IRS Needs to Better Manage Mailing Costs

The IRS stopped mailing out tax forms this year in response to budget cuts,but according to a new government report the agency still needs to work on a long-term strategy for reducing mailing costs.

Accounting Today reports:

The Treasury Inspector General for Tax Administration noted that that in response to cost savings proposed in its fiscal year 2011 budget request, the IRS formed task forces and recommended several actions to identify ways to achieve cost savings. However, the task force proposal did not include documentation to show the methodology used to make the proposals, how the estimates were calculated or validated, or how the IRS would measure the results or the cost savings of the proposals.

The task force believed that reducing the mailings of forms instead of eliminating them was a more cautious approach, affecting fewer taxpayers in the short term. Nevertheless, IRS executives decided to eliminate all mailings of tax packages for the U.S. individual income tax return (Form 1040), partnerships, and corporations in fiscal year 2011 in order to meet the cost savings presented in the FY 2011 budget request. But the report noted that this move could increase the IRS’s burden and reduce compliance for those taxpayers who rely on receiving these packages by mail.

As the IRS moves forward with the proposed cost savings or pursues other methods of saving publishing and mail costs, it needs to implement sufficient controls and procedures to ensure the decisions are documented and that the data used are accurate and complete, the report noted. In addition, these controls should be part of a long-term strategy to continually assess publishing and mail costs and identify opportunities for cost reductions and efficiencies.

More here...

Judge: No Day Trading When You Owe The IRS

A tax court judge ruled that the IRS could refuse to settle the back tax liability of a man who was hoping to day-trade his way out of debt. The lost investment was seen as a dissipated asset, causing the IRS to deny his offer in compromise.

Forbes.com reports:

Larry E. Tucker owed nearly $15,000 in back taxes for 1999, 2000, 2001 and knew he would have a balance due for 2002 when he received an advance in January 2003, for freelance web design work he would be doing later that year. So he decided (he told the IRS and the court), that he’d try to pay off both the IRS and his other creditors by day-trading his way to profits.

He deposited $23,700 in an E*Trade account and later, in response to margin calls, put in another $21,000. By the time Tucker threw in the towel on day trading in April 2003, he had lost $22,645 of his stake. He used what was left mostly for basic living expenses that year.

Later, when Tucker tried to settle his growing tax debt through what is known as an offer-in-compromise (OIC), the IRS turned him down on the grounds that he had “dissipated” through day trading assets he could have used to pay his tax bill in full. In his opinion here, Tax Court Judge David Gustafson concluded that Tucker’s “foray into day trading was purely speculative” and that the IRS was within its rights to deny the OIC.

Carlton M. Smith, Tucker’s attorney, said Wednesday morning that he and Tucker plan to appeal both this week’s decision and an earlier July 2010 Gustafson decision in the case which rejected a constitutional challenge to the way the IRS collections appeals officers who heard Tucker’s case were appointed.

More here

IRS Mobile App Gains 245,000 Users in Two Months

After launching their official IRS2Go mobile application less than two months ago, IRS officials have announced that over 245,000 people have already downloaded the app. Wow, nice job IRS!

FCW reports:

The IRS developed the mobile application to be proactive in increasing service to taxpayers and in taking advantage of new media platforms, said Terry Lemons, communications director for the IRS.

IRS2Go launched on Jan. 15 and has signed up 110,000 iPhone users and 135,000 Android users, he said.

“We have gotten a very good response,” Lemons said at the General Services Administration’s Government Web and New Media Conference on March 17. “The reviews have been very positive.”

The tax agency decided to develop a mobile application to provide additional service to people who want to know the status of their tax refund, specifically whether or not the tax form was accepted and the approximate refund issuing date. About 75 percent of the people who file taxes receive refunds and the majority who use the IRS website and phone services are calling to ask "Where is my refund?" Lemons said.

Read more here

IRS's Lack of Internal Controls Puts Confidential Taxpayer Info at Risk

A couple of days ago the Government Accountability Office (GOA) released their newest report: IRS Needs to Enhance Internal Control over Financial Reporting and Taxpayer Data (GAO-11-308). Check out the GOA's findings below, or download a PDF of the full report here. This is absolutely terrifying when you think of all the personal info we give the IRS each year. Come on, IRS, get it together!

