Happy Holidays from Roni Deutch

IRS Working Quickly to Implement AMT Patch

The IRS announced yesterday that it will immediately begin taking the necessary steps for its income-tax processing systems to prepare for the upcoming tax season following final passage of the Alternative Minimum Tax "patch" Wednesday by the House of Representatives.

"Our people will do everything they can to quickly update our systems for this major change and make this filing season as smooth as possible for everyone," said Linda Stiff, IRS Acting Commissioner. "Our goal is to process tax returns accurately and to issue refunds to taxpayers as quickly as possible."

The IRS will post more information on the AMT patch on their website as it becomes available.

Redesigned RoniDeutch.com

Wednesday afternoon my web team published an all-new design for my law firm’s website, RoniDeutch.com. I’m really proud of this new layout which features numerous modern design elements to give the site a really fresh Web 2.0 feel. Every single page looks fresh and inviting to people looking for help with IRS tax debt relief. My law firm takes great strides to stay current with the latest technology advancements and we feel like this new website truly reflects our efforts. Check out the new design by going to RoniDeutch.com.

Where the Candidates Stand On the Issues

Primary elections are just a few weeks away in some states, but the candidates’ views on tax issues are not really getting decent media coverage. To help voters make informed choices I constructed the following chart detailing where the top 10 presidential candidates stand on 20 important tax issues. Click the thumbnail below to view the full image.

IRS Receives Passing Marks for 2006 Filing Season

According to WebCPA, the IRS improved last filing season, but still has an opportunity to further improve for this upcoming tax season. According to their report, the accuracy of answers provided by the IRS to questions from callers was at about 90 percent and the performance of the IRS's web site also improved. However, the Government Accountability Office (GAO) noted that the IRS should attempt to reduce the number of paper tax returns it processes by mandating e-filing.

Hawaii economy stuck in fairly decent rut

According to the Honolulu Observer, Hawaii has been suffering slow economic growth, but it has not altogether stopped their ten-year economic expansion. A Weakening US economy and high-energy prices have contributed to the relatively slow growth over the past year.

"We do not yet see an end to the current long economic expansion," said UH economist Carl Bonham. The outlook "is a little bit weaker, but not much. The tone of the report is a little more pessimistic."

Tourism and construction are expected to remain stable next year, which could translate into continued income and job growth and low unemployment, though at less favorable levels than in recent years. So far, Hawaii is expected to sidestep a US real estate slowdown that has hobbled home prices in many Mainland markets.

Slower growth also means Honolulu residents are expecting to get relief from rising prices. Honolulu's inflation rate is expected to drop from 5 percent this year to 3.8 percent next year. Honolulu's inflation rate hit a 15-year high of 5.8 percent in 2006 because of booming real estate prices.

IRS Expands Their Fast Track Settlement Program

Recently the IRS announced that it would be expanding the number of test areas that can take advantage of the Fast Settlement program for taxpayers under examination by the Small Business/Self-Employed (SB/SE) Division. The program will run until September 5, 2008 in the following areas: Philadelphia, central New Jersey, San Diego, Laguna Nigel, California, and Riverside, California. The program will continue in the three original test cities (Chicago, Houston and St. Paul.)

According to the IRS’ news release, “the program was designed to expedite IRS case resolution. It allows taxpayers under examination with issues in dispute work with IRS representatives from SB/SE’s examination unit and the Appeals Division to resolve those issues. Fast Track employs various techniques to facilitate case resolution. A taxpayer or IRS examination representative may initiate the Fast Track process after an issue is fully developed, and preferably before a 30-day letter is issued. The Fast Track process is designed to be completed within 60 days of acceptance of the application.”

However, taxpayers retain the right to have their issue addressed through the traditional appeals process.

Land Rover LRX Revealed!

Check out the image below of the new Land Rover LRX. This car is being highly anticipated, and is expected to be unveiled at next month’s Detroit auto show. It has long doors, a sloping roof, 20" wheels, and a 2+2-cabin configuration. For more pictures check out AutoBlog.

Outsourcing Tax Return Preparation to India

TaxGuru has made an interesting post on an Indian firm that emailed him in regards to their American income tax preparation services. According to the email the Indian firm was hired by over 35 different American CPA firms last year and prepared over 3,500 tax returns. They charge a very low rate per return allowing a healthy profit to be made by the large CPA firms outsourcing these duties. This company is just one out of dozens that are already offering Indian outsourcing services. According to The CPA Journal some estimate that nearly 200,000 American income tax returns were prepared in India in 2004. Outsourcing these services allows the large CPA firms to lower their hourly expenses by over 50%, while sustaining their high fees.

As this practice becomes increasingly common, I recommend that everyone be cautious when dealing with a firm that outsources to any country. Although the individuals might be trained and might be qualified to prepare taxes, I would still be cautious. Having 100% accurate data in your income tax returns is extremely important. If something is wrong in your return it could result in massive IRS problems, including audits and even owed back taxes. With so much at steak you want to make sure you seek tax help from a reputable company, and outsourcing services to low-paid Indian workers does not exactly scream quality in my eyes. I suggest you ask any firm your considering point-blank if they outsource and where they outsource income tax preparation. If their response is no then you have nothing to worry about. However, if they do outsource I would be very cautious about using their services unless they provide some sort of guarantee.

New 2010 Mustang Spotted

Spies over at Jalopnik.com spotted Ford performing road tests of what look like the 2010 Ford Mustang. Many of the features seen on the new car reflect the Giugiaro concept car Ford introduced at last year’s LA Auto Show. These features include front and rear fascia and major upgrades to both the interior and exterior. Check out the picture below, or you can view the whole set of pictures at Jalopnik.com.

IRS Announces OPR Settlement

Earlier in the week, the IRS’s Office of Professional Responsibility (OPR) announced a settlement agreement with three attorneys in connection to a $31 million municipal bond issuance involving River Park Square in Spokane, Washington in 1998 handled by the former firm of Preston, Gates & Ellis LLP. However, the IRS and the attorneys both agreed that the settlement does not constitute any admission of wrongdoing. According to the IRS, the ORP is pleased to have reached this agreement because it demonstrates their commitment to ensuring bond lawyers comply with Circular 230 when involved in tax-exempt municipal bond issuances.

Fake A Million Dollar Bill? Go Directly to Jail

Last week, Alexander D. Smith, an Augusta, Georgia resident, was charged with disorderly conduct and two counts of forgery after he walked into a bank and attempted to open a new account by depositing a fake $1 million bill. Not only did he try to deposit the bill, but when the teller refused to accept the fake bill Alexander began cursing at the bank employees. Within a few minutes the police arrived and took the man into custody. Upon investigation the police discovered that Alexander had previously purchased cigarettes from a nearby grocery store using a stolen check, thus the second forgery charge.

It amazes me that some one would be dumb enough to even consider using a fake million-dollar bill. But, at least this time he was trying to deposit the money, unlike the woman a few months ago who tried to break a million dollar bill at Wal-Mart.

The picture below, supplied by the Aiken County Sheriff's Office, shows what the fake $1 million bill looked like.

IRS and States Team Up on Payroll Taxes

According to the Wall Street Journal online, the Internal Revenue Service is joining forces with more than twenty-five states in an intensified effort to crack down on employment related tax violations. Among the key issues is whether a worker should be classified as an employee or an "independent contractor" - a difference with significant tax implications for both businesses and workers. You can check out the full article here.

Tax Views of Top 10 Presidential Candidates

The Roni Deutch Tax Center Tax Help Blog recently posted an interesting article on the tax views of the top ten presidential candidates. The entry include summaries of each of the candidates proposed tax plans as well as voting records for those who served in Congress. You can check out the article by checking out "Tax Views of Top 10 Presidential Candidates" on the Tax Help Blog.

December Tax Talk Today Topic: Filing Season

Recently the IRS’s website announced that the next Tax Talk Today will be on "getting Ready for the Filing Season 2008." It will broadcast on Tuesday December 11th and will "focuses on individual tax return issues, such as changes to forms, the latest tax law changes and IRS processing issues that affect individual taxpayers. Tax preparers also will get tips on how to avoid common errors that can cost them and their clients time and money."

Panelists will be Kathleen Collins, principal of her own Savannah, Georgia-based tax practice, and president of the Georgia Association of Enrolled Agents; William Stevenson, president of National Tax Consultants, Inc., a tax preparation and taxpayer representation firm for individuals and businesses; Pamela J. Walker, IRS deputy director for Submission Processing at Cincinnati and Carole Barnette, IRS acting chief for Individual Tax Forms and Publications.

For more information check out TaxTalkToday.tv

Former IRS Commissioner Fired by Red Cross

Mark Everson, the former Commissioner of Internal Revenue, was recently fired from his position as President of the Red Cross. The reason? According to a Red Cross press release Everson was released after "engaged in a personal relationship with a subordinate employee." The release continues to state that "the situation reflected poor judgment on Mr. Everson's part and diminished his ability to lead the organization in the future."

