Tax Debt Help – IRS Warns of New E-Mail & Telephone Scams
Issue Number: IR-2008-011
Inside This Issue
IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting
WASHINGTON — The Internal Revenue Service today warned taxpayers to beware of several current e-mail and telephone scams that use the IRS name as a lure. The IRS expects such scams to continue through the end of tax return filing season and beyond.
The IRS cautioned taxpayers to be on the lookout for scams involving proposed advance payment checks. Although the government has not yet enacted an economic stimulus package in which the IRS would provide advance payments, known informally as rebates to many Americans, a scam which uses the proposed rebates as bait has already cropped up.
The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft.
Typically, identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows scamsters to act quickly and cover their tracks before the victim becomes aware of the theft.
People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their reputations and credit records. In the meantime, victims may lose job opportunities, may be refused loans, education, housing or cars, or even get arrested for crimes they didn’t commit.
The most recent scams brought to IRS attention are described below.
Rebate Phone Call
At least one scheme using the word “rebate” as part of the lure has been identified. In that scam, consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early. The caller then states that he needs the target’s bank account information for the direct deposit of the rebate. If the target refuses, he is told that he cannot receive the rebate.
This phone call is a scam. No legislation has yet been enacted that would allow the IRS to provide advance payments to taxpayers or that determines the details of those payments. Moreover, the IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file; the IRS does not gather the information by telephone.
Refund e-Mail
The IRS has seen several variations of a refund-related bogus e-mail which falsely claims to come from the IRS, tells the recipient that he or she is eligible for a tax refund for a specific amount, and instructs the recipient to click on a link in the e-mail to access a refund claim form. The form asks the recipient to enter personal information that the scamsters can then use to access the e-mail recipient’s bank or credit card account.
In a new wrinkle, the current version of the refund scam includes two paragraphs that appear to be directed toward tax-exempt organizations that distribute funds to other organizations or individuals. The e-mail contains the name and supposed signature of the Director of the IRS’s Exempt Organizations business division.
This e-mail is a phony. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.
Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on the IRS Web site at IRS.gov. The only official IRS Web site is located at www.irs.gov.
Audit e-Mail
Another new scam brought to IRS attention contains features not seen before by the IRS. Using a technique calculated to get almost anyone’s attention, the e-mail notifies the recipient that his or her tax return will be audited. This is the first scam of which the IRS is aware that uses this to get the victim to respond.
Unusual for a scam e-mail, it may contain a salutation in the body addressed to the specific recipient by name. Most scam e-mails seen by the IRS are sent using the same technique used by spammers, in which hundreds of thousands of messages are sent to potential victims based on Internet address. Because of the volume, the typical scam e-mail is not personalized.
This e-mail instructs the recipient to click on links to complete forms with personal and account information, which the scammers will use to commit identity theft.
This e-mail is a phony. The IRS does not send unsolicited, tax-account related e-mails to taxpayers.
Changes to Tax Law e-Mail
This bogus e-mail is addressed to businesses, accountants and “Treasury” managers. It instructs them to download information on tax law changes by clicking on a series of links to publications on businesses, estate taxes, excise taxes, exempt organizations and IRAs and other retirement plans. The IRS believes that clicking on a link downloads malware onto the recipient’s computer. Malware is malicious code that can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scamster. There are other types of malware, as well.
The urls contained in the link are not legitimate IRS Web addresses. All IRS.gov Web page addresses begin with http://www.irs.gov/.
Paper Check Phone Call
In a current telephone scam, a caller claims to be an IRS employee who is calling because the IRS sent a check to the individual being called. The caller states that because the check has not been cashed, the IRS wants to verify the individual’s bank account number. The caller may have a foreign accent.
In reality, the IRS leaves it entirely up to the individual to choose to cash or not cash a paper check. The IRS has no business need to know, and does not ask for, bank account or similar information, except when taxpayers indicate on their tax return that they are opting for the direct electronic deposit of their refund. In that case, however, it is the individual’s responsibility to provide the IRS with the correct bank routing and account numbers on the tax return; the IRS does not contact taxpayers to verify the information.
