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.

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.

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!

What should you do if you don’t get your W-2?

From IRS Tax Tip 2011-28

The IRS has reminded taxpayers about the steps they should take if they have not received their Form W-2, Wage and Tax Statement. Employers had until Jan. 31 to send employees a 2010 Form W-2 earnings statement.

The agency suggested four specific actions for taxpayers to take.

First, contact the employer to inquire if and when the W-2 was mailed. After making contact, allow a reasonable amount of time for the employer to resend or to issue the W-2.

Second, if the W-2 is not received by Feb. 14, contact IRS for assistance at (800) 829-1040.

Third, even if the taxpayer still has not received the Form W-2, a tax return or request for an extension to file must be filed by April 18. If the Form W-2 is not received by the due date, and the taxpayer has completed the previous steps, the taxpayer may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Form 4852 should be attached to the return, with an estimate of income and withholding taxes.

Finally, a taxpayer may have to file Form 1040X, Amended U.S. Individual Income Tax Return. If a missing W-2 is received after the return was filed using Form 4852 and the information is different from what was reported on the return, the return must be amended. Complete details can be found here.
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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.

Honest Dialogue

by Debbie Bush, Tax Consultant, JK Harris and Company

I would like to share a touching story I had with a client. I was so grateful to help this client with his IRS tax nightmare; he had carried around this burden for many, many years. This gentleman had been afraid for many years. He was about 75 years old when he came in to see me about a tax debt that he had with the IRS. He started telling me about all the horrible things people had told him might happen to him from losing his home to losing his small checking account -he was afraid the IRS would have him living out in the streets. He had no family to depend on and could not survive if the IRS took what little he had.

After listening to my client, I responded by asking if he had any correspondence from the IRS and he said not for a while but did from years ago. He took out an old, worn wallet and carefully opened it. He took out a worn, folded piece of paper that looked to be very old. He handed me the letter the IRS had sent to him about 15 years ago. He said he had filed all of his tax returns on time, but just could not pay his income tax when it was due because he worked small jobs for other people, he had received 1099 income and was barely getting by on what he brought in.

I looked at the letter, then I looked up at this old, fearful man and told him that he had nothing to worry about. You see, the statute had run out on his tax liability and the IRS could no longer collect from him. He looked shocked when I informed him of this and he started crying. I explained to him, the IRS had only so many years to collect back taxes and his tax debt had expired. He asked me what he owed JK Harris. I said nothing at all and he started crying again. This 75 year old man had been walking around for years, fearful of the IRS. He had been carrying this sense of dread and worry with him for at least 15 years; worried he would lose his home or that the IRS was going to come after him. He gave me a big hug when he left. I’ll always remember this man who never technically was a client of JK Harris, but who I was able to help breathe a sigh of relief. I will never forget him, or the sense of relief he felt on leaving my office.

National Taxpayer Advocate releases annual report to Congress

Last week, National Taxpayer Advocate Nina Olson released her annual report to Congress detailing the need for reform within certain parts of the IRS. Again this year, Ms. Olson has listed the need for tax reform as the number one priority for the IRS. She expressed concern over the IRS’ continued use of tax liens and the lack of alternative collections methods.

Ms. Olson’s report stated more than 1.1 million taxpayers had tax liens filed against them by the IRS in Fiscal Year 2010. Tax liens can be financially devastating to a taxpayer since the lien shows up on their credit report and will linger for seven years after the tax liability is paid. Once a taxpayer has a tax lien on their credit report, it can affect their ability to gain housing (owned or rented), employment, and can affect their ability to get affordable loans and insurance.

In the industry, we have seen an increased number of tax liens being filed and Ms. Olson’s report confirmed it. The NTA report states that tax lien filings have increased 550 percent in the past ten years.

You can view the JK Harris official press release on this issue at Expert Click.

New tax act retains some education benefits

According to a recent article on The Street by Joe Mont, the recently passed Tax Act included extensions of the Coverdale IRA, the American Opportunity Tax Credit and the Lifetime Learning Credit. If you are planning to go back to school, take advantage of these credits in 2011.

Read the whole article on The Street.

Have I Missed Any Deductions or Credits? Year End Review: Being Prepared for Tax Season

by Bryan Miller, Senior Tax Analyst

The American Recovery and Reinvestment Act (ARRA) of 2009 put into place many deductions for the individual taxpayer that should be taken advantage of prior to the end of year 2010. This is part of an overall plan by our government to strengthen and rebuild the economy, but it translates into lower taxable income for you. Some of the benefits may be obvious if you participated in a program to receive a specific tax benefit, but some of the credits and deductions are not as obvious. This is part of an overall plan by our government to strengthen and rebuild the economy. To ensure you have planned and positioned yourself for the best available deductions and credits, here is a rundown checklist:

Homebuyer Credit One of the more obvious deductions, but you should remember the date was pushed back this year. If you purchased and closed on your home by September 30, 2010, you may be eligible for up to an $8,000.00 tax credit. The home must be your primary residence, and the have rules changed for each tax year since 2008, in case you are filing or amending any of your past 3 years returns. Documentation requirements apply for any year, and you will need to file a paper return rather than e-file along with Form 5405.
See http://www.irs.gov/newsroom/article/0,,id=204671,00.html for all the details.

