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.