Those of us in the tax industry know Mr. Everson as the 46th commissioner of the Internal Revenue. President George W. Bush appointed him to the position in 2003 and left the IRS in May of 2007 when deputy commissioner Kevin Brown took the position of Acting Commissioner. After his departure, the Board of Governors unanimously approved Everson as President of the Red Cross.

Everson’s departure from the Red Cross comes less then six months after being approved for the position. Everson also released his own statement on the issue, which has no mention of his personal relationship with a subordinate employee and cites "personal and family" reasons for his departure.

IRS Drops First Quarter 2008 Interest Rates

Recently, the IRS announced that they would be lowering interest rates for the first quarter of 2008, beginning on January 1, 2008. According to IRS codes the interest rate is determined on a quarterly basis and can either be changed or kept the same. This upcoming quarter the rates will drop by 1% and be set as follows:

• seven (7) percent for overpayments [six (6) percent in the case of a corporation]
• seven (7) percent for underpayments
• nine (9) percent for large corporate underpayments, and
• four and one-half (4.5) percent for the portion of a corporate overpayment exceeding $10,000.

Honda Hybrid Tax Credit Phase Out

The IRS recently announced that Honda has reached the 60,000 vehicle limit during the calendar quarter ending Sept. 30, 2007. Therefore, the credit for buying any Honda hybrid vehicle begins will begin to phase out beginning January 1, 2008. Vehicles purchased before that date, however, will still qualify for the full credit. For Honda hybrid vehicles bought on or January 1, 2008, the credit is 50 percent of the otherwise allowable credit amount.

The new credit amounts will be as follows:

• Honda Accord Hybrid AT, Model Year 2007 — $650
• Honda Accord Hybrid Navi AT, Model Year 2007 — $650
• Honda Civic Hybrid CVT, Model Year 2007 —$1,050
• Honda Civic Hybrid CVT, Model Year 2008 — $1,050

Chrysler Releases Sketches Of ecoVoyager Concept

Yesterday Chrysler released sketches of their next concept car, which is expected to be unveiled at the January 2008 Detroit auto show. Check out the sketch below, thanks to Auto Green Blog.

Death Tax Conflict of Interests

The death tax, also known as the Federal Estate Tax, has been getting a lot of media attention lately. For those unfamiliar with the death tax, it is essentially a tax levied on the transfer of a taxable estate usually following a person’s death. As part of President’s 2001 tax cuts, the death tax was set to slowly die off and eventually be completely removed by December 31, 2010. However, unless the next President renews Bush’s tax cuts the prior law will reassert itself the next day, January 1st, 2011. Therefore theoretically some one who dies in December 2010 would pay no estate taxes whatsoever, while some one who passes away 24 hours later could have as much as a 55% tax levied on their estate.

Warren Buffet has been one of the strongest supporters of continuing the estate tax, even appearing before the Senate. Which seems odd considering Buffet is worth an estimated $52 billion, meaning when he dies his estate will be hit with some sort of estate tax. So why would he support the estate tax? The truth lies in Buffet’s business dealings. He has major investments in companies that sell life insurance and directly profits from the continued estate taxes.

When people want to avoid loosing large portions of their estate to the death tax, they often put their wealth into life insurance policies. Therefore once they pass the designated heirs are paid the life insurance funds without having to pay any taxes. Therefore Mr. Buffet has a huge conflict of interest and his insurance companies stand to directly profit from a continued death tax. I hope that the Senate will consider this information the next time Mr. Buffet testifies.

IRS Reminds Charities and Churches of Political Activity Ban

Recently the Internal Revenue Service put out a press release reminding charities and churches, and other section 501(c)(3) organizations, that federal law prohibits them from becoming directly or indirectly involved in campaigns of political candidates. However, these organizations can engage in advocating for or against issues and, to a limited extent, ballot initiatives or other legislative activities. "The political contests, especially for president, are starting earlier than usual. The IRS, as it has in the past, wants to remind charities and churches of the ban on political campaign activity. We also want to urge nonprofit and religious organizations to review the guidance we have issued to help them avoid any problems," notes Steven T. Miller, Commissioner of IRS’ Tax-Exempt and Government Entities Division.

Green Car of the Year: Chevy Tahoe Hybrid

Green Car Journal founder Ron Cogan announced yesterday that this year’s Green Car of the Year Award is the Chevy Tahoe Hybrid. It received the award for demonstrating that a large vehicle with could still offer fuel economy equivalent to that of a much smaller car. Five cars were nominated for this award including the Saturn Aura Green Line, Chevy Malibu Hybrid, Nissan Altima Hybrid and Mazda Tribute Hybrid.

IRS Has $110 Million In Unclaimed Refunds

According to the latest IRS news release, there are 115,478 taxpayers that are owed refunds from the IRS totaling over $110 million. The refunds averaging $953 per person were returned to the IRS as undeliverable, leaving the IRS no way to get the checks to their rightful owners. "Taxpayers should not miss out on getting their money back," said Richard Morgante, commissioner of the IRS Wage and Investment Division. "The IRS makes it as easy as possible for taxpayers to update their addresses and claim their refunds." Some taxpayers even have multiple checks waiting for them from numerous years back. The IRS is now encouraging taxpayers who think they should have received a refund to use the " Where’s My Refund?" tool on IRS.gov. Taxpayers can also access a telephone version of "Where’s My Refund?" by calling 1-800-829-1954.

Department of Treasury Responds to Letter

As you may recall I sent an open letter to congress and the Department of Treasury asking them to update their expense standards. Less then a month after I sent the letter the IRS announced they were indeed making the change, and on November 1st I received a letter from the Department of Treasury regarding my open letter. The message claims that Secretary Paulson had requested they respond to my letter informing me of the new changes and explaining the delay. According to the letter the delay was necessary to implement significant improvements that will enhance the accuracy and fairness of the standards. In addition the letter claims that Automated Collection System (ACS) personnel have been instructed to use judgement when applying standards, which was another complaint of my letter. I’m glad to hear the Department of Treasury is treating this issue with the importance it deserves. Hopefully the new standards will help make the process a little easier on taxpayers that need to negotiate IRS tax settlements.

Wesley Snipes Claims Race Discrimination in Tax Liability Cases

Wesley Snipes, who we all know is in trouble with the Federal government for not paying income taxes, has used numerous reasons to try and explain his tax debts but now he is claiming racial discrimination in an attempt to throw out his criminal case. According to this article from the Smoking Gun, Mr. Snipes and his legal team have claimed that prosecutors "deliberately chose the most racially discriminatory venue available" for his trial to take place. The documents claim that the current location in Florida is a "hotbed of Klan activity" where "substantial pockets of prejudice exist." These are all reasons cited in an attempt to get Snipes trial moved from the Ocala, Florida to the Southern District of New York.
In the motion Snipes attorneys claim the Federal government’s lawyers are trying to get an "all-white Southern jury" to hurt Ms. Snipes chances at a fair trial. But, as if the motion alone wasn’t enough, Mr. Snipes also conducted a public opinion roll comparing racial attitudes in both Ocala and New York. This is Snipes second attempt to get the venue for his trial changed; a federal judge rejected the first.

IRS Announces Record High E-filers

According to an IRS new release, in 2007 57.4% of taxpayers filed their tax returns through e-file. This number was up about 9 percent from the 73 million returns filed for the same period last year. Overall in 2007, 139.3 million returns were filed – 79.98 million of which were filed electronically. "It was another record-breaking year for e-file," said IRS Acting Commissioner Linda E. Stiff. "Paper returns continue to drop year after year. E-file is the safe, accurate way for more and more taxpayers to quickly complete their taxes and get a refund faster." Additionally, more people this year chose to have their tax refunds directly deposited than ever before. So far this year the IRS has directly deposited 61.4 million refunds, up 8 percent from last year.

2008 Dodge Viper SRT10 ACR Pictures

Although Dodge’s new Viper SRT10 ACR will not officially be unveiled until the November 13th auto show in Los Angeles, numerous sites have already posted leaked pictures of the impressive new vehicle. It features an 8.4-liter V10 engine with 560 LB-ft of torque. According to Chrysler the car generates 1,000 pounds of down force at 150 mph and can generate 1.5g while cornering. This vehicle is expected to retail for under $100,000. Check out some pictures below, thanks to Jalopnik.

Top 10 Costumes from My Firm's Annual Halloween Party

10) Whoopie Cushion

9) Beer Keg

8) Mario Brothers

7) Geisha

6) Easter Bunny

5) Surf Board

4) Borat

3) Nintendo Controller

2) Lindsay Lohan

1) Geico Cave Man

IRS Offers Help for Wildfire Victims

Last week the IRS added a new page to their site offering links and help for victims of the California wildfires. You can check the page out here.

According to the IRS’ release, if you own property damaged by fire in the presidential disaster area, you can either claim uninsured or unreimbursed disaster losses by filing an amended 2006 tax return or you may wait and claim any losses on your 2007 return. Both individuals and businesses are eligible for these options. For more information, check out the IRS website.

