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Tax Legislation Updates

July 29, 2015adminBlog0

The U.S. Supreme Court has issued many rulings lately, and one of them positively affects Maryland residents who pay income tax out of state. In May, the Supreme Court ruled that Maryland’s income tax law, that does not provide full tax credit to residents for income tax paid outside the state, is unconstitutional according toThe Washington Post’s “Supreme Court: Maryland has been wrongly double-taxing residents who pay income tax to other states.”

The ruling declared that Maryland’s practice of withholding credit on the county segment of a state income tax return creates a double-taxation situation for taxpayers. It’s not uncommon for out-of-state income to be taxed where the money is earned and again where the taxpayer resides; however, most states issue a full credit for the taxes paid on out-of-state income.

According to the Post article, the ruling affects approximately 55,000 Maryland taxpayers and may result in refunds totaling $200 million (with interest) to those who tried to claim the credit on county income tax returns between 2006 and 2014.

If you believe you have been double taxed during this time and may be entitled to a refund, please contact us, and we will be happy to help you!

Good News/Bad News
While this Supreme Court ruling is good news for taxpayers, it is bad news for municipalities that will now be losing that tax revenue. Quoted in the Post article, County Executive Isiah Leggett warns that the loss of revenue will have to be made up, and the likelihood is a significant increase in property tax next year.

Additionally, in preparing for a decision against this taxation format, Maryland’s General Assembly voted last year to reduce the interest rate paid on overdue refunds, lowering it to approximately three percent from 13 percent.

Click here to read the full article.

Tax Amnesty

In other tax legislative news, the Maryland General Assembly will enact a tax amnesty program that will run from September 1 to October 30, 2015. According toRevenews (issued by the Comptroller of Maryland), “Taxpayers who have failed to file a required return due or pay a tax imposed on or before December 31, 2014, may file an application with the Comptroller requesting a waiver of  all civil penalties (except for previously assessed fraud penalties) and one-half interest due to the State. The waivers will be granted for all taxpayers who timely file their applications and meet the terms of the amnesty program.”

The amnesty program applies to state and local income taxes, corporate income taxes, withholding taxes, sales and use taxes, and admissions and amusement taxes. Taxpayers who choose to apply to participate in the amnesty program may either pay outstanding tax debts in full or participate in a payment plan. The payment plan option must provide for full payment by December 31, 2016.

The state is offering this program in anticipation of generating $18 million in revenues for the general fund and $4.5 million in local revenues for the 2016 fiscal year. Taxpayers who took advantage of previous amnesty programs offered between 1999 and 2014 are not eligible for this program.

If you failed to file and pay owed taxes for 2014, contact us immediately, so we can oversee your application and assist you in making the right choices regarding your payment plan.

Resolving Back Tax Issues

There is a statute of limitation on the IRS’s ability to attempt to collect unpaid taxes. That limit is typically 10 years. That means the IRS can attempt to collect unpaid taxes for up to ten years from the date they were assessed. Outside of certain exceptions, after ten years the IRS must cease collection efforts.

The ten-year clock starts running on the date of the tax assessment. If you owe taxes, you will receive written notice from the IRS, effectively a bill. The date of the bill is the date the clock starts running. However, there are suspension periods that can occur that stop the clock, so the total time period can exceed ten years. These suspensions can occur during bankruptcy filings; if the IRS is considering request for an installment agreement, offer in compromise, or request for innocent spouse relief; or during times you live outside the U.S. for at least six continuous months.

However (and this is a big “however”), there is NO statute of limitation if you failed to file a return (or filed a false or fraudulent return or willfully attempted to evade tax payment).

If you find yourself in this situation, don’t go it alone and don’t rely on any tax service to help you. As an enrolled agent, Eric Waddy is fully licensed to represent you before the IRS. Enrolled agent representation is critical in this situation. If you have failed to file a tax return, it is important to do so in order to get the clock ticking on the ten-year statute of limitation. Contact us immediately to begin resolving your back tax and missing tax return issues.

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