. at 691-692 (D. S.D.), aff’d, 728 F.2d 1085 (8th Cir.) (unincorporated association, Church, was alter ego of taxpayers); Grant Investment Fund v. IRS, 1 F.3d 1246 (Table), 1993 WL 269617 (9th Cir. 1993) (partnership was an alter ego of taxpayer where: (1) taxpayer manages entity and has complete control over it; (2) taxpayer uses his own assets and partnership assets interchangeably to pay debts; (3) investors in partnership are related to or controlled by taxpayer; (4) partnership made loans to taxpayer, such loans were approved by taxpayer as manager of partnership and taxpayer did not repay the loans; and (5) taxpayer used partnership to discharge personal obligations and for personal gain); Lemaster v. United States, 891 F.2d 115, 117-119 (6th Cir. 1989) (son held to be the alter ego of the taxpayer-father where: taxpayer’s business ceased; a new business was started in the name of taxpayer’s son; new business acquired assets of defunct business; new business was conducted in son’s name, but taxpayer was given power of attorney and controlled the new business).

Furthermore, if the alter ego or a nominee relationship otherwise exists between a taxpayer and another party or entity, the timing of when the tax liabilities arose is legally irrelevant. Stated differently, the timing of the creation of the trust or entity that is found to be an alter ego or nominee has no legal significance. See G.M. Leasing Corp. v. The United States, 429 U.S. at 350-351 (property of taxpayer’s nominee or alter ego is subject to tax lien and levy); In re Richards, 231 B.R. at 578; United States v. Landsberger, 1997 WL 792506 at * 5 (D. Ariz. 1997) (timing of creation of trust has “no import” if it is being used to avoid creditors) (citing G.M. Leasing, supra; F.P.P. Enters. v. United States, 830 F.2d at 118), aff’d, 172 F.3d 60 (9th Cir. 1999); accord United States v. Williams, 581 F. Supp. 756 (N.D. Ga.) (taxpayer’s nominee (his mother) took a title in real property before tax liabilities arose; however because the taxpayer was the true owner of the property, tax lien (which arose after the property was purchased) attached and could be foreclosed on taxpayer’s interest therein); cf. Keefer v. Commissioner, 1993 WL 221066 (Tax Ct. 1993) (trust was a sham even though tax liabilities arose after the creation of trust).

Selig & Associates predicts the IRS will increase it’s enforcement operations by 67.3% in 2018. David Selig says the Trump Administration has directed the IRS to revoke passports and seize real property. Attorney Bradley Dorin says one of the most serious infractions is unpaid payroll taxes. Selig says most taxpayers can avoid criminal charges by retaining qualified legal representation. 

TAX NEWS TORN FROM THE HEADLINES

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Now that a little thing called economic reality has overtaken months of dishonest media reporting about the Republican tax bill signed into law by President Trump last month, a plurality of 47 percent support the bill, while only 34 percent remain opposed.

This is a huge (and predicable) turnaround when compared to those polls released  in the heart of the media campaign to kill the tax bill. In early December, Gallup showed just 29 percent support for the bill; as did Quinnipiac. Less than a month ago, the left-wing cable news network CNN released a poll that showed support for the bill cratering with opposition climbing from 45 percent to 55 percent. Only one-third of Americans were in favor of the tax cut.

Considering the media’s 24/7 opposition to the bill, these negative polls were not all that surprising. In a cynical and partisan effort to kill the GOP tax cut through the use of lies to gin up opposition, including the wildly false claim that only the rich and corporations would benefit, some outlets even went so far as to claim that taxes on working people and the middle class would increase. And polls showed that too many people actually believed that nonsense.

Thankfully, neither the GOP nor President Trump blinked. The important bill passed late last month (strictly along party lines) and the benefits to working Americans was immediate. So far, thanks to the lowering of their taxes, 164 corporations have announced substantial bonuses and pay raises. That means some two million workers are already enjoying the trickle-down effect of the most consequential tax reform in 30 years.

President Donald Trump’s “big, beautiful Christmas present” to the American people came Dec. 22, when he signed into law a tax plan that will benefit business owners big and small and give individual taxpayers a slight break in 2018.

The GOP didn’t fulfill their promise of simplifying the tax code—you’re not going to be able to file your taxes on a postcard any time soon, and experts say changes to business rates will likely lead more people to try to game the system. But they did change the number of tax brackets from seven to...seven and eliminate some popular deductions.

