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IRS Provides Tax Relief for Victims of Severe Storms and Flooding in South Carolina

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Victims of the severe storms and flooding that took place beginning on October 1, 2015 in parts of South Carolina may qualify for tax relief from the Internal Revenue Service. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in South Carolina will receive tax relief. The President has declared Berkeley, Calhoun, Charleston, Clarendon, Darlington, Dorchester, Florence, Georgetown, Horry, Kershaw, Lee, Lexington, Orangeburg, Richland, Sumter and Williamsburg counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Oct. 1, and on or before February 16, 2016 have been postponed to February 16, 2016. This includes the Oct. 15 deadline for those who received an extension to file their 2014 return. In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Oct. 1, as long as the deposits were made by Oct. 16, 2015.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period. The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A- 1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area that was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Feb. 16, 2016 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Oct. 1 and on or before Feb. 16, 2016. The IRS also gives affected taxpayers until Feb. 16, 2016 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Oct. 1 and on or before Feb. 16, 2016. This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above. The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Oct. 1, and on or before Oct. 16 provided the taxpayer made these deposits by Oct. 16, 2015.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors. Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions. Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “South Carolina, Severe Storms and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation “Severe Storms and Flooding in South Carolina” in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS. Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case. Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-829-3676. The IRS toll-free number for general tax questions is 800-829-1040.

Call Our Tax Planning Experts

If you have been affected by the historical flooding and storms in South Carolina and have tax questions, call one of our tax planning experts today at 919-787-7711 to get a review of your specific situation.

Kristine L. Prati Successfully Defends Industrial Commission Case

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Kristine L. Prati has successfully defended a case before the Industrial Commission.  At issue was whether the employee was entitled to medical and indemnity benefits as a result of an occupational disease she allegedly sustained at one of her last three employers.  On July 17, 2015, the deputy commissioner filed an Opinion and Award, determining that the employee is disabled as a result of her current medical condition; however, her medical condition was not caused by her employment with any of the named employers.

Recent North Carolina Workers’ Compensation Case Summaries

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The attorneys at Wilson Ratledge stay up to date with the latest North Carolina Workers’ Compensation cases in order to provide you the best possible outcome. Below you will find the some of the most recent North Carolina decisions.

August 5, 2015

Battle v. Meadowbrook Meat Co. (Ordinary duties)

Plaintiff testified that it was normal for delivery drivers, like him, to lean over and maneuver on pallets when making deliveries when pallets could not be moved. Plaintiff felt something in his arm pull loose when reaching down the side of a pallet to pull up a box. The Industrial Commission found that Plaintiff did not suffer a compensable injury because there was no unusual circumstance from the work performed.

Zapata Dominguez v. Francisco Domingez Masonry, Inc. (Self-employed wage earning capacity)

Plaintiff was the owner and a crew leader of Defendant company, and was the primary contact for subcontract work. Plaintiff sustained an injury which would not allow him to perform the physical duties of a brick mason. To determine if a self-employed employee has wage earning capacity, the Commission must look to whether he 1) is actively involved in the day-to-day operation of the business and 2) uses skills which would enable him to be employable in the competitive market place not withstanding his physical limitations, age, education, and experience. In this case, since Plaintiff could work as the crew leader and supervisor, he was not totally disabled, and did have wage earning capacity.

Butler v. Drive Automotive Industries of America, Inc. (Employment law, Joint employment)

In this recent 4th Circuit case, Plaintiff was hired by ResourceMFG to work at Drive. Plaintiff was harassed about her body, was called vulgar nicknames, and was touched by one of her supervisors. Plaintiff reported the behavior to ResourceMFG, but nothing was done. Plaintiff was asked to perform work day and she refused due to being tired from the overtime she was working. Drive’s supervisor cussed at her, and called her a vulgar nickname. When she told the supervisor she did not like the name calling, he told her she was a temp and was expendable. Only a few days later, Drive contacted ResourceMFG about terminating Plaintiff. Drive’s supervisor called Plaintiff and told her he could save her job in exchange for sexual favors. Plaintiff refused and was fired. Plaintiff then filed a Title VII action.

The case was moved to federal court, and the staffing agency was dropped from the lawsuit. Defendants won at a summary judgment hearing, wherein the judge found that Drive did not exercise sufficient control over Plaintiff’s employment to entitle her to a Title VII action. Although Plaintiff wore the uniform of ResourceMFG, Drive determined Plaintiff’s work duties, scheduling and supervision.

