The Internal Revenue Service has recently announced that it will grant partial amnesty to employers who have classified workers as independent contractors when they are really employees (available at http://www.irs.gov/newsroom/article/0,,id=246203,00.html). The amnesty would be limited in scope.

Under this limited amnesty, employers who reclassify independent contractors as employees will pay only a portion of the employment taxes they would otherwise have paid for the year. Additionally, the IRS will waive any interest and penalties. The IRS has also stated that it will not audit participating employers for past years.

Despite this apparent show of good will, it is important to note that the IRS has stated that is may share the information with state and other federal agencies. As a result, it is important that those who may take up the IRS’s amnesty offer consult with an attorney so that they understand their rights, obligations, and potential liabilities.

The law allows property owners who have established a new principal residence to retain a Principal Residence Exemption on property once exempt as the owner’s principal residence for up to three years if (1) the property is not occupied (2) the property is for sale, (3) the property is not leased and, (4) the property is not used for any business or commercial purposes.

In order to take advantage of this law, one must file a Conditional Rescission of Principal Residence Exemption (Form 4640) to the assessor for the city or township where the property is located on or before May 1 of the first year of the claim. For example, in order to qualify for the 2012 exemption a property owner must file the form by May 1, 2012. This exemption is available for up to three years so long as all the above requirements are met. In addition to the May 1 filing requirement, the owner must annually submit form 4640 on or before December 31 verifying to the assessor that the property for which the Principal Residence Exemption meets the above requirements. In the example above, if the conditional rescission was approved for 2012, the owner would have to submit a new form by December 31, 2012 to verify qualifications for the 2013 tax year.

In Bay City v. Bay County Treasurer, a unanimous panel of the Michigan Court of Appeals ruled that the Bay County Treasurer had no role in determining whether the City of Bay City’s proposed use of a home it desired to purchase after the home was foreclosed for failure to pay property taxes was indeed a “public purpose.”  The City intended to purchase a vacant lot, and was considering conveying the lot to Habitat for Humanity for the construction of a new home.  The County Treasurer refused to sell the parcel to the City, claiming the City would “not be able to achieve its public purpose . . .efficiently and expeditiously.”  Although the trial court ruled for the Treasurer, the Court of Appeals reversed, determining that: (a) there was no requirement that the public purpose be efficiently and expeditiously achieved; and (b) the Treasurer had no authority under the General Property Tax Act to make an independent assessment of the City’s purported public purpose.

One should not read this opinion too broadly, as the “efficiently and expeditiously” element discussed by the Court is likely a required element to “public purpose” if the property were being taken under the power of eminent domain, rather than being purchased at tax sale.

If you have questions regarding property tax forfeitures, foreclosures, appeals, or payment plans, please contact David Nykanen at Demorest Law Firm.

In Michigan Properties, LLC v Meridian Township, the Michigan Court of Appeals ruled that Meridian Township was barred from retroactively uncapping the taxable value of a parcel in 2007 for a transfer alleged to have occurred in 2004, when the Township had failed to uncap the taxable value in 2005 and 2006. The court ruled that, unlike the circumstance that exists when one fails to file a Property Transfer Affidavit, a community is barred from retroactively uncapping the taxable value when a Property Transfer Affidavit is filed.

The court left open the possibility that the March 2005 Board of Review may have had authority to correct the tax roll and uncap the taxable value, had the assessor failed to do so after the 2004 transfer.  However, once the March Board of Review is closed, the community loses the ability to uncap the taxable value for a transfer occurring in the prior calendar year, so long as a Property Transfer Affidavit was filed.  Thus, reason No. 101 why you should file a property transfer affidavit, even if you are claiming an exemption from uncapping.

If you have questions about an assessor’s attempt to retroactively uncap your taxable value, or you wish to discuss structuring a transaction to minimize its property tax impact, please contact David Nykanen at Demorest Law Firm.

In Michigan, a property’s tax bill is calculated by multiplying the applicable millage rate by the property’s taxable value. That taxable value remains “capped;” increasing only by the lesser of the rate of inflation or 5% in any one year, until the property is “transferred.”  A transfer for property tax purpose is defined by statute. However, numerous exemptions from the definition of “transfer” exist.

In Klooster v. Charlevoix, the Michigan Supreme Court ruled that the death of a joint tenant will be exempt from being a “transfer,” leading to an uncapping of taxable value if: (a) the departing joint tenant was an “original owner;” and (b) the remaining joint tenant was a joint tenant when the joint tenancy was initially created, and has continuously remained a joint tenant. However, unless one of the new joint tenants is an “original owner,” the creation of a subsequent joint tenancy may lead to an uncapping.  To be considered an “original owner,” a joint tenant must have continuously been an owner from the date the property’s taxable value was most recently uncapped.

