April, 2010

Message from Nelson & Company, P.S., CPAs

Summary of the New Health Care Reform Law---

Recently, two pieces of legislation, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law. Together, these pieces of legislation make the most significant reform to health care in the United States since the enactment of Medicare.

The Congressional Budget Office estimates that by 2019, approximately 32 million currently uninsured Americans will have health insurance, at a cost of about $940 billion. A major component of the reform legislation is the creation of state-based American Health Benefit Exchanges and Small Business Health Options Program Exchanges to provide health insurance for low-income individuals and small businesses.

The following is a brief description of some of the most important provisions of the health care reform legislation:

For Individuals:

U.S. citizens and legal residents will be required to have health insurance by 2014, with some exceptions. Those without insurance will face a tax penalty of as much as 2.5% of taxable income. Existing employer-sponsored health insurance plans will be allowed to remain essentially the same except the plans will be required to extend dependent coverage to qualifying children through age 26, lifetime limits (and eventually, annual dollar limits) on coverage must be eliminated, waiting periods for coverage cannot extend beyond 90 days, and insurers will not be able to deny coverage or charge higher premiums to people based on their health status and gender.

Medicaid eligibility will be expanded to include individuals under age 65 whose income is less than 133% of the Federal Poverty Level. For families with incomes up to 400% of the Federal Poverty Level, tax credits and subsidies will be available to purchase health insurance through state-run exchanges, and to offset out-of-pocket costs.

Contributions to a health flexible spending account will be limited to $2,500 per year. Reimbursements from health FSAs and HRAs for over-the-counter drugs will be restricted, and tax-free reimbursements from HSAs and Archer MSAs for over-the-counter drugs will not be allowed, while the tax on HSAs and Archer MSAs increases for distributions not used for qualified medical expenses.

A rebate of $250 will be available to Medicare Part D (drug coverage) beneficiaries who reach the coverage gap (donut hole) and the coinsurance rate for costs within this gap are gradually reduced to 25%.

Adults with pre-existing conditions will be able to purchase coverage from temporary high-risk pools until 2014, when coverage cannot otherwise be denied for pre-existing conditions.

A national program will be established to provide limited reimbursement for long-term care expenses for individuals who participate by contributing to the program's cost through voluntary payroll deductions.

For Employers:

Employers with 50 or more employees that do not offer health insurance coverage will generally have to pay a premium tax of up to $2,000 per full-time employee. Employers with more than 200 employees must automatically enroll employees in health insurance plans from which employees may opt out. Employers providing health insurance must offer a voucher to qualifying employees to purchase insurance through an exchange. Qualifying small employers may receive a tax credit for providing health insurance to employees.

Tax Changes:

The threshold for itemized deductions for qualified medical expenses will be increased from 7.5% of adjusted gross income (AGI) to 10% of AGI, though a temporary exception will be maintained for those 65 and older.

The tax for Medicare Part A (hospitalization coverage) is increased 0.9% for individuals with earnings exceeding $200,000, and for couples with joint earnings greater than $250,000. Also, high-income taxpayers will be subject to a surtax of 3.8% on unearned income, such as capital gains, dividends, annuities, and rental income.

The law imposes a 10% tax on the amount paid for indoor tanning services. Some of these provisions are effective immediately while others will be implemented over the next several years.

Consult with your financial professional to see how these laws may affect you.

Certified Public Accountants

IRS Times & Inquirer

Inside This Issue...

Ex-FBI Agent Guilty of Evasion
Oregon Man Found Guilty Following Elaborate Scheme to Evade Taxes
GA Woman Chances Decade in Prison after Submitting False Tax Returns
IRS Question Corner

Ex-FBI Agent Guilty of Evasion

A retired FBI Agent has pleaded guilty to evading approximately $109,000 in personal income taxes.

Jan Lindsey, 67, of Henderson, NV, pleaded guilty to one count of felony tax evasion and is scheduled to be sentenced on Friday, July 9, 2010.

