Romney Will “Probably” Release Tax Returns in April

I’m not sure what people are hoping to see on Romney’s tax return. Everyone already knows he is very wealthy. Are they hoping to find that he owes the IRS or has other tax problems? He’s probably just waiting for the last possible minute to file (that would be 11:59pm on April 17th this year) like any other tax-loathing American would do. If it’s prior year tax returns that they are hoping to see then he still has some time before he could be criticized for going against history and tradition.

Romney’s running mates are pushing him to release his tax records sooner than later because they think that whatever is revealed  in his taxes may have an influence on how people vote. Presidential candidates are not required to make their tax returns public, but they have traditionally done so . . . usually around tax time.

I looked at what has been done in campaigns in the past . . . They have tended to release tax records in April or tax season . . . And if I become our nominee, and what’s happened in history is people have released them in about April of the coming year, and that’s probably what I would do.

~ Massachusetts Gov. Mitt Romney, speaking at a Republican presidential debate on January 16, 2012

See CNN story for a list of party nominees in the last few elections and when they released their tax records.

MLK’s Tax Case

Some people and organizations in positions of power tried to debunk the efforts and mission of Martin Luther King, Jr. with false accusations. Even some state and local governments wanted to silence him. For example, did you know that King was indicted for income tax fraud in February 1960? These tax problems eventually led him to court.

The state of Alabama had charged King with signing fraudulent 1956 and 1958 tax returns. Specifically he was charged with failing to report income from the Montgomery Improvement Association (MIA) and the Southern Christian Leadership Conference (SCLC), that his actual income was up around $45,000 in 1958, and that he owed the state more than $1,700.

King’s attorneys characterized the state’s position as a “gross misrepresentation of fact.” They argued that the money received from SCLC was expense reimbursement, not income, and thus not taxable. The all-white jury deliberated nearly four hours before returning a ‘‘not guilty’’ verdict.

IRS Seeks to Cut Spending with Employee Buyouts

The National Taxpayer Advocate released its annual report to Congress earlier this week. Their top complaint is that the IRS is severely underfunded, which is causing a number of problems, including an erosion of customer service and a dwindling of taxpayer rights.

One way the IRS is dealing with a smaller budget is by offering early retirements and employee buyouts. This practice really illustrates the IRS’ dilemma. The more seasoned, higher-paid IRS employees are the only ones being offered buyouts because they are the only ones that qualify for early retirement, and the IRS can make a bigger dent in their payroll by shedding tenured employees. So the IRS will be losing some of their best people and filling empty spots with new employees. I know that the TAS is of the opinion that the problems at the IRS are primarily due to them being understaffed, but I have to believe that part of it is due to a large number of new employees who are still learning their job duties.

It seems like a lose-lose situation for the IRS. Under current budget constraints, if they keep their seasoned employees then they can’t afford to hire enough staff. But if they allow them to retire early then they would be, in effect, trading their MVPs for rookies.

Another Tax Preparer Fraud Case

A Cincinnati man has proven there is more than one way to cheat on your taxes. And now, in addition to his huge tax debt, he has criminal charges levied against him.

Yesterday John Humphrey, III, 46, was sentenced to 12 months of home confinement and ordered to pay more than $65,000 in restitution to the IRS. Humphrey, a tax preparer by trade, pleaded guilty to filing false tax returns for both himself and his clients.

His own returns appear to be a mixed bag of illegal tax tricks:

  • 2004 – failed to report wage income
  • 2005 and 2006 – claimed niece as a dependent to claim a false exemption deduction
  • 2007 – omitted more than $100,000 in gross receipts from his business, The Tax Place
  • 2008 – claimed a false “Contract Labor” business expense

Besides the 12 months of home confinement, Mr. Humphrey will also have 3 years of probation and will likely have to find a new profession. His sentencing included a prohibition from preparing his own tax return and from working at a tax preparation firm.

The Taxpayer Advocate Has Spoken – Is Anybody Listening?

Today the Taxpayer Advocate Service (TAS) released its annual report to Congress and, once again, the tone of the report is one of alarm.

Nina Olson, head of TAS, is particularly concerned about the lack of funding at the IRS. Fewer employees are being asked to do more and more work, and services that should be handled by live bodies are often done by IRS automated systems. The result is that individuals can’t get their tax problems resolved. It’s a tax administration that may be on the brink of failure.

“We’ve had a number of years where the trending of taxpayer service funding has gone down and down in contrast to the increase of enforcement funding.  And then when you layer on the budget constraints, what you see is that taxpayer service is going to decline even more . . . I’m trying to give a warning to everybody, if we continue down this road, bad things are going to happen to taxpayers and it will be very difficult to reverse.

~ Nina Olson, National Taxpayer Advocate

The relationship between the TAS and the IRS is a strange one. The IRS posts the annual report on its website consistently every year and notifies interested parties by way of the IRS Newswire. But it seems obvious from the official IRS statements that the IRS is not happy with the strong comments from the TAS.

“While today’s report includes a number of helpful suggestions, the link described in the report between a challenging budget environment and alleged erosions in taxpayer rights is inaccurate and without basis in fact.

~ Michelle Eldridge, IRS spokesperson

The adversarial/independent nature of the IRS and the TAS perhaps should not be questioned these days. These certainly do not sound like unified voices.

IRS Offers Advice on Interacting with Tax Preparers

You can often avoid tax problems early on if you select a competent tax preparer. This post is based on “IRS Tax Tip 2012-06″ published by the IRS earlier today.

