IRS Tips: Charitable Contributions

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Assuming anybody has any money to give this year, the IRS offers the following advice on claiming deductions for charitable giving:

  • If you want the deduction count on your 2011 taxes, then you have to make the contribution before the end of the year.
  • The organization you donate to must be a qualified organization — confirm using IRS Publication 78.
  • Charitable contributions are only deductible if you itemize, not if you take the standard deduction.
  • Keep good records and save donation receipts.
  • You may need to complete Form 8283 for non-cash contributions

As always, the best, most comprehensive source of information is the IRS publication on the topic.  For more information related to charitable contributions, see Publication 526 (available on the IRS website).

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Does the IRS View Marion Barry as a “Special Circumstance”?

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Former D.C. mayor, Marion Barry, is in the news today because of a lien that the IRS filed against him in connection with a measly $3,200 in unpaid 2010 taxes.

Remember back in February of this year when the IRS announced it was going to provide taxpayers with special tax relief during these trying financial times? The IRS dubbed it the “Fresh Start” initiative. Remember when I blogged in June about the uncertainties of the program and how the IRS still had not clarified some major points? Remember what I said about the new lien filing procedures; how the lien filing threshold was reduced from $10,000 to $5,000 in most cases? According to the IRS website:

The Fresh Start changes increase the IRS lien filing threshold from $5,000 to $10,000. Liens may still be filed on amounts less than $10,000 when circumstances warrant. (emphasis added)

 

So, why did the IRS file a lien if the balance is under $5,000? Well, it appears that Barry’s 2010 liability is only the tip of the iceberg. He still owes for prior years, for which he is on an installment agreement in good standing, according to Barry’s official statement. It appears that the IRS will be looking at the overall balance in determining whether to file a lien, even under Fresh Start. At least that’s one possible explanation. The other possibility is that the IRS would have filed a lien on Barry even if $3,200 were all he owed . . . because circumstances warrant it. Let’s face it, he’s a public figure sitting on a Finance Committee in D.C, in charge of public funds, and he has a colorful history of corruption and tax delinquencies. If that isn’t a special circumstance, then I don’t know what is.

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Christmas Carolers Banished from Post Office

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Just in case you were considering the local post office as one of the stops on your caroling route this year, think again.  It would be a violation of USPS rules.

A group of carolers dressed as characters from the classic tale A Christmas Carol popped into a post office in Silver Springs (Montgomery county) Maryland recently and were told to leave by a manager. And there was no indication they were singing off-key. It’s just that the USPS does not permit public assembly inside any of its branches. In the words of USPS spokesperson, Laura Dvorak:

[T]he carolers . . . were in violation of the Postal Service’s rules on public assembly and public address. Inside the post office, however, the expectation is that public assembly will be either conducted or sponsored by the Postal Service.

This has caused quite a bit of stir on the Internet in the past few days. Some groups say this is all part of a larger scheme to de-emphasize Christmas and eliminate “anything remotely connected to anything religious” during the holidays (a.k.a., the “war on Christmas”) despite all the Christmasy — even religious-themed — stamps available this time of year.

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IRS Loves TMZ

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If you’ve ever stumbled upon the TMZ website, you know how they love to expose celebrity tax problems.  If I didn’t know better, I’d say they have some secret relationship with the IRS.  I mean, what a huge benefit to the IRS to have these cases all over the internet where people can see them.

A quick perusal of the TMZ website reveals the tax issues (past and present) of the following celebs:

  1. Christie Brinkley
  2. Bow Wow
  3. Chris Tucker
  4. Sandra Oh
  5. Al Pacino
  6. The Osbournes
  7. Nicolaus Cage
  8. Val Kilmer
  9. Toni Braxton

The list goes on and on.  My apologies if this blog is starting to look TMZ-ish, but celebrities just can’t stay out of tax trouble.  As their fame (and income) start to slide, they find themselves overextended and tax bills often go unpaid. Besides, I do think it is constructive to call out the celebs, especially if it gets us to ponder our own spending habits and live more frugally.