IRS Updates Living Expense Standards

After months of using three-year-old data to calculate taxpayers living expense standards, the IRS has finally issued new standards. These standards, also known as collection financial standards, are used when reviewing a taxpayer's account to determine their ability to pay federal tax liabilities. Essentially the IRS uses this data to determine the type and amount of tax debt relief each taxpayer qualifies for during settlement negotiations. The new standards went into effect October 1.

According to an IRS news release the standards have been designed to incorporate the following items:

• A new category for out of pocket health care expenses
• The elimination of income ranges for national standards for food, clothing and other items
• A nationwide set of tables for national standard expenses, eliminating separate tables for Alask and Hawaii
• An expanded number of household categories for housing and utilities
• An allowance for cell phone costs in housing and utilities
• Equal allowances for first and second vehicles under transportation expenses
• Fewer Metropolitan Statistical Areas for vehicle operating costs
• A separate nationwide public transportation allowance

A little over a month ago I drafted an open letter to the Secretary of the Treasury urging for changes to the IRS standards as they had not been updated since last year. I am glad to see the IRS has finally decided to update these standards as using three-year-old data to calculate a person’s expense standards was making things unnecessarily difficult on taxpayers hoping to find IRS tax relief.

Mutual Fund Taxes To Break Records

According to CNN Money, major mutual fund companies have begun estimating this year’s taxable distributions and the taxes are set to break records yet again. Last year their tax bills totaled $23.8 billion, which was the largest since 2000, but this year’s total is expected to be over $24 billion. One reason for the ever-growing tax bill is the past years "wild market," with plunging stocks and a soft housing market.

US House Votes to Extend Internet Tax Ban

On October 23, the United States House of Representatives voted with a massive 405 – 2 majority to extend the current ban on Internet taxes for the next four years. This is a small victory, as many from the tech industry lobbied to extend the ban indefinitely. First enacted by Congress in 1998, the Tax Freedom Act Amendments Act was set to expire on November 1, 2007.

Although the legislation passed through the House with flying colors, it stalled in the Senate. In order to extend the ban the act would need to pass the Senate and be signed by the President.
"Every day, broadband technology changes the way Americans live, from how they do business to how they learn and communicate to how they access medical treatment," claims Walter McCormick Jr., president and CEO of the United States Telecom Association. "An Internet access tax penalizes that way of life. In essence, we're talking about a tax on economic opportunity, on knowledge, and on finding one's voice in the democratic process."

For more information check out this article on PC World, or this editorial in the Washington Post.

Porsche to Take Over VW?

Although Porsche has been buying VW stock like crazy for the past year, there has been a piece of legislation called the VW Law which has stopped Porsche from taking full control over the company. However, the European Courts recently stuck down the law and now there is nothing preventing Porsche from increasing their stock ownership. Porsche currently has a 31% stake in VW, but with this new announcement they are expected to increase that to at least 51%. The industry expects Porsche to be patient with the rest of the process, possibly taking up to a year, but there is no doubt that they will soon control VW. Thanks to AutoBlog.

Poker Winnings Must Now Be Reported As Income

According to an IRS news release, casinos and other poker tournament sponsors will be required to report information on winnings to the IRS, starting March 4, 2008. The IRS hopes this rule clarifies the tax reporting rules that apply to poker tournaments and gain additional revenue from these popular gaming events. When the new rule takes effect, winnings exceeding $5,000.00 will require reporting to the IRS. The casinos will report the pay-out on an IRS Form W-2G. However, the IRS is reminding tournament winners that they must report all their winnings on federal income tax returns, regardless of the amount won. This rule has been in effect for years, and all tournament winners should currently be reporting all winnings. The IRS is hoping that with the new rules placed on tournament sponsors will help increase the number of winners who do report their winnings.

Even Celebrities Owe Back Taxes

On October 11th, 2007 the California Franchise Tax Board published their annual list of the top 250 taxpayers with back taxes owed to California. Included in this list of delinquent taxpayers is three celebrities, one of which claims to have no regular income whatsoever.

The publishing of this information is part of the California government’s attempt to use publicity to get the money they are owed. As with all persons owing back taxes, everyone on this list have been contacted numerous times by the Franchise Tax Board in effort to collect the debts. Specifically, before publishing the list they notify each taxpayer via certified letter reminding them of the liability. But I guess when you owe the IRS millions of dollars it’s probably going to take more then just a letter to get the money.

Out of the list of 250 delinquent taxpayers there are three celebrities that stand out. Firstly there’s singer Dionne Warwick who owes California over $2.6 million, and she’s been dodging the tax collectors for over ten years. Maybe she’s hoping the statute of limitations will run out, but if I were her I wouldn’t hold my breath.

Next on the list of celebrities is 90’s comedian Sinbad, who hasn’t had a hit anything for years but still managed to rake up a tax debt of over $2.1 million dollars. His liability has been outstanding since December of 1993. When I see numbers like this it makes me wonder… How in the world did Sinbad manage to get so far in debt to the California government? He had a few hits back in the early 1990’s but in order to get that far in debt he probably never paid taxes in full. It constantly amazes me when I see these celebrities who think they don’t have to pay their taxes. Too bad he didn’t have a better tax lawyer, or at least a decent advisor to tell him to pay his taxes. I’m betting he doesn’t have the extra cash just lying around to pay in full. But can you imagine his lawyer calling into the IRS to negotiate an offer in compromise and telling the IRS agent it’s for Sinbad? What I’d give to listen into those negotiations.

The last celebrity on the list owes the least out of all the celebrities, but for some one who claims in court to have no income what so ever he sure has a pretty high income tax liability. The star in question? The notorious O.J. Simpson, who owes California over $1.4 million in personal income taxes that have been outstanding since 1999. I wonder if he even intends to pay that debt down? I doubt it. He’ll probably just ignore it and let it add on to the millions of dollars he owes countless other people.

The lesion to be learned from all of this? As the old saying goes the only things in life that are certain are death and taxes. Every one has to pay income taxes, even has-been celebrities who haven’t worked in decades.

New GM Concept Camaro

GM car czar Bob Lutz announced a new Camaro concept car on one of his recent posts on the Fastlane Blog. He describes the new car as being remarkable claims the new Camaro is intended to be "the finest car in its class, ever." Check out a picture of the concept car below, thanks to the GM Fastland Blog.

New IRS Tax Talk Today

Later today the IRS will feature a new webcast on their Tax Talk Today website. The Webcast is scheduled for Tuesday, October 16, at 2 p.m. ET. Discussion topics on the Webcast will include an overview of OPR, Circular 230 and monetary penalties. The live hour-long Webcast will focus on the IRS’s Office of Professional Responsibility (OPR), which is responsible for setting, communicating and enforcing standards of competence, integrity and conduct among tax professionals who practice before the IRS. Tax Talk Today is a Webcast put out by the IRS with the goal of educating tax and payroll professionals on the most current and complex tax issues. You can access the Webcast for free by registering online at www.TaxTalkToday.tv.

Full List of 2007 Baseball Champions

Nutty About Sports.com has a very informative article on their site with a list of all the current baseball champions of 2007. The list includes not only Major League Baseball Champions, but Minor League Baseball Champions, Independent League Champions, College Baseball Champions and Little League Baseball Champions as well. You can see the full list by clicking here.

Republican Debate Comments From Tax Foundation

The other night was a Republican primary debate with the topic on taxes and the economy. Tax Foundation.org has put together a good review of the debate with their comments and observations on various things candidates said in the debate. Topics include revising the current tax code, government subsidies, the federal budget, corporate taxes, and others. Check out the full review at Tax Foundation.org: Observations from the Republican Debate.

Disney Planning New Resort in Hawaii

According to Radio New Zealand, the Walt Disney Company has announced plans to build a new resort on the Hawaiian Island of Oahu scheduled to open sometime in 2011. Disney has purchased over 21 acres of oceanfront property, where they plan to build a resort set to include 800 hotel rooms and villas. This new Hawaiian resort will help expand Disney’s Vacation Club, their new time share business.

Woman Sues Kmart for Taxing Toilet Paper

A Pennsylvania woman sued Kmart for allegedly collecting a 7 percent state sales tax on toilet paper. In her lawsuit, she is seeking $100 in damages plus court costs, claiming the $3.99 toilet paper she purchased was incorrectly taxed in the amount of 28 cents. Her lawsuit takes advantage of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, which allows her to seek damages 357 times her actual injury or around $100. Although most paper goods are taxable in Pennsylvania, toilet tissue is listed as a nontaxable item.

IRS Announces Increase In Corporate E-filed Returns

According to the Internal Revenue Service, more than 800,000 of the nation’s small businesses and large corporations have electronically filed their tax returns so far this year. This number represents a 60 percent increase from last year. "This is a record-breaking year for electronically filed returns by corporations and businesses," said Acting IRS Commissioner Linda Stiff. "We will continue to work with the business community, tax practitioners and the software industry to improve this important program." However not just small businesses are e-filing, thousands of large corporations are voluntarily e-filing as well. More than 42,000 large corporations have already e-filed this tax year.

