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Proposal to Permit IRS Help in Finding Missing Children

July 6, 2011 By

The Federal Law currently prohibits the IRS from sharing information with other Federal agents about a taxpayer’s tax compliance or any other taxpayer details. The spirit behind this law was to try and protect taxpayers from facing discrimination on tax-related grounds. Though privacy is highly valued and the law exists to protect people, there have been quite some disadvantages of having this law in place. One of the more recent topics addressing the downsides of this law was in a report by the Government Accountability Office (GAO) that showed that many of the 2009 to 2010 recipients of stimulus packages were actually tax defaulters. The main reason for this was that those who distributed the stimulus packages could not verify the tax-statuses of the recipients (whether or not they had outstanding tax debts) due to the limitations and restrictions entailing the aforementioned law.

A recent bill proposed in the House of Representatives seeks to change this law – at least concerning information that would help identify and locate missing children. If the bill were to pass become law, it would permit the IRS to release tax information about a missing child to agents, attorneys, and other legal personnel who would be working on a missing child case. This IRS help would be very valuable in such cases. Various children’s charities, government organizations, and child activists, including the National Sheriff’s Association and the National Center for Missing and Exploited Children, have supported the bill.

The introduction of the bill followed a report of a survey that showed a strong correlation between tax returns containing information about missing children and their whereabouts. The report was done by a treasury department in 2007 through a survey of 1,700 abduction cases (in which a third of these cases had tax returns filed containing the Social Security numbers of the abducted children). This means that such information could come in handy in assisting investigators to locate the whereabouts of abducted children because the returns will contain the address information.

Besides this proposed law, there have been other laws that have been passed towards assisting in the recovery of missing children. The Missing Children Act of 1982 generated a register of missing children, which was to be assiduously maintained by the FBI to help in investigations. The Missing Children’s Assistance Act of 1984 established a toll free line to aid in reporting of any information that would assist in cases of missing children. The Adam Walsh Child Protection and Safety Act of 2006 launched a sexual offenders’ registration policy. The Act also amended the penalties for exploitation and kidnapping crimes. Most would agree that privacy laws are very important, clear-cut, and valued. However, when it comes to certain sensitive situations, like missing and abducted children’s cases, one’s stance on the support for privacy laws may change and permit room for some “leeway” in the strict rules. Nevertheless, everyone will just have to wait and see if the bill should ever pass and if the IRS will ever be allowed to disclose taxpayer information to federal entities.

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Injured Spouse Relief: How Can the IRS Help You?

June 15, 2011 By

Injured Spouse Relief is an assistance program provided by the IRS to protect a spouse who filed a tax return jointly from being denied a rightful portion of refunds because of liabilities that are due by the other spouse. If you file a joint tax return, the refunds due from the tax return could be applied to past liabilities such as student loans and other federal debts that are not tax related. In other words, before you receive your refunds, Uncle Sam will make sure that you have no other outstanding debts yet to be paid. Any unpaid debts will be paid off with your refund money before the remaining amount reaches you. However, if the reductions on the tax refunds are wholly or partly due to the debts of only one spouse, the other spouse can apply for Injured Spouse Relief to not have their portion of the refund confiscated to satisfy or pay off the other spouse’s debts. The Injured Spouse Relief affects the distribution of refunds and is different from the Innocent Spouse Relief, which seeks allocation of a tax debt. There are several rules that apply for the qualification of an Injured Spouse Relief:

  • To qualify for the relief, you must have filed a joint tax return. The return must have tax credits, such as the Earned Income Tax Credit(EITC) that warrant for a tax refund.
  • To qualify for the relief, the tax refund must be applied to various financial obligations and the spouse seeking the relief must not be legally liable for these obligations. This way, the IRS can distribute the portion of the tax refund due to the “injured” spouse while the other portion of the refund is used to meet the outstanding financial obligations of the other spouse.
  • The spouse seeking the relief needs to apply for it through the IRS by filing Form 8379, “Injured Spouse Allocation Form”. This should not be confused with the Form 8857, “Request for Innocent Spouse Relief,” which is only used in the cases of Innocent Spouse Relief.
  • The Form 8379 can either be filed separately when an “injured” spouse finds out that his or her refunds are being applied to other spouse’s debts or the form can also be filed together with joint tax refunds. The form can be filed electronically through the e-file system if you decide to file electronic returns. On the other hand, if you are filing your tax returns on paper, attach the Form 8379 to your return – Form 1040 (or 1040A/ 1040EZ) – and indicate “Injured Spouse Application” at the top left corner of the tax return form.
  • When Form 8379 is filed separately, you need to indicate both the Social Security numbers of both spouses in the same way they appeared on the joint return in question and have the form signed (by the injured spouse).

