Do Taxes Ever Expire? Many Americans believe that an IRS debt is a debt for life and that the tax collector can hound them to the grave. Thankfully, that is not the case and there are statutory time limits on the ability of the IRS to examine and collect taxes.
Basically, IRS has 10 years from the date they send out their first bill to collect the tax.The 10 year rule does not apply to the states. Some, like California have no statute of limitations and the state tax collector can indeed hound you forever. The federal tax collector must get the cash before the clock runs out.
For tax assessments made after November 5, 1990, the IRS cannot collect the tax after 10 years from the date of the original assessment absent special circumstances. Special circumstances that may extend the statute are: a bankruptcy not completed or wherein the tax is not discharged; filing an Offer-in-Compromise; or signing a Form 900 Waiver. If you never file a tax return, there is no statute of limitations on IRS requiring you to file, but as a matter of policy, IRS generally only requires non-filers to file the last 6-7 years. If IRS files for you by doing a Substitute-for-Return (SFR), they have 10 years from the date they file the SFR to collect from you. If a Federal Tax Lien is on file against you, it expires and becomes void if the underlying statute expires.
You can find out when the statute expires on your tax bill by requesting a Record of Accounts (ROA) from IRS for each tax year you owe. If you cant afford to pay the tax, your account might be eligible to be put in a temporary hardship status. It may be possible to ride out the statute in hardship if you qualify.
If you have a refund coming to you, you only have 3 years from the due date to collect your refund. If you file 3 or more years after the due date, the refund is lost. In some cases you can peruse a refund beyond the three years. If you full pay the tax, you can file a claim for refund within 2 years of the payment. If your claim relates to a bad debt or worthless security, you have 7 years to make a claim.
The flipside to the 3 year refund rule is that IRS only has 3 years to examine a filed return by audit in most cases. Now, the tax code is complicated and there are exceptions to these rules. If you have committed fraud or tax evasion, there is no statute for audit. There is also a 6 year rule for audit in cases of substantial omission of 25% or more in income. But for most folks, the three year statute will apply on audits.
Websites that can help you research these issues are: www.1040.com/jd http://www.irs.gov/ http://www.naea.org/, . I do not recommend dealing with IRS on your own. You should get help from a tax pro if you have a tax collection or audit issue. Don't hire some company you saw on a TV commercial, hire a flesh and blood person or reputable firm. A good CPA, Enrolled Agent (EA), Accredited Tax Advisor (ATA), or Tax Attorney can be invaluable. If you want to call IRS yourself, they can be reached at 1-800-829-1040.
John R. Dundon, EA
Taxpayer Advocate - Enrolled with the United States Department of Treasury to Practice before the IRS
www.1040.com/jd
720-234-1177
Friday, January 30, 2009
Earned Income Tax Credit
The Earned Income Tax Credit is for people who work, but have lower incomes. Here are some things you may not know about the EITC.
1. A quarter of all taxpayers that qualify don't claim the credit. The Earned Income Tax Credit is money you can use to make a difference in your life. Just because you didn't qualify last year, doesn't mean you won't this year. As your financial situation changes from year-to-year you should review the EITC eligibility rules to determine if you qualify.
2. If you qualify, it could be worth up to $4,800 this year. If you qualify, you could pay less federal tax or even get a refund. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household.
3. Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
4. You must have a valid Social Security Number. You, your spouse (if filing a joint return) and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
5. You must have earned income. This credit is called the "earned income" tax credit because you must work and have earned income to qualify. You have earned income if you work for someone who pays you wages or you are self-employed.
6. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
7. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make the election, the combat pay remains nontaxable, but you must include in earned income all nontaxable combat pay you received.
8. You can visit the IRS Web site to estimate your credit online. It's easy to determine whether you qualify for the EITC. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Jus t answer a few simple questions to find out if you qualify and to estimate the amount of your EITC. You will see the results of your responses right away.
9. E-file programs will figure the credit for you. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File. You can access Free File through the IRS Web site at IRS.gov. 10. Advanced Earned Income Tax Credit. You don't have to wait until you file your tax return to receive your EITC. Advance EITC is a portion of the EITC that qualified workers may be able to receive in advance payments, added to their wages throughout the year. For more information, see Form W-5, Earned Income Credit Advance Payment Certificate.
For more information about the EITC and Advance EITC see IRS Publication 596, Earned Income Credit.
www.1040.com/jd
720-234-1177
1. A quarter of all taxpayers that qualify don't claim the credit. The Earned Income Tax Credit is money you can use to make a difference in your life. Just because you didn't qualify last year, doesn't mean you won't this year. As your financial situation changes from year-to-year you should review the EITC eligibility rules to determine if you qualify.
2. If you qualify, it could be worth up to $4,800 this year. If you qualify, you could pay less federal tax or even get a refund. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household.
3. Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
4. You must have a valid Social Security Number. You, your spouse (if filing a joint return) and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
5. You must have earned income. This credit is called the "earned income" tax credit because you must work and have earned income to qualify. You have earned income if you work for someone who pays you wages or you are self-employed.
6. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
7. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make the election, the combat pay remains nontaxable, but you must include in earned income all nontaxable combat pay you received.
8. You can visit the IRS Web site to estimate your credit online. It's easy to determine whether you qualify for the EITC. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Jus t answer a few simple questions to find out if you qualify and to estimate the amount of your EITC. You will see the results of your responses right away.
9. E-file programs will figure the credit for you. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File. You can access Free File through the IRS Web site at IRS.gov. 10. Advanced Earned Income Tax Credit. You don't have to wait until you file your tax return to receive your EITC. Advance EITC is a portion of the EITC that qualified workers may be able to receive in advance payments, added to their wages throughout the year. For more information, see Form W-5, Earned Income Credit Advance Payment Certificate.
For more information about the EITC and Advance EITC see IRS Publication 596, Earned Income Credit.
www.1040.com/jd
720-234-1177
Dividend Repatriation as Stimulus - good idea.
Dividend Repatriation Tax Cut Would Be Ideal Stimulus
Op-ed in today's Wall Street Journal: A $545 Billion Private Stimulus Plan; Let's Bring Home Foreign Earnings Without Tax Penalty, by Allen Sinai:
[T]he Obama team should implement a private-sector funded stimulus and allow a temporary reduction in the 35% tax rate that U.S. companies pay to repatriate foreign subsidiary earnings. Doing so could inject more than $545 billion into the U.S. economy without expanding the deficit.
Driven by previously strong foreign economies and a low dollar, the foreign subsidiaries of many successful U.S.-based companies have generated substantial earnings that could be invested in the U.S. economy at virtually no cost to the federal government. These earnings reside overseas, however, because of U.S. tax laws that many foreign competitors do not face.
Under the current system, U.S. corporations are charged 35 cents for each foreign-earned dollar they bring back home to the U.S. If they keep that income overseas, it is taxed at lower rates. As a result, those dollars tend to stay overseas permanently, since companies know they will automatically lose more money by bringing that income home than they can reasonably expect to make by reinvesting it once it is here. ...
In order to motivate businesses to bring this money back to the U.S., the new administration and Congress should consider legislation similar to a bipartisan 2004 law, The American Jobs Creation Act. This law incentivized U.S. businesses to bring $360 billion of foreign subsidiary earnings back into the U.S. at a reduced corporate tax rate of 5.25% for one year. A survey of several hundred of these companies found that they used, on average, 25% of those funds for U.S. capital investment, 23% for hiring and training of U.S. employees, 14% for U.S.-based R&D, and 13% for U.S. debt reduction.
A similar opportunity exists now as then, with an even greater need today. A new study by Decision Economics Inc., concludes that lowering the tax on repatriating foreign-earned income would inject $545 billion into our economy. ... The study also indicates that the U.S. Treasury would receive tax revenue it would not otherwise get: an average of $28 billion per year for five years. The resulting increase in aggregate economic activity -- higher personal income, corporate profits, capital gains, Social Security and excise taxes paid -- would generate even more tax receipts. State governments would also see some increase in revenues.
www.1040.com/jd
720-234-1177
Op-ed in today's Wall Street Journal: A $545 Billion Private Stimulus Plan; Let's Bring Home Foreign Earnings Without Tax Penalty, by Allen Sinai:
[T]he Obama team should implement a private-sector funded stimulus and allow a temporary reduction in the 35% tax rate that U.S. companies pay to repatriate foreign subsidiary earnings. Doing so could inject more than $545 billion into the U.S. economy without expanding the deficit.
Driven by previously strong foreign economies and a low dollar, the foreign subsidiaries of many successful U.S.-based companies have generated substantial earnings that could be invested in the U.S. economy at virtually no cost to the federal government. These earnings reside overseas, however, because of U.S. tax laws that many foreign competitors do not face.
Under the current system, U.S. corporations are charged 35 cents for each foreign-earned dollar they bring back home to the U.S. If they keep that income overseas, it is taxed at lower rates. As a result, those dollars tend to stay overseas permanently, since companies know they will automatically lose more money by bringing that income home than they can reasonably expect to make by reinvesting it once it is here. ...
In order to motivate businesses to bring this money back to the U.S., the new administration and Congress should consider legislation similar to a bipartisan 2004 law, The American Jobs Creation Act. This law incentivized U.S. businesses to bring $360 billion of foreign subsidiary earnings back into the U.S. at a reduced corporate tax rate of 5.25% for one year. A survey of several hundred of these companies found that they used, on average, 25% of those funds for U.S. capital investment, 23% for hiring and training of U.S. employees, 14% for U.S.-based R&D, and 13% for U.S. debt reduction.
