IRS Announces Expanded Use of Twitter Feeds to Inform Taxpayers

The IRS is all a-twitter about its presence on Twitter. Earlier this week, the IRS announced it would be expanding its use of the popular social media networking tool Twitter, in an effort to share timely information with both taxpayers and tax professionals. The IRS will have two useful feeds to follow – @IRSnews and @IRStaxpros.

@IRSnews currently provides the latest in federal tax news and information for the general user. The messages on this Twitter feed will include easy to use information, tax tips, tax law changes and important IRS programs. If you currently have a Twitter account, you can follow @IRSnews by going to http://twitter.com/IRSnews.

@IRStaxpros is designed for any tax professionals looking to stay on top of current IRS news. Follow this feed at http://twitter.com/IRStaxpros. Spanish tax information can be found at http://twitter.com/IRSenEspanol.

If you don’t care to follow the IRS on Twitter, you can get your IRS news by going to the IRS website at www.irs.gov.

If you’d like to join JK Harris and Company on twitter, you can find us at http://twitter.com/jkharris. We tweet about tax topics, tax news, our clients’ success stories and more. We would love to hear from you – contact us on the blog or at twitter with your tax questions or back tax issues.

TIGTA Reports Possible $576 Million in Back Taxes Owed From Non-filers For 2007

According to an article published by Accounting Today, the Treasury Inspector General released a report stating the IRS could unearth up to $1.3 billion in unpaid taxes by making better use of currency report data. These reports could help pinpoint non-filers who have generated enough income from certain financial transactions, but have failed to file a tax return.

TIGTA estimated over 40,000 potential non-filers in 2007 could owe as much as $576 million in back taxes, penalties and interest, while under-reporters could owe as much as $758 million in back taxes, penalties and interest for the same period. Read the full article below:
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The Internal Revenue Service could unearth as much as $1.3 billion in unpaid taxes, penalties and interest by making better use of currency report data to identify taxpayers with potentially unreported income, according to a new government report.

The report, by the Treasury Inspector General for Tax Administration, assessed the IRS’s use of currency reports to address nonfilers and under-reporters. Banks and other financial institutions are required to file reports on currency and suspicious transactions, which are in turn used by law enforcement officials to battle a range of financial crimes, such as narcotics trafficking, tax evasion and financing of terrorist activities.

TIGTA identified a number of individuals who have enough cash to engage in currency transactions totaling at least $20,000, but did not file tax returns even though they appeared to have a filing requirement.

TIGTA also identified a number of other individuals engaged in similar currency transactions who filed tax returns, but reported income that did not appear sufficient to cover their basic living expenses. The difference between their income and expenses raises questions about whether additional income sources should have been reported.

TIGTA estimated that 42,804 potential nonfilers may collectively owe as much as $576 million in delinquent taxes, penalties and interest for 2007. TIGTA also estimated there are 78,770 potential under-reporters who may owe as much as $758 million in additional taxes, penalties and interest for 2007.

TIGTA recommended that, as resources become available, the IRS should explore the feasibility of making greater use of currency transaction reports to pursue additional nonfilers and under-reporters for audit.

IRS management agreed with the recommendation. However, IRS management did not commit to pursuing additional potential under-reporters for audit, nor did they agree with the outcome measure because of concerns with the selection criteria used. TIGTA maintains that the potential $1.3 billion of increased revenue is reasonable considering the assumptions used to make the estimate.

Posted by JK Harris

Wesley Snipes Ordered to Report to Bureau of Prisons; Found Guilty of Tax Crimes

Today, a federal judge rejected actor Wesley Snipes’ request for a new trial and ordered him to report to the Bureau of Prisons to begin serving a three year sentence on tax related crimes. Although his attorneys presented evidence of two jurors claiming members of the jury were prejudiced in the case from the beginning. Prosecutors have accused Snipes of obstructing the IRS and attempting to avoid paying millions of dollars in taxes. For details, read the full article below, written by Stephen Hudak of the Orlando Sentinel.
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OCALA — A federal judge today rejected movie star Wesley Snipes’ demand for a new trial and ordered the actor to surrender to the U.S. Bureau of Prisons to begin serving a 36-month prison sentence for tax-related crimes.