The Klooster decision, although heralded in the media as a “victory” for municipalities, opens up substantial planning opportunities for owners of property to structure transactions in a manner that will not lead to an uncapping of the property’s taxable value. If you are interested in learning more about such opportunities, please contact Dave Nykanen of  Demorest Law Firm.

To understand the importance of that Notice of Assessment, a bit of background is necessary.  In 1994, the voters of the State of Michigan passed Proposal A, a school finance reform package that increased the sales tax from 4% to 6%, shifted the funding of school districts from primarily local to primarily state level, and introduced the concept of “taxable value,” in addition to the long-standing state equalized value (SEV). In order to determine if an appeal of an assessment would reduce your property taxes, you must determine whether the property’s value is less than twice the taxable value.  This is true because in order to reduce your taxes, you need to reduce the SEV to a number less than the taxable value.

There is a one or two-step process in Michigan to challenge a property’s assessment, depending upon the property’s classification.  For property classified as residential or agricultural, the first step is an appearance before the Board of Review, which is generally held sometime after the second Monday in March of each year.  (There are additional requirements for properties located in several communities, most notably, the City of Detroit).  A Board of Review is made up of 3, 6 or 9 members, who are generally appointed by the administration of the City.

If the Board of Review does not reduce the SEV to an amount acceptable to the property owner, the second, and final, step is an appeal to the Michigan Tax Tribunal. The Michigan Tax Tribunal is an administrative agency created by Michigan law.

For properties classified as commercial or industrial, appeals can be filed directly to the Michigan Tax Tribunal, without appearing before the local Board of Review.

For smaller cases, a hearing officer of the Tax Tribunal, who can either hold a telephonic hearing or an in-person hearing, may actually hear your case.  These hearings typically last 30 minutes.  For larger cases, a Michigan Tax Tribunal Judge in the City of Lansing will hear the case.  These hearings may last up to several days.

For residential and agricultural properties, an appeal must be filed before the Michigan Tax Tribunal on or before July 31, 2011.  Remember: you must appear before the local Board of Review in March for these properties in order to appeal to the Tax Tribunal.

For commercial and industrial properties, an appearance before the local Board of Review in March is optional.  The deadline for filing an appeal before the Michigan Tax Tribunal for properties with these classifications is May 31, 2011.

Because of the declining Michigan real estate economy, the number of appeals has grown exponentially in the past few years.  This has led to a significant backlog before the Michigan Tax Tribunal.  For smaller cases, which are heard by hearing officers, the waiting period before you receive a hearing may be 1 to 2 years.  For larger cases, which are heard by Michigan Tax Tribunal Judges, the waiting period can be anywhere from 2 to 4 years.  Of course, it is always possible settle the dispute with the local community prior to a hearing.  The likelihood of this occurring depends upon the attitudes of the particular community and assessor regarding the resolution of these appeals.

While an appeal is pending, a property owner should continue paying taxes at the amount billed by the community.  When the case is resolved, if a refund is generated based upon the terms of the resolution, that refund will also include interest from the date of payment of the tax to the date of refund.

A property owner who is unsure of whether an appeal is appropriate may receive a free preliminary review of the Notice of Assessment by forwarding it to our firm. We can evaluate the likelihood of success in an appeal.  In most cases, our firm will handle property tax appeals on a contingent fee basis, which means that the property owner will pay no attorney fees unless a refund is generated through the appeal.  Please contact Dave Nykanen if you have questions about property tax appeals in Michigan.

This article was written by David E. Nykanen, Principal of Demorest Law Firm.

In September 1993, voters in Detroit approved a 32.25 mill school operating property tax.  As a result, DPS was authorized to levy and collect property taxes from Detroit property owners until the millage expired on June 30, 2002.  After the expiration of the millage in 2002, DPS continued to levy the tax through 2004.  Taxpayers continued to pay the tax without objection.

In 2005, Briggs Tax Service filed a claim against DPS in the Michigan Tax Tribunal seeking a refund of the unauthorized taxes levied and collected by DPS.

The underlying issue in this case was whether the claim must be dismissed due to lack of jurisdiction (failure to timely file).  Ordinarily, the time limit to file a claim for a refund in Michigan is 35 days after a final decision. MCL 205.735(3).  Briggs did not meet this deadline and the Tax Tribunal initially dismissed Plaintiff’s claim.  The Tax Tribunal then allowed Briggs to amend its petition in order to assert a claim under MCL 211.53a, which has a three year statute of limitations.  Under MCL 211.53a, in order to assert a successful claim, the taxpayer must have been assessed and paid taxes in excess of the correct amount due to either (1) a clerical error or (2) a mutual mistake of fact by the assessing officer and the taxpayer.

