Why Everyone Should Have a Power of Attorney

Power of Attorney
A Power of Attorney is a written document in which a competent adult individual (the “principal”) appoints another competent adult individual (the “agent”) to act on the principal’s behalf. In general, an agent may perform any legal function or task that the principal has a legal right to do for him or herself. You may wish to sign a Power of Attorney to give your spouse, children, or partner the power to handle your affairs if you become ill or disabled.

A Power of Attorney is an important part of estate planning because it gives one or more persons the power to act on your behalf if you become incapacitated. The power may be limited to a particular activity such as the sale of your home, or general in its application, empowering one or more persons to act on your behalf in a variety of situations. It may take effect immediately or only on the occurrence of a future event. The latter are “springing” powers of attorney. It may give temporary or continuous, permanent authority to act on your behalf. A Power of Attorney may be revoked, but Pennsylvania requires written notice of revocation to the person named to act for you.
The term “durable” in reference to a Power of Attorney means that the power remains in force for the lifetime of the principal, even if he or she becomes mentally incapacitated. The Power of Attorney can be effective immediately on signing or only on disability. A principal may cancel a Power of Attorney at any time for any reason. Powers granted in a Power of Attorney document can be very broad or very narrow in accordance with the needs of the principal. A durable Power of Attorney stays in effect even if someone becomes disabled.

Every adult has day-to-day affairs to manage, such as paying the bills. Many people are under the impression that, in the event of catastrophic illness or injury, a spouse or child can automatically act for them. Unfortunately, this is wrong, even when joint ownership situations exist. A Power of Attorney allows your partner or another person to administer your assets during your lifetime, either on disability or now.

With a valid Power of Attorney, your agent can take any action permitted in the document. Often your agent must present the actual document to invoke the power. For example, if another person is acting on your behalf to sell an automobile, the motor vehicles department generally will require that the Power of Attorney be presented before your agent’s authority to sign the title will be honored. Similarly, an agent who signs documents to buy or sell real property on your behalf must present the Power of Attorney to the title company. The same applies to sale of securities or opening and closing bank accounts.

What if you become incapacitated and do not have a Power of Attorney?

The lack of a properly prepared and executed Power of Attorney can cause extreme difficulties when an individual is stricken with severe illness or injury rendering him or her unable to make decisions or manage financial and medical affairs. In Pennsylvania you must follow the legal procedure to be appointed as a guardian. This means involvement of lawyers to prepare and file the guardianship petition and doctors to provide medical expert testimony regarding the mental incapacity of the subject of the action. The procedures also require the involvement of a temporary guardian to investigate, even intercede, in surrogate proceedings. This can be slow, costly, and very frustrating. In addition, the domestic partner can be challenged in a guardianship by the incapacitated person’s family members.
Advance preparation of the Power of Attorney could avoid the inconvenience and expense of guardianship proceedings. This needs to be done while the principal is competent, alert, and aware of the consequences of his or her decision. Once a serious problem occurs, it is usually too late.

How Should The Agent Sign?

Assume Keith Richards appoints his wife, Patty Hanson, as his agent in a written power of attorney. Patty, as agent, must sign as follows: Patty Hanson, POA for Keith Richards. Note that Patty would sign her name in her capacity as Keith’s agent and not Keith’s name.

If you need a Power of Attorney please call Gregory J. Spadea at 610-521-0604 of the Law Offices Spadea & Associates, LLC.

2014 Changes to Reverse Mortgages

Several changes have been made to the federally insured Home Equity Conversion Mortgage (HECM) reverse mortgage program to shore up the viability of the program. The changes are generally designed to improve the odds that homeowners taking out a reverse mortgage will be able to meet their obligations and not become a burden on the program. The changes are generally effective for new reverse mortgages after September 30, 2013. Additional financial assessment and set-aside requirements take effect January 13, 2014.