What to Do
Anyone wishing to access the IRS Web site should initiate contact by typing the IRS.gov address into their Internet address window, rather than clicking on a link in an e-mail or opening an attachment.
Those who have received a questionable e-mail claiming to come from the IRS may forward it to a mailbox the IRS has established to receive such e-mails, phishing@irs.gov, using instructions contained in an article on IRS.gov titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Following the instructions will help the IRS track the suspicious e-mail to its origins and shut down the scam. Find the article by visiting IRS.gov and entering the words “suspicious e-mails” into the search box in the upper right corner of the front page.
Those who have received a questionable telephone call that claims to come from the IRS may also use the phishing@irs.gov mailbox to notify the IRS of the scam.
The IRS has issued previous warnings on scams that use the IRS to lure victims into believing the scam is legitimate. More information on identity theft, phishing and telephone scams using the IRS name, logo or spoofed (copied) Web site is available on the IRS Web site at IRS.gov. Enter the terms “phishing,” “identity theft” or “e-mail scams” into the search box in the upper right corner of the front page.
Related Items:
- FS-2008-9, Identity Theft E-Mails Scams a Growing Problem
- IR-2007-109, IRS Warns Taxpayers of New E-mail Scams
- Suspicious e-Mails and Identity Theft
Tax Debt Help – Timing of Snipes Trial Couldn’t Be Better for IRS
http://www.cnn.com/2008/CRIME/01/29/snipes.trial.ap/index.html
OCALA, Florida (AP) — Even Hollywood couldn’t have written a more ideal script for the Internal Revenue Service than actor Wesley Snipes’ tax-fraud trial.At a time when millions of Americans are buckling down to prepare their taxes, Snipes is being cast as a villainous example of the dangers of joining with Internet-fueled activists who claim the IRS has no authority to collect taxes.Snipes, the star of the “Blade” films and “White Men Can’t Jump,” is on trial with two tax protesters in one of the biggest criminal cases in IRS history, and the agency hopes the media attention on the matter will dissuade others in the “tax avoidance” movement from trying to outwit the government.“
People who do it openly and notoriously, you’ve got to go after them,” said Sheldon Cohen, who was IRS commissioner and general counsel in the 1960s. “Not because he’s that important or the amount of money is that important, but because there are others who may be foolish enough to follow.”
Snipes, 45, could get up to 16 years in prison if convicted on all counts, although sentences that long are unusual.His two co-defendants are an anti-tax ideologue who refuses to defend himself in court and an accountant who lost his licenses. The trio rested their defense Monday without calling any witnesses, saying they didn’t need to.“Nobody likes paying taxes, but paying taxes is the price we pay to live in a civilized society,”
Assistant U.S. Attorney M. Scotland Morris said Tuesday in closing arguments. “And it’s the law, and that’s what this case is about. It’s about three men who felt they were above the law.”Defense attorney Robert Barnes conceded Snipes’ arguments may have been crazy, but insisted that didn’t make them criminal.“Disagreement with the IRS is not fraud of the IRS, is not deception,” Barnes said. “It was an attempt to engage the IRS, to go through the IRS procedures and processes and see who’s right.”In lengthy filings to the IRS, the three defendants claimed they did not legally have to pay taxes, citing an obscure section of the tax code that establishes that foreign sources of income for U.S. citizens are taxable.
Protesters take that to mean only foreign sources are taxable, and wages made in this country are not.“They string unconnected things together in a way that they’re just not intended to be strung together,” said Chris Rizek, a former Treasury Department lawyer who specialized in tax policy. “And the courts have repeatedly said ‘No, that’s the wrong interpretation, listen to this.’ And they just don’t listen.”Snipes, who is free on $1 million bond, was paying millions in federal income taxes until 2000 when, according to prosecutors, he accepted the arguments of his two co-defendants.
