Tax Identity Theft Victims Can Now Get Copies of the Fraudulent Returns

The IRS has begun allowing victims of identity theft to request a redacted copy of a fraudulent return that was filed and accepted by the IRS using the identity theft victim’s name and SSN. [ Editor’s Note: This change is attributable to a request made in a letter dated 5/17/15 from U.S. Senator Kelly Ayotte to IRS Commissioner Koskinen stating that it was “deeply troubling that the IRS does not help victims by providing them with copies of the fraudulent returns so they can determine what information was stolen.”] Due to federal privacy laws, the IRS will disclose the return information only to victims whose name and SSN are listed as either the primary or secondary taxpayer on the fraudulent return and not to any person listed only as a dependent. Instructions for requesting copy of fraudulent returns can be found at https://www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-Returns.

Expansion of Tax Benefits to Same-Sex Married Couples

The Supreme Court’s decision in Obergefell v. Hodges (2015-1 ustc ¶50,357) on June 26, 2015 continues what was set in motion in 2013: the expansion of tax benefits to same-sex married couples. In Obergefell, the Court ruled 5 to 4 that the Fourteenth Amendment requires a state to license a marriage between two people of the same sex. The Court further held that states must recognize a marriage between two people of the same sex when a marriage was lawfully licensed and performed out of state.

Background

In 2013, the Supreme Court decided Windsor v. U.S (2013-2 ustc ¶50,400). Windsor was an estate tax case, which challenged Section 3 of the federal Defense of Marriage Act (DOMA). Section 3 defined marriage as a man-woman relationship for federal purposes. The Court in Windsor struck down Section 3 as unconstitutional.

After Windsor, the IRS issued Rev. Rul. 2013-17. The IRS announced that it would take a place of celebration approach to same-sex marriage. The IRS would recognize, for federal tax purposes, a marriage of same-sex individuals that was validly entered into even if the married couple is domiciled in a state that did not recognize the validity of same-sex marriages. In Notice 2014-19, the IRS issued guidance for retirement plans, reflecting Windsor.

Since Windsor, a number of cases challenging state bans on same-sex marriage moved through the federal courts, including Obergefell. The Supreme Court agreed to hear Obergefell.

Obergefell decision

Justice Anthony Kennedy delivered the Court’s opinion in Obergefell. Kennedy wrote that the “the Fourteenth Amendment requires a State to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-State.”

State prohibitions on same-sex marriage, Kennedy added, “abridge central precepts of equality. Same-sex couples are denied all the benefits afforded to opposite-sex couples and are barred from exercising a fundamental right. The Equal Protection Clause, like the Due Process Clause, prohibits this unjustified infringement of the fundamental right to marry.”

However, four justices dissented. The dissenting judges would have held that the fundamental right to marry does not include a right to make a State change its definition of marriage. “The people of a State are free to expand marriage to include same-sex couples, or to retain the historic definition.”

Going forward

For federal tax purposes, the treatment of same-sex couples as on par with opposite-sex couples since the Windsor decision will continue unchanged. The IRS is likely to issue more guidance to reflect the Court’s decision in Obergefell. Many other federal agencies, such as the Social Security Administration, also are expected to issue guidance reflecting Obergefell. The Obergefell decision also impacts retirement, pension and health care benefits of many same-sex married couples.

For state tax purposes, same-sex married couples in states that did not recognize their marriages have had to file as single individuals for state tax purposes. Under the Obergefell decision, these couples have a Constitutional right to file amended returns as married at the state level. Whether the normal three-year limitations period for filing these amended returns will apply remains to be tested. Also uncertain may be whether same-sex married couples must now retroactively file jointly or whether re-filing will be made optional, either state-by-state or nationwide.

If you have any questions about the Supreme Court’s decision in Obergefell and its impact on taxes, please contact our office at (636) 946-2800.

Obama’s 2015 Tax Proposals Offer Help for Middle Class Families

President Obama and the White House unveiled Obama’s tax program for 2015, with proposals designed to help middle class families. The proposals include providing a new $500 credit for two-earner families; enhancing the earned income tax credit (EITC), the child credit, and the dependent care credit; reforming and consolidating the multiple tax breaks for education; and expanding retirement savings vehicles. The tax cuts are estimated to cost $175 billion over 10 years.

The President would pay for the proposals by increasing increased taxes on capital gains and dividends; closing the “trust fund loophole,” and imposing a new tax on borrowing by the largest banks and financial firms, those with assets over $50 billion.  The White House indicated that these “loophole” closers would raise $320 billion over 10 years.

Relief for Families

Obama proposed to triple the maximum child and dependent care credit for qualifying families with children under five. Families could claim a 50-percent credit for up to $6,000 of expenses per child under age five. Existing enhancements to the EITC would be made permanent, and the credit would be expanded to taxpayers without children and to noncustodial parents.

For education credit, the President proposed to make the American Opportunity Tax Credit (AOTC) permanent and to increase the refundable portion to $1,500. A partial credit would be available to part-time students, and all eligible students could claim the AOTC for five years. However, earnings on contributions to Code Sec. 529 education plans would no longer be tax-exempt.

The President proposed to provide additional tax relief to small businesses that offer a new retirement plan, such as a 401(k) plan, or that start automatically enrolling workers in their plan. Tax credits would also be available to offset administrative costs. Employers who do not offer a retirement would be required to offer an automatic IRA savings vehicle.

Taxes on the Wealthy

The President’s proposals would increase the top tax rate on capital gains and dividends from 23.8 percent to 28 percent. An estate tax proposal would eliminate stepped-up basis at death (labeled the trust fund loophole) for inherited assets to the extent of capital gains of $200,000 or more per couple, with an additional $500,000 exemption for personal residences. The proposals would impose a 7 basis point fee on the liabilities on the roughly 100 largest financial firms. (Presumably, the 3.8 percent net investment income tax would no longer apply to capital gains and dividends subject to the higher tax rates.)

Read more at http://www.treasury.gov/resource-center/tax-policy/documents/general-explanations-fy2015.pdf.

2014 Tax Organizer Is Ready!

It’s time to begin your “gathering process” for your annual taxes.  Botz Deal’s 2014 Tax Organizer is now available. The organizer will make you aware of items in your personal life that will affect your current year’s income taxes and provide a place to record this information.  Once you begin using this organizer on an annual basis, it will also indicate all figures on last year’s tax return to serve as a reminder for the current year.