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Welcome to the February issue of Electronically In-Touch. It is our first issue of 2008 and we have a great line up of articles. We have two tax articles for your pleasure: Meredith Stead and Kenneth Sussman will inform us about the Alternative Minimum Tax. Andreea Olteanu informs us about the IRS Rules Affecting Offers in Compromise. Christina Bost-Seaton brings us another article in her series entitled Standing Out in the Crowd. Jamie Jackson Spannhake, Esq., C.H.H.C. submitted an article entitled 4 Quick Health Tips for Associates. We also have an update from our Elder Law Section Liaison, Crystal Doolity, Esq.
We accept articles on any subject and size. The only articles we are unable to accept are those which would make it appear as if the section were endorsing a product or service. If you have a interesting topic, please feel free to submit it to me at email@example.com.
Philip G. Fortino
Alternative Minimum Tax - You Could Be Next!
Recent press on the Alternative Minimum Tax (AMT) has caught the attention of many taxpayers. For many of these readers, these reports may just be another occasional appearance of a persistent tax issue that they believe doesn't apply to them and that only concerns the very wealthy. In reality, however, but for a "patch" to the AMT system passed by Congress last month, the AMT would have affected millions of taxpayers for the first time this year. This article provides an overview of the history and structure of the AMT system, highlights recent developments in the AMT, and discusses and how it will affect taxpayer filings for 2007.
In the late 1960s, concern that high-income taxpayers were able to whittle away their tax bill through deductions and credits led Congress to pass the first AMT provisions as part of the Tax Reform Act of 1969. The AMT is an entirely independent system of taxation, which runs parallel to the regular income tax and applies to all taxpayers. Corporate taxpayers are subject to the AMT as well. However, this article will focus on individual taxpayers. The AMT is designed to impose a minimum tax on income modified by adding back certain deductions. Otherwise, the perfectly legal use of these deductions could lead to the unintended result of some high-income taxpayers owing little or no tax. Congress has modified the AMT many times over the last 37 years without ever perfecting the intended result. For example, Internal Revenue Code (IRC) § 55(d) exempts a fixed amount of income from the AMT (see formula described below). However, this amount is not indexed for inflation and has been "patched" repeatedly over the last several years in order keep the exemption sufficiently high to spare most middle-income taxpayers from the AMT.
How the AMT Works
Currently, the AMT is calculated as follows: Beginning with taxable
income as calculated under the regular income tax, §§ 56 and
58 of the IRC require certain adjustments. These include, for example,
differences in allowable depreciation and net operating loss deductions;
a limitation on itemized deductions, such as state taxes paid; and the
disallowance of personal exemptions. The net effect of these adjustments
might either increase or decrease taxable income depending on a
taxpayer's situation.Next, "tax preference items" are added back
pursuant to IRC § 57. These include tax-exempt interest, depletion
and intangible drilling costs and will always increase taxable income.
The result following these adjustments and tax preference items is
termed Alternative Minimum Taxable Income ("AMTI"). AMTI is then reduced
by the applicable exemption amount. For 2007, these amounts are $44,350
for single filers, $66,250 for those married filing jointly, and $33,125
for those married filing separately. The amount remaining after the
applicable exemption is then taxed at 26% for the first $175,000
($87,000 for those married filing separately) and 28% for any excess
above that amount. The result is the "tentative minimum tax" (TMT). The
taxpayer may then reduce TMT through a credit for foreign taxes paid, as
calculated under specific AMT rules described in IRC § 59.
The Recent “Patch”
On December 26, President Bush signed into law H.R. 3996, the AMT “patch.”1 The bill did two things. It increased the AMT exemption amounts for tax year 2007 (from $42,500 to $44,350 for single filers; from $62,550 to $66,250 for those married filing jointly; and from $31,275 to $33,125 for those married filing separately). It also provided that the nonrefundable personal tax credits discussed above continue to be allowable to reduce a taxpayer’s AMT for 2007. These changes insure that for tax year 2007, a large number of taxpayers will escape the AMT.2 However, as written the relief will not extend past tax year 2007.
Why Only One Year?
