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Tax Scams Lead To IRS Audits

November 30, 2010 By

Recognize Tax Scams

Taxpayers know not to file misleading or false tax forms. However, there are scam artists who do this to deliberately defraud the IRS and benefit themselves. The most common form of abuse is to formulate information on a return in order to make a bogus claim for that amount. The OID (Original Issue Discount Form 10990 is often used to back up refund requests that are wrong. There is a mistaken belief the federal government keeps undisclosed accounts for US citizens and that an OID 1099 gets access to that money if issued to creditors as well as the IRS. This is an example of completing misleading tax forms and fake filing.

The IRS looks out for returns showing Social Security Benefits with extreme safeguarding. This means the IRS does not have to be informed on the return. Usually, the stated income and safeguarded amount are wrong. This tactic of using non-taxable Social Security Benefits with extreme safeguarded credit could get you a fine of $5,000.

It is illegal to abuse tax-exempt organizations. You may not guard assets or income from being taxed nor the efforts of donors to keep control over donations of assets or the income from a bequeathed property. Donations are either overvalued or the organization tells the donor he or she can buy back the items at a cost stipulated by the donor. Obligatory fines for erroneous evaluations and stipulated new meanings for eligible evaluations and qualified tax appraisers requesting charitable donations.

Some promoters encourage strange and difficult claims in order to circumvent owed taxes. Schemes that appear better than reality are usually unlawful. Taxpayers can see a list of ‘frivolous legal positions’ list by the IRS. These arguments have been dismissed by the court. It is the taxpayer’s right to contest tax responsibilities but not by disregarding IRS regulations or the law.

For more information on Tax Scams or IRS Audits, visit

http://www.tax.gov/Individual/audits

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Keep out of the IRS Audit Spotlight

November 29, 2010 By

It is those higher income taxpayers who have most recently been the center of the IRS’ attention. However, there are greater and greater numbers of small and large enterprises being included in that attention. This is especially so when it involves how workers are classified. It would be accurate to say that most tax payers don’t have to be too concerned about getting an IRS Audit letter.

If you want to remain out of reach of such a letter it is necessary to keep a low profile. Don’t do anything to appear different. The IRS makes use of Discrimination Information Function (DIF) to contrast tax filings. Put simply, the IRS uses a computer model to compare your tax filing. Your filing is provided with a DIF rating and the possibility of inexact data. Tax filings that get high DIF ratings are assessed by actual IRS representatives to ascertain which have the highest possibility for giving extra taxes as well as interest and penalties.

Nobody but the IRS knows how the DIF system works. They do admit to fine-tuning it every now and then. This system is regarded as confidential. What is openly known is the IRS does not favor tax payers who list tax deductions are very different from the filings of the majority of other filers within the same income grouping.

We are all trying to lower tax where we can before the 15 April deadline so why not look at a table of IRS figures for 2007. You will note the average sum of common deductions requested on schedule A for six income groupings in 2007. As the sums are only averages the IRS prefers you not to support your figures on them. The table can help get your sums in line. The rule is, if you can show it, go ahead and claim it.

Adjusted Gross Medical Expenses Taxes Interest Charitable Gifts
$15,000 to $30,000 $6,849 $2,959 $9,102 $1,931
$30,000 to $50,000 $6,040 $3,623 $9,262 $2,127
$50,000 to $100,000 $6,690 $5,822 $10,557 $2,612
$100,000 to $200,000 $9,922 $10,370 $13,766 $3,790
$200,000 to $250,000 $22,810 $17,013 $18,030 $5,733
$250,000 or more $3,281 $49,370 $28,110 $23,817

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IRS Tax Help | A Time For Giving

November 24, 2010 By

IRS Tax Help: Reporting a Charitable Donation

A sound time to help charitable organizations is during the holidays. Tax laws make it possible for both the donor and the recipient to benefit from donations. However, there are specific regulations governing this procedure.

In order for a taxpayer to benefit from charitable donations you must list (itemize). It is on Schedule A of the Federal Form 1040 where deductions are listed (lines 16 to 19).

