On January 1, 2018, the rules and procedures relating to IRS audits of partnerships, including those limited liability companies taxed as partnerships, (for purposes here, collectively, the “Partnerships”) will change. The Bipartisan Budget Act of 2015 (“BBA”)(26 U.S.C.A. §§6221-6241), which was signed by President Obama on November 2, 2015, is generally intended to make it easier for the IRS to audit Partnerships and to assess and collect underpayments of taxes. It allows the IRS to assess and collect taxes directly from the Partnerships rather than from the partners or members (for purposes here, collectively, the “Partners”) as was the case under the old rules. Continue Reading New IRS Partnership Audit Rules Take Effect Jan 1: What You Need to Know
After months, maybe years, of planning, raising capital, obtaining permits and waiting out construction, your gleaming new building is open and occupied. Soon, you’ll get a simple, one-page letter from your county’s Tax Assessment Office. What should you do if that letter indicates that your property is worth about a half-million dollars more than your appraisal reflects? Every Pennsylvania property owner is entitled to an annual appeal of their property assessment through the real estate tax assessment appeal process. Knowing the value of your property, your tax liability and whether you can reduce your tax burden through an appeal is as critical as managing any other area of your financial portfolio.
Calculating your Property Tax and Fair Market Value (FMV)
In Pennsylvania, real property typically incurs school, city/township and county taxes. Each of the three taxes is assigned a millage rate, which is used to calculate the property’s tax liability. To calculate the total real estate tax owed, the total millage of all of the taxing authorities is multiplied by the property’s assessed value. It is important to note that tax assessment appeals only challenge the assessed value of your property, NOT the imposed millage rate. Millage rates are published on each county’s website.
Employers doing business in the City of Philadelphia must pay taxes on wages (including salaries, commissions, and other forms of compensation) and net profits. A new ordinance shores up current enforcement mechanisms, arming the City with aggressive penalties on overdue taxes and giving private citizens an enforcement role.
About Ordinance 19-1509
Under Ordinance 19-1509, an employer with an overdue tax bill could face a law suit from the City Solicitor and could be liable for attorneys’ fees, interest, and penalties to the tune of two to three times the amount of taxes overdue.
To prevail, the City must show that the employer knowingly committed a Wage Tax or Net Profit Tax Law violation, conspired to violate the laws, or was involved in falsified tax records related to compliance with the laws. The bar for “knowledge” is fairly low, allowing an employer to be on the hook for damages if it (i) actually knows the taxes are unpaid, (ii) turns a blind eye to the unpaid taxes, or (iii) recklessly disregards the fact that wage and net profit taxes are not paid. The same rules apply to falsification of tax records.
Private Citizen Referrals
The Ordinance not only empowers the City Solicitor, but it also creates enforcement rights for private citizens. A private citizen may refer a case to the City Solicitor for investigation, and may even litigate the claim with or on behalf of the City Solicitor. In fact, the law incentivizes private citizen referrals by awarding, in some instances, a 15 to 25 percent award from proceeds of a successful recovery. The Ordinance also contains a clause prohibiting retaliation by an employer against whistleblowing employees.
The Moral of the Story
With such potentially devastating penalties at stake, employers must ensure that they pay wage and net profit taxes on time, and vigilantly maintain current and accurate tax records. Employers should also consult regularly with a responsible tax professional. If faced with a claim by the City Solicitor and/or private citizen, an employer should cooperate, refrain from taking any adverse action against any employees involved, and immediately contact legal counsel.
Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.
Catherine Nguyen is an Associate in the Construction Group and concentrates her practice in the area of construction litigation. She has represented clients in construction litigation, contract disputes, landlord-tenant matters and consumer protection cases.
By: Marian Kornilowicz and Mark Leavy
If you are a resident of Philadelphia, then you likely know about the ongoing turmoil surrounding Mayor Nutter’s pursuit of real estate tax reform. His plan is known as the Actual Value Initiative, or AVI, and will have the effect of increasing the real estate property taxes paid by homeowners in certain neighborhoods and lowering them in others.
Due to widespread concerns that there might be a dramatic increase in the taxes paid by homeowners, implementation of the AVI was postponed until the 2014 tax year. On October 18, 2012, the state Senate passed a bill necessary for the AVI to go into effect, and Governor Corbett is expected to sign the bill.
There is a critically important deadline coming up – November 15, 2012 – that no Philadelphia homeowner should miss. Even though it is more than a year before the new tax assessment and rates will go into effect in 2014, homeowners must submit a Homestead Exemption application by November 15, 2012 (if they have not already done so). As long as your Philadelphia residence is your primary residence, you can obtain a $30,000 reduction in the assessed value of your property for real estate tax purposes.
There is no reason not to take advantage of the potential tax savings – even though the actual dollar value of the “savings” you may realize is unknown. And, of course, calling it a “tax savings” may not really be accurate since the Homestead Exemption will probably only result in less of an increase in your taxes as a result of the AVI. This is shown in the following explanation and example.