Snipes then began seeking nearly $12 million in illegal refunds for taxes he already paid.Snipes, alleged ringleader Eddie Ray Kahn and former CPA Douglas P. Rosile were indicted on eight counts alleging tax fraud, conspiracy and willful failure to file returns. Kahn now refuses to leave his jail cell because he believes the court has no jurisdiction to prosecute him.The government says Kahn founded a group in the 1990s, American Rights Litigators, and a successor group, Guiding Light of God Ministries, that purported to help members legally avoid paying taxes. Rosile, a former accountant who lost his licenses in Ohio and Florida, prepared the paperwork.
Snipes joined their group in 2000.Witnesses for the prosecution have said up to 4,000 people refused to pay taxes based on the group’s arguments.
The three men claimed the IRS is not a legitimate government agency. Snipes also argued in long, bizarre letters that he was a nonresident alien; that the IRS terrorizes and deceives citizens; and that efforts to prosecute him would cause “increased collateral risk.”Most tax cases are handled in civil court, because the IRS does not have enough agents or time to pursue criminal charges against ordinary taxpayers who fudge a deduction or a decimal place on their tax returns.But pursuing the matter in criminal court carries other risks — the burden of proof is higher, and an acquittal would instantly galvanize the tax-avoidance movement, which already enjoys boundless exposure on the Internet.The IRS has been successful in pursuing criminal cases against the movement’s followers.
Last year, for example, a New Hampshire tax protester vowed to die fighting rather than be apprehended following criminal conviction on several tax charges. Several people were arrested trying to help Ed Brown and his wife avoid capture, and almost all of them were from other states.Brown and his wife were taken peacefully, but only after agents tricked the couple into surrender.
But there are exceptions. In 2003, FedEx pilot and tax protester Vernice Kuglin was acquitted because the jury found she sincerely believed she didn’t have to pay taxes.Kuglin’s assets were seized, and the government got its tax money.
Despite that, her case is held by some protesters as proof that the IRS is a sham, and citizens really don’t have to pay taxes.Cohen, the former IRS commissioner, said trials like Snipes’ are important to discourage potential tax scofflaws from defying the government.“Locks are important on windows to keep honest men from becoming thieves,” Cohen said. “Because a thief can get into a window even if it’s locked, right? But you do that as a deterrent.”
Tax Debt Help – Deductions & Credits
The goal of every taxpayer whether individual, self-employed, small business or corporations is to lower your tax liability. In a word, “deductions lower your taxable income, and credits lower your taxes”. Below is a list of links that will provide you with a brief description of those deductions and credits and ultimately…..”lower your tax liability”.
Tax Deduction for Charity Donations
Home Mortgage Interest Tax DeductionEnergy Tax CreditsOther Tax Credits – Form 1040
Adoption Tax Credit: How to Claim the Adoption Credit Child Tax Credit: How to Claim the Child Tax Credit on Form 1040
Retirement Savings Contribution Credit
Education Credits – Hope and Lifetime Learning Tax Credits
Credit for the Elderly or Disabled – Form 1040 Line 48 Child Care Tax Credit & Dependent Care Expenses – Form 1040 Line 48
Adjustments to Income – Preparing Your 1040 Step 5
Adoption Credit – Form 1040 Line 52
Alimony Paid Tax Deduction Casualty & Theft Losses
Child Care Tax Credit & Dependent Care Expenses – Form 1040 Line 47
Child Tax Credit – Form 1040 Line 51
Classroom Expenses Deduction Credit for the Elderly or Disabled – Form 1040 Line 48
Domestic Production Activities Deduction – Section 199
Early Withdrawal Penalty Deduction
Earned Income Credit: Qualfying for the Earned Income Tax Credit Education Credits, Hope Credit, Lifetime Learning Credit, Form 1040 Line 49
Educator Expenses: Claiming a Tax Deduction for Educator Expenses
Foreign Tax Credit – Form 1040 Line 46
Qualified Performing Artists (QPA) Deduction Moving Expenses
Self-Employment Health Insurance Deduction
SEP-IRA Deduction Early Withdrawal Penalty Deduction Alimony Paid Deduction
Health Savings Account Deduction
Health Savings Account Deduction: Tax Deduction for Health Savings Accounts How To Pay Zero Taxes 2005 (Book Review)