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Chris Tucker Sheds Assets to Pay Back IRS

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Chris Tucker, the actor best known for his work in the Rush Hour series of films, has been selling his properties in Florida to pay back what he owes to the IRS.

Mr. Tucker owes $11.5 million in back taxes (perhaps somewhat less now that he has sold off some assets). Reports indicate that he sold his Florida properties for much less than fair market value, which indicates to me that he was in a big hurry to raise some cash under pressure from the IRS.

We don’t have the complete details, but with a $11.5 million tax bill, certainly the IRS has already threatened to seize his property. Why else would he take less than it’s worth? The dilemma for Mr. Tucker is if he had not sold the property, the IRS would have seize it and auctioned it off to the top bidder. A taxpayer can normally get a much better price in a private sale than what can be fetched in a public IRS auction. But the IRS doesn’t allow the taxpayer to put a property on the market and wait until he gets his asking price. Pressure from the IRS usually forces the seller to accept less — in this case, less than fair market value.

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Rihanna too Mainstream for NPR

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Bob Boilen and his co-hosts shared their favorite songs of 2011 recently on NPR’s “All Songs Considered.”

I often appreciate the music on this program and I sometimes even like the commentary, although much of the time it lacks the “analysis” that a lawyer would expect. A professional music critic should find better ways of describing a song than by saying, “it just takes me to this certain place . . . “

What bothered me most about the 2011 “favorites” episode is one of the guest commentators, Stephen Thompson, really wanted to pick Rihanna’s “We Found Love” but selected a different song under duress. Apparently Bob Boilen told him to pick something different. IMHO the credibility of this program, or its hosts, or its producers, would have been enhanced if they had just gone with this pick. Yes, Rihanna is more mainstream and most of her fans are probably under 18, but that shouldn’t matter, right?  A good song is a good song.  I just feel like the All Songs Considered crew are a little more concerned about picking the obscure, hipster musicians’ work than with picking really good songs.

Maybe I was also annoyed because I just really like “We Found Love.” I can’t believe I’m defending Rihanna. That’s a little embarrassing.  Ok, I think I understand now.

DOJ Shuts Down “Redemption Theory” Tax Fraud Ring

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This week the US Department of Justice released the names of seven individuals who have been charged in a $120 million tax fraud scheme. According to the indictment, the false return scheme was national in scope, causing the filing of tax returns for at least 180 clients from 30 different states, and requesting more than $120 million worth of fraudulent tax refunds. The indictment alleges that the defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008, reporting the amount of their personal debt obligations as both income and as federal tax withholding.

Other reports mention the scammers were promulgating a “redemption theory.” Here’s the scoop on this bizarre tax protestor theory according to Wikipedia:

Redemption theory involves claims that when the U.S. government abandoned the gold standard in 1933, the government pledged its citizens as collateral so that the government could borrow money. The movement also asserts that common citizens can gain access to funds in secret accounts using obscure procedures and regulations.

According to the theory, the government created a fictitious person (or “straw man”) corresponding to each newborn citizen with bank accounts initially holding $630,000. The theory further holds that through obscure procedures under the Uniform Commercial Code, a citizen can “reclaim” the straw man and write checks against its accounts.

The “straw man” argument is cited by the IRS as one of the 40 frivolous tax arguments which, if made, subjects the taxpayer to tougher penalties. The “straw man” argument is #18.

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IRS Thinks Levy Power Needs More Teeth

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One of the methods the IRS uses to collect past-due taxes is the levy. It has the authority to work with third-party financial institutions to seize cash from your bank account (bank levy) or with employers to intercept your paycheck (wage garnishment or wage levy).

