According to the Weather Channel, it feels like 92 degrees right now. I firmly believe that it should never feel like 92 degrees in the evening in Philadelphia.

On the plus side, after a grueling day gardening in the heat (hey, it had to be done), I now have the opportunity to sit down, check email and sift through the taxgirl mailbag. It’s surprisingly full for summer so if you’ve sent me a question, please be patient if you don’t see your answer.

And do me a favor, okay? I know summer can be busy but please take an extra couple of minutes to check on your fellow living things – those with four legs as well as two legs. Pets and kids get hot quickly inside a car, so be super careful. And wander across the street to check on your elderly neighbors this time of year. Got it? Good! Now to the mailbag!

Taxpayer asks:

I am a rising 2L in California. I am seriously considering a career as a tax attorney.

My law school does not offer an LLM in Taxation. They do, however, give students the opportunity to participate in a Low-Income Taxpayers Clinic. The business school associated with the university also has a year-long accounting program that would give me the necessary credits to take the CPA exam, if I was so inclined.

I was told my one tax attorney that doing “monkey work,” or preparing tax returns over and over under the direction of a tax attorney would be very beneficial.

What opportunities would you recommend I pursue while in law school? Would you ever recommend an online LLM in Taxation program?

Taxgirl says:

I don’t think you can overstate the value of practical experience when it comes to being a tax attorney. So if you are really interested in tax law, by all means, participate in the Low-Income Taxpayer Clinic. You’ll learn a lot not only about taxes but about how to work with clients and the IRS. Even better? You’re doing a good thing.

I also highly recommend taking advantage of other opportunities such as internships and mentorship programs.

That said, don’t stack up on taxes as a 2L if you’re not sure (and it sounds like you’re not). Why not take a couple of other classes in topics that you think you might find interesting – just to see what’s out there? If you know my story, you’ll know that I fell into tax law quite by accident when running away from litigation. I found that I loved it and stayed. My best advice is to find something that you enjoy and stick with it. If that’s tax, then by all means, sign up for everything tax-related that you can manage. But if you’re still looking, consider law school a great opportunity to try things on for size. I think you’ll find in practice that it’s very hard to switch gears; it’s rare (though admittedly, it happens) that you will change disciplines once you start practicing.

With respect to the LLM in Taxation, I don’t think you need a degree for the sake of getting a degree. If you are interested in a program that offers you a tangible benefit, then I think an LLM in Taxation is a great idea. But don’t sign up for a program just so that you can say you have it. Your time and your money are far too valuable.

As to the online component, I don’t know even to judge. I have taught courses for paralegals online and I do think online education has a place but I don’t know how comfortable I am saying that extends to sophisticated tax matters. Perhaps one of my colleagues could weigh in?

Taxpayer asks:

I’m an international student who arrived to the US 2 years ago. In my immigration process, I listed myself as (economic) dependent of my parents, who live in Mexico and cannot claim me as a tax dependent.

My brother, who just finished his master here at the US, currently started working and he might be able to claim me as a tax dependent. However, we don’t know whether I would have a problem or not in my immigration issues because I did not include him as a sponsor or anything while getting my student visa.

I hope you could ask is question because not even my international advisors could give me an answer.

Thank you very much.

Taxgirl says:

I don’t do immigration law – and that’s really what this question is about. From a tax perspective, if you meet the criteria as a qualifying relative, then your brother can claim you. There are four tests that must be met for a person to be your qualifying relative. The four tests are:

  1. Not a qualifying child test,
  2. Member of household or relationship test,
  3. Gross income test, and
  4. Support test.

Briefly, a child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer (sounds like that’s the case here).

To meet the member of household or relationship test, a person must either live with you all year as a member of your household, or be related to you in one a number of ways as determined by IRS (and yes, brother works with that one).

To meet the gross income test, the dependent’s gross income for the year must be less than $3,700 (if you’re here on student visa, this shouldn’t be a problem).