Although IRS made progress in correcting previously reported information security weaknesses, control weaknesses over key financial and tax processing systems continue to jeopardize the confidentiality, integrity, and availability of financial and sensitive taxpayer information. Specifically, IRS did not consistently implement controls that were intended to prevent, limit, and detect unauthorized access to its financial systems and information. For example, the agency did not sufficiently (1) restrict users’ access to databases to only the access needed to perform their jobs; (2) secure the system it uses to support and manage its computer access request, approval, and review processes; (3) update database software residing on servers that support its general ledger system; and (4) enable certain auditing features on databases supporting several key systems. In addition, 65 of 88—about 74 percent—of previously reported weaknesses remain unresolved or unmitigated.

An underlying reason for these weaknesses is that IRS has not yet fully implemented key components of its comprehensive information security program. Although IRS has processes in place intended to monitor and assess its internal controls, these processes were not always effective. For example, IRS’s testing did not detect many of the vulnerabilities GAO identified during this audit and did not assess a key application in its current environment. Further, the agency had not effectively validated corrective actions reported to resolve previously identified weaknesses. Although IRS had a process in place for verifying whether each weakness had been corrected, this process was not always working as intended. For example, the agency reported that it had resolved 39 of the 88 previously identified weaknesses; however, 16 of the 39 weaknesses had not been mitigated.

IRS has various initiatives underway to bolster security over its networks and systems; however, until the agency corrects the identified weaknesses, its financial systems and information remain unnecessarily vulnerable to insider threats, including errors or mistakes and fraudulent or malevolent acts by insiders. As a result, financial and taxpayer information are at increased risk of unauthorized disclosure, modification, or destruction; financial data is at increased risk of errors that result in misstatement; and the agency’s management decisions may be based on unreliable or inaccurate financial information. These weaknesses, considered collectively, are the basis for GAO’s determination that IRS had a material weakness in internal control over financial reporting related to information security in fiscal year 2010.

Hat Tip: TaxProf

IRS Debunks Frivolous Tax Arguments

Over the weekend the IRS released a 2011 version of its yearly report addressing common frivolous arguments opposing compliance with federal tax laws. Remember, pretty much everyone who earns money is required to pay taxes. If you don’t, your life can become very complicated, very quickly.

Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 84-page document, The Truth About Frivolous Tax Arguments.

The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

The 2011 version of the IRS document includes numerous recently decided cases that continue to demonstrate that frivolous positions have no legitimacy.

Frivolous arguments include contentions that taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment; that the only “employees” subject to federal income tax are employees of the federal government; and that only foreign-source income is taxable.

More here

IRS Eases Up On Tax Debtors

A couple of days ago the IRS announced five major changes to its tax debt resolution programs, including lien threshold increases, and new rules for IRS payment plans. These changes are a long time coming and will make a big difference for the thousands of people who owe the IRS.

From SF Gate.com:

Lien threshold raised

For starters, it generally won't file a tax lien against people who owe less than $10,000 in back taxes, twice the current threshold of $5,000. People who have a history of tax avoidance might not qualify. A tax lien gives the IRS a legal claim to a taxpayer's current and future property for the amount of an unpaid tax debt, but it is not filed until the IRS has made repeated attempts to collect from a taxpayer.

"Raising the lien threshold keeps pace with inflation and makes sense for the tax system," Shulman said. "These changes mean tens of thousands of people won't be burdened by liens, and this step will take place without significantly increasing the financial risk to the government."

Tax liens withdrawn

The IRS will also withdraw a lien once full payment of taxes is made if the taxpayer requests it. That means it will disappear from the taxpayer's credit report, according to Rod Griffin, director of education with the credit reporting firm Experian.

Today, after a tax debt is paid, the IRS releases a lien. "At that point we no longer have a claim to any asset that the lien is attached to," Shulman said.