If you have made cash donations of any amount, they must be backed up by a credit card receipt, cancelled check or written affirmation from the organization.

If you donate goods you are permitted to subtract fair market worth, i.e. the price it would get in its current state. Donated goods must be in a ‘good’ or ‘better’ state. If not, it will be unacceptable to the IRS. If an item is worth more than $500 and is not in a ‘good’ state; it will be permitted as a deduction but with an evaluation (appraisal). Other specific regulations apply to artwork, jewelry and appreciated stock.

It is imperative to have a receipt of proof from the charity in question. It must have the location, name, detailed description of donation and date of donation. The more detailed the better.

When it comes to charitable donations the IRS has made it easy for taxpayers to contribute either cash or goods. Their rule of deductible property being in ‘good’ or ‘better’ condition assists charities to receive worthwhile goods. Remember, an item may not be valuable to you but it could prove to be a blessing to someone else. The holidays are the perfect time to give.

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Beware of Unfiled Taxes

November 23, 2010 By

Unfiled Taxes Can Be Seen As Tax Evasion

The prosecution of tax crimes takes place everyday throughout the entire United States. There are many citizens who are finding it extremely rough keeping abreast of all their financial responsibilities. Those who do need assistance can opt for Internal Revenue Service’s tax relief answers. Even if you find you are under a lot of financial stress it is possible to take care of tax problems and back taxes.

Those citizens skipping out on paying their owed taxes results in Uncle Sam’s coffers staying empty of $350 billion in outstanding taxes. Taxpayers from the wealthy category to the ordinary category are guilty of this practice. It results in a tax gap that increases ten percent yearly. The IRS is not happy with this situation and they are becoming ever more determined to narrow the gap.

Taxpayers are entitled to make use of existing tax laws to bring down their tax payments. However, you may not evade tax in order not pay taxes. Uncle Sam calls this cheating and it is a criminal offence that carries a jail sentence of up to five years and tax penalties up to $100,000.

It is good advice to not make your self noticeable to the IRS in a negative way. If they suspect you of attempting tax evasion they will aggressively track you down for collection and bank levies. If you are in such a situation and owe back taxes it is serious and it may require the assistance of a certified tax professional to get you out of your tax troubles. However, before you even reach such a serious stage you should take the time to find out how to decrease your tax bill by making use of lawful tax subtractions in order to side step expensive IRS penalties and interest.

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Resolving Tax Debt

November 22, 2010 By

You Must Prove Expenses to Resolve a Tax Debt

Before the Internal Revenue Service can use their allowance tables to tally a taxpayer’s living costs, they expect proof of such costs. This is what informs them of how much you can repay on taxes. A standard set of expense allowances assist them in their estimation. However, there are three costs that don’t need proof. According to Internal Revenue Service procedure, even lower spending will get these through. This provides some padding when discussing with the Internal Revenue Service what you can afford. The exceptions to the verification rule of the IRS are the following:

The Internal Revenue Service permits household provisions, food and clothing according to the number within a household. At present, the monthly food and clothing allowance for a family of four members is $1,371.

There is also a monthly allowance of $60 for every family member within in a household for medical costs out of pocket. Four members tally up $240 a month. Even if a family of four members uses under the $240 monthly allowance for medical costs it is still receivable. There is a $144 a month allowance for medical costs for a person who is sixty five or older. The Internal Revenue Service will allow more than $144 to this group if you can prove it was a legitimate medical expense.

The Internal Revenue Service makes an allowance for expenses from operating a car. This allowance is founded on the area or city you live in. An example would be $588 a month for the upkeep, gas and insurance of two cars in a single household situated in Detroit. There is an IRS table for comparing allowances in different regions.

An Installment Agreement and/or Offer in Compromise between the taxpayer and the IRS are based on allowances. The IRS takes into account the level of economic hardship resulting from a collection. Having a good understanding of how the standard expense allowances are used is helpful in making sure your tax amount and means of payment suits your needs.

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Tax Help | Debt Forgiveness

November 19, 2010 By

Tax Help: Know When You Are Eligible for Debt Relief and How to Report It

The Mortgage Forgiveness Debt Relief Act of 2007 was brought about to permit the elimination of earnings resulting from amendment of the stipulations of the mortgage or foreclosure on a primary residence.

