Masonry Magazine April 1970 Page. 12
TAXES
By MIRIAM McD. MILLER
SURCHARGE EXTENSION
While the law now provides that the 5% surcharge is to expire on June 30, 1970, taxpayers continue to speculate whether there will be an extension of this surcharge before that date. Budget Director Robert P. Mayo, in his testimony before the Joint Economic Committee, said that he sees no necessity for extending the 5% surcharge through all of 1970.
Rather than increasing taxes, Mr. Mayo stated, the more effective way of fighting inflation is to cut expenditures in the budget. The Administration, he said, will limit itself to already proposed extension of various excise and user taxes and some changes in the Social Security and Railroad Retirement programs.
WITHHOLDING TAX PENALTY
The often contested question of who was the "person" responsible for the payment of withheld taxes was recently presented to the Ninth Circuit for determination. In the case before the court, the issue was complicated by the fact that a surety had moved in to help straighten out a construction company's financial troubles. A construction company, which held six government contracts, ran into financial difficulties. In order to continue its work under the construction contracts, the company obtained the assistance of a surety which then advanced the necessary moneys. Briefly, the method of operation used by the construction company was to prepare payrolls showing gross pay, taxes withheld, and net pay due each employee. The surety's representatives came to the job site, checked the prepared documents and then got each employee to endorse his check. Then, the surety's representatives went to the bank, deposited enough money in the construction company's account to cover the employees' checks, cashed the checks and then returned to the job site and paid the employees in cash. When the construction company asked the surety to approve payment of the withheld taxes reflected in each payroll, the surety declined to do so, stating that it wished to postpone the matter.
When presented with all of the facts, the lower court had found that the construction company would not have placed all of its potential income under the control of the surety if it had known that the surety would not release funds to pay and provide for withholding taxes. In upholding the lower court's decision, that the surety was the "person" responsible for the payment of the withheld taxes, the appellate court stated that it would frustrate the purpose of the law if only those who nominally control the disbursements of a corporate employer are charged with the duty to pay over the taxes. Thus, the court continued, it would immunize those who, through agreement with or default of those nominally responsible, exercise the corporate function of deciding which creditors are to be paid. The court also expressed the opinion that it would be unfair to permit a surety to finance continuation of construction by a distressed contractor without also discharging the tax liability generated by the payment of wages to the contractor's employees. Pacific National Insurance Co. v. U.S. (9th cir. 1970).
CHARITABLE DEDUCTIONS
The IRS advises that pew rents, building fund assessments and periodic dues paid to a church are all methods of making contributions to the church and such payments are deductible as charitable contributions. Rev. Rul. 70-47.
REMINDER
Estimated tax returns for 1970 should be adjusted to comply with the provisions of the Tax Reform Act of 1969. The IRS advises that the changes that should be considered would include the change in the surcharge, increase of personal exemption, low-income allowance, broader deductions for moving expenses, limitations on charitable contributions of appreciated property, increase in the limit on deductions for charitable contributions, changes relating to capital gains and losses, and more liberal rules for income averaging. IRS News Release, No. 1020.
CITY ASSESSMENT
For the purpose of paying for certain local benefits, a city levied an assessment against real property, including a vacant lot owned by the taxpayer. The taxpayer considered the assessment unreasonable and engaged an attorney to try to get the assessment lowered. Fortunately, for the taxpayer, the attorney was able to secure a reduction of the assessment. As agreed, the taxpayer paid the attorney for his services and then asked the IRS if he could deduct the amount of the legal fee as a business expense.
The IRS ruled that the taxpayer could not deduct the fee paid the attorney as a business expense. However, the IRS pointed out that, the amount of the fee may be considered a part of the cost of the property for the purpose of determining gain or loss in the event of its sale. Rev. Rul. 70-62.
HEALTH AND WELFARE FUNDS
A health and welfare fund was established pursuant to a collective bargaining agreement entered into by an association of employers and an employees' union. The fund was administered by a joint board of trustees-composed of an equal number of representatives of the union and the employers. The employees of the contributing employers were the recipients of the benefits of the fund.
It had been the practice of the trustees to determine, at the end of each year, what portion of the amount remaining in the fund should be held in reserve. They would then pay what was left to the employees' union which, in turn, distributed these amounts in the form of cash payments to the eligible employees.
The question was presented to the IRS for its opinion on whether these cash payments were "wages" for income tax withholding and employment tax purposes. (Continued on page 26)