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What the Defense of Marriage Act Means for Taxes
The Defense of Marriage Act (DOMA) was recently ruled unconstitutional, paving the way for federally- recognized gay marriage rights. What you might not know is that the case actually began as a tax case (United States v. Windsor). It began when a woman, Thea Spyer died, leaving an inheritance to her wife, Edith Windsor. Because gay marriage was not recognized by the federal government at the time, the inheritance didn’t qualify as a non-taxable bequeath to her spouse. Windsor then sued the U.S. government for a refund of the estate taxes paid on the inheritance and fought it all the way to the Supreme Court.
This has now created a world of tax issues as well as possibilities. (more…)
IRS Violates Due Process Law & Should be Illegal
As the IRS is a very complicated agency, there are many limits to what they can do and who they can take money from. As for IRS collections against alter egos and nominee liability, the system has taken it too far– violating the due process clause. If a person owes the IRS money, something they could do to protect themselves is put their property into a corporation name so that the IRS cannot take it away from them when it comes time to collect.
The absence of a notice goes against the Fifth Amendment. This is not only unjust, but unconstitutional, as everyone is entitled to their rights. The IRS creates unnecessary hardship for many people they go after through the collections process.
What this means is that a business can put their property into a corporation name, even if the corporation does not hold an actual presence, to protect themselves from the IRS. The business then becomes your alter ego, and the IRS will take whatever is in that businesses name to fulfill your tax debt. This gives the IRS a way to come after you. Sometimes, it’s without a notice. This is a wrongful and abusive way to collect tax debts and the actions lack due process. It’s a violation of the Fifth Amendment. (more…)
Michigan Back Tax Collection’s Crippling Effect on the Spirit of Entrepreneurship
Some people dream their whole lives about opening their own business. Some will work hard to achieve it, and some do nothing at all. Any business requires risk. Most business entrepreneurs know that. Most people who take a shot at owning their own business and miss, fall severely behind on their Michigan taxes. They are crushed with a massively inflated tax bill to deal with, all because for whatever reason, their business plan didn’t work out.
A Hypothetical, But Common Scenario
It’s 2006, and a husband and wife own a retail business. Let’s call them Mr. & Mrs. Carson. It’s a small mom-and-pop store that they have owned for many years, let’s call it Carson’s. The owners never really got rich off of the business, but it always managed to pay the bills and support a comfortable lifestyle for their family, and maintain a handful of steady jobs for the community. 2008 happens, and the economy suffers a decline. Everybody’s losing their jobs and cutting spending where they can. Unfortunately, what that means for Carson’s is that many of its customers have cut that shop and its products out of their family budgets. (more…)
Corporate Officer Liability
Debt collection is not usually a pleasant experience. If you own your own business, depending on the type of business entity you’ve chosen, like a corporation or LLC, you are granted a layer of protection from business debts. But, the asset protection benefits of forming a separate business entity will only get you so far. If you’re an officer of a corporation or manager of an LLC in the State of Michigan, there’s a chance you could be liable for the business’s tax debts.
Because corporations and LLC’s are their own legal entities, when one owes a debt, the creditor can generally only collect from the entity itself. Absent some special circumstances, creditors generally can’t go after the personal assets of the owners of the company to satisfy a business debt. However, as there are many exceptions to every rule, different limits apply in Michigan.
Sometimes, the State of Michigan will go after personal assets– and they don’t go easy on you either. In Michigan, if a business falls behind on its State taxes, the State will hold the officers of the corporation personally liable for the debt. This is called Corporate Officer Liability (COL). (more…)
Why Michigan Needs an Offer in Compromise Program
Generally, the Michigan Department of Treasury is prohibited by law from compromising the tax or principal balance on debts owed to the State of Michigan. This means that the Offer in Compromise program is not allowed in the State of Michigan. An offer in compromise, or tax settlement, is an agreement between a taxpayer and the IRS that settles a tax debt for a fraction of what is owed. This program is, in essence, a fresh start. See more.
How this works is the IRS looks at a taxpayer’s ability to pay their taxes, based on their assets, current income and living expenses, and future earning potential in deciding how much they will accept as a tax settlement. The federal government, on the other hand allows it through the IRS. This has been a long-standing offer-in-compromise program for individual taxpayers in appropriate cases. See more. (more…)
Reform is Necessary for Michigan’s System for Collecting Back Taxes
MARCS back tax collection service shows no mercy toward Michigan taxpayers.