According to the plea agreement, Lindsey worked as an FBI Agent for 26 years and retired from the FBI in 1995. For the next 10 years, Lindsey worked for the FBI as a contractor performing background investigations. Prior to 1999, Lindsey filed tax returns with the IRS.

Beginning in 1999, Lindsey started using illegal tax-avoidance methods to file his and his wife’s joint tax returns. Lindsey failed to file or pay federal income tax for the years 1999 through 2006, and committed various acts that were designed to hide his income and assets from the IRS, including placing assets in nominee names and presenting or recording fraudulent documents in an attempt to obtain lien and levy releases on his property.

Oregon Man Found Guilty Following Elaborate Scheme to Evade Taxes

Jerry Lawrence Miller, 60, of Bend, OR, was found guilty of five counts of income tax evasion and one count of conspiracy. Miller and his wife, Rosemary Josephine Miller, were charged in May 2009 with conspiracy and tax evasion.

According to evidence presented at trial, Miller worked for a company called Business Administrative Services. Miller attempted to thwart the IRS’s efforts to collect federal income taxes by entering into a “Professional Services Agreement” with BAS, in which he agreed to donate his time to BAS and, in return, BAS agreed to pay his personal expenses. BAS paid Miller’s personal expenses and issued him a preloaded ATM card to pay for personal expenses.

GA Woman Chances Decade in Prison after Submitting False Tax Returns

Charlene Hughes of Waynesboro, GA, was indicted by a federal grand jury sitting in Savannah and charged with conspiracy to defraud the United States.

The indictment arises out of a joint investigation by the Internal Revenue Service Criminal Investigations and the Federal Bureau of Investigation into Hughes’ alleged involvement with more than 25 fraudulent tax returns which falsely claimed more than $90,000 in refunds between April 2006 and August 2007.

The indictment alleges that these fraudulent tax returns contained false Form W-2 information, including false employers and wages.

“As we near the height of this year's tax filing season, those who might consider preparing false tax returns should be aware of the severe consequences of doing so," U.S. Attorney Edward J. Tarver said in a statement. “This indictment emphasizes that the IRS, the FBI and the United States Attorney's Office will aggressively pursue anyone who attempts to defraud America’s tax system.”

If convicted, Hughes faces up to 10 years in prison and a $250,000 fine.

IRS Question Corner

Question: Like others who read IRS Times & Inquirer, I owe a significant debt to the IRS. Which program would be better for me — the Offer in Compromise or the Installment Agreement?

Answer:  Those are two great programs for people with significant tax debt, and one of those programs might be right for you. However, without reviewing your case in detail, I can’t say with authority which program you should pursue.

Let me tell you a little about each program, and this may allow you to determine the answer.

The Offer in Compromise was implemented by the IRS following the tax-collecting agency’s realization that the strong-arm, door-knocking technique of tax collection isn’t always the most effective. In fact, this kinder, gentler approach is as effective, if not more effective, than the old ways. This program is designed for taxpayers who owe a significant amount to the IRS but who, for whatever reason, are unable to pay the debt, even over time. Under this program, you and your tax professional can negotiate a settlement amount with the IRS that can result you paying far less than you owe.

Now, you may not qualify for the Offer in Compromise program. Your capacity to pay back the debt, for example, might be too high to qualify. If that is the case, then the Installment Agreement could be your best option. Under this program, you can pay down your tax debt over time by making small monthly payments. Think of this like a car payment — enough each month to pay down the debt over time but not so significant that you need to alter your lifestyle dramatically.

If you indeed have tax debt and are considering one of these options, your first step should be to consult a qualified tax professional. He or she will analyze your previous returns and chart your course to freedom from the IRS!

I deal with IRS problems such as this every day. That’s because I’m an IRS problem solver. For a free, no-risk consultation, please call my office at 253-752-9522 or send me an E-mail at Firm@DNelsonCPAs.com. Do it today!

--Our Policies-- www.DNelsonCPAs.com

Nelson & Company, P.S., CPAs Since 1979

Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS, we inform you that (i) any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


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