Dawn Connolly, Author at Barnard Vogler & Company

In response to the domestic violence case of Ray Rice and other NFL football players, a senator has introduced legislation to end the tax-exempt status of the National Football League as well as a number of other sports leagues.

Sen. Cory Booker, D-N.J., introduced the legislation which, if enacted, would end the tax-exempt status of 10 professional sports leagues, including the NFL, National Hockey League, Professional Golf Association and the U.S. Tennis Association.

Individual teams are taxed, but sports leagues typically file for tax-exempt status under Section 501(c)(6) of the IRS code. Some have held tax-exempt status for decades – the NFL’s tax-exempt status dates back to 1966.

Major League Baseball dropped its nonprofit status in 2007, reportedly in part because it didn’t want to make public large executive salaries. The National Basketball League never had tax-exempt status.

NFL Commissioner Roger Goodell earned a reported $44 million in 2012, according to published reports. The NFL brings in $9 billion a year.

Booker said the act could raise up to $100 million over the next 10 years, which could be used to support domestic violence prevention programs.

Booker is not the only government official trying to end the tax breaks for professional sports leagues. Sen. Tom Coburn, R-Okla., has been pushing to end the tax breaks since 2013.

Coburn wants teams with more than $10 million in annual revenue to lose their exempt status. In addition, he wants a number of leagues organized under 501(c)(6) to have their exempt status revoked.

Sen. Maria Cantwell, D-Wash., has joined the battle, saying she wants the exemption gone because of the NFL’s failure to force Washington to change its name from “Redskins.”

Code Sec. 501(c)(6) status means that these sports leagues do not pay any federal income tax. The code section refers to “business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of a private shareholder or individual.”

It is tough to get lawmakers in cities that have professional sports teams to back this legislation. Because of the interplay between ticket prices, fan loyalty and voting preference, sports fans might not look too kindly on their lawmakers if they help to increase the cost of event ticket prices.

The IRS has increased both the high- and low-cost per diem rates.

An employer that pays a per diem allowance in lieu of reimbursing actual expenses that an employee pays or incurs for travel away from home may use the high-low method. Under the high-low method, a high rate applies to areas designated as high-cost localities, and a low rate applies to every other locality within the continental United States.

The federal per diem rates are generally adjusted every Oct. 1. The 2014-2015 special per diem rates, according to IRS Notice 2014-57, have increased as follows:

➜ The high-cost area per diem rates increased from $251 to $259 per day.

➜ The low-cost area per diem rates have increased from $170 to $172 per day.

The IRS publishes a listing of various cities that it considers to be high-rate localities.

If you are away on business in one of these cities, you can use the high-cost per diem rate to reimburse yourself for lodging, meals and incidental expenses.

This rate would be in lieu of reimbursement for your actual expenses. By using the rate, you don’t have to keep a receipt for every single item you purchase.

If you are away on business in a city that is not considered to be a high-rate locality, you would use the low-cost area per diem rates for reimbursement.

Notice 2014-57 provides the new per diem rates and lists any additions or subtractions to the high-cost area list.

The rules and procedures regarding claiming per diem expense deductions are outlined in Rev. Proc. 2011-47. Only the per diem amounts have changed, not the basic rules and procedures.

There was a major change to the threshold percentage regarding the medical expense deduction in 2013.

Starting in tax year 2013, your medical expenses now must exceed 10 percent of your adjusted gross income (AGI) for you to receive any tax benefit from those expenses. The rate prior to the change in 2013 was 7.5 percent.

The old rule of 7.5 percent still applies if the taxpayer or his spouse attains age 65 by the end of the tax year in question. Older taxpayers will receive the preferred 7.5 percent rate until 2016.

So, for tax year 2014, if one spouse of a married couple is at least 65, the couple still is subject to the former rate of 7.5 percent.

The types of medical expenses that are allowed to be deducted are the same as they were in the past. Expenses for the diagnosis and treatment of physical disorders, travel and lodging costs related to such expenses, qualified long-term care expenses and medical insurance premiums are still deductible. The limit on lodging costs of $50 per day, per individual, is the same.

The general rule is that medical expenses are deductible in the year paid. Deductible medical expenses must be substantiated. It is always a good idea to keep a copy of all medical invoices and receipts.

