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Tax Updates – Week of August 3, 2014

Updated: Feb 13, 2021

Sifting through all of the tax law changes so that you don’t have to…


Unless you have been living under a rock, you have probably heard of Corporate Inversions.  The following is a basic example of how these work.

In the United States, the highest corporate tax bracket is 35 percent.  This amount is on top of State Income tax.  Effectively, corporations could be paying up to 40 percent on their profits.  What has become popular as of late is something called a “Corporate Inversion.”  Typically, an American corporation will look to purchase a company that is overseas.  After the purchase, the company will renounce its citizenship in the United States and move their headquarters and tax base to another country.  One of the most popular places for companies to move is Ireland, where the highest corporate tax rate is 8 percent.  Doing a corporate inversion can save a large corporation billions of dollars each year in taxes.  Lately these inversions have been popular with pharmaceutical companies.  How are these inversions stopped?  That is the matter before Congress right now.  Stay tuned to see how this pans out.


Tax resolution deals mainly with taxpayers that owe the IRS a sum of money, and the Tax Resolution Company works to resolve the tax debt.  There are many ways to do this, but one of the more profitable for the Tax Resolution Company is to file an Offer in Compromise.  Let’s say you owe the IRS $200,000.  If you meet certain requirements the IRS will settle for less money than what you owe them.  This is called an Offer (you make the IRS an offer of a lesser amount) and the IRS Compromises (gets rid of) the debt.  Because unscrupulous Tax Resolution Companies want to make the highest amount of money possible on an engagement, they will file these offers by the hundreds, knowing very well that most will not be accepted.

We do not file one unless we have a 95 percent certainty that they will be accepted.  Only 20 percent of all offers filed are accepted.  Typically, by the time a taxpayer has filed an offer, the IRS has a lien against the taxpayer.  With a lien, the IRS can start aggressive collections actions.  When you file an offer, you have to give up a tremendous amount of personal information, like your bank account numbers, asset locations, and whom the assets are titled to, retirement account locations and account numbers.  If your offer is not accepted, guess what?  You have now just told the IRS where all of your assets are so they can come an levy them.  Be very careful when filing these offers. 


More likely than not, if your tax return is selected for audit, it will be handled by mail, and telephone.  The days of the face to face audit are becoming a thing of the past.  About ten percent of the tax returns that are filed each year are audited by the IRS.  Of that ten percent 90 percent are handled by correspondence.  With these audits being handled by mail and telephone, most taxpayers feel that they are tame in comparison to an office or field audit.  HOWEVER, we want to caution you on taking these audits on for yourself.  A correspondence audit carries the same weight as an office or field audit.

The IRS has something called the Taxpayer Bill of Rights. 

They include the following:

  1. The Right to Be Informed

  2. The Right to Quality Service

  3. The Right to Pay No More than the Correct Amount of Tax

  4. The Right to Challenge the IRS’s Position and Be Heard

  5. The Right to Appeal an IRS Decision in an Independent Forum

  6. The Right to Finality

  7. The Right to Privacy

  8. The Right to Confidentiality

  9. The Right to Retain Representation

  10. The Right to a Fair and Just Tax System


In what seems like the perfect storm headed toward the Supreme Court, two federal appellate courts issued conflicting decisions about the premium tax credit for taxpayers who purchase health insurance on exchanges set up by the Affordable Care Act (ACA). The credit is considered a critical piece of the law to serve as a subsidy to encourage individuals to buy insurance. The D.C. Circuit held that taxpayers on federal exchanges cannot claim the credit, but hours later the Fourth Circuit held that they can.

The U.S. Court of Appeals for the District of Columbia Circuit ruled that the regulation to implement the credit was invalid because it permitted individuals to claim the credit whether they bought coverage from the federal government or a state exchange. “Because we conclude that the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges ‘established by the State,’ we reverse the district court and vacate the IRS’ regulation,” the court said in its ruling.

Meanwhile, the 4th Circuit in Richmond concluded that the regulation was consistent with overall congressional intent: “If Congress wanted to limit the availability of premium tax credits to consumers who purchase health coverage on state-run Exchanges, it would have said so rather than tinkering with the formula in a sub provision governing how to calculate the amount of the credit.” Due to the mixed opinions, the tax credit will remain in effect pending a final resolution.

Thank you for reading this week’s tax updates.  Have a great week!

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