The exclusion or elimination of earnings means that usually a cancelled or absolved debt by a lender must be incorporated as earnings when your fill out a tax return because the amount of the debt is taxable. However, some forgiven debt on a primary residence may be lowered via mortgage reorganizing. Mortgage debt linked to foreclosure and lowered debt via mortgage reorganizing is eligible for debt relief according to the Mortgage Forgiveness Debt Relief Act.

It is necessary to know the Mortgage Forgiveness Debt relief Act does not pertain to all debt that is cancelled or forgiven. This Act only makes provision for forgiven debt that is derived from constructing, buying or significantly improving a primary residence or to refinance acquired debt for those reasons.

It must also be noted, the primary residence must hold the debt in order to be a recognized as qualified principal relief indebtedness. The highest amount recognized for this type of indebtedness is $1 million if married but filing independently or $2million. When the Mortgage Forgiveness Debt Relief Act pertains to debt that is acquired due to a home being refinanced the primary balance of the previous mortgage right after refinancing would be eligible for elimination.

If the amount of debt on a principal residence that can be eliminated from earnings is more than $1 million for a married couple filing individually or $2 million, Form 982 must be followed. This Form is also known as Tax Attributes Due to Discharge of Indebtedness. The form is not exclusively for residence indebtedness. If you use Form 982 only for reporting elimination of forgiveness of eligible primary residence indebtedness due to foreclosure of that residence you must only complete lines 1e and 2.

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Tax Relief Tip | Don’t Be A Victim!

November 18, 2010 By

Tax Relief Tip: Beware of Tax Scams

There is an official list of tax scams made available by the IRS known as the ‘dirty dozen list of tax scams’. It reveals phishing, schemes regarding return preparer fraud and the non-disclosure of offshore held income. Tax schemes are illegal and the consequences could be incarceration and fines for the scammer and/or taxpayer. The list is to help taxpayers recognize such illegal schemes.

There are return preparers who scam taxpayers. They inflate fees, take money from clients’ tax refunds and make unrealistic promises to get new clients. Hundreds of preparers have been court ordered to stop operating and endorsing deceit.

The IRS wants to better trust and compliance in the system of tax law and they have put into action certain steps for the new filing periods:

  • Paid tax preparers must be IRS registered.
  • They must have a PTIN (preparer tax identification number).
  • They must complete both proficiency tests.
  • They must keep up with ongoing professional education for paid tax preparers (excluding enrolled agents, attorneys and qualified public accountants).

Such steps ensure tax preparers’ service standards are raised and taxpayers are protected. The IRS benefits from better compliance.

The IRS shows no mercy to taxpayers, professionals, promoters and others who permit or assist in the abuse of unlawful offshore transactions for the sake of concealing income and evading tax. This includes offshore insurance plans, debit cards, private annuities, credit cards, employee-leasing schemes, wire transfer, private annuities and foreign trusts. The IRS encourages taxpayers with hidden offshore funds to volunteer their tax information to prevent criminal charges.

Taxpayers are duped into handing over financial and personal data online by a tactic called phishing. One tactic is to pretend to be the IRS. This scam usually increases during the filing period. Scam artists utilize faxes, phones, emails, fake websites and tweets to con taxpayers. They inform you of a tax refund in order to get you to hand over personal information. They do this to gain access to your credit cards, bank accounts and loan applications all in your name. Never open an attachment in an IRS email and an IRS website must only start with http://www.irs.gov. You can contact the IRS regarding phishing at phishing@irs.gov.

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IRS Tax Help: S-Corporation Clarification

November 17, 2010 By

IRS Tax Help

A small corporation that passes profits on to the owners and are not taxed in the same manner as traditional corporations are ‘small S-corporations’. It’s no secret the IRS is not happy with the amount of earnings taken by such owners. The IRS wants them to take a reasonable salary.

The benefit of an S-corporation is supposed to be owners taking a moderate salary with Medicare and social security kept and coordinated (like all other employees). If that salary was nearer to what is paid to an employee it would allow more of the earnings under Medicare and Social Security Benefits.