Your local pharmacy can give you a printout of all of your prescription activity for the entire year. This is a nice, convenient summary instead of having a bunch of individual receipts that you accumulated during the year.

The invoices, receipts and prescription summary serve as your backup. Just a canceled check without any documentation supporting it would not be considered adequate substantiation by the IRS. The IRS can disallow any unsubstantiated deduction.

The amount that you pay in medical expenses during the year is reduced by any reimbursements that you receive from your insurance company. If the insurance company covered the whole cost of a procedure, you do not have an eligible medical expense deduction. Only out-of-pocket expenses paid by the taxpayer qualify.

The medical expense deduction is not limited to qualified expenses of the taxpayer but includes the taxpayer’s spouse and dependents. The cost of providing medical insurance coverage for your family, such as employee co-pays (if your employer provides you with medical insurance coverage), is an example. And qualified out-of-pocket expenses for the spouse and dependents qualify as well.

As an example, if you have an AGI of $50,000 and are under the age of 65, you will need more than $5,000 in qualified medical expense deductions to receive any tax benefit. If you have $7,000 of qualified medical expenses, $2,000 will qualify as a potential itemized deduction. If you do not itemize on your return, you receive no benefit from these expenses.

With insurance costs rising, companies increasing the size of employee co-pays, insurance companies limiting various types of coverage and many people out of work, it becomes more important to keep accurate records of your medical expenses to see whether you qualify for this type of itemized deduction despite the threshold being increased from 7.5 percent to 10 percent.

Courts

File your tax returns in a timely manner, or your filing status may be determined for you – by the IRS.

That’s the lesson Donald Thomas Salzer and his wife learned the hard way. They failed to file income tax returns for 2008 and 2009. Mrs. Salzer had refused to sign the 2008 and 2009 tax returns for political reasons.

Salzer and his wife had filed under the married filing jointly status from 1985 through 2007. However, when the IRS prepared returns for Salzer and his wife for 2008 and 2009, it selected the filing status of married filing separately for the taxpayers.

The difference in tax rates between the two filing statuses caused the taxpayers to have a deficiency on the returns for both years in question. Under normal circumstances, with the taxpayers filing jointly, they would have received a refund as they did in 2007. The amount of the 2007 refund was $1,375.

The taxpayers’ situation in 2008 and 2009 was almost identical to that of 2007. Salzer was still married, still had two dependents, had the same job, and was withholding in a similar manner. The taxpayers would have received a refund for 2008 and 2009 had the returns been prepared with the filing status of married filing jointly.

The Tax Court ruled recently that an individual was not entitled to claim joint filing status for a return prepared by the IRS after the individual and his wife failed to file a return for two years. The court further stated that joint return rates apply only if a married individual files a return jointly with his or her spouse. Joint filing status cannot be imputed. (Donald Thomas Salzer v. Commissioner, T.C. Summary Opinion 2014-59, June 24, 2014)

The court imposed penalties for failure to timely file and pay tax since the husband failed to address the penalties at trial. The amounts of the penalties are still in dispute and will be settled by the U.S. Tax Court Rules of Practice and Procedure.

Take seriously your responsibility to file your tax returns in a timely manner. If the IRS has to prepare your returns for you, under certain circumstances, they can change your filing status.

This case was tried in the U.S. Tax Court Small Case Division. The decisions do not serve as precedent for other taxpayers but are indicative of how the Tax Court may rule in a similar situation.

The date of an irrevocable letter of authorization sent to a financial services company by an individual should be considered the date of the contribution to his retirement account, the IRS determined in a recent private letter ruling.

This situation involved a taxpayer who sent his financial services company a letter of authorization (LOA) instructing the company to transfer funds from one of the taxpayer’s nonretirement accounts to an IRA. The date of the letter – April 15 – was treated as the day of the contribution.

Thus, if the LOA was postmarked by April 15, or if the individual made a verbal request to the company by April 15, the taxpayer is deemed to have made the contribution by the end of the preceding tax year. The verbal request must be summarized in a document and signed and dated by the financial services company.

The letter of authorization must specify the amount of the cash contribution, the account from which the funds are being transferred and the tax year for which the contribution is made.

The rules regarding an IRA account allow taxpayers to make contributions to their accounts by the due date of their returns without taking into account any extensions.

