Crunch Time: New Tax Law Effect on Tax Returns Filed Before and After July 1, 2015

As previously reported, the Louisiana legislature passed a variety of bills modifying the state’s tax laws, many of which will be effective July 1, 2015. Given tax return filing cycles, these bills may affect tax returns not yet filed for prior years. Interestingly, these bills also specifically state that the laws, if signed by the Governor, are applicable on the effective date of the legislation regardless of the year to which a tax return filed on or after the effective date relates. Taxpayers should, while waiting to be sure the Governor has signed these, carefully review changes and consult their tax advisors to determine if filing returns or extensions before July 1, 2015 is beneficial.

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Increased Payroll Scrutiny

The frequency of payroll audits has surged over the last five years and businesses are facing increased payroll scrutiny.

Most payroll audits have traditionally focused on whether or not a business is misclassifying an employee as an independent contractor, thus avoiding Social Security, Medicare and other payroll taxes. According to an article published last March by the Wall Street Journal entitled Payroll Audits Put Employers on Edge, “local businesses misclassify anywhere from 10% to more than 60% of their workers as independent contractors.”

Since the 2008 economic meltdown states have been springing into action to audit payroll taxes as a way to increase revenue. States are assessing hefty fines for misclassification. For example, Colorado passed House Bill 1301, which allows the Colorado Department of Labor and Employment to fine a business up to $5,000 for the first misclassification offense and up to $25,000 for subsequent offenses (Payroll audits increase as government seeks added revenue, Heather Draper, Denver Business Journal).

The increase in payroll audits has also been intensified by the Federal government. The U.S. Department of Labor has issued partnership agreements with California, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington to collaboratively investigate more than 6,000 employers for misclassifying employees. The U.S. Treasury estimates that if all employers were forced to properly classify employees it would result in $8.71 billion in added federal tax revenue over the next decade.

If an employer is misclassifying employees then they can take advantage of a voluntary disclosure program. The IRS is offering a Voluntary Clarification Settlement Program (VCSP) that allows employers to reclassify employees while minimizing look back, and waiving penalties and interest. Similar agreements may be negotiated at the state level.

State and Local Tax Amnesty Programs for 2014

Now that 2013 has come to a close, a large number of state and local tax amnesty program have expired; however, a couple still remain in effect. Vermont, Delaware, Louisiana, and to a lesser degree California, Tennessee, and Ohio still have programs in place to waive certain penalties and interests. The Sales and Use Tax Institute and the Council on State Taxation both keep pretty good tabs on amnesty programs as they become active. To make sure that you are up-to-date on new and upcoming amnesty programs keep a close eye on these two sites.