More Tax Refunds Paid, IRS Reminds Filers About Savings Bond Option

From the IRS's newest press release:

The IRS is reminding those who haven’t filed their tax returns that they can receive their refunds in the form of savings bonds, payments to retirement accounts, mutual funds, as well as in the form of cash directly deposited to a checking or savings account.

By March 4, the IRS had issued more than 52 million refunds worth $161 billion for an average refund of $3,070.

For tax year 2010 returns, there are new savings bond options. Last year, if the taxpayer chose to receive a savings bond as part of the refund, it could only be issued in the taxpayers’ name. This year, taxpayers can designate anyone to receive a savings bond and also designate the co-owner or beneficiary. Also a new section was added to Form 8888, Allocation of Refund (Including Savings Bond Purchases), for entering savings bond information so that taxpayers no longer need to enter a pre-specified routing number. Instead, taxpayers will enter the bond owner’s name. The savings bonds will be mailed to the taxpayer or the person designated on the form.

Taxpayers who claim a tax refund on Form 1040 can use Form 8888 to split their refunds. Refunds can be directed into bank accounts and other financial institutions where their mutual funds or retirement accounts are managed and to purchase U.S. Series I Savings Bonds. Taxpayers can choose to use a portion of the refund to buy up to $5,000 in low-risk savings bonds, which earn interest and protect owners against inflation. The bonds must be purchased in $50 increments. Direct deposit of any remaining refund amounts is no longer required. Paper checks can be requested for the balance.

Read more here...

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

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

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

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

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

Hat Tip: TaxProf

Gas Prices Finally Notch Down

Yesterday gasoline prices dipped for the second day in a row following a twenty day streak of price increases. However, they are expected to continue to rise. Anyone else thinking a bicycle sounds like a great investment right now?

CNN reports:

The nationwide average price for a gallon of regular unleaded gasoline slipped 0.3 cent to $3.533 on Wednesday, reported the motorist group AAA.

The nation's most expensive gas is in Hawaii, with a statewide average price of $4.029, and the cheapest is in Wyoming, with an average of $3.287, according to AAA.

The ongoing march of higher prices started in the last week of February and dragged through much of March. The climb in gas prices resulted from an oil rally fueled by political turmoil in the Middle East and North Africa.

Demand for oil has been stymied by the deadly earthquake and tsunami that has devastated parts of northern Japan, killing 3,771 people and damaging nuclear reactors.

Read more here

What are YOUR St. Patrick's Day Traditions?

St. Patrick's day is one of my favorite holidays of the year, besides Halloween that is, because I love breaking out my leprechaun costume.


This year though, I'm curious what YOU do to celebrate St. Patrick's Day. Are you a fan of green beer? Maybe a corned beef and cabbage dinner party? Whatever it is, let me know via Twitter or Facebook.

I'll be retweeting and replying to messages and comments over the next few days to help spread the Irish spirit!

8 Costly Tax Mistakes

MSN asked their readers to share some of the tax mistakes they have made. Make sure to avoid all of these when you file your return this year!

From MSN.com:

1. Was your debt forgiven? Report it as income.

In our sputtering economy, Americans are renegotiating credit card debt as never before. Yet many don't discover until later -- sometimes much later -- that in the view of the IRS, canceled debt from credit cards is income. "What we didn't know was that all the savings were considered income," one reader told us. "We were charged late charges and penalties."

Credit card companies report forgiven debt to the IRS on Form 1099-C (.pdf file). "You should receive a copy," says Tracy Coenen, a forensic accountant whose practice, Sequence, assists taxpayers with tax audits and tax fraud investigations.

Things get more complicated with mortgage debt, and you may want to talk with a tax expert if you have restructured your home loan. Coenen notes that canceled mortgage debt on your primary residence may be eligible for exclusion from income under the Mortgage Forgiveness Debt Relief Act, which applies to debt forgiven starting in 2007. The law remains in effect through 2012.

2. Report all your jobs.

Several readers admitted that they've forgotten to include some sources of income. One woman said she neglected to include her husband's $27,000-a-year job in 2008, and still owes a fine of $3,400. "I think this is just about as stupid as one can get!" she wrote. Another forgot about two weeks of work her husband put in for one company. Even though they filed for the correct amount once they got the W-2 Form, she wrote, "HUGE problem!"

Continue reading at MSN.com...

