Sound Tax Consulting » Tax News

IRS Announces Voluntary Worker Classification Settlement

The Admin — Thu, 22 Sep 2011 17:27:26 +0000

The Internal Revenue Service has launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.
This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit. (carrot and stick) Eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. This is available to many businesses that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

Contact our firm or the IRS to find out if your business is eligible. Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.
Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year.
No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

It might be in your best interest to research this program to make sure you fully understand the benefits and potential pittfalls before contacting the IRS on your own.

Article about rip off tax firms on MSNBC

The Admin — Fri, 02 Apr 2010 16:11:21 +0000

Great article about rip off tax firm, falls into the trap of over generalization that all firms are bad for the bulk of article, but that is the media world we live in, drama sells. It is ironic that the Ad for the Today show on the front page of MSNBC is promoting a firm in the Today Show ad that has a challenging record, while this editorial article is posted the same day….perhaps advertising and editorial departments should chat more often.

Love the mention about the advice from attorney from Maryland about the 10-tax rules, nice re-write of our Tax Relief Do’s and Don’ts , let’s compare blog posting dates, hmmm, but at least he is promoting the truth.

Another reminder about the BBB, make sure the company has been in business for more than one year and with the BBB for at least a year. They bad guys appear to have 12 month business plan, open doors, get BBB rating, promote A rating, get clients, rip them off, get bad BBB rating, shut doors, repeat.

The simple rule is if it sounds too good to be true, it is

http://redtape.msnbc.com/2010/04/april-15-can-be-a-day-of-fear-loathing-or-even-downright-panic-and-that-can-work-to-great-advantage-for-companies-anxiou.html#posts

Beware of fake IRS emails-Phishing

The Admin — Tue, 30 Mar 2010 19:48:55 +0000

In the last few days, a number of our client’s have reported that they received phishing emails claiming to be from the IRS, one was a CP 2000 notice and the other was an IRS Refund notice. The IRS doesn’t communicate by email to taxpayers. Never open or click on an email claiming to be from the IRS.

Taxpayer ID: They use your email address or business name here-00000103460456US
Tax Type: INCOME TAX
Issue: Unreported/Underreported Income (Fraud Application)
Please review your tax statement on Internal Revenue Service (IRS) website (click on the link below

The IRS has more information on other scams on their website.

http://www.irs.gov/newsroom/article/0,,id=170894,00.html

IRS Dirty Dozen 2010

The Admin — Tue, 16 Mar 2010 18:30:12 +0000

The IRS publishes this list, well worth reading.
WASHINGTON — The Internal Revenue Service today issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.
“Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”
Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.
The IRS urges taxpayers to avoid these common schemes:
Return Preparer Fraud
Dishonest return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by promising refunds that are too good to be true. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued injunctions ordering hundreds of individuals to cease preparing returns and promoting fraud, and the Department of Justice has filed complaints against dozens of others, which are pending in court.
To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents.
Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in the IRS Return Preparer Review issued in December 2009.
Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.
IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.
Phishing
Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.
Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.
Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: phishing@irs.gov.
Filing False or Misleading Forms
The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds that they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund. Phony information returns, such as a Form 1099-Original Issue Discount (OID), claiming false withholding credits usually are used to legitimize erroneous refund claims. One version of the scheme is based on a false theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.
Nontaxable Social Security Benefits with Exaggerated Withholding Credit
The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.
Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.
Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.
Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.
Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.
Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.
Zero Wages
Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.
The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.
Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and potentially subjects those who improperly claim the credit to a $5,000 penalty.
How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.
Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

New IRS Offer In Compromise hope for Unemployed

The Admin — Sat, 13 Mar 2010 00:28:53 +0000

New IRS procedures. This is a positive step by the IRS to help those taxpayers who in the past couldn’t file an OIC.

IRS has directed IRS employees to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise. Normally, the standard practice is to judge an offer amount on a taxpayer’s earnings in prior years. This new step provides greater flexibility for the unemployed when filing an OIC. There is one potential catch, the IRS may also require that a taxpayer entering into such an offer in compromise agree to pay more if the taxpayer’s financial situation improves significantly. What, when, and how the improvement will be evaluated will be important to learn before moving ahead with an OIC.

Nurse wins IRS case

The Admin — Tue, 19 Jan 2010 20:53:17 +0000

Great article. I applaud her for her tenacity and the amount of time and effort she put forth to ultimately win her battle with the IRS. I do wonder where her tax preparer was during the audit, it is possible tax preparer may not have been experienced enough to representing her in the audit. There is also the question what emotional cost did she pay for her time, effort, and worry during the process.

If she had hired a firm to represent her when she first got the audit letter the story would not have been as compelling to read, but the same outcome could have occurred without the drama.

It is something to consider when hiring a firm to prepare tax returns. Will they or can they help if you ever get audited (random audit, or triggered by claims made by ex-spouse, disgruntled ex-employee)?

