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...

IRS Tightens Rules on Tax Preparers

The IRS is starting the New Year out with a bang, with an announcement on Monday that they plan to roll out a series of new regulations on tax preparers. These changes will benefit taxpayers, as they IRS will begin targeting offices with high rates of erroneous returns. The Sac Bee posted a good article about how these changes will affect the tax preparation industry; you can find a clip of their story below.

With millions of Americans turning to paid tax preparers each year, the IRS marked the launch of the 2010 tax season Monday by announcing sweeping changes in how tax preparers conduct their business.

Among the new requirements: tax preparers must register with the IRS, undergo tax competency exams and annual education classes.

"Tax return preparers help Americans with one of their biggest financial transactions each year. It's vital we ensure all tax preparers are ethical," said IRS Commissioner Doug Shulman in a conference call with reporters.

Calling the new requirements a "monumental shift" in IRS tax strategy, Shulman said they're designed to protect consumers, alleviate fraud and bring in more tax revenue.

Expanded 120-Day Time Window Applies to Disclosure Authorizations

According the newest IRS press release, a new rule has expanded to 120 days for the time period during which the Internal Revenue Service may share a taxpayer’s tax-return information with third parties, based on a taxpayer’s written disclosure authorization.

The newly-expanded time window is retroactive to Oct. 19, 2009. Consequently, any disclosure authorization signed and dated by a taxpayer on or after Oct. 19 qualifies for the new 120-day window. Forms affected by this change include:

• Form 4506, Request for Copy of Tax Return,
• Form 4506-T, Request for Transcript of Tax Return,
• Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript and
• Form 8821, Tax Information Authorization.

Many taxpayers use these forms to authorize the sharing of their tax information with others, including financial service providers. The IRS will share the requested information with the designated third party, as long as the agency receives the disclosure authorization within 120 days of the date it is signed and dated by the taxpayer.

The IRS on Dec. 18, 2009 released Notice 2010-8, which set forth an interim rule extending from 60 to 120 days the period within which signed and dated authorizations to disclose taxpayers’ tax-return information to third parties must be received by the IRS in order to be effective. The IRS made this change because some institutions charged with assisting taxpayers in their financial dealings have encountered difficulty in obtaining written disclosure authorizations and submitting them to the IRS within the 60 days allowed by the existing regulation. The interim rule will remain in effect until the IRS amends the regulations under section 6103(c) of the Internal Revenue Code.

10 Secrets the IRS Does Not Want You to Know

Dealing with IRS collection agents can be a scary thing, however as this blog entry from my law firm’s website points out, there are dozens of secrets about the tax debt collection process that the IRS does not want taxpayers to know. After defending Americans against the IRS for nearly twenty years, my staff and I are familiar with all of the IRS’ secrets and collection tactics. I have included a few of the items on the top 10 list below, but you can check out the full text at the Roni Deutch Tax Relief Blog.

1. Automatic Extensions

Although we all rush to get our tax returns filed before the April 15th filing deadline ever year, the IRS actually provides you with an easy way to get an extra six months to file your return. By requesting an automatic extension using IRS Form 4868, you can get a few extra months to file your return. In many cases, it is often better to request an extension then to file a flawed return that will result in an audit or back tax liability.

In addition, filing for an extension alone carries no penalty with it. Rather, it is the failure to pay on time that will result in interest and penalties. An automatic extension does not extend the deadline to pay taxes to the IRS. Therefore, if you anticipate having an outstanding tax liability, you will still need to pay the IRS by April 15th to avoid penalties and interest. On the other hand, if you are expecting a refund, then you need not worry about being penalized for requesting an extension.

2. The IRS Wants To Settle Quickly

It may not seem like it when you are dealing with them, but the IRS actually wants to settle your delinquent account as quickly as possible because pursuing collections against you can be expensive. In some cases, the IRS can even be convinced to settle your account for less than what you owe. However, you will need to convince the IRS that because of your financial circumstances it is better for them to accept your offer to pay a reduced amount.

