Masonry Magazine June 1970 Page. 19
TAXES
By MIRIAM McD. MILLER
POLLUTION AND TAXES
With the great national concern about the environment in which we live, it is perhaps not surprising that the tax field, which seems to permeate our every undertaking, now has entered the field of environmental control. The Council on Environmental Quality has formed a task force that is to make a survey on the impact of the nation's tax policies on the environment. Among the key questions to be examined by the Task Force are: 1) Do present tax policies encourage undesirable activities vis a vis the environment? and 2) To what extent and how should the tax structure be modified to induce individuals and corporations to meet environmental goals?
SMALL BUSINESSES
President Nixon indicated to the Congress that there is a growing problem in getting non-government individuals and institutions interested in the need of small-businesses to obtain high-risk loans. The President hopes to use tax incentives to encourage the placing of such loans and has requested that legislation be prepared that would offer compensation in the form of tax incentives to make such loans. An example of an incentive would be an income tax deduction equal to 20% of the interest earned on Small Business Administration-guaranteed loans.
WITHHOLDING
A Federal District Court in Alabama recently held that a prime contractor was liable for the withholding taxes not paid on the wages of the employees of one of its subcontractors.
The defendant, Algernon-Blair, Inc., was the prime contractor on two projects-one in Montgomery, Ala., and one in Fort Jackson, S.C. The plumbing subcontract on these projects had been awarded to Whitehead Plumbing and Heating, Inc. However, Whitehead subsequently encountered financial difficulties and went to Algernon for help in solving them. An arrangement was made whereby Algernon would make certain advances to Whitehead to enable it to pay its wages and suppliers in completing both contracts. However, no arrangement was made to pay the amount due to be withheld on the wages paid with the money advanced.
The Court concluded that the prime contractor had actual notice and knowledge that the withholding taxes could not be paid by Whitehead as the law required. Algernon, said the Court, "not only failed to exercise any diligence to see that the withholding taxes were paid, but failed to exercise any diligence in this regard." Therefore, the prime contractor was held responsible to the Federal Government for the amount of taxes required to be deducted from the wages of the employees of the subcontractor. U.S. v. Algernon-Blair, Inc. (D.C. Ala. 1970.)
TAX COLLECTIONS
Thanks to the wonders of automatic data processing, the total of the Federal revenue collection for 1969 is already available: $195 billion for 1969 as contrasted with $168.6 billion in 1968.
masonry June, 1970
NEW FORM
The IRS has now released its new Form W-4E to be used by students and other part-time employees who are excused from withholding requirements (after April 30, 1970) if they furnish their employers with a proper statement that they owed no tax last year and expect to owe none this year. This form may be obtained at local IRS offices and is reproduced here for your information.
H.R. 10 PLAN FUNDING
Under a self-employed individual's retirement plan (H.R. 10 plan) retirement benefits may not be paid until the owner-employee becomes 59½ years old or becomes permanently disabled. Any payment made prior to such times is called a premature distribution, which is penalized at a higher than normal rate of tax.
This matter of premature distribution can come into play inadvertently when an owner-employee changes the method of funding his plan. There is a helpful guide provided by the IRS for the changing of the funding of an H.R. 10 plan. It is contained in Rev. Rul. 69-254, k969 1 CB129.
An owner-employee presented the following situation to the IRS for its ruling. It seems that the owner-employee, who was neither 59½ years old nor disabled, established an H.R. 10 plan in which he was the only participant. He funded it by taking out a nontransferable annuity. Subsequently, he started a second H.R. 10 plan (again with himself as the only participant) and established a bank as custodian of the assets under the terms of the plan. In order to fund the second H.R. 10 plan, the owner-employee surrendered, for its cash surrender value, the annuity issued under the first plan.
In this case, the IRS ruled that the owner-employee had received a premature distribution-because of the fact that even though the owner-employee used the money to fund the second plan, there was no limitation on the use of this money when it was paid to the owner-employee. Therefore, the ruling was that whenever the method of funding an H.R. 10 plan is changed, do not let the funds come into the hands of an owner-employee without any restrictions on its use-because the unrestricted use of such money will result in a premature distribution and a tax.
ESTIMATED TAX
Failure to pay an installment of estimated tax or the proper amount because of under-estimation results in a mandatory penalty and reasonable cause will not excuse the failure. A 6% addition to the tax is the penalty. Of course, should a taxpayer have an underpayment and believe that (Continued on page 27)