I recall in a meeting a few years back, where a CPA (medium sized firm) bragged that none of the clients in all their years had been audited. Two things struck me as he talked: First, I hoped that he would be wise enough to never consider representing one of his clients in audit, given his obvious fear of the IRS and lack of experience. Second, was his firm preparing returns with such fear and for their own goals, that their clients were being short changed in the tax preparation?

http://finance.yahoo.com/taxes/article/108550/nurse-outduels-irs-over-mba-tuition?mod=taxes-advice_strategy

US Treasury Surprise Visit

The Admin — Wed, 28 Oct 2009 17:25:03 +0000

Last July we received a visit from the an agent from the Department of the Treasury, he informed us that our company name IRS/State Tax Relief Associates, Inc was potentially in violation of a U.S. code regarding the misuse of Department of Treasury names, symbols, etc. The fact that the IRS approved our name years ago and apparently that the IRS was not even aware of the code makes this more amusing and the fact that hundreds of tax returns have been sent to IRS with our company name as preparer had no bearing on how the code was to be interpreted.

After several months of not hearing back, we contacted the agent to ask when we would receive the determination and he informed us he was still working on the file. We did get the chance to voice our frustration that time could spent on our name while dozens of “phony tax firms” were all over TV & the radio every day promising impossible outcomes and stealing from clients while the U.S. Treasury watched without interference was a strange to say the least. We met today to discuss what we should do and decided that a name change is inevitable so we have put the name change process into motion. Now we have to decide on what to change it to. This is a pain! We are sure there is a silver lining to this mess, guess we just have to look harder. More to come.

IRS warning about fake IRS emails

The Admin — Thu, 10 Sep 2009 14:56:10 +0000

The IRS sends out this warning out one or two times a year to remind taxpayer that the IRS does not use e-mail to communicate with taxpayers. The link below is to the IRS site.

http://www.irs.gov/newsroom/article/0,,id=211669,00.html

Tax collection agents using facebook

The Admin — Fri, 04 Sep 2009 15:09:45 +0000

This article appeared the other day and I found it interesting. It is plausible that if employers are scanning the internet to check up on employees that collection agents would do the same.

http://articles.moneycentral.msn.com/Taxes/AvoidAnAudit/tax-collectors-trolling-facebook.aspx

IRS changes to Offer and Installment Agreement standards

The Admin — Mon, 17 Sep 2007 23:51:02 +0000

The IRS will make changes to Allowable Living Expenses, Transportation, Housing and Utilities, on October 2007. The new standards are not completely known at this time, but the some of the changes are regarding health and living expenses, cell phone use, and transportation. The IRS will have a new standard for health expenses for taxpayers under 65-years-old and thankfully a separate standard for taxpayers over 65-years-old. The proposed changes for Allowable Living Expenses are vague at this point, the IRS is stating that “it will be more fair” for all taxpayers and that household income will not be determining factor anymore. With transportation changes will be the area of the allowance for public transportation and operation costs for a second vehicle. Cell phone expenses are now being included as an allowed expense. These changes will impact Offer In Compromise and Installment Agreements. It is not known at this time of existing OIC’s will reviewed under the new standards

IRS Warns of New E-Mal Scams

The Admin — Thu, 31 May 2007 18:36:47 +0000

The Internal Revenue Service today alerted taxpayers to the latest versions of an e-mail scam intended to fool people into believing they are under investigation by the agency’s Criminal Investigation division.

The e-mail purporting to be from IRS Criminal Investigation falsely states that the person is under a criminal probe for submitting a false tax return to the California Franchise Board. The e-mail seeks to entice people to click on a link or open an attachment to learn more information about the complaint against them. The IRS warned people that the e-mail link and attachment is a Trojan Horse that can take over the person’s computer hard drive and allow someone to have remote access to the computer.

The IRS urged people not to click the link in the e-mail or open the attachment.

Similar e-mail variations suggest a customer has filed a complaint against a company and the IRS can act as an arbitrator. The latest versions appear aimed at business taxpayers as well as individual taxpayers.

The IRS does not send out unsolicited e-mails or ask for detailed personal and financial information. Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

“Everyone should beware of these scam artists,” said Kevin M. Brown, Acting IRS Commissioner. “Always exercise caution when you receive unsolicited e-mails or e-mails from senders you don’t know.”

Recipients of questionable e-mails claiming to come from the IRS should not open any attachments or click on any links contained in the e-mails. Instead, they should forward the e-mails to phishing@irs.gov (the instructions may be found on IRS.gov by entering the term “phishing” in the search box).

The IRS also sees other e-mail scams that involve tricking victims into revealing private personal and financial information over the Internet is known as “phishing” for information.