When It Takes Effect

The tax plan starts to take effect January 1, 2018, meaning it doesn’t affect the taxes you file in April 2018 (unless you make a few last-minute moves). Some aspects of it won’t be implemented until 2019 or beyond.

Tax brackets, for example, change on January 1, 2018, to the following:

Source: Heritage Foundation

The IRS announced that workers could begin seeing the difference in withholding in their paychecks as early as February. The new brackets expire after 2025. As Marc Goldwein, senior policy director for the bipartisan Committee for a Responsible Federal Budget, told Vox, “People get eight years of tax reform.”

The individual mandate for health insurance will be repealed starting in 2019, meaning if you don’t purchase health insurance next year you’re still liable for the penalty. The Congressional Budget Office estimates 4 million fewer people in 2019 and 13 million fewer in 2027 will have health insurance as a result.

The Tax Cuts You Can Expect on Average

Republicans are hailing the legislation as a major victory for the middle class. In the very near term, the middle class will benefit: All income groups will receive a cut, on average, in 2018, according to the nonpartisan Tax Policy Center, which estimates the average cut will be $1,600 in 2018.

How does this work? 

• Standard deduction: For many people, the standard deduction will be essentially doubled, from $6,350 for individuals to $12,000, and from $12,700 for married couples filing jointly to $24,000. You won’t see this change until you file your taxes in April 2019.
• Child tax credit: Another benefit to many middle class workers is the doubling of the child tax credit to $2,000 for dependents under 17, $1,400 of which is refundable (meaning if the credit is larger than your federal income tax liability, you can receive a refund of up to $1,400). More high-income earners will also qualify for this credit now. This expires in 2025. (You can also reduce your tax bill by up to $500 for other dependents, like children over 17 and elderly relatives.)
• Personal exemptions: Personal exemptions, which reduce your taxable income, are eliminated. Currently, you’re allowed to claim a $4,050 personal exemption for yourself, your spouse, and your dependents (up to a certain amount). The doubling of the standard deduction could go a long way to make up for this, but the elimination could negate the benefits for families with three or more kids.

But the bill is much more of a win for the wealthiest Americans and business owners. One of the main criticisms of the plan is that the tax cuts are not allocated equally across the income spectrum. Taxpayers earning between $308,000 and $733,000 would receive the largest tax cut. According to TCP, middle-income taxpayers (those making between about $49,000 and $86,000) would pay about $900 less (or about 1.6% of after-tax income) in 2018, while those earning $733,000 and up would get an average tax cut of roughly $50,000 (or 3.4% of their after-tax income). If you earn $65,000, you’ll save about $930 in 2018, per TCP. If you make $500,000, you’ll save around $13,480.

Owner of New York Tax Preparation Firm Pleads Guilty to Preparing Fraudulent Tax Returns (You’d better call SELIG & Associates)

A Brooklyn, New York, resident pleaded guilty today to aiding and assisting in the preparation of a fraudulent tax return, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney Bridget Rohde for the Eastern District of New York. According to documents and information provided to the court, Maria Munoz, 45, owned and operated a Brooklyn-based tax preparation business called Munoz Multiservices Corporation.  From 2010 through 2012, Munoz prepared fraudulent income tax returns for clients that included inflated or fictitious deductions for gifts to charity, unreimbursed employee expenses, personal property taxes and other expenses.  Munoz agreed that she caused a tax loss of $136,789. Sentencing is scheduled for April 26, 2018 before U.S. District Court Judge Kiyo A. Matsumoto. Munoz faces a statutory maximum sentence of three years in prison, a period of supervised release, restitution and monetary penalties.

Tax Representation Our tax practice is limited to representation before the Internal Revenue Service, the New York State Department of Taxation and Finance, the New Jersey Division of Taxation, and the Department of Justice Tax Division. We successfully resolve all civil and criminal tax issues. We solve income, sales and payroll withholding tax problems. We can prepare and file your missing tax returns in as little as 24 hours. We provide tax and legal representation at IRS audits, criminal examinations and appeal hearings. Release of wage garnishment and bank levy, monthly payment plans, and offers in compromise. For a free and legally privileged consultation call Selig & Associates directly (212) 974-3435 For additional information see Practice Areas