3. The IRS Does Not Want to Seize Your Assets

One common misconception is that the IRS prefers to seize your personal property and liquidate it to satisfy your tax debt. However, the process of identifying, locating, seizing, and selling your assets is a very difficult and labor-intensive process for the IRS. As such, the IRS would much rather settle with you then go down this path. Additionally, issuing a wage garnishment or bank levy is much easier and cheaper for the IRS to obtain. If you ignore your tax debts, then the IRS will likely try to use a wage garnishment or bank levy to try to collect from you as opposed to seizing your assets.

Surviving an IRS Audit with Minimal Losses

There is nothing more frightening to a taxpayer than checking your mail and seeing a letter from the IRS letting you know that you are being audited. Fortunately, if you follow a few basic tips, you will find that an audit does not need to be as scary as you might think.

1. Always be Prepared

The best way to survive an IRS audit is to always be prepared for one. You never know when the IRS is going to send you a letter informing you of an audit, so it is a good idea to always file an honest tax return. Gather and retain receipts of all claimed expenses and deductions. And hold onto all of your tax records and important financial documents for at least 6 years.

2. Do not Ignore the Problem

When you get an audit letter from the IRS, it is important that you do not just ignore the problem. You will generally have 30 days to respond to the letter, otherwise the IRS can take drastic actions such as adjusting your total tax liability. If they find you owe them more money, then the IRS will send you a notice regarding the back taxes owed and will begin collection activity.

3. Organize Documents in Advance

The IRS’s letter should include a list of items they would like to see such as canceled checks, receipts, bank statements, etc. Before the actual audit, you should go through the list and collect documentation of everything the IRS is requesting.

4. Get any Documentation you Might be Missing

If you find out that you are missing an important document the IRS auditor wants to see, then it is a good idea to get extra copies ahead of time. You can contact your bank and credit card company to get copies of statements or receipts. It is important to bring all of the documentation that has been requested when you show up for the audit. If you do not, then odds are you will see your tax liability increase.

5. Bring Only what is Required

You should only bring documents to your audit that the IRS has asked for. If the IRS did not ask you to verify your home office or a business expense, then that means you do not need to worry about it. There is no need to overwhelm the auditor with unrelated receipts or documents, as this could only lead to additional questions.

6. Make Copies, and Keep the Originals

Before the audit, you should stop by an office store or Kinko’s and make copies of all of your documentation to give to the auditor. You should make absolutely sure that you keep all of the original copies in your file cabinet in case you ever need them again in the future.

7. Be Nice & Friendly

During the audit, you want to make sure that you are nice and friendly to the auditor. No one likes paying taxes and everyone hates being audited. However, being rude to the IRS representative will do nothing positive for your case.

8. Admit your Mistakes

Everyone makes mistakes and tax returns are no exception. It is always hard to admit a mistake, but when you are faced with evidence from the IRS auditor, it is in your best interest to acknowledge the error as opposed to arguing with the representative.

9. Get Help if Needed

If you are worried about facing the IRS on your own, or feel like your finances are over your head, then you might want to enlist help from a CPA or qualified tax professional. Just make sure that you find someone who is experienced in dealing with IRS audits.

10. Know your Rights

Although an IRS audit can be very intimidating, you should not let the auditor walk all over you. Taxpayers have a specific set of rights when it comes to audits, such as the right to decide when and where it will tax place. For a full list of your audit rights checkout this page on IRS.gov.

Can The IRS Issue a Summons?

Unfortunately, the IRS can take a lot of aggressive actions to collect money from taxpayers. As this article from Examiner.com explains the IRS can even issue summons to collect information pertaining to your tax liability.

Under the Internal Revenue Code § 7602, the IRS has the authority to issue summonses: “For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability.”

The IRS may issue summonses for testimony, records (“books, paper”), or “other data which may be relevant or material to such inquiry.” They may not, however, make unreasonable demands of taxpayers.

Under § 7609, the IRS may issue summonses to third-parties, for example to the taxpayer’s bank. However, the taxpayer must be notified before issuance of such a summons, and retains the right to request that the party not comply with the summons unless it is ordered to do so by a court.

Taxpayers receiving such a summons have 20 days to ask a federal district court to quash the summons. In such a case, the IRS may seek to compel the taxpayer. The taxpayer also has the right to seek to quash to protect the taxpayer’s information from being released to third-parties, though the IRS Reform and Restructuring Act § 3415 amended this to protect disclosure to third-parties as part of a collection attempt as distinguished from a taxpayer’s return examination.