Initial disbursements limited

One change generally restricts the amount that can be disbursed to you within one year of your obtaining the reverse mortgage. Under the new rules, the maximum amount that can be disbursed to you at closing or during the first 12-month disbursement period is equal to the greater of (a) 60% of the principal limit or (b) the sum of your mandatory obligations plus 10% of the principal limit (not to exceed 100% of the principal limit). Mandatory obligations include items such as the initial mortgage insurance premium, the loan origination fee, recording fees and taxes, credit reports, a survey, a title examination, title insurance, a property appraisal fee, fees for warranties or inspections, funds to pay any required repairs, and amounts used to discharge liens, debt, and taxes. Except in the case of a single disbursement lump-sum payment option, additional amounts can be disbursed in later years, up to 100% of the available principal limit.

New mortgage insurance premium rates

Another change increases the basic initial mortgage insurance premium, and applies an even higher rate if more than 60% of the principal limit can be disbursed to you in the first year. Under the new rules, an initial mortgage insurance premium fee of 0.5% of the maximum claim amount will generally be charged. The initial fee is increased to 2.5% of the maximum claim amount if required or available disbursements to you at closing or during the first 12-month disbursement period are greater than 60% of the principal amount. In either case, there is also an annual fee equal to 1.25% of the mortgage balance.

Financial assessment and set-asides

Finally, changes are made to improve the odds that you will be able to meet certain of your obligations under the reverse mortgage. For reverse mortgages assigned on or after January 13, 2014, you must undergo a financial assessment prior to approval and closing on a reverse mortgage. Based on your assessment and as a condition of loan approval, you may be required to use proceeds from the reverse mortgage to fund a lifetime expectancy set-aside for payment of property charges or authorize the mortgagee to pay property charges from your monthly payments or your line of credit. Property charges include property taxes, hazard insurance, and flood insurance.

If you are considering a reverse mortgage please contact Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley Park Pennsylvania.

7 Questions to Ask Before Agreeing to Be a Pennsylvania Trustee

Man at desk thinking
If you are asked to serve as a trustee it means the person asking you trusts your judgment and is willing to put the welfare of the trust beneficiaries in your hands. Before you agree to serve as the trustee of the trust you should ask the following seven questions before agreeing to serve as a trustee:

  1. Q: May I read the trust?
    The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read it and understand it and do not be afraid to ask the drafting attorney any questions you may have.
  2. Q: What are the goals of the grantor who is the person who created the trust? A: Unfortunately, most trusts say little or nothing about their purpose. They give the trustee considerable discretion about how to spend trust funds with little or no guidance. Often the trusts say that the trustee may distribute principal for the benefit of the surviving spouse or children for their “health, education, maintenance and support.” Is this a limitation, meaning you can’t pay for a yacht (despite arguments from the son that he needs it for his mental health)? Or is it a mandate that you pay to support the surviving spouse even if she could work and it means depleting the funds before they pass to the next generation? How are you to balance the needs of current and future beneficiaries? It is important that you ask the grantor while you can. It may even be useful if the trust’s grantor can put his intentions on paper in the form of a letter addressed to you.
  3. Q: How much help will I receive?
    As trustee, will you be on your own or working with a co-trustee? If working with one or more co-trustees, how will you divvy up the duties? If the co-trustee is a professional or an institution, such as a bank or trust company, will it take charge of investments, accounting and tax issues, and simply consult with you on questions about distributions? If you do not have a professional co-trustee, can you hire attorneys, accountants and investment advisors as needed to make sure you operate the trust properly?
  4. Q: How long will my responsibilities last?
    Are you being asked to take this duty on until the youngest minor child reaches age 25, in other words for a clearly limited amount of time, or for an indefinite period that could last the rest of your life? In either case, under what terms can you resign? Do you name your successor trustee or does someone else?
  5. Q: What is my liability?
    Generally trustees are relieved of liability in the trust document unless they are grossly negligent or intentionally violate their responsibilities. In addition, professional trustees are generally held to a higher standard than family members or friends. What this means is that you won’t be held liable if for instance you get professional help with the trust investments and the investments happen to drop in value. However, if you use your neighbor who is a financial planner as your adviser without checking to see if he has run afoul of the applicable licensing agencies, and he pockets the trust funds, you may be held liable. So, be careful and read what the trust says in terms of relieving you of personal liability.
  6. Will I Have to post a bond?
    You may be required to post a bond if you do not serve with a professional co-trustee such as an attorney or bank. The purpose of the bond is to protect the trust assets due to your malfeasance. The insurance company that issues the bond may require you to file and annual report. Therefore it is important to read the trust to see whether you are required to purchase one.
  7. Q: Will I be compensated?
    Often family members and friends serve as trustees without compensation. However, if the duties are especially demanding, it is not inappropriate for trustees to be paid something. The question then is how much. Professionals generally charge an annual fee of 1 percent of assets in the trust. Often, professionals charge a higher percentage of smaller trusts and a lower percentage of larger trusts. If you are doing all of the work for a trust, including investments, distributions and accounting, it would not be inappropriate to charge a similar fee. However, if you are paying others to perform these functions or are acting as co-trustee with a professional trustee, charging this much may be seen as inappropriate. A typical fee in such a case is a quarter of what the professional trustee charges, or .25 percent (often referred to by financial professionals as 25 basis points). In any case, it’s important for you to read what the trust says about trustee compensation and discuss the issue with the grantor.