Nissan Unveils Pivo 2 Concept Car

Nissan unveiled the new Pivo 2 concept car at the Tokio Motor Show a few days ago. The car features a 360-degree rotating cabin, 90-degree turning wheels, and braking and steering drive by wire capabilities. Below is a picture of this funky new concept car, thanks to Engadget.com.

Bush Says No to Children's Health Insurance

A few days ago President Bush vetoed a bill that would have expanded a children’s heath insurance program by over $35 million over the next five years. Speaking in Pennsylvania, Bush claimed he vetoed the bill because he felt it was a step towards federalizing medicine and inappropriately expanding the program to help more children. Senate and House Democrats alike were quick to condemn the veto, which had received bipartisan support. House Majority Leader Nanci Pelosi has already announced plans to gain enough votes to overturn the veto. For more coverage on this issue, check out CNN.com.

Check Out Watch Me Franchise!

Ever wondered what it would be like to open your own franchise business? Well check out the new Watch Me Franchise blog put together with the help of two new Roni Deutch Tax Center franchisees, Heather and Gentry Spell. The blog has been following the Spells from day one before they even signed a franchise agreement, and will continue to follow them through the end of tax season. Along with videos and pictures of the Spells, the blog also features informative articles and blog entries useful to any one considering investing in a franchise. Check out WatchMeFranchise.com today!

Hawaii’s Jobless Rate Up Last Month

According to Biz Journals, last month Hawaii has a jobless rate of 2.6%. The rate is one of the lowest in the nation, but it’s up from only 2.3% one year ago. The increase has prompted the Labor Department to include Hawaii among the states with "statistically significant" changes in the jobs picture. Nationally, the unemployment rate was 4.6 percent.

Treasury Chooses AT&T for $250 Million Contract

A few days ago the IRS announced on behalf of the U.S. Department of the Treasury, that they had selected AT&T as the network services provider for the Treasury Network (TNet) acquisition. The overall value of this contract is estimated at a whopping $270 million over it’s life. Back in December 2006, the Department of Treasury had decided to use the General Services Administration's Networx program to integrate its telecommunications requirements into a single Treasury-wide network infrastructure. This change allows them to utilize a fully managed network service, coupled with service level agreements and performance incentives to deliver secure voice, data and video communications. "Treasury is the first agency to have completed a fair opportunity decision on the Networx Universal contract and expect they will be the first agency to begin ordering service," said Karl Krumbholz, Director of Network Services Programs at the General Services Administration. "We are extremely pleased to have assisted Treasury in meeting their network service requirements and found them to have a very strong and highly professional technical and contracting team that was a pleasure to work with. We look forward to a positive and productive relationship with the Treasury TNet Program in the years ahead."

My Open Letter Pleading the IRS to Update Their Expense Standards

Last week I sent an open letter to Henry M. Paulson, Jr., Secretary of the U.S. Treasury Department seeking changes to the Internal Revenue Service’s allowable standards policies. Their current practice of using outdated allowable standards, refusing to update those standards, and failing to accommodate in the face of clear and convincing evidence to the contrary is making the tax relief process unnecessarily difficult for taxpayers seeking IRS settlement.

The IRS has numerous relief programs available to help taxpayers that find them selves with large back tax liabilities. These programs, such as the Offer in Compromise or Installment Agreement, allow taxpayers to resolve their debt without having to pay down the entire amount at once. But when negotiate with the IRS you must complete a detailed financial analysis, which usually requires the help of a professional.

The financial analysis compares your gross monthly income with monthly allowable expenses to determine what, if any, payments you can reasonable afford. These allowable expenses do not include all monthly expenses, but only include expenses that the IRS deems necessary. The IRS sets these maximum allowable expenses include limits for food, housekeeping, clothing, personal care, entertainment, housing, utilities, vehicle, and vehicle operating expenses. A person’s household size, income, and geographical location all have an effect in determining each individual’s allowable amounts.

Unfortunately, the IRS calculates the allowable expenses for any given calendar year using statistical data gathered two years prior. Therefore, in any given year, the IRS uses two-year-old data to determine a taxpayer’s current and future allowable expenses, which in my opinion is flawed in the first place. Consider how much has the price of milk gone up over the past two years, constantly rising cost of gasoline. Using outdated statistics is unacceptable and I strongly suggest the IRS revisit the idea of this practice in the first place.

Then, as if using two-year-old data wasn’t bad enough, the IRS chose not to update its allowable expenses for 2007 whatsoever. The IRS is using statistical data from 2004 to determine the maximum amount taxpayers can claim as expenses in 2007, which is 100% unacceptable in my opinion. The IRS needs to update these requirements, which is why I have drafted a letter pleading that the IRS immediately update their allowable standards. Using three-year-old data to calculate a person’s allowable expenses is like kicking a taxpayer when they are down. This data needs to be updated.

With the letter I would also like to suggest that the U.S. Treasury Department reprimand the IRS Automated Collection Service Unit for its refusal to deviate from the allowable standards even in the face of strong evidence to support it. When a taxpayer can demonstrate that they are living within the average of their community, and the allowable standard is no longer reflective of that average, then the IRS employee must deviate to the taxpayer-requested amount. Failure to do so is in complete contradiction to the IRS’ own Internal Revenue Manual, which states, "National [and] local expense standards are guidelines. If it is determined a standard amount is inadequate to provide for a specific taxpayer's basic living expenses, allow a deviation."

In addition to drafting the letter, and sending it to various influential members of the government, my firm has also put out a press release on the issue, see Roni Deutch Sends Open Letter Urging the IRS to Update the Allowable Standards for Living Expenses. Hopefully my letter, and the issue in general, receives enough attention to convince the IRS to update their old standards.

New IRS Employer ID Application Process

Yesterday the IRS announced that they had launched a new Employer Identification Number application process on their website. According to said Richard Morgante, Commissioner of the IRS Wage & Investment Division, "This new and improved online application will reduce the time it takes taxpayers to get an EIN. Essentially they can get one while they wait –– within minutes." You can read the whole announcement on the IRS’s website.

IRS Unveils Foreclosures Section of IRS.gov

The IRS’ official website, IRS.gov has unveiled a new section of their website devoted to providing information to families who have had increased tax liabilities due to foreclosures. The IRS is letting families know that although "foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes." However, providing relief after people are already in debt to the IRS doesn’t really solve the problem. The only thing in the IRS’ announcement that really seems to address a solution is when they say "the IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure." Unfortunately this is the best we will probably see any time in the near future as the only way to really fix the problem is for Congress to step in and change the tax code so that it no longer considers foreclosure relief taxable income.

New Video: 650 HP Corvette ZR1

Thanks to Fast Lane Daily I have attached a video of the new 650 HP Corvette ZR1 below. For most of the video the car is just cruising along and you can’t really get a feel for the vehicles power, but at the end there is a nice shot of the car accelerating to get onto a highway. Although a few pictures have been released, this is the first video of the new Corvette which is expected to be unveiled in the January Detroit Auto Show.

Congress Blaming IRS for Foreclosure Problems

The issue of tax liabilities resulting from a home foreclosure has really been getting a lot of attention. Just a few hours after I posted my latest featured blog, the tax consequences of foreclosures, I came across another blog entry on TaxProf Blog discussing who is to blame for the problem. On Friday, Congress sent a letter to the IRS asking them to provide relief for people with tax liabilities resulting from foreclosures, but even in the letter Congress admitted it would be easier to fix with new legislation. However, providing relief to taxpayers affected does not really solve the problem it merely provides a way for taxpayers to resolve their debt. What Congress needs to do is properly fix the tax code with new legislation so that the problem can be fixed before it starts.

Now Open: RDTC Tax Help Blog

I am proud to announce that the official Roni Deutch Tax Center website, RDTC.com, added a new blog to its content. The new blog, the RDTC Tax Help Blog, is full of useful information for any one who needs help with modern tax issues. The blog features categories you would expect to find in a tax resource center (frequently asked questions, glossary terms, articles, etc) but in an exciting new blog format. So be sure to head on over to RDTC.com to check out the new blog!

Tax Penalties of Foreclosures

As everyone in the country knows, the real estate and mortgage industry has been in trouble over the past few years. Thousands of families find themselves in financial trouble due to drastic rate increases in adjustable rate or interest only mortgages. Most people failed to consider the possibility of the huge increases upon entering the agreements. Only now, they find themselves with mortgage payments that they cannot afford to pay. Often, foreclosure is the only option available to these struggling families. However, there is one important aspect of a foreclosure that people forget – the resulting tax liability.