A similar opportunity exists now as then, with an even greater need today. A new study by Decision Economics Inc., concludes that lowering the tax on repatriating foreign-earned income would inject $545 billion into our economy. ... The study also indicates that the U.S. Treasury would receive tax revenue it would not otherwise get: an average of $28 billion per year for five years. The resulting increase in aggregate economic activity -- higher personal income, corporate profits, capital gains, Social Security and excise taxes paid -- would generate even more tax receipts. State governments would also see some increase in revenues.
www.1040.com/jd
720-234-1177
Tax incentives for organ donations
Lisa Milot (Georgia) has published Find 45 Willamette L. Rev. 67' target=_blank>The Case Against Tax Incentives for Organ Transfers, 45 Willamette L. Rev. 67 (2008). Here is the Conclusion:
Upon initial consideration, providing tax incentives for organ donations might seem to reflect a sound legislative and ideological approach, consistent with the current tax code. In addition, such an approach avoids economic coercion of individuals who, absent financial incentives, would prefer not to transfer their organs but who may feel that they have no option once financial incentives are possible by taking advantage of the progressive nature of our tax system. Moreover, by routing payments through our tax system and casting transfers as donations, concerns about commodification of our bodies are allayed.
On closer analysis it becomes evident that such incentives conflict with the goals of maintaining vertical equity, transparency, and administrability/simplicity within our tax system. Such incentives would convert what is otherwise currently a non-tax event into a tax item, increasing complexity without providing an unequivocal reason for doing so. In addition, use of the tax system to provide financial incentives for organ transfers provides differential returns to taxpayers based upon a completely unrelated event: their tax bracket. Finally, use of tax incentives instead of direct payments obscures the underlying financial reality of the proposals, preventing meaningful reflection on implications for our understanding of ourselves. While we could simply decide to use the tax system this way, any such decision should be carefully considered.
www.1040.com/jd
720-234-1177
Upon initial consideration, providing tax incentives for organ donations might seem to reflect a sound legislative and ideological approach, consistent with the current tax code. In addition, such an approach avoids economic coercion of individuals who, absent financial incentives, would prefer not to transfer their organs but who may feel that they have no option once financial incentives are possible by taking advantage of the progressive nature of our tax system. Moreover, by routing payments through our tax system and casting transfers as donations, concerns about commodification of our bodies are allayed.
On closer analysis it becomes evident that such incentives conflict with the goals of maintaining vertical equity, transparency, and administrability/simplicity within our tax system. Such incentives would convert what is otherwise currently a non-tax event into a tax item, increasing complexity without providing an unequivocal reason for doing so. In addition, use of the tax system to provide financial incentives for organ transfers provides differential returns to taxpayers based upon a completely unrelated event: their tax bracket. Finally, use of tax incentives instead of direct payments obscures the underlying financial reality of the proposals, preventing meaningful reflection on implications for our understanding of ourselves. While we could simply decide to use the tax system this way, any such decision should be carefully considered.
www.1040.com/jd
720-234-1177
Tuesday, January 27, 2009
Tips for recently married or divorced taxpayers
If you were married or divorced recently, there are a couple of things you'll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.
If a taxpayer takes their spouse's last name or if both spouses hyphenate their last names, they may run into complications if they don't notify the SSA. If the newlyweds file a tax return using their new last names, IRS computers would not be able to match the new name with their Social Security Number.
After a divorce, taxpayers who change back to their previous last name also need to notify the SSA of the change.
Informing the SSA of a name change is quite simple. File a Form SS-5 at your local SSA office. The form is available on SSA's Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
Taxpayers who adopt their spouse's child after getting married will want to make sure the children have an SSN. Taxpayers must provide SSNs for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number, or ATIN, by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on the IRS Web site
www.1040.com/jd
720-234-1177
If a taxpayer takes their spouse's last name or if both spouses hyphenate their last names, they may run into complications if they don't notify the SSA. If the newlyweds file a tax return using their new last names, IRS computers would not be able to match the new name with their Social Security Number.
After a divorce, taxpayers who change back to their previous last name also need to notify the SSA of the change.
Informing the SSA of a name change is quite simple. File a Form SS-5 at your local SSA office. The form is available on SSA's Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
Taxpayers who adopt their spouse's child after getting married will want to make sure the children have an SSN. Taxpayers must provide SSNs for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number, or ATIN, by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on the IRS Web site
www.1040.com/jd
720-234-1177
Tips for tax payers making a move
If you changed your home or business address, you'll want to remember these six tips to ensure you receive any refunds or correspondence from the IRS.
1. You can change your address on file with the IRS in several ways:
Correct the address legibly on the mailing label that comes with you tax package
Write the new address in the appropriate boxes on your tax return;
Use Form 8822, Change of Address, to submit an address or name change any time during the year
Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, both taxpayers should noti fy the IRS of your new addresses
Should an IRS employee contact you about your account, you may be able to verbally provide a change of address
2. Be sure to also notify your employer of your new address so you get your W-2 forms on time.
3. If you change your address after you've filed your return, don't forget to notify the post office at your old address so your mail can be forwarded.
4. Taxpayers who make estimated payments throughout the year should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.
5. The IRS does use the Postal Service's change of address files to update taxpayer addresses, but it's still a good idea to notify the IRS directly.
6. Visit IRS.gov for more information about changing your address. You can find the address of the IRS center where you file your tax return or download Form 8822, Change of Address
www.1040.com/jd
720-234-1177
1. You can change your address on file with the IRS in several ways:
Correct the address legibly on the mailing label that comes with you tax package
Write the new address in the appropriate boxes on your tax return;
Use Form 8822, Change of Address, to submit an address or name change any time during the year
Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, both taxpayers should noti fy the IRS of your new addresses
Should an IRS employee contact you about your account, you may be able to verbally provide a change of address
2. Be sure to also notify your employer of your new address so you get your W-2 forms on time.
3. If you change your address after you've filed your return, don't forget to notify the post office at your old address so your mail can be forwarded.
4. Taxpayers who make estimated payments throughout the year should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.
5. The IRS does use the Postal Service's change of address files to update taxpayer addresses, but it's still a good idea to notify the IRS directly.
6. Visit IRS.gov for more information about changing your address. You can find the address of the IRS center where you file your tax return or download Form 8822, Change of Address
www.1040.com/jd
720-234-1177
Taxable Incove Vs. Financial Accounting Income
Daniel N. Shaviro (NYU) has published The Optimal Relationship between Taxable Income and Financial Accounting Income: Analysis and a Proposal, 97 Geo. L.J. 423 (2009). Here is the abstract:
The persistence of the book-tax gap, or excess of companies’ reported financial accounting income over their taxable income, suggests that accounting manipulation and tax sheltering remain significant problems, even in the aftermath of the “Enron era.” Some have therefore suggested making the United States a “one-book” country, in which the same income measure would be used for both purposes. This Article offers the first systematic exploration of the optimal relationship between the two income measures, based on the distinct purposes they serve and the significance of two distinct sets of incentive problems: those pertaining to corporate managers and those pertaining to the political decisionmakers who make the rules.
www.1040.com/jd
720-234-1177
The persistence of the book-tax gap, or excess of companies’ reported financial accounting income over their taxable income, suggests that accounting manipulation and tax sheltering remain significant problems, even in the aftermath of the “Enron era.” Some have therefore suggested making the United States a “one-book” country, in which the same income measure would be used for both purposes. This Article offers the first systematic exploration of the optimal relationship between the two income measures, based on the distinct purposes they serve and the significance of two distinct sets of incentive problems: those pertaining to corporate managers and those pertaining to the political decisionmakers who make the rules.
www.1040.com/jd
720-234-1177
Sunday, January 25, 2009
Temporarily suspend income recognition from the purchase of below par business debt
The economy is contracting rapidly. At the heart of this contraction are the twin problems of plummeting demand and a “liquidity crisis” in which banks, having suffered immense losses and waiting for the next shoes to drop, are strapped for capital and afraid to lend.
One feature of the current crisis is that the debts businesses owe to banks have plummeted in value as economic conditions worsen; the implicit value assigned to business risk in the economy today is, by some measures, at an all-time high.
This poses a unique opportunity of significant benefit– businesses could use their cash to buy back their debts at a fraction of their face value.
For more detailed information check out what Everett Ehrlich has posted Temporarily Suspending the Recognition of Income from the Repurchase of Below-Par Business Debts on the U.S. Chamber of Commerce web site.
www.1040.com/jd
720-234-1177
One feature of the current crisis is that the debts businesses owe to banks have plummeted in value as economic conditions worsen; the implicit value assigned to business risk in the economy today is, by some measures, at an all-time high.
This poses a unique opportunity of significant benefit– businesses could use their cash to buy back their debts at a fraction of their face value.
- It would cut their interest costs and free up cash for employment and investment;
- it would support the prices of business debt and improve banks’ balance sheets; it would create a more liquid credit market and add to confidence;
- it would make the job of the TARP rescue program easier and more efficient;
- and, perhaps most significantly, it would protect more businesses from defaults and bankruptcies, allowing them to preserve and create jobs in their own enterprises and economy-wide through their capital expenditures.
The most significant obstacle to this wave of refinancing is the tax code. If a business can buy back a dollar’s worth of its own debt for 75 cents, the tax code now stipulates that it must recognize the 25 cent difference as income and tax must be paid on it. This creates a significant penalty on this type of transaction. A proposal that would suspend this type of income recognition for two years is now before the Congress. (Households who can renegotiate the face value of their mortgages have been given equivalent relief.)
Such a suspension would do much to preserve employment and investment while supporting financial asset prices and the institutions that hold those assets. Moreover, by helping to support bank balance sheets and rebuilding the market for business debt, this proposal would do some of the work now being asked of the TARP, without having to make guarantees or capital grants.For more detailed information check out what Everett Ehrlich has posted Temporarily Suspending the Recognition of Income from the Repurchase of Below-Par Business Debts on the U.S. Chamber of Commerce web site.
www.1040.com/jd
720-234-1177
Friday, January 23, 2009
Identity Theft + the IRS what you need to know
1. If you receive a letter or notice from the IRS which leads you to believe someone may have fraudulently used your Social Security Number, respond immediately to the name and address or phone number printed on the IRS notice.
2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.
3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.
4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.
5. You can contact the IRS Identity Protection Specialized Unit by cal ling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).
6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.
7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.
8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at IRS.gov. On IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.
9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).
www.1040.com/jd
720-234-1177
2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.