If you have any questions about serving as a trustee call Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

2015 Estates and Trusts Income Tax Rates

House, money, calculator and forms
The applicable table set forth below shows the 2015 Income tax rates on estates and trusts:

Tax Rate Limit
15% on Taxable Income to: $2,500
25% on next Taxable Income to: $5,900
28% on next Taxable Income to: $9,050
33% on next Taxable Income to: $12,300
39.6% on next Taxable Income above: $12,300

Trusts and estates are also subject to the increase in capital gains tax rates from 15 to 20 percent as well as the 3.8 percent surtax on investment income. Note, however, that the new rates apply only to non-grantor trusts and estates that accumulate income. Trusts and estates are allowed a deduction for income distributed to beneficiaries, who are then taxed in the year of distribution. Grantor trusts, by definition, do not pay income taxes since all income of a grantor trust is reportable by the grantor on his individual 1040 income tax return.

The challenge posed by the new tax law is how much of and when to distribute income to beneficiaries of non-grantor, complex trusts which are trusts that are not required by their terms to annually distribute all income to their beneficiaries. Distributing income today lowers trust taxation, and may, depending on the income enjoyed by beneficiaries, reduce the overall tax burden.

Given that trust income in excess of only $12,300 is taxed at the maximum rate of 39.6 percent, while much larger amounts of income are required ($464,850 for a married couple filing jointly, $413,200 for a single filer) before the maximum rate kicks on individuals, trustees may need to reallocate and rebalance trust portfolios to obtain an overall better tax result. Trustees will also need to pay close attention to the varying needs of beneficiaries and their individual tax rates. Given the wide disparity in rates and bracket amounts between individuals and trusts, trustees must consider not only the needs of current beneficiaries, but also those of future generations of beneficiaries. If you have any questions about trust taxation contact Gregory J. Spadea at 610-521-0604 of the Law Offices of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

The 2015 Protecting Americans From Tax Hikes Act

The 2015 Protecting Americans from Tax Hikes (PATH) Act

A picture of a tax return form
The Protecting Americans from Tax Hikes (PATH) Act – the extenders component of H.R. 2029 makes permanent several lapsed business, individual, and charitable giving incentives, such as the research credit, the subpart F exception for active financing income, and tax-free IRA distributions for charitable contributions by individuals age 70-1/2 and older. It also renews a handful of provisions such as bonus depreciation, the work opportunity and new markets credits, and production and investment tax credits for wind and solar energy for five years.


1. Permanent extensions: The PATH Act permanently extends several business provisions retroactive to the end of 2014. It also modifies certain provisions prospectively.
1. Research and experimentation credit – The research credit is made permanent. For taxable years beginning after 2015, the credit is modified to allow an eligible small business to claim the credit against both its regular tax and alternative minimum tax (AMT) liabilities. Beginning in 2016, certain small businesses also may claim the credit against the employer portion of their payroll tax liability, rather than against their income tax liability.
2. Increased expensing limits under section 179 – The bill makes permanent the increased expensing limit and phase-out threshold under section 179 – $500,000 and $2 million, respectively – which most recently lapsed at the end of 2014. (Under current law, those amounts have fallen to $25,000 and $200,000, respectively). Additionally, the extenders bill permanently allows taxpayers to expense off-the-shelf computer software and qualified real property (i.e., qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) under section 179provisions that also lapsed at the end of 2014. For taxable years beginning after 2015, the bill (1) indexes the expensing limits to inflation, (2) repeals the limitation on the amount of section 179 property that can be attributable to qualified real property, and (3) adds air conditioning and heating units to the definition of qualifying property.
3. Other business provisions made permanent – The legislation also makes permanent a handful of other business incentives, including the:

  1. Reduced recognition period (i.e., five years rather than 10) after which S corporations can avoid built-in gains tax following conversion from C corporation status;
  2. 100 percent gain exclusion for Qualified Small Business Stock, including the elimination of the exclusion as an AMT preference item;
  3. 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.

