Notice CP03A – First Time Homebuyers may be surprised to find repayment due

by Bryan Miller, Tax Analyst

Taxpayers who took advantage of the IRS First Time Homebuyer Credit between April 8th, 2008 and May 1st, 2010 are not all the same. The credit aided individuals and couples who purchased a first home as a primary residence, and was initially meant as temporary stimulus for the economy. As time progressed, the credit changed and was treated very differently in tax years 2009 and 2010. Unfortunately, these subsequent changes did not grandfather in those taxpayers that took the credit in 2008 as many surprised taxpayers may find this year; however, for those who purchased a home in 2008 and have not taken the credit, you still have options. The breakdown is as follows:

Those who purchased a home between April 8th and December 31st, 2008 and took the credit on their 2008 tax return had the stipulation of a 15-year payback requirement beginning this year on the 2010 tax return. In essence, the credit took the form of an interest-free loan in the amount of $7,500.00. Beginning on the 2010 return, adding an additional tax of $500 to each return using Form 5405 for 15 years will pay the credit back until 2025.

For homes purchased and closed between January 1st 2009 and November 7th 2009, the credit increased to a maximum of $8,000.00 and did not need to be repaid. This version of the credit only applied to new homeowners who had not owned a home in the prior three years. After November 7th 2009 and through May 1st 2010, the credit included both the $8,000.00 as applied to 2009 buyers, as well as a new version to include long-time residents (current homeowners as opposed to homebuyers) up to a maximum of $6,500.00. This variation did not have to be repaid either.

Note: The 2009 and 2010 credits had a conditional versus mandatory repayment mandate. The credits would have to be repaid if the qualifications of the program changed. The home had to be a first time purchase, as defined above, and resided in (not sold) by the buyer for the next three years.

Fortunately, if you are a 2008 homebuyer and candidate for the credit, yet have not claimed the credit, you may amend your return to claim the credit using Form 1040X with the December 2009 or 2010 Form 5405. Certain additional documentation may be required when filing a claim for the credit with your 2009 or 2010 return or amended return.

There are exceptions to the 2008 repayment rule. Exceptions may apply to individuals who claimed the credit in 2008 and are now deceased, those who sold the home without realizing a gain to a non-related party (including foreclosure), or those whose home was condemned or destroyed. Also, if a spouse dies after claiming the credit on a joint return in 2008, the obligation becomes only 50%, or $250.00 per year for 15 years, for the surviving spouse. See First-Time Homebuyer Credit Questions and Answers: Claiming the Credit on Your Tax Return or First-Time Homebuyer Credit questions and Answers: Basic Information for further details.

IRS sends out 2011 Top ten tax tips

IRS Tax Tips 2011-01:

It’s that time of the year again, the income tax filing season has begun and important tax documents should be arriving in the mail. Even though your return is not due until April, getting an early start will make filing easier. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.

2. Be on the lookout W-2s and 1099s will be coming soon; you’ll need these to file your tax return.

3. Use Free File: Let Free File do the hard work for you with brand-name tax software or online fillable forms. It’s available exclusively at http://www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit http://www.irs.gov/freefile to review your options.

4. Try IRS e-file: After 21 years, IRS e-file has become the safe, easy and most common way to file a tax return. Last year, 70 percent of taxpayers – 99 million people – used IRS e-file. Starting in 2011, many tax preparers will be required to use e-file and will explain your filing options to you. This is your chance to give it a try. IRS e-file is approaching 1 billion returns processed safely and securely. If you owe taxes, you have payment options to file immediately and pay by the tax deadline. Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days.

5. Consider other filing options There are many different options for filing your tax return.You can prepare it yourself or go to a tax preparer.You may be eligible for free face-to-face help at an IRS office or volunteer site.Give yourself time to weigh all the different options and find the one that best suits your needs.

6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.

7. Visit the IRS website again and again The official IRS website is a great place to find everything you’ll need to file your tax return: forms, publications, tips, answers to frequently asked questions and updates on tax law changes.

8. Remember this number: 17 Check out IRS Publication 17, Your Federal Income Tax on the IRS website. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.

9. Review! Review! Review!Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.

10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try http://www.irs.gov or call toll-free at 800-829-1040.

Former New York Legislator Pleads Guilty to Tax Evasion

On this blog, we have often discussed the importance of filing your tax returns each year and filing them on time. We should also mention it is equally important to file complete and accurate returns. Falsifying your tax returns is something the IRS and the government does not look kindly on.

Former Republican State Senator Vincent Leibell pleaded guilty in court this morning to filing false tax returns for 2003 through 2006. He also admitted trying to influence a grand jury investigating corruption in Putnam County, New York.

Leibell resigned last Thursday, about a month before his eighth term as Senator was set to end. After spending 28 years in the Senate and Assembly, Leibell was elected to serve as the Putnam County Executive.

More details on this story at: http://www.lohud.com/article/20101204/NEWS01/12040336/Source-Leibell-s-charges-include-obstruction-of-justice-tax-evasion.

‘Tis the season…. To prepare for tax season!

It’s never too early to start preparing for the next tax season. You may find that you can still squeeze in some last minute tax strategies to help save you money on your 2010 return. It’s a little trickier this year than most, since tax rates are scheduled to change for 2011. With the uncertainty about next year’s tax rates, some taxpayers are looking to accelerate their income into 2010 at the known tax rate rather than waiting to see what 2011 holds. For now, here are some tried and true ways to save on your taxes:

*Max out your 401(K) or other employer sponsored retirement plan. Contributions to a 401(K) or 403(b) have to be made by the end of the year, so now is the perfect time to lower your taxable income while padding your retirement account.

*Make your charitable contributions by December 31st to be able to claim them on your 2010 tax return.