Commentators have noted that multiple Congresses and administrations, whether Democratic or Republican, have neglected to provide a more permanent fix for the AMT, despite both parties’ promises of reform. For example, the current Administration made large tax cuts in 2001 and 2003 and argues that the cuts should be extended or made permanent. However, the administration’s budget showing the cost of extending these tax cuts assumes that the current AMT relief will end after 2007 – that is, the cost of extending the cuts is implicitly offset by increased revenue from the (unreformed) AMT.
Late Filings in Store for 2008
This year, the final agreement to patch AMT came so late that the IRS had already finalized a number of the forms related to the AMT. As a result, as many as 13.5 million taxpayers using these forms will have to wait to file tax returns until the IRS 1 Now Public Law 110-166. 2 IRS News Release 2007-209. completes the reprogramming of its systems for the new law. The IRS has said that it expects to be able to start processing such returns on February 11, 2008. See http://www.irs.gov/newsroom/article/0,,id=176605,00.html for further details and updates on how taxpayers may be affected.
Why the Delay?
The primary reason for the delay was that Congressional Democrats, particularly those in the House, wanted to adhere to the pay-as-you-go (PAYGO) rules, which require that all tax breaks be offset. Congressional Republicans and President Bush opposed any offsets to the revenue loss, characterizing them as tax increases. Versions of the bill including offsets passed both the House and Senate, but without a “veto-proof” margin. Eventually the Democrats agreed to compromise, but Democratic leadership in both houses has suggested that offsets will be sought in 2008. This article is provided for informational purposes only and does not constitute legal or tax advice. For advice on how the AMT and other provisions of the Internal Revenue Code may apply to your specific circumstances, please consult your tax advisor.
*Ken Sussman, Esq. is an associate with the Loeb and Loeb LLP Tax-Exempt Organization practice group and a graduate of New York Law School. Meredith Stead is a second-year associate in the Tax and Employee Benefits department of Hughes Hubbard and Reed, LLP, and a graduate of New York University Law School.
IRS Rules Affecting Offers in Compromise
As a policy matter, the IRS is favorably inclined to settle a delinquent tax account when (1) there is doubt as to the existence or amount of liability; (2) it is unlikely that the total amount due can be collected; or (3) there is a compelling public policy reason for so doing. Offers in Compromise (OICs), as such settlements are aptly named, are an effective tax collection device, which can be beneficial to both taxpayers and the IRS alike. In recent years, the IRS has been inundated with frivolous OICs filed by taxpayers who have treated the process as a stall tactic. As a result, the IRS has expended a great deal of time and money in reviewing, and ultimately rejecting, unreasonably low OICs made by taxpayers in purported settlement of their tax liability. Congress has reacted to the large number of OICs filed in recent years by enacting new laws as part of the Tax Increase Prevention and Reconciliation Act of 2005, which, in an attempt to discourage abuse, made the OIC filing process more burdensome to taxpayers for submissions filed after July 15, 2006.
The most notable change is that the new regulations require that a nonrefundable down payment be included with an OIC filing. The amount of the down payment depends on the type of OIC made. Lump sum OICs (payable in five installments or less) require a 20% down payment. Periodic payment OICs require a down payment equal to the amount of the first proposed payment. Furthermore, while the OIC is pending, the taxpayer is required to continue making payments in accordance with the proposed OIC. OICs filed without the requisite down payment will be rejected by the IRS as non-processable.
However, the new rules do provide some benefits to taxpayers. For example, any OIC not rejected by the IRS within 24 months after submission is automatically deemed accepted. Taxpayers should note that the date of submission is the date on which the IRS receives the OIC, not the date on which it is mailed. Accordingly, filers should be careful to keep a record evidencing the submission date. A benefit to the new rules is that taxpayers are now permitted to designate how their down payment is to be applied, creating an advantageous planning opportunity. Taxpayers can elect to reduce penalties accruing on an earlier year by applying the payment to that year, or, conversely, can elect to apply the payment to a more recent year, allowing the collection statute of limitations to continue to run on older years. Careful consideration should be given to the allocation requirements so that taxpayers can fully avail themselves of this opportunity.