Ohio Mistakenly Promises Taxpayers Whopping Tax Refunds

Over 10,000 residents in Ohio received letters claiming they would be sent huge tax refunds. One woman, Denise Bossetti, was sent a letter telling her to expect a $200 million check in the mail. So, who’s thinking a move to Ohio might just be a lucrative venture?

From AccountingToday.com:

“I thought, ‘They are going to have a big negative when they cut that check,’” Bossetti told the Sandusky Register. “We had a big laugh. I kept saying to Charlie, ‘What’s it like to live with someone with $200 million?’ He said, ‘Let’s wait till we get the check.’”

The Ohio Department of Taxation admitted that it has sent approximately 9,700 letters to taxpayers advising them of the hugely exaggerated refunds.

Ohio is facing a projected budget deficit of approximately $8 billion.

More here

Man Uses Pennies to Pay Credit Card Bill

According to reports, a man from my home state of California was turned away when he tried to pay a $6,500 bill in pennies. You know, every few years someone tries to pay in all pennies, with varying results. Are we tired of this being “news” yet?

KPLCtv.com reports:

Thirry Chahez loaded 650,000 pennies in his vehicle and drove to a local Chase Bank in an attempt to pay his credit card bill that was due on Monday.

"Money's money isn't it," Chahez said. "Different time, different branches and they all send me away and have a very bad attitude."

Initially, Chahez was told he needed to roll the coins, and he said he has tried to make the payment for days.

"I brought them back, and now they're rolled and they still don't want them," Chahez said. "Does my pennies stink?"

Chahez was sent to a different branch with a bigger vault to make his payment.

Chahez says he is upset with his bank over a refinance he could not get and other charges and fees on his credit card.

Continued here

Demystifying the 2010 Tax Act: What You Need To Know

Lewis Saret, of the Forbes.com blog, posted a very informative article earlier in the week explaining the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which was signed into law at the end of 2010. Check out a snippet of his article below, or find the full text here.

Changes in Federal Estate Tax Exclusion Amount and Tax Rate

Before the Act, the federal estate tax was gradually reduced over several years and ultimately eliminated for decedents dying in 2010. Prior law provided that the estate tax, with a maximum tax rate of 55 percent and a $1 million applicable exclusion amount, would be reinstated after 2010. However, the Act reinstates the estate tax for decedents dying during 2010, but at a significantly lower maximum tax rate of 35 percent and at a significantly higher applicable exclusion amount of $5 million. Although this regime continues for decedents dying in 2011 and 2012, it is temporary and will sunset on December 31, 2012. At that point, the prior estate tax regime—with a 55 percent tax rate and $1 million exclusion—will be reinstated, subject to debate in Congress.

Changes in Carryover Basis Rules

The Act also eliminates the modified carryover basis rules for 2010 and replaces them with the stepped-up basis rules that had applied before 2010. Property with a stepped-up basis generally receives a basis equal to the property’s fair market value on the date of the decedent’s death. Under the modified carryover basis rules that applied during 2010 before the Act, executors could increase the basis of estate property only by a total of $1.3 million (plus an additional $3 million for assets passing to a surviving spouse, for a total increase of $4.3 million), with other estate property taking a carryover basis equal to the lesser of the decedent’s basis or the property’s fair market value on the decedent’s death.

The Act gives estates of decedents dying during 2010 the option to apply (1) the estate tax based on the new 35 percent top rate and $5 million applicable exclusion amount, with stepped-up basis, or (2) no estate tax and modified carryover basis rules under prior law.

Portability

The Act provides for “portability” between spouses of the estate tax applicable exclusion amount for decedents dying in 2011 and 2012, if both spouses die before 2013. Portability allows surviving spouses to elect to use the unused portion of the estate tax applicable exclusion amount of their predeceased spouses. This provides the surviving spouse with a larger exclusion amount.

Read more here

IRS Audits 18.4% of the Richest Taxpayers

Last year, the Internal Revenue Service audited 18.4% of taxpayers with incomes exceeding $10 million. Audit rates went up across the board for 2010, except for those without any adjusted gross income.

Bloomberg reports:

Audit rates increased in 2010 for all income groups, except for people with no adjusted gross income, according to data released today in Washington for the fiscal year that ended Sept. 30.

Highest earners had the sharpest increases in audit rates. The IRS audited 11.6 percent of taxpayers reporting adjusted gross income between $5 million and $10 million, up from 7.5 percent the year before. Taxpayers making between $75,000 and $100,000 faced the least chance of an audit, with a 0.64 percent rate.

