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Tax Tips

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Most people are familiar with the fact that Retirement Plans normally have an investment limit.  That means that contributions have a limitation on the maximum contribution per person and in the aggregate.  An exception has been carved out, however, relative to employer fiduciaries that have made risky investments and lost much of the value of the fund.  In that case, even if no lawsuit is filed, a payment that will restore the value of the fund, regardless of its amount, to make up for investment losses is allowable.  This type of payment is not deemed to be a ?contribution? and subject to normal limits.  Instead, it can be deemed a ?restorative payment? and is not subject to excise tax on excess contributions!  This may be an opportunity if a plan has sustained substantial losses, to allow large contributions out of current dollars.  Revenue Ruling 202-45, IRB 2002-29,1.


Most people are quite concerned about the trust fund tax recovery penalty.  This allows the Internal Revenue Service, or equivalent State Departments of Revenue, to pursue responsible parties that acted willfully and did not pay over the taxes withheld from their employees? checks.  These taxes are not dischargeable in bankruptcy and even survive a corporation?s failure.  Therefore, it is an extremely Machiavellian imposition of liability against a responsible party.

Normally, the sole shareholder, operating officer of a company is the responsible party.  But that is not always the case.  Having mere name and title that you own and run the company does not mean you do.  There are arguments to be made throughout the agency?s appellate process, or within court, to prove that a party who may appear to be responsible had no actual authority.  If no actual authority is present, then the individual should not be liable for the tax.  This was so held in Christopher H. Lyon v. Commissioner, VC WD Va, 1:00-cv-178.  With the right facts an otherwise hopeless case can be a victory!



Everyone is always told ignorance of the law is no excuse.  Well, what about mass confusion?  If ignorance will not work, will confusion?

That was the argument in Kruse, Inc. v. Commissioner, VC MD Ind, no1:NM-cv-428.  Kruse runs a large auto auction.  The firm auctioned used cars and occasionally would receive cash transactions exceeding $10,000.00.  They did not report on the appropriate form, Form 8300, to the IRS that they had received cash in excess of the limit.  The IRS charged the firm with intentional disregard of the law.  

The firm?s defense was that it was not intentional because the firm?s accountant had advised them that the requirement was inapplicable in the auction business.  Additionally, part of the testimony was that there is a high non-compliance rate for Form 8300 because no one can understand when the rule applies!  The court held that evidence regarding ?mass confusion? is relevant and supported the defense.

The jury acquitted the firm, and the court denied the IRS motion for a new hearing.




Richard M. Colombik is a tax partner in the Itasca headquartered firm of Richard M. Colombik & Associates, P.C.  Mr. Colombik concentrates his practice in Federal Taxation, Estate Planning and Asset Protection Plans for individuals as well as corporate clients.  He received his B.S. Degree in Business from the University of Colorado his J.D., Cum Laude, from the John Marshall Law School and his Certified Public Accountant certificate from the University of Illinois.  Mr. Colombik has spoken at numerous engagements, radio television and is a well-publicized author regarding Income Tax, Estate Tax and Asset Protection Planning.  His work, Business Entity Selection Within Illinois, has been publishedby the Illinois Institute of Continuing Legal Education. He is the former chair of the Illinois State Bar?s Federal Taxation Committee, Northwest Suburban Bar?s Estate Planning and Taxation Committee, Vice Chair of the American Bar Association?s Taxation Sub-Committee of the General Practice Council,  a former  officer of both the Northwest Suburban Bar Association, the American Association of Attorney CPAs, and is currently  a member in the Offshore Institute.  Mr. Colombik is also the current liaison to the Washington National office of the Internal Revenue Service for the American Association of Attorney-CPA?s, Inc. 

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