Notice Of Tax Assessment

[<Steve> 82]

Hello DaveT & Everyone-

 

Today in the mail my county sent my business a "Notice of Tax Assessment."

 

The notice states that the county has "made a discovery" of my "business personal property." It states I have "Furniture & Equipment" at a Tax Value of $17,500. And I will be charged a penalty of 10% for not filing my business personal property. They can even go back and collect for the past 5 years.

 

Well, I do not have any furniture and equipment for the business. And I don't know how the heck they came up with that number ($).

 

My business is a LLC and has nothing to do with taxes. The county tax analyst only has my LLC name & P.O. box address. Currently, I file personal income taxes and include rental income and deductions etc. I do not deduct for a home office. My business doesn't buy anything in it's name or my name for that matter. I do not have a business tax I.D. number or business license as I do not need one.

 

They also sent a tax listing form where I list all the business personal property and mail it back. And if filled out completely an exception may be taken. Well, I am ok with that because I do not have any business furniture & equipment.

 

What freaks me out is how the county came up with $17,500.

 

Any ideas?

[transactionsengineer 0]

Hello DaveT & Everyone-

 

Today in the mail my county sent my business a "Notice of Tax Assessment."

 

The notice states that the county has "made a discovery" of my "business personal property."  It states I have "Furniture & Equipment" at a Tax Value of $17,500. And I will be charged a penalty of 10% for not filing my business personal property.  They can even go back and collect for the past 5 years.

 

Well, I do not have any furniture and equipment for the business.  And I don't know how the heck they came up with that number ($).

 

My business is a LLC and has nothing to do with taxes.  The county tax analyst only has my LLC name & P.O. box address.  Currently, I file personal income taxes and include rental income and deductions etc.  I do not deduct for a home office.  My business doesn't buy anything in it's name or my name for that matter.  I do not have a business tax I.D. number or business license as I do not need one.

 

They also sent a tax listing form where I list all the business personal property and mail it back.  And if filled out completely an exception may be taken.  Well, I am ok with that because I do not have any business furniture & equipment.

 

What freaks me out is how the county came up with $17,500.

 

Any ideas? 

<{POST_SNAPBACK}>

Steve,

 

Contact the Tax Assessor's office.

 

Ask for a re-evaluation and a break down of how they arrived at your assessment.

 

Do not file that tax listing form. They may be fishing for information on your LLC because you have an entity that exists but does not have a tax ID and does not report financials.

 

If you find that a serious problem exists, contact an enrolled agent (EA) to handle the situation. Enrolled Agents (EA) can help you better than an accountant or attorney can because most EAs are former tax agents who know the people at tax court.

 

Note: If your accountant or attorney is not an EA or admitted to the bar of the US Tax Court, they cannot represent you before any tax court efficiently.

 

It took me one year to prepare for the US Tax Court bar exam.

 

Please let me know how your situation turns out.

 

Daniel

Transactions Engineer

[MichaelC 160]

Interesting situation, Steve. I'm curious as to how this all came about. Keep us posted on this, please.

Daniel, thanks for the helpful reply and info.

[<Steve> 82]

Yes, thanks for the info. and reply Daniel.

 

Ask for a re-evaluation and a break down of how they arrived at your assessment.

I will follow-up with this. I have a contact person and a number from the letter I received.

 

They may be fishing for information on your LLC because you have an entity that exists but does not have a tax ID and does not report financials.

This is what I thought; however, I am going to find out what's up with the $17.5K

 

Thanks again and I'll keep you posted.

Steve

[Dave T 0]

Steve,

 

You have a property tax issue to resolve with your county tax assessor. One of the counties where I have rental property also levies a property tax on personal property used in my rentals. Washer, dryer, stove, and refrigerator in addition to any furniture you may also provide your renters are all depreciable personal property subject to property taxes as furniture, furnishings, or equipment used in your trade or business.

 

Call your county property tax assessor's office (their phone number should be on the form they sent you) and ask them to help you fill out the form if it is applicable for your situation. The $17500 amount is most likely a "default" assessment because they do not have any information from you.

 

Daniel gave you excellent advice in telling you to contact your local property tax authority for assistance. Since this is not a federal income tax issue, contacting an EA will be non-productive. This matter is not an IRS concern and is not under the jurisdiction of the US Tax Court.

[<Steve> 82]

Thanks for the reply DaveT-

 

That makes me feel a little better that the 17,500 maybe a default amount, and no IRS or tax court is a good thing; however, the possibility that appliances can be taxed as equipment is a bummer.