Finally, to meet the support test, your brother generally must provide more than half of your total support during the calendar year (some exceptions apply here – especially if your parents are also providing support).

So that’s the tax bit.

The immigration bit is more complicated. I asked my husband, Chris Erb, who practices business immigration law to chime in on this issue. Basically, when you applied, we’re going to assume that you and your parents provided documentation that you had the financial means to pay for your stay in the U.S. So long as you pay your bills, it shouldn’t make a difference whether your brother is helping you out (again, keeping in mind the tax criteria). As Chris sees it, the bigger risk is if you did not disclose on your application that you had a brother in the U.S. Failure to have made that disclosure could raise concern about whether you intend to leave the country which, as you know, is a condition of your student visa (“non immigrant intent”).

Hopefully, that helps.

Taxpayer asks:

Hi Taxgirl. Glad to find you here. I’m hoping you can offer clarification or a referral. I’ve talked to a financial planner and the IRS and neither can give me a clear answer. They both said I need a tax advisor, but of course funds are tight.

My question: how can I determine with any certainty whether I qualify for a penalty-free withdrawal from an IRA? I currently have a 401k through my former employer but was told that the hardship withdrawal option only applies to employees (of course if I did not get laid off, I would not need the hardship withdrawal.) The financial planner told me if I roll over to a traditional IRA that I MAY qualify for a penalty free withdrawal. The IRS could not tell me whether I would qualify and I don’t want to roll over if it gives me no additional options for withdrawal.

A follow up question is: if I do not qualify for a penalty free withdrawal, then is there an option applicable to 401ks to withdraw penalty free within 6 months of loss of employment or file a return amendment, similar to an employee IRA?

Hope you can help. Thanks for your efforts.

Taxgirl says:

I think your financial planner got it backwards. You can take distributions from your IRA at any time. If you make a withdrawal before ago 59 1/2, you may be subject to an additional 10% tax (penalty). There is no need to show a hardship in order to take a distribution because there is no hardship exception to the penalty. Under the code at Section 72(t), there are exceptions to the penalty which include medical expenses, the costs of higher education, QDROs and buying your first home.

You can it make a hardship withdrawal from a 401k if you meet the hardship criteria because of an “immediate and heavy financial need” for which the amount of the distribution is sufficient to resolve (you can’t take more out than you need). However, as you noted, that applies to employees. If you are no longer an employee, you may be able to take a penalty-free withdrawal from your 401k in the year you turn 55, or later OR if you have set up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. This is sometimes referred to as the 72(t) exception.

It sounds like you might need to consult with another financial planner or perhaps your HR folks to work through this. It can be tricky and, as you noted, you don’t want to do the wrong thing here since the consequences can be costly.

Taxpayer asks:

Hello tax Girl,

We presented a sales incentive rebate program to a prospective customer. He liked it but asked to be paid in gift cards instead of receiving checks.

If we honored his request we would still be obligated to provide him with a 1099 at the end of the year, correct? So his rather obvious attempt to avoid paying taxes will not work unless we were dumb enough to facilitate his plan by not sending him a 1099.

Please answer this one.

Thanks for your help.

Taxgirl says:

Yep. If you’re paying in gift cards, you’re paying in cash or cash equivalent. If you were required to issue a form 1099 while paying by check, you’re required to issue one if paying in gift cards.

You’re right to question something that feels like it’s too clever by half. While there are techniques for saving on taxes, it’s rare that it can be had simply by switching a tax form or changing the manner of payment. If you’re not sure, always ask a tax professional.

Well, that’s a wrap for this edition of the Sunday mailbag. Thanks so much for reading! I love getting mail from my readers. But there are rules – there are always rules. Be sure to read my disclaimer… Remember, I’m a lawyer and we love disclaimers. But you know who loves them more? My malpractice carrier. Consider yourself warned.

If you still have a question, check out these tips before you “ask the taxgirl.”

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