In a 17-page order, U.S. District Court Judge William Terrell Hodges said, “The Defendant Snipes had a fair trial; he has had a full, fair and thorough review of his conviction and sentence by the Court of Appeals; and he has had a full, fair and thorough review of his present claims, during all of which he has remained at liberty. The time has come for the judgment to be enforced.”

Snipes, 48, an Orlando-born star of “Jungle Fever,” “White Men Can’t Jump,” and “The Fugitive” sequel “U.S. Marshals,” was convicted in 2008 of three misdemeanor counts of willfully failing to file federal tax returns.

Prosecutors contend he obstructed the IRS and attempted to avoid paying millions of dollars in federal taxes.

“It is just shocking,” Snipes’ Atlanta-based lawyer Daniel Meachum said in an e-mail to the Orlando Sentinel. “Wesley is very disappointed but staying strong and positive.”

The actor’s defense team had hoped the judge would grant Snipes a new trial after receiving e-mails from two jurors who claimed that other members of the panel had concluded the actor was guilty before the trial began.

Meachum also argued that a key government witness, Kenneth Starr, provided “tainted” testimony against Snipes. Starr, a New York financial adviser with a stable of celebrity clients, pleaded guilty recently to fraud.

“We were hopeful that we had convinced Judge Hodges that the government’s witness, Ken Starr, had perjured himself and that the government knew of his criminal activities and the predetermined minds of three jurors, but we obviously fell short in accomplishing that,” Meachum said.

He said the defense team was “determined to exhaust all plausible avenues in this matter.”

While Snipes could challenge Hodges’ latest ruling and ask the U.S. Supreme Court to review his case, he would likely await the ruling from a federal prison cell.

The judge’s order requires Snipes to “surrender himself” upon receipt of notice from the U.S. Marshal Service or from the federal Bureau of Prisons. It is unclear in the order where and when he must turn himself in.

Best known as the vampire-killing hero in the science-fiction trilogy “Blade,” Snipes was accused of conspiring with Eddie Ray Kahn of Lake County to avoid paying more than $15 million in taxes from 1999 to 2004.

The conspiracy charge accused Snipes of seeking a fraudulent refund of $7.3 million.

Kahn, who founded American Rights Litigators in Mount Dora, sold illegal tax-dodging schemes and convinced the actor that he had no obligation to pay federal income taxes. Kahn was sentenced to 10 years in prison.

Snipes’ defense team provided Hodges with an unsolicited e-mail from a juror whose identity was redacted from public documents and who suggested that other members of the panel were not fair to the actor.

The e-mail read: “I served on the jury in Ocala that found him guilty on 3 counts of failing to file taxes. It was a deal that had to be made because of certain jurors that had already presumed he was guilty before the trail (sic) started and we only found this out in the last few days of deliberation. We thought we were making the right deal because we did not think he would go to jail for not filing taxes. There were 3 on the jury that felt this way and told us he was guilty before they even heard the first piece of evidence going against what the judge had said.”

Jurors take an oath pledging to obey the principle that a defendant is innocent until proven guilty.

In his ruling, Hodges noted the e-mail “presents, to be sure, a troubling set of circumstances,” which would be contrary to the jury’s oath and his repeated instructions before and during the two-week length of the trial.

U.S. law also prohibits courts from prying into jury deliberations without evidence of outside influence.

Hodges pointed out, “It is also worthy of note…that the veracity of the claim of juror misconduct in this case is undermined by the fact that (Snipes) was acquitted of the most serious charges; that the complaining juror waited two and a half years before bringing the alleged misconduct to light; and the fact that the jurors’ complaint was expressly motivated by the Defendant’s sentence — a consideration that, in itself, the jury was expressly instructed to disregard in arriving at its verdict.”

