Former Wesley Snipes Tax Advisor Sentenced to Prison

By JK Harris

Wesley Snipes began serving a three-year prison term for tax evasion in December 2010. On March 3, 2011, one of Snipes’ former tax advisors, Kenneth I. Starr, was sentenced to more than seven years in prison after pleading guilty to wire fraud, money laundering, and fraud by an investment advisor.

Snipes has claimed that his failure to pay income tax was because he followed the advice of advisors such as Starr who turned out to be scammers. He claims to be an innocent victim.

My point in writing about this doesn’t have anything to do with whether Snipes was actually duped or thought he could get away without paying his taxes. My point is this that there are a lot of scammers out there who are taking advantage of genuinely innocent people and giving them really bad advice about their tax strategies. It’s good to see justice for at least one of them.

The average taxpayer who takes a bogus deduction or credit isn’t likely to end up in prison. What will probably happen is that the deduction will be disallowed, interest and penalties will be tacked on to the debt, and the taxpayer will end up paying many times more than what he thought he was going to save.

If you file your tax return yourself, be sure you thoroughly understand and follow the rules for the deductions and credits you take. If you use the services of a professional tax preparer, be sure to check that person out to make sure he or she really knows the tax code and is going to give you appropriate and legal guidance. Should you take advantage of every tax break available to you? Absolutely. But don’t let yourself fall victim to bad advice or even a scam that will cost you much more in the future than you might save today.

JK Harris presents – Top ten reasons for back tax debt

by Andy Thompson, JK Harris Tax Consultant

While I cannot speak for the rest of the team of tax consultants here at JK Harris & Company, I am providing this list based on my own personal experience. Here are the top ten reasons (or causes) clients make an appointment to see me for back tax debt.

1. Earned income tax credit – Just because you claim a child on your return does not mean you qualify for the EITC. Don’t claim the EITC unless you know you are entitled to it. Be sure to do your homework and use the IRS’ EITC calculator.

2. Raising your exemptions – on your W-4 to have less taxes withheld. If you think money is tight now, how will you pay a large bill at tax time?

3. Withdrawing retirements funds – The 10% penalty paid is not equivalent to the taxes due. Making this withdrawal may put you in a different tax bracket.

4. Is your spouse forgetful? Double check that your spouse really did submit the tax returns.

5. Self employed or not? Review what it means to be self employed, as there are requirements to meet. If you are, be sure to pay your estimated taxes on a quarterly basis.

6. Got supporting docs? You must have supporting documents for all claimed expenses. Estimating your expenses will not hold up should you get audited.

7. Larger refund than usual? If the local guy all your buddies go to gets everyone large refunds, he may be setting you up for an audit and tax problems. When the IRS system sees a pattern emerge, all of that tax preparers returns may be audited.

8. Did you inherit a windfall? If your inheritance is from a retirement account, taxes are due upon withdrawing the money.

9. Did you default on an installment agreement? If you agree to an installment agreement or IRS payment plan, you must pay it. I have seen clients who set this up with the IRS on their own but were nervous about dealing with the IRS. Often times, they committed to a payment above their means, then end up unable to make the monthly payments.

10. Submit your returns, even when you cannot pay. By filing your tax returns, you will avoid larger penalties. If you do not file your return, you are penalized with the failure to file and failure to pay fines. Filing your return and paying what you can will help reduce the amount you are penalized.

CNN lists 6 new small business tax breaks

At JK Harris, we have a lot of small business clients who come to us for either back tax help through our tax resolution services or for bookkeeping services through JK Harris Small Business Services. And, since our company is technically considered a small business, we always keep an eye out for small business owners and their needs.

CNN Money ran an article a few weeks ago which talks about six new breaks for small business owners.

Own a business? 6 new tax breaks by Catherine Clifford

Doing your taxes stinks, right? No fun at all. But take note as you brace for your 2010 return: A handful of changes in the tax code could translate into a fatter refund check.

The Small Business Jobs Act, passed last September, and the historic health care reform law, passed in March, enacted hefty credits and deductions for capital investments and employee health insurance costs.

Here is a rundown of six new credits and deductions likely to affect the most small business owners. Read the rest of the article here.

Think you have back tax debt? Day trader nailed with $172 million bill for back taxes

From The New York Daily News

Marcos Esparza Bofill was shocked to find out he owed over $172 million in back tax debt. Esparza Bofill moved to New York i from Spain in 2006 when he decided he wanted to try his hand at day-trading. After one year – and barely surviving on a “beer budget” and no profit – he decided to go back home to Spain.

Esparza did not know he was required to file a tax return during the year he was swapping stocks. But, the IRS was tracking his every move – and they assumed that Esparza made pure profit on his day trading transactions. This would have given Esparza Bofill a whopping $500 million in income.