3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.
4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.
5. You can contact the IRS Identity Protection Specialized Unit by cal ling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).
6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.
7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.
8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at IRS.gov. On IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.
9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).
www.1040.com/jd
720-234-1177
Tax return transcripts are free - actual copies of the return cost $57 per return per year
There are two easy and convenient options for obtaining free copies of your federal tax return information - tax return transcripts and tax account transcripts - by phone or by mail.
A tax return transcript shows most line items from the tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions such as those offering mortgages and student loans. You should receive your tax return transcript within 10 working days from the time the IRS receives your request.
A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income. The IRS does not charge a fee for transcripts, which are available for the current and past three years. Allow 30 calendar days for delivery of a tax account transcript.
To request either transcript:
Phone: Call 800-829-1040 and follow the prompts in the recorded message.
Mail: Complete IRS Form 4506-T, Request for Transcript of Tax Return.
If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current and past six years. Forms 4506-T and 4506 can be found on the IRS Web site at IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
www.1040.com/jd
720-234-1177
A tax return transcript shows most line items from the tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions such as those offering mortgages and student loans. You should receive your tax return transcript within 10 working days from the time the IRS receives your request.
A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income. The IRS does not charge a fee for transcripts, which are available for the current and past three years. Allow 30 calendar days for delivery of a tax account transcript.
To request either transcript:
Phone: Call 800-829-1040 and follow the prompts in the recorded message.
Mail: Complete IRS Form 4506-T, Request for Transcript of Tax Return.
If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current and past six years. Forms 4506-T and 4506 can be found on the IRS Web site at IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
www.1040.com/jd
720-234-1177
Geithner Blames Turbo Tax For His Tax Troubles
Treasury Secretary nominee Timothy Geithner implied at his confirmation hearing that the mistakes in his tax returns were caused by his use of the TurboTax software program. Of course, as any tax professional knows, leading tax preparation software programs easily calculate self-employment tax (as well as the disallowance of a dependent care deduction for the cost of your kids' overnight camps). The errors here were entirely Geithner's, not TurboTax's.
That said, statute of limitations had expired on Mr. Geitner's fraudulent ommission of Self Employment tax. As such he was within the letter of the law no longer obligated to actually pay the tax. The fact that he did indeed pay the tax speaks to the quality of his character.
Now hopefully the good Mr. Geitner is smart enough to delegate the actual running of the IRS to someone who can properly prepare and file IRS forms.
www.1040.com/jd
720-234-1177
That said, statute of limitations had expired on Mr. Geitner's fraudulent ommission of Self Employment tax. As such he was within the letter of the law no longer obligated to actually pay the tax. The fact that he did indeed pay the tax speaks to the quality of his character.
Now hopefully the good Mr. Geitner is smart enough to delegate the actual running of the IRS to someone who can properly prepare and file IRS forms.
www.1040.com/jd
720-234-1177
Thursday, January 22, 2009
Best Stimulus idea - Captial gains tax moratorium on New Investments
Wall Street Journal op-ed: Let's Stimulate Private Risk Taking; Tax Cuts Are the Way to Nudge Capital Toward Productive Uses, by Alberto Alesina (Harvard University, Department of Economics) & Luigi Zingales (University of Chicago, Booth School of Business):
[H]ow do we stimulate the economy without increasing the already large current-account deficit? It's not easy, but here is an idea: Create the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years.
If we fear this is not enough, we can temporarily increase the size of the capital loss that is deductible against ordinary income. This will reduce the downside of new investments and increase the upside.
More savings need to be invested, and firms need an incentive to invest in order to help aggregate demand in the short term and promote long-term growth. The best way to do this is to make all capital expenditures and research and development investments done in 2009 fully tax deductible in the current fiscal year.
A large temporary tax incentive may be just enough to jolt investors from their current paralysis to take action. Such a switch will also be fueled by the temporary capital-gains tax cut mentioned above, which will motivate people to move their savings from money-market funds to stocks, increasing valuations, investments and confidence.
www.1040.com/jd
720-234-1177
[H]ow do we stimulate the economy without increasing the already large current-account deficit? It's not easy, but here is an idea: Create the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years.
If we fear this is not enough, we can temporarily increase the size of the capital loss that is deductible against ordinary income. This will reduce the downside of new investments and increase the upside.
More savings need to be invested, and firms need an incentive to invest in order to help aggregate demand in the short term and promote long-term growth. The best way to do this is to make all capital expenditures and research and development investments done in 2009 fully tax deductible in the current fiscal year.
A large temporary tax incentive may be just enough to jolt investors from their current paralysis to take action. Such a switch will also be fueled by the temporary capital-gains tax cut mentioned above, which will motivate people to move their savings from money-market funds to stocks, increasing valuations, investments and confidence.
www.1040.com/jd
720-234-1177
US Department of Justice - Tax Division top accomplishments
Dept of Justice - Tax Division.
In 2008, Tax Division attorneys enjoined a record 78 promoters or preparers peddling fraudulent tax schemes. By doing so, Tax Division staff collected more than $178.5 million for the U.S. Treasury and prevented the American public from paying an additional $802 million or more to refundsuit litigants. Seems a pitance in 2009 with all the BILLIONS and TRILLIONS being thrown here and there and lost who knows where. Below are the highlights for the Dept from 2001 to 2008.
SEEKING OUT TAX FRAUD
UBS. In 2008, a federal judge issued an order authorizing the IRS to request information from Zurich, Switzerland-based UBS AG regarding U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. The order authorized the IRS to obtain information from the bank about possible tax fraud by people whose identities are unknown. In compliance with this order, UBS produced records identifying U.S. tax payers with accounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS.
MasterCard International. In 2002, a federal court issued an order authorizing the IRS to serve a “John Doe” summons on MasterCard International for records of offshore credit cards issued by banks in 30 countries, including Liechtenstein, Switzerland and numerous Caribbean nations, such as Belize, Bermuda and the Cayman Islands. The summons permitted the IRS to obtain information about possible tax evasion by people whose identities are not known to the IRS.
TRACKING TAX SHELTERS
Enbridge Midcoast Energy. [Appeal Pending] In this first tax shelter case involving an intermediary transaction, the Tax Division prevailed on summary judgment. The court agreed that the intermediary was a mere conduit and the transaction a stock purchase rather than an asset purchase. As a result, the taxpayer did not get the $150,000,000 step up in basis for the assets, but instead had a carryover basis from the corporation whose stock it acquired. The court also upheld the IRS’s 20 percent penalty. Aside from this case, there are dozens more intermediary shelters either pending in court or administratively, involving tens of millions of dollars.
Fifth-Third Bank & AWG. [Appeal Pending] The Tax Division prevailed in a pair of the first LILO/SILO shelter cases to be tried, AWG and Fifth-Third Bank—the first a bench trial and the second a jury trial, in which the amounts directly involved were approximately $20.6 million. However, when Congress addressed these particular shelters prospectively in 2004 legislation, it estimated that the potential 10-year revenue loss flowing from these transactions was $26.56 billion. The government victories in these two trials sent a clear message to taxpayers who engaged in similar tax shelters that they had serious litigation hazards and helped lay the groundwork for an IRS settlement initiative involving the disposition, on terms extremely favorable to the government, of hundreds of potential cases involving tens of billions of dollars.
BARRING TAX SCAM PROMOTERS
Irwin Schiff. A federal court issued a temporary restraining order in 2003 that barred Irwin Schiff and two associates from promoting their tax scams. The order prohibited the trio from holding seminars to promote or sell Schiff ’s fraudulent “zero tax” plan or any other sham tax schemes; selling tax-related products and services; and preparing any federal income tax return for others. In 2004, a federal court ruled that Schiff was liable for more than $2 million in individual income tax liabilities and related interest and penalties.
S-N-K Enterprise Inc. In 2004, a federal court permanently barred Sherri L. Harris and her company, S-N-K Enterprise Inc., from promoting an illegal tax scam that targeted African-American business owners. The permanent injunction order also barred Harris and her company from preparing federal income tax returns for others, which prevented more than $2.7 million in losses to the U.S. Treasury.
Jackson Hewitt Tax Service Inc. Corporations that operated under franchisee agreements with Jackson Hewitt, the second largest tax preparation firm in America, agreed in 2007 to be barred from tax return preparation. The government complaint alleged that the franchisee corporations created and fostered a business environment in which fraudulent tax return preparation was encouraged and flourished. The corporations owned and operated Jackson Hewitt franchises in Atlanta, Chicago, Detroit and Raleigh-Durham, N.C.
PROSECUTING CRIMINAL CASES
Wesley Trent Snipes et al. In 2008, a federal court sentenced actor Wesley Snipes to 36 months in prison, to be followed by one year of supervised release. His co-defendants, Eddie Kahn and Douglas Rosile, received 120 months in prison and 54 months in prison, respectively, to be followed by three years of supervised release. At the sentencing hearing, Snipes handed over a $5 million check to the IRS to pay off some of his tax liabilities. Snipes was convicted of three counts of willful failure to file income tax returns and acquitted of two felony charges. Kahn and Rosile each were convicted of one count of conspiring to defraud the United States and one count of making false claims against the United States.
Joseph R. Francis. [Ongoing case] A federal grand jury returned an indictment in 2007 that charged Joseph R. Francis, the creator of “Girls Gone Wild,” with tax evasion. The indictment alleged that Francis deducted more than $20 million in false business expenses on his production companies’ 2002 and 2003 corporate income tax returns. The indictment also alleged that Francis used offshore bank accounts and entities purportedly owned by others to conceal income he earned in 2002 and 2003, and that he transferred more than $15 million from an offshore bank account to a brokerage account in California.