The existing real estate tax law applies a tax rate to the “assessed value” of a property. The “assessed value” is currently set by the City at 32% of the “market value.” In 2012, the tax rate was 9.432%. So, for $100,000 of “market value,” 2012 real estate taxes were in the amount of $3,018.24 (9.432% x 32% x $100,000). In 2013, the tax rate is being increased to 9.771%. This results in taxes of $3,126.72 per $100,000. (9.771% x 32% x $100,000), or an increase of $108.48 per $100,000.
One of the big issues with the existing tax law was that the “market values” actually used are grossly inconsistent with reality. Typically, higher valued residential properties were grossly under-assessed and lower valued residential properties were over-assessed for tax purposes. This led to highly skewed real estate taxes for homeowners across the City. (Interestingly, commercial real estate was generally more accurately assessed.)
The AVI is intended to make the tax system more fair by using market values that reflect the current “actual value” of real estate. This is of great concern to homeowners because – instead of basing real estate taxes on 32% of the “market value” – taxes will now be based on 100% of the market value! For example and at the 2013 tax rate, real estate taxes on $100,000 of property value would be $9,771.00 – a more than $6,600 increase.
It is easy to see in this example how big of a difference the $30,000 Homestead Exemption could make. Using the same example of $100,000 of property value, the Homestead Exemption would apply real estate taxes based on $70,000 – which, at the 2013 tax rate, would produce taxes of $6,839.70. In this example, the Homestead Exemption would reduce taxes by in taxes of almost $3,000.
Now, real estate taxes will not become three times what they were “overnight” as shown in this example. It is expected that the AVI program will be implemented with a new, “lower” tax rate. The big question on everyone’s mind is what the new rate is going to be – and it remains unknown for every homeowner at what value their home will be assessed, and what their resulting real estate taxes will be.
So, no one knows for sure how much their 2014 taxes will be. About the only thing you can be sure about is that a $30,000 reduction in market value under the Homestead Exemption will blunt the impact of the tax increase coming in 2014.
Marian A. Kornilowicz is the Chair of the Business Practice Group of Cohen Seglias Pallas Greenhall & Furman PC. His practice is concentrated in the representation of clients in varied business transactions and real estate matters.
On March 23, 2010, President Barack Obama signed the comprehensive health care reform law (Reform) to expand health care coverage in the United States.
Impact of Comprehensive Health Care Reform Law on Employers
It is an understatement to say that the Reform bombards employers with information – and fair to say that the Reform’s many new obligations present a potential compliance nightmare for them.
The Reform is an ever moving target. Employers are faced with the challenge of effectively managing their business in light of the “bigger picture” financial and tax implications of the Reform. This situation is further complicated because different aspects of the Reform become effective at different times over the next several years. Even more confusing, interpretations of the Reform’s provisions keep changing.
Recent Amendments to the Comprehensive Health Care Reform Law
Initially, the Reform required employers to report group health care plan costs on all 2011 W-2 forms. On October 12, 2010, the Internal Revenue Service (IRS) announced that this requirement would not go into effect until the 2012 tax year.
Given its purpose to expand health care coverage, the Reform subjects employer-sponsored health care plans to non-discrimination rules under IRS Code Section 105(h). In a nutshell, plans cannot “discriminate” in favor of highly compensated employees (HCEs) by giving HCEs extra or excessive benefits. Under the grandfathering rules – a critical aspect of the Reform – certain existing employer-sponsored health care plans could enjoy either a delayed effective date for compliance with, or a total exception from, certain (but not all) of the insurance reforms and new coverage mandates. Grandfathered plans do not have to comply with the non-discrimination rules.
Changes in the Grandfathering Rules
Originally, grandfathered status could be lost if an employer significantly changed the deductibles, co-payments or benefits offered or changed carriers. Specifically, the limitation on the ability of an employer to keep its grandfathered status if it shopped around for, and selected, a new insurance policy, was heavily criticized. On November 15, 2010, the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the IRS announced an amendment to the grandfathering rules in response to the criticism. This revision lifted the restriction against entering a new insurance policy.
Whether or not a health care plan is grandfathered will determine an employer’s compliance obligations. It is critical that employers fully understand that changes in their health benefit plans could result in the loss of grandfathered status. The loss of grandfathered status triggers the obligation to comply with coverage mandates and non-discrimination rules that would otherwise be inapplicable.
Comprehension of the grandfathering and non-discrimination rules is essential for employers to be able to work with their benefits plans and avoid potentially costly missteps. HHS continues to field many questions, and to revise and clarify the rules governing the Reform. The Labor & Employment Group at Cohen Seglias will continue to monitor any developments regarding the evolving comprehensive health care reform law, and provide updates regarding any significant changes. Should you have any questions or concerns about how the latest changes may affect your business, please do not hesitate to contact Marc Furman or Jonathan Landesman.