The IRS and the Treasury Inspector General for Tax Administration work with the U.S. Computer Emergency Readiness Team (US-CERT) and various Internet service providers and international CERT teams to have the phishing sites taken offline as soon as they are reported.

Since the establishment of the mail box last year, the IRS has received more than 17,700 e-mails from taxpayers reporting more than 240 separate phishing incidents. To date, investigations by TIGTA have identified host sites in at least 27 different countries, as well as in the United States.

Other fraudulent e-mail scams try to entice taxpayers to click their way to a fake IRS Web site and ask for bank account numbers. Another widespread e-mail tells taxpayers the IRS is holding a refund (often $63.80) for them and seeks financial account information. Still another email claims the IRS’s ‘anti-fraud commission’ is investigating their tax returns.

IRS changes Offer in Compromise form

The Admin — Fri, 30 Mar 2007 22:05:08 +0000

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.

Wesley Snipes

The Admin — Thu, 26 Oct 2006 16:05:45 +0000

Most of us have read about Wesley Snipes 12 million tax problem with the IRS, unfortunately this happens to thousands of taxpayers each year. I actually feel sorry for him because despite his apparent bad judgment, he did hire a “professional” to do his taxes; they broke the trust by taking advantage of him. Charging a percentage was unethical and now illegal by IRS circular 230.

The story usually goes like this, the taxpayer meets an accountant or CPA through a friend or co-worker that performs miracles on tax returns, giving the client huge refunds or explains why you don’t have to pay taxes through their unique brand of voodoo. Next, the IRS audits a return prepared by this magical accountant/CPA, and then you guessed it, the outcome is nasty for the taxpayer and then IRS audits everyone the accountant/CPA prepared returns for. The taxpayer then has to return of the refund for one or more years with the penalties and interested charged by the IRS, this creates a huge problem for the taxpayer, hence, the reason they contact us seeking help. Most of our clients tax debts are obviously much smaller than Wesley Snipes, but the problem is just a big in their world.

If it sounds too be good…it usually is.

TRA California

The Admin — Wed, 22 Jun 2005 21:23:56 +0000

Since we last wrote about the TRA of California problem we have had spoken to dozens of ex-TRA of California clients, or should we say victims. The situation is not very good for most of them, they paid in advance and believed they were going to get the help they needed, and obviously they didn’t get the help. Most are understandably angry, scared, and distrustful – who wouldn’t be. Many ex-clients of TRA of California had Offer-In-Compromises (OIC) filed, but it was rejected because they (the client) didn’t even qualify for the basic criteria of an OIC. Many other OIC’s were rejected because of sloppy work, incorrect information, and lack of follow through. Other ex-client returns were never completed or were done incorrectly, levies were not released and Installment Agreements were never set-up.

The most painful calls were from potential clients that spoke to us prior to signing up with TRA of California. Now they are back looking for help again after discovering what the “guarantee” and great BBB rating really means. The BBB now rates the company with an F and states the company is shut down.

Here is what to avoid if you a seeking help:

Never hire a firm that demands full payment in advance or even half now and the balance in 30 days. You will most likely never see your money again.
Never hire a firm that guarantees the outcome of an Offer-In-Compromise. The IRS takes a dim view on these guarantees or implied outcome promises and the IRS has even published warnings regarding this practice. Go to this link to read the IRS warning.
http://www.irstaxreliefassociates.com/news20041025.php
Never hire a firm that tells every potential client that they qualify for an Offer-In-Compromise. Our firm finds that about only 3 out 10 people who call should consider filing an Offer-In-Compromise.
Never hire a firm that doesn’t stand by their Offer-In-Compromise submissions by supporting the client with appeals as part of the fee agreement.
Never hire a firm that lumps all tax solutions into one fee structure. These firms like to call the service “Tax Resolution” or some other official sounding heading and list all services under that heading. Why should you pay the same for a service that takes less than 30-days to perform as you would for one that takes eight months or more?
Watch out for the Penalty and Interest Abatement sales tactic. The outcome of this service cannot guarantee either and there are some basic circumstances that a client should have to even file for one. These “everything can be done by the “Great and Wonderful OZ” firms” are selling you a bill of goods.
Watch out for traveling salesperson firms. These firms claim to have offices located throughout the United States. What they have is traveling salespeople who are paid commission to sell you on their services. They meet clients in temporary offices. They sell you and send your personal records to a central office. Most likely you will never ever talk to the “trusted” smooth talking salesperson again.
Avoid firms that state what they charge is based upon the amount of taxes you owe. The amount of tax debt is only one factor in determining the complexity of the case. It is a way for these “gouging” firms to over charge potential clients.

Find a firm that doesn’t succumb to any of the above. Clearly we would like to have you for a client, but we also recognize we are not a fit for all clients. There are number of reliable firms that can help. Ask good questions and you will find the help you deserve.

We would welcome your comments on this blog.