Bradley Birkenfeld et al. [Sentencing pending] Former UBS banker Bradley Birkenfeld pleaded guilty in 2008 to conspiring with an American billionaire real estate developer, Swiss bankers and his co-defendant, Mario Staggl, to help the developer evade paying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein. Birkenfeld admitted that between 2001 and 2006, while he was employed as a director in the private banking division of the Swiss bank UBS, he routinely traveled to and had contacts within the United States to help wealthy Americans conceal their ownership in assets held offshore and evade the payment of taxes on the income generated from those assets. Birkenfeld’s services to American clients violated a 2001 agreement that UBS entered into with the United States. When UBS notified its U.S. clients of the requirements of this agreement, many of the bank’s wealthy U.S. clients refused to be identified, to have taxes withheld from the income earned on their offshore assets or to sell their U.S. investments. Managers and bankers at UBS, including Birkenfeld, assisted the U.S. clients in concealing their ownership of the assets held offshore by helping these wealthy customers create nominee and sham entities. To this end, Birkenfeld, managers and bankers at the Swiss bank, and U.S. clients, prepared false and misleading IRS forms that claimed the owners of the accounts were sham off-shore entities’ and failed to prepare and file IRS forms that should have identified the true U.S. owner of the accounts.
Raoul Weil. In 2008, Raoul Weil, a senior executive of a large Swiss bank with offices in the United States and abroad, was charged with conspiring with other executives, managers, private bankers and clients of the banking firm to defraud the United States. The criminal indictment alleged that between 2002 and 2007, Weil oversaw the Swiss bank’s cross-border private banking business that provided services to some 20,000 U.S. clients who reportedly concealed approximately $20 billion in assets from the IRS.
Dennis B. Evanson, et al. Attorney Dennis B. Evanson of Sandy, Utah, was sentenced by a federal district court in Utah in 2008 to 120 months in prison and 36 months of supervised release. The court also ordered that Evanson forfeit four pieces of real property and enter a money judgment in the amount of $2,774,133. In addition, in 2008 a federal court sentenced CPA Stephen F. Petersen, a co-defendant, to 35 months in prison, 36 months of supervised release and ordered him to forfeit $1,166,884. The court also sentenced co-defendant accountant Brent Metcalf to 24 months in prison and 36 months of supervised release. CPA Reed H. Barker was sentenced in 2008 to 18 months in prison, 36 months of supervised release and ordered to pay restitution in the amount of $167,608. Evanson and his co-defendants conspired to conceal portions of their customers’ income from the IRS and to create false deductions for the purpose of reducing the income tax paid by customers. The fraud scheme, which cost the U.S. Treasury more than $20 million in taxes, took multiple forms, including the use of false documentation for fictitious currency transaction losses, false insurance expense deductions and bogus capital losses. The scheme utilized, among other things, offshore companies, offshore bank accounts in the Cayman Islands and Nevis, the services of offshore nominees, and opinion letters that purported to give legal authority to the fraudulent transactions.
APPELLATE ACHIEVEMENTS
Clintwood Elkhorn Mining Co. In 2008, the Supreme Court held that claims by coal companies that the federal excise tax on exported coal is unconstitutional should be considered claims for “overpayment of tax,” and that therefore the coal companies are required to file timely refund claims. The Supreme Court reversed the Federal Circuit, which held that the claims by the coal companies were not for overpayment of tax, but were claims for damages under a constitutional tort. The coal excise tax is no longer collected on exported coal because the IRS has conceded that the tax is unconstitutional as applied to exports.
BB&T Corp. The Court of Appeals for the Fourth Circuit agreed in 2008 with a federal district court that BB&T is not entitled to the tax benefits it attempted to generate via a LILO tax shelter and therefore should not recover a $4.5 million tax refund. BB&T purportedly leased pulp manufacturing equipment from Sodra Cell AB, a Swedish wood pulp manufacturer, and immediately leased it back to Sodra without it losing possession and control of the equipment. In 2007, the U.S. District Court for the District of Maryland found that the lease and lease-back completely offset each other and that Sodra did not transfer significant ownership rights to BB&T. BB&T was thus denied all tax deductions it claimed with respect to the transaction.
Kornman & Assoc. In 2008, the Fifth Circuit agreed with the District Court that attorney Gary Kornman was not entitled to tax benefits from an abusive tax shelter that he also promoted. Kornman’s scheme was a variant of the Son-of BOSS tax shelter, and included a short-sale feature designed to manipulate partnership tax provisions to generate huge artificial losses. The short sale produced a $200,000 economic loss, but Kornman claimed a $102.5 million loss on his tax return.
Texaco Inc. In 2008, the Ninth Circuit Court of Appeals reversed an adverse District Court judgment granting Texaco a refund exceeding $100 million. Texaco sold petroleum products at prices that exceeded government- mandated price ceilings between 1973 and 1981 and included the overcharges in its gross income. As part of a consent decree with the Department of Energy, Texaco was later required to pay $1.25 billion plus interest. Texaco deducted the settlement amount as ordinary and necessary business expenses and then sought a refund of the tax benefits on these deductions. Texaco argued that it was entitled to the tax refund under Section 1341 of the Internal Revenue Code, which provides taxpayers relief if they have paid taxes on income that they are later required to restore to a third party. There is a statutory exception for deductions attributable to the sale of inventory, and Texaco argued that this exception applied only to sales returns, allowances or similar items, whereas the government asserted that the exception applied to all deductions attributable to the sale of inventory. The Ninth Circuit agreed with the government and held that the plain meaning of this statutory exception precluded Texaco’s refund.
ADDITIONAL INITIATIVES
Anderson’s Ark Associates. Between 2004 and 2005, numerous individuals associated with Anderson’s Ark and Associates (AAA) nationwide were convicted and sentenced for their connection with one of the most far-ranging fraudulent tax schemes ever prosecuted. AAA was an organization that spanned five countries and had more than 1,500 clients. Three hundred of AAA’s clients reported more than $120 million in fraudulent income tax deductions.
Renaissance, The Tax People. In 2004, a federal jury returned a 148-count indictment that charged four individuals and Renaissance, The Tax People Inc., with conspiracy to defraud the United States by impeding the IRS and to commit mail and wire fraud; willfully assisting in the preparation of fraudulent federal income tax returns; and mail and wire fraud. In addition, Renaissance and one of the four individuals were charged with money laundering and conspiracy to commit money laundering, and engaging in monetary transactions in criminally derived property of a value greater than $10,000. The indictment also sought the forfeiture of $84 million in United States currency plus land, gold coins, vehicles, bank accounts and life insurance policies.
In re Long Distance Telephone Service Federal Excise Tax Refund Litigation. After the government announced a change in position and allowed individuals to claim refunds for the telephone excise tax on their 2006 tax returns, several plaintiffs around the country attempted to file class action suits claiming the billions of dollars that were not claimed and also challenging the procedural system used to pay the refunds. The case presented several unique issues of tax law and procedure, as well as Administrative Procedure Act issues about a one-time program designed to refund more than $16 billion to more than 200 million individuals. The Tax Division won the case decisively and without protracted discovery.
www.1040.com/jd
720-234-1177
In 2008, Tax Division attorneys enjoined a record 78 promoters or preparers peddling fraudulent tax schemes. By doing so, Tax Division staff collected more than $178.5 million for the U.S. Treasury and prevented the American public from paying an additional $802 million or more to refundsuit litigants. Seems a pitance in 2009 with all the BILLIONS and TRILLIONS being thrown here and there and lost who knows where. Below are the highlights for the Dept from 2001 to 2008.
SEEKING OUT TAX FRAUD
UBS. In 2008, a federal judge issued an order authorizing the IRS to request information from Zurich, Switzerland-based UBS AG regarding U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. The order authorized the IRS to obtain information from the bank about possible tax fraud by people whose identities are unknown. In compliance with this order, UBS produced records identifying U.S. tax payers with accounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS.
MasterCard International. In 2002, a federal court issued an order authorizing the IRS to serve a “John Doe” summons on MasterCard International for records of offshore credit cards issued by banks in 30 countries, including Liechtenstein, Switzerland and numerous Caribbean nations, such as Belize, Bermuda and the Cayman Islands. The summons permitted the IRS to obtain information about possible tax evasion by people whose identities are not known to the IRS.
TRACKING TAX SHELTERS
Enbridge Midcoast Energy. [Appeal Pending] In this first tax shelter case involving an intermediary transaction, the Tax Division prevailed on summary judgment. The court agreed that the intermediary was a mere conduit and the transaction a stock purchase rather than an asset purchase. As a result, the taxpayer did not get the $150,000,000 step up in basis for the assets, but instead had a carryover basis from the corporation whose stock it acquired. The court also upheld the IRS’s 20 percent penalty. Aside from this case, there are dozens more intermediary shelters either pending in court or administratively, involving tens of millions of dollars.
Fifth-Third Bank & AWG. [Appeal Pending] The Tax Division prevailed in a pair of the first LILO/SILO shelter cases to be tried, AWG and Fifth-Third Bank—the first a bench trial and the second a jury trial, in which the amounts directly involved were approximately $20.6 million. However, when Congress addressed these particular shelters prospectively in 2004 legislation, it estimated that the potential 10-year revenue loss flowing from these transactions was $26.56 billion. The government victories in these two trials sent a clear message to taxpayers who engaged in similar tax shelters that they had serious litigation hazards and helped lay the groundwork for an IRS settlement initiative involving the disposition, on terms extremely favorable to the government, of hundreds of potential cases involving tens of billions of dollars.
BARRING TAX SCAM PROMOTERS
Irwin Schiff. A federal court issued a temporary restraining order in 2003 that barred Irwin Schiff and two associates from promoting their tax scams. The order prohibited the trio from holding seminars to promote or sell Schiff ’s fraudulent “zero tax” plan or any other sham tax schemes; selling tax-related products and services; and preparing any federal income tax return for others. In 2004, a federal court ruled that Schiff was liable for more than $2 million in individual income tax liabilities and related interest and penalties.
S-N-K Enterprise Inc. In 2004, a federal court permanently barred Sherri L. Harris and her company, S-N-K Enterprise Inc., from promoting an illegal tax scam that targeted African-American business owners. The permanent injunction order also barred Harris and her company from preparing federal income tax returns for others, which prevented more than $2.7 million in losses to the U.S. Treasury.