*Giving any large cash gifts? You are allowed to gift up to $13,000 (for 2009 and 2010) per person, to any number of people without having to file a gift return. Of course, if you give a check, the recipient must cash the check by the end of the year.

*Pay your property taxes by the end of the year in order to deduct them on your 2010 return.

*Sell of any stocks or investments that have fallen in value. You can take the losses in 2010, if you sell before the end of the year.

*The energy efficient home improvement credit is set to expire at the end of 2010. If you are thinking of making some home improvements (new insulation, more efficient windows, doors or HVAC system), act now to take advantage of this credit.

*Previously, a computer counted as a qualified expense for section 529 college savings plans. This will expire at the end of 2010.

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

JK Harris Employees Rally to Help Local Food Pantry for Thanksgiving

For the second year in a row, JK Harris employees participated in a food drive to help local charity, Helping Hands of Goose Creek. Helping Hands is a local food pantry that provides emergency food to families in crisis situations. All families are assessed to determine if they meet the requirements of emergency aid.

Over the recent months, the charity has seen donations drop while demand has increased.Helping Hands is located in Berkeley County, which currently has the highest unemployment rate in South Carolina at over 12%.

Last year, JK Harris held its first food drive for the charity and donated 378 pounds of food. This year, the goal was to exceed that number.

Executive director Michelle Maynard was very happy and more than a little emotional when she called to let us know late last week that JK Harris’ donations weighed in at 591 pounds this year. She was thrilled she would be able to provide all of her families with a holiday turkey this year.

A big thank you goes out to our generous employees at JK Harris.

If you would like more information on Helping Hands of Goose Creek, visit their website at www.helpinghandsofgoosecreek.net.

Obama Seeks to Extend Middle Class Tax Cuts

On Tuesday, President Obama stated the United States must extend the middle class tax cuts to help an economy he says is on the mend. His position remains that the U.S. cannot afford to also cut taxes for the wealthy. Congress has been at odds over whether or not to let Bush-era tax cuts expire or to extend them. Obama’s Making Work Pay credit is set to expire at the end of the year also, resulting in “pay cuts” for many who benefited from the credit. For details, read the full article below, published by Caren Bohan of Reuters.com.
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Obama, who also told hard-hit Americans the U.S. economy was on the mend, said extending the middle-class tax cuts was critical to keeping the economic recovery on track.

“If we allow these taxes to go up, the result would be that a lot of people most likely would spend less. That means that the economy will grow less,” he told workers at an auto plant.

Republicans, who won control of the House of Representatives in November 2 elections as voters punished Obama’s Democrats for a sluggish economy and high unemployment, want to make the tax cuts permanent for all Americans.

Touting the success of his government rescue of the U.S. auto industry in a campaign-style rally, Obama welcomed news that U.S. economic growth was picking up.

He warned it had a way to go before it was out of the woods and said that meant government must not take money away from households likely to spend it.

“Next year, taxes are set to go up for middle-class families unless Congress acts,” Obama said. “If we don’t act by the end of the year, a typical middle-class family will wake up on January 1 to a tax increase of $3,000 per year.”

Data released earlier on Tuesday showed that U.S. output grew at a 2.5 percent annual pace in the third quarter, up from a previously estimated 2 percent, reflecting stronger spending and export earnings than initially thought.

MEETING NEXT WEEK WITH REPUBLICANS

The president meets Republican and Democratic congressional leaders on November 30 to work out what to do about the Bush-era tax cuts and other pressing legislation to complete before a new Congress begins in January.

Obama says taxes should rise for families making more than $250,000 a year, but he has made extending cuts for middle-class families a top policy priority.

“This is actually an area where Democrats and Republicans agree,” he said. “The only place where we disagree is whether we can afford to also borrow $700 billion to pay for an extra tax cut for the wealthiest Americans — millionaires and billionaires. I don’t think we can afford (that) right now.”

Obama used his visit to highlight U.S. jobs saved by his multibillion-dollar taxpayer bailout of the auto industry, after a successful stock float by General Motors last week underscored renewed investor demand.

The bailouts were unpopular with many Americans. Obama wants to persuade the public they were worth the money, and used his visit to the Midwest, critical to his re-election chances in 2012, to sell that message.

“We’re coming back. We’re on the move. All three American (auto) companies are profitable, and they are growing,” he said. “I want everybody to be absolutely clear, we are moving in the right direction.”

Posted by JK Harris

Rep. Charles Rangel Seeks Fairness, Mercy in Punishment for Ethical Wrongdoings

On Thursday November 18, the House ethics committee recommended censure for New York Representative Charles Rangel. The committee suggested he needed to “suffer the embarrassment of standing before his colleagues” while receiving an oral rebuke for financial and fundraising misconduct, to include back tax debt.

The committee determined with a 9-1 vote that Rangel should be censured, as well as pay back taxes owed on a vacation villa in the Dominican Republic.

Rangel, a 20 term congressman apologized for his conduct but claims he was not out for personal gain or to “go beyond” what was given to him as a salary. Rangel went on to address the committee stating, “I apologize for any embarrassment I’ve cause you individually and collectively as a member of the greatest institution in the world.”

Republican Michael McCaul questioned Rangel’s claims that he was not corrupt asking how a failure to pay taxes for 17 years was not corrupt. Rangel was the former chairman of the House Ways and Means Committee – the very committee that writes taxes.

Other charges Rangel faced involved improperly using official resources. Rangel was found to have used congressional letterheads and staff to raise money for the Rangel center. Donations to the center were poor until Rangel rose to head the Ways and Means Committee.

Rangel was found guilty on 11 of the 13 charges he was facing on November 16th.

Source: Huffington Post

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!”