Chicago Tax Lawyers

It can be helpful to think of sales tax and use tax as mirror images of each other.  They’re closely related and they’re generally two ways of getting at the same thing.  In both cases the state is collecting a tax on a purchase or a service.  The main difference is whether that tax appears on the receipt (sales tax) or whether it’s the responsibility of the purchaser to report and pay the tax later (use tax).

In Illinois there are four main types of sales and use tax.  They are the Retailers’ Occupation Tax (ROT), the Retailers’ Use Tax (RUT), the Service Occupation Tax (SOT) and the Service Use Tax (SUT).  There are other sales and use taxes, but these four are the main ones.

It can be confusing to try to keep these four taxes straight.  Try to think of them as pairs.  There’s a sales tax and a use tax for retail purchases (ROT and RUT) and then there’s also a sales tax and a use tax for services (SOT and SUT).

So if you go to the drugstore on the corner and make a purchase, the sales tax on your receipt is ROT.  If you bought something out of state and used it in Illinois you are required to declare that purchase and pay use tax (RUT) on it.  SOT and SUT work in the same way, the only difference being that they are assessed on services instead of retail products.

For more information on the four kinds of sales and use tax in Illinois or for help with other tax related legal concerns, contact the Chicago tax lawyers at Horowitz & Weinstein.

Legal Disclaimer.

With the debt ceiling raised and the beginnings of a compromise on dealing with the long term US debt laid down–and thus far, these plans do not include any of the rumored tax changes such as the elimination of the AMT fix–the world of tax has turned its focus back to the issue on online sales tax.

California has joined the roster of states to institute its own version of New York’s 2008 affiliate tax law.  The addition of California is particularly significant because New York and California tend to be trend setters among states.  Laws often start in one of those states and eventually spread to whole of the union.  To have both of these big names behind the online sales tax discussion will likely add impetus to the conversation.

It was first mentioned back in April, but now Senator Dick Durbin (D-IL) has finally submitted his Main Street Fairness Act, which would allow states to charge sales tax to online retailers like Amazon and also on mail order retailers, both of which can currently avoid paying sales tax in states where they do not have a brick and mortar presence.

The Act achieves this through something first proposed in 2002, the Streamlined Sales and Use Tax Agreement (SSUTA).  SSUTA has been previously endorsed by Amazon and other online retailers.  It is an agreement states voluntarily join.  They agree to common sales and use tax rules and in exchange they gain the power to charge sales tax on online and other out of state retailers. Currently, the sales tax systems in the country vary wildly state to state.

At present the Act has been submitted to the Senate and a counterpart is in the House.

For more information on sales tax, use tax or other tax related legal concerns, contact the Illinois tax attorneys at Horowitz & Weinstein.

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In the world of tax, “nexus” is something of a magic word.  It’s the catalyst, the decider that lies between taxation and tax-exempt.  Put most simply, nexus is a collective term that refers to all the links, the connections, the contacts, etc. between a taxpayer and political jurisdiction (e.g. a state).  This is of paramount importance for sales and use tax because if a taxpayer has sufficient nexus within a state, they will be judged to be “doing business” in that state and thus will be subject to that state’s taxes.

The current debate about online sales tax, including Senator Durbin’s Mainstreet Fairness Act and the so-called “Amazon tax” laws passed in Illinois, New York and other states, really comes down to a question of nexus.  The precedent was established in 1992 when the Supreme Court ruled that the gold standard, as it were, for nexus was physical presence.  The affiliate tax bills have modified the definition of nexus and of “doing business in the state” to include having affiliates in the state.  In  other words, the bills have made it so that state resident affiliates are treated as a physical presence for taxation purposes for the companies they are affiliates for.

The 1992 Supreme Court decision leaves open the possibility for Congress to pass new laws, changing the landscape for sales tax on out of state companies.

Physical, brick and mortar presence, is a pretty clear cut case (though not always), but otherwise legal issues of  nexus can be quite nebulous.  Especially today with many states facing budget shortfalls in the wake of the 2008 financial crash, departments of revenue are becoming increasingly aggressive in seeking sales and use tax revenue.

For more information on nexus, how it relates to sales and use tax, or for other tax related legal concerns, contact the Illinois tax attorneys at Horowitz & Weinstein.

Legal Disclaimer.

New guidelines for audits of attorneys have just been released by the IRS.  It focuses on several potential problem areas unique to attorneys and specifies how audits should be conducted in the context of those.