Foreclosure is always the last resort for someone struggling to make mortgage payments. People usually think it will be the end of their problems. However, the IRS considers debt canceled through foreclosure to be part of a taxpayer’s income. The IRS feels that it is entitled to the appropriate income taxes on that money. It also has access to every taxpayer’s financial information so it can ensure the appropriate taxes are paid. And as most of the country already knows, the IRS is very aggressive in collecting taxes that they know are outstanding and feel they deserve.

Forecasts indicate that over 20% of the loans made sine 2005 to people with weak credit using interest only or sub prime loans will end in foreclosure. Typically, these loans require little or no down payment and begin with extremely low payments that quickly rise with rate adjustments. Due to paying so little toward the principal amount and the lowering value of homes across the nation, people are increasingly finding themselves upside down in debt with huge mortgage payments.

"The tax laws are far too complex for borrowers to understand," claims Kurt Eggert, a professor at Chapman University Law School. "There are distinctions between selling a house for less than the loan amount and losing the house in foreclosure. It is crucial to get expert tax advice to sort through the bewildering complications. The whole concept can be counterintuitive – your home has declined in value and you lose it. Then the IRS says you owe tens of thousands in taxes because you got a windfall when the debt was forgiven."

Foreclosures are not the only way to end up with this type of tax liability though. The other is when a homeowner sells his or her house for less than the value of the mortgage and the bank will just forgive the difference. In those situations the homeowners is technically supposed to report that amount as income. This is known as a "1099 shortfall" which is an IRS policy that treats forgiven debts as income, even if a taxpayer has nothing to show for it.

So many people across the country are finding themselves in serious financial trouble. Lenders encouraged hundreds to refinance their houses for more than the home's fair-market-value. This was the case with Agnes Mouser. She is a 65-year-old widow who was hoping to pay off her credit card debt by taking out money with a refinance. "A real nice young man came out to see me," Mouser noted. "He could have been my grandson." The appraiser her bank sent out valued her mobile home at $43,500 in 2000 by using two new standard homes as benchmarks for calculating the value. The bank then agreed to let her borrow $34,730 against the value of her house. She paid the bank over $2,500 in closing costs and her loan carried an interest rate of nearly 15%.

When Mouser realized she could not meet her monthly payments in 2003, she contacted a lawyer who informed her that the county valued her home at less then half of what the bank had – only $19,970. Fortunately for Mouser, her bank forgave the difference. Unfortunately, the IRS did not. Soon thereafter, Mouser got a tax bill for over $10,000.

Thousands of taxpayers across the country are facing massive IRS tax liabilities with little chance of relief. With all the attention this issue is getting, Congress is finally beginning to consider legislation to help lower the burden on these people who are facing such huge financial problems. Senator Debbie Stabenow and Senator George Voinovich sponsored a bill to eliminate the federal rule that considers mortgage relief taxable income. The White House has already indicated support for Stabenow’s bill and President Bush claimed he hopes to include Stabenow’s ideas in his home ownership relief initiative. However, before a bill can go to the White House, Congress must approve it. Currently, no progress has been made on Stabenow’s bill, which has been sitting in Congress since May.

Sources:
http://www.lsj.com/apps/pbcs.dll/article?AID=/20070911/OPINION01/709110311/1085/opinion
http://jalopnik.com/cars/frankfurt-auto-show/frankfurt-auto-show-bmw-x6-activehybrid-concepts-298085.php
http://www.signonsandiego.com/uniontrib/20070821/news_1b21taxes.html

IRS Publishes Reminder About School Tax Deductions

Just a few weeks after the new school year started, the IRS is already putting out a press release reminding teachers, parents, and student alike about the valuable education related tax deductions. The IRS warns that it’s important to save your receipts and to keep detailed records so that it will be easier to take advantage of the valuable deductions on your next income tax returns.

"The start of the school year is a good time to remind parents, students and teachers to save all receipts related to tax-advantaged education expenses," said IRS Acting Commissioner Linda Stiff. "Good recordkeeping makes sense because it can help avoid missing a deduction or credit at tax time."

For more information on the education related expenses available to you, check out IRS Publication 970, Tax Benefits for Education. According to the IRS it can "help eligible parents and students understand the special rules that apply and decide which tax break to claim."

New September/October Tax Watch Now Available

Tax Foundation has released the newest version of their bimonthly tax policy newsletter, Tax Watch. The newsletter contains research and analysis on many current tax issues. Some of the featured articles include:

Paying for Public Schools: What's the Cost of Judicial Mandates?
U.S. Corporate Taxes Still Among World's Most Punitive
Fixing AMT without Raising Tax Rates
Study Finds Income Redistribution between Young, Middle-Age and Elderly

You can download the PDF of the newsletter for free by heading over to Tax Foundation.org, or if you are a member of the Tax Foundation you can request a hard copy version.

Court Ruling: Antarctica Is Not A Foreign Country

A recent U.S. Tax Court ruling declared that Antarctica is not a foreign country for purposes of the U.S. tax code. The opinion of the court claims that since Antarctica does not have it’s own government or tax system it is not a foreign country in the eyes of the IRS, and therefore citizens working in Antarctica are not entitled to the foreign earned income exclusion (FEIE). The FEIE typically allows taxpayers living and working outside the U.S. for at least an entire calendar year to exclude up to $82,400 of their foreign-earned income from their federal tax liabilities. Although the taxpayers still have to pay taxes to the foreign country they work in, but since Antarctica does not require tax payments this rule does not apply.

Poker Tournaments Must Withhold Taxes

According to Tax Foundation, the IRS has added a new regulation, 26 C.F.R. § 31.3402(q), requiring that sponsors of poker tournaments withhold for taxes 25% of a players' winnings above $5,000. The sponsors must then provide this information to the IRS so that they can properly determine the taxpayer’s income tax liability. The regulation is set to take effect on March 4th 2008. However online and offshore poker games are not subject to the regulation.

IRS Warns About Yet Another Email Scam

Yesterday the IRS put out a consumer warning on yet another email scam. According to the IRS, the two-step e-mail scam falsely promises people they will receive $80 for participating in an online customer satisfaction survey. The email masks itself as an email from the IRS, with a link to an IRS "Member Satisfaction Survey." "We have seen many e-mail scams using the IRS name," IRS Deputy Commissioner for Operations Support Linda Stiff noted. "The IRS does not initiate contact with taxpayers through e-mail. Taxpayers should always use caution when they receive unsolicited e-mails."

Hawaii Tourism Japan Markets Smoking In Japan

As part of a campaign to encourage Japanese smokers to visit the Hawaiian Islands, Hawaii Tourism Japan has begun marketing the phrase "Smoking With Aloha," along with 40,000 free ashtrays with a flower logo. The new plan is part of Hawaii Tourism Japan’s effort to correct the popular myth in Japan that Hawaii has a blanket no smoking rule. The tourism group says the misunderstanding has caused the number of Japanese visitor to sharply decrease. However, of the Coalition for a Tobacco-Free Hawaii is not happy about the new campaign. "This is not really sending a message that Hawaii is concerned about good health," said interim president Kathy Harty. "We shouldn't give the message that aloha means smoking." Source: BBC

New Law Could Drastically Raise Taxes On Multinational Corporations

Pressure is growing in Washington to force a tax on foreign companies with subsidiaries in the United States who move funds back to their parent countries that have more favorable tax rates. These businesses currently pay next to nothing in taxes. In response, the United States House of Representatives has already voted to increase tax rates to as much as 30%. However, business groups are saying the measure could deter firms from investing in the United States. Multiple lobby groups state that about 60 multinational companies have already expressed concern about the proposal, which is likely to be considered by the United States Senate some time next month.

Democrats in Congress are regarding the proposal, known as the Doggett law, as a legitimate crackdown on cooperate tax avoidance. They are hoping the tax could raise an estimated $7 billion per year.

The goal of the proposal is to stop multinational corporations from going "treaty shopping" to find countries with more friendly tax laws. If approved by the Senate, the proposal could see firms paying a tax of up to 30% on interest payments and other capital flows between US operating countries and their parent businesses. This tax would be enforced even if the funds were being transferred to affiliates in the United Kingdom and the Netherlands. This would disrupt a historically tax fee practice that was based upon existing "tax-free" treaties between the United States and these countries. Yet, experts claim that firms based in countries without treaties such as South Korea and Singapore would be hit even harder by the new tax.

The new tax was added as an amendment to a farm appropriations bill drafted earlier this year by a Texas congressman. The practice of adding new legislation as an amendment to another popular bill is common in Congress as a way of negotiating the approval of a law. When making such an amendment to a popular bill members of Congress can dramatically improve their chances of getting a controversial new law passed.

However, numerous Republicans fighting in the Democrat controlled Congress have said the proposals flew in the face of existing treaties with other countries, and were based on a misconceived idea that equates tax avoidance with seeking to find a competitive tax position. "These companies are not doing anything illegal," claims Rhian Chilcott, director of a lobbyist group in Washington. "They are taking advantage of a tax treaty that the United States negotiated years ago." He went on to explain that many local subsidiaries are already paying taxes and would effectively be taxed twice on their income.