2. Long-term extensions: A handful of other business provisions receive longer-term, but not permanent, extensions. These include:

  1. Bonus depreciation – The PATH Act extends bonus depreciation for qualified property placed in service over the next five years (i.e., through 2019), subject to a phase-out schedule: 50 percent bonus depreciation continues for 2015, 2016, and 2017, with the percentage falling to 40 percent in 2018, and 30 percent in 2019. After 2015, the bill also allows bonus depreciation to be claimed on qualified improvement property regardless of whether the property is subject to a lease, and removes the requirement that an improvement be placed in service more than three years after the building was placed in service.
  2. Work opportunity tax credit – Under the PATH Act, the work opportunity tax credit (WOTC) is extended through 2019 and expanded beginning in 2016 to include as a targeted group certain long-term unemployed individuals (i.e., those certified as having been unemployed at least 27 weeks). Employers who hire individuals from this new targeted group would be eligible to receive a credit of 40 percent of the first $6,000 in wages paid.


The PATH Act makes permanent several incentives to promote charitable giving by businesses and individuals.
1. Charitable contributions of food inventory: The legislation permanently extends the deduction for charitable contributions of food inventory and expands it by:

  1. Increasing the contribution limit for C corporations to 15 percent (from 10 percent) of the taxpayer’s net income for the taxable year, and increasing the limit for a taxpayer that is not a C corporation to 15 percent of the taxpayer’s aggregate net income for the taxable year from all trades or businesses from which such contributions were made for the taxable year;
  2. Providing a five-year carryforward for qualifying food inventory contributions that exceed the 15 percent limit; and
  3. Adding presumptions that certain taxpayers may use in determining the tax basis and the fair market value of donated food inventory.
  4. The extension generally is effective for contributions made after December 31, 2014. The expanded incentives apply for tax years beginning after December 31, 2015.

2. Other charitable giving provisions: Several other charitable giving incentives are made permanent without additional modifications. These include:

  1. Tax-free treatment of distributions from individual retirement plans by individuals age 70-1/2 and older for charitable purposes;
  2. The special rules for contributions of capital gain real property made for conservation purposes;
  3. The basis adjustment to stock of S corps making charitable contributions of property.


  1. Among the items in the PATH Act targeted at individual taxpayers is a provision that permanently extends the deduction for state and local sales taxes in lieu of a deduction for state and local income taxes. This is of particular interest to itemizers in states that do not impose an income tax.
  2. The PATH Act also makes permanent enhancements to the earned income tax credit and child tax credit that were enacted in the American Recovery and Reinvestment Act of 2009 and scheduled to expire in 2017.
  3. Notable among the items extended for 2015 and 2016 is one provision that allows individuals to exclude from income for tax purposes the debt forgiven by a bank on the short sale or foreclosure of a home and another that treats private mortgage insurance premiums as deductible interest payments.

Changes to implementation of PPACA taxes
Both the PATH Act and the omnibus appropriations components of H.R. 2029 include provisions that suspend or delay implementation of certain PPACA taxes:

  1. Medical device excise tax – The medical device excise tax is suspended for sales in 2016 and 2017 (included in the PATH Act).
  2. Cadillac tax – Implementation of the so-called “Cadillac” tax on high-cost employer provided health insurance plans is delayed for two years, until 2020 (included in the omnibus appropriations section).
  3. Annual fee on health insurance providers – This fee is suspended for 2017 (also included in the omnibus appropriations section).