The Internal Revenue Code provides mechanisms for the formal compulsion of the production of documents and testimony if informal attempts fail.

Even the IRS Has Time Limits

I am always writing about how important it is for taxpayers to know their rights, and one of the biggest defenses they have against the IRS is the statute of limitations. So when I saw this detailed explanation of the statute of limitations on Forbes.com I knew I should share it with my readers. Check out their article below.

If you are a fan of Law & Order as I am, you may have a negative reaction when a suspect claims the law can't touch him because of the statute of limitations. By relying on a technicality that hinges on the mere passage of time, it's almost as if the suspect is admitting he did it.

In any tax dispute, you'll want to make good substantive arguments. Still, don't discount the importance of the statute of limitations.

If you face a tax audit and can legitimately point to the statute of limitations to head off trouble and expense, you should. Why should you have to prove you were entitled to a deduction (or have to find and produce yellowed receipts) if it is simply too late for the IRS to make a claim?

Given the importance of the statute--both to heading off audit trouble and to knowing when you may be able to throw some of those receipts away--it is surprising how few taxpayers are statute savvy.

Fortunately, in this part of the tax law, the rules for corporations, partnerships, nonprofit organizations and individuals are consistent. Here's what you need to know.

Normally, the IRS Has Three Years

The overarching federal tax statute of limitations runs for three years after you file a tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after you file. If you file late and do not have an extension, the statute runs three years following your actual (late) filing date.

Continue reading at Forbes.com…

Is 'Friending' in Your Future? Better Pay Your Taxes First

Most of you have probably heard the warning about putting things on your MySpace, FaceBook, or Twitter profile that you might not want your employers to see. But have you ever thought about not wanting the IRS to know what you put on your profile? Well, you might want think about it next time you post a blog entry about your personal finances. According to the Wall Street Journal, some state revenue agents have begun gathering information about tax evaders from social networking sites.

In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home town to work as a real-estate broker and gave his employer's name. The state collected several thousand dollars, the full amount due.

Meanwhile, agents in Nebraska collected $2,000 from a DJ after he advertised on his MySpace page that he would be working at a big public party.

In California, which has recently been so strapped for revenue it has had to pay some bills with IOUs, agents are also using social Web sites. When one delinquent was identified as a rigger of sails, a curious collection agent searched his name and the term online and found a discussion board used by local riggers. In one thread someone asked where the rigger was because his store had closed, and a reply was posted, "Oh, he moved across the bay." The agent found the man and collected a four-figure sum.

Continue reading at WJS.com…

Democratic Health Care Bill Divulges IRS Tax Data

With all of the talk around the Obama administrations 1,000 page health care bill, it can be difficult to pick apart. However, CBS News published a great article this morning on one section we should all be aware of. According to the report private financial data of millions of Americans could end up being handed over to the health care choices commissioner. Read more about this story below.

One of the problems with any proposed law that's over 1,000 pages long and constantly changing is that much deviltry can lie in the details. Take the Democrats' proposal to rewrite health care policy, better known as H.R. 3200 or by opponents as "Obamacare." (Here's our CBS News television coverage.)

Section 431(a) of the bill says that the IRS must divulge taxpayer identity information, including the filing status, the modified adjusted gross income, the number of dependents, and "other information as is prescribed by" regulation. That information will be provided to the new Health Choices Commissioner and state health programs and used to determine who qualifies for "affordability credits."

Section 245(b)(2)(A) says the IRS must divulge tax return details -- there's no specified limit on what's available or unavailable -- to the Health Choices Commissioner. The purpose, again, is to verify "affordability credits."

Suozzi: Taxpayers Should 'Revolt' Over Property Taxes

From NewsDay.com:

Taxpayers should "revolt" if the state increases income taxes on upper-income earners without doing something to stabilize property taxes for all state residents, according to Nassau County Executive Thomas Suozzi.

"This country was founded on the rallying cry of 'No taxation without representation;' the rallying cry today should be 'No income tax [increase] without property tax relief,'" Suozzi said in an interview yesterday.

Suozzi has scheduled a news conference today to point out that while Nassau, Suffolk and Westchester counties combined have 18 percent of state's population, they account for 40 percent of the taxpayers in the state with incomes of more than $250,000 - the target of most discussions about taxing high earners.

