Ober | Kaler Tax Presentation Highlights Tax Amnesty, Worker Classification, and other tidbits…...

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Tax Presentation HighlightsTax Presentation Highlights

Tax Amnesty, Worker Classification, and other tidbits…Tax Amnesty, Worker Classification, and other tidbits…

Continuing Professional EducationContinuing Professional Education


Presenter:Presenter:

Seth Kossman, EsquireSeth Kossman, Esquire410-347-7695410-347-7695

[email protected]@ober.com


Tax Amnesty

The states need your moneyThe states need your money

NOWNOW


Tax Amnesty

A. Different Meanings – in Different States – and at Different Times

B. Current Amnesties


State Tax Amnesty Programs

BenefitsBenefits

Minimize/Abate InterestMinimize/Abate InterestMinimize/Abate PenaltiesMinimize/Abate PenaltiesLimited Look-back Period Limited Look-back Period Civil and Criminal ProsecutionCivil and Criminal Prosecution


CautionCaution

Not available to everyoneNot available to everyoneTypically requires full payment Typically requires full payment

in a short period of timein a short period of timeMay open a “can of worms” May open a “can of worms” May exchange info with the IRSMay exchange info with the IRSMust contact state firstMust contact state first

State Tax Amnesty Programs


States and Dates

State Period

Connecticut 5/1/09 – 6/25/09

Delaware 9/1/09 – 10/30/09

D.C. No current ending date

Maryland 9/1/09 – 10/30/09

New Jersey 5/4/09 – 6/15/09

New York No current ending date

Pennsylvania

No current ending date

Virginia Est. 10/1/09 (60-75 days)


BasicsBasics

Amnesty PeriodAmnesty Period: : September 1 to October 30, 2009September 1 to October 30, 2009

Types of TaxesTypes of Taxes: : individual taxesindividual taxes corporate income taxescorporate income taxes withholding taxeswithholding taxes sales and use taxessales and use taxes admissions and amusement taxesadmissions and amusement taxes

Applies toApplies to: : Taxpayers who, on or before Dec. 31, 2008, Taxpayers who, on or before Dec. 31, 2008,

failed to file a tax return failed to file a tax return OROR pay the tax owed pay the tax owed

Maryland Tax Amnesty


Basics ContinuedBasics Continued

Program ProvidesProgram Provides: : The state will waive all civil penalties The state will waive all civil penalties

(except any previously assessed fraud penalties)(except any previously assessed fraud penalties) The state will waive one-half of the interest leviedThe state will waive one-half of the interest levied

Taxpayer MustTaxpayer Must:: Pay the tax owed or enter into an installment Pay the tax owed or enter into an installment

agreement to pay the tax by Dec. 31, 2010agreement to pay the tax by Dec. 31, 2010




Not for EveryoneNot for Everyone::Any business that, as of September 1, 2009, has Any business that, as of September 1, 2009, has more than 500 employees in the U.S. or is a more than 500 employees in the U.S. or is a member of a corporate group that doesmember of a corporate group that does

Any tax for which one was granted amnesty Any tax for which one was granted amnesty previously (i.e. as part of the 2001 program) previously (i.e. as part of the 2001 program)

Anyone who was eligible for the amnesty that Anyone who was eligible for the amnesty that Maryland allowed in 2004 regarding Delaware Maryland allowed in 2004 regarding Delaware holding companiesholding companies

No amnesty for returns due after December 31, 2008 No amnesty for returns due after December 31, 2008 (ex. the December 2008 SUT return, which was due on (ex. the December 2008 SUT return, which was due on January 20, 2009). To qualify, returns must be due on January 20, 2009). To qualify, returns must be due on or before December 31, 2008.or before December 31, 2008.