It seems Congress is reacting and making the situation even worse. They added a revision to HR 4213 – American Jobs and Closing Tax Loopholes Ac 2010. It subjects all profit of certain S-corporations to Medicare and Social Security. It is the small personal service corporations with the main asset of ability and staff and owner reputation under attack by the Act. Exactly how small must an S-corporation be i.e. how many workers?

This act seems unfair as it places a bigger tax burden on small business. For example, a small personal service business is targeted but not a larger retail store making the same profit. On the other hand, a larger taxable business with more staff is not liable to the requirements of the Act. It is not known why Congress targeted the smallest of businesses that don’t have the resources to contest the Act. They have not taken into account those small business owners who take a low salary and if audited would have to claim a larger salary and increase payment to Medicare and Social Security in any event.

The words ‘principle asset is the reputation and skill of three or fewer workers’ is problematic. What if a business’s name is not good due to poor service, are they let off the tax hook? Must only well managed business’s pay tax? At exactly what stage does a business have the right reputation, service and skills to become eligible for this tax?

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New IRS Tactic To Track Unfiled Taxes

November 16, 2010 By

IRS Has A New Way To Track Down Unfiled Taxes!

Recently, it has been announced that the IRS has a new plan up its sleeve in its efforts to track down individuals who have unfiled tax returns. This new idea involves using mortgage payments to find non-filers.

Self-employed individuals who have home with a mortgage with interest will be vulnerable to this new plan. The bank you pay your mortgage to will be required to report how much you are paying to the IRS. The IRS will then check if you have filed a tax return; if you haven’t, this will automatically be seen as suspicious! The IRS might conclude from the information given, that if you can make your mortgage payments, it is most likely that you have some form of income that you are not reporting.

Of course, if this plan is put into action, it will not be entirely reliable. There are always reasons that someone might have been unable to file a return (such as medical problems stopping them from being able to complete their tax return on time) and there are certain situations where mortgage payments can be made even if the individual has no taxable income (such as having savings which are being lived off of until a new job can be found). However, the IRS has done its research and it knows there are plenty of people out there who are paying mortgages and not filing tax returns despite having taxable income.

If you have unfiled returns, the best thing you can do is file them as quickly as you can and let the IRS know you made an error. It is against the law to not file a return, however the IRS will appreciate that you are filing the return, even if it is late, since this means you are at least admitting you owe them tax rather than hiding from them.

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IRS Tax Liens

November 15, 2010 By

IRS Tax Liens | You Have Rights!

It is known that the IRS does not always comply with its own rules for the notification of tax payers’ representatives of the filing of lien warnings. The IRS also does not comply with its legal needs to let tax payers know on time of the filing of tax liens. This information was made known by the Treasury Inspector General for Tax Administration.

Tax payers get a notification stipulating payment if there is a rebuttal to pay. Errant tax payers receive a Notice of Federal Tax Lien from the IRS to guard its assertions against them. Lien notifications prove the IRS’s precedence with tenable creditors for the property of the tax payers.

The IRS must send a written notice to tax payers within five business days of the lien filings at their last known address. This is a statutory requirement that is not always carried out by the IRS to affect a timely warning. A report did find out of 125 sample tax liens the IRS did mail all except two notices in a timely way. This led to the TIGTA calculating the possibility of 15,169 notices in the same period being mailed behind schedule. Out of 31 sample cases the IRS failed to notify tax payers’ reps of a lien filing.

TIGTA calculated 60,675 tax payers’ reps did not get lien notifications. This led to possible violation of tax payers’ privileges for their reps to be advised. There is no IRS process that is automated to keep tax payers’ reps directly up to date about lien notifications.

According to Inspector General J Russel George of TIGTA, ‘this is a problem, some tax payers’ right to appeal the lien filings may have been jeopardized, and other may have their rights violated when the IRS did not notify their representative of the lien filings’. TIGTA advocated the IRS pinpoint any proceedings required to put right the possible tax payer contraventions for the untimely lien notifications and guarantee fulfillment with undelivered lien notifications measures.

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