Masonry Magazine January 1972 Page.23
TAXES
By MIRIAM McD. MILLER
OVERWITHHOLDING
Nearly four million employers in the United States have been contacted by the IRS and asked once again to get their employees to use the newly designed Form W-4, "Employee's Withholding Allowance Certificate." The IRS hopes that with the new form more employees will re-evaluate their withholding and adjust any overwithholding. Although the new withholding rules have been in effect since early 1972, it seems that the number of employees who have adjusted their withholding allowance has not been significant. Either employers or employees may obtain the new Form W-4 from any IRS district office.
EMPLOYER PENALTY
A taxpayer, who was in the construction business, formed, with two acquaintances, a sand and gravel corporation. The taxpayer received 55% of the stock and was named president of the corporation. He had the authority to counter-sign checks but his signature was not necessary. The evidence showed that the taxpayer did not actively run the corporation but acted as an overseer and consultant.
The gravel corporation operated for two years and then started having troubles. When the taxpayer learned of the financial condition of the corporation and that $5,000 was due for payroll taxes withheld from employees, he decided that the corporation should cease operation. For the rest of the year, the corporation just finished off transactions already begun.
The Commissioner assessed a penalty against the taxpayer as the person responsible who willfully failed to pay Social Security and F.I.C.A. taxes withheld for employees.
The taxpayer's defense was that even if he might be found to be the person responsible for the payment of the taxes, the indebtedness to the government was already incurred when he took over the affairs of the corporation. From that point on he was merely trying to get the corporation's affairs straightened out.
The Court would not accept that as a defense to the fact that the taxpayer did not pay over to the government immediately upon learning of the indebtedness. The Court pointed out that ". taxes withheld from employees' wages are held in trust by the person responsible for paying the taxes over to the United States. Failure of a responsible officer to hold the taxes, by making a voluntary and intentional choice to use the funds to prefer other creditors, is a violation of the trust..." The Court further added, "The desire to continue in business is not justification for violating the trust by preferring other creditors."
The Court found that this taxpayer had willfully failed to pay over the taxes due and found him to be liable for a penalty equal to the amount of the tax not paid. Stake v. U.S. (D.C. Minn. 1972.)
REVENUE SHARING
As you probably have learned, President Nixon signed into law the revenue-sharing measure passed by Congress. These provisions will go into effect this year. On page 2 of Form 1040A there will be a space designated "Revenue Sharing," in which the taxpayer is to fill in his principal place of residence according to the state, county, locality and township. The amount of the distribution of the revenue-sharing funds to states, counties, etc. will depend upon how many people live in each place. Incidently, there will be imposed a penalty of $5 for failure to provide (without cause) the information requested under the "Revenue Sharing" section.
DEPRECIATION
A taxpayer was in the business of leasing industrial real estate. He made improvements to a building in order to sublease the building to the United States. The building was to be used by a federal agency. The taxpayer had a five-year lease with the federal government and so he sought to depreciate the improvements over the period (5 years) of the sublease.
The Tax Court upheld the Commissioner's determination that the improvements had a useful life of ten years. The taxpayer could not show that there was a reasonable certainty that the U.S. would not renew for an additional five-year term or that the improvements could not be used at the end of the government's lease by some other sublessee.
The Tax Court has interpreted the law to be this: In order to take the shorter depreciation, a lessee must show that there existed a reasonable certainty that the economic useful life of the improvements it had made to suit the sublessee would end with the expiration of the sublease and that another sublessee could not be found who would use the building as it was after a possible vacating of it by the government. Airport Building Development Corp. v. Commissioner, 58 TC No. 54.
TAX CONVICTIONS
The Tax Division of the Justice Department is really on the march. In fiscal 1972, more criminal tax convictions (835) were obtained than in any year since 1958. Forty-three percent more criminal cases have been filed in the last three years than in the previous three years.
In addition to this stepped-up tax prosecution, the Department of Justice and the IRS have instituted a drive against return preparers suspected of illegal practices.
TAX-OPTION CORPORATION
A construction corporation had elected to be treated as a tax-option corporation. Unbeknownst to the corporation's officers and accountant, the construction company involuntarily lost its corporate status.