 

Seems like the county here is fishing around. I will be contacting them this coming Monday, and will report back.

 

Thank you

Steve

[transactionsengineer 0]

I have to differ with the opinion of DaveT on the jurisdiction of the US Tax Court. I must reiterate that you are better off with an Enrolled Agent (EA) or US Tax Court bar admitted attorney than any state admitted accountant or attorney.

 

To back up my statement I quote from the US Tax Court: "Tax Court has exclusive jurisdiction to hear tax appeals under state laws, including personal income tax, property tax, corporate excise tax, timber tax, local budget law and property tax limitations. The Court has two divisions: the Magistrate Division and the Regular Division.

 

With a few exceptions, appeals to the Tax Court are first filed in and heard by the Magistrate Division. The decision of the Magistrate can be appealed to the Regular Division, unless it is filed as a Small Claims matter, in which case no appeal is allowed".

 

In addition, from the Tax Court of New Jersey website:

 

The Tax Court is a court of limited jurisdiction. Tax Court Judges hear appeals of tax decisions made by County Boards of Taxation. They also hear appeals on decisions made by the Director of the Division of Taxation on such matters as state income, sales and business taxes, and homestead rebates. Appeals from Tax Court decisions are heard in the Appellate Division of Superior Court. Tax Court judges are appointed by the Governor for initial terms of seven years, and upon reappointment are granted tenure until they reach the mandatory retirement age of 70. There are 12 Tax Court Judgeships. The Tax Court handles approximately 15,000 cases per year.

 

The objectives of the Tax Court are:

 

1. To provide expeditious, convenient, equitable and effective judicial review of state and local tax assessments.

2. To create a consistent, uniform body of tax law for the guidance of taxpayers and tax administrators, in order to promote predictability in tax law and its application.

3. To make decisions of the court readily available to taxpayers, tax administrators and tax professionals.

4. To promote the development of a qualified and informed state and local tax bar.

 

Daniel Ng, JD/LL.B (Honours)

The Transactions Engineer

[Dave T 0]

Daniel,

 

According to my references, the US Tax Court is a federal agency with courts in major cities which hear taxpayers' appeals from decisions of the Internal Revenue Service. The US Tax Court hears the appeal de novo (as a trial rather than an appeal) and does not require payment of the amount claimed by the IRS before hearing the case. Tax Court decisions may be appealed to the Federal District Court of Appeals.

 

Based upon this definition, I did not see that US Tax Court has jurisdiction over a municipal property tax case.

 

Quoting from the United States Tax Court website.

• The Court and Its Jurisdiction
   
  The U.S. Tax Court is a Federal court of record established by Congress under Article I of the Constitution of the United States. Congress created the Tax Court to provide a judicial forum in which affected persons could dispute tax deficiencies determined by the Commissioner of Internal Revenue prior to payment of the disputed amounts. The jurisdiction of the Tax Court includes the authority to hear tax disputes concerning notices of deficiency, notices of transferee liability, certain types of declaratory judgment, readjustment and adjustment of partnership items, review of the failure to abate interest, administrative costs, worker classification, relief from joint and several liability on a joint return, and review of certain collection actions.
   
  Except in actions for declaratory judgment, for disclosure, for readjustment or adjustment of partnership items, for administrative costs, or for review of failure to abate interest (see Titles XXI, XXII, XXIV, XXVI, and XXVII), the jurisdiction of the Court depends
  • (1) in a case commenced in the Court by a taxpayer, upon the issuance by the Commissioner of a notice of deficiency in income, gift, or estate tax or, in the taxes under Code chapter 41, 42, 43, or 44 (relating to the excise taxes on certain organizations and persons dealing with them), or in the tax under Code chapter 45 (relating to the windfall profit tax), or in any other taxes which are the subject of the issuance of a notice of deficiency by the Commissioner; and
     
    (2) in a case commenced in the Court by a transferee or fiduciary, upon the issuance by the Commissioner of a notice of liability to the transferee or fiduciary.
    

I don't quite see how the US Tax Court becomes involved in this case. The NJ Tax Court is a state court. NJ Tax Court decisions are appealed to the NJ Appellate Division of the Superior Courts, and then on to the NJ state Supreme Court. If the state Supreme Court decisions on a state tax court case can be further appealed to the US Tax Court, then I stand corrected and this simple property tax question could eventually become a case before the US Tax Court.

 

An enrolled agent (EA) is a person who has earned the privilege of practicing, (representing taxpayers) before the Internal Revenue Service. I still think that Steve should first contact his local taxing authority to see if the issue can be resolved without dispute. Contacting an EA first would be premature in my opinion.