Not all levies work the same. The levy on wages is “continuous.” In other words, once the levy is issued, the employer is instructed to submit payments to the IRS each pay period until the tax liability is paid in full or until the IRS otherwise releases the levy.  But the bank levy doesn’t work this way.  A bank levy affects only the funds that are in a specified account when the levy is issued.  If the IRS wishes to levy the account at a later date, it must submit another bank levy.  A levy on self-employment income works much like a bank levy in the sense that it is not continuous.  The levy on self-employment income is submitted to the third-party payor, and that person or company has a one-time obligation to turn over everything that is owed to the delinquent taxpayer.

The non-continuous nature of some levies is seen as an impediment to collections.  However, the IRS is trying to get this changed legislatively.

The Small Business/Self-Employed Division recognized the barriers the ROs [Revenue Officers] face when taking levy action and has taken some corrective action.  The Small Business/Self-Employed Division is preparing a legislative change proposal to expand continuous levies on additional income sources.  I.R.C. § 6331(e)  and § 6331(h) permit the continuous levy of salary and wages and certain other payments from the time of issuance until the levy is released.  The IRS has identified four additional categories of non-wage income that could be levied in a manner similar to wages and salary: non-employee compensation, rental income, royalties, and fishing boat proceeds.  These income sources totaled approximately $1.4 trillion for Tax Year 2009.  The proposal would expand the continuous levy authority to these additional categories of income and may increase revenue and assist taxpayers in becoming compliant through the use of additional collection options.

~ TIGTA Report #2012-30-007

It is beyond me how this change would “assist taxpayers.”  Taxpayers don’t need any “additional collection options”!  If this becomes law, it would be a major victory for the IRS.

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Forget Packers Stock, Get US Savings Bonds

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I know some people are already looking forward to next year’s tax refund check. If it’s not going to be spent paying off Christmas credit card debt then you may want to consider purchasing some US Savings Bonds.

All you need to do is fill out a simple form — Form 8888 — and attach it to your tax return when you file. On Form 8888 you simply indicate who the bonds should be issued to and the amount you want to purchase (in increments of $50.00 and up to a maximum of $5,ooo.00). If you do not want your entire refund going to the purchase of savings bonds, simply indicate what you want to do with the balance: paper refund check, one or more bank accounts, my bank account perhaps.

Savings bonds may seem like an old-fashioned investment, but it’s a smart investment these days. The Treasury Department describes them as a “low-risk, liquid savings product” that earns interest and protects you from inflation. You must pay federal taxes on the interest earned from savings bonds. But no worries about volatility, and they’re worth considerably more than Green Bay Packers stock.

If you like the feel of actually holding a paper savings bond in your hand, then purchasing them with part of your tax refund may be your last shot at doing so. Beginning January 1, 2012 paper savings bonds will no longer be available for purchase at financial institutions. Electronic savings bonds are available for purchase at any time through www.treasurydirect.gov.

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Will IRS Continue to Ship Via USPS?

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As you may know, the United States Postal Service (USPS) will be scaling back its operations in a major way come next spring.  Over the years, the internet has caused most of us to go “paperless” in virtually every aspect of our lives, which in turn has damaged the paper industry and also those in the business of shipping paper. USPS does not receive funding from tax dollars; instead, it is dependent on the revenues it generates from postage income. Not surprisingly, the USPS is hurting financially. In fact, it plans on closingover half of its mail processing centers to remain viable, which will certainly affect speed of delivery.

If you have tax problems or if you work in the tax relief industry, you know first hand how much mail the IRS sends through the USPS. In case you’re wondering, the IRS doesn’t ship for free. “The United States Postal Service bills the IRS on monthly basis via the Intergovernmental Payment and Collection (IPAC) for one-twelfth of the yearly postage estimate” (IRM 1.22.4.2).

Internal Revenue Manual 1.22.4 contains detailed guidance on postage accountability and reporting requirements for IRS personnel. Although one of the aims of this guidance is to reduce waste,  it seems that much more could be done to reduce the IRS’ reliance on a mode of communication that is becoming more outdated and less reliable. It will be interesting to see how the changes at USPS will affect one of its largest customers, the IRS.

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