For taxpayers living in a community property state, some more specific rules apply as indicated in the IRS Publication 555 – Community Property.

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Whistleblowers’ Rewards Collected from Past Due Taxes

June 10, 2011 By

Under the tax law, a whistleblower is entitled to a claim on the amount of tax that is collected by the IRS from a tax evader who is exposed from the information disclosed by such whistleblower. The practice of rewarding tax whistleblowers is not new; it dates as far back as 1867. The practice encourages the public to reveal information about tax cheats to the IRS. This volunteer disclosure program has enabled the IRS to crack down on a lot of tax cheats and recover large sums of money from past due taxes. It has also led to an increase in tax compliance, especially for large public taxpayers (like large corporations). Furthermore, various laws protect the whistleblower, such as the Federal False Claims Act.

2006 Whistleblower Amendments

The incentive to “whistle-blow” was significantly raised through amendments to the Tax Whistleblower Act, which were made in 2006. Under the amendments, any informant that supplies tips to the IRS in regards to the exposure of tax cheats is now entitled to a 15% to 30% reward of the funds collected by the IRS from the information provided. Funds collected include taxes due, penalties, and interest. Before these amendments, the IRS had the discretion on whom and how much compensation they gave to a whistleblower. However, with this ruling, the whistleblowers’ reward is guaranteed. The new rules for whistleblower are included in the Internal Revenue Code – Section 7623 (Whistleblower Rules). Under these rules, a whistleblower is entitled to 15-20% of the collected amount if the sum collected (including penalties and interest) exceeds $2 million. If the “whistle-blowing” involves an individual taxpayer as opposed to an organization, the individual must be earning over $200,000.00 to qualify for the guaranteed 15-20% reward rule. If a whistleblower meets these threshold requirements, he or she is legally entitled to appeal on the amount given in Tax Court. When it comes to the whistleblowers who disclose information on a tax cheat whose collected amount is lower than the limits mentioned above, they may receive an award of up to 15% with a maximum of $10 million. However, such a reward is at the discretion of the IRS and cannot be appealed in Tax Court.

Whistleblower Office

The new rules under the 2006 amendments have led to an increase in the amount of information being received by the IRS from whistleblowers. The IRS has even opened a Whistleblower Office that handles obtaining and recording information from such whistleblowers. You can provide information anonymously as well, though this means that you would be forfeiting the reward. The office receives information from whistleblowers and provides answers to whistle-blowing-related issues.

Withholding on Rewards

In 2011, the IRS announced that it would be withholding tax for the whistleblowers’ reward. Since the whistleblower compensation is considered income that is to be reported like any other, the IRS ironically takes back a part of the funds rewarded when the whistleblower pays taxes on the income. There have been arguments about this new decision, as the reward is not a wage or regular income that requires withholding. However, there is no legal limitation that keeps the IRS from doing this and therefore, such arguments and objections may not bear much fruit.

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What the IRS Wants You to Know About Getting Tax Help

May 10, 2011 By

If you need tax help but cannot afford to pay a preparer, the IRS and other organizations have made options available for you. The IRS wants you to file your taxes, but they do not want it to be an unnecessary burden.

Two IRS sponsored programs, the Volunteer Income Tax Assistance (VITA) program, and the Tax Counseling for the Elderly (TCE) programs offer free tax help to specific groups of taxpayers. VITA is available for taxpayers who earned less than $49,000 and most locations offer free electronic filing. TCE is for taxpayers who are 60 and over. There are more than 12,000 free tax preparation sites nationwide. VITA site information is available by calling the IRS toll-free number 1-800-906-9887or at http://www.irs.gov.

