Tax News and Views Abe Lincoln's Tax Refund Edition

Treasury Issues Withholding Regs Based on Changes in Law, Forms - Eric Yauch, Tax Notes ($)

Have you updated your withholding lately? 

Under the TCJA, employees can no longer claim a personal exemption, so Form W-4 was updated to no longer use an employee’s marital status and withholding allowances, which were based on the personal exemption. The government said the redesigned Form W-4 will generally be based on the employee’s filing status and standard deduction for the year.

That W-4 you filled out when you were first hired probably is a little stale. The IRS has a slick online tool to help you update your withholding.

However, banks often act as a fiduciary in a corporate capacity when serving as the trustee of a trust or the executor of an estate, the American Bankers Association noted in a February 7 letter to the IRS. Consequently, the new application process requires bank employees to provide their own personal information to the IRS to obtain an EIN for a trust or estate even though it’s the bank — not the employee — that has legal title to the assets and fiduciary authority regarding the trust or estate, the association said. That outcome raises privacy concerns for bank employees and legal and liability concerns for banks, which now must require employees to supply, as a condition of continued employment, their personal information on behalf of the bank when serving the bank’s trust and estate clients, the group observed.

It seems that there could be a better way.

Working Through an Employer’s Failure to File Form W-2 or 1099 with the IRS - Omeed Firouzi, Procedurally Taxing.

It's a problem without great answers:

For now though: what can a taxpayer do in such a situation? When employers fail to provide or file information returns, the IRS recommends that workers attempt to get information returns from their employers. If that fails, the IRS advises workers to request  describing the pay and withholding. Should an employer not comply with these requests, the IRS can seek this information from an employer while taxpayers can  attaching other  – such as bank statements, paychecks, and paystubs. If a taxpayer got an information return but the employer never filed it with the government, that might ease the burden on the taxpayer but the IRS will still seek additional verification.

 Just because you don't get a W-2 doesn't mean it doesn't go on your return.

Early IRS Numbers Show Taxpayers Aren’t Rushing To File Taxes In 2020 - Kelly Phillips Erb, Forbes. "So what does the data tell us? This early in the filing season, not a great deal. All kinds of hunches have been floated around about reasons for tax filing delays - from confusion over tax extenders to the suggestion that a steady economy means there’s not a rush to file for refunds."

Take the Five Minutes: Reconcile Your Checking Account Each Month - Russ Fox, Taxable Talk. "Suppose that you’re not the only person who writes checks from your account. Perhaps someone embezzled funds from you. Twice in the twenty years I’ve been a tax professional I’ve seen this."

Abe Lincoln and the Income Tax. Seven Score and 18 years ago, President Lincoln brought forth the first attempt at a federal income tax to pay the cost of the civil war. On his 211th birthday, how did that go for the 16th President?

Tax Notes historian Joseph Thorndike digs into Honest Abe's tax compliance:

Some observers insisted that the president was clearly excluded. The Chicago Tribune, for instance, reported that the president had been "specially exempted by the law." The paper noted, however, that President Lincoln had chosen to make voluntary payments to Treasury equal to the taxes he might otherwise have owed. According to the Tribune, these payments would total $1,220 annually.²

Indeed, the paper was correct that Lincoln was making payments to Treasury. But whether he was required to make those payments was unclear. And the paper was certainly wrong about the amount Lincoln was paying. According to the leading scholar of Lincoln's personal finances, the president was paying $61 monthly, or 3 percent of his $25,000 salary, minus a $600 exemption. These payments, moreover, were being directly withheld from Lincoln's pay in the manner prescribed by the 1862 revenue act.³

Lincoln's tax payments -- voluntary or otherwise -- continued throughout the war, and they varied with changes in the tax law. The revenue measure enacted on June 30, 1864, revised the tax on federal employees, retaining the $600 exemption but increasing the rate to 5 percent. Thereafter, Lincoln had $92 per month withheld from his paycheck. Also, he made a lump sum payment of $1,279 on December 15, 1864, consistent with a special 5 percent tax on 1863 incomes imposed by the revenue measure passed on July 4, 1864, to help fund war bounties. (Lincoln's payment reflected taxes on his salary, as well as interest income from Treasury bonds that he owned.)⁴

While President Lincoln paid up without a murmur, other officials murmured:

In 1863 Chief Justice Roger Taney wrote the Treasury secretary in protest: "The act in question, as you interpret it, diminishes the compensation of every judge three percent, and if it can be diminished to that extent by the name of a tax, it may in the same way be reduced from time to time at the pleasure of the legislature."⁶

The judiciary needed protection from a grasping Congress, which might be inclined to starve judges into submission, insisted Taney. The Founders, in their wisdom, had tried to prevent that mischief, adding to the Constitution a requirement that judges be paid "a compensation, which shall not be diminished during their continuance in office."

Treasury Secretary Chase ignored Taney's letter, but after the wary the Treasury came around to Taney's view and all officials had their taxes refunded:

Lincoln, of course, was not alive to claim his refund. But on April 25, 1872, the administrator of his estate filed for a refund of taxes that the president had paid during his years in office, including $2,306 in regular taxes paid on salary income and $1,250 paid under the special tax of July 4, 1864. Treasury agreed with the claim and refunded $3,556 to the estate in 1872.

Today's tax law wouldn't have allowed a refund claim of taxes ten year's prior. As you wait for your refund this year, at least you can expect it sooner than that.