Many of the particulars of attorney audits revolve around how attorneys are paid (noncash payments like stock or legal services exchanged for reduction of debt) and what attorneys do with their payment, such as deferring payment in trusts.  There can also be issues with determining unreported income because of the use of trusts and multiple accounts.  There are a number of other specific areas of confusion of difficulty that can arise regarding how attorneys structure and use fees and payments.

As with many fields of business, the W-2 versus 1099 issue can come to a head with attorneys, specifically whether an attorney has misclassified an employee as an independent contractor, and whether attorneys misfield or failed to filed 1099s.

Form 8300, the form filed to report cash transactions of greater than $10,000, is also mentioned as a potentially important aspect when auditing attorneys.

We have represented attorneys in audit situations with the IRS and other organizations.  For more information on attorney audits, or other legal situations and tax law concerns, contact the Chicago Tax Lawyers at Howoritz & Weinstein.

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For weeks the talk in Washington has been about the debt ceiling, the legal limit on the amount the federal government can borrow.  The debate has not so much been about the debt limit itself, but on the wider issue of deficit reduction.  Several plans have been presented in Congress, but these have tended to be favored by one party the other and to lack bipartisan report.

Except for one.  There’s an old term in Washington, the “Gang of Six”, a term that refers to a bipartisan group of Senators.  A plan for addressing the deficit has recently come out with the Gang of Six phrase attached and it has been met with bipartisan support.

From a tax perspective the plan is strange.  It proposes to do things that many tax professionals have long considered impossible.  Proposed measures include eliminating the alternative minimum tax (AMT), replacing the current income tax brackets with three brackets with the highest rate being between 23 and 29 percent.  Currently it is 35.  The plan also calls for a single corporate tax rate of between 23 and 29 percent.

In addition to lowering tax rates, the plan calls to for the elimination of many credits, deductions such as those for mortgage interest or charitable contributions, and other breaks currently in the tax code.  The proposal also calls for multinational companies not to be taxed on their foreign income.

It must of course be noted that these are just ideas at present and even if this plan is eventually passed, it will likely change before becoming law.  Still, any of these proposed changes would constitute a major change in the tax landscape in this country and they could create new tax opportunities or new tax pitfalls for individuals, corporations and other entities.

For more information on this and other tax issues, contact the Chicago tax lawyers at Horowitz & Weinstein.

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For quite a few taxpayers, filing their yearly tax returns doesn’t go much beyond the trusty old Form 1040.  There are of course many other forms for reporting to the IRS and one that is especially worth noting is Form 3520, a return for reporting transactions with foreign trusts and the receipt of foreign gifts.

For 2010, foreign trust and gift reporting was changed primarily by the HIRE Act.  Specifically a number of penalties for failure to report foreign trusts and gifts have been modified and new penalties have been introduced.  In addition, the scope of individuals who are required to file Form 3520 has been expanded.  The penalties for failing to file can be severe, in general amounting to $10,000 or a percentage of the assets in questions (usually 35%), whichever is greater.

The specific requirements and nuances of foreign gift and trust reporting and compliance are complex and of course the best course of action is to consult a tax professional.  Here are the basics.

You have to file Form 3520 for a tax year if you received a gift from a foreign (meaning non-US) source of $100,000 or more from an individual or $14,165 or more from a corporation or partnership.  You must file if you are a U.S. person who received a distribution from a foreign trust.  You must also under certain conditions file if you are the owner or part owner of certain foreign assets.

For more information on foreign gift reporting, foreign trust compliance, or for help with other tax related legal concerns, contact Horowitz & Weinstein.

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A new bill has been introduced in the House of Representatives that’s identical to a bill introduced in 2009 that never came to a vote.  The bill would create uniform income tax rules for non-residents.  Currently such rules vary state to state.  Some states tax non residents if they perform a single day of work in the state, while others have higher thresholds before taxation.

The new bill, HR 1864, would allow states to tax the wages of employees who perform duties in a state for more than 30 days in a year.  The bill is called the Mobile Workforce State Income Tax Simplification Act of 2011.  Once an employee passed the 30 day threshold, their wages from day one of working in the state would be taxable.  Those wages would also be taxable in their home state.  The bill leaves provisions to exempt professional athletes and entertainers and certain public figures.  If signed into law the bill would take effect January 1, 2013.