The IRS continues make these services more readily available by expanding its partnerships with community and nonprofit organizations that perform tax preparation services. For example, in conjunction with the TCE program, AARP offers the Tax-Aide free tax preparation program at over 6,000 sites. At these sites, AARP Tax-Aide volunteers are trained and certified to provide assistance to taxpayers with low-to-moderate income, paying special attention to those 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 (888-AARPNOW) or visit www aarp.org.

Community volunteers in these programs are trained to help specifically with several credits. They focus on popular credits such as the Earned Income Tax Credit, the Child Tax Credit, and the Credit for the Elderly. Many sites also have volunteers who can help people who have limited English skills, which may make it hard for them to understand complicated tax policy.

In addition, the IRS has partnered with the military to provide the Armed Forces Tax Council which consists of the tax program coordinators for the Army, Navy, Air Force, Marine Corps, and Coast Guard. The Armed Forces Tax Council trains its volunteers in military-specific tax issues including combat zone tax benefits. These programs are available for military personnel and their family members.

To find out where the nearest tax assistance location is to you, check with a community organization or your local city information hotline. The IRS posts this information on its website so that you can get the help you need to fill out your income tax return without the burden of having to pay for it. It is extremely important that you fill out your forms correctly and include the necessary supporting documentation in order to avoid tax problems in the future.

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The Current State of Federal Income Tax Reflects Depression Era

May 4, 2011 By

Most of the workforce in the United States were not yet born by the time of the Depression days. Therefore, much of what happened in the 1930s is more of a tale. However, after the 2007 recession that hit the globe, we are starting to see some signs that seem to replay those dark days. One of these signs is the deficit that exists between the federal income tax and the government payments to households in terms of unemployment, reduced income taxes and other government programs targeted at increasing household income. The only other time that this situation happened was between 1931 and 1936. This was done to try and increase the purchasing power of the household and consequently re-energize the economy. However, the government of the day reverted the government-household deficit in 5 years. Most economists today see this reversal too sudden and say that this move was what led to the secondary recession that happened between 1937 and 1938 – only when the economy seemed to start reviving. Our current government needs to borrow a leave from the mistakes of the past administration.

Why Does the Government Play Out This Payment Deficit?

Whenever the economy takes a down turn as was experienced in the recent past, one of the things the government does to jump start the economy is to increase the spending power of the households. The increased spending power comes with a multiply effect that ripples into more household purchases, more production, more support services, and the economy is restored. The way the government does this is by reducing the federal income tax, paying out more in unemployment benefits, educational assistance, disability insurance, and in Social Security. This government income support is referred to as transfer payment.

Where Are We Today?

In 2010, the government transfer payment exceeded the income taxes by 125 billion dollars. Unfortunately, a lot of this cash deficit that was intended to boost consumer spending was mopped out by increasing inflation caused by raising energy costs. The drastic raise in 2011 first quarter prices to an annual rate of 6.1% has in fact reversed all the household income increases for the last quarter of 2010. The impact of more expensive fuel is projected to have an even more impact on the income in the coming days and is expected to drag the economy further. This is coupled by rising unrest in Middle East and impact of the Japan earthquake on the US economy.The increased direct payments by the government that stands at $500 billion and the reduced taxes totaling $312 billion since the recession have left the US Government with a huge deficit. There is growing pressure on the Obama Administation to reduce government spending to manage this growing deficit. However, economists warn that a reduction of the transfer payment as a government measure to curb the deficit will only result in a secondary recession as was experienced in the days of the Great Depression. Even with transfer payments such as unemployment benefit expected to lapse, economists insist that the government needs to increase payment programs and support household income until a more stable economy is achieved.

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Do You Ever Wonder Where Your IRS Tax Money Goes?

April 20, 2011 By

Shoppers who are cautious always need to know what they are making payments for. It is for this reason, that some Washington D.C. thinkers and members of Congress are putting forward a proposal requesting Uncle Sam to give taxpayers an itemized receipt once they file their IRS taxes.

Majority of the taxpayers, claim that they never receive any information on where their taxes go. This consequently leads to misguided beliefs concerning how we can best seal the national budget gap. For instance, recent research found that Americans hold the belief that a quarter of the total of federal spending is dedicated to foreign aid. However, an itemized receipt would depict that only 0.6 percent of the income of a normal middle class family goes to foreign aid.