Shulman said that "from our standpoint," a release and a withdrawal are the same thing, but some taxpayers have requested the change because they believe a withdrawal makes it easier to clean up their credit record and get a job.

Continue reading at SF Gate.com...

I Survived an IRS Tax Audit

As one taxpayer explains, visiting an IRS building for an audit is pretty much like visiting any other anonymous corporate office buildings. Except that it might result in you writing a fat check to the government.

CNN reports:

My road to this second-floor office started with a standard white envelope emblazoned with the dreaded words: Internal Revenue Service. When it arrived at my house in December, I found a five-page letter explaining that my 2008 taxes had been selected for audit. I needed to call "WITHIN 10 DAYS to schedule an appointment."

Terror.

About 1.6 million people found themselves in this situation last year, according to the IRS. That means 1.1% of all filers drew the short end of the stick -- and about 300,000 of them were selected because of deductions related to a business venture.

That's why I got called to answer for myself.

My husband had an art gallery in Denver and the IRS had a few questions about his 2008 Schedule C, the form where you report income and deductions for your business. I'd filed the form for him, along with the rest of our taxes, using TurboTax.

Thankfully, when that big scary letter arrived in the mail, it told me exactly what expenses were in question -- all $23,000 of them. That was a relief: I always thought I'd have to show up and answer questions about any part of the return, rather than being able to prepare.

In our case, the IRS wanted to know about the rent and utilities he paid for the building, as well as a line item for "vehicle deductions."

So I dutifully called Ms. Green, the name at the top of the letter. The problem was, I told her, it was my husband's business. And we're in the middle of a divorce.

Read more here

IRS Holds Saturday Open Houses on 02/26 and 03/26 to Help Taxpayers

Yesterday the IRS announced nearly 100 IRS offices will be open this Saturday, and again on March 26th to provide assistance to taxpayers. Excellent news for taxpayers who desperately need guidance, but strangely enough, work during business hours.

From IRS.gov:

"We are opening our doors on these Saturdays to help taxpayers who may not have a chance to seek assistance during the work week," said IRS Commissioner Doug Shulman. "If taxpayers need help preparing their tax returns or have an account question, we encourage them to visit one of our open houses."

On Saturday, Feb. 26, and Saturday, March 26, the IRS offices will be open from 9 a.m. to 2 p.m. local time. IRS staff will be on site to help taxpayers work through issues. More than 35,000 taxpayers attended similar events last year resolving over 95 percent of their issues.

During the open-house hours, IRS personnel will be available to provide services such as tax return preparation, assist with account questions and help with a variety of other issues. IRS offices in 10 locations will also offer free seminars designed to provide information on new tax laws affecting federal tax returns and detail other services provided by the IRS.

In addition to IRS help, community organizations partner with the IRS. Volunteer Income Tax Assistance (VITA) programs assist people who earned $49,000 or less, and Tax Counseling for the Elderly (TCE) programs assist individuals age 60 and over with their 2010 income tax return preparation and electronic filing. Many of these sites have Saturday hours while others offer assistance at various times during the week. Taxpayers can call 800-906-9887 to locate partner sites in their area.

Continue reading at IRS.gov...

4 Bankers Charged with Hiding $3 Billion in Assets from IRS

Four bankers who are part of the Zurich-based Credit Suisse Group were indicted yesterday after allegedly helping American taxpayers cheat the IRS out of $3 billion. Warrants were issued for all four (Marco Parenti Adami, Emanuel Agustoni, Michele Bergantino and Roger Schaerer), who are thought to be in Switzerland.

From Huffington Post.com:

Prosecutors allege in the indictment that the conspiracy goes back as far as 1953. The indictment alleges that as of late 2008 Credit Suisse was maintaining thousands of secret accounts for U.S. customers with as much as $3 billion in assets.

The indictment itself – obtained by federal prosecutors in Alexandria, Va. – does not specify the bank as Credit Suisse, but a law enforcement official with knowledge of the case confirmed the bank's identity to The Associated Press. The official insisted on anonymity because he was not authorized to speak publicly on the case.

Public documents unconnected to the case also identify some of the bankers as Credit Suisse employees.