The impact of this legislation, including the threat of a nonrefundable deposit, will likely result in taxpayers filing OICs that are more reasonable than ones that were filed prior to the enactment of the new rules, as taxpayers can no longer make a low offer and wait for the IRS to negotiate. As there a number of advantages and disadvantages to making such an offer, taxpayers should consider the consequences of the new rules very carefully in deciding whether an OIC will work for them.
Submitted by Andreea Olteanu, Esq.
How To Stay Energized In Spite of Your Hectic Schedule
You are billing a minimum of 45 hours a week, which means you are in the office for at least 55 hours each week. Add to that your daily commute, which is 45 minutes each way on a good day. Then add in the time to walk the dog or play with the cat, call your parents, e-mail your friends, have a drink with colleagues, drop off your laundry, and pick up your dry cleaning. You barely have time to eat, much less time to plan your meals to ensure they provide you with the energy you need to work long hours and remain focused and efficient.
As an associate, life can be very busy and stressful as you build your career and face its never-ending demands and challenges. During law school, you acquired the knowledge necessary to succeed as a practicing attorney. You probably also acquired good time management skills. Now, in your place of employment, you are learning and honing the practical skills that you need. But, unfortunately, one of the most important skills you need to know to ensure your success was not taught in law school nor will your employer teach you. That is: how to quickly and efficiently maintain your health and energy so that you can sustain the stamina needed to practice law and still have a life outside work.
Here are four quick health reminders requiring minimal additional time to help you stay healthy and energized. While you may be familiar with these tips, knowledge is not the same as practice. Use these reminders to help you quickly incorporate the following health tips into your daily work schedule.
1. Drink More Water
Joshua Rosenthal, founder of the Institute for Integrative Nutrition and author of Integrative Nutrition: The Future of Nutrition, includes as the first step of his Twelve Steps to Health, this simple advice: “drink more water.” Water is essential to all our bodily functions. We cannot live without water.
So how much water should a person drink? Well, it really depends on the person. For example, a smaller person may need less than a larger person, and a person under more stress may need more than a person with less stress. Nonetheless, conventional wisdom is that the average person needs at least eight 8-ounce glasses a day. The simplest way to get a full 64 ounces on a daily basis is to buy two 32 ounce bottles of water each morning, or get a 64 ounce refillable container, and make sure to drink all the contents every day during the morning and afternoon hours so as not to disturb your (much needed) sleep by getting up to go to the bathroom. If you do this everyday, then you will remain hydrated.
Remember that hydration can come from other sources besides water, for example, other beverages, soup, and lettuce. According to The Future of Nutrition, as long as a beverage does not contain sugar or caffeine, it can be a source of hydration. And as a simple rule of thumb, if you consume caffeinated or sugary beverages, or alcohol, then you should increase your water consumption by two for every dehydrating beverage you consume. So, for example, if you have a cup of coffee in the morning, or a glass of wine with dinner, you should drink two extra glasses of water to counteract the dehydrating effects of the caffeine or alcohol.
2. Limit the “cheap” source of energy: sugar
Many people think of sugar as a quick source of energy, but it actually is more draining than sustaining. In her book Get the Sugar Out, Ann Louise Gittleman explains the problem with sugar: “Refined sugar acts more like a drug that our bodies need to detoxify rather than a nutrient-supplying food. Refined sugar is, in fact, nutrient-less.” In the process of refining sugar from a cane plant to white table sugar, all of the plant’s nutrients and fiber are stripped away. The harsh result of this refinement process, according to Gittleman, is that our bodies actually have to use their own mineral reserves to digest the sugar. So, not only does the sugar not offer the body any nutrients or goodness, it takes away the nutrients and minerals that were present in the body before consuming the sugar; in other words, eating sugar creates deficiency in your body that is greater than eating nothing. Talk about a double-whammy!
When you are under great amounts of stress, and in particular when you are not getting enough sleep because you are working such long hours, you need every bit of energy that you can find. Sugar may make you feel better for about an hour as your blood sugar spikes and causes hyperactivity and excitability, but ultimately, it will sabotage both your energy and your health, causing fatigue and exhaustion.