Through its voluntary offshore disclosure programs and court cases involving Swiss banks, the IRS has gotten a better understanding of how wealthy people in non-corporate businesses manage their assets, said George Clarke, an attorney at Miller & Chevalier Chartered in Washington.

“They learn things and then they roll those things out across the board,” he said.

The overall audit rate for income tax returns was 1.11 percent, up from 1 percent the year before. The IRS had previously reported some of this data without the breakdowns at the top of the income scale.

Concerted Effort

The increase in audits of people making more than $10 million is part of a concerted IRS effort to focus on the business dealings of the wealthiest individuals.

Read more here

UBS Client in San Diego Gets Probation for Hiding Accounts

From Businessweek.com:

A UBS AG client in San Diego was sentenced to three years probation after pleading guilty to hiding assets in his Swiss bank accounts from the U.S. Internal Revenue Service.

Jeffrey Chatfield, a consultant who advised private companies that sought to go public, was also ordered to pay $96,000 to resolve his civil liability with the IRS, the U.S. Justice Department said today in a statement.

Chatfield filed false tax returns from 2000 through 2008 in which he failed to disclose his Bahamian and Swiss accounts at UBS and Credit Suisse Group AG, according to the Justice Department’s statement. The accounts held as much as $900,000 in untaxed securities and cash Chatfield received in 2000 from his consulting work, according to the statement.

UBS provided U.S. officials with Chatfield’s identity and account information as part of a deferred prosecution agreement under which the Zurich-based bank admitted helping U.S. taxpayers hide accounts from the IRS, the Justice Department said. Chatfield had moved his assets to a Credit Suisse Group AG account in 2004 and that bank told him in 2008 it was closing all accounts held by U.S. taxpayers, according to the statement.

Continued here

The 10 Most Counterfeited Products Sold in America

If you are planning to buy any of the items from this list on eBay then make sure you aren't purchasing a counterfeit!

From DailyFinance.com:

1. Footwear

Value: $99.8 million

Percent of Total Seizures: 38%

Just under $100 million worth of counterfeit footwear was seized entering the U.S. in 2009, by far the greatest amount of any product. By value, 98% of counterfeit footwear originated in China. This was the fourth year in a row that footwear was the top commodity seized.

2. Consumer Electronics

$31.8 million

12%

Consumer electronics, such as cell phones, digital music players and cameras, made up 12% of all seizures worth nearly $32 million. China produces most of these electronics, with approximately $18.5 million worth of seizures originating from there. Consumer electronics are also the most popular illegitimate product coming out of Hong Kong, second only to China. They make up 40% of all counterfeit goods that are intercepted from Hong Kong.

3. Handbags/Wallets/Backpacks

$21.5 million

8%

Anyone who has walked down a major New York City street has had the opportunity (or several) to buy a fake designer handbag. The CBP seized $21.5 million worth of counterfeit handbags, wallets and backpacks coming into the country. This accounts for 8% of all seized commodities that violated IPR. China exported $19.5 million of these goods.

See the full article at DailyFinance.com

Will Global Economy Take a Hit From Tsunami?

Probably not, at least that's what economists are saying. The tragic earthquake and tsunami in Japan might push the country into a recession, but some experts are predicting a quick recovery. Let’s hope for a quick recovery in every way for Japan.

CNN reports:

While most of the industrial base of Japan was spared the worst of the disaster, few plants are back up and running yet as the country tries to come to grips with the crisis.

"The recent events in Japan are first and foremost a human tragedy," said economists from Capital Economics in a note Monday. "Nonetheless, the markets also need to consider the economic impact."

Here are the 3 key questions in trying to judge the economic chaos caused by the disaster.

How bad will Japanese businesses be hit?

Even in areas not directly damaged by the quake and flooding, many factories remain closed due to damage to roads and rails, disruptions of supply chains and limits on the supply of electricity.

Continue reading here...

Stephen King Doesn't Think His Tax Rate is High Enough

At a rally in Sarasota King said, "as a rich person I pay 28% tax. What I want to ask you is why am I not paying fifty?" Is there a form to make donations to the government? Can we send one to Mr. King?

Hat Tip: The Daily Caller

Congress Failed to do its Job

Although we are 162 days into the fiscal year, the federal government still does not have an approved budget. Just… incredibly frustrating.

CNN reports:

As school kids know, Congress has the responsibility to appropriate funds for the government to spend. It's right there in Article 1 of the Constitution. But this year -- and let's not mince words -- lawmakers have fallen down on the job.