Credit Suisse itself is not charged in the indictment. But the indictment states that bank officials "knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes."

The indictment claims the bankers discouraged customers from participating in a 2009 amnesty program offered by the Obama administration, in which U.S. taxpayers could avoid criminal prosecution if they came forward with information on their secret accounts and agreed to pay a penalty.

In the fall of 2008, Credit Suisse began exiting the U.S. cross-border banking business, and the bankers advised clients to transfer their accounts to other Swiss banks that did not operate internationally and were therefore not subject to anything but Swiss law.

Read more here

IRS Can’t Stop Paying Billions in Bogus EITC Claims

According to a from the Treasury Inspector General for Tax Administration the agency made little improvement in reducing improper Earned Income Tax Credit payments. Government estimates suggest that up to 28% of erroneous EITC payments are made each year, costing taxpayers between $11 and $13 billion per year.

Accounting Today reports:

This is an outrageously high improper payment rate," said Sen. Chuck Grassley, R-Iowa, in response to the report. "It’s higher than Medicare’s improper payment rate. The taxpayers can’t sustain a failure rate of one-fourth and on the way to one-third. For more than eight years, the IRS hasn’t made a dent in this problem. It’s more than enough time to figure out a way to fix it. The report says the IRS doesn’t have the resources to go after all of the improper payments in this program. This is a good indication of how the IRS is poorly equipped to handle the huge new responsibilities of health care reform. If the IRS can’t handle its existing responsibilities, it won’t be able to handle its new responsibilities under health care reform. Maybe if the White House focused more on what’s already owed, it wouldn’t need to propose tax increases, such as the one on employers to pay for unemployment benefits just disclosed this week.”

Executive Order 13520 requires the IRS to intensify its efforts and set targets to reduce EITC improper payments and to report its activities to the Office of Management and Budget and TIGTA.

The order also requires TIGTA to assess the level of risk associated with the EITC program, determine the extent of oversight warranted and provide the IRS with recommendations to reduce EITC improper payments.

In its June 14, 2010 report to the OMB and TIGTA, the IRS did not provide any quantifiable targets to reduce EITC improper payments. IRS management noted that it did not set reduction targets because of the need to balance its enforcement efforts among different taxpayer income levels.

Continue reading at AccountingToday.com...

Second Special Voluntary Disclosure Initiative Opens

The IRS announced another round of special voluntary disclosure for people hiding income outside the US. The initiative is designed to bring offshore money back into country. Taxpayers with undisclosed income in offshore accounts have until August 31 to get current on their taxes. While they will have to pay penalties, I guarantee it is better to rat yourself out than to have the IRS find you…

IRS.gov reports:

A special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.

“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing,” said IRS Commissioner Doug Shulman. “This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”

The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. The first special voluntary disclosure program closed with 15,000 voluntary disclosures on Oct. 15, 2009. Since that time, more than 3,000 taxpayers have come forward to the IRS with bank accounts from around the world. These taxpayers will also be eligible to take advantage of the special provisions of the new initiative.

“As I’ve said all along, the goal is to get people back into the U.S. tax system,” Shulman said. “Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system.”

The new initiative announced today – called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) -- includes several changes from the 2009 Offshore Voluntary Disclosure Program (OVDP). The overall penalty structure for 2011 is higher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting. However, the 2011 initiative does add new features.

Continue reading here

2011 Offshore Voluntary Disclosure Initiative FAQs

The IRS put together a list of frequently asked questions about the offshore voluntary disclosure initiative. Check out a few below, or the full list at IRS.gov.

1. Why did the IRS announce a new special offshore voluntary disclosure initiative at this time?

The IRS’s prior Offshore Voluntary Disclosure Program (2009 OVDP), which closed on October 15, 2009, demonstrated the value of a uniform penalty structure for taxpayers who came forward voluntarily and reported their previously undisclosed foreign accounts and assets. Not only did the initiative offer consistency and predictability to taxpayers in determining the amount of tax and penalties they faced, it also enabled the IRS to centralize the civil processing of offshore voluntary disclosures. Therefore, it was determined that a similar initiative should be available to the large number of taxpayers with offshore accounts and assets who applied to IRS Criminal Investigation’s traditional voluntary disclosure practice since the October 15 deadline. This new initiative, the 2011 Offshore Voluntary Disclosure Initiative (2011 OVDI) will be available to those taxpayers and other similarly situated taxpayers who come forward and complete all requirements on or before August 31, 2011.

