Category: Legal News

Impacts of the IRS Taxpayer Relief Initiative

Despite the $2.2 trillion stimulus bill released by the Federal Government in late March and the IRS’s People First Initiative to support businesses and individuals through the pandemic, many are still experiencing financial woes. And as president-elect Joe Biden pushes lawmakers to pass another relief package, the IRS recently announced that it will expand taxpayer options for making payments through the Taxpayer Relief Initiative to give flexibility to those still struggling financially.

Details of the Initiative

The IRS has always given taxpayers some alternate tax-payment methods, but this new plan expands the offerings. Here are the key items to note:

  • Qualified individual taxpayers who earn under $250,000 a year may be able to establish an installment agreement without providing a financial statement if their monthly payment proposal is deemed sufficient.
  • Individual taxpayers who only owe for 2019 and who also owe less than $250,000 may qualify to establish an installment agreement without the IRS filing a federal tax-lien notice. 
  • The IRS extended the deadline for short-term payment plans to resolve tax liabilities to 180 days, rather than 120 days. 
  • There is more flexibility for taxpayers who can’t meet the payment terms of an existing offer-in-compromise agreement. (An offer in compromise allows taxpayers to settle their debt for less than the full amount owed.)
  • For any organizations no longer in business, the IRS will automatically adjust certain tax balances of existing installment agreements. 
  • Qualified taxpayers with existing direct-debit installment agreements may be able to request a lower monthly payment rate. They may also be able to change their due date through the online payment-agreement system.

These changes do not apply to cases that are assigned to a revenue officer in field collection.

Taxes can be confusing and challenging to meet. The IRS Taxpayer Relief Initiative should help taxpayers alleviate some of the stress and confusion surrounding their taxes.

Check out our other blog addressing the impacts a new administration could have on estate taxes.

4 Ways the Biden Administration Could Impact Estate Taxes

Despite some pending lawsuits from the Trump Campaign, Joe Biden is the presumed President-elect of the United States. As we look to a Biden Administration, you may have questions about how the tax code could change. Will you owe more or less in taxes? How will this affect you and your family? Especially for those with high accumulated wealth, changing estate taxes is a primary concern. We’re covering what you can expect under a Biden Administration and how to prepare.

1. The Biden Campaign proposed returning estate tax levels to “historical norms.” 

Currently under the TCJA, the federal estate-tax exemption is $11,580,000 ($23,160,000 per married couple). This means that you can transfer up to this amount during life or at death to a beneficiary without incurring federal estate or gift taxes. Any amount in excess of this exemption is subject to taxes. 

Although President-elect Biden has not yet clarified what “historical norms” exactly means, it could indicate a return to Obama-era tax levels. This could lead to a reduction of the estate tax exemption amount to $3,500,000 ($7,000,000 per married couple) and a reduction of the gift tax exemption amount to $1,000,000 ($2,000,000 per married couple). So any estate or gift amount in excess of the exemption amounts would be subject to estate or gift taxes.

Biden, according to the tax plan he released before the elec­tion, would raise taxes on individuals with incomes above $400,000. This would include raising individual-income, capital-gains, and payroll taxes. Biden would also raise taxes on corporations by raising the corporate income tax rate and im­po­sing a corporate-minimum book tax. Those who earn less than $400,000 per year would not see their taxes rise.

2. Biden returning estate tax levels to “historical norms” may also indicate that the top gift and estate tax rate could rise to 45%. 

Current estate-tax rates top out at 40%. But under Biden’s tax plan these levels could revert to 2009 levels at 45%. This, coupled with reducing estate and gift-tax exemptions, could mean that estates with assets exceeding the estate tax exemption level would owe more taxes. The Biden tax plan would not affect most taxpayers.

3. Biden has endorsed the removal of “Step-up in Basis.”

First, let’s figure out what “step-up in basis” means. When an asset is passed on to a beneficiary on the original owner’s death, the asset has often appreciated since the time the original owner obtained it. To avoid large capital-gains taxes, the asset receives a “stepped-up” cost basis. This cost basis is the market value of the asset at the time of the original owner’s death. Current policy taxes Capital-gain income on any amount that exceeds the cost basis. So, when an asset has a higher cost basis the capital gains taxes are much lower. 

For example, Clara purchases a home in 2000 for $300,000 but then passes it on to Ben at the time of her death in 2020; the house has now appreciated to $500,000. Since the market value of the home at the time of her death is $500,000, this is the new basis of the home. Later, when Ben sells the home for $550,000, the amount he is taxed on is $50,000—the difference, or the excess, between the selling price of the home and the cost basis ($550,000 – $500,000 = $50,000). So taxes are only due on any amount that the asset appreciated over the cost basis established at the time of the original owner’s death.

Biden has indicated that he may eliminate this benefit in his tax plan. This could mean that any unrealized appreciation of the asset could be taxed at the time of the original owner’s death. Alternately, this could mean that the cost basis for an asset is what the original owner paid. To use this application in our previous example, Ben would either owe capital gains taxes on the unrealized appreciation of the home ($200,000) or Ben would owe taxes on the asset if it were sold for any amount in excess of the original price/basis, which is $300,000.