So what to do, especially if you have a sweet tooth? Look out for refined sugars. It has many names, but most commonly is called sugar, sucrose, high fructose corn syrup, glucose, or fructose. These sugars are in almost all processed foods, including muffins, breads, cereal, fruit juices, tomato sauce, ketchup, salad dressing, cakes, cookies, desserts, and even canned vegetables. As an alternative, look for whole foods and natural sugar substitutes. Whole foods that can provide the sugar that you crave are fruits (dates are a really good one) and cooked sweet vegetables (e.g. sweet potatoes, yams, carrots, squash, and beets). The natural sweeteners you might want to try include raw honey, real maple syrup, molasses, stevia, agave nectar, brown rice syrup, and date sugar.
3. A good daily multi-vitamin
It would be nice if we all ate perfectly balanced meals that gave us all the nutrients that our bodies need. But let’s be real. You regularly only get five hours of sleep, and your typical lunch is eating deli food at your desk while you read cases for the research assignment that is due in three hours. You barely have time to think about food, much less about whether you are getting your recommended daily allowance of vitamins and minerals from your diet.
The easiest and most time efficient way to handle this problem is to take a daily multi-vitamin that also contains the necessary minerals. I recommend that you go to your local health food store and buy a good one made for women or men, depending on your gender. Buy one that is food or plant based because vitamins and minerals that are food or plant based are derived from natural sources, rather than synthetic ones. Your body can more easily process the natural sources of vitamins and minerals and can better eliminate vitamins and minerals that you don’t need. When you take vitamins that are made from synthetic source materials, you are more likely to suffer from overdoses of certain vitamins, like vitamin A, that your body does not need and cannot adequately process. A good health food store will have a knowledgeable salesperson to help you choose the vitamin and mineral formula that is right for you.
Put the bottle of vitamins on your desk and take the daily dosage right after lunch, which you inevitably ate at your desk.
4. Get regular exercise
Finding time for exercise might seem easier said than done for very busy associates who can barely find time to finish all their assignments, much less find time to go to the gym. But as Tom Monte states in his book The Complete Guide to Natural Healing: “The first thing you need to know about exercise is that a little bit goes a long way.” He states that any kind of aerobic exercise is very important because it “increases the amount of oxygen that flows to cells throughout the body.” This increased oxygen can improve health, both mental and physical, and aid in digestion, circulation, and respiration.
While your ideal work schedule might provide enough time for a two-hour run through the park each day, or an hour every day lifting weights or taking yoga classes, you can nevertheless get regular exercise even when you have much less time.
Be creative and think simply. Walk or bike to and from work. Take the stairs in your office rather than the elevator. If you drive to work, park in the farthest parking space and walk to the building from there. Get off the bus a few stops before the stop in front of your office. Get on the treadmill for a quick fifteen minute run if that’s all you have. Find a quick 30-minute “yoga at lunch” class. Go for a hike on the weekends instead of going to the movies (unless you are working on the weekend, which you very well may be). And every day, you can stand up in your office and take a stretch break or walk the halls on your floor for a few minutes during every hour.
These quick tips are four easy ways to maintain the stamina you need to continue to bill 45 hours every week, month after month. The little extra time it takes to follow these easy steps are not billable, but they are worth it!
Jaime Jackson Spannhake is an associate at Dewey & LeBoeuf LLP in the commercial litigation department of the New York office. She is also a graduate of the Institute for Integrative Nutrition and is certified by the American Association of Drugless Practitioners as a Holistic Health Counselor. She founded The Nourishing Balance and works with a select group of clients, mostly attorneys and other professionals, providing individualized health counseling.
Standing Out in the Crowd—a monthly column
At a recent training seminar I attended at the New York Junior League, we discussed the six leadership styles and characteristics, as identified by psychologist Daniel Goleman, the author of Emotional Intelligence and Social Intelligence: (1) Affiliative; (2) Authoritative; (3) Coaching; (4) Coercive; (5) Democratic; and (6) Pacesetting.