Jackson Hewitt Tax Service Inc. Corporations that operated under franchisee agreements with Jackson Hewitt, the second largest tax preparation firm in America, agreed in 2007 to be barred from tax return preparation. The government complaint alleged that the franchisee corporations created and fostered a business environment in which fraudulent tax return preparation was encouraged and flourished. The corporations owned and operated Jackson Hewitt franchises in Atlanta, Chicago, Detroit and Raleigh-Durham, N.C.
PROSECUTING CRIMINAL CASES
Wesley Trent Snipes et al. In 2008, a federal court sentenced actor Wesley Snipes to 36 months in prison, to be followed by one year of supervised release. His co-defendants, Eddie Kahn and Douglas Rosile, received 120 months in prison and 54 months in prison, respectively, to be followed by three years of supervised release. At the sentencing hearing, Snipes handed over a $5 million check to the IRS to pay off some of his tax liabilities. Snipes was convicted of three counts of willful failure to file income tax returns and acquitted of two felony charges. Kahn and Rosile each were convicted of one count of conspiring to defraud the United States and one count of making false claims against the United States.
Joseph R. Francis. [Ongoing case] A federal grand jury returned an indictment in 2007 that charged Joseph R. Francis, the creator of “Girls Gone Wild,” with tax evasion. The indictment alleged that Francis deducted more than $20 million in false business expenses on his production companies’ 2002 and 2003 corporate income tax returns. The indictment also alleged that Francis used offshore bank accounts and entities purportedly owned by others to conceal income he earned in 2002 and 2003, and that he transferred more than $15 million from an offshore bank account to a brokerage account in California.
Bradley Birkenfeld et al. [Sentencing pending] Former UBS banker Bradley Birkenfeld pleaded guilty in 2008 to conspiring with an American billionaire real estate developer, Swiss bankers and his co-defendant, Mario Staggl, to help the developer evade paying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein. Birkenfeld admitted that between 2001 and 2006, while he was employed as a director in the private banking division of the Swiss bank UBS, he routinely traveled to and had contacts within the United States to help wealthy Americans conceal their ownership in assets held offshore and evade the payment of taxes on the income generated from those assets. Birkenfeld’s services to American clients violated a 2001 agreement that UBS entered into with the United States. When UBS notified its U.S. clients of the requirements of this agreement, many of the bank’s wealthy U.S. clients refused to be identified, to have taxes withheld from the income earned on their offshore assets or to sell their U.S. investments. Managers and bankers at UBS, including Birkenfeld, assisted the U.S. clients in concealing their ownership of the assets held offshore by helping these wealthy customers create nominee and sham entities. To this end, Birkenfeld, managers and bankers at the Swiss bank, and U.S. clients, prepared false and misleading IRS forms that claimed the owners of the accounts were sham off-shore entities’ and failed to prepare and file IRS forms that should have identified the true U.S. owner of the accounts.
Raoul Weil. In 2008, Raoul Weil, a senior executive of a large Swiss bank with offices in the United States and abroad, was charged with conspiring with other executives, managers, private bankers and clients of the banking firm to defraud the United States. The criminal indictment alleged that between 2002 and 2007, Weil oversaw the Swiss bank’s cross-border private banking business that provided services to some 20,000 U.S. clients who reportedly concealed approximately $20 billion in assets from the IRS.
Dennis B. Evanson, et al. Attorney Dennis B. Evanson of Sandy, Utah, was sentenced by a federal district court in Utah in 2008 to 120 months in prison and 36 months of supervised release. The court also ordered that Evanson forfeit four pieces of real property and enter a money judgment in the amount of $2,774,133. In addition, in 2008 a federal court sentenced CPA Stephen F. Petersen, a co-defendant, to 35 months in prison, 36 months of supervised release and ordered him to forfeit $1,166,884. The court also sentenced co-defendant accountant Brent Metcalf to 24 months in prison and 36 months of supervised release. CPA Reed H. Barker was sentenced in 2008 to 18 months in prison, 36 months of supervised release and ordered to pay restitution in the amount of $167,608. Evanson and his co-defendants conspired to conceal portions of their customers’ income from the IRS and to create false deductions for the purpose of reducing the income tax paid by customers. The fraud scheme, which cost the U.S. Treasury more than $20 million in taxes, took multiple forms, including the use of false documentation for fictitious currency transaction losses, false insurance expense deductions and bogus capital losses. The scheme utilized, among other things, offshore companies, offshore bank accounts in the Cayman Islands and Nevis, the services of offshore nominees, and opinion letters that purported to give legal authority to the fraudulent transactions.
APPELLATE ACHIEVEMENTS
Clintwood Elkhorn Mining Co. In 2008, the Supreme Court held that claims by coal companies that the federal excise tax on exported coal is unconstitutional should be considered claims for “overpayment of tax,” and that therefore the coal companies are required to file timely refund claims. The Supreme Court reversed the Federal Circuit, which held that the claims by the coal companies were not for overpayment of tax, but were claims for damages under a constitutional tort. The coal excise tax is no longer collected on exported coal because the IRS has conceded that the tax is unconstitutional as applied to exports.
BB&T Corp. The Court of Appeals for the Fourth Circuit agreed in 2008 with a federal district court that BB&T is not entitled to the tax benefits it attempted to generate via a LILO tax shelter and therefore should not recover a $4.5 million tax refund. BB&T purportedly leased pulp manufacturing equipment from Sodra Cell AB, a Swedish wood pulp manufacturer, and immediately leased it back to Sodra without it losing possession and control of the equipment. In 2007, the U.S. District Court for the District of Maryland found that the lease and lease-back completely offset each other and that Sodra did not transfer significant ownership rights to BB&T. BB&T was thus denied all tax deductions it claimed with respect to the transaction.
Kornman & Assoc. In 2008, the Fifth Circuit agreed with the District Court that attorney Gary Kornman was not entitled to tax benefits from an abusive tax shelter that he also promoted. Kornman’s scheme was a variant of the Son-of BOSS tax shelter, and included a short-sale feature designed to manipulate partnership tax provisions to generate huge artificial losses. The short sale produced a $200,000 economic loss, but Kornman claimed a $102.5 million loss on his tax return.
Texaco Inc. In 2008, the Ninth Circuit Court of Appeals reversed an adverse District Court judgment granting Texaco a refund exceeding $100 million. Texaco sold petroleum products at prices that exceeded government- mandated price ceilings between 1973 and 1981 and included the overcharges in its gross income. As part of a consent decree with the Department of Energy, Texaco was later required to pay $1.25 billion plus interest. Texaco deducted the settlement amount as ordinary and necessary business expenses and then sought a refund of the tax benefits on these deductions. Texaco argued that it was entitled to the tax refund under Section 1341 of the Internal Revenue Code, which provides taxpayers relief if they have paid taxes on income that they are later required to restore to a third party. There is a statutory exception for deductions attributable to the sale of inventory, and Texaco argued that this exception applied only to sales returns, allowances or similar items, whereas the government asserted that the exception applied to all deductions attributable to the sale of inventory. The Ninth Circuit agreed with the government and held that the plain meaning of this statutory exception precluded Texaco’s refund.
ADDITIONAL INITIATIVES
Anderson’s Ark Associates. Between 2004 and 2005, numerous individuals associated with Anderson’s Ark and Associates (AAA) nationwide were convicted and sentenced for their connection with one of the most far-ranging fraudulent tax schemes ever prosecuted. AAA was an organization that spanned five countries and had more than 1,500 clients. Three hundred of AAA’s clients reported more than $120 million in fraudulent income tax deductions.
Renaissance, The Tax People. In 2004, a federal jury returned a 148-count indictment that charged four individuals and Renaissance, The Tax People Inc., with conspiracy to defraud the United States by impeding the IRS and to commit mail and wire fraud; willfully assisting in the preparation of fraudulent federal income tax returns; and mail and wire fraud. In addition, Renaissance and one of the four individuals were charged with money laundering and conspiracy to commit money laundering, and engaging in monetary transactions in criminally derived property of a value greater than $10,000. The indictment also sought the forfeiture of $84 million in United States currency plus land, gold coins, vehicles, bank accounts and life insurance policies.
In re Long Distance Telephone Service Federal Excise Tax Refund Litigation. After the government announced a change in position and allowed individuals to claim refunds for the telephone excise tax on their 2006 tax returns, several plaintiffs around the country attempted to file class action suits claiming the billions of dollars that were not claimed and also challenging the procedural system used to pay the refunds. The case presented several unique issues of tax law and procedure, as well as Administrative Procedure Act issues about a one-time program designed to refund more than $16 billion to more than 200 million individuals. The Tax Division won the case decisively and without protracted discovery.
www.1040.com/jd
720-234-1177
Wednesday, January 21, 2009
Tax Policy advice for President Obama
The following tax professors and their respective institutions offer their tax policy opinions for our new President.
Beau Baez (Charlotte): Enact legislation recognizing the Streamlined Sales Tax Governing Board as a state compact, and eliminate the Quill physical presence requirement for states that are members in good standing in the new state compact.
Bryan Camp (Texas Tech): Repeal judicial review of routine administrative collection decisions. Section 7433 already allows taxpayers to sue for IRS violations of collection statutes and should be retained.
Paul Caron (Cincinnati): Remove estate planning uncertainty by freezing the estate tax exemption ($3.5 million) and rates (45%) at their 2009 levels.
Bridget Crawford (Pace): Allow same-sex couples to file joint income tax returns (and to gift split, make tax-free wealth transfers, etc. ). Create a free, reliable and sophisticated on-line filing system that can accept all types of tax returns (estate, gift, etc.) from taxpayers of all levels of wealth, and reduce the statute of limitations on garden-variety audits from 3 years to 2 years.
Change the exclusion under Section 121 to an amount equal to the median home value in the metropolitan area (or another geographically-defined region) where the the principal residence is located.
Joseph Dodge (Florida State): Do not do any more damage to the Code.