If a taxpayer made a contribution to his account by April 15, 2014, it would count as a 2013 IRA contribution because that is the due date for the 2013 return.

The issue here is that, although the actual transfer of funds occurred after April 15, the contribution authorized by the LOA was considered made in the preceding year. The IRS treated the date of the authorizing letter as the contribution date.

This private letter ruling (Letter Ruling 201437023, June 18, 2014) is consistent with a 1985 IRS private letter ruling in which the IRS stated that the postmark date of a contribution would be treated as the contribution date.

Please keep in mind that private letter rulings are not binding on the IRS. These rulings are based on a particular taxpayer’s facts and circumstances. There is no guarantee that the IRS would take the same position in another situation.

With tax season 2014 fast approaching, a few tips regarding donating property seem in order.

Specifically, clothing, household items and cars are the most common items donated to qualified organizations.

To receive a tax deduction, you need to donate the property to a qualified organization. A qualified organization includes nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals.

If you ask organizations whether they are qualified, most will be able to tell you.

The IRS has an online resource at IRS.gov. Click “Tools” and then “Exempt Organizations Select Check.” This online tool will allow you to search for qualified organizations.

The general rule regarding contributed property is that the amount of the charitable contribution is the fair market value of the property at the time of the contribution.

There are some special rules regarding clothing and household items. You cannot take a deduction for clothing or household items you donate unless the items are in good used condition or better.

The IRS is trying to stop people from donating items that are basically worn out and of no use to anyone. So, unless your donated items are in good condition, you will not be allowed to take a charitable contribution deduction.

Now let’s define the term “household items.” Household items are considered to be furniture, electronics, appliances, linens and other items. Some examples of items that are not considered household items include food, paintings, jewelry and collectibles.

Used clothing and household items are usually worth far less than what you originally paid for them. These items are difficult to value because they do not lend themselves to fixed formulas or methods.

A good habit to follow is to prepare a detailed list of the items you plan to donate. You should put a value on every item donated. Located next to the item should be its thrift shop value.

What thrift shops are selling the various used clothing and household goods items for is a good indication of the fair market value. Some of these thrift shops and charities actually have price lists that you can use as a guide.

Determining the fair market value of a car you donated is no problem if the value of the donation you are claiming is $500 or less. You can use a used car guide or a blue book to determine the fair market value of the donated car.

When using one of these guides, you should be honest about the condition of the vehicle. Very few people have cars in excellent condition. Most cars would probably fall into the average category. In addition, use the private sale price, not the higher dealer retail value.

If you are claiming a deduction of more than $500 for the car, the rules are a little more complicated. You will be able to deduct the smaller of the actual sales price of the vehicle received by the donee organization or its fair market value on the date of the contribution.

The donee organization will provide you with a Form 1098-C, which shows the gross proceeds from the vehicle sale. This 1098-C form must be attached to your return if you are mailing it in or transmitted as a PDF file if your software program allows you to attach it.

If you do not attach your Form 1098-C in some fashion, the deduction for the car will be disallowed by the IRS. This form serves as a type of control mechanism against taxpayers claiming inflated values for the used cars that they have donated – a problem with this type of donation in the past.

The key to donating clothing, household items and cars successfully is to know the rules for determining fair market value. Be reasonable when you are applying those rules. And always request some type of documentation from the charity when you donate.

An opinion piece by CPAmerica member R. Milton Howell, III, CPA, CSEP, Partner, Davenport, Marvin, Joyce & Co., LLP

Several years ago, the IRS issued its “Taxpayer Bill of Rights.” These spell out the minimum standard of service that you should expect from your dealings with the IRS (after all, the S in IRS is for, well, Service.)

To quickly summarize, the “Taxpayer Bill of Rights,” as published by the IRS,

is as follows:

1. The right to be informed. You are entitled to clear explanations of laws and to be informed about IRS decisions on your tax matters.

2. The right to quality service. You should expect prompt, courteous and professional service.

3. The right to pay no more than the correct amount of tax. You should pay only the amount you owe and all payments should be applied properly.

4. The right to challenge the IRS’ position and be heard. The IRS will consider your timely objections and documentation promptly and fairly.

5. The right to appeal an IRS decision in an independent forum. Administrative appeals and court actions are available as remedies.