The 4th Circuit reviewed tests from other Circuits. The “control” test looks at who has the authority to hire and fire the employee, and set the conditions of employment; who supervises the employee day-to-day; and who controls the payroll, insurance and taxes of employee. The “economic realities” test determines which entity the employee relies on for work, not necessarily who is writing the paychecks.

The 4th Circuit ultimately adopted a hybrid test between the control and economic test, and determined that the joint employment doctrine was the law of the Circuit, and that an employee may have two employers, opening up claims against more employers in the future.

Will you be subject to estate tax?

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Many unsuspecting middle class households may be subject to estate tax even though they wouldn’t classify themselves as “rich”, according to a recent MarketWatch study. The current federal estate tax exemption is a generous $5.43 million for estates of individuals who die in 2015, but that can be easily exceeded by individuals with significant life insurance proceeds, a nice home and healthy retirement accounts.

The estate value for federal tax purposes includes a number of things, such as proceeds from any life insurance policies, any residences (primary/vacation/etc), retirement accounts, investment accounts, closely held business ownership interests, cars, boats, furniture and more.

To avoid estate tax where life insurance coverage puts you over the limit, you can have an experienced North Carolina estate tax attorney put together an irrevocable life insurance trust to own any policies that you may have, as well as help you determine the best option to proceed with the rest of your estate planning. There are downsides to an irrevocable life insurance trust, though, such as not being able to make changes to the policies after ownership is transferred to the trust.

Even if you don’t have exposure to the federal estate tax due to the generous exemption, you may be subject to state taxes. In North Carolina the legislature repealed the estate tax in July 2013. Florida also has no state estate tax, and has also done away with any inheritance tax.

For any questions about your estate planning or personal tax situation, call one of our estate planning experts at 919-787-7711 or contact us online to schedule a consultation.

Are you liable for the Trust Fund Recovery Penalty?

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What are “Trust Fund Taxes”?

“Trust Fund Taxes” refer to any taxes required to be withheld on behalf of an employee by an employer for federal tax purposes. These include income tax withholding, social security, and Medicare taxes. Simply put, as an employer you do not pay your employee all of their wages. Instead, you have a duty to withhold certain federal tax portions from your employees’ paychecks. You hold these funds “in trust” for the federal government.

What is the Trust Fund Recovery Penalty?

The Trust Fund Recovery Penalty (“TFRP”) is penalty on responsible individuals who fail to withhold and/or pay Trust Fund Taxes to the federal government. Many individuals view a business’ tax debts as separate from their personal tax debts. However, some individuals may be personally liable for the tax debt of their business. The key to understanding the TFRP lies in two key terms: “responsible person” and “willful.” The first term identifies who the penalty may be proposed against. The second term broadly defines the actions, or lack of actions, required to be liable for the penalty.

Who is a “Responsible Person”?

The term “Responsible Person” includes only those persons who are responsible for the nonpayment of taxes.   In determining who may be a “Responsible Person,” the IRS includes a great number of potential roles within every type of business. However, your title or role within a company is not the actual deciding factor. Rather, your status, duty, and authority within the organization determines your “responsible person” status.

The courts have further identified the following 7 legal factors in deciding the status of an individual:

i. Is the individual an officer or member of the board of directors;

ii. Does an individual own shares or possess an entrepreneurial stake in the company;

iii. Is the individual active in the management of day-to-day affairs of the company;

iv. Does the individual have the ability to hire and fire employees;

v. Does the individual make decisions regarding which, when, and in what order outstanding debts or taxes will be paid;

vi. Does the individual exercise control over daily bank accounts and disbursement records; and

vii. Does the individual have check-signing authority

If an individual is determined to have “responsible person” status, then that individual may be personally liable for the trust fund tax debt of the business.

What does it mean to “willfully” fail to collect, truthfully account for, and pay over Trust Fund Taxes?

In a civil context, in order to determine “willful” failure to collect, truthfully account for, and pay over trust fund taxes, the  focus is primarily on your knowledge of your duty to withhold and pay the Trust Fund Taxes and your willing and conscious decision not to pay those taxes. This knowledge element includes not only things you actually knew at the time but also things you should have known undertaking reasonable efforts to determine your tax duties.

How do I avoid the TFRP?

The best way to avoid the TFRP is to be aware of your Trust Fund Tax requirements and to make timely reports and payments to the IRS. If you are uncertain about your reporting or payment requirements, it will be well worth your time and resources to seek out an experienced tax professional.  Contact the attorneys at Wilson Ratledge today if you have any questions regarding the Trust Fund Recovery Penalty.