If you Don't Have a Friend Like Sheen

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Not everyone has a Charlie Sheen they can turn to when the IRS comes knocking.  You can blame your accountant for your IRS problem, or you can blame your ex-spouse, or you can blame the economy.  But chances are the IRS won’t care whose fault you perceive it is; they will just want the tax debt paid.

It is human nature to try to ignore the problem for as long as possible.  We procrastinate and we hope it will go away on its own.  Some of our clients don’t file returns when they become due for fear of incurring more and more debt.  However, in most cases, failing to file only makes things worse.  Some people ignore IRS notices or don’t even open IRS mail when it comes — again, this is not the best course of action.

The best way to get back on track with the IRS is to file all past-due returns and face the problem head-on by getting in touch with a tax professional as soon as possible.

Three Projects for the New Commish

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image via blog.xssoftware.com

Forbes contributor Stephen Dunn recently blogged about the challenges facing the presently-unnamed IRS Commissioner.  He identified three problems that he feels should be given serious attention once the new commissioner takes office.

1. IRS practioners need a more efficient way to get their hands on taxpayer transcripts.  It is inconceivable that Dunn, as a 27-year tax attorney, would be unable to gain access to his clients’ transcripts through IRS’ E-services.  However, I can personally attest to the complications involved in registering for E-services.  There is no reason why a tax attorney should have to call the IRS simply to order transcripts.  The procedure needs to be simplified.

2. The IRS should change its federal tax lien (FTL) filing procedure.  Dunn believes that the current practice of public lien filing opens the door for abuse by shady tax resolution firms who use lien lists to mass mail thousands of fliers encouraging recipients to call for tax help.  I can see his point here too, even though the abusive tax lien mailers are pretty easy to spot.  Instead, Dunn proposes a solution whereby firms or individuals would have to affirmatively request FTL information from the IRS instead of having that information available to the public.

3. The IRS must stop sending out refunds based on fraudulent 1099 forms.  This popular scam has truly gotten out of control, with millions of dollars being paid to criminals each year.  And it really needs to be prevented on the front end because after the refund has been paid, it costs way too much to try to get the money back.

The new commissioner is certainly going to inherit a large “to do” list.  This is only the start.

Tax Considerations for MLB Free Agents

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photo via mlbreports.com

Major League Baseball (MLB) free agents should consider the tax consequences of playing for a team located in a high tax state.  Players always go into negotiations with their agent at their side; should they maybe have a tax attorney on their other side?  Tax relief — it’s one of many variables that can be considered when changing teams, but it’s typically fairly low on the list of considerations.  Of course the teams located in states that do not have income taxes are going to flaunt that little benefit as much as possible (i.e., Seattle Mariners).

Due to Obama’s tax increase on salaries above $200,000 and the expiring Bush tax cuts,  taxes will increase for all MLB players beginning January 1, 2013, regardless of the teams they play for.  Thus, many free agents are negotiating for front-loaded deals that pay out as much as possible before the end of the year.  See full article for more information.

The Sacramento Gold Dust Mystery

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image via highrisesociety.com

In these days of FATCA and offshore accounts, for some it is hard to imagine those days when the preferred place to hide money was under a mattress or in a backyard hole.  There could be many reasons for wanting to conceal one’s true wealth, but few of them tend to be very honest.  Although, I suppose some people just don’t trust themselves to spend their own money responsibly.

The technicians at Clark & Rush, a Sacramento-based heating & A/C company, found $300,000 worth of gold dust packed away in 12 old baby food jars.  They happened upon the stash in September while doing an installation on an old home in Sacramento.  The gold dust was given to the homeowners who requested that their names not be made public.  Looks like somebody has some secrets.

Some people try to illegally hide money and assets from the IRS, and there is literally no end to the creativity.  But whether it is done in an effort to pay less taxes or to escape the collection arm of the IRS in an asset seizure situation, it is the wrong approach to tax relief.  No competent tax relief attorney will ever advise you or help you to do this.  A tax attorney will assist you with tax avoidance so that you pay only as much as you are legally required to pay, but will never help you with illegal tax evasion.

IRSAC 2012 Report, Part II

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Identity theft is another prevalent issue for the IRS and another topic that the IRSAC has attempted to address in its report.  But I don’t think their recommendation for curbing identity theft would be popular with most taxpayers who (mistakenly) see their April refund check as the ultimate form of tax relief:

The IRS should strongly consider delaying refunds until after verification of the taxpayer’s identity. For taxpayers that rely on an early refund in January, the IRS should consider a process under which 25 percent of the refund is issued prior to verification, and the remaining 75 percent issued after verification.

Everything the IRS has done up until now has been aimed at speeding up the refund process and shifting over to a “real-time” tax system.  See IRS Real Time Tax Initiative.  But with the onslaught of fraudulent refunds obtained by using stolen identities, the IRS may have to backpedal somewhat.  The thought of having to wait a little longer will be very frustrating to the average taxpayer.  I imagine it would be somewhat like having to go back to a dial-up internet connection after being accustomed to DSL.  Of course, from a tax attorney perspective, the solution is to adjust your withholdings so you don’t end up with a huge refund in the first place.

IRSAC 2012 Report

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The 24-member Internal Revenue Service Advisory Panel (IRSAC) published their 2012 public report, and their suggestions for improving the Practioner Priority Service (PPS) are spot on.  If the IRS follows these recommendations, there is no question it will improve access to tax relief.

The level of service and number of calls that can be handled by PPS is dropping due to budgetary constraints, so the IRS will need to figure out how to encourage practitioners to turn to E-Services more often and they will also need to be more efficient with the calls that they do take.