Pre-September 1Pre-September 1:: The Comptroller’s office The Comptroller’s office will notwill not accept any accept any

applications before or after the deadline applications before or after the deadline

AdvertisingAdvertising:: The State expects to receive millions of dollars of The State expects to receive millions of dollars of

tax revenue through the amnesty program, yet, tax revenue through the amnesty program, yet, the legislature has not authorized any funding for the legislature has not authorized any funding for advertising the programadvertising the program

Work in ProgressWork in Progress:: The Comptroller’s office is still working on the The Comptroller’s office is still working on the

relevant procedures for the amnesty programrelevant procedures for the amnesty program The amnesty application will be online August 14 The amnesty application will be online August 14

www.marylandtaxes.comwww.marylandtaxes.com



Take Note:Take Note:

• If you require an Installment Agreement, at least If you require an Installment Agreement, at least 10%10% of of the amnesty amount due must be paid with the the amnesty amount due must be paid with the application.application.

• File amnesty applications as early as possible after File amnesty applications as early as possible after September 1… in case the state discovers a discrepancy September 1… in case the state discovers a discrepancy in your application and your application is not considered in your application and your application is not considered to be completed by the due date.to be completed by the due date.

• Any payment made before September 1 will NOT be Any payment made before September 1 will NOT be eligible for amnesty. eligible for amnesty.

• Any payment made before September 1 will be applied to Any payment made before September 1 will be applied to penalties, interest, then tax, in accordance with statutory penalties, interest, then tax, in accordance with statutory requirements.requirements.

• If all that is owed is accrued penalties and interest (i.e. no If all that is owed is accrued penalties and interest (i.e. no outstanding tax liability), then amnesty will not apply.outstanding tax liability), then amnesty will not apply.

• No refunds and/or credit will be granted for interest and No refunds and/or credit will be granted for interest and penalties paid prior to the amnesty period (even if paid on penalties paid prior to the amnesty period (even if paid on taxes which are eligible for amnesty).taxes which are eligible for amnesty).



Take Note:Take Note:

• A non-filer will only have amnesty for those periods A non-filer will only have amnesty for those periods listed on the amnesty application. listed on the amnesty application. – For example, if the non-filer has not filed for 15 years, but For example, if the non-filer has not filed for 15 years, but

can only file accurate returns for 10 years, the non-filer can only file accurate returns for 10 years, the non-filer should fill out the application with respect to those 10 should fill out the application with respect to those 10 years and file the returns with the application. Amnesty years and file the returns with the application. Amnesty will apply to those periods listed on the application. will apply to those periods listed on the application. Periods not listed on the application will not be eligible for Periods not listed on the application will not be eligible for amnesty. amnesty.

• The MD Amnesty program The MD Amnesty program does notdoes not provide for a provide for a specific look-back period.specific look-back period.

• If a client currently has a deferred payment If a client currently has a deferred payment arrangement with the Comptroller, he can still apply for arrangement with the Comptroller, he can still apply for amnesty. amnesty. – However, no previous payments made will be reallocated, However, no previous payments made will be reallocated,

but the deferred payment can be established for existing but the deferred payment can be established for existing liabilities and adjusted for the waiver of one-half the liabilities and adjusted for the waiver of one-half the interest and penalties. This will be calculated on the interest and penalties. This will be calculated on the amount owed at the time of the application. amount owed at the time of the application.



To the extent information received under the program is subject To the extent information received under the program is subject to the Comptroller’s exchange agreement with the IRS, the to the Comptroller’s exchange agreement with the IRS, the information information will bewill be disclosed. disclosed.

Nevertheless, the disclosure of much of the information Nevertheless, the disclosure of much of the information

received under Amnesty may not result in a corresponding received under Amnesty may not result in a corresponding federal tax liability because:federal tax liability because: Taxpayers may have filed federal tax returns, but failed to Taxpayers may have filed federal tax returns, but failed to

file all necessary state tax returns.file all necessary state tax returns. Many of the taxes eligible for amnesty have no comparable Many of the taxes eligible for amnesty have no comparable

federal tax (ex. Sales Tax).federal tax (ex. Sales Tax). Maryland tax law differs from federal tax law in some important Maryland tax law differs from federal tax law in some important

aspects (ex. municipal bonds, different states of residency).aspects (ex. municipal bonds, different states of residency).

Will your client’s tax return Will your client’s tax return information be disclosed to the IRS?information be disclosed to the IRS?




