Eight Circuit Court of Appeals Upholds Validity of Medicaid Annuity and Deals a Blow to Numerous States

The Eighth Circuit Court of Appeals (one of the highest courts in the U.S.) has re-affirmed that Medicaid annuities are still a very important and powerful way to obtain Medicaid coverage for nursing home residents.

Today, in the case of Geston v. Olson, the justices of the United States Court of Appeals for the Eight Circuit issued an opinion which dealt a blow to states whose laws and regulations governing Medicaid qualification are more restrictive than federal law.  As background, John Geston aplied for Medicaid benefits, and the North Dakota Department of Human Services denied his application on the basis that the total assets owned by Gaston and his wife exceded the eligibility limit.  The Gestons sued in the district court, arguing that the Department had wrongfully denied the application because it had improperly counted against Mr. Geston’s eligibility an annuity owed by his wife.  The district court ruled for the Gestons, holding that the North Dakota statute under which the annuity had been deemed “countable”, violates and is preempted by federal Medicaid law.  The State of Hawaii, Department of Human Services, the Kansas Department of Health and Environment, the Attorney General of the State of Maryland, the State of New Mexico Human Services Department, the Oklahoma Health Care Authority, the Rhode Island Executive Office of Health and Human Services, the State of Tennessee and the Connecticut Department of Social Services filed briefs in amici on behalf of the State of North Dakota.  The appeallate court found the arguments of the State of North Dakota and its friends to be wanting and uphled the decision of the district court.

Specifically, the Gastons are a married couple who purchased a $400,000 Medicaid annuity, with Mrs. Gaston as the annuitant, as a way of removing that amount of money from their “countable” assets for Medicaid qualification purposes.  Citing more restrictve state law, the State of North Dakota denied the Medicaid application.    The Geston sued the State of North Dakota in the federal circuit court and won a ruling granting thier Motion for Summary Judgment.  As a result, the husband, Mr. Gaston, (in the nursing home) was able immediately to qualify for Medicaid and the at-home wife, Mrs. Gaston was able to receive the benefit of the $400,000 without having to “spend down” all that money. Mrs. Gaston will receive monthly payments of $2,735 for 13 years.  Although such planning with Medicaid annuities is most beneficial for married couples, there are a number of scenarios where they can also be very helpful for single (unmarried/divorced/widowed) individuals as well.

Peter G. Milne is an attorney  practicing elder law, medicaid planning and qualification, tax law and estate law in Texas, California and the District of Columbia.  Mr. Milne advises and informs clients seeking Medicaid assistance of tools and techniques available under the law to protect and preserve thier assets.

A copy of this important decision can be found here: http://media.ca8.uscourts.gov/opndir/13/09/122224P.pdf

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IRS ANNOUNCES SIGNIFICANT FEDERAL INCOME TAX CHANGES FOR 2013

The Internal Revenue Service recently  announced  annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012.

The tax items for 2013 of greatest interest to most taxpayers include the following changes.

  • ADDITION OF NEW TAX RATE: Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
  • STANDARD DEDUCTION INCREASES: The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
  • ITEMIZED DEDUCTIONS LIMITED: The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
  • PERSONAL EXEMPTION RISES: The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
  • AMT EXEMPTION AMOUNT RISES: The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
  • EIC INCREASES: The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
  • ESTATE TAX EXCLUSION INCREASES:  Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
  • PUBLIC TRANSPORTATION MONTHLY BENEFIT EXCLUSION AMOUNT INCREASES:  For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which was published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41.

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Texas HB 11 Sales Tax Audits Successful for Auditor, Disaster for Retailer

Beginning on January 1, 2008, the Texas Comptroller of Public Accounts was given a very powerful and effective sales tax auditing tool by the Texas Legislature.  The Criminal Investigation Division of the Comptroller’s Office recently published the following post on its website.

“Passed during the 80th Legislative Session in 2007, HB 11 dramatically increased the Comptroller’s ability to identify, audit and, when appropriate, prosecute retailers who are collecting sales tax but not remitting the proper amount to the state.

