The IRS in an effort to streamline the OIC process or as some claim to cloud the process further made some small changes to the OIC process.  The doubt to liability option will not be included be on the new form nor we dual OIC’s be accepted.  Nothing earth shattering about the changes, the $150 filing fee and OIC offer amount options still exist.  The offer mill firms, firms who crank out bogus and doomed for rejection OIC’s and charge clients in advance for them may have a few more hurdles to overcome convincing the naïve client to sign with them. 

The IRS is proposing that any person, who willfully fails to file tax returns in any three years with any five consecutive year period, and if the aggregated tax liability for the period is above $50,000, would be subject a new aggravated failure to file criminal penalty.  This proposal would classify such failure as a felony, upon conviction, impose a fine not more that $250,000 or imprisonment for not more than five years or both.  The fine for a corporation would be no more than $500,000.  This proposal would be effective for returns that are required to be filed on or after January 1, 2008.  This appears to have a limited chance of becoming law and is an example of how the IRS is looking for new tools to “encourage” non-filers to become compliant

The new Congress is looking to the IRS to collect more unpaid taxes and catch taxpayers who have underreported income to finance an ambitious spending agenda without raising taxes.  Congress believes IRS could collect up to $100 billion by collecting from self-employed taxpayers who are underreporting their income.  The target of the collection efforts will be focused on those individuals whose income isn’t reported through W-2’s or 1099’s.   The proposal would allow the IRS to obtain information about a business’s revenues from credit card companies.  If the income from credit cards were unusual or higher than reported, the IRS would then perform an audit.  The bottom line is the government needs the money and the IRS is going to be charged with finding the dollars no matter where it is.   

The expected confusion around the Telephone Excise Tax Refund (TETR) is now in full swing. Millions of taxpayers are mis-filing the refund, some are attempting to claim they paid more in long-distance excise tax then they earned in income. Once again avoid the predatory practice of tax preparers who falsely claim you can receive “magical refunds”, these preparers are claiming that that many, if not most, phone customers can get hundreds of dollars or more back under this program.

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today and as a result the government authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006.

Mistakes found by the IRS on a sample of 2006 returns filed during January include:

* Filling out the Form 1040EZ-T incorrectly by failing to show a refund amount on Line 1a.
* Failing to request the telephone tax refund on a regular federal income-tax return in situations where the taxpayer appears to qualify.
* Filing duplicate requests.
* Requesting a refund that appears to be based on the entire amount of the taxpayer’s phone bills, rather than just the three-percent tax on long-distance and bundled service.
* Requesting a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income.

Here is link to TETR info the IRS gov website that should help.

http://www.irs.gov/newsroom/article/0,,id=164032,00.html

I met a small business owner yesterday who recently received an audit notice (letter 2205-A) from the IRS Small Business and Self-Employed division. The IRS will be increasing the number of audits in this sector this year, if you receive this letter contact the firm that prepared your returns and ask them how they will represent you, ask good questions about their experience and fees with audits. If you self-prepared, I recommend you contact a few firms about representing you and don’t pay 100% of the fees in advance.

This owner had made the mistake of sending the IRS their original documents and didn’t make any copies. Don’t ever do this; be sure to only send copies of all documents and receipts. We had a client who was an owner-operator truck driver that provided his originals to the IRS, the IRS misplaced the documents, the agent retired, and without any proof, the subsequent examination resulted in a huge tax liability for him. The story had a good ending, he hired our firm (after not getting any results from a large-they advertise a lot on TV firm) and we were able successfully negotiate an Offer-In-Compromise for him. It is likely that he could of avoided the expense of hiring any firm had he make copies of his originals.

A recent article was published in the NY Times about IRS Auditors being pressured by management to rush and close out audits on medium to large corporations was interesting. Purportedly these auditors were forced to end the audit before they could complete a meaningful audit, leaving huge sums of uncollected taxes in the pockets of the corporations.

The IRS is understaffed and is often accused of not being efficient, but I can tell you the business owners of the small to medium businesses that are calling our firm for help would strongly disagree with that article. These owners feel just the opposite, they feel like they are under siege by the auditor and are treated like they are guilty unless they can prove their innocence.

Because of this article some business owners and CPA’s may be thinking that they have nothing to worry about because the IRS doesn’t have time for a complete audit. Imagine basing your company tax decisions on a NY Times article and some disgruntled IRS employees, scary!

I agree with the article in that the new political regime will demand more complete audits for all sized businesses. It is reasonable to expect more audits in 2007 on small to medium businesses because the IRS knows that small to medium sized companies don’t have the experienced audit defense teams that the large corporations do, it is simply easier to get the audit done with people who look like deer in caught in headlights.

If your CPA firm is telling you they none of their clients get audited, watch out, not only are they not prepared to represent your company in an audit, but you are probably paying more taxes than you should because of their timidity. Don’t wait until the audit, change firms before anything happens

It is time again for the annual semi-clever tax refund phishing schemes to appear in email inboxes. These emails are targeted at taxpayers who are trusting enough to respond. The email appears to come from the IRS.gov site, has official sounding language, and contact information. The email states that the recipient can get their refund by providing credit card or bank account information. The IRS will never send taxpayer information by email.

Forward any phishing attempt to:

phishing@irs.gov

Here is a link to the IRS website to learn more.

http://www.irs.gov/individuals/article/0,,id=155344,00.html

Is an LLC right for you? Many clients are telling us they have be advised by other firms to create an LLC and it has not achieve the tax advantages they desired. When a LLC only has one member, the IRS ignores the LLC for the purpose of filing the tax return. This only impacts the tax return not the legally structure of the business. Single member LLC’s income and expense are reported on Form 1040, Schedule C, E, or F. If you would prefer to file as corporation intead of the “disregarded entity, Form 8832 must be submitted.

On January 9, 2007 the Taxpayer Advocate office called on Congress to repeal the authority it gave the IRS to hire private debt collections.  When we first wrote on this subject we expected that paying these firms 25% of every dollar they collected would create “collection abuse” problems.  The firms began in September of 2006 and problems began soon after.  This effort is failing and should be ended ASAP.   

Beginning January 1, 2007 the IRS has increased the “user fees” for setting up Installment Agreements.  Taxpayers who pay by non-debit will have to pay a onetime fee of $105 to set-up an the Installment Agreement with IRS and a onetime fee of $52 for those who set up the agreement with direct debit.