6. The right to finality. You have the right to know when an audit has concluded, as well as the maximum amount of time for the government to audit or collect tax on a particular tax year.

7. The right to privacy. IRS inquiries, examinations and enforcement actions should be no more intrusive than necessary.

8. The right to confidentiality. Information provided to the IRS will not be disclosed unless authorized by the taxpayer or required under law.

9. The right to retain representation. You have the right to have a professional of your choice to deal with the IRS for you.

10. The right to a fair and just tax system. The government should consider other facts and circumstances that affect your tax liability, ability to pay or ability to provide information.

I would suggest that these “official” rights are a great idea, but they are really too conceptual and aspirational. They mean well, but these times require more specific rights that attempt to address the problems that taxpayers are having with our tax system.

Milton Howell’s suggestions for the “Taxpayer Bill of Rights,” written by a taxpayer for taxpayers:

1. The right to a prompt response to your inquiries. You should not have to wait 90 days or more for the IRS to acknowledge and respond to your letter, particularly when the agency may proceed with audit or collection actions that do not take your response into consideration.

2. The right to know what the rules are for that year before the year begins. Too many tax rules are decided at the end of the year, retroactive to the beginning of the year. A few times, it has been retroactive to the beginning of the prior year! This election year of 2014 is likely to be no different, with legislators wanting to wait until after the November elections to push needed tax bills through. You would not play a new board game without knowing the rules first – why should paying taxes be different?

3. The right to a simpler tax code with fewer rules and still fewer exceptions. The rules are just too darn complex, and fewer taxpayers should require a CPA’s assistance for basic tax issues.

4. The right to hold our tax agencies to the same standards of behavior and accountability to which they hold us. If I tell IRS auditors that I cannot get the information because the computer crashed and it could not be saved, do you think they would accept my explanation and drop the matter?

5. The right to greater year-to-year consistency in tax rules. Some tax law changes are quite significant from year to year, and taxpayers should not need to consult a scorecard from their accountant on every financial decision.

6. The right to be able to rely on IRS guidance and responses, whether verbal, in publications or on its website. If the IRS tells us that something is so, we should be able to count on that guidance – even if it is wrong.

7. The right for consistent application of laws, regulations and rulings. Whether an item is “income” should be a uniform answer, and it should not matter whether you are a corporation, partnership, LLC, trust or individual taxpayer.

8. The right to speak to a real person on the phone in less than 30 minutes. No one wants to, and should not have to, spend all afternoon on hold.

9. The right to a business fiscal year-end if it makes economic sense for my business. I realize this is already technically available, but the test hurdles are just too high to be practical. Right now, only the most bizarre fact patterns can make it work.

10. Here’s a technical but important one – the right to a conclusive determination of whether a working arrangement is that of an employee or an independent contractor. Perhaps publish an IRS form that both parties sign, agreeing to the form of the arrangement, and file the form with the IRS. This would provide protection against retroactive government changes to the arrangement. The government could change the arrangement if it is clearly wrong, but not for past years if the form was properly filed.

How about a set of tax rights that actually works for us? After all, it is our government.

Giant Eagle took a nose dive in a recent case before the Tax Court.

The huge supermarket and gas station chain wanted to claim a tax deduction for unredeemed discounts issued through its “Fuelperks!”campaign.

Fuelperks! offered customers discounted gas and diesel fuel from its GetGo gas stations when they presented a card while buying goods and services from Giant Eagle. All the fuel discounts were aggregated and used to reduce the price of fuel at the time of redemption. Any excess discounts could be held over on a loyalty card until they expired, which was three months from the last day of the month in which they were earned.

The chain store deducted the estimated costs of redeeming a portion of the issued Fuelperks! that were unexpired and unredeemed at the end of each tax year.

The Tax Court found against Giant Eagle because the unredeemed discounts did not satisfy the “all events” test since the liability for the discounts became fixed when the discounts were redeemed, not when they were earned.

The court said that an accrual basis taxpayer may receive a deduction in the year the expense is incurred under the all-events test when all three of the following requirements are satisfied:

1. All events have occurred that establish the fact of the liability.

2. The amount of the liability can be determined with reasonable accuracy.

3. Economic performance has occurred with respect to the liability.

In its Memoranda decision, the court said Giant Eagle failed the first requirement because all events had not occurred to establish the supermarket’s liability for unredeemed discounts (T.C. Memo, 2014-146, 108 T.C.M. 67).