HB 11 amended the Alcoholic Beverage Code and the Tax Code to require distributors and wholesalers who make sales of ale, beer, wine, cigarettes, cigars and tobacco products to Texas retailers to report those sales monthly to the Comptroller’s office. Those distributors and wholesalers are also required now to report that data electronically, unless inability to do so is shown.

HB 11 data, which has now been collected since January 2008, allows the Comptroller to compare the purchases that retailers have made of these products with the sales that retailers are required to report. Because both sets of data are largely received electronically, discrepancies can be more easily and rapidly identified. Rapid identification is essential so that the Comptroller auditors can begin their work to mitigate and recoup the revenue loss to the state. The Comptroller’s office identified almost $90 million due to the state in fiscal year 2009 and more than $102 million due to the state in fiscal year 2010. To date in fiscal year 2011, more than $59 million has been identified.

In some cases, audit documentation may suggest that the taxpayer had criminal intent to evade taxes. If so, the case will be reviewed and evaluated by the Criminal Investigations Division for the possible filing of criminal charges.”

Small convenience store retailers of alcohol and tobacco products have been flooding my office in recent months with sales tax audit determinations which clearly show the effectiveness of an audit based upon HB 11 reporting.   The Comptroller has been consistent in proposing a 50% penalty in addition to the 10% penalty permitted by law.  In some cases, the Comptroller will agree to drop the 50% penalty in exchange for a settlement, but only if the taxpayer has timely petitioned for an audit redetermination.

If a store has closed and the auditor cannot conduct an in-store “shelf test” or if the taxpayer cannot or will not produce actual daily sales documentation sufficient for the auditor to determine a markup on alcohol or tobacco products, the auditor is instructed to use certain percentages for alcohol and tobacco markups.  In addition, the auditor is instructed to use a certain percentage to obtain a “product mix” of alcohol and tobacco products as compared to taxable non-alcohol and tobacco products.  A very small percentage is allowed for spoilage and theft.  Once these factors are applied, a sales tax estimate is calculated and compared against the sales tax reported by the taxpayer.

In the case of all audits presented by potential clients, the taxable sales estimate, which has been derived by formula and  upon which the sales tax deficiency is calculated, is significantly higher than the taxable sales amounts reported by the taxpayer.

The best way to defeat an sales tax audit based upon Texas  HB 11 data is to keep good records and accurately report taxable sales.  However, if record keeping or reporting proves to be a problem, the audit may be attacked administratively or at hearing in several different ways.

If you are a retailer facing a significant sales tax increase as proposed by a sales tax audit, call my office before the audit begins, or as soon as you receive the audit determination letter.  Do not make any admissions to the auditor  or agree to anything after the audit determination letter has been issued.  If a request for an administrative redetermination or a hearing is not timely made, the results to the taxpayer are usually disastrous!

One needs an attorney experienced in sales tax audits and hearings to level the playing field.  Call for a consultation now!

Posted in Recent Trends, Tax Law, Texas Sales Tax, Uncategorized | Tagged , , , , | 2 Responses

The IRS Gives Employees a Whistle to Blow and Employers a Safe Harbor

The IRS has given an employee worker wrongly classified as an independent contractor a very loud whistle to blow and employers the means to obtain an advance determination of worker classification to avoid future disputes and tax liabilities.

When is a worker an employee or an independent contractor for federal income tax purposes?   Disputes over employee or independent contractor classification frequently arise and the outcome is usually very important to one and very expensive for the other.   Mistakes are sometimes made, but more often, employers will incorrectly classify an employee as an independent contractor for several reasons.  The most common reason  is to avoid the payment of the employer’s portion of employment  taxes (usually about 7.5% of gross).   The second reason is to avoid the preparation and filing of quarterly 941 employment tax returns. Another reason is to avoid making employment tax deposits.  Sometimes, employers may not understand the legal and tax difference between an employee or independent contractor and classify the worker in whatever way the worker suggests.