Hybrid Car Tax Credit – Essential Information about the Alternative Motor Vehicle Credit
Hybrid Car Tax Deduction – Clean Burning Fuel Deduction
IRA Deduction (Traditional Individual Retirement Account) Itemized Deductions
Limitations on Itemized Deductions
Moving Expenses Tax Deduction Other Tax Credits – Form 1040 Line 53
Personal Exemptions
Qualified Performing Artists Expenses
Retirement Savings Credit, Form 1040 Line 50 & Form 8880
Self Employment Tax Deduction Self-Employment Health Insurance Deduction
SEP, SIMPLE, Retirement Plan Deduction
Student Loan Interest Deduction Student Loan Interest Tax Deduction
Traditional IRA Tax Deduction – Individual Retirement Account Deduction
Tuition and Fees Deduction for College Expenses
Tuition and Fees Tax Deduction
S. Raines, Sr. Financial Advisor/Tax Preparer
Retirement Fund Early Withdrawals and the Tax Penalty
As a veteran tax preparer, I have found that there are lots of reasons why folks don’t file returns. But one of the biggest reasons is the early withdrawal of retirement funds. Most of the time they don’t elect to have federal tax withheld. Then when it comes time to file and that 1099-R arrives in the mail, fear overwhelms them. Now they’re facing not only the federal withholding, but also the 10% penalty for early withdrawal.
Below is some detailed information which I found at William Perez’s website at About.com which gives the best overview of early withdrawals that I have found on the web. Take a few minutes to see just how overwhelming these withdrawals can be to your tax liability.
If you withdraw money from a traditional individual retirement account (IRA), 401(k), 403(b), or other qualified retirement plan before you turn age 59 1/2, you may be subject to an early distribution penalty of 10%. There are exceptions. This penalty does not apply to Roth IRAs as long as it has been at least five years since you first opened up your Roth account. Here’s what you need to know about the early distribution tax.
The additional tax on an early distribution is 10% of the taxable amount. The taxable amount is also included in your taxable income. This 10% tax is in addition to regular income taxes. I call this the early withdrawal tax penalty, because it is similar to the penalty banks charge when you liquidate a savings account early. You can avoid this additional tax penalty if you meet certain criteria, but you cannot avoid including your retirement withdrawal from your taxable income.
So you will want to consider the tax impact before you tap your retirement accounts for short-term financial emergencies.
If you withdrew money from a SIMPLE IRA and you first began participating in a SIMPLE IRA plan within the past two years, then your early distribution penalty is 25% instead of 10%. You figure the additional tax either directly on Form 1040 line 59, or on Form 5329 (PDF) and Instructions for Form 5329 (PDF). You calculate the additional tax penalty directly on Form 5329 if you meet one of the exceptions and the retirement plan did not report the exception on Form 1099-R box 7.
To calculate the additional tax penalty directly on Form 1040 line 59, you:
- Look on Form 1099-R from your retirement plan.
- Find the figure in boxes 1 (Gross Distribution) and 2a (Taxable Amount), and the code in box 7 (Distribution Codes).
- Multiply the amount in box 2a by 0.10.
- Report this amount on Form 1040 Line 60.
- Write “No” on the dotted lines next to line 59 to inform the IRS that you do not need to attach Form 5329.
Exceptions to the Early Distribution Tax Penalties
You do not have to pay the additional 10% tax penalty on your early retirement distribution if you certain exceptions. Exceptions for Early Distributions from an IRA:
- You had a “direct rollover” to your new retirement account,
- You received a lump-sum payment but rolled over the money to a qualified
retirement account within 60 days, - You were permanently or totally disabled,
- You were unemployed and paid for health insurance premiums,
- You paid for college expenses for yourself or a dependent,
- You bought a house*,
- You paid for medical expenses exceeding 7.5% of your adjusted gross income**, or
- The IRS levied your retirement account to pay off tax debts.
Exceptions for Early Distributions from a Qualified Retirement Plan such as a 401(k) or 403(b) plan:
- Distributions upon the death or disability of the plan participant.