There were 14 suggestions in all, but my favorite has to do with the handling of Form 2848 (IRS Power of Attorney).  It currently takes about 10 days to process a F2848.  If the IRS would establish a priority CAF fax number that would be used through E-Services, processing times could be improved dramatically.  IRSAC also suggested that the IRS service center reps stop being so nitpicky with their POA verifications.  Currently if a practitioner calls before a F2848 has been processed by the CAF Unit, he/she must fax in the POA while on the line with the service center rep in order to obtain access to the account.  That’s fine; that makes sense.  However, if the practioner calls in a day or two later (before the CAF Unit has processed the POA), he/she is required to fax it over again.  IRSAC recommends making a simple notation showing that the F2848 has already been reviewed/approved.

The Nutella Tax

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image via www2.costco.com

If you’re like me, part of the appeal of traveling and visiting new places is the FOOD. And vacationing in Europe is expensive enough as it is, but by the time I get a chance to visit, all I’m going to be able to afford to eat is baguettes and water.

The latest food item on the chopping block in Europe is palm oil — a critical ingredient in France’s beloved Nutella. If you haven’t tried it, Nutella is a sweet, chocolatey hazelnut spread that is produced in Italy but consumed primarily in France. The so-called “Nutella Tax,” if approved, would result in a quadrupling of the tax on Nutella and other products containing palm oil. The Nutella company has vowed not to change the ingredients, so the increased cost of production would no doubt have to be passed on to consumers. What the world needs now is tax relief, not nitpicky sin taxes that do little to change behavior!

My tax attorney alter ego in France is blogging right now about how his next trip to the States won’t be the same if he can’t pick up a package of Twinkies while he’s here.

 

 

The Dangers of the Split Refund Option

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TIGTA has sniffed out another serious IRS problem.  The latest TIGTA report expresses Treasury’s concern with the administration of direct deposit refunds by the IRS.  More taxpayers than ever are taking advantage of this option because it is the most convenient and fast way to get your refund.  But this also happens to be the way many tax refund crimes are perpetrated:

Direct deposit is frequently the payment method used by individuals who attempt to commit filing fraud. Direct deposit provides the ability to quickly receive fraudulent tax refunds without the difficulty of having to negotiate a tax refund paper check. To cash a check, individuals usually have to provide picture identification matching the name on the tax refund check

~ TIGTA Report No. 2012-40-118

Specifically, the concern addressed in this report has to do with the splitting up of deposits into multiple accounts.  The IRS allows refund recipients to specify that the funds be deposited into one, two, or three accounts if they so indicate on Form 8888.  However, this option often invites foul play.  As a way of measuring the magnitude of the problem, TIGTA counted the number of times multiple refunds were deposited into the same accounts.  This method isn’t exactly perfect because there are harmless reasons for multiple deposits, such as in the case of joint bank accounts.   However, even ruling out these benign cases, TIGTA is finding that tax cheats are abusing the split refund deposit option.  For example, some tax preparers are illegally diverting funds to their own accounts to cover their tax help and return preparation expenses.

The Danes and the Swizz

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Denmark has officially repealed its so-called “fat tax” after being on the books for only one year.  Also, the Danish tax ministry has announced that it no longer plans to move forward with a sugar tax.  In the final analysis, butter, ice-cream, and pastries are just too good to allow some pesky tax to modify a whole country’s eating habits.  Some believe that Denmark would have had more success had it been more focused in its efforts to improve public health through taxation of targeted foods.  However, if the failed soda tax in some parts of the United States is any indication, a tax on specific foods might not be popular either.

In other news…

Kasseem Dean, a.k.a. Swizz Beatz, may or may not owe millions of dollars in back taxes.  Many media sources have him owing the state of New York $100,000 (an amount that Dean suggests is equivalent to the cost of a flight from Los Angeles to New York — I assume he’s not prone to flying coach). Those same sources report that he is also burdened with a $2.6 million IRS tax problem. But Dean, in a barrage of double negatives vehemently denies he owes any taxes.  Celebrity tax issues are usually publicized after the IRS files a tax lien and in that regard are, at least in part, based on fact.  Most likely what Dean means is he is disputing the assessment, which he has every right to do.

CSEDs – Part II

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I have written about CSEDs before.  These are the statute of limitation periods in tax cases; the “Collection Statute Expiration Dates.”  In a previous blog post, I listed what kinds of events can suspend the CSED.  Here I would like to address a couple additional details.

1. Waivers / Extensions (IRM 5.1.19.1)

If you are asked to sign a CSED waiver or extension, you are essentially agreeing to give the IRS additional time (beyond the standard 10 years) to collect the tax from you.  You are giving up the tax relief available to you at the end of the tunnel.  Before the 1998 tax reform, IRS revenue officers were essentially free to secure CSED waivers under any circumstances imaginable.  Also, there were no restrictions on how many waivers could be obtained from the same taxpayer or how far into the future the CSED could be extended.  Today CSED waivers have gone almost completely out of fashion, although some are still obtained in connection with installment agreements as required by law.

2. Substitute for Return (IRM 5.1.19.3.15)

A Substitute for Return (SFR) is an IRS-filed return that leaves out important exemptions or expenses you may be entitled to and may overstate your real tax liability.  Some believe that if a taxpayer goes back and files his own original return, this action automatically resets the CSED for that particular tax year.  This is not necessarily the case.  If the original taxpayer-filed return results in a lower liability, the original CSED remains intact.  And if the original return results in a higher liability, the CSED is updated (extended) only on the additional assessment.  A fine distinction, but an important one nonetheless.