2. What is the objective of this initiative?

The objective remains the same as the 2009 OVDP – to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws.

3. How does this initiative differ from the IRS’s longstanding voluntary disclosure practice or the 2009 OVDP?

The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation whereby CI takes timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

This current offshore initiative is a counter-part to Criminal Investigation’s Voluntary Disclosure Practice. Like its predecessor, the 2009 OVDP, which ran from March 23, 2009 through October 15, 2009, it addresses the civil side of a taxpayer’s voluntary disclosure by defining the number of tax years covered and setting the civil penalties that will apply.

Continue reading at IRS.gov...

Another Good Reason to Hate the IRS

As if anyone needs yet another reason to hate the IRS...

William P Barret of the Forbes.com blog has put together the following article on the legal battle between Robert Coleman and the IRS, and why taxpayers have one more reason to despise the federal collection agency.

From Forbes.com:

You don’t have to be a supporter of the Tea Party to hold a dim view of the Internal Revenue Service. Still, we’re going to tell you about a case that will make your blood boil.

The agency told Robert Colman of Santa Monica, Calif. he had no claim to a 15% informant’s reward after reporting his 90-year-old mother was embezzled of $1 million by a Los Angeles accountant not paying taxes on his ill-gotten loot. But the feds told Colman–in writing–he could appeal the whistleblower bounty denial by suing in the U.S. Court of Federal Claims. Yet when Colman did just that–after the accountant pleaded guilty to a tax felony involving non-reporting of the very same money–the government said Colman had no right to sue.

Astonishingly, the IRS won.

The same court, which is based in Washington, D.C., just ruled that Colman was given very bad advice but that the federal laws establishing the tribunal did not give it jurisdiction over this kind of claim when Colman sought his reward in 2003. Judge Thomas C. Wheeler wrote he was “troubled” by the IRS written assertion that Colman could sue followed by the later denial but that a party cannot confer jurisdiction upon a limited-jurisdiction federal court simply by writing that it exists. “The public rightly should expect better from its federal agencies,” he wrote. But “the parties are powerless to create jurisdiction by consent.”

According to court records, the accountant in the case, Steven Krell, who was also a lawyer, later pleaded guilty to state grand theft charges involving Colman’s mother and one other person. Besides making what was described as “significant” restitution, he served some jail time, giving up his law and accounting licenses.

Continue reading at Forbes.com...

10 Free Mobile Tax Apps to Download This Tax Season

Last week the IRS announced they had launched a mobile application, which got me thinking about all the free tax apps available for smart phones these days. Isn’t it cool how technology changes how we think about every aspect of our lives? So, what other free apps are out there, check out my top 10:

1. The IRS's App

Last week the IRS unveiled their new IRS2Go mobile app for iPhones and Androids. It allows you to check your refund status from your smart phone and get access to IRS tips. Your tax dollars went to creating it, so you might as well download the IRS's official mobile app.

2. Federal Tax Estimator 2010

This app by Nate Ram has been reviewed on the CBS Tech Talk show. The app lets users estimate their federal tax liability. It supports all filing status options, allows for multiple W-2 forms, tracks dependents and unemployment benefits, storing all data on your mobile phone.

3. Tax Reference 2010

This Chesnut designed application provides you with a wealth of tax information at your fingertips including corporate tax rates, retirement contribution limits, itemized deductions, and so much more. Definitely a great app to use for tax planning all year round, and best of all, it's completely free!

4. iTaxMama

Created by Tax Anxiety Inc., this app helps keep your tax due dates organized by providing an easy to use tax planning calendar. It includes reminders for quarterly tax payments, tax filing deadlines, and has been fully updated for this tax season.