However, the Democrats who support the law are emphasizing that the law will be specifically focused on preventing tax havens that are used to hide earning. They claim the goal of the law is not to target legitimate companies that are paying their taxes. Rather it will attempt to gain revenue from companies abusing the treaties to pay little or no taxes on their income. Many massive multinational corporations setup offices in locations that have tax-free treaties with the United States for the sole purpose of avoiding tax liabilities.

For example, if the legislation passed, Samsung’s South Korean conglomerate would not be eligible to make tax-free transfers from it’s United States division to it’s United Kingdom financing unit. Currently the company pays a zero tax rate on such transfers because of the Anglo-American treaty. Samsung’s United States subsidiary would instead be forced to pay the 15-cent tax rate that applies to all Korean companies on transfers from the United States. Unfortunately, no representative from Samsung would comment on the new law.

The measure would also dramatically hit Japanese carmakers with large United States operations. Nissan is one automaker that would likely see increased taxes as a result of the legislation. Several international companies are currently lobbying against the legislation including Panasonic, Unilever, Alcatel-Lucent, Swiss Re, and Allianz. An executive from an undisclosed global corporation said, "this is another signal that the United States is not a friendly place to do business. We do not need this. We can go to Canada or Mexico."

IRS Says Taxpayers Can Still Request Phone Refund

According to the IRS, thousands of taxpayers still have the opportunity to collect the one time phone tax refund. Nearly all phone customers, including cell phone customers, are eligible for the refund that over 92.1 million taxpayers, or 71.6% of all individual tax return filers, have already requested. The IRS is encouraging all taxpayers who haven’t filed their tax return yet or who obtained a tax-filing extension earlier this year to remember to include the tax credit when filing their returns. Taxpayers who don’t need to file a regular income-tax return can use Form 1040EZ-T, a special short form for requesting the refund.

GM May Have 60,000 Volt Electric Cars Out In 2011

Insiders at GM have revealed that the auto-maker may be planning to have over 60,000 of their Volt electric cars on the road within one year of launching in 2010. GM product chief Bob Lutz said he plans to sell the first Volt by late 2010, and expects to have prototypes ready for testing early next year. Insiders claim that production is set to produce 60,000 vehicles for the official launch, however GM spokesman Scott Fosgard declined to comment on the plans. ``If they {GM} were able to get 30,000 to 60,000 on the road in a year, it would be a huge leap in technology,'' claims Brett Smith, an alternative-fuel analyst in Ann Arbor, Michigan. ``It will be difficult, though, because there are so many barriers to making this happen.'' Source: Bloomberg.

IRS Clarifies: New Rule Will Not Punish Teachers

The IRS recently put out a release to clear up some ongoing confusion about the effects of a recent law change to the IRS’s deferred-compensation rules. They reassured teachers and other school employees that new deferred-compensation rules will not affect the way their pay is taxed during the upcoming school year. Under the law teachers and other employees are given an annualization election – meaning they are allowed to choose between being paid only during the school year and being paid over a 12-month period. Therefore if they choose the 12-month period, they are deferring part of their income from one year to the next. However, the IRS clarified that the new rules will not be applied to annualization elections for school years beginning before Jan. 1, 2008, so school districts and teachers will have time to make any changes that are needed.

Tropical Storm Flossie Brushes Hawaii

After much hype over the past week about "Hurricane Flossie," it was downgraded to a tropical storm earlier this morning. The National Weather Service downgraded the hurricane warning after it’s wind speeds dropped to 8 mph and the storm took a slightly more northern course than expected. The tropical storm brushed the coast of Hawaii’s Big Island last night, however no injuries were reported. Officials are still tracking the storm to ensure it does not cause any further damage. "It still has very large potential to come in," said Troy Kindred, administrator for the Hawaii County Civil Defense Agency. "For whatever reason it has not done so so far. We'll monitor it until it is not a threat." For more information on the storm, check out Seattle Times.com.

Advice on Internal Revenue Service Audits

With the internal Revenue Service (IRS) making recent headlines about increasing the number of audits, it’s important for taxpayers to do what they can to avoid being audited. Although many experts point to the IRS’s public relations campaign on the new audits as reason to think it’s a scare tactic aimed at increasing voluntary compliance, getting audited by the IRS is never a pleasant experience and avoiding one in the first place is definitely the best option.
Having to pay more money isn’t the only unpleasant part of an IRS audit. Typically audits are a time consuming and aggravating process. An IRS audit isn’t like a criminal trial where some one is presumed to be innocent; the burden of proof lies on a taxpayer to prove there are innocent and filed an accurate tax return.

It is important to note that the IRS computer system selects the returns that are audited. No human employee reviews returns until they are selected for audit by the computer system. The computer system selects returns that are likely to yield the most money to the government. The computer system makes this decision by reviewing returns for “red flag” characteristics. Red flag characteristics are those income, deduction, and credit types that have historically seen the most imprecise calculations and abuse by taxpayers.

A taxpayer is more likely to get audited if he or she generates income from any source other than regular employment wages. Persons who file Form 1099 are up to three times more likely to receive an audit then some one who only files Form 1040. A 1997 IRS press release claimed more then three percent of taxpayers filing Form 1099 reporting between $25,000 and $50,000 of income were audited, compared with under one percent of 1040 returns that were audited.

Although the IRS offers hundreds of possible deductions and credits to help taxpayers lower their income tax liability, taking an excessively large amount will send a very clear red flag to the IRS. But how does a taxpayer know what’s excessive? That’s a tricky question. There is no all-applying rule because the IRS determines the allowable number of deductions for a taxpayer mostly based on their income. For example, if a person making $30,000 per year claims $15,000 in charitable contributions, then this will send a red flag to the IRS.

Although there are many tax laws allowing self-employed individuals to lower their liabilities by using home office deductions, taxpayers taking home office deductions are probably the most frequently contested by IRS because they are easy for a taxpayer to bend the truth on. In order to claim a home office deduction a taxpayer’s home office must be the principal place of business, meaning they perform most of their work in the home office. Also, the space must be used exclusively for running the business and not for personal use as well. Otherwise the space can’t be considered a home office and may not be deducted. The rules for home offices are very specific, so please be sure to read the IRS’s rules and regulations if your considering claiming a home office deduction.

Losses from a business can also be another red flag for the IRS. If an individual starts their own businesses for the purpose of generating excessive tax deductions, the IRS will catch on quickly. Businesses must be profitable in at least three of the past five years in order to be considered a legitimate business for tax purposes. Otherwise the IRS will realize the business is functioning as a tax shelter.

If there are big inconsistencies between your previous tax returns and your current return then you could be sending a red flag to the IRS. The most common examples are name changes (i.e. your name or the name of one of your dependents), claiming new deductions and credits, or a significant change in income. For example, if a taxpayer earned $75,000 one year, then only $15,000 the next, the IRS is going to wonder what happened.

If there are differences in the income you reported to your state treasury and to the IRS then the IRS will investigate as to why the information reported is inconsistent. Not only do federal and state authorities receive records of all sources of income and financial information for every taxpayer – the IRS does as well. If they notice any errors that point to misrepresentation of income then you can expect to receive a letter informing you of an audit.

If your reported income seems suspiciously low for your given life style, then the IRS will see this inconsistency and may request an audit. Remember that the IRS has access to all your financial records and will notice if you are making a $5,000 monthly mortgage payment but only receiving $2,000 a month in reported wages. They are going to know you must be receiving income from another source and will investigate.

If your tax returns are incomplete or sloppily prepared then this might also get the attention of the IRS. If there are blanks where there should be numbers or if most of the numbers you claim are round numbers (like $2,500 or $10,000) then this will also send up a red flag to the IRS.
There is no way to guarantee a taxpayer won’t be audited. However, if a taxpayer files an accurate tax return and avoid the IRS’s red flags their chances of being selected for an audit are much lower. Even if they are selected, having a clean and accurate tax return will help make the audit less cumbersome and intrusive.

Tax Preparer Sentenced to 24 Months in Jail

A Jackson Hewitt tax preparer in San Jose was sentenced to 24 months in prison on Tuesday for filing false tax returns. Melinda Newens, who owned and operated two Jackson Hewitt Tax Service franchises pleaded guilty to the charges. Investigators claimed that Newens had included fraudulent deductions in the tax returns that she prepared then filed her clients' taxes electronically without their knowledge or consent. The Internal Revenue Service conducted audits of over 400 of her clients, and found that the losses to the government were over $1 million. As part of the plea agreement, Newens agreed to transfer her ownership of the two Jackson Hewitt franchises she owns. She also agreed to never again prepare tax returns professionally or supervise any other person preparing tax returns.