As young associates gain more responsibility in their careers, they will begin to find themselves in charge of paralegals or other associates. Learning how to successful lead in the workplace is an important skill that doesn’t necessarily come naturally. Thankfully, by learning to identify and apply the leadership skill best suited for your situation, young associates can learn to effectively take charge.
The Affiliative leadership style is a style based upon creating harmony and building emotional bonds. For example, young associates who have built friendly relationships with paralegals from the very beginning, before they even needed the paralegals to work for them, are exercising an Affiliative leadership style, In our example, the paralegals will want to work for the young associate, in part, because the young associate is their friend (and that associate didn’t just start being friendly as soon as he or she needed their help).
The Authoritative leadership style is just what it sounds like—it depends on mobilizing people to a vision. For example, if a young associate discovered a major error in a document production, just hours before that production had to be served on opposing counsel, that young associate might exercise authoritative leadership by setting forth to her team a plan for pitching together to fix the error within the timeframe.
The Coaching leadership style is the leadership style that you might see most often in a mentoring situation. Thus, if a young associate has been assigned to act as a buddy to one of the summer associates, that young associate is exercising a coaching leadership style when he gives the summer associate tips as to what topics he shouldn’t bring up at the big cocktail party at the managing partner’s house.
The Coercive leadership style is also just what it sounds like—it is demanding immediate compliance. This leadership style would be frequently seen in the military. Some associates might also lead in this manner, though I would argue that it should be used very sparingly, so as not to unnecessarily alienate members of your team.
The Democratic style of leadership depends upon forging consensus through the participation of the team’s members. This is what people are referring to when they say that “you need to create buy-in”—it means that a leader can get her team members to feel more invested in a project when they feel like they have had a chance to express their opinions, and that she has seriously considered those concerns. On the other hand, leaders should not use democracy as their excuse for failing to take charge—ultimately, if you are the leader, you can’t be afraid to take ultimate responsibility for a decision, and to be the final arbiter of that decision.
Finally, the Pacesetting style of leadership involves setting high performance standards that are to be met in a short period of time. Thus, at the end of a status meeting on a case, a young litigator might use the pacesetting style to assign the follow-up assignments.
Each of these styles is a tool that young associates can use, and young associates should learn to recognize—and to use—each. With this foundation, young associates don’t have to be afraid of the first time they find themselves in charge of a team.
Ms. Bost Seaton is a fourth year associate in the complex litigation and labor & employment practice groups at Troutman Sanders LLP in Manhattan, where she is constantly trying to “play rainmaker”. She is the co-author of Say Ciao to Chow Mein: Conquering Career Burnout, which is available on www.cordellparvin.com and at bookstores.
Elder Law Section Update
The Elder Law Section held its Executive Committee and Section Meetings on January 29, 2008. The Executive Committee is reviewing a proposal to amend the elective share statute under EPTL 5-1.1A, which would allow an elective share to be held in a Qualifying Supplemental Needs Trust without rending the surviving spouse ineligible for government benefits. Ellen Makofsky and Kathryn Grant Madigan have been promoting the Compact for Long Term Care to gain support from the American Bar Association. The District Delegates will continue hosting Pro Bono Clinics, allowing seniors to meet with attorneys for approximately 15 minutes to ask legal questions and determine if they need further legal advice. The section meeting included an elder law update and new developments presentation, a panel discussion on End of Life Decision Making and ethical issues, and a panel discussion on Medicaid with the Dept. of Health and local County Dept. of Social Services attorneys. The next meeting is the 2008 Spring UNProgram on April 3-4 at the Embassy Suites in East Syracuse. The 2008 Summer Meeting will be held August 14-16 at the Renaissance Harbor Place in Baltimore, MD. Both meetings are sure to provide helpful tips and resources in a number of areas affecting elder law practice.
Save the Date
The Young Lawyers Section will be celebrating its 70th Anniversary on Friday, June 6 and Saturday, June 7, 2008 in New York City. The event will be kicked off with a reception on Friday evening. Saturday will include CLE programming and a group outing. Stay tuned for more details. .
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