• If you have any questions If you have any questions regarding your client’s tax regarding your client’s tax

liability or eligibility for liability or eligibility for amnesty, email the amnesty, email the

Comptroller’s office at Comptroller’s office at [email protected] [email protected]

or call 1-800-MD TAXES.or call 1-800-MD TAXES.


Workplace Fraud Act of

2009 and the

Joint Enforcement Task Force

(effective October 1, 2009)(effective October 1, 2009)


Why does the State care?

Reality: Political agenda rewarding the major union constituency

State / Union Talking Points: When an employer fails to properly classify workers as

"employees," the employer avoids paying their share of: payroll taxes, unemployment insurance taxes, and workers' compensation premiums

It puts competitors at a disadvantage because they have to cover the unpaid costs of those who cheat

It deprives the general fund and the Unemployment Insurance Trust Fund of critical revenues

It denies workers access to protections only guaranteed to employees

Workplace Fraud Act of 2009


Possible Harm Caused by this Act

The Act may drive many businesses out of MD into neighboring states

Enforcement costs may exceed additional revenue generated by the Act



ABC TestABC Test

Maryland uses the “ABC test” to determine whether a worker is an employee or an independent contractor.

The ABC test is a three pronged test, under which an employer-employee relationship is presumed unless the individual performing the work is an exempt person or the employer demonstrates that:A. The individual is free from control and direction; B. The individual customarily is engaged in an independent

business of the same nature; and C. The work is outside of the usual course of business of the

employer or performed outside of any place of business of the employer. Work is "outside the usual course of business" if the individual:

1) performs the work off the employer's premises; 2) performs work that is not integrated into the employer's

operation; or 3) performs work unrelated to the employer's business



Federal Test - The IRS uses the Common Law RulesFederal Test - The IRS uses the Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral: Does the company control or have the right to control what

the worker does and how the worker does his or her job? Illustrative factors include instructions & training provided by the company

Financial: Are the business aspects of the worker’s job controlled by the payer? Illustrative factors include how worker is paid, whether expenses are

reimbursed, who provides tools/supplies, did the worker make a significant investment in the company, whether there is an opportunity for profit or loss

Type of Relationship: Are there written contracts or employee type benefits? Illustrative factors include whether there is a company pension plan, employee

benefits, insurance, vacation pay, intent of parties/written contracts

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor.

There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination.



EnforcementEnforcement Commissioner of Labor and Industry has legal

authority to investigate workplace fraud in the construction and landscaping industries.

The Commissioner may: 1) enter the employer's place of business (or worksite)

for purposes of investigation; 2) require the production of records; 3) issue subpoenas for records and testimony; and 4) pursue judicial relief and the assessment of fines for

an employer's failure to comply

The State's UI division investigates employee classification through both random and targeted audits and when a person claims UI benefits but is not listed as a covered employee.



PenaltiesPenalties

Current Law - no penalties for misclassification.

New law - allows an employer who misclassifies an employee, but does not do so knowingly, to come into compliance within 45 days without penalty.

If an employer does nothing to comply in the required time period, a penalty of up to $1,000 per misclassified employee may be imposed.

Employers who "knowingly" misclassify employees, however, may be subject to a penalty of up to $5,000 per misclassified employee.

An employer may be assessed up to double the $5,000 penalty if it has previously been found in violation by a final order of a court or administrative unit.

An employer in violation three or more times may be assessed up to $20,000 per misclassified employee.



Mistake vs. Knowing ViolationMistake vs. Knowing Violation A misclassification that is not found to be "knowing"

will not result in a penalty; however, the employer will be required to come into compliance.

“Knowingly” requires actual knowledge, deliberate ignorance or reckless disregard for the truth.

Factors include whether the employer sought, prior to hiring the employee, documentation showing: 1) a sole proprietor's reporting of business income and

losses on his personal income tax returns; 2) an independent contractor's withholding of payroll

taxes and payment of unemployment insurance contributions and worker's compensation premiums on behalf of all individuals working for him; and

3) the employer provided written notice to individuals of their status or classification and all implications of that status or classification.

The State bears the burden of proving a knowing violation.


Ober | Kaler Tax Presentation Highlights Tax Amnesty, Worker Classification, and other tidbits…...

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