Section 529 plan changes

The PATH Act includes a non-extender provision that liberalizes the rules for section 529 education savings plans by:

  1. Expanding the definition of qualified higher education expenses to include computer equipment and technology;
  2. Simplifying the treatment of distributions for individuals with multiple section 529 accounts; and
  3. Treating as a qualified expense any recontribution of tuition refunds if the recontribution is made within 60 days.
  4. These changes generally take effect for distributions made or refunds after December 31, 2014.

If you need help with preparing your business or personal taxes please contact Gregory J. Spadea at 610-521-0604.

3 Advantages for Converting a Sole Proprietorship to LLC

Stop, pay your taxes!
There are 3 main advantages for converting your proprietorship into a Limited Liability Company (LLC). The main advantage of operating as a limited liability company is that there is limited liability for the sole proprietor which means the owner’s personal assets are not exposed to the risks and liabilities of their business operations. The concept of the LLC statute is that the owner (technically referred to as a “member”) does not have any personal liability for business debts solely by reason of being a member. This liability protection could be particularly advantageous if you have employees working in the business, as their actions could potentially expose the owner’s personal assets. Of course, this does not relieve the owner of responsibility for personal actions nor for any debts personally guaranteed.

The second advantage of forming an LLC is the flexibility of choosing to be taxed as either a partnership, S-Corporation or as a sole proprietor, despite forming a separate LLC entity under state law. This becomes important because you can start off electing to be taxed as a sole proprietor, and as your business grows and when your annual net income exceeds $20,000 you can elect your LLC to be taxed as an S-Corporation. You can pay yourself a reasonable salary and then set up and contribute up to $15,500 to a Simple IRA, as well as up to $6,500 to a Roth IRA to maximize your retirement savings.

The third advantage is minimizing your taxes, because you do not pay the 15.3% social security tax on your S corporation net income just on the wages you pay yourself. In addition by contributing to a Simple IRA you reduce your federal income tax on the amount you contribute.

For example, in 2015, a 51 year old owner forms a single member LLC that makes an election and grosses $125,000 and nets $45,000 after expenses and after his LLC pays him $30,000 in wages. Assume the member makes the maximum $15,500 employee contribution to a Simple IRA. He would pay regular income tax at 20% on the $45,000 net income from the LLC. He would also pay self-employment tax and income tax on the $30,000 in wages.

LLC Taxed as an S-CORP Sole Proprietorship
Gross Receipts $125,000 $125,000
Less Operating Expenses 50,000 50,000
Less Salary 30,000 —–
Net Income 45,000 75,000
Income tax 9,000 18,500
Self-Employment (FICA) tax —- 6,100
FICA Tax on W-2 wages 4,600 —–
Income tax on wages 6,000 —–
Total Income tax 19,600 24,600

In the above example, the member saved $5,000 in FICA tax by making an S election and contributing $15,500 into a Simple IRA. If the member contributes the maximum employee contribution to his Simple IRA of $15,500, then the Member will save an additional $3,100 in federal income tax on top of the $5,000 in savings in FICA tax savings indicated above. The member could also contribute $6,500 to a ROTH IRA but would receive no current year tax dedduction.

It is important to keep in mind that once the owner begins conducting business as an LLC, it will be necessary to consistently use the LLC designation on the business letterhead, the business checking account, business licenses, and the like. The owner would need to go through the process of adding the LLC designation to the various contracts, leases and documents under which business is conducted. The owner should never pay personal expenses out of the LLC bank accounts and should ensure the LLC has proper liability insurance. If you have any questions about forming an LLC, please contact Gregory J. Spadea at 610-521-0604 from the Law Offices of Spadea & Associates, LLC.

Requesting Abatment of Interest Due to IRS Error or Delay

Requesting Abatement of Interest Due to IRS Error or Delay

Stop, pay your taxes!

Clients will typically ask me if interest can be abated after I successfully abated all the IRS tax penalties. Unfortunately, interest cannot be abated for reasonable cause like penalties can. However, the interest charged on a penalty will be reduced or removed when that penalty is reduced or removed. If an unpaid balance remains on your account, interest will continue to accrue until the account is fully paid.

The IRS can abate interest if the interest is caused by IRS errors or delays. The IRS will abate the interest only if there was an unreasonable error or delay in performing a managerial or ministerial act. The term “managerial act” means an administrative act that occurs during the processing of your case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. An example would be if the auditor was assigned to a three month detail in the middle of handling your case and your case was not reassigned and just sat for three months until the auditor returned.