5. FiCal

FiCal by HCL Technologies is more than just a tax planning mobile app. In addition to estimating your taxes, it also helps with debt reduction, financial savings, and monthly budgeting.

6. MileBug

Unfortunately only the "lite" version of this app by Izatt Internation is free, but even this basic edition can be extremely useful for anyone tracking their mileage, Including business owners and anyone who drives in the course of volunteering for a charitable organization.

7. Easy Books

This bookkeeping application keeps track of accounts, statements, invoices, and more. It’s perfect for business owners, producing full profit and loss statements that can be imported into a spreadsheet on your computer.

8. MyTaxBack

This app helps you find out if you qualify to claim the Earned Income Tax Credit. This is such a valuable app because the EITC is notoriously underclaimed, at the same time it is one of the most abused tax breaks. So a free, easy-to-use interface – available in both English and Spanish– is an incredible find. Check your mobile carrier's app store for more information.

9. Box.net

I first mentioned Box.net when I held a Twitter and Facebook contest a few months ago. It is a free app that lets you share, manage, and access all of your documents from your phone, like a virtual file cabinet. The personal edition is free, but they also have paid options if you plan to use the app to manage business documents.

10. Square

Square is another app that I’ve mentioned on my blog before. It was created to help people easily accept and make payments through most mobile devices, super convenient for small business owners. Square also organizes your receipts, and provides you with handy reports, especially useful during tax season.

Oprah Hates Writing Checks to the IRS

During her interview with Piers Morgan, Oprah admitted that the most difficult check she has to write each year goes to the IRS. Apparently her accountants bring tequila when it's time to write the checks to Uncle Sam. Whatever gets you through the night, Oprah!

Accounting Today reports:

“It would knock your socks off,” she told Morgan. “Millions are going out.”

Morgan asked if that was painful. “The most pain I feel — and my accountants will tell you this — is every time I write a check to the IRS, it’s a ceremony. For years they came in with wine. Now they come in with tequila. It’s a tequila-signing ceremony.”

Morgan asked her what was the most painful check she ever had to write to the IRS, but Winfrey cannily ducked the question, teasing Morgan, “You’re good. You think I’m going to give you the number. No, no, no, no, no.”

Morgan noted that Forbes magazine estimates that Winfrey is worth $2.7 billion, and asked if the figure was accurate. She responded, “I knew you were going to go there sooner or later. I’m not sitting around counting it.” However, she added that she knows how much she’s worth “because I already had counted it.”

Read more here

IRS Launches the IRS2Go App for iPhone and Android

The IRS is going mobile! Taxpayers can now check their refund status, and get tax information from their smart phones!

In their newest press release the IRS unveiled IRS2Go, its first mobile application that for devices like iPhones and Androids.

"This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it," said IRS Commissioner Doug Shulman. "As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information."

The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.

Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

"This phone app is a first step for us," Shulman said. "We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers."

Read more at IRS.gov

IRS Targets Income Tricks

Tax avoidance: Legal. Tax evasion: illegal. Seems pretty clear, but some classic “tricks” to reduce tax liabilities are coming under fire. The most recent: funneling your wages through an S Corporation to avoid payroll taxes.

From the Wall Street Journal:

There's a saying: Pigs get fed and hogs get slaughtered. The Internal Revenue Service surely hopes that includes tax hogs.

That is the message of a recent U.S. district court case won by the IRS against David Watson, a CPA in West Des Moines, Iowa. At issue: a common tax-cutting maneuver available to the owners of millions of closely held businesses.

The case, David E. Watson P.C. v. U.S., revolved around Mr. Watson's low pay as the sole owner and shareholder of a so-called S Corporation. Such companies, often called "Sub-Ss" after the subchapter of the tax code governing them, is a popular choice of entity for private firms. Unlike C corporations, Sub-Ss have no more than 100 shareholders, and they pass profits to owners without an extra layer of tax. There are nearly 4 million Sub-Ss in the U.S. today.