There was no clerical error.  The DPS intended to levy the taxes.  Thus, in order for Briggs to successfully assert a claim under MCL 211.53a, Briggs had to prove that there was a mutual mistake of fact by both the assessing officer and the taxpayer.

The Michigan Supreme Court held that although a DPS employee certified the tax levy, a DPS employee is not the same as a tax assessor. Thus, there was no mistake by the assessing officer, because the “assessor” never certified the tax.

The Michigan Supreme Court also held that any mistake was a mistake of law, rather than a mistake of fact. The validity of a tax is a legal issue, rather than a factual issue.

While we find the result of the case somewhat surprising, the Michigan Supreme Court’s decision points out the importance of reviewing tax bills carefully, and promptly objecting to any item on the tax bill that you question.

Click here to download a PDF of the Michigan Supreme Court Opinion in Briggs Tax Service, LLC v Detroit Public Schools.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Individual taxpayers who itemize their deductions for 2009 may deduct on their 2009 income tax return cash contributions to qualifying charities for Haitian earthquake relief made after January 11, 2010 and before March 1, 2010.  A “qualifying charity” for this purpose is a charity which is (1) based in the United States, and (2) is either (a) listed in IRS Publication 78 or (b) a bona fide church.

Publication 78 lists charities which have applied for, and been granted, IRS recognition that contributions to them are deductible as charitable contributions for Federal income tax purposes.  An online version of Publication 78 can be found at http://www.irs.gov/app/pub-78/.

To designate that a contribution is for Haitian earthquake relief, you should specify on the memo line of the check or otherwise in the documentation for the contribution that the contribution is for Haitian earthquake relief.

If you have any question about making a qualifying contribution, please feel free to contact us.

[1] IR 2010-12, Jan. 25, 2010.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm.

However, there are certain types of transfers of ownership that are exempt from this rule and will not cause an uncapping of the taxable value.  These no-transfer-of-ownership exemptions are listed in the General Property Tax Act, Section 211.27a(7).

One particular exemption that has been the subject of recent litigation in Michigan is set forth in Section 211.27a(7)(h). This exemption has to do with a transfer that creates or terminates a joint tenancy.  It has been widely assumed that the death of a joint tenant is considered a transfer that “uncaps” the taxable value of a property and is not exempt under Section 211.27a(7)(h).

However, in December 2009, the Michigan Court of Appeals reversed the decision of the the Michigan Tax Tribunal in the case of Klooster v City of Charlevoix, holding that the death of one joint tenant, even though it terminated the joint tenancy, was not a “conveyance” because there was no instrument that affected title.  In that case, husband and wife first acquired property, wife then quitclaimed to husband, husband then quitclaimed to himself and his son as joint tenants, and the husband/father subsequently died.  It is the death of the father as joint tenant that is the issue of the dispute.  The court disagreed with the City of Charlevoix and the Tax Tribunal’s contention that the death constituted a “transfer” under Michigan statutes.

Just this month, the Michigan Court of Appeals in Klevorn v. City of Boyne City, using Klooster as precedent and citing the similarity of the facts, held that the death of one joint tenant (mother) and the subsequent transfer the other joint tenant with rights of survivorship (son) was not a “conveyance”.  Therefore, the Court held that the property value upon transfer to the son should not have been uncapped and he was entitled to the no-transfer-of-ownership exemption in MCL 211.27a(7)(h).

The Klooster decision has been appealed to the Michigan Supreme Court.  In the meantime, there is precedent to argue that upon the death of a joint tenant, the remaining joint tenant with rights of survivorship is not subject to an uncapping of the property’s taxable value.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

Home Improvement/Appliance Credit

The credit is equal to 10% of EPA energy star certified appliances; the maximum credit is $75 for single taxpayers and $150 for married tax payers. This credit can be claimed on Michigan form 4764.

Energy Cost Recovery Surcharge Credit:

This non-refundable credit is available to both homeowners and renters who pay electric bills and is capped at $9 per meter in 2009. This credit can be claimed on Michigan Schedule 2.

For more information on these credits, including eligibility and income limitations please visit click here to visit the Michigan.gov taxes page.

This article was written by Jay Kossen, CPA at Numerico, PC. Click here to view Numerico’s website.