- You were age 55 or over and you retired or left your job.
- You received the distribution as part of “substantially equal payments” over your
lifetime. - You paid for medical expenses exceeding 7.5% of your adjusted gross income.**
- The distributions were required by a divorce decree or separation agreement
(“qualified domestic relations court order”),
* The home-buying exception has the following additional criteria: you did not own a home in the previous two-years, and only $10,0000 of the retirement distribution qualifies to avoid the tax penalty. ** You do not need to itemize in order to claim the medical expense exception. If the exception is properly coded in box 7 of your 1099-R form, you do not need to fill out Form 5329. If an exception applies and is not recorded in box 7, then you need to fill out Form 5329.
1099-R Box 7 Distribution Codes
The following is a list of distribution codes that may appear in box 7 for Form 1099-R to report distributions from a retirement account. This list is taken from (PDF), pages 9 and 10. Distribution Codes for 1099-R Box 7
| Distribution Code | Description |
| 1 | Early distribution, no known exception |
| 2 | Early distribution, exception applies |
| 3 | Disability |
| 4 | Death |
| 5 | Prohibited transaction |
| 6 | Section 1035 exchange |
| 7 | Normal distribution |
| 8 | Excess contribution |
| 9 | Cost of life insurance protection |
| A | May be eligible for 10-year tax option |
| D | Excess contribution |
| E | Excess annual additions |
| F | Charitable gift annuity |
| G | Direct rollover |
| J | Early distribution from Roth IRA |
| L | Loans treated as deemed distributions |
| N | Recharacterized IRA contribution |
| P | Excess contribution |
| Q | Qualified distribution from a Roth IRA |
| R | Recharacterized IRA contribution |
| S | Early distribution from a SIMPLE IRA in the first two years, no known exception |
| T | Roth IRA distribution, exception applies |
Figuring the Additional Tax Penalty on Form 5329
You calculate the additional tax on early withdrawals from a retirement account using Form 5329 (PDF) lines 1 through 4.
Line 1: Report the taxable distribution from box 2a of Form 1099-R.
Line 2: Enter the amount not subject to the additional tax because an exception applies. Enter the appropriate exception code.
Line 3: Subtract line 2 from line 1. This is the amount of retirement distributions that are subject to the additional tax.
Line 4: Multiply the figure on line 3 by 0.10. Also enter this amount on Form 1040 line 60. If the distribution was from a SIMPLE IRA, the penalty may be 25% instead of 10%. The 25% penalty applies if you began participating in a SIMPLE IRA account within the past two years. Multiply the amount on Line 3 by 0.25 instead.
Exception Codes for Form 5329 Line 2
The following exception codes are to be used for Form 5329 Line 2 to inform the IRS that part or all of your retirement withdrawal is not subject to the early withdrawal tax penalty. The following exception codes are found in Instructions for Form 5329 (PDF), pages 2 and 3.
| 01: Separation from service after reaching age 55. |
| 02: Distributions are paid as part of a series of substantially equal periodic payments. |
| 03: Distributions due to permanent and total disability. |
| 04: Distributions due to death. |
| 05: Distributions to pay for medical expenses exceeding 7.5% of adjusted gross income. |
| 06: Distributions to another person under a qualified domestic relations court order. |
| 07: Distributions to pay for health insurance premiums and you were unemployed. |
| 08: Distributions to pay for college expenses. |
| 09: Distributions to pay for a first-time home purchase, up to $10,000. |
| 10: Distributions due to an IRS levy. |
| 11: Other. Use this code if more than one exception applies and see IRS Instructions page 3. |
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Traditional IRA vs. Roth IRA
What is an IRA?An IRA or Individual Retirement Account is a plan that allows you to contribute a portion of your after tax earned income each year. If you are 50 or older, you can contribute even more to your IRA. Almost anyone can contribute to an IRA if they have earned income for the year at least equal to the amount of the contribution. There is a maximum contribution limit per year and those who are 50 years of age or older can make additional “catch up” contributions.