A worker who should be classified as an employee may want to be treated as an independent contractor so that  payroll taxes and federal income taxes are not withheld from his or her earnings.  More common is the situation where a worker who is classified as an independent contractor wants to be treated as an employee so that more of his or her earnings are reported to the Social Security Administration.  The more income reported as earned, the higher the monthly retirement benefit.   In certain trades and businesses, such as construction, landscaping, housekeeping, janitorial, farming, ranching, fishing, repair and maintenance-where workers traditionally earn piecemeal or by the job and are often unskilled and less educated -the worker simply has no choice as to whether they are classified as an employee or as an independent contractor.

The IRS provides Form SS-8 -Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding- for use by an employer when the employer is not sure how to classify a worker.    Upon submission of the SS-8, the IRS will make an advance determination of how the worker should be classified, which gives the employer a safe harbor if the worker ever complains or if the wrong classification is made.

In addition, the IRS provides Form 8819- Uncollected Social Security and Medicare Tax on Wages- to a worker who believes that his or her employment classification is incorrect.   Form 8819 is the big, loud and often very expensive whistle, that when submitted with Form SS-8, alerts the IRS to a possible improper classification and permits the employer’s portion of social security and medicare taxes to be credited in advance to the worker’s social security record.

If the IRS ultimately agrees that the whistle blowing worker has been misclassified, the actions of the employer will be carefully scrutinized.  An employer who improperly classifies an employee as an independent contractor may be subjected to an audit.  The books and records of the employer will be examined and workers may be questioned.  In addition to an after the fact assessment of the employer’s portion of employment taxes, the employer who misclassifies a worker or workers may be subjected to ordinary civil failure to deposit, failure to file and failure to pay when due (delinquency) penalties, the more serious civil fraud penalty and the most serious of all, a federal crime.   None of these outcomes are good for business, even in the best of times.

If you are an employer that is unsure of how to classify a worker, that has discovered certain workers have been misclassified, or that has intentionally misclassified workers, seek legal assistance immediately.  If you are a worker who believes that he or she has been misclassified and wants some recourse, don’t wait to blow the whistle.

The area of worker classification can be very confusing.  Mistakes are common.  Misclassification of worker status to keep costs low or for exploitative purposes frequently happen.   The law firm of Peter G. Milne, P.C. is here to help.  Don’t wait until its too late.  Contact us right now.

Posted in Employment Taxes, Independent Contractor, Tax Law, Uncategorized, Worker Classification | Tagged , , , , , , , , | Leave a comment

Message to Congress: Stop Using the Tax Code for Purposes Other Than Raising Revenue

The Constitution provides that Congress has the power to impose taxes and borrow money to “pay the Debts and provide for the common Defense and general Welfare of the United States.” This authority is generally referred to as the “Power of the Purse,” meaning the power to control what money is raised by the national government and how it is spent.  The power to tax and spend granted to and wielded by Congress is no different than the power wielded by all rulers, whether called King, Caesar, Pharaoh, Sheikh, or Emperor.    The framers of our Constitution intended that the power of the Congress be limited, but in these modern times, Congress uses the tax code not only for the purpose of raising revenue, but also for reasons having to do with public policy.

A common example of using the tax code for public policy reasons is the provision of the tax code that permits a taxpayer to reduce his or her taxes by allowing the interest paid on a mortgage note to be deducted from the  taxpayer’s taxable income.  The theory is that by allowing the mortgage interest deduction, Congress’ will, through the tax code, influence people to buy homes, rather than rent, which is a public policy goal.   This particular tax break is only one of many that are found throughout the tax code: a tax break to encourage green energy production; a excise tax on a pack of cigarettes to encourage a smoker to quit; an excise tax on a gallon of gas to encourage the motoring public to drive less.  Congress does not have the power to pass laws which mandate the behavior of citizens and directly address these issues.   Rather, Congress uses the tax code as a blunt tool of persuasion to achieve social, economic and yes, political goals.