Posted by JK Harris

Check out our previous blogs regarding Wesley Snipes here:

Wesley Snipes’ Lake County tax guru gets more prison time

Frivolous tax arguments do not sit well with IRS

JK Harris Helps Albuquerque Client Save ‘A Bundle’

We recently received an enthusiastic testimonial from a client in Albuquerque, New Mexico. Tina Driver came to JK Harris for help after cashing out a 401K when she lost her job. Although she specifically asked the investment firm to withhold all taxes and penalties, she later found out they only withheld the penalties. When she saw the size of her tax bill, she knew without a job, she did not have the means to pay her back tax debt.

“Needless to say, I owed a bundle,” said Driver. “The penalties and interest alone were close to $60,000. I had no hope of ever repaying that amount.”

Our tax team went to work analyzing Ms. Driver’s situation to determine what she would be able to pay and which IRS resolution programs she might qualify for. The team determined she was a likely candidate for the Offer in Compromise (OIC) program. This program allows a taxpayer to resolve their tax liability by paying less than they owe, although they must meet the IRS’ rigid criteria to qualify for the program.

JK Harris was able to negotiate a deal for Ms. Driver, saving her over $48,000 in penalties and interest.

“JK Harris held my hand through the whole ordeal,” said Driver. “Thanks to JK Harris, I got my life back. I have and will continue to recommend JK Harris!”

Expanded Recovery Act Tax Credits Help Homeowners Winterize their Homes

According to the IRS, homeowners making energy-saving improvements this fall can cut their winter heating bills while lowering their 2010 tax bill. Read the full IRS release below for more details.
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WASHINGTON — People can now weatherize their homes and be rewarded for their efforts. According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2010 tax bill as well.

Last year’s Recovery Act expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit.

Nonbusiness Energy Property Credit

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2010 federal income tax return. Due to limits based on tax liability, amounts spent on eligible energy-saving improvements in 2009, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

Residential Energy Efficient Property Credit

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when figuring this credit. Also, except for fuel cell property, no cap exists on the amount of credit available.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s website or with the product packaging. Normally, a homeowner can rely on this certification.
The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2010 federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax owed. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A . Use Form 5695, Residential Energy Credits, to figure and claim these credits.

Posted by JK Harris

Our Tax Rates, Deductions and Credits Could Vanish

According to William Perez of About.com, unless Congress decides on new tax policies, many of our tax rates, deductions and credits will soon vanish. Read the articles below from his Tax Planning Blog.
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Tax Agenda after the Elections

The central issue is over tax rates that apply to ordinary income, dividends and long-term capital gains. If Congress cannot agree on new tax rates, our existing six tax rates will disappear and be replaced by pre-2001 tax rates ranging from 15% to 39.6%. And it’s not just the Bush-era tax cuts that will expire. There’s also a handful of temporary tax breaks passed under the Obama administration for higher education and unemployment that will expire too…read more

Potential Tax Withholding Turmoil

Remember back in February 2009 when the IRS lowered payroll withholding for most Americans because of the newly legislated Making Work Pay credit? We are still waiting for the IRS to release the 2011 withholding tables. If Congress decides not to pass new legislation, withholding will increase both because of the higher tax rates and because of the expiration of the Making Work Pay credit. Susan Heathfield (About Human Resources) explains…read more

Election Day Results for Tax-Related State Ballot Measures

There were several tax-related measures on various states’ ballots in 2010. Two of the most publicized measures were initiative 1098 in Washington state (which would have instituted a tax on higher income individuals in a state that otherwise does not have an income tax) and Proposition 19 in California (which would have legalized and taxed marijuana for recreational consumption). Both measures failed on election day. Tonya Moreno, CPA, summarizes election-day results for tax-related ballot measures in six states.

What Tax Provisions are Expiring?

A wide variety of tax breaks either already have expired (at the end of 2009) or are about to expire (at the end of 2010). Many of these are very popular incentives, such as the deduction for college tuition, a tax-free exclusion of $2,400 on unemployment benefits, and the preferential rate applied to qualified dividends.

Posted by JK Harris

Are you having enough tax withheld from your paycheck?

One reason people get into trouble with the IRS and end up coming to JK Harris is not withholding enough taxes from their paycheck. What happens? Tax season rolls around, they’re hit with a big tax bill and they do not have enough money to pay up.