The title given by the IRS was “Ten Tips to Help You Choose a Tax Preparer,” but I think you will agree that this is not an accurate title. I think the author started off listing tax preparer selection tips, then ran out of suggestions by #8 or so, but really wanted to have a nice round 10 items on the list. Not that numbers 8-10 are bad suggestions, they just don’t exactly qualify as things you can do to help you choose a tax preparer. Numbers 8 and 9 will probably come into play only after a bad tax preparer has been hired. And number 10 has nothing to do with selecting a tax preparer other than the fact that you most likely would not select an abusive tax preparer two years in a row.

Here’s the list in abbreviated form:

  1. Check the tax preparer’s qualifications: PTIN, certifications, professional organizations, etc.
  2. Check the tax preparer’s history: get on the internet and poke around a little
  3. Find out as much information as you can about their fees
  4. Make sure they will file electronically
  5. Make sure the tax preparer is accessible
  6. Make sure the tax preparer asks you enough questions and asks for enough information/documentation to be able to legitimately prepare your return
  7. Never sign a blank return
  8. Review the return before you sign it (you are ultimately responsible for what is on the return, even if you get a professional to prepare it)
  9. Make sure the tax preparer signs the return and includes his/her PTIN
  10. Report abusive tax preparers to the IRS

The IRS Counts to Three: Opens up Another OVDI

If you have kids, do you count to three when you want to get a certain behavior out of them?  You know what I’m talking about: “Mikey, take your sister’s phone out of your mouth right now!  Don’t make me come over there!  One . . . Two . . .”  I’m not a big fan of counting to three.  The problem is I don’t know what happens after “three.”  And what if you don’t get the desired conduct?  Do you keep counting?  How high do you count before you dole out the consequence?

Today the IRS announced that it will be offering another Offshore Voluntary Disclosure Initiative (OVDI), this just months after we thought it was over for good.

“It’s unlikely the IRS will offer another program because that would undermine the agency’s credibility. When they say, ‘Now we really mean it,’ it’ll be like the boy who cried ‘wolf.’

~ Scott Michel, Caplin & Drysdale

The first OVDI was back in 2009, then the IRS reopened the program (with slight modifications) in 2011, giving a deadline of September 9th.  This time around there is no filing deadline, at least not one that we’re aware of yet.  The IRS says this time they reserve the right to change the terms at any time, such as when the program ends and what kinds of penalties apply.

I guess the IRS is trying to show it’s still in charge.

Newest Tax Gap Figures are Astounding

On Friday the IRS released its “tax gap” figures for tax year 2006. The previous measurement was five years earlier in 2001.

The tax gap is the difference between what taxpayers should be paying and what is actually paid.  And while the newest figures may make you choke, they are not too much worse than 2001.

The gross tax gap in 2006: $450 billion.

The gross tax gap in 2001: $345 billion.

What contributes to the tax gap is failing to file, failing to report all income, and simply failing to pay. The biggest contributing factor is the underreporting of income.

A comprehensive explanation of the 2006 tax gap can be found on the IRS website.

Ai Weiwei’s Tax Case up for Reconsideration

Our political activist / artist friend, Ai Weiwei, is in the news again today fighting for his own personal tax relief and the broader agenda of pursuing justice for his fellow countrymen.

The Beijing Local Taxation Bureau has agreed to hear his appeal of a $2.4 million tax bill and fine for alleged tax evasion. They informed him the process would take no more than two months.

The IRS should take note of this.  Chinese tax authorities gave themselves a deadline, a very reasonable deadline!  Ok, but let’s not get overly excited about this.  Will they follow through on this self-imposed deadline?  And even if they do act quickly, is a speedy & oppressive ruling any better than the slow churning of the IRS?  In other words, is this case being reviewed just to appease Ai and other government opposition?

Everyone will be watching closely for any missteps in the process.  Ai for himself definitely sees his appeal as something grand and symbolic:

How they handle this relates to issues of China’s rule of law and the safety of its people. It has very broad implications. If they can’t resolve this issue very fairly and carefully, it will bring harm to this society’s justice system.

IRS Procedure Gives Consideration to Spousal Abuse

The IRS released a proposed revenue procedure (Notice 2012-8) that would loosen up some of the rules related to Innocent Spouse relief under Revenue Code section 6015(f).

Normally if a married couple files a return jointly then they are both equally liable (jointly and severally) for any outstanding balance on that tax year. However, if one spouse can show that he/she had no knowledge and had no reason to know that the other spouse was underreporting income or that the funds intended for payment of the tax were taken by the other spouse, then the IRS may impart tax relief to the innocent spouse.

One of the most significant changes has to do with the criteria that the IRS considers when reviewing an Innocent Spouse case. The IRS will now take into consideration all the facts and circumstances in Innocent Spouse cases, with no one factor or majority of factors necessarily controlling their determination. Also, some factors may weigh against the requesting spouse and some factors may weigh in his/her favor. But if the requesting spouse can prove marital abuse or lack of financial control, then it may, under the proposed procedures, mitigate those otherwise negative factors.

In layman’s terms:

Somebody in an abusive relationship does not need tax problems heaped on top of everything else going on in their life. If the requesting spouse was abused or prevented from participating in family finances, then Innocent Spouse relief may still be granted even if the requesting spouse had actual knowledge that there were problems with the tax return or that the taxes were going to go unpaid.

Interestingly, because the new revenue procedure expands equitable relief available to innocent spouses, it will be applied by the IRS immediately even before it is finalized.