Most federal laws, whether major or routine,  contain some provision that affects the tax code.  It is no wonder that the tax code is voluminous, complex and often contradictory.  It has been written piecemeal, over a long period of time, without a unifying vision and often times for reasons having more to do with pubic policy, rather than the raising of revenue.

It’s time for Congress to be honest with itself and accept the fact that its power is limited.  It’s time for Congress to simplify the tax code and get back to the business of providing for the common Defense and general Welfare of the United States.

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IRS Policing Healtcare – KETK with Peter Milne

KETK interviews managing partner Peter G. Milne on March 23rd, 2010 regarding the new healthcare policy.

Read the full article Here.

Video courtesy of KETK NBC Tyler.

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The IRS is Hiring–A Bad Dog Looks for New Bones

At a continuing education seminar tailored for tax attorneys and certified public accountants held in Austin, Texas in December of 2009, officials from the IRS flew out from Washington and announced that up to 2,500 new Revenue Officers would be hired by the agency in 2009 and 2010.  The IRS announced to those of us who represent individual and business taxpayers of its intent to aggressively collect past due federal taxes.  The hiring of such an unprecedented number of Revenue Officers in such a short period of time does not bode well for the taxpayer. 

A Revenue Officer is empowered by the United States to take whatever legal means is necessary to collect taxes.  These individuals are based in the community and may come to the home or business of a taxpayer to examine books and records or to collect.  A Revenue Officer may issue summons for records,  may record federal tax liens upon real property, or may issue bank or wage levies to seize assets or income.  The Revenue Officer is the IRS’s “bad dog”, and the unarmed and unprepared taxpayer is often just another bone on which the Revenue Officer chews,  until the poor taxpayer, rightly or wrongly, simply gives up and gives in. 

Given the current level of federal debt and poor economic outlook, it is highly unlikely that the United States Treasury is going to have much compassion for those who have not or cannot pay thier taxes.  Rather than hiring more persons who could  assist the embattled  taxpayer, such as those employed by the Taxpayer Advocate, Uncle Sam is clearly looking out for it’s own bottom line.

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Healy Milne & Associates Website Update

The Healy Milne & Associates team is happy to release our new website. Make sure to read about our attorneys Peter G. Milne and Sean P. Healy and our staff. Subscribe to our RSS Feed through your favorite RSS Reader (such as Google Reader) and make sure to stay up to date by following us on Twitter, Facebook and LinkedIn.

The Healy Milne & Associates Team

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Estate-Tax Repeal Means Some Spouses Are Left Out and 2010 is a Great Year to Die

Because of congressional “malpractice”, the federal estate tax is repealed for all of 2010. As reported by Martin Vaughn in the January 2-3, 2009 issue of the Wall Street Journal, certain provisions included in most wills and trust documents that were written on the expectation that estate taxes were a fact of life for years to come is wreaking havoc in the world of tax attorneys and estate planners. One unintended consequence of Congress’ failure to do its job is caused by a common provision in a will or trust that direct assets not subject to the estate tax (the amounts excluded from the estate tax by law), bypass the surviving spouse and be directed downstream to benefit the decedant’s children. Since there is no estate tax in 2010, (100% exclusion) all the decedant’s assets will simply bypass the spouse and go straight to the children. Do not pass go, do not collect $200!

An even more creepy unintended consequence is the possibility that some wealthy, terminally ill person or those ungrateful kids who hate step-Mommy and who will stand benefit from Daddy’s early demise may choose to “pull the plug” in 2010 or pray that Daddy “goes to Heaven” sooner rather than later. We all know that a family who prays together stays together. “Take That!” Who says a Democratic controlled Congress doesn’t stand for “family values”?

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Welcome to Tylertaxlaw.com

Welcome to the Tylertaxlaw.com Blog – Peter G. Milne, P.C. We will use this space to relay thoughts, publishing, news and other things of interest that relate to the wonderful world of the law. In the meantime, make sure to visit our website.

Regards,

The PGM Team

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