COBRA Individuals who involuntarily lost their jobs between September 1st, 2008 and May 31st, 2010 may be able to reduce the cost of COBRA health insurance premiums.

Energy Star Credits 30% of the cost of qualified Energy Star products may be taken as a tax credit up to $1,500.00. For example, if you purchased and installed a qualifying Energy Star product by December 31st, 2010 that costs $5,000.00, you may receive the full $1,500.00 credit ($5000 x .30% = $1500) on your return! Not all Energy Star products qualify. The credit applies mainly to HVAC, insulation, roofing, heating and cooling systems, windows and doors, as well as some appliances and alternative energy systems. See the Energy Star website for a full list and description.

Earned Income Tax Credit This credit has been a staple for many households to help make ends meet, and is bigger for tax year 2010. Also, more families will qualify for the Additional Child Tax Credit since earned income is set at only $3,000.00. The minimum earned income was slated to be $12,550.00 before the American Recovery and Reinvestment Act (ARRA), but was subsequently lowered. This credit may apply even if no tax is due – which would result in a refund for the taxpayer. See the IRS website or your tax professional for advice on this additional child tax credit.

Making Work Pay Tax Credit What was meant to be a blessing has for some turned out to be a curse. This credit allowed taxpayers to take more pay home out of their checks by adjusting the tax withholding downward. You won’t need to adjust this yourself; Uncle Sam took care of this for you. There are some people who may find themselves negatively affected by this credit. Some taxpayers may find out they did not have enough income tax withheld. This may result in a smaller refund, or they may owe this coming tax season. Taxpayers who may have been affected include: married couples with two incomes, individuals with multiple jobs, social security beneficiaries who work, dependents, undocumented workers and pensioners. You can check your 2010 withholding and adjust it accordingly using the IRS withholding calculator.

$250 for Social Security Recipients, Veterans and Railroad Retirees – Call 1-866-234-2942 and select option #1, or visit Did I receive a 2009 Economic Recovery Payment?

Unemployment Benefits – The first $2,400.00 of unemployment benefits will be excluded from income in tax year 2010. Be sure to check your withholding.

Money Back for New Vehicles and Increased Transportation Subsidy - These are leftovers from 2009 purchases of certain vehicles, or an increase of employer-provided commuter highway vehicle benefits for mileage and parking. See page 2 of Publication 15-T for more details.

Be sure to check for any carryover items from previous tax years that may benefit you in this tax year. And for a more broad scope of how the IRS is utilizing your money to recover the economy on both a national and local level, visit http://www.whitehouse.gov/recovery or http://www.recovery.gov/Pages/default.aspx.

End of the year tax tip: Deplete Your FSA Account – Use It or Lose It

Deplete health FSA accounts. Employees who participate in their employer’s health flexible spending account (FSA) should keep in mind that medical expenses reimbursed under the account generally must be incurred during the participant’s period of coverage (normally 12 months) under the FSA. Although IRS has allowed employers to provide an additional 2 1/2-month grace period in which employees can incur expenses and still obtain reimbursements of these amounts, many employers have not availed themselves of this opportunity. Therefore, an employee whose period of coverage ends on Dec. 31 should be sure to deplete his health FSA before the year’s end (e.g., by getting new contact lenses) or he’ll lose what’s left in the account. Expenses are treated as having been incurred when the participant is provided with the medical care that gives rise to the expenses, and not when the participant is formally billed or charged for, or pays for, the medical care, different than if you itemized medical expenses which must be paid before you can deduct.

Employer reimbursements of amounts paid for nonprescription drugs (i.e., “over-the-counter” drugs, like antacid, allergy medicine, pain reliever, or cold medicine) are considered expenditures for medical care, and thus qualify for reimbursement, even though amounts paid for over-the-counter drugs are not deductible under Code Sec. 213. However, other medical expenses that aren’t deductible under Code Sec. 213, such as the cost of purely cosmetic surgery, can’t be reimbursed under a health FSA. It is important to note – starting in 2011, over the counter (OTC) medications will no longer be reimbursable with FSA funds, unless the OTC product is specifically prescribed by a doctor.