Social Security has two funds: one for “old age and survivors” and the other for disability insurance.

The retirement fund is going strong and is funded through 2033, according to the recently released annual report of the U.S. Treasury.

But the disability insurance fund is depleting quickly. By 2016, there are projected to be enough funds to cover only 80 percent of scheduled payments. Legislation will be needed to address the imbalance, the report said.

The disability insurance fund provides income support for workers who have become disabled and cannot work to support themselves and their families. Nearly 9 million Americans receive disability insurance. The average monthly benefit is $1,129.

When the disability insurance program began in 1966, about 1 percent of the population received disability insurance benefits.

Today, nearly 5 percent of the working-age population receives benefits, in part due to such demographic factors as the aging of the Baby Boom generation, the increase in women’s long-term employment, which qualifies more of them for disability, and the declining job opportunities for older workers during recent years.

The fund has also become the target of widespread abuse as some workers are suspected of exaggerating the extent and length of their injuries to collect disability payments.

Social Security is funded through payroll taxes collected by the Federal Insurance Contributions Act (FICA) and the Self Employment Contributions Act (SECA).

The money is placed into two trust funds:

1. The Old-Age and Survivors Insurance (OASI) Trust Fund

2. The Disability Insurance (DI) Trust Fund

These funds hold the accumulated assets and disburse benefit checks. The trust funds hold securities issued by the federal government, including marketable Treasury bonds and special issues.

The 2033 projection for depletion of the old-age and survivors fund is the same this year as it was last year.

After 2033, the dedicated payroll tax will be sufficient to fund three-quarters of scheduled payments until 2088 with annual income coming into the fund. Legislation would need to be enacted by that time to restore long-term solvency.

In 1982, the OASI trust fund was nearly depleted. Congress enacted emergency legislation that allowed borrowing from other federal trust funds, and no beneficiary was shortchanged. Legislation was later enacted to strengthen the OASI fund.

The borrowed amounts were repaid with interest within four years, the Social Security Administration reported.

Medicare also has enough funds through 2030, the report said.

The Medicare Insurance Trust Fund will have sufficient funds to cover its obligations until 2030, 13 years later than was projected prior to the Affordable Care Act. After 2030, 85 percent will be covered, declining slowly to about 75 percent by 2050, the report said.

Part B of Supplementary Medical Insurance, which pays doctors’ bills and other outpatient expenses, and Part D, which covers prescription drug coverage, are both projected to be financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs, according to the Treasury.

But as the population ages and healthcare costs rise, costs are projected to grow steadily from 1.9 percent of GDP in 2013 to 3.3 percent in 2035 to 4.5 percent by 2088. Roughly three-fourths of these costs will be financed from general revenues, and about one-quarter from premiums paid by beneficiaries, the Treasury report said.

If you’re getting married – or divorced – and you or your spouse is insured through the Health Insurance Marketplace, you need to inform the Marketplace of your change of status.

This is especially important if you receive premium assistance through advance payments of the premium tax credit through a Health Insurance Marketplace.

Other changes in circumstances that you should report to the Marketplace include:

Birth or adoption of a child
A new job
Loss of a job
A new address
Gained or lost eligibility for employer or government-sponsored healthcare coverage
Any change that might affect family composition, family size, income or your enrollment

Informing the Marketplace about any changes in your status enables the Marketplace to ensure that you have the right coverage for you and your family as well as to adjust the amount of advance credit payments that the government sends to your health insurer.

By reporting the changes, you can prevent having too much or not enough premium assistance paid to reduce your monthly health insurance premiums.

Getting too little could mean missing out on monthly premium assistance that you deserve. Or, receiving too much premium assistance could mean you will owe money or get a smaller refund when you file your taxes.

A change in status can also affect eligibility for coverage through your employer or your spouse’s employer because that will affect your eligibility for the premium tax credit.

Some life events – such as marriage – give you and your spouse the opportunity to sign up for health care during a special enrollment period. That means that if one or both of you are uninsured, you may be able to get coverage now.

The special enrollment period for Marketplace coverage is typically open for 60 days from the date of the life event.

For more information, see www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Home. IRS Publication 5152 contains information about reporting changes in circumstances to the Marketplace