Annual Contribution Limits for IRAs per Individual
| Tax years 2006 – 2007 | $4000 for those under 50 and $5000 for those 50 and over |
| Tax year 2008 | $5000 for those under 50 and $6000 for those 50 and over |
Married couples can each contribute to an IRA even if only one had an income for the year if the working spouse earns enough to cover the IRA contributions for both. There are two common types of IRAs, the traditional IRA and the Roth IRA. All accumulated interest, dividends, and capital gains on a traditional IRA are tax-deferred until the money is withdrawn. All accumulated interest, dividends, and capital gains on a Roth IRA are tax-free if you meet certain requirements.
Difference Between a Traditional and Roth IRA
A Traditional IRA is a tax-deferred individual savings plan. Contributions are made up to a specified limit with the contribution tax deductible. Money invested and earned in a traditional IRA are subject to income taxes at the time of withdrawal.
Withdrawals can be made without penalty once a person reaches the age of 59 1/2 and a person must begin withdrawing from the account at the age of 70 1/2.A Roth IRA is also primarily an individual savings plan.
Contributions can be made up to a specified limit on a non-deductible basis. This means, a contribution can be made to a Roth IRA but no deduction can be taken from income tax for the amount of the contribution.
Withdrawals are tax free within certain limitations. Withdrawals can be made without penalty once a person reaches the age of 59 1/2 provided the funds have been in the account for 5 years. Unlike a traditional IRA, contribution can continue to be made to a Roth IRA even after the person has reached the age of 70 1/2.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Foreclosure Tax Consequences
Every day, we are hearing that the real estate market seems to be in shambles, lenders have tightened up and thousands of people are having their properties foreclosed upon. While most foreclosures are made on personal residences, rental markets are also now leading to foreclosures on investment properties also.
Foreclosures can be a taxable event, and the tax consequences of foreclosure can be disasterous for investment property owners. In such an event, the owner can potentially face a three-fold situation of losing his or her property, by having to recognize income on the discharge of the mortgage and a capital gain.
Foreclosure should always be the last resort. You can get a letter from the IRS looking for back taxes (plus interest and penalties) from the foreclosure.
The history of the small business industry shows that most do not survive past two years. And even if you make it that far, you still have a lot of work to do. Every small business owner should pay attention to every aspect of the business to keep it operating and in good financial health. A lack of attention ultimately results in some common mistakes that will lead to your becoming one of those statistics.
Not paying your payroll taxes.
This is without question the quickest way to get the IRS to shut down your business. It can take the IRS years to catch up with businesses that have unpaid corporate income taxes, but it only takes them a matter of months to catch up with delinquent payroll taxes. They will come down fast and hard on business owners who are withholding taxes from their employees and not remitting those taxes to the government.
2. Getting bad advice from the wrong people.
Tax laws are complicated and everyone seems to have heard about saving taxes from their friend, neighbor or co-worker. In most cases, a little information is enough to be dangerous.
And with the wide availability of information, this only compounds the problem. Relying on bad advice may cost you down the road. Seek solid professional advice and get things done right the first time.
3.
Going into business with the wrong people.
This happens too often. The fact is that family and friends often make the worst business partners. Everything may seem fine, but when times get tough and money becomes an issue, things can get real ugly real fast.
Carrying too much unsecured debt.
Carrying too much unsecured debt on your business can be a double whammy. This is because you have to pay back the debt with the profits of your business. So not only do the debt payments eat up your cash flow but since the debt principal payments are not tax deductible, you business will most likely end up showing a profit with no (or very little) cash to show for it. Now certain types of businesses, such as real estate, will carry large amounts of debt by definition. However, if the debt is used in the purchase of an asset, then depreciation deductions will be able to help reduce the profit of the business.
Holding investment real estate in your corporation.
While it may be a stretch to say that doing this will destroy your business, it has the potential to cost you dearly. There are no good benefits of holding investment real estate in a corporation. In fact, many attorneys and CPAs consider advising a client to hold investment real estate in a corporation to be a form of malpractice.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Knock, knock…it’s the IRS at your door!
The IRS normally will give you warning of a visit, but sometimes they can just appear at your home or business unannounced.