The term “ministerial act” means a procedural or mechanical act that does not involve the exercise of judgment or discretion and occurs during the processing of your case after all prerequisites of the act, such as an appeal conference and review by supervisors have taken place. For example if the IRS never sends you a final exam report or a statutory notice of deficiency at the conclusion of your conference with Appeals that would constitute IRS delay.

Remember that you cannot have caused any significant aspect of the error or delay. In addition, the interest can be abated only if it relates to taxes for which a notice of deficiency is required. This includes income taxes, generation-skipping transfer taxes, estate and gift taxes, and certain excise taxes. Interest related to employment taxes or other excise taxes cannot be abated.

You would have to file Form 843 to formally request an abatement of interest on your federal liability and indicate the dates of any payment of interest on the tax liability. If you need help filing the Form 843 call Gregory J. Spadea at 610-521-0604 of the Law Offices of Spadea & Associates, LLC located in Ridley Park, Pennsylvania.

5 Ways You Can Take Control of a Pennsylvania Sales Tax Audit

5 Ways You Can Take Control of a Pennsylvania Sales Tax Audit


Undergoing any type of an audit can be scary, but just because your company is being audited, doesn’t mean that you can’t take control of the audit to help ensure a positive outcome.   One of the first steps in a sales tax audit is the opening conference with the auditor.  This is one of your first and best opportunities to take control of the audit and set the tone for how it will progress.  Here are five ways that you can set the tone for a sales tax audit during this opening conference.

  • 1. Have the audit at your attorney’s office. The reason is you do not want the sales tax auditor disrupting your company’s operations. You will have to give a tour of the business to the auditor at some point but the records can be reviewed at your attorney’s office.   If the auditor is working in a windowless conference room they will stay focused on the job at hand and be on their way.  This also has the added benefit of not having the auditor work near your accounting department so they don’t accidentally overhear any sensitive information.
  • 2. Have your Tax Attorney as the only contact person.  You should have your tax attorney deal directly with the auditor.   This ensures that potentially sensitive information won’t be leaked accidentally to the auditor by other employees. It also ensures you do not provide any information that could expand the scope of the audit./li>
  • 3. Request the specific information needed to track a transaction. The auditor will ask for your gross receipts journal and your sales journal to determine you filed the monthly sales tax returns correctly. Then the auditor will select a specific transaction to examine, It is important that you only provide the auditor with the specific information they need and not any additional records that may expose a vulnerability or expand the scope of the audit.
  • 4. Request the statute or rule that supports the auditor’s taxation.  Notify the auditor up front that you would like them to provide the statute or rule to back up their determination of taxation for any items that may be in question.
  • 5. Request a supervisor’s involvement if there is a disagreement.  If you are encountering any issues during the audit, it’s best to deal with those issues while the auditor is on premises.  If you are unable to resolve an issue request a supervisor’s involvement. In addition you can always appeal a final assessment to the Pennsylvania Board of Appeals within 90 days if all else fails.

If you receive an audit letter please call Gregory J. Spadea at 610-521-0604 in Ridley Park, Pennsylvania.

Three Types of Relief From IRS Tax Penalties

Hand with tax bundle around person

You may qualify for relief from penalties if you made an effort to comply with the requirements of the law, but were unable to meet your tax obligations, due to circumstances beyond your control. Penalties eligible for penalty relief include:

  • Failing to file a tax return;
  • Failing to pay on time;
  • Failing to deposit certain taxes as required;
  • Taking improper deductions under the accuracy related penalty.

Three Types of Penalty Relief

1. Penalty Relief Due to Reasonable Cause

First, check to see if the information in your notice is correct. If you can resolve an issue in your notice, there may be no penalty.

You can get penalty relief based on Reasonable Cause. Reasonable cause is based on all the facts and circumstances in your situation. We will consider any reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.

The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include:

  • Fire, casualty, natural disaster or other disturbances;
  • Inability to obtain records;
  • Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family;
  • Other reasons which establish that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.

Note: A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.