“Who is the IRS?” Esparza was said to have asked of his American friends. One friend commented that Esparza thought he was kidding when he told him the IRS had hit him with a $172 million dollar tax bill.

Marc Albaum, a Manhattan CPA points out that the tax lien will probably be completely resolved when Esparza Bofill files his tax return for the year in question.

“When you do not file a return, the IRS assumes you made pure profit,” said Albaum. “Now the remedy here is simply to file (a tax return). He could wipe out anything he owes.”

Last minute payment of back taxes does not prevent prosecution in federal case

In a recent edition of Lawson Condell’s Tax, Accounting and Auditing update, the federal case of U.S. v. Quinn, DC KS, 107 AFTR 2d ¶2011-412 was discussed. Rosie Quinn owed IRS trust fund taxes (i.e. payroll taxes such as income taxes and FICA that are withheld from employees’ pay) that should have been paid on various dates between 2003 and 2005. Ms. Quinn decided to pay them on December 4, 2010 – which was coincidentally, just before she was set to go to court over her back payroll taxes.

The federal court ruled Ms. Quinn could still be prosecuted even though she paid the tax debt right before her trial date. According to the law, any person “required to collect, account for and pay over” trust fund taxes and who “willfully fails to collect or truthfully account for and pay over such tax shall in addition to other penalties provided by law, be guilty of felony and upon conviction thereof, be fined up to $10,000 or imprisoned not more than 5 years, or both…”

Ms. Quinn argued that she should not face such prosecution because she had paid the trust fund taxes. The court did not see things Ms. Quinn’s way – and ruled she could still be prosecuted for willfully avoiding paying the payroll taxes. While the court was probably thankful that Ms. Quinn came into compliance and repaid her tax debt, she could not avoid prosecution by paying at the last minute.

Moral of the story: Make sure to set aside and pay all trust fund taxes on time. If you cannot – seek professional assistance immediately!

JK Harris helps end back tax debt for client in Tennessee

Recently a client from Tennessee came to us with a burden she could no longer bear. She and her former spouse had taken out a distribution from their life insurance policy to help pay their living expenses. What they didn’t realize was that one move bumped them up into a higher tax bracket. This in turn triggered a tax liability for the year that they were unable to pay.

Our client tried making arrangements with the IRS and set up an installment payment plan. She tried to repay her debt in full, but she just didn’t make enough money. Now a single mom, she didn’t have the means to repay the tax debt she had incurred. Then, she came to JK Harris.

Our tax team analyzed her financial situation and determined she was a candidate for an Offer in Compromise. We prepared the Offer package and after several months of waiting to hear back from the IRS, when we did – the news was good. Ms. Capps had her offer in compromise accepted at a fraction of what she owed.

“I am very thankful to you,” Ms. Capps said in the letter she wrote to her case specialist.

We were glad to help – and wish you all the best in the future!

Honest Dialogue

by Teresa Rotell, Tax Consultant, JK Harris

This story actually happened about ten years ago, but I share it due to the uniqueness of the client’s situation.

John, 67 years old, came into my office in Ohio. He had come in with his daughter, Sherri, who was in her 40’s. He looked very heartbroken (and so did she) and I could not figure this out since he had just won the lottery the year before…for $300k. It was on a scratch-off ticket of all things. I had never seen this big of a winner…ever! At least not in person. He was upset because he had spent all of his winnings. He had given most of his money away… burying his wife of 44 years, helping his 3 daughters out of debt, and paying off some debt that he and his late wife had incurred.

After doing what most people would (paying oneself out of debt) he found himself in a bad situation with the IRS. His initial taxes were taken out when he received the proceeds from the winning ticket, but he never counted the 300k as ordinary income on his tax return for that year – leaving him with a large tax liability…I don’t recall exactly what his tax debt was, was but it was hefty. Like most, he thought all of the tax was taken out when he received his winnings.

JK Harris was able to settle the debt…for much less than I ever anticipated. I just think this is a great story because this can happen to anyone…not necessarily to win the lottery…but I think any of us can not realize that somethings must be counted as ordinary income. It was an honest mistake on John’s part. I was just glad I was able to help!

JK Harris presents… News from the Net

There is a lot going on with tax news and financial information right now, so I decided to do a news round up – something I have not done on the Tax Resolution blog before. There were several informative links I found and wanted to share with our readers this morning. The first link was provided by one of our blog readers, Ann.

Ann covered the topic of “5 Tips for determining the amount a bank will lend you to buy a home.” Her article is an informative one that may help many of our clients who are getting out of tax debt so they can buy a home of their own. Thank you to Ann for providing this link.