Bush Opposes Raising Gas Tax for Bridge Repairs

A week after the deadly bridge collapse in Minneapolis, President Bush dismissed the idea of raising the federal gasoline tax to repair the structurally deficient bridges across the nation. According to the American Society of Civil Engineers more than 70,000 of the nation's bridges are rated structurally deficient, including the bridge that collapsed over the Mississippi River last week. The group claims that repairing all the bridges would cost at least $9.4 billion a year for 20 years. The Democratic chairman of the House Transportation Committee proposed a 5-cent increase in the federal gasoline tax to establish a new trust fund for repairing or replacing structurally deficient highway bridges. However, President Bush has sworn to veto any tax increases. To read more check out this article in the New York Times.

IRS Summer Tax Tips

To help people with tax planning, the IRS has published Summertime Tax Tips to provide useful and information and advice on topics that affect millions of taxpayers. Though people don’t usually think about their taxes until closer to tax season, the IRS is encouraging taxpayers to take steps this summer to avoid potential problems. The IRS is publishing three tax tips per week. Topics range from how parents can get credit for sending their kids to day camp to using an online calculator to fine-tune your federal withholdings. You can see all of the tips at the IRS’s summertime tax tips page.

Restaurateurs in NYC Plead Guilty to Tax Evasion

According to the New York Times, two members of the Cipriani family, who own high quality restaurants in New York and Venice, pleaded guilty to tax evasion yesterday. The two agreed to pay $10 million in restitution and penalties to the resolve a tax fraud case they were facing. The two the men both face a potential prison sentence of at least one year. Sentencing is scheduled for October.

2007 State Sales Tax Free Holidays

TaxAdmin added a new helpful table to their website with information on sales tax free holidays being offered by different states in the upcoming months. Be sure to click here to find out if you state is participating in any of these holidays. But make sure you click the associated link for your state to get more specific information and rules.

New Hydrogen Powered Honda Qualifies For Credit

The IRS announced recently that the new Honda FCX meets the requirements of the Alternative Motor Vehicle Credit as a qualified fuel cell vehicle. The Honda FCX operates entirely on hydrogen fuel, and is one of the first of its kind. Purchasers of Honda FCX may rely on their certification concerning the vehicle’s qualification for the Qualified Fuel Cell Motor Vehicle Credit. The credit amount for the 2005 and 2006 Honda FCX is $12,000.

IRS to Begin Increasing Amount of Audits

Because of increasing pressure from Congress and the Executive Branch, the IRS has began an effort the drastically increase the number of audits they perform to help lower the ever growing tax gap. Eliminating the tax gap – estimated to be $312 billion to $353 per year – would provide enough money for the federal government to pay for Medicaid’s entire 2007 budget. Montana Senator Max Baucus, the top tax writer in Congress, has publicly demanded the IRS conduct more audits in order to continue to help lower the tax gap.

As a result, the IRS has announced that it plans to do more random audits in the next few years than it has in the past. In addition, the IRS announced plans to conduct more audits of high-risk groups. The Government Accountability Office recently concluded a detailed study on the tax gap and informed the IRS on which high-risk groups have the highest percent of misreporting on their tax returns.

With help from congress, The Government Accountability Office has identified the following groups of taxpayers to have the highest rates of misreporting on their tax returns:

• Sole proprietors reporting on Schedule C forms
• S corporations where owners aren’t taking enough wages in an effort to minimize payroll taxes
• Taxpayers who gamble and underreport their winnings
• Taxpayers who own a farm or are involved in farming
• Taxpayers who take advantage of the Earned Income Tax Credit when they don’t qualify
• Taxpayers who incorrectly report capital gains from sales of investments
• Taxpayers who take itemized deductions on Schedule A for medical expenses, charitable contributions, and non-reimbursed job expenses

However, being in one of these groups does not mean a taxpayer will necessarily be audited. Based on 2005 statistics, a taxpayer’s average likelihood of being audited was around 1%. But if a taxpayer falls into one of the groups listed above their likely hood of being audited increases to above 5%.

The IRS had discontinued its random audit process five years ago in an effort to be seen as a kinder and gentler agency of the government. However, under pressure to increase revenue to offset the tax gap, the IRS has decided to once again target not only returns that raise red flags, but to also select taxpayers to audit at random. Beginning in October, it’s expected that the IRS will target approximately 50,000 income tax returns from 2006. The IRS is warning that not all taxpayers audited will be subject to a scrupulous line by line audit though. Out of the 50,000 returns the IRS aims to audit, they estimate that 8,000 will just be examined by the IRS requiring no action on the part of the taxpayer, and 9,000 of the taxpayers audited will be able to respond to audit inquiries via mail. The remaining 30,000 taxpayers will be required to make face-to-face meetings though. Many of these audits are to be conducted even if the IRS doesn’t suspect a problem, but the IRS is claiming they hope to use the audits to gather information about taxpayer norms.

Shortly after the IRS’s announcement of their plan to increase audits, National Taxpayer Advocate Nina E. Olson delivered a report to Congress identifying the priority issues the Office of the Taxpayer Advocate will address in the coming year. One important aspect of the report was the battle the IRS is facing because of all the pressure being placed on them to lower the tax gap quickly.

"For fiscal year 2008, both the IRS and the Taxpayer Advocate Service (TAS) face similar challenges," Olson claimed. "The IRS is under scrutiny for its efforts to close the tax gap, while TAS is struggling to address taxpayer difficulties that arise as a result of these very efforts."

In multiple prior reports to Congress, Olson has identified the tax gap as one of the most serious challenges in tax administration. She has put together numerous proposals to try and help address it, but nothing has come from her proposals. She has expressed concern that the pressure on the IRS to reduce the tax gap could result in the IRS excessively cutting corners in it’s treatment of taxpayers. She emphasized that Congress needs to play an important role in helping to achieve an appropriate balance.

"IRS oversight should not just be limited to urging the IRS to collect more tax revenue," Olson continued. "Even as Congress directs the IRS to address specific areas of noncompliance, Congress should require the IRS to adopt a long-term research strategy that focuses not only on "closing the tax gap" but also on understanding what it takes to encourage taxpayers to be voluntarily compliant and how to change taxpayer behavior."

Sources
IRS to start auditing more tax returns?
Congress Instructs IRS to Conduct More Audits
More Audits Are Coming; How Can You Cope?
IRS targeting certain deductions in effort to close tax gap
They're back! IRS resurrects random audits

Group of Tax-Exempt Firms Owe Over $1B in Taxes

According to a new Government Accountability Office (GAO) report, nearly 55,000 tax-exempt organizations owed over $1 billion in unpaid federal taxes at the end of September 2006. However, the report said the $1 billion figure is likely understated because "some exempt organizations have understated tax liabilities or did not file tax returns." The GAO investigated 25 exempt organizations and found abuses and possible criminal activity, including failures to remit payroll taxes withheld from employees. Some of these companies’ leaders diverted money to their own bank accounts, which they spent on million-dollar homes and luxury vehicles. You can read the full report at the Washington Post Blog.

New Audi R8 Spider Sketch

Yesterday CAR Online got ahold of a new official sketch of an Audi R8 Spider. The car features a pair of speedster humps and in lieu of a folding top, the car will feature a removable targa-style roof to reduce complexity. According to CAR, Audi expects most Spiders to be sold in warm-weather areas where the top is likely to come off and stay off for extended periods.

5 Mistakes That Can Tax Your 401(k)

These day’s it is essential to put into a 401(k), or some other type of retirement plan, if you want to be able to comfortably retire. The problem, however, is that people don’t take the time or effort to fully understand their plan to ensure maximum benefits. "Too many workers set up their 401(k) plan and then just forget about it," claims Glenn Kautt, a financial planner. USA Today.com has an interesting article on the five most common mistakes people make with their 401(k) that can result in a tax liability. The five mistakes include: rejecting free money, loading up on company stock, chasing performance, investing too conservatively, and failing to fine-tune.

New IRS Electronic PIN Signature Requirement

Starting in the 2008 tax filing season, the Internal Revenue Service (IRS) will simplify the signature process for e-filed tax returns submitted by tax practitioners. The simplification will eliminate the need for a paper document to be sent to the IRS by having tax practitioners e-file individual income tax returns only when they are signed electronically using one of two methods: a Self-Select Personal Identification Number (PIN) or a Practitioner PIN. "Nearly 90 percent of tax professionals already use electronic signatures to sign returns," Acting IRS Commissioner Kevin M. Brown claimed. "It’s the right time to take the next step toward truly paperless filing." According to the IRS’s website, out of the 55 million e-filed returns that have come from tax professionals this year, more than 49 million used the Self-Select PIN or the Practitioner PIN.

National Taxpayer Advocate Releases Report on Tax Issues

"National Taxpayer Advocate Nina E. Olson today delivered a report to Congress that identifies the priority issues the Office of the Taxpayer Advocate will address in the coming fiscal year. Among the key areas of focus will be improving taxpayer services, ensuring that taxpayer rights are protected in the IRS’s private debt collection initiative, and making the IRS’s offer-in-compromise program more accessible for taxpayers who are unable to pay their tax debts in full." You can see the detailed report at the IRS’s website.