Facts we need in order to establish Reasonable Cause:

  • What happened and when did it happen?
  • What facts and circumstances prevented you from filing your return or paying your tax during the period of time you did not file and/or pay your taxes timely?
  • How did the facts and circumstances affect your ability to file or pay your taxes or perform your other day-to-day responsibilities?
  • Once the facts and circumstances changed, what actions did you take to file or pay your taxes?

Most reasonable cause explanations require that you provide documentation to support your claim, such as:

  • Hospital or court records or a letter from a physician to establish illness or incapacitation, with specific start and end dates
  • Documentation of natural disasters or other events that prevented compliance

2. Penalty Relief Due to First Time Penalty Abatement Policy

The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement (FTA) policy. However FTA relief only applies to a single tax period. For example, if a request for penalty relief is being considered for two or more periods of a taxpayer, and the earliest period meets the FTA criteria, FTA would apply only to the earliest period, and not for all periods. In addition to qualify for the FTA policy, you must have filed all required tax returns and paid, or arranged to pay, all tax currently due.

Note: the failure-to-pay penalty will continue to accrue, until the tax is paid in full.

3. Penalty Relief Due to IRS Administrative Waiver or Other Statutory Exception

You may qualify for administrative relief if you received incorrect oral advice from the IRS. If you received incorrect written advice from the IRS, you may qualify for this statutory exception under Internal Revenue Code Section 6404(f). If you feel you were assessed a penalty as the result of erroneous written advice you received from IRS, the following items may be needed when requesting penalty relief:

  • Your written request for advice.
  • The erroneous written advice you relied on that was furnished to you by the IRS.
  • The report, if any, of tax adjustments identifying the penalty or addition to tax, and the items relating to the erroneous advice.

Generally, Form 843, Claim for Refund and Request for Abatement should be filed to request penalty relief based on incorrect written advice from IRS.

Tax legislation may provide a specific exception to a penalty. An example would be under Internal Revenue Code Section 7508 time for performing certain acts postponed by reason of government service in presidential declared combat zone.

If you have any questions about IRS penalties please call Gregory J. Spadea at the Law Offices of Spadea & Associates, LLC at 610-521-0604.

Importance of your Pennsylvania Preliminary Hearing and the Motion to Quash

Understanding the importance of Your Pennsylvania Preliminary Hearing and the Importance of the Motion To Quash

Man in handcuffs

If you are charged with a crime in Pennsylvania, you have the right to a preliminary hearing at the District Court where the offense occurred before proceeding to trial at the Court of Common Pleas. Your attorney should try to accomplish the following at your preliminary hearing:

  • Get the charges withdrawn, dismissed or discharged
  • Get the charges reduced from felony to misdemeanor or misdemeanor to summary;
  • Collect information by identifying potential witnesses;
  • Evaluate the credibility of anyone who testifies.
  • At a preliminary hearing the Commonwealth, through the district attorney will have to establish a prima facia case against you. A prima facia burden of proof is much lower than the proof needed to convict you at trial which is guilt beyond a reasonable doubt. A prima facia burden of proof is the same as the civil standard which is “by a preponderance of the evidence”.

    A prima facia burden of proof asks whether the Commonwealth has established that it is more likely than not that a crime was committed and that you committed it. The District Attorney, therefore, doesn’t have to present nearly as much evidence as he or she would have to at trial. In fact, the District Attorney does not have to share the evidence against you with your attorney until the day of the preliminary hearing.

    If a lower court district justice finds that the District Attorney has met the prima facia burden of proof, your case will be held for court and transferred from the District Court to the Court of Common Pleas. If your defense attorney believes that the District Justice made the wrong decision, he can file a Motion to Quash which is also called a Petition for Writ of Habeas Corpus.

    This Motion to Quash argues that the district attorney failed to establish the necessary burden of proof and that the evidence was insufficient. The motion asks that the Court of Common Pleas find that the lower court district justice ruled incorrectly and that the case be dismissed for lack of evidence. Although a Motion to Quash is a difficult motion for your attorney to win, it is important to consider filing it if your case is held for court. At the very least, it will give your attorney the opportunity to learn more about the District Attorney’s case and what it will focus on at trial.

    If you are charged with a crime, call Gregory J. Spadea at the Law Offices of Spadea & Associates, LLC at 610-521-0604.

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