Mr. Watson's Sub-S was, in turn, one of four principals in LWBJ, an accounting firm. According to the decision, the firm made profit distributions of $203,651 and $175,470 to Mr. Watson through his Sub-S for 2002 and 2003, respectively, the years in question.

Mr. Watson, who had a graduate degree in tax and 20 years' experience, received only $24,000 of salary for each of those years, far less than the $40,000 a year earned by recent graduates in accounting with no experience, according to one expert for the IRS.

Read more here

Average Tax Refund in 2010: $3,003

According to new figures, the average taxpayer received a refund of $3,000 last year, which is up 5% from the previous year. Overall the IRS gave out $328 billion in refunds. Remember, that is YOUR money! Adjust your withholdings and enjoy that money all year long.

CNN reports:

The jump was one of the biggest in years, thanks in part to several tax credits introduced as part of the American Recovery and Reinvestment Act.

The Homebuyer Tax Credit -- which gave buyers up to $8,000 for purchasing a home -- was expanded to include more taxpayers.

Meanwhile, the refundable American Opportunity Credit helped more students and parents pay for college tuition and course materials. It temporarily replaced the $700 non-refundable Hope Credit and gave students with income of $80,000 or less a credit of up to $2,500 a year.

(The Making Work Pay credit was part of the ARRA as well, but it didn't show up in refunds. Instead, it was distributed in paychecks.)

Refunds also likely received a boost from the sluggish unemployment picture, said Roberton Williams, a senior fellow at the Tax Policy Center.

Read more here

IRS and Telemundo Host Tax Information Program in Spanish

In their newest press release, the IRS announced they are going to team up with national TV network Telemundo for a special one-hour tax program for Spanish-speaking taxpayers set to air on Sunday, January 30. Be sure to check your local listings for exact times.

“Los Impuestos y Usted” will help viewers determine whether they qualify for many tax benefits, including the Earned Income Tax Credit or EITC. Workers who earned $48,362 or less from wages, self-employment or farming last year could receive larger refunds if they qualify to receive EITC.

IRS estimates four of five eligible taxpayers claimed their EITC last year, obtaining an average $2,200 from the credit. To qualify, taxpayers must meet certain criteria and file a tax return, even if they do not have a filing requirement.

Among other topics, the program features Free File, a program that allows individuals to file their taxes online at no cost, how to get free tax help at local community centers and other services available at www.irs.gov/espanol.

Mónica Noguera, host for many of Telemundo’s specials, will present the IRS program, which features in-studio interviews with IRS tax experts. IRS tax experts will also be available during the airing of the program to answer questions.

Continue reading at IRS.gov…

Law Could Allow IRS to Help Find Kids

In a continuing battle between taxpayer privacy and protecting children, we may finally strike a compromise. A new bill sponsored by Senator Amy Klobuchar would allow the IRS to give police addresses of people who claimed missing children as tax dependents. Currently the agency is barred from providing this information, a law that has hampered police investigations for year.

From StarTribune.com:

"This is a great tool for law enforcement," said Patty Wetterling, mother of Jacob Wetterling, who disappeared near St. Joseph, Minn., in 1989 and still has not been found. Wetterling, who is vice chairwoman of the National Center for Missing and Exploited Children and was a candidate for Congress in 2006, accompanied Klobuchar at a news conference Sunday in Hopkins.

Klobuchar said there are numerous examples of noncustodial parents or other child abductors who have sought tax deductions by claiming the children they've taken as deductions. The adults may have changed their own names but use the child's Social Security number on tax returns.

A 2007 study by the Treasury Department, which includes the IRS, examined the Social Security numbers of 1,700 missing children and the relatives suspected of abducting them, and found that more than one-third had been used in tax returns filed after the abductions took place. But the IRS cannot release any information on the returns unless a parental abduction is being investigated as a federal crime and a federal judge orders the information released. Most parental abduction cases are investigated by state and local prosecutors.

Hopkins Police Chief Mike Reynolds said that the setup amounts to "a one-way street" between the IRS and authorities searching for missing children. "This is a bill that just makes sense," said Reynolds, who also spoke at the news conference.

Continue reading at StarTribune.com...