If they do, it is almost always due to unpaid taxes, specifically–unpaid payroll taxes. And while they are there, everything is fair game. They might want to look at your company checkbook, your cash register, your sales receipts–anything that can provide ammunition to be used against you.
So what should you do if an IRS officer or employee shows up at your business and starts asking question? That’s easy. Immediately tell the officer that you wish to consult a representative (i.e. a CPA, attorney or anyone else authorized to represent taxpayers before the IRS). If you request this, the IRS must stop the interview immediately. If the IRS agent does not do so, he or she will be in violation of federal law. Internal Revenue Code Section 7521(b)(2) says the following:
If the taxpayer clearly states to an officer or employee of the Internal Revenue Service at any time during any interview (other than an interview initiated by an administrative summons issued under subchapter A of chapter 78) that the taxpayer wishes to consult with an attorney, certified public accountant, enrolled agent, enrolled actuary, or any other person permitted to represent the taxpayer before the Internal Revenue Service, such officer or employee shall suspend such interview regardless of whether the taxpayer may have answered one or more questions.
And despite what you may have seen on Law & Order or CSI, asking for a representative does not make you look guilty. You are simply telling the IRS agent that despite their best efforts to blindside you, you want to consult with a professional that can help you prepare for the interview and provide the most accurate information possible.
If your first inclination is to tell the IRS agent to get off your property, do it the right and legal way, consult a representative and then respond to the IRS.
You can even have your representative handle the interview without your being present.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – How Much Are Your Gifts Worth?
You can’t help but love TAXMAMA, or at least I do, she publishes some dynamic tax information and sometimes I just love to share all her knowledge and humor. The following article deals with how much gift giving you do to your clients or customers and how it’s should be claimed on your business returns. Take heed, this is good stuff…..
Watch what you give — and get
Workplace gifts are great, but are they really free?
By Eva Rosenberg, MarketWatchLast update: 7:19 p.m. EST Dec. 27, 2007
LOS ANGELES (MarketWatch) — Workplace gift-giving is down this year. According to an annual survey conducted by New York-based executive search firm Battalia Winston, only one-quarter (26%) of respondents say they will provide a holiday gift to employees this year, down from 42% only five years ago. Were you one of the lucky ones?The nature, cost and value of gifts have changed over time. The first holiday gift TaxMama ever got from an employer was back in the heyday of rock and roll. KHJ, the home of Boss Radio, gave each employee a $25 gift certificate to Ralph’s Grocery. Back then, for the average employee $25 was about 10% to 20% of a week’s wages.
Yet the Internal Revenue Code still limits deductible gifts from businesses to $25 per person, per year. Note the “per year” part of this. Many people seem to think that the limit is $25 per gift. Unfortunately, once you’ve given your client or associate that $25 gift for their birthday, you can’t deduct the next gift you give them later on. In addition to the $25, you can also deduct incidental costs, like engraving, packaging, insuring and mailing. IRS doesn’t specify that sales tax is an additional cost. But, surely, it can be added to the cost of the gift, can’t it?
Is that $25 rule just for gifts to clients, customers or potential patrons of your business, or is it also for employees? IRS lays out specific rules for achievement awards, length of service awards and safety achievement awards. If the employer has a written plan that spells out the rules for earning a reward, it may give the deserving employee as much as $1,600 per year without adding the award to the employee’s wages. Without a written plan, the limit is $400.
Employers sometimes misunderstand these rules and use these limits for gifts, in general. So they give monetary bonuses without addressing the payroll issue. That would be a mistake. According to Carol Alvarez, a senior manager in New York-based accounting firm Mahoney Cohen & Company, IRS requires employers to add the value of bonuses and gifts to the employees’ wages.
Those are the rules. But what are companies doing? One employer who, prefers not to be named, is giving her employees cash bonuses of $500 or more. She’s not adding the amount to their wages. Mary Dahlberg, an enrolled agent in Truckee, Calif., says her clients include the gifts as wages or issue a Form 1099 for large gifts to customers. However, Dahlberg says many clients prefer to throw a generous holiday party instead of dealing with the gift issue. An accounting firm Encino, Calif., holds its annual holiday party on a cruise ship. They take their annual weekend cruise to Ensenada in Mexico each December.