What do they do? Usually, they fall out of the system. They stop filing tax returns because they are unable to pay their ever-growing back tax debt. And, when the IRS doesn’t catch up with them for the first year or two, they start to relax. Just when the taxpayer thinks they won’t be found out, they start receiving notices from the IRS.

Don’t let it get to this point! The IRS offers a withholding calculator on their website. This tool allows you to submit your information to determine if you are having enough tax withheld from your pay. It can also tell you if you are having too much taken out – after all, who wants to loan their money to the government for 0% interest?

You can find the withholding calculator on the IRS’ website here. Be sure to have your most recent pay stubs and your most recent tax return handy. You may estimate if necessary, but having the most accurate numbers will provide you with the most accurate information.

Should you be filing quarterly individual tax payments?

Have you ever wondered why people fall behind on their taxes? Every once in awhile, we get an email a taxpayer who does not understand why we help those who have fallen behind in their taxes. Often times, they are not aware of the legitimate programs the IRS offers to taxpayers who cannot pay their full tax liability.

What many of these people don’t realize is there are many reasons people fall behind on their taxes – life’s circumstances usually being the leading reason – people get sick or one of their family members falls ill or passes away. People get divorced or lose their jobs and their income. And, sometimes it is a lack of knowledge – people just don’t realize there are certain things they need to do to remain compliant with the IRS.

Failing to properly file and pay quarterly estimated tax payments is one of the reasons we see clients come to JK Harris for help with their back taxes. Many of these clients were unaware they were required to file quarterly individual estimated tax payments. Other clients are impacted by a life event (see above) and cannot afford to pay. Once you miss out on paying these quarterly payments, your tax debt can quickly escalate with the penalties and interest the IRS will add on.

How do you know if you should be filing quarterlies? Generally speaking, if you expect to owe more than $1,000 in taxes in the current tax year after subtracting your withholding and credits. If you expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your current year’s return or 100% of the tax shown on your prior year’s return. If you are a sole proprietor, partner, S corporation shareholder or a corporation, you generally will have to make quarterly estimated tax payments.

According to the IRS website, there are special rules for certain small businesses for periods beginning in 2009, certain taxpayers with higher adjusted gross income, farmers and commercial fishermen, aliens and estates and trusts.

Questions? Visit here or check out Publication 505, Tax Withholding and Estimated Tax.

IRS Plans to Get Tough on Sole Proprietor Audits

According to an article published by WebCPA, the IRS plans to get tougher on sole proprietor audits. This is due in part to the fact that unreported business income by sole proprietors accounts for $68 billion of the $345 billion tax gap. The IRS will be scrutinizing sole proprietors’ businesses in more detail during field audits to determine if they are hiding any sources of income. Read the full article below.
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A report by the Treasury Inspector General for Tax Administration found that IRS field examiners are generally effective in checking for unreported income during field audits of sole proprietors. However, the report recommended that the IRS could take further steps to determine if additional sources of income need to be reported.

While IRS field examiners generally check for unreported income, TIGTA found that the IRS could improve the accuracy of its preliminary cash transaction analysis by taking greater advantage of performance feedback mechanisms and ensuring that appropriate personal-living-expense data are being used. The preliminary cash transaction analysis involves little or no taxpayer burden, but uses tax return and personal expense data to determine whether the sole proprietor’s income and expenses are roughly equal.

“Tests for unreported income during IRS audits of sole proprietors are critical to the process of verifying that the correct amount of tax is reported,” said TIGTA Inspector General J. Russell George in a statement. “Our results indicate that sole proprietors may have avoided tax and interest assessments of over $8 million in fiscal year 2008.”

The IRS’s National Research Program estimated that unreported business income by sole proprietors accounted for $68 billion (or 20 percent) of the $345 billion tax gap. This is due in large part to resource constraints and the need to balance audit coverage across other segments of the tax return filing population, such as corporations and partnerships.

TIGTA recommended that the IRS issue guidance to group managers to provide specific written feedback to examiners on the adequacy of their tests for unreported income, and that the IRS reinforce the requirement and importance of using appropriate personal-living-expense data in preliminary cash transaction analyses. The IRS agreed with these recommendations and plans to take the appropriate corrective actions.

