Articles Posted in Tax Laws

Student loans are now one of the highest sources of debt for Americans, with more than $1 trillion owed. On average, college students graduating with about $30,000 of debt, and many can barely afford to make their loan payments each month.

Earlier this year, President Obama expanded the “Pay as You Earn” program, which is intended to help borrowers in this situation by basing their monthly loan payments on their income. Then, after 20 years of consistent payments, any remaining student loan balance is forgiven.

This sounds like a great program, but it has a catch. The Internal Revenue Service considers forgiven debt to be taxable income, which means the student loan debt that is forgiven after 20 years of consistent payments will come with a tax bill that could be tens of thousands of dollars.

hanks to the efforts of the “national taxpayer advocate,” Nina E. Olson, the Internal Revenue Service recently adopted a “Taxpayer Bill of Rights.” If you have received an audit notice or fear that you might, it’s important to know how your rights protect you.

Under the Taxpayer Bill of Rights, you have the right to:

1. Be Informed

It’s no secret that people in New York and all around the country dislike paying taxes. While most people see it as a necessary part of being a citizen, some people will go to great lengths to mitigate potential tax issues. This includes, in the most extreme cases, actually renouncing U.S. citizenship in favor of that of another nation in order to avoid American taxes.

This is rare, of course, but it does happen. A recent high-profile case involves singer Tina Turner. She has lived in Switzerland since the mid-1990s because her now-husband — a German record executive — was based there. Turner said in January that she planned to intended to become a Swiss citizen and renounce her U.S. passport.

Observers say it isn’t likely that this was a move based solely on tax concerns; Turner is a longtime resident of Switzerland, so being a citizen of the country in which she resides makes sense. There were many hoops she had to jump through in order for the process to take place; she had to get approval from both local and federal governments in order to receive her citizenship.

The classification of profits as ordinary income or capital gains can be a controversial issue, even for professional securities and financial professionals. Recently, Renaissance Technologies, a New York hedge fund, found itself embroiled in tax controversy with officials from the Internal Revenue Service over this very issue.

There is a potential profit motive behind the distinction, of course. Capital gains are taxed in a lower tax back. If the event resulted in lost income, characterizing that downfall as a capital loss may also have tax benefits. In addition, a capital loss might have carryback potential to the three taxable years before the event or carryover to the five years following the loss year.

Yet the issue can also affect — and confuse — individual taxpayers. Investment gains or losses usually qualify as capital gains or losses. However, taxpayers may wonder how to characterize other sources of income, such as income from a rental property or sole proprietorship.

New York City residents may already be making beach plans for the Fourth of July holiday. Long Island boasts a number of popular destinations, including the luxurious Hamptons. Such beach communities are so desirable that many New Yorkers may secretly wish they could live there year round, perhaps keeping only an apartment in New York City.

Remarkably, one couple seems to have managed that feat — without potentially adverse tax consequences. The couple was recently the subject of a tax audit by the New York Division of Tax Appeals. City officials believed the couple should have been liable for the tax implication of having a permanent residence in the city. However, the couple maintained that their permanent resident was actually in the Hamptons.

A taxpayer seeking to prove domicile to tax officials must typically present a number of factors. The length of time spent at a location is one such factor, of course. However, it is not the only one, as the taxpayers in this case spent roughly divided their time between their Hampton address and their New York City apartment.

Both Taxpayers and the IRS are bound by certain time limits within which various tax-related actions must be taken. Collectively these laws are known as the Statute of Limitations. If the time allotted runs out, or the Statute of Limitations expires, the parties lose their right to collect money owed to them: the taxpayers lose their right to claim a refund, and the IRS loses its right to collect taxes owed.


Generally the Taxpayer must file a refund claim within three (3) years of the original due date of the tax return or, if a request for an extension was filed in a timely fashion, within three years of the extended deadline. The 3 year time limit also applies to the filing of amended returns claiming additional refunds. Once the period expires, any refund to which the taxpayer may have been entitled is entirely lost – taxpayers will not see any money, nor will they be able to apply the refund to tax liabilities incurred in other years.

As a tax lawyer, it is interesting to see that as fraud and stolen identities is on the rise when filing returns, the Internal Revenue Service is trying to find new ways to improve how it verifies returns before issuing tax refunds.

A new report from the Government Accountability Office stated that the IRS does not receive many information returns before they issue refunds to taxpayers. For the 2011 tax year, the IRS issues approximately 50% of refunds to individuals by the end of February, however, they only received and processed 3% of the information returns from businesses.

Information returns are a tax documents, used by tax lawyers to prepare income tax returns, which businesses are required to file with the IRS. This is done to document business transactions by third parties, and is how the IRS gathers information on taxpayers. Information returns can include Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G.

Each year on April 15, taxpayers find themselves unprepared to file their tax returns with the Internal Revenue Service or New York State. Taxpayers may be unprepared for any reason such as; procrastination, did not receive all the paperwork needed to file the return, or complexities of the return they have to file. Over ten million Americans each year get an extension on filing their federal income tax returns, so it is common.

Filing for an extension is relatively easy for taxpayers. You do not have to provide the Internal Revenue Service with a reason or excuse, and they will not deny your application if you do or do not have a reason. However, it is important to note that when you file an extension on your current tax year, you are filing an extension of time to file, but this is not an extension of time to pay. If you believe that you will owe taxes and you decided to file for an extension, you should include a payment with your extension request. The IRS will still impose penalties on the tax debt owed and not paid by April 15, and the debt will accrue interest if not paid on April 15 each year.

There are several avenues that taxpayers can take when filing for an IRS extension. They will need to file Form 4868, the Application For Automatic Extension of Time to File U.S. Individual Tax Returns. This can be filed online through, or it can be filed on paper after the taxpayer mailed the form in. If you file electronically, you do not need to mail in the form as well. Taxpayers can request an automatic extension of time to file their federal income tax return by paying part or all of the estimated income tax owed by credit card using the Electronic Federal Tax Payment System (EFTPS). This can be done by phone or internet, and the information is listed on Form 4868.