"This is a measure that indicates they [lawmakers] are not doing well," said Julian Zelizer, a professor of history and public affairs at Princeton University. "Polarization in Congress is so extreme, and this reflects the difficulty lawmakers face in making decisions."

Of course, short-term spending bills are nothing new. Congress has enacted at least one every year for all but three of the past 30. But five in one year? How did it come to this?

President Obama first proposed a budget for fiscal year 2011 on Feb. 1, 2010. That was 404 days ago.

If the process worked as designed, Congress would have taken a look at the president's suggestions. Lawmakers on the budget committees would have set target spending levels, and appropriations committees would have hammered out spending plans to fit.

Read more here

Foreclosure Activity Plunges in February

With the foreclosure system facing major overhauls, the total number of foreclosures fell 27% from the same time last year. Of course, this is not the gleaming ray of economic hope we’re all looking for. Just as many people are having trouble, banks just held off on actual foreclosure proceedings.

From TimesLeader.com:

Evidence of a foreclosure slowdown comes as state attorneys general and federal regulators push the banks to revise the way they service loans, consider troubled borrowers for potential mortgage relief and conduct their foreclosure proceedings. Officials last week sent the nation’s biggest mortgage servicers a 27-page list of terms outlining these demands.

“The foreclosure process is stalled, and the seemingly impending settlement is delaying foreclosures,” said Mark Zandi, chief economist for Moody’s Economy.com. “The whole process is slowing down because of these issues.”

Negotiations involve the five largest providers of home loans. They include the arms of four national banks: Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. Also part of the talks is Ally Financial Inc., the former GMAC, which services loans through its GMAC Mortgage unit.

The wrangling began last year after revelations that some of the nation’s largest financial institutions relied on “robo-signers,” people who signed key court documents used in thousands of foreclosure cases across the country without reading or understanding them. The revelations led several banks to issue foreclosure moratoriums and lawmakers to question the integrity of the entire foreclosure system.

The February decline was probably related, in part, to banks resubmitting foreclosure filings that had been found to be faulty, said Rick Sharga, RealtyTrac senior vice president. About 70,000 foreclosure filings were resubmitted nationally last month, a number RealtyTrac did not include in its February estimates.

Continue reading here...

Questions for the Tax Lady: March 14th, 2011

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: I am a self employed architect and have not received 1099s from several clients. How should I report this income?

Answer: Great question! Too many people think that just because they didn’t receive a 1099, they don’t have to report the income. WRONG. You still have to report all income, the 1099 is simply an informational form provided by the payer. So, this is where keeping good records will save you from a world of hassle. Use your own bank records and deposited checks to determine the amount of income, and report it on your 1040 Schedule C.

Now, what happens if you receive a 1099 and you’ve already filed? First, pull out a copy of your return; see if the amounts are different from what you claimed. If the amounts are different, you should file an amended return (Form 1040X) as soon as possible. If the amounts are not different from what is shown on your tax return, then file that 1099 away, and relax.

Question: Roni, what are some of the biggest IRS audit red flags?

Answer: The IRS uses a lot of different criteria to determine who will be audited. Honestly, I think too much emphasis is placed on the concept of red flags. If you are entitled to a deduction or credit, you should claim it. If you keep proper documentation, you really should have nothing to fear, even in the face of an audit.

Now, that being said, you should be aware of items that are under close IRS scrutiny. Here are just a few things that the IRS keeps a close eye on:

• First Time Home Buyers credit – If you claimed this tax credit, you can be sure the IRS will be going through your return with a fine-toothed comb.
• Earned Income Tax Credit – This credit is one of the most under claimed and abused at the same time. That abuse means that anyone claiming the EITC should be ready to verify their tax information, should the IRS ask.
• Self Employment income – yes, the IRS loves to audit entrepreneurs and small business owners. This group has historically had trouble properly reporting income and over claiming expenses. Now, we all bear the burden of intense IRS scrutiny.
• Claiming higher than the norm in tax breaks – the IRS has a lot of information about how much most people claim in deductions and credits based on income levels. So, if your amounts are higher than the norm, they will likely be asking to see your receipts.
• Big incomes – people earning more than six figures have an increased likelihood of audits. Big incomes allow people more resources to hide assets. (not that all rich people are tax evaders. Far from it. But, remember the UBS scandal?) So the IRS takes a special interest in wealthy folks’ taxes.