 

I am not an attorney, and do not have access to the legal resources that you have at your disposal, so I do leave room for the possibility that I am off track here.

[transactionsengineer 0]

Dave T,

 

Let me make my position as simple as I can. We are discussing Steve's LLC, Notice of Tax Assessment, and Business Personal Taxes.

 

The LLC is governed under the Illinois Limited Liability Company Act. This is a federal act under the jurisdiction of the US Tax Court.

 

Since we are discussing a furniture and equipment tax value of $17,500. In the short term, you are correct. It is a municipal matter. In the long run, it is a US Tax Court matter. There is a plethora of case law held before the US Tax Court on furniture and equipment expenditures and the LLC.

 

In my opinion, the ultimate authority is the US Tax Court on this matter.

 

Steve should follow the advice of Dave T since he is the resident Tax Man.

 

I am just cautious and have seen how bad things can get when it reaches the US Tax Court. I like preparing for the event that it reaches that far. There was a fraud case on furniture and equipment expenditures on the US Tax Court exam where the petitioner was sentenced to 30 years in prison. This is not meant to scare anyone but to show that the US Tax Court does have jurisdiction in these matters.

 

I don't want to continue to debate this. I expressed my opinion. This was not meant to provide you legal advice. For legal advice, please contact a competent legal professional in your area.

 

Daniel Ng, JD/LL.B (Honours)

The Transactions Engineer

[Dave T 0]

Daniel,

 

I will agree that we disagree on certain points, namely.

• We are discussing Steve's personal property tax assessment for rental property held by his LLC, not his Business Tax Return, nor his personal tax return.
   
  
• The LLC is governed by applicable state law.
   
  
• The Illinois Limited Liability Company Act is state law not federal law.
  

You are correct. This matter is not worth further debate.

[transactionsengineer 0]

Daniel,

 

I will agree that we disagree on certain points, namely.

• We are discussing Steve's personal property tax assessment for rental property held by his LLC, not his Business Tax Return, nor his personal tax return. 
   
   
  
• The LLC is governed by applicable state law. 
   
   
  
• The Illinois Limited Liability Company Act is state law not federal law.
  

You are correct.  This matter is not worth further debate.

<{POST_SNAPBACK}>

 

I stand corrected. I was thinking of something else while typing my message here and got two ideas mixed up.

 

This is what happens when multi-tasking. It is state law not federal.

 

I fully agree. Let's move on.

 

Daniel

[<Steve> 82]

OK, here is the skinny-

 

DaveT nailed it. I just got off the phone with the friendly neighborhood tax assessor. After asking for a break down, the $17,500 is a default number because they have no way of knowing what furniture or equipment the business has.

 

Apparently it is true that any rental property where I supply any appliances or furniture is considered personal business property and falls under the tax. If the tenant supplies their own, not taxed. Even if the property already had the appliances when I purchased the property, I still have to pay this tax.

 

The tax assessment only applies to rentals that I own, so L/O properties are not taxed. I don't own them.

 

So I started bugging (asking) the assessor how to fill out the form. I have to put down the original purchase price of the appliances. Most of the appliances are original when the property was built. Some of the properties were built in the 80s. So your guess is as good as mine as to what the original cost was. The assessor did mention that I can lump sum all the appliances before 1990.

 

I think the assessor realized they don't have a big fish to fry and said for me to call back if I have any additional questions about filling out the tax form.

 

So, for me I have another damn tax here locally, but on the other hand I have another write off for my fed & state return.

 

You guys were a great help and I am glad I called.

Steve

[Dave T 0]

Steve,

 

Try to allocate your purchase price for the property between the land, the structure, and the personal property that conveyed with it.

 

If the personal property is not new, then just assign a cost based either upon depreciated value, remaining useful life, or used appliance cost. Whatever can be defended as reasonable will be accepted by the assessor.

 

For example, a property I acquired in 2003 conveyed with the original kitchen appliances (vintage 1987). The range and refrigerator were in fairly good shape and in working order, but I told the tax assessor that due to the age of the appliances, they were at the end of their useful life, not economical to repair and would have to be replaced when they break down. Therefore, I assigned an initial total value to both appliances of $200. I think my personal property tax was 4$ the next year. Whatever value you assign, make sure that you also use that value in your asset depreciation schedule.

 

My county also wants me to send in a copy of page 2 of my federal Schedule E for the first year I depreciate the property.

[<Steve> 82]

This is good. Thank you DaveT for the assistance here.

 

Although this may not be a large tax expense, this experience has been a good lesson learned.

 

Steve