Alabama Preparers

[Snaggletooth]

For years and years, revenue-starved Alabama tax authorities have salivated at the idea of disallowing the Federal Income Tax Liability as a deduction. This has been a big issue, and grassroots Alabama opposition groups have sworn to vote out any legislator who voted for such a thing.

However, I notice 2009 just might be a partial victory for the AL gubbermint.

Traditionally, the Federal Income Tax Liability was defined as the Liability BEFORE withholdings and refundable credits. I notice for 2009 the true liability (as we know it) is now being reduced by the MWP credit, the EIC, and the FTHB credit.

I didn't read a word of this in the "What's New" section of their annual Form 40 publication.
Harlan (or others) did this really happen??

[ChEAr$]

For years and years, revenue-starved Alabama tax authorities have salivated at the idea of disallowing the Federal Income Tax Liability as a deduction. This has been a big issue, and grassroots Alabama opposition groups have sworn to vote out any legislator who voted for such a thing.

However, I notice 2009 just might be a partial victory for the AL gubbermint.

Traditionally, the Federal Income Tax Liability was defined as the Liability BEFORE withholdings and refundable credits. I notice for 2009 the true liability (as we know it) is now being reduced by the MWP credit, the EIC, and the FTHB credit.

I didn't read a word of this in the "What's New" section of their annual Form 40 publication.
Harlan (or others) did this really happen??

It did indeed happen and I go to great lengths to explain this to clients. Usually
just the EIC is enough to make the deduction go away. I haven't come across the FTHB credit reducing it yet, for my recommendation to client is to always use the 1040x for previous year if available.

[Snaggletooth]

Alabama Booklet

Harlan, I did revisit the Form 40 booklet "What's New" section.

This devastating change (to taxpayers) is subtly referenced by stating the deduction is "now calculated on a worksheet." Wonder how many Montgomery legislators will boldly stand in front of the camera and say "I voted for that."

I attended a TV debate down there once for gubenatorial candidates. One of the years Fob James won. His competition consisted of one guy

1) who was asked about removing Robert's Rules of Order from the floor of the Ala legislature. He responded with a dazed look on his face and finally said "I'm a firm believer in Law and Order. If they go up thar in Montgomery and can't behave themselves, they oughta be sent home!!"

it gets better. Another guy

2) was asked about changing the Tenure Law for Teachers. This guy responded by saying "I want good teachers for our childerns (sic). I don't care if they been there one yr, two ure, five ure, or TENure."

Where do you find these guys?? Can any state be worse? Maybe the one to your north.

[Snaggletooth]

Counterproductive

It did indeed happen and I go to great lengths to explain this to clients.

Harlan, if you recall, the people who wanted to eliminate the Federal Liability ostensibly were bleeding hearts claiming the deduction was helping only the wealthy. They were correct, as the wealthy have huge Federal Taxes.

So they pass a modified version which reduces the liability by amounts of refundable credits. And just who on the economic scale has refundable credits? MWP, the EIC crowd, Addtl Child Credit??

Yep, low-to-middle income taxpayers got hurt the worst.

The name of the game was obviously to raise revenue, and not target the wealthy as they claimed. That's O.K. We're used to this kinda thing by now.

[ChEAr$]

Now i don't have any direct knowledge of what happened or how it happened, but
the changes were made when the legislature was not in session so it's not a matter of some rep or senator from some district voting for it. Rather it was the department of revenoors themselves who re interpreted the law.

[Snaggletooth]

Can They Do That?

Can a taxing authority simply change taxation without an accompanying change in law?

I know we've railed perhaps too much on the political process in this thread, but it has extreme implications for taxes.

Can the Dept of Revenue suddenly change their "interpretation" of laws that have been in long-standing practice? Can't a private citizen take them to court for this? In this situation, someone in Alabama would have to take the State to court, and the court would be extremely prejudicial in favor of the state, and would feel the pressure from every agency therein. But is this not something as plain as to invoke relief?

I doubt we have lots of Alabama lawyers on this forum, but this situation could really happen in any state -- a Dept of Revenue changing long-standing process without legislative action.

[Snaggletooth]

Harlan

Harlan, can you PM to me your contact information?

I may have another referral from Opelika.

[ChEAr$]

Can a taxing authority simply change taxation without an accompanying change in law?

I know we've railed perhaps too much on the political process in this thread, but it has extreme implications for taxes.

Can the Dept of Revenue suddenly change their "interpretation" of laws that have been in long-standing practice? Can't a private citizen take them to court for this? In this situation, someone in Alabama would have to take the State to court, and the court would be extremely prejudicial in favor of the state, and would feel the pressure from every agency therein. But is this not something as plain as to invoke relief?

I doubt we have lots of Alabama lawyers on this forum, but this situation could really happen in any state -- a Dept of Revenue changing long-standing process without legislative action.

Remember that the three new "aqdjustments" to the deduction for federal taxes are all
new this year, so there was never a chance for the legislators up on "goat hill" (the
hill the Capitol sits on) to ever consider the issue, not that they would be qualified to
even understand the issue.