Benjamin Leff (Harvard): General suggestion: really make a break with the recent past by repealing special targeted tax breaks in favor of increasing the personal exemption (in other words, take out special privileges in favor of lower taxes for everyone). Specific proposals:
Repeal favorable rate for capital gains and dividends. It adds unnecessary complication and is unjustified. Repeal section 102 and tax gifts as income. (or, repeal section 102 except for a small annual exemption, say $4,000 or $5,000, medical expenses and educational expenses).
Don't enact stupid so-called "stimulus" in the form of accelerated depreciation or other similar short-term complicated tax benefits.
Francine Lipman (Chapman): I believe President Obama should and will apply his commitments to transparency, education, public service and shared responsibility for all members of society to the federal income tax system. The 2008 election broadcast loudly and clearly that most Americans do not understand how our income tax system works and are angry/frustrated with its perceived negative impact on their lives. The federal income tax system should be less complicated, more transparent and a vibrant part of a participatory government. While the federal tax system has proven to be a relatively efficient delivery system for benefits for the working poor the system could and should be improved. Indeed the annual filing/compliance mechanisms for individual and business tax reporting and collection are dated and very costly. Technology, as well as other resources, should be better allocated to reduce compliance and collection costs and better target tax deficiences and close the tax gap. As part of my commitment to public service and tax education, I am very much looking forward to serving low income taxpayers (sadly including members of the armed forces, hence my work-in-process article "Taxing Private Ryan") in the next few months.
The key is to simplify. When things are complicated, people are less likely to be trusting. Understandably so. Less trust, less confidence. Less confidence, less economic robustness.
Restore the economy by restoring confidence. Restore confidence by restoring trust. Restore trust by eliminating and minimizing the tools and opportunities for people to abuse trust or to have their trust broken. No more hiding by the bad guys behind smoke and mirrors. Subchapter K is in front of the line when roll call is taken for smoke and mirror provisions.
Rob Nassau (Syracuse): Eliminate the tax-rate preference for long-term capital gain. (This was good enough for Reagan.) To me, this difference in tax rates makes no economic sense (money is money, and my grocer doesn't ask whether the $2.79 I gave him for a gallon of milk comes from salary or capital gain); plus, it contributes to a lot of the complexity and uncertainty in the Code (see, e.g., the carried interest debate, which would go away), not to mention the "shenanigans" that requires enactment of provisions such as Section 1258 ("conversion transactions"). If we're concerned that eliminating the tax-rate preference will "dry up investment," then expand Section 1202, and allow a tax-rate advantage for new capital infusions only.
David Pratt (Albany):Repeal the unlimited exclusion for the cost of employer-provided benefits, including health benefits. There is abundant evidence that the exclusion overwhelmingly benefits upper income taxpayers. Require a review of experience under the current version of section 121 and consider changes. For example, the once-every-two-years rule is way too liberal and the dollar maximum has very different significance in different markets. Repeal the like kind exchange exclusion under section 1031. Repeal or cap the exclusion for life insurance proceeds and the exclusion of the inside buildup. Repeal or cap the exclusion for personal physical injury damages.
Walter Schwidetzky (Baltimore): Repeal Subchapter S (see Integrating Subchapters K and S: Just Do It, 62 Tax Law. ___ (2008)), and repeal § 469.
Dan Simmons (UC-Davis):Repeal the home equity interest deduction. It has never been good policy to encourage people to incur debt secured by a personal residence for consumption and it now appears that home equity loans are a contributor to the mortgage lending crisis.
Repeal section 1031 (as Cal Johnson advocates). There is no sound policy reason for allowing deferred recognition of realized gain on real estate transactions as compared to stock investments. Indeed, I think the economy might be better served by allowing roll-over relief for sales of publicly traded securities where the proceeds are reinvested in publicly traded securities. Eliminate the AMT problem by allowing state and local taxes as a deduction against AMTI. I would also provide some adjustment for personal exemptions. If the administration wants to reduce the corporate tax rates, accompany the reduction with a reduction of the subsidy to investment in equipment and machinery that is provided by accelerated capital recovery by extending useful lives and limiting the rate of recovery to straight line, or at best 125 percent declining balance.
Bill Streng (Houston): To create a culture in the U.S. that paying appropriate taxes is a responsibility of every citizen; to finally destroy the Ronald Reagan thesis that taxes constitute a form of theft by the U.S. Government.
Michael Waggoner (Colorado): If you believe in limited government, in our federal system, in economic efficiency, in doing things that work regardless of ideology, President Obama, then please take inspiration from the 1986 Tax Reform Act and help to return to a broader tax base with lower rates. Limited government should reject a tax system full of special tax favors and tax detriments that in effect say, "Do it my way or pay up to 35% (more in some cases)."
A federal system should reject having a major federal income tax angle to such traditionally state-law areas as family law, wills and trusts, personal injury litigation, criminal law. The federal tax angle in effect partially federalizes those areas. Although there are certainly many circumstances when government intervention in the economy is necessary (to require disclosure, to protect safety and the environment, to take into account both positive and negative externalities, to avoid creation of a caste system of prior winners and losers in the market place persisting for entire lives and multiple generations, etc.), most tax incentives can fairly be described as diverting people from the sensible and useful to the marginal and less productive. Most tax incentives are inefficient. Programs authorized by the Congress to operate with appropriated funds get far more scrutiny than do special tax provisions. One may doubt whether the special tax provisions (because given less scrutiny) succeed in the goals espoused for them. For example, the stimulus proposals include generous depreciation provisions, because it is hoped that these provisions will stimulate the economy by causing businesses to buy new equipment. The problem is that well-advised businesses buy equipment for business reasons, not for tax reasons. Thus most of the tax benefit goes for purchases that would be made in any event, and thus produces no benefit to the economy. To the extent these depreciation provisions succeed in causing new purchases, they may be changing the mix of labor and equipment that the business would otherwise use, the increase in equipment resulting in less need for labor, thus destroying jobs. Tax provisions that do not not work should be repealed, not proliferated.
The basic problem that you must face, President Obama, is that politics tends to reward the particular and not the general. Everyone in politics wants to tell a constituent group of the particular benefit for that group that politician has obtained, thus encouraging their support, their votes, their contributions. The general benefit of low rates on a broad base has no constituency and thus is harder to achieve. That benefit, however, tends to promote efficiency, and efficiency is the basis of prosperity, and peace and prosperity is a pretty good re-election platform. I trust that you will succeed and that a few decades in the future we will be asking, "Is there any way that we could expand Mount Rushmore to include President Obama?"
Alan Westheimer (Houston): Instead of bonus depreciation and increased fixed asset expensing, revive the Investment Tax Credit under a regime the same or similar to its structure when repealed in 1986. Consider restricting to assets made in the USA. Remove the luxury car limits for depreciation on business autos manufactured in the USA. Let's go back to being able to depreciate vehicles over 3 years using DDB depreciation (for new ones) so you can write off 2/3 of the cost in the year of purchase. Let's also drop discrimination against vehicles not used 50% or more for business purposes. The rules should be the same regardless of the extent of business use. Let's also drop the 50% limitation on meals and entertainment and go back to 100% deductibility for these expenses.
My opinion for whatever its worth ..... The key is to simplify. When things are complicated, people are less likely to be trusting. Understandably so. Less trust, less confidence. Less confidence, less economic robustness.Restore the economy by restoring confidence. Restore confidence by restoring trust. Restore trust by eliminating and minimizing the tools and opportunities for people to abuse trust or to have their trust broken. No more hiding by the bad guys behind smoke and mirrors.
www.1040.com/jd
720-234-1177
Beau Baez (Charlotte): Enact legislation recognizing the Streamlined Sales Tax Governing Board as a state compact, and eliminate the Quill physical presence requirement for states that are members in good standing in the new state compact.
Bryan Camp (Texas Tech): Repeal judicial review of routine administrative collection decisions. Section 7433 already allows taxpayers to sue for IRS violations of collection statutes and should be retained.
Paul Caron (Cincinnati): Remove estate planning uncertainty by freezing the estate tax exemption ($3.5 million) and rates (45%) at their 2009 levels.
Bridget Crawford (Pace): Allow same-sex couples to file joint income tax returns (and to gift split, make tax-free wealth transfers, etc. ). Create a free, reliable and sophisticated on-line filing system that can accept all types of tax returns (estate, gift, etc.) from taxpayers of all levels of wealth, and reduce the statute of limitations on garden-variety audits from 3 years to 2 years.
Change the exclusion under Section 121 to an amount equal to the median home value in the metropolitan area (or another geographically-defined region) where the the principal residence is located.
Joseph Dodge (Florida State): Do not do any more damage to the Code.
Benjamin Leff (Harvard): General suggestion: really make a break with the recent past by repealing special targeted tax breaks in favor of increasing the personal exemption (in other words, take out special privileges in favor of lower taxes for everyone). Specific proposals:
Repeal favorable rate for capital gains and dividends. It adds unnecessary complication and is unjustified. Repeal section 102 and tax gifts as income. (or, repeal section 102 except for a small annual exemption, say $4,000 or $5,000, medical expenses and educational expenses).
Don't enact stupid so-called "stimulus" in the form of accelerated depreciation or other similar short-term complicated tax benefits.
Francine Lipman (Chapman): I believe President Obama should and will apply his commitments to transparency, education, public service and shared responsibility for all members of society to the federal income tax system. The 2008 election broadcast loudly and clearly that most Americans do not understand how our income tax system works and are angry/frustrated with its perceived negative impact on their lives. The federal income tax system should be less complicated, more transparent and a vibrant part of a participatory government. While the federal tax system has proven to be a relatively efficient delivery system for benefits for the working poor the system could and should be improved. Indeed the annual filing/compliance mechanisms for individual and business tax reporting and collection are dated and very costly. Technology, as well as other resources, should be better allocated to reduce compliance and collection costs and better target tax deficiences and close the tax gap. As part of my commitment to public service and tax education, I am very much looking forward to serving low income taxpayers (sadly including members of the armed forces, hence my work-in-process article "Taxing Private Ryan") in the next few months.