Anybody who thinks dealing with the IRS tax collectors is rough should try for once dealing with the tax collectors for the Michigan Department of treasury. Unlike the IRS, the Michigan Department of Treasury outsources most of its tax collections to a third-party debt collector. Michigan uses a for-profit debt collection agency called GC Services, which operates its Michigan back tax collections under the name Michigan Accounts Receivable Collection System (MARCS).
I tend to be a strong supporter of reducing the size and scope of government by privatizing as many public functions as feasible, and I am not ideologically opposed to privatizing the collection of Michigan back taxes. However, the system Michigan has in place for collecting back taxes is an abomination and reform is necessary.
Like most other debt collection agencies, MARCS earns a certain percentage of the taxes it is able to collect. This gives them an incentive to take any legal actions at their disposal to collect as much money as possible. As a quasi-governmental entity, MARCS has been given far more power and authority than any other private entity to collect Michigan’s tax debt.
MARCS acts as an agent of the state and has most of the Treasury’s collection power at its disposal. They have the power to levy a person’s bank account without a court order. They can issue garnishments directly to employers without having to first go to court. They can garnish much more of your pay than any other debt collection agency. Every dollar they force someone to pay adds to their bottom-line and pads the pockets of the company’s owners and employees. (more…)
Income Tax in Michigan, Helping or Hurting?
For the most part, Michigan cities do not have their own income tax. However, some cities impose a local income tax in addition to the 4.25% Michigan income tax. These local taxes apply to anyone who lives or works within the city limits. The standard local tax rate, applied in 18 of the 22 local income tax cities, is 1% for residents and 0.5% for nonresidents. The other four cities: Detroit, Grand Rapids, Highland Park, and Saginaw, all charge higher rates for residents and nonresidents.
Why Local State Tax is Hurting
The government thinks that this will bring in revenue, but instead, it’s creating a disincentive for people to work in these cities. Cities like Flint, Detroit and Pontiac are chasing work out of the city. Local Michigan income taxes are just creating another reason for people to pack up and move out of the city. Not surprisingly, the 3 cities that charge their residents the highest income tax rates all lost most of their population in recent decades. (more…)
All About Internet Sales Tax
Fairness has been brought to the marketplace. Almost. Legislation on the ongoing debate of Internet sales tax has moved one step closer to enactment. The U.S. Senate approved a bill on Internet sales tax law Monday, which would require millions of consumers to start paying sales tax on online purchases (The Marketplace Fairness Act).
Currently in the United States, online retailers who have no physical presence in any given state can ship goods to customers without collecting that state’s sales tax. Many online retailers have been criticized for not collecting the sales tax, hence the new law arising. (more…)
10 Tips for Dealing with IRS Notices
The IRS sends out thousands of notices and letters each year for a number of reasons. Here’s some guidance from our Michigan tax lawyer, Venar R. Ayar, on ten things you should know about IRS notices in case you should receive one. The list of IRS notices could go on and on. Some are friendly reminders and some can be threatening. Pay attention to what they say. The main thing to remember—do not ignore it. If you receive a notice and do not act accordingly when something is requested of you, you will get more notices and they will become more threatening.
Types of Notices
Notices come in many forms. Generally, the IRS will send a notice if they believe you owe additional tax, are due a larger refund, are missing returns, notices regarding an audit, notice of reviewing and more. Balance due notices are sent to try and collect a past-due tax you owe to the IRS. After the first notice, they inform you that you may set up an installment agreement if you cannot pay in full. (more…)
Discharging Taxes in Bankruptcy
You cannot escape from tax debts owed to the IRS. Luckily, there are a few options to eliminate them. Some tax obligations may be discharged and managed through bankruptcy. In the world of tax debts, this is only an option if your tax debt qualifies for a discharge. Here’s some advice from our Michigan Tax Lawyer, Venar R. Ayar on the bankruptcy law as it applies to tax debts.
Discharge Taxes in bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 is the most common form of bankruptcy, known as liquidation bankruptcy, which involves the sale of a debtor’s non-exempt assets by a trustee. Any proceeds obtained by the bankruptcy debtors are then turned over to creditors. Chapter 13 does not involve liquidation, and usually a debtor is permitted to keep all of his property as long as the Chapter 13 plan complies with the law. (more…)