4. If you have a high-value estate, be sure to review estate-planning strategies now.

The year is winding down and it is advisable to evaluate your current estate plans. Consider how to optimize the value of your estate before year-end should the tax code change. 

If you’re feeling confused about how potential changes in Federal Tax Code could impact your estate, we’re here to help! Contact us today to find out how estate planning could help you and beneficiaries of your estate.

How the Recent Michigan Supreme Court Ruling will Affect You

Throughout the COVID-19 pandemic, Michigan Governor Gretchen Whitmer has taken affirmative steps to limit the virus’s spread. Among other things, she issued dozens of executive orders to help flatten the curve by limiting social gatherings, requiring mask usage, and encouraging social distancing. These measures have had various effects on Michigan businesses and residents. But on October 5, the Michigan Supreme Court issued a landmark opinion curtailing the Governor’s authority to issue or renew COVID-19-related executive orders after April 30, 2020. Let’s dive a little deeper into the background of this case and the questions involved.

The Case

The Court dealt with two issues concerning the Emergency Management Act of 1976 (EMA) and Emergency Powers of the Governor Act of 1945 (EPGA). Governor Whitmer issued her executive orders regarding COVID-19 under these two acts. These put the Michigan in a “state of emergency” under both the EMA and EPGA on March 10, 2020. These orders also established requirements for face masks, business operations, stay-at-home mandates, and other emergency procedures. On April 1st, Governor Whitmer issued another executive order placing Michigan under a “state of disaster” under the EMA. The legislature extended these states of emergency and disaster until April 30th, 2020. On April 30th, Governor Whitmer re-declared these states of emergency and disaster under these statutes sans legislative approval.

At the beginning of the pandemic Governor Whitmer issued executive order EO 2020-17. It prohibited healthcare facilities from performing nonessential medical procedures under the state of emergency. The case of the Midwest Institute of Health, PLLC vs. Whitmer deals with the legality of the Governor’s emergency powers. You can learn more about the specific timeline of Governor Whitmer’s executive orders here.

The Michigan Supreme Court Opinion

The Michigan Supreme Court considered the question of Governor Whitmer’s ability to issue executive orders under the EMA and EPGA. They concluded the negative; the Governor does not have the authority to declare emergency orders under the EMA and EPGA.

Concerning the EMA, the Court unanimously decided that Governor Whitmer’s redeclaration of the state of emergency every 28 days was unlawful without legislative approval. This means that post-April 30th, it was unlawful for the Governor to redeclare the state of the emergency under the EMA without congress’s go-ahead.

In a 4-3 split, the Court ruled that the EPGA was an unconstitutional delegation of legislative power to the Governor. They cited that the statute grants the Governor emergency powers under the guidelines of “reasonable” and “necessary”. The Court determined that neither term places specific or meaningful limits on the Governor’s actions. Thus, the EPGA itself is unconstitutional.

The ruling in both cases means that Governor Whitmer will need to work with the state legislature on all future COVID-19 measures.

What this means for Michigan Residents and Businesses

This ruling means that the Governor’s executive orders issued after April 30th are unconstitutional. On October 12, 2020, the Court denied Governor Whitmer’s request to delay the effects of the ruling until October 30th to give the state time to “transition”. The Governor’s executive orders are no longer valid, so the Michigan Department of Health and Human Services has issued a COVID-19 order that impacts businesses. This order follows similar guidelines established in the Governor’s now-invalid executive orders, but under alternate authority. 

What Michigan employers can expect and prepare for:

  • Guidelines like face-mask mandates, social-distancing parameters, and other safety standards for the workplace still apply. 
  • The order states that employers may not require workers to gather together at the workplace in violation of the order if not “strictly necessary” to perform work duties. The order is somewhat unclear about what circumstances require in-person work. But, if applicable, Michigan businesses should begin documenting why in-person work is necessary for operations.
  • Since we do not know precisely how employers can require in-person work, it is not advisable to implement immediate or drastic change. Be sure to carefully review the adjustments made to the guidelines and how they impact the operations of your business. 
  • If in-person work is necessary, ensure that employees have the appropriate facilities and guidelines to follow the MDHHS order. 
  • Be sure to check with your local government officials to ensure that you adhere to municipal COVID-19 guidelines.

What residents can expect:

  • Guidelines like face-mask mandates, social distancing parameters, and other safety standards issued through the Michigan Department of Health and Human Services still apply. 
  • Just as with businesses, local government guidelines could also impact day-to-day life. If you’re confused about municiple guidelines, contact your local health authorities for more information. 

Even though we are all operating amidst great uncertainty, it is certain that Michiganders can expect some changes in the coming months. It is advisable to take it slow when changing your business’s COVID-19 procedures to maintain a sense of stability for your employees and customers.

We know that all of the rapid and dramatic change can be unsettling and confusing for you and your business. We’re here to help. If you’re wondering how this new ruling could impact you, contact the lawyers at Jones Obenchain!