U.S. Honda Open of Surfing Begins

Today the Honda U.S. Open of Surfing will begin. The competition will begin with the men's and junior competitions at the Huntington Beach Pier. This competition is in it’s 49th year and is the North America's only six-star World Qualifying Series event. It will feature over 600 surfers competing for prize of $175,000.00. The men's competition begins on Monday and the women's competition begins Wednesday. The women's finals will be held July 28 and the men's finals July 29.

New Ferrari F430 Scuderia Announced

Ferrari recently announced their newest vehicle to be produced, the F430 Scuderia. It weighs about 220 lbs. and has a Ferrari 4.3L V8 engine that produces 510 horsepower, which gives the Scuderia a power-to-weight ratio of 1 horsepower for every 5.4 lbs. Michael Schumacher will officially unveil the new car in Frankfurt this September. You can see move pictures at AutoBlog.com.

Roni Deutch Tax Center Offering Incentive To Veterans

My tax center recently put out a new press release on the financial incentives being offered to veterans. "Roni Deutch Tax Center, the nation's leading tax preparation franchise, built from the success of its founder Roni Deutch in saving American's millions of dollars in back tax liabilities, announced today it will participate in a national program designed to help military veterans become franchise owners." You can read the full release at Franchise.com.

Largest Tax Fraud Case Ever Thrown Out

Earlier today a federal judge tossed out indictments against 13 former KPMG executives yesterday in the largest criminal tax-fraud case in United States history. The case was brought up to determine if the former KPMG executives intentionally helped clients avoid over $2.5 billion in federal tax liabilities through use of unlawful tax shelters. Judge Lewis A. Kaplan cited "intolerable" prosecutorial abuses that deprived the defendants of their constitutional right to a defense. Federal prosecutors pressured KPMG to stop paying the legal bills of their employees who refused to cooperate with the investigation. "There are limits on the permissible actions of even the best prosecutors," Judge Kaplan claimed. "The responsibility for the dismissal of this indictment . . . lies with the government." However, prosecutors are already considering their options for an appeal.

IRS Claims Electronic Excise Tax Filing Is Coming

The IRS announced they will be adding three excise tax forms to the list of federal tax returns and schedules that can be filed electronically later this year. "Electronic filing is a key component to modernizing our tax system," claims Acting IRS Commissioner Kevin M. Brown. "Expanding e-file opportunities to include excise tax returns will help improve service to taxpayers using these forms." The IRS expects to receive the first electronically-filed excise tax return this summer, when Form 2290, Heavy Highway Vehicle Use Tax Return, becomes the first available excise tax return that can be e-filed.

Courts Decided, Mental Anguish Awards Are Taxable

The day before Independence Day a D.C. federal appellate reversed their decision in the case of Murphy v. IRS. The courts decided that payments made as damages for personal injury are taxable by the United States congress. It’s no coincidence that the decision came the day before a holiday as it is clearly an effort to avoid negative publicity surrounding this milestone case.

Marrita Murphy was awarded damages for emotional distress and loss of reputation after she complained to the whistleblower office about environmental hazards at her job at the New York Air National Guard. After winning her whistleblower case in 1994 she was awarded $70,000.00 by the Department of Labor Administrative Review. Murphy claimed that the Guard blacklisted her and gave her bad references after she made her complaint to the Labor Department about Environmental conditions.

Shortly after receiving the money she found herself paying a hefty tax bill of more then $20,000.00. However Murphy asked for a refund of the tax on grounds that her damages were not income, but compensation for a personal injury which cannot be taxed. She fought the tax bill and eventually found herself in a legal battle against the United States Internal Revenue Service.

On August 22nd 2006, a D.C. federal appellate panel decided in Murphy v. IRS, that Murphy’s award was not income but compensation for the loss of a personal attribute, which could not be taxed. The court noted that Murphy was awarded damages for emotional distress and loss of reputation. The court was essentially treating her award as they would treat awards for physical injuries, which are protected from.

After the decision there was quite a bit of backlash form the government as well as from bloggers and legal experts around the world. The ruling raised the wider issue on the constitutionality of the tax code provisions that allows for taxing of awards from personal injuries. Legal experts around the country claimed the ruling was a significant threat to the IRS’s ability to collect taxes and that it would open the door for other constitutional challenges to the tax code. This case could "launch a thousand constitutionality arguments that people would have thought laughable before," claimed Yale Professor Michael Graetz.

Although the IRS called for a full appeals court to hear the matter, the same three-judge panel decided to rehear the case. On December 22nd, the Friday before Christmas, the panel announced they would rehear the case instead of allowing the entire D.C. Circuit to review the case. Although there is no supporting evidence, it seems likely that the court made this announcement in such proximity to the holiday in order to avoid negative publicity for having to rehear a popular case. This is a tactic known to most political scientists as it often used in political media representation.

During the hearing the IRS urged the court to treat damages to people differently from damages to property. The IRS claimed that compensation awarded for the loss of an arm or leg is not a payment to make the person whole, but rather the payment was part of a "forced sale." According to this logic if a person suffers mental breakdowns because they witnessed the death of their child any payment for the mental illnesses can be taxed because the victim was forced to sell their mental health for the amount of the award. Therefore any money gained from a forced sale would be considered income of the victim and can be taxed.

After hearing both side’s arguments the court agreed with the IRS’s "forced sale" argument saying that "Murphy’s situation seems akin to an involuntary conversion of assets; she was forced to surrender some part of her mental health and reputation in return for monetary damages," –Murphy v. IRS, p. 2. The court announced on July 3rd that Murphy must pay taxes on the income she received from the Labor Department. Again, the courts issued their announcement just before another national holiday, making another obvious attempt to avoid negative publicity by manipulating the media.

"We reject Murphy’s argument in all aspects," claimed Chief Justice Douglas H. Ginsburg. "We hold that a tax upon such damages is within Congress’s power to tax. Murphy no doubt suffered from certain physical manifestations of emotional distress, but the money awarded her was for mental pain and anguish and for injury to professional reputation."

"We conclude (1) Murphy’s compensatory award was not received on account of personal physical injuries, and therefore is not exempt from taxation pursuant to § 104(a)(2) of the IRC; (2) the award is part of her "gross income," as defined by § 61 of the IRC; and (3) the tax upon the award is an excise and not a direct tax subject to the apportionment requirement of Article I, Section 9 of the Constitution. The tax is uniform throughout the United States and therefore passes constitutional muster. The judgment of the district court is accordingly affirmed."
"Murphy intends to seek further review in the courts," said her attorney David Colapinto. "The decision makes a mockery of make-whole remedies under civil rights law. So don’t get hurt, because you’re never going to be made whole. Uncle Sam will take a tax cut."

"The Court’s reversal stands reality on its head. When whistleblowers suffer retaliation, they do not ‘sell’ their mental health," continued Colapinto. "If people are injured in a car accident, they do not ‘sell’ their arms or legs. These are real human losses, and compensation to restore that human loss was never indented to be ‘income’ under our Constitution or the tax code."

"This decision is a terrible setback for all victims of civil rights abuses. It permits congress to enact retaliatory taxes, stripping people from the constitutional protections afforded property. Damages to whistleblowers are not part of a business transaction – forced or otherwise. They are part of harm caused by illegal conduct. This decision threatens fundamental human rights," claimed Setphen Kohn, President of the National Whistleblower Center.

Further Reading

TaxProf Blog: D.C. Circuit Panel Reverses Itself in Murphy, Upholds Constitutionality of Taxation of Award for Nonphysical Injury

Associated Press: Court: Mental Anguish Awards Are Taxable

NY Times: Nonphysical Injury Awards May Be Taxed, Court Rules

National Whistleblower Center Press Release: Court Reverses Itself On Key Tax Case

Roth & Co.: 'Murpyh' Goes Out With A Whimper

WSJ Law Blog: D.C. Circuit Reverses Itself in Tax Ruling

Congress to IRS, Conduct More Audits!

According to About.com, the Government Accountability Office has directed the IRS to raise revenue by increasing the amount of taxpayer audits they perform. Congress directed the IRS to pay close attention to the following taxpayers: schedule C filers, Partnerships and S-Corporations, especially S-Corporation owners who do not take appropriate salaries, gamblers, part-time farmers, individuals who file Schedule A and claim large amounts of medical deductions, charitable contributions and job-search expenses, and investors who do not properly report sales of investment properties.

California Lawmaker Pushes For Sex Tax

California Assemblyman Charles Calderon introduced Assembly Bill 1551 recently which aims to "assess an 8 percent tax on sexually explicit nightclub acts, items sold by sex shops and pay-per-view movies featuring unprotected sex or X-rated acts in a public place." Although he estimates his bill would generate over $100 million annually, it is extremely unlikely the bill will pass because of California’s 2/3 requirement for any tax increases. "I see this as an attempt by Mr. Calderon to appeal to certain social conservative elements within my party as a way to get more money to spend for his special interest groups," said Republican Assemblyman Chuck DeVore. Read more at SacBee.com.