MarketWatch covered some of the best tax tips in their Tax Guide 2011. This web guide offers advice on everything taxes. While it may be too late for your 2010 tax return, this helpful article can give you ideas on tax planning for 2011.

And, according to CNNMoney.com, it looks like Congress will be getting right to work on repealing the much hated IRS ruling with regard to 1099s. The rule, as it currently stands would have required small businesses to issue a 1099 IRS form not only to contracted workers, but also to any individuals or corporations from which they buy more than $600 in goods or services in a year. This rule was slated to take effect in 2012 and was much maligned by small business due to the amount of additional work it would cause. (Many small businesses would have had to hire additional staff to keep up with the paperwork alone.)

And last, but not least – the IRS’ tax tip of the day recommends taxpayers choose direct deposit to receive your tax refund faster. Visit the IRS website to read the full article.

Honest Dialogue

by Ike Nobel, JK Harris Tax Consultant

I had a gentleman visit my office few weeks ago who had returned to JK Harris to contract for our tax resolution services. He met with me about a year ago, but at that time, had opted to try to handle his tax problem on his own. Time passed…fast forward to our meeting a few weeks ago. The gentleman returned to my office after having spent much time trying to handle his tax issue with the IRS on his own – until finally , he reached frustrated, he reached his boiling point and realized it was time to revisit with me to get help through JK Harris.

During the appointment, the client presented me 42 letters he recently received from an IRS office in Oklahoma. He also expressed that his recent contact from the IRS included a visit from an IRS agent to his home in New Jersey, letters from an IRS office in Kansas City regarding a defaulted arrangement, phone calls from an IRS office in Seattle, requests to send documents to the IRS in Fresno, California, and additional requests to forward payments to Andover, MA. He felt completely overwhelmed, until he contracted with JK Harris to help him.

Note: Since this client has just recently contracted with JK Harris, we will post the outcome of his case when his case comes to a close.

Part II: I have received a collection notice from the IRS: Is it a federal tax lien or tax levy? What is the difference?

by Bryan Miller, Tax Analyst, JK Harris and Company

Lien

As the definition implies, a lien is simply a claim to property by securing payment of tax debt if that asset is sold or liquidated. In essence, the IRS makes themselves your primary creditor to the attached property (as opposed to your mortgage or loan company). A lien will not harm most taxpayers other than their credit report. A taxpayer with a federal lien may not be able to attain a loan or credit; otherwise, the lien simply resides on their credit report to govern equity in the property. If the property is sold with at a gain, the tax lien is paid in whole or in part from the gain. If the property is upside down, the taxpayer may request a discharge of the lien to accommodate the sale. See Publication 783 for the form and instructions on a lien discharge, and Publication 4235 on addresses to send the request by region. Also, a temporary subordination of the Federal Tax Lien can be utilized if you are trying to refinance or restructure a mortgage. For more information and the form, see Publication 784.

In some professions where personal credit affects the business or ability to conduct business (such as partners in law firms, real estate developers) the lien can actually cause unforeseen harm. This is not intentional, and for these reasons, the IRS will consider releasing a lien either temporarily or permanently on a case by case basis. See Publication 1450 for instructions and state by state phone numbers to accommodate this process. (Note: The correct form for withdrawal of a lien is Form 12277.

Remedy

The only remedies for liens are those as described above. For a levy, the answer is to begin working with the IRS in either compliance or resolution. Compliance involves filing all outstanding tax returns, forms, or information for which the IRS may be requesting. A taxpayer must be compliant before seeking a final resolution. The IRS will only resolve the entire scope of the taxpayers’ liability, not just one year or another.

Resolution involves either establishing an installment payment plan, or providing the IRS 3 months of current financial information for qualification purposes. All resolution programs with the IRS have to be qualified for your unique circumstance to determine the ability to pay the back tax debt, provide proof that the debt cannot currently be paid (hardship cases), or determine that the debt can be paid but not in full. The IRS will require Collections Information Statement Form 433-A (for individuals and self-employed individuals), Form 433-B (For businesses), or Form 433-F (short form of 433-A used primarily by those with little income and assets, retirees, etc.).

Seeking professional assistance in divulging financial information to the Internal Revenue Service is highly recommended. The IRS will look at current income, expenses, assets, equity, access to cash-value holdings, retirement accounts, as well as go though bank transactions and the sales or disposition of assets and equity over the past few years. Knowing how the IRS interprets these documents and transactions to render a conclusion is imperative in working out the best tax resolution the IRS will accept under the Internal Revenue Code.

For more information and research on federal tax lien help please click here. For more information on federal tax levy program click here.