The key is to simplify. When things are complicated, people are less likely to be trusting. Understandably so. Less trust, less confidence. Less confidence, less economic robustness.
Restore the economy by restoring confidence. Restore confidence by restoring trust. Restore trust by eliminating and minimizing the tools and opportunities for people to abuse trust or to have their trust broken. No more hiding by the bad guys behind smoke and mirrors. Subchapter K is in front of the line when roll call is taken for smoke and mirror provisions.
Rob Nassau (Syracuse): Eliminate the tax-rate preference for long-term capital gain. (This was good enough for Reagan.) To me, this difference in tax rates makes no economic sense (money is money, and my grocer doesn't ask whether the $2.79 I gave him for a gallon of milk comes from salary or capital gain); plus, it contributes to a lot of the complexity and uncertainty in the Code (see, e.g., the carried interest debate, which would go away), not to mention the "shenanigans" that requires enactment of provisions such as Section 1258 ("conversion transactions"). If we're concerned that eliminating the tax-rate preference will "dry up investment," then expand Section 1202, and allow a tax-rate advantage for new capital infusions only.
David Pratt (Albany):Repeal the unlimited exclusion for the cost of employer-provided benefits, including health benefits. There is abundant evidence that the exclusion overwhelmingly benefits upper income taxpayers. Require a review of experience under the current version of section 121 and consider changes. For example, the once-every-two-years rule is way too liberal and the dollar maximum has very different significance in different markets. Repeal the like kind exchange exclusion under section 1031. Repeal or cap the exclusion for life insurance proceeds and the exclusion of the inside buildup. Repeal or cap the exclusion for personal physical injury damages.
Walter Schwidetzky (Baltimore): Repeal Subchapter S (see Integrating Subchapters K and S: Just Do It, 62 Tax Law. ___ (2008)), and repeal § 469.
Dan Simmons (UC-Davis):Repeal the home equity interest deduction. It has never been good policy to encourage people to incur debt secured by a personal residence for consumption and it now appears that home equity loans are a contributor to the mortgage lending crisis.
Repeal section 1031 (as Cal Johnson advocates). There is no sound policy reason for allowing deferred recognition of realized gain on real estate transactions as compared to stock investments. Indeed, I think the economy might be better served by allowing roll-over relief for sales of publicly traded securities where the proceeds are reinvested in publicly traded securities. Eliminate the AMT problem by allowing state and local taxes as a deduction against AMTI. I would also provide some adjustment for personal exemptions. If the administration wants to reduce the corporate tax rates, accompany the reduction with a reduction of the subsidy to investment in equipment and machinery that is provided by accelerated capital recovery by extending useful lives and limiting the rate of recovery to straight line, or at best 125 percent declining balance.
Bill Streng (Houston): To create a culture in the U.S. that paying appropriate taxes is a responsibility of every citizen; to finally destroy the Ronald Reagan thesis that taxes constitute a form of theft by the U.S. Government.
Michael Waggoner (Colorado): If you believe in limited government, in our federal system, in economic efficiency, in doing things that work regardless of ideology, President Obama, then please take inspiration from the 1986 Tax Reform Act and help to return to a broader tax base with lower rates. Limited government should reject a tax system full of special tax favors and tax detriments that in effect say, "Do it my way or pay up to 35% (more in some cases)."
A federal system should reject having a major federal income tax angle to such traditionally state-law areas as family law, wills and trusts, personal injury litigation, criminal law. The federal tax angle in effect partially federalizes those areas. Although there are certainly many circumstances when government intervention in the economy is necessary (to require disclosure, to protect safety and the environment, to take into account both positive and negative externalities, to avoid creation of a caste system of prior winners and losers in the market place persisting for entire lives and multiple generations, etc.), most tax incentives can fairly be described as diverting people from the sensible and useful to the marginal and less productive. Most tax incentives are inefficient. Programs authorized by the Congress to operate with appropriated funds get far more scrutiny than do special tax provisions. One may doubt whether the special tax provisions (because given less scrutiny) succeed in the goals espoused for them. For example, the stimulus proposals include generous depreciation provisions, because it is hoped that these provisions will stimulate the economy by causing businesses to buy new equipment. The problem is that well-advised businesses buy equipment for business reasons, not for tax reasons. Thus most of the tax benefit goes for purchases that would be made in any event, and thus produces no benefit to the economy. To the extent these depreciation provisions succeed in causing new purchases, they may be changing the mix of labor and equipment that the business would otherwise use, the increase in equipment resulting in less need for labor, thus destroying jobs. Tax provisions that do not not work should be repealed, not proliferated.
The basic problem that you must face, President Obama, is that politics tends to reward the particular and not the general. Everyone in politics wants to tell a constituent group of the particular benefit for that group that politician has obtained, thus encouraging their support, their votes, their contributions. The general benefit of low rates on a broad base has no constituency and thus is harder to achieve. That benefit, however, tends to promote efficiency, and efficiency is the basis of prosperity, and peace and prosperity is a pretty good re-election platform. I trust that you will succeed and that a few decades in the future we will be asking, "Is there any way that we could expand Mount Rushmore to include President Obama?"
Alan Westheimer (Houston): Instead of bonus depreciation and increased fixed asset expensing, revive the Investment Tax Credit under a regime the same or similar to its structure when repealed in 1986. Consider restricting to assets made in the USA. Remove the luxury car limits for depreciation on business autos manufactured in the USA. Let's go back to being able to depreciate vehicles over 3 years using DDB depreciation (for new ones) so you can write off 2/3 of the cost in the year of purchase. Let's also drop discrimination against vehicles not used 50% or more for business purposes. The rules should be the same regardless of the extent of business use. Let's also drop the 50% limitation on meals and entertainment and go back to 100% deductibility for these expenses.
My opinion for whatever its worth ..... The key is to simplify. When things are complicated, people are less likely to be trusting. Understandably so. Less trust, less confidence. Less confidence, less economic robustness.Restore the economy by restoring confidence. Restore confidence by restoring trust. Restore trust by eliminating and minimizing the tools and opportunities for people to abuse trust or to have their trust broken. No more hiding by the bad guys behind smoke and mirrors.
www.1040.com/jd
720-234-1177
Tuesday, January 20, 2009
General Asset Acct. (GAA) - Depreciation
According to IRS Publication 946, How to Depreciate Property: when you dispose of property included in a GAA, neither the unadjusted depreciable basis, nor the depreciation reserve account of the GAA, is affected. You continue to depreciate the account as if the disposition had not occurred. The property is treated as having an adjusted basis of zero, so you cannot realize a loss on the disposition. Any amount realized on the disposition is treated as ordinary income, up to the total of the unadjusted depreciable bases of all the property in the GAA.
So the lesson is to be careful with what assets you put in the General Asset Account. Almost always create a distinct account for each depreciable asset over a given threshhold.
www.1040.com/jd
720-234-1177
So the lesson is to be careful with what assets you put in the General Asset Account. Almost always create a distinct account for each depreciable asset over a given threshhold.
www.1040.com/jd
720-234-1177
GAO: 83% of Largest U.S. Companies Use Offshore Tax Havens
The Government Accountability Office on Friday released a study reporting that 83 of the 100 largest publicly-traded corporations and 63 of the 100 largest federal contractors maintain offshore subsidiaries in 50 tax havens. Many recipients of tens of billions in federal bailout money maintain hundreds of offshore subsidiaries in tax havens, including Citigroup (427 subsidiaries in tax havens), Morgan Stanley (273), and Bank of America (115).
www.1040.com/jd
720-234-1177
www.1040.com/jd
720-234-1177
Wednesday, January 14, 2009
IRS Help for financially distressed taxpayers
If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help. As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpay er's tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
www.1040.com/jd
720-234-1177
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpay er's tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
www.1040.com/jd
720-234-1177
Tuesday, January 13, 2009
Required Min IRA Distribution + The Worker, Retiree and Employer Recovery Act
The Worker, Retiree and Employer Recovery Act waives the required minimum distribution (RMD) requirement for retirement plans and IRAs for calendar year 2009. This helps retirees and beneficiaries of retirement accounts who would otherwise have to sell depleted-in-value assets, such as stocks and mutual funds, held in their retirement accounts in order to make RMDs.
Unfortunately, the Pension Act doesn't help taxpayers with 2008 RMDs. Additionally, it doesn't change the way in which an RMD is calculated, namely based on the retirement account's previous year's closing value. The Committee Report for the Act specifically says that the relief provision would not help a taxpayer who attained age 70½ in 2008 but chose to wait until April 1, 2009, to receive his first RMD (for 2008). He would still have to make that first RMD by April 1, 2009. However, he would not have to make the otherwise-required RMD for 2009. Under Reg. §1.408-8, Q&A 6, even if the first RMD is delayed until the second distribution year, the amount of that distribution is based on the value of the IRA or qualified plan account at the end of the year before the first distribution year.
Thus, if a taxpayer attains age 70½ in 2008 and defers the first RMD from an IRA until April 1, 2009, the valuation date for that first distribution still is December 31, 2007. As of December 22, 2008, the Treasury and IRS have decided that they will not give any administrative relief to the 2008 RMD rules. Whether Congress will provide relief retroactively in the stimulus bill slated for January remains to be seen.
www.1040.com/jd
720-234-1177
Unfortunately, the Pension Act doesn't help taxpayers with 2008 RMDs. Additionally, it doesn't change the way in which an RMD is calculated, namely based on the retirement account's previous year's closing value. The Committee Report for the Act specifically says that the relief provision would not help a taxpayer who attained age 70½ in 2008 but chose to wait until April 1, 2009, to receive his first RMD (for 2008). He would still have to make that first RMD by April 1, 2009. However, he would not have to make the otherwise-required RMD for 2009. Under Reg. §1.408-8, Q&A 6, even if the first RMD is delayed until the second distribution year, the amount of that distribution is based on the value of the IRA or qualified plan account at the end of the year before the first distribution year.