New York State provides more revenue to Washington than it gets back, downstate provides more revenue to Albany than it gets back, and it would be unfair to the downstate counties with high property taxes to siphon more tax revenue without property tax reform, he said.

"If they do an income tax increase, and they don't to a property tax cap and property tax relief, we should revolt," Suozzi said, his voice rising. "We should rally behind an effort to make that change, and now is the time to do it."

Suozzi said he was convinced that both the state and federal governments would eventually have to increase taxes on higher incomes, but admitted there has been little public support for such a move in Albany beyond the Assembly.

Gov. David A. Paterson said earlier this week that he opposed the higher income tax - dubbed the "fair share tax" by labor unions and other supporters.

Misdirected refund costs filer $2,696

A new article on one of my favorite blogs – Don’t Mess With Taxes – describes how a taxpayer’s refund went to the wrong person, costing him over $1,000. Check out the story below.

It is every taxpayer's nightmare. Your refund never arrives.

When that happens to a paper check, you can file Form 3911 the old-fashioned mailed-in way and the IRS will reissue your missing money.

But when the transaction is totally electronic, you're essentially out of luck.

Just ask Harry Rios of Des Moines, Iowa. His $2,969 tax refund check apparently was sent to someone else's bank account. (Hat tip to The Consumerist.)

Rios told the Des Moines Register that a tax preparer with H & R Block copied his bank account number incorrectly on his tax forms. Now Rios is trapped in a tax Twilight Zone where there's seemingly no way for him to get his rightful refund.

It seems the unintended refund recipient took Rios' money and ran. It's no longer in the account into which it was mistakenly deposited.

The police are involved. H&R Block is still in the loop. The bank is part of the investigation process. And, of course, there's the check issuer, good old Uncle Sam.

But Rios is still waiting for his money.

Happens every year: Rios' predicament is, unfortunately, not unusual.

In the not-so-olden tax days when the tax transactions were done on paper -- forms filed that way, actual checks sent out to taxpayers -- there was a system in place. It's still there, but more of us are going electronic.

Covering Taxes, Covering Rallies

Some LA residents (8,000 in fact) are wondering why their huge taxes protest did not make local news. Check out an article about their protest via LATimes.com.

8,000 people show up to a 'Tax Revolt' rally in Fullerton and the L.A. Times fails to cover it because it's not newsworthy? Maybe if you covered the things important to the folks in the Southland, you'd sell more papers.

So said a number of others who wrote over the weekend asking why there was no story on a rally promoted by KFI-AM talk-show hosts to protest recent proposed tax increases. The rally drew (depending on who's counting) 3,000 to 15,000 people.

The Times noted the event with a short post on the L.A. Now blog on March 8. The rally was covered by the Orange County Register and San Gabriel Valley Tribune (which noted: "The radio station reported as many as 15,000 people attended, but a Fullerton police sergeant estimated 3,000 to 8,000 people were there").

Other events with similar numbers don't always get stories; an earlier post on this journal gave the thinking on that last year.

California Editor David Lauter wrote back to scores who asked about the event. The gist of his response: No, The Times didn't cover the rally. But yes, The Times has covered the issues that led to anger behind the rally.

Here's the e-mail Lauter sent out late Monday to many dozens who wrote:

Thanks to each of you for writing. I appreciate hearing from all of you -- even the ones who called me a moron.

We all agree that the tax issue is extremely important. That's why, in the last few weeks alone, the Times has run more than 30 stories about the tax and budget proposals being pushed by the Legislature and the governor. That's also why we ran a tax chart so you could see how much the new taxes would cost you.

IRS Announces Low Income Taxpayer Clinics Grant Recipients

Earlier today Nina E. Olson, National Taxpayer Advocate, announced that the Internal Revenue Service will be awarding nearly $8 million in matching grants to Low Income Taxpayer Clinics (LITCs) this year. The IRS will be awarding LITC grants to 154 organizations from 49 states plus the District of Columbia, Puerto Rico and Guam. According to the IRS LITCs are "qualifying organizations that provide representation for free or a nominal fee to low-income taxpayers involved in tax disputes with the IRS or that provide education on taxpayer rights and responsibilities to taxpayers for whom English is a second language or who have limited English proficiency." Source: IRS.gov.