Currently the bill has been submitted to the House and referred to committee.

For more information on non-resident taxation or other tax concerns, contact Horowitz & Weinstein.

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It’s that time of year again.  Forms disclosing foreign bank accounts and offshore assets, generally called FBARs, are due June 30th.  As is the case with most IRS compliance issues, failing to file FBAR could have serious consequences for taxpayers.

In 2009, the IRS ran an Offshore Voluntary Disclosure Program (OVDP).  Taxpayers with previously undisclosed offshore assets were offered amnesty from penalties if they reported those to IRS before October 15, 2009.  Since that program closed the IRS has decided to have a similar initiative this year.   The 2011 OVDP is open until August 31, 2011.

The penalties for tax evasion and failing to disclose offshore accounts and assets can be severe.  In order to become compliant with the IRS and avoid these consequences, taxpayers are required to disclose their offshore accounts and assets, provide amended tax returns, and pay reduced penalties or fines.

A gray area has arisen in light of all this regarding offshore online gambling.  The questions is whether or not FBAR forms need to be filed regarding offshore online gambling and also whether or not online gambling is applicable for the OVDP.  Unfortunately there is, as yet, no clear cut answer.  It is possible to find interpretations of tax law and of IRS policy to support either conclusion.

As with all tax situations, filing FBARs and taking advantage of the IRS’s 2011 Offshore Voluntary Disclosure Program should be undertaken with the advice of tax professionals.  For more information on the 2011 OVDP, FBARs, IRS compliance or other tax related legal concerns, contact the Chicago tax lawyers at Horowitz & Weinstein.

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Yesterday a law signed in February, The Religious Freedom Protection and Civil Union Act (the Act), went into effect and Illinois became the sixth state to allow civil unions.  The Act allows for two adults, who are not related and who are not already members of marriages or civil unions, to enter into a civil union.  The Act also provides that marriages, civil unions, and similar institutions created in other states, will be recognized as civil unions in Illinois.

From a tax perspective, a civil union provides nearly identical benefits to a marriage at the state level.  Most laws in Illinois dealing with the rights of those in a marriage use the word spouse and the Act says that for legal purposes the members of civil union will be considered spouses.

So members of a civil union can file joint tax returns for their Illinois income tax, can inherit from each other as spouses, and also have other benefits such as hospital visitation.  At the federal level, however, a 1993 law, the Defense of Marriage Act (DOMA) provides that only a marriage between a man and a woman will be recognized by the federal government, so members of a civil union do not gain access to the federal benefits that those in a marriage do.  If DOMA were repealed, a civil union would be nearly identical to a marriage at the federal level.

For more information about civil unions and how they affect tax situations, or for other tax related legal concerns, contact Horowitz & Weinstein.

Disclaimer.

It started in New York in 2008.   A laws was passed that aimed to allow the state to collect sales tax from online retailers like Amazon.  In 2009 similar laws came up in nine states and passed in two, Rhode Island and North Carolina.  In 2010 nine states pushed for affiliate tax laws (many were the same that had done so in 2009) and a law was passed only in Colorado.  Now here we are in 2011 and already the number of states to see affiliate tax legislation come to the floor is at 13 and two states have passed laws, Illinois and Connecticut.

These laws focus on a legal concept called nexus.  Nexus encompasses all the ties between an entity and a political jurisdiction.  So in this case that’s the connections between a company and a state.  According to a 1992 Supreme Court decision, a state can collect sales tax from a company only if that company has sufficient nexus and simply selling products inside state lines does not make the cut.

The affiliate tax laws say that having affiliate programs with state residents is sufficient nexus to collect sales tax.  In practice what this has meant is that online retailers, rather than collecting sales tax and thus providing increased revenue to the states, have instead simply cut their ties with their affiliates and avoided taxation.

A national solution to the question of online sales tax has been proposed multiple times.  Senator Dick Durbin of Illinois proposed a federal law that would allow states to collect sales tax from online retailers to be called the Main Street Fairness Act, but as yet the bill has not been submitted in the Senate.  An older idea, and one which has earned some measure of support from Amazon and others, is called the Streamline Sales Tax Initiative.  The idea is for states to agree to bring their sales tax policies into line with an agreed upon common standard and in exchange gain the power tax online retailers.

For more information on this or other tax related legal concerns, contact Horowitz & Weinstein, Chicago attorneys at law.

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