Thus, if a taxpayer attains age 70½ in 2008 and defers the first RMD from an IRA until April 1, 2009, the valuation date for that first distribution still is December 31, 2007. As of December 22, 2008, the Treasury and IRS have decided that they will not give any administrative relief to the 2008 RMD rules. Whether Congress will provide relief retroactively in the stimulus bill slated for January remains to be seen.
www.1040.com/jd
720-234-1177
Steps to Help Financially Distressed Taxpayers
The Internal Revenue Service kicked off the 2009 tax filing season by announcing a number of new steps to help financially distressed taxpayers maximize their refunds and speed payments while providing additional help to people struggling to meet their tax obligations.
With so many people facing financial difficulties, we want taxpayers to get all the tax credits they're entitled to as quickly as they can. In addition, the IRS is creating new protections to help people trying to meet their tax obligations. The IRS seems to be prepared to do everything it can to help during these tough times.
Help for People Who Owe Taxes
With many people facing additional financial difficulties, the IRS is taking several additional steps to help people who owe back taxes.
They claim to ensure that they balance their responsibility to enforce the law with the economic real ities facing many American citizens today. They claim to want to go the extra mile to help taxpayers, especially those who've done the right thing in the past and are facing unusual hardships.
On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action.
Among the areas where the IRS can provide assistance:
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer's tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options.
www.1040.com/jd
720-234-1177
With so many people facing financial difficulties, we want taxpayers to get all the tax credits they're entitled to as quickly as they can. In addition, the IRS is creating new protections to help people trying to meet their tax obligations. The IRS seems to be prepared to do everything it can to help during these tough times.
Help for People Who Owe Taxes
With many people facing additional financial difficulties, the IRS is taking several additional steps to help people who owe back taxes.
They claim to ensure that they balance their responsibility to enforce the law with the economic real ities facing many American citizens today. They claim to want to go the extra mile to help taxpayers, especially those who've done the right thing in the past and are facing unusual hardships.
On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action.
Among the areas where the IRS can provide assistance:
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer's tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options.
www.1040.com/jd
720-234-1177
Monday, January 5, 2009
Reporting Income from a 'hobby'
Since a hobby is something done for personal pleasure it is not a trade or business, should income be generated from a hobby the gross income is reported on Line 21, Form 1040. The cost of the materials used to make the item sold directly reduces the amount she reports on Line 21.
The definition of gross income is important when determining how much to report as hobby income on Line 21. The regulations permit the taxpayer to reduce that gross income by direct expenses by stating the taxpayer may determine gross income from any activity by subtracting the cost of goods sold from the gross receipts so long as he or she does so consistently. The taxpayer must also follow generally accepted methods of accounting in determining such gross income [Reg. §1.183-1(e)].
Reg. §1.183-1(b) gives ordering rules for the remaining expenses:
Expenses that are otherwise deductible without regard to the activity. Some examples include qualified mortgage interest and property taxes.
Expenses incurred that would be deductible had the activity been engaged in for profit but do not result in a basis adjustment. This includes expenses other than depreciation or amortization, such as contract labor, "business" meals and entertainment, advertising, second phone line, utilities, "business" insurance, etc.
Expenses that are adjustments to basis are then allowed if there is any income left to offset. That means depreciation or amortization.
www.1040.com/jd
720-234-1177
The definition of gross income is important when determining how much to report as hobby income on Line 21. The regulations permit the taxpayer to reduce that gross income by direct expenses by stating the taxpayer may determine gross income from any activity by subtracting the cost of goods sold from the gross receipts so long as he or she does so consistently. The taxpayer must also follow generally accepted methods of accounting in determining such gross income [Reg. §1.183-1(e)].
Reg. §1.183-1(b) gives ordering rules for the remaining expenses:
Expenses that are otherwise deductible without regard to the activity. Some examples include qualified mortgage interest and property taxes.
Expenses incurred that would be deductible had the activity been engaged in for profit but do not result in a basis adjustment. This includes expenses other than depreciation or amortization, such as contract labor, "business" meals and entertainment, advertising, second phone line, utilities, "business" insurance, etc.
Expenses that are adjustments to basis are then allowed if there is any income left to offset. That means depreciation or amortization.
www.1040.com/jd
720-234-1177
IRA Required Minimum Distribution 2009
The Worker, Retiree and Employer Recovery Act, which was passed by Congress and is expected to be signed by President Bush, waives the required minimum distribution (RMD) requirement for retirement plans and IRAs for calendar year 2009. This helps retirees and beneficiaries of retirement accounts who would otherwise have to sell depleted-in-value assets, such as stocks and mutual funds, held in their retirement accounts in order to make RMDs.
Unfortunately, the Pension Act doesn't help taxpayers with 2008 RMDs. Additionally, it doesn't change the way in which an RMD is calculated, namely based on the retirement account's previous year's closing value.
The Committee Report for the Act specifically says that the relief provision would not help a taxpayer who attained age 70½ in 2008 but chose to wait until April 1, 2009, to receive his first RMD (for 2008). He would still have to make that first RMD by April 1, 2009. However, he would not have to make the otherwise-required RMD for 2009. Under Reg. §1.408-8, Q&A 6, even if the first RMD is delayed until the second distribution year, the amount of that distribution is based on the value of the IRA or qualified plan account at the end of the year before the first distribution year. Thus, if a taxpayer attains age 70½ in 2008 and defers the first RMD from an IRA until April 1, 2009, the valuation date for that first distribution still is December 31, 2007. As of December 22, 2008, the Treasury and IRS have decided that they will not give any administrative relief to the 2008 RMD rules. Whether Congress will provide relief retroactively in the stimulus bill slated for January remains to be seen.
www.1040.com/jd
720-234-1177
Unfortunately, the Pension Act doesn't help taxpayers with 2008 RMDs. Additionally, it doesn't change the way in which an RMD is calculated, namely based on the retirement account's previous year's closing value.
The Committee Report for the Act specifically says that the relief provision would not help a taxpayer who attained age 70½ in 2008 but chose to wait until April 1, 2009, to receive his first RMD (for 2008). He would still have to make that first RMD by April 1, 2009. However, he would not have to make the otherwise-required RMD for 2009. Under Reg. §1.408-8, Q&A 6, even if the first RMD is delayed until the second distribution year, the amount of that distribution is based on the value of the IRA or qualified plan account at the end of the year before the first distribution year. Thus, if a taxpayer attains age 70½ in 2008 and defers the first RMD from an IRA until April 1, 2009, the valuation date for that first distribution still is December 31, 2007. As of December 22, 2008, the Treasury and IRS have decided that they will not give any administrative relief to the 2008 RMD rules. Whether Congress will provide relief retroactively in the stimulus bill slated for January remains to be seen.
www.1040.com/jd
720-234-1177
Form 4361, Application for Exemption From Self-Employment Tax for Use by Minister, Members of Religious Orders and Christian Science Practitioners.
Filing Form 4361 will not prevent collecting Social Security on the amounts earned prior to becoming an ordained minister or any additional non-ministerial self-employment income or wages.
Form 4361 applies only to services as an ordained minister. The form contains a statement that the taxpayer is conscientiously opposed, for moral or religious principles, to accepting of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care. (Public insurance includes insurance systems established by the Social Security Act.) Upon receipt of Form 4361, the IRS will mail a statement that describes the grounds on which an exemption can be received. The tax payer must certify that exemption is requested on the grounds described by signing a copy and returning it to the service center within 90 days of the date it was sent to her.
Once made, the exemption is generally irrevocable. The IRS has allowed only two "open seasons" in the history of the tax law for individuals to revoke their 4361 election, the latest being in 2000. That is why one should give serious consideration to the election before it is made.
www.1040.com/jd
720-234-1177
Form 4361 applies only to services as an ordained minister. The form contains a statement that the taxpayer is conscientiously opposed, for moral or religious principles, to accepting of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care. (Public insurance includes insurance systems established by the Social Security Act.) Upon receipt of Form 4361, the IRS will mail a statement that describes the grounds on which an exemption can be received. The tax payer must certify that exemption is requested on the grounds described by signing a copy and returning it to the service center within 90 days of the date it was sent to her.
Once made, the exemption is generally irrevocable. The IRS has allowed only two "open seasons" in the history of the tax law for individuals to revoke their 4361 election, the latest being in 2000. That is why one should give serious consideration to the election before it is made.
www.1040.com/jd
720-234-1177
Regulation of Tax Preparers
The practice of taxpayers using tax agents, or paid preparers, to lodge their tax returns is long standing and relatively common in many jurisdictions that rely on self assessment, including Australia and the United States (US). However, across these jurisdictions the relevant regulatory requirements vary markedly. T ax agents in Australia are currently subject to quite rigorous regulation regarding their level of education, experience and professional conduct. Further, it appears that these requirements are soon to be made even more rigorous to improve the quality of services provided by tax agents to taxpayers. In contrast, in the US in all states and territories other than California and Oregon, no educational or regulatory standards are imposed on the majority of individuals who prepare federal and state income tax returns for a fee. The performance of tax agents in Oregon, with its relatively rigorous program of paid preparer regulation, was compared to tax agents in the rest of the US (except California).
Paid preparer tax returns in Oregon were found to be both more accurate and more compliant on three measures of performance: (1) math errors, (2) potential reporting discrepancies of $10 or more for interest income, and (3) audit outcomes.
This finding may have important implications for Australia as it seeks to introduce further regulatory reform in this area, and for other self-assessment jurisdictions, including the United Kingdom and US, where paid preparers play a vital role in tax administration and taxpayer compliance.
www.1040.com/jd
720-234-1177
Paid preparer tax returns in Oregon were found to be both more accurate and more compliant on three measures of performance: (1) math errors, (2) potential reporting discrepancies of $10 or more for interest income, and (3) audit outcomes.
This finding may have important implications for Australia as it seeks to introduce further regulatory reform in this area, and for other self-assessment jurisdictions, including the United Kingdom and US, where paid preparers play a vital role in tax administration and taxpayer compliance.
www.1040.com/jd
720-234-1177
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