And that does bring up another issue. At the California Society of Enrolled Agents December meeting last week, someone said one of his clients won a $100 massage in a drawing at a holiday party. Many companies spend hundreds or thousands of dollars on giveaways that are randomly drawn at holiday parties. With all the food and booze, no one’s paying attention to account for who won what. Can the employer take deductions for “gifts” given away at parties like this? Doug Thorburn, a Northridge, Calif., enrolled agent, insists that there is a distinct difference between gifts and incentives. Thorburn says that a gift is something you give someone expecting nothing in return, with detached and disinterested generosity. Giving someone something with “the incentive of anticipated benefit” is a pure business expense, not a gift. And it needn’t be accounted for as a gift with the $25 limits.
One person added an interesting twist to business gift-giving. A Duluth, Minn., accountant, Stephen P. Arkulary’s, favorite gift is Boy Scout popcorn. It helps out the Boy Scouts and is a treat that most people would enjoy. It works as an employee gift or a charitable donation. Or both.
When it comes to deducting charitable contributions, you may not deduct the value of the goods or services you receive. So, suppose you spend $100 each on watches you get from a charity. If the charity gets them wholesale, a $50 watch might cost it only $25. You’d end up with a charitable contribution of $75 for each purchase — and a business deduction for the $25 value of the goods or services received. Quite clever. What’s a great way around all these tax constraints? Dale Winston, CEO of Battalia Winston, tells us her annual survey shows that gift-giving is still alive and well in the workplace around the holidays — but it is among employees. This year, 41% of businesses say employees are planning on some type of gift giving (i.e. Secret Santa, grab bags, etc.) among one another this year.
Not a bad idea. After all, when it comes to personal gifts, the 2007 IRS limit is $12,000. What’s the best gift I ever got? A boss on a job I’d only held for two weeks once asked me what I wanted. I told him, I’d love to get a new car. Come Christmas, I received a holiday-wrapped box of See’s Candies, a $100 bill and a shiny, red Datsun 240z. By Tonka, that is.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Decrease Your Chances of An Audit
Found a nice list online tonight about some suggestions on how to avoid an audit. Of course being honest is the best policy ’cause the IRS can make your life very miserable if they want. So some things to watch:
Self Employed take notice. It should go without saying that certain jobs would attrack more attention – and the Self-Employed folks should use the upmost caution. Also those who have a large portion of their income as cash (servers, casinos, basketball tournament pool operators) is also of interest. Be careful.
Dead-beat moms. If you get alimony make sure you report it. Rumor has it the IRS now, sorry, marries couples’ claims of paid and received alimony.
Keep the money at home. Today’s connected world make it easy for over a million Americans to have offshore credit cards. Apparently people think they can hide money from the scrutiny of the IRS; while you might get away with that, you’ll likely get more noticed. And worse case scenario? Home Land Security thinks you up to something. Hello Camp G-bay!
As I always say, “be proactive rather than reactive”!
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Tax Game Patent
I was reading through some “Taxalicous” article and come across some real humor. Decide it was worthy of sharing………………..
Yeah, we all enjoy taxes so much that we want to sit around playing a board game in the off season. In an earlier post we introduced you to “Audit – The Tax Game” but now we find another game in the US Patent Directory — check it out.
“A tax game comprising a board having a series of marked spaces forming a path through which markers can be moved in accordance with indications on dice and using two sets of money, taxable and non-taxable. The path around the board represents a time period of one year through which various tax situations can occur as directed by cards being drawn from three card piles as required with the marker landing on certain predetermined spaces around the track. Money, taxable and non-taxable, is received or paid in accordance with the various tax transactions and income taxes are calculated with the passing of each year as indicated by the traversing of the complete path around the board.”
What we’re we doing looking for tax game patents… you’ll have to wait and see.
S. Raines, Sr. Financial Advisor/Tax Preparer
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