Posted by JK Harris

IRS May Allow Taxpayers to Lock Their Accounts to Aid in Prevention of Identity Theft

We have tried to address identity theft on this blog as well as how to prevent the theft of your identity with regard to your dealings with the IRS. The Taxpayer Advocacy Panel – which is a federal advisory committee made up of volunteers from across the country – has recently released its annual report with its recommendations to the IRS. One of the recommendations they made to the IRS is for taxpayers to be able to “lock” their accounts when they do not have a requirement to file a tax return. This would prevent anyone from filing a return with another person’s Social Security number on it. The IRS has endorsed the idea and is looking at how to implement the idea. Read this WebCPA article, posted below, for more information.
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The Taxpayer Advocacy Panel, a federal advisory committee of 101 citizen volunteers across the country, has released its annual report, with recommendations that include calling for the IRS to protect against identity theft by allowing taxpayers to “lock” their accounts when no tax returns are required.

The IRS endorsed the idea of letting taxpayers lock their accounts when no tax returns are required. The panel also proposed adding a section to Form 9452, “Filing Assistance Program,” to allow individuals to notify the IRS of their desire to block the use of their Social Security numbers.

This revision would include current address information, a perjury statement and two check-a-box options to allow individuals to block or unblock the use of their SSNs on tax returns. Once the form has been processed, the IRS would notify the individual the action has been taken to block their SSN and provide instructions on how to unblock their SSN before a return can be filed, but the IRS’s response was somewhat cautious.

“This recommendation does represent a complex undertaking which would involve multiple operational divisions and functions,” wrote Joseph D. O’Leska, deputy director of the IRS’s Identity Protection Office of Privacy and Information Protection. “As a proactive approach to implementation of this recommendation we have already requested the creation of a new identity theft indicator which would specifically indicate the taxpayer has no filing requirements and has requested their account be locked. Additional associated programming would utilize the presence of this indicator to reject any returns received using the Social Security number of an individual who had ‘locked’ their account. The returns would be rejected prior to acceptance of electronically filed returns, thereby maintaining the integrity of taxpayer account information. Paper returns will require a different treatment stream, though will be similar in functionality. We will continue to work with other operational divisions to determine the best methods for complete implementation.”

He added that the IRS would also pursue revisions to Form 9452 and instructions to provide a means to notify the agency that taxpayers have no filing requirements and wish to have their accounts locked.

Other recommendations by the panel included the use of e-services to provide taxpayers with ready access to their estimated tax payments and other credits; clarification of instructions to include representation by grandparents and grandchildren for tax matters; additional user-friendly services for senior citizens at http://www.irs.gov; and improved instructions allowing domestic partners to more accurately report joint state tax income tax refunds.

In response to the last question, the IRS commented on a recent IRS private letter ruling and memorandums affecting same-sex couples in California (see IRS Backs California Domestic Partner Property Law and Tax Guide Released for California Same-Sex Couples).

“We think the answer to the above question depends on whether the same-sex couple resides in a community property state that extends its community property laws to same-sex couples (e.g., California),” wrote an unnamed representative of the IRS Chief Counsel and Tax Forms & Publications offices. “If the same-sex couple resides in California, a state that extends its community property laws to registered domestic partners (same-sex couples who register with the state), one-half of the refund should be allocated to each registered domestic partner. In California, as of Jan. 1, 2007, the earned income of a registered domestic partner must be treated as community property for state income tax purposes (unless the couple executes an agreement to opt out of the community property system). Thus, for state income tax purposes, each partner is generally considered to have earned one half of the income that generates the state income tax liability and should get credit for one half of the state tax withholdings or other payments. Consequently, each should be treated as receiving one half of any state tax refund for purposes of determining whether the refund should be included in gross income on a partner’s separately filed federal income tax return.

“In contrast, if the couple is receiving a state income tax refund from a non-community property state, the refund should be allocated to each person in proportion to the amount of state income tax that he or she paid,” the IRS added, giving examples of how the allocation might be done.