It is argued however, that breaking out individual tax contributions would help correct this kind of spending delusion. A receipt would not provide any solutions. Instead, it would suggest hard numbers on governmental plans, which most people perceive to be abstract. This should make it much simpler for legislators and taxpayers to discuss tax expenditure and budget cuts that are required to effectively cut down the federal deficit.

Third Way has invented a calculator which gives taxpayers an idea as to where their taxes end up. This concept convinced a group of lawmakers to establish a law that would generate a taxpayer receipt. This is how advocates of taxpayer receipts explain the process:

Once you have filed your taxes, you would obtain an itemized receipt by e-mail or by regular mail, depending on what method you used to file your taxes.

The single-page manuscript would contain major issues like Social Security, defense, and interest on the debt. It could also provide taxpayers a link to a website they could search for more information concerning federal expenditure.

When it comes to the cost of this receipt program, it is approximated that the IRS would end up spending up to $15 million to mail the receipts; the price of receipts sent by e-mail would be insignificant. The cost of website maintenance would also be very low. The payoff however, would cause less uncertainty concerning the federal budget.

Having read this information, are you interested in obtaining a receipt depicting how each and every penny of your taxes is spent? If it also showed that most of your taxes were used in a government program that you fully supported, would this receipt play a part in changing your position of thought on cuts to the program?

Do not be left in an empty pool of information. Keep track of the latest tax tips and news and make your decision.

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Groupon and Tax Relief?

April 12, 2011 By

Lots of social coupon sites have been popping up lately – and gaining popularity as a great way to save money. Usually, they work by getting people to sign up for local coupon alerts, and then they make money by offering consumers deals ahead of time for certain amounts. For example you may be able to buy a pass for a $125 facial treatment at a spa for $50, take it to the spa, and reap the benefits. However, these coupons say up front that taxes may apply; you may not get tax relief. In some places, when you take your coupon to the register, they’ll tell you that you still owe a few bucks in taxes. So how do you know if that $50 value really means you pay $50?

Two of the most popular social coupon sites are Groupon and Living Social. These sites do not collect taxes at the point of purchase. They also tell you that the coupons do not include taxes unless the merchant says otherwise. In addition, in the Merchant Self-Service Agreement on Groupon, it states the merchant “shall be responsible for paying all sales and use taxes related to the goods and services described in the offer.” However, resolution of what that actually means is likely to end up in court, says Veranda Smith, interim executive director of a group representing state tax officials, the Federation of Tax Administrators.

So why is this such a big deal? Well, the tax administrators in California, Florida, and Illinois (states with some of the highest populations in the U.S.) said that they want a piece of the face value of the coupon. What they mean is, from the merchant they want their percentage of the $125 actual value of that facial, not of the mere $50 you paid. However, this is contrary to the policy that applies if a merchant actually creates their own coupons. If Applebee’s says you can get two meals for $20 which would normally cost $35, then Applebee’s only pays taxes on the $20 you paid. Since sales tax rates in some cities like Chicago and Los Angeles have reached a whopping 9.75%, this policy can make a huge difference.

Many states differ in their reaction to these types of social coupon discounts, too. For example, Texas usually embraces the discounts and only collects sales tax on the $50 that changes hands, not the $125 that might have without the coupon. However, even Texas’s coupon-friendly policy does not encompass Groupon-style rates. If the merchant in Texas allows you to cover the tax with your Groupon, he’ll end up paying some of the tax bill out of pocket. Some states have not yet come to a public opinion, such as New York.
While these decisions are still fresh, there is a legal battle brewing over the policies that should apply to social coupon discounts.

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Federal Tax Help for Taxpayers Who Do Not Have Bank Accounts

April 7, 2011 By

For the first time, federal tax help for taxpayers who do not have bank accounts is available for tax returns with the new Visa debit card just in time for the 2010 year. January 2011 has made numerous changes in the regards to the IRS Tax Laws, and although some of the new tax laws have caused delays for some taxpayers, for others, this is welcoming good news.