Remember, you should never let fear of an audit keep you from claiming your rightful tax breaks. There is nothing you can do to prevent an audit, and even avoiding heavily scrutinized tax items will not inoculate you. Just be honest in your IRS dealings, keep immaculate records, and when in doubt, ask for a second opinion on your taxes.

IRS to Examine Rental Losses More Closely

Earlier this week a government report was released claiming that over half of taxpayers with rental real estate activity in 2001 misreported their rental income. Shortly after the Government Accountability Office report came, the IRS agreed with their request to increase examinations of rental loss activity.

Accounting Today reports:

The objectives of TIGTA’s review were to evaluate the IRS’s scrutiny of individual tax returns with rental real estate activity and to recommend changes to help identify, select and examine tax returns with rental real estate activity.

TIGTA found that during fiscal years 2008 and 2009, the IRS’s rental real estate Compliance Initiative Program examined only a small percentage of the 318,339 examinations conducted by revenue agents and tax compliance officers. TIGTA projected that if the IRS were to increase the percentage of rental real estate CIP tax returns it examined, it could increase potential tax assessments by $27.3 million over a five-year period.

“Given the magnitude of underreporting in our voluntary system of tax compliance, even small improvements in the IRS’s examination of tax returns with rental real estate activity could increase taxpayer compliance and generate substantial additional revenue to the federal government, helping reduce the tax gap,” said TIGTA Inspector General J. Russell George in a statement.

IRS management agreed with all of TIGTA’s recommendations, disagreeing only with the report’s proposed monetary outcome measures.

In its report, TIGTA recommended that IRS officials conduct an analysis to determine the population of tax returns with rental real estate activity that meets the criteria for inclusion in the CIPs. The IRS should also revise the instructions for Form 8582 to require all taxpayers with prior-year unallowed passive activity losses to submit the form with their tax return. The report also recommended that the IRS ensure that the information taxpayers provide to report the net amount of income earned or losses incurred from being a real estate professional is transcribed.

Read more here

Gasoline Cost to Jump $700 for Average Household

According to reports, the average American household will likely spend nearly $3,235 in 2011 on gasoline, which is up $700 from 2010. This represents an increase of about 28%. Can you say, “ouch!”?

From Bloomberg.com:

Retail gasoline prices soared by 38 cents over the last three weeks to $3.52 per gallon, according to the EIA, because of high crude oil costs due to unrest in the Middle East.

"Because the pass-through of changes in wholesale gasoline prices to the retail level is lagged, pump prices would be expected to rise a further 10 cents per gallon to fully reflect the current wholesale price level even without considering any future wholesale price movements," the EIA said in its weekly review of the oil market.

Higher gasoline prices will give consumers less money to spend on other goods and services, which many economists fear could slow the U.S. economy.

The EIA said it expects drivers will pay an average $3.71 a gallon during the summer peak driving season from June through August, about 98 cents more than last year.

Continue reading here

Jobless Claims in the U.S. Rose 26,000 Last Week to 397,000

Last week the total number of first-time claims for unemployment benefits rose, which has many economists worried about economic recovery. As they should be!

Bloomberg.com reports:

Applications for first-time unemployment benefits increased by 26,000 to 397,000 in the week ended March 5, Labor Department figures showed today. Economists forecast claims would climb to 376,000, according to the median estimate in a Bloomberg News survey. The total number of people receiving benefits in the prior week fell to the lowest since October 2008.

The rebound in the world’s largest economy has curbed firings, paving the way for employers such as Boeing Co. (BA) and Home Depot Inc. (HD) to add jobs and spur household spending. A Labor Department official said claims generally rise the week after a federal holiday and some New England states reported more claims due to school holidays.

“It’s the volatility around the Presidents’ Day holiday,” Jonathan Basile, director of U.S. economics at Credit Suisse Holdings USA Inc. in New York said before the report. “The swings around this moving holiday sometimes distort the trend. The labor market has been improving. Firms feel better about the outlook because their sales have improved and the need to cut costs” has decreased. The Presidents’ Day holiday was Feb. 21.

Read more here

Al Pacino in Trouble with the IRS!

Apparently Pacino and director Martin Scorsese both were clients of disgraced celebrity accountant Kenneth Star, who was convicted of fraud and sentenced to 90 months in prison.

Accounting Today reports:

The IRS filed a lien for $188,283.50 against the “Godfather” actor for unpaid taxes from 2008 and 2009. Pacino’s representative told TMZ that he has a new business manager who will pay off the Academy Award-winning actor’s tax debts.

More here