Paying taxes owed to the IRS (Internal Revenue Service) with a credit card has been a long accepted practice for some taxpayers over the years. With the new Visa debit card that came out, the IRS is able to issue refunds to taxpayers in the low-middle class bracket who do not own bank accounts. Rather than sending a paper check through the mail, which causes time delays, the IRS is now able to issue refunds at a faster rate thanks to the new Visa debit card.

For an example; if a taxpayer were to be issued a refund of $3,200.00 from the IRS, the funds would be electronically issued into the Visa debit card and sent to you. The card can be used daily for all sorts of transactions such as paying bills, getting direct deposits (from wages or other means of depositing money), and for cash withdrawals, just like any other bank debit card for those that own bank accounts!

A Visa debit card saves time, saves fees that could occur on normal credit cards, and is a safe way to keep money with oneself. The card issued through the IRS is free and most transactions, deposits and withdrawals are also free of charge (even paying bills online is free).

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Prisoners Get More Income Tax Relief than they are Due

March 14, 2011 By

Most would agree that privacy matters and stealing is harmful. Apparently, a lot of prisoners have created a conflict between these two “laws of life” when it comes to filing federal income taxes.

Over the past few years, federal inmates have been taking advantage of “the system” and filing false income tax returns, receiving income tax relief and returns which they are not entitled to. The IRS recognized this problem and put a price tag on it of approximately $295 million in false claims, meaning it costs more honest taxpayers more money. Over the last five years, the number of fraudulent income tax returns filed from prison has tripled despite some efforts to put a stop to it.

The IRS has been hesitant to exchange information with the Federal Bureau of Prisons for fear of lawsuits based on prisoners’ privacy, even after a law written in 2008 gave the IRS the authority to give tax information to the Bureau. The Bureau was still worried that there would be privacy issues and decided to get the Justice Department involved. The IRS was not happy about this because the information which they had just given to the Bureau would then be shared with another party.

However, the IRS and the Bureau of Prisons seem to have reached an understanding, and signed a memorandum to prove it. Their “memorandum of understanding” indicates that the two departments will cooperate in trying to bring an end to the actions of these felons.

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Tax Relief: Tax Law Adjustments Benefit Your Pocket

April 23, 2010 By

It is time to get your Tax Form 1040 organized. Approximately forty percent of US taxpayers will file their tax return this month. There are adjustments to the tax law bringing down the amount you hand over to Uncle Sam and bringing you some tax relief.

Recently there were three adjustments/revisions to first-time and move-up homebuyer credits. The latest is most beneficial. The American Recovery and Reinvestment Act of last year mean tax owed can be brought down dollar-for-dollar. This is a money-back credit and you may be eligible for a refund even with a tax bill of zero. The first-time homebuyer’s credit was amplified to $8,000. Longtime residents with a minimum of five straight years prior to purchasing a new home, get up to $6,500. A property owner must qualify to receive credit.

New homeowners installing Energy Star rated units can get a tax credit of $1,500 when filing a return. For example, energy saving air conditioners and furnaces are eligible. This credit is available in 2010.

By returning a Schedule L you can claim for sales or excise taxes spent on new vehicles. This is possible even if you claim regular tax deductions. The new Schedule A will continue to be used for deductions by itemizers. Your deduction depends on earnings and cost of a new vehicle. A lot of people stand to benefit.

The American Opportunity Credit substitutes the Hope Education Credit. The AOC provides a student with credit of $2,500. You can include expenses for the first four years of post-secondary studies. It’s possible to get back a maximum of $1,000 without owing taxes because credit is refundable.

Those who lost employment the previous year and relied on unemployment reimbursements get the initial $2,400 free of tax. If both spouses lost their jobs and both received unemployment reimbursement each is entitled to $2,400 free of tax totaling $4,800 per married couple in 2009.

Americans who donated to the Haiti disaster have the opportunity of claiming the write-off on 2009 or 2010 tax return if itemized.

Claims for standard deductions carry more items and they must be accompanies with a Schedule L. The new items are:

Single filers – $500 and joint filers $1,000 for state or local real estate taxes

Form 4684 for net disaster

State or local sales or excise taxes for new vehicles

The above is in addition to the existing old items:

Heads of household – $8,350

Eligible widowers and widows and married couples filing a return jointly – $11,400

Singles and married individuals filing a separate return – $5,700

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