California Tax News

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Today the California Franchise Tax Board (FTB) announced that it is now accepting 2011 state tax returns.

California is falling in line with the federal government as far as the 2012 filing deadline. You must have your tax return postmarked no later than Tuesday, April 17th for it to be considered timely.  The standard filing deadline is April 15th, but that falls on a Sunday this year. And Monday, April 16th is Emancipation Day, A District of Columbia holiday, which has the same effect as a national holiday when it comes to tax deadlines.  But even though the April filing deadline is the 17th, the extension deadline will still be October 15th for federal tax returns.

  • The top individual tax rate in California decreased from 9.55 percent to 9.3 percent.
  • The standard deduction increased from $3,670 to 3,769 (increase from $7,340 to $7,538 for joint filers)
  • The dependent exemption credit increased from $99 to $315 per dependent (personal exemption increased from $99 to $102 and from $198 to $204 for joint or surviving spouses)
  • Child and dependent care expense credit is worth up to $1,125 for those who qualify

TIGTA – Office of Investigations

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If you are familiar with this blog then you know that one of the roles of the Treasury Inspector General for Tax Administration (TIGTA) is to audit IRS programs and operations to ensure they are functioning properly.  And while it is certainly not their objective to extend tax relief to the masses, they must administer taxes fairly and competently.

Most of my TIGTA blog posts have to do with the TIGTA Office of Audit and their dreadfully boring reports.  But did you know that there is a separate Office within TIGTA — the Office of Investigations — that investigates and reports on much juicier topics?

According to the Office of Investigations (OI), their role is to address “threats arising from (1) lapses in IRS employee integrity, (2) violence directed against the IRS, and (3) external attempts to corruptly interfere with federal tax administration.”  In other words, the OI is responsible for nailing obstinate or potentially dangerous taxpayers and corrupt IRS employees.

Every week the OI highlights a couple new investigations complete with names, dates, dollar amounts, and all the gory details.  They keep an archive of investigation highlights going back to 2004, and updates are available by email so you can be the first to know.

Your Tax Preparer Might be an Inmate

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It’s 10:00pm; do you know where your children are right now?  What about your tax preparer?

According to a recent TIGTA audit, the IRS approved 331 tax preparer identification numbers to individuals serving prison terms.

  • How did they do it?  In most cases the prisoners lied on their applications by not disclosing their convictions.
  • Why do they do it?  To try to defraud the IRS.  They use false or fraudulent tax returns in hopes of obtaining refunds.  Prisoners have a history of trying to defraud the government, particularly the IRS.  They have enough time on their hands and not much to lose if their scheme is unproductive.
  • What is the IRS doing about it?  The IRS has vowed to suspend tax preparer identification numbers already issued to prisoners and deny any future applications from inmates.

Chances are that these inmate preparers are not actually preparing returns for the average American consumer.  Maybe they’re doing returns for their fellow inmates.  Maybe their laying the groundwork for after their prison terms are over.  Or, even more likely, they are just seeing where this new credential will take them.  Whatever the case may be, it is usually a good idea to actually meet your tax preparer in a face-to-face meeting . . . even if just to confirm they’re working out of an office and not a prison cell.

IRS Waste

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Maybe Big Brother should conduct an audit on IRS year-end activities because I think they would identify some areas of concern.

I already blogged about contacting the IRS in December, and how it should be avoided if possible. But what about the last business day of the year (today)? Don’t even bother.

Today we discovered that the IRS has personnel on hand to answer the phones when they ring, but the computer systems are down so they can’t help with specific account-related issues. In other words, today the IRS is paying staff to sit around at their potluck parties, ro-sham-bo-ing whenever the phone rings. I’m certain there is an automated greeting that could be set informing callers that the computers are down. Why are we paying them to be at work today?

I know, it is kind of grumpy of me to be complaining about this. After all, its only one day. Where’s my holiday spirit? But think of the number of IRS representatives and the amount of money that could be saved if the IRS would send people home when they are unable to do their jobs.

IRS Claims Erroneous Refund Issued to Hal Steinbrenner

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No doubt the Steinbrenners can still stir up controversy. This time it’s tax problems.

The Justice Department has sued Harold “Hal” Steinbrenner, co-owner of the New York Yankees and son of the late George Steinbrenner, over a $670,000 refund that they say was issued to him in error two years ago.  In 2009 Hal filed an amended 2001 return, seeking a refund because of a $6.8 million net operating loss carried back from 2002. The IRS paid out the refund but then determined that the amendment was filed 5 months too late. Full story here.

Hal Steinbrenner’s representatives had no knowledge of the lawsuit and had received no prior notices regarding this matter from the IRS or any other governmental agency.

~ Alice McGillion, a family spokeswoman

The IRS is notorious for dropping bombs on people without prior notice, but even I am a little surprised by this one. It seems like the IRS would have initially sent letters to the taxpayer informing him of the erroneous refund and requesting he pay it back. I can’t imagine they would have referred the case out to legal and then to the Justice Department unless they were up against some filing deadline and they needed to preserve their rights by filing suit.

Does the IRS Celebrate Christmas?

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IRS employees are given a paid day or two off around Christmastime, so we know that the IRS observes Christmas in that manner.  The US Office of Personnel Management (www.opm.gov) is the official source for federal holidays, and this year, for most federal government agencies, Christmas will be observed on Monday, December 26th.  But what about any other official IRS references to Christmas?

I was curious, so I searched for the term on the IRS website and there were 119 search results.  Here’s what I found:

  1. references to Christmas Island, a territory of Australia in the Indian Ocean
  2. references to the deduction of expenses related to Christmas Tree cultivation in the Farmer’s Tax Guide (Publication 225)
  3. references to an oil industry term (“Christmas Tree“) used to describe “an assembly of valves mounted on the casinghead through which a well is produced”
  4. old references to “Christmas in April” foundations that had lost their non-profit status
  5. references to various business names that include the word “Christmas”
  6. various references to the service’s observation of the federal holiday

So, there are no substantive references or discussions of Christmas on the IRS website.  I suppose that is as it should be.

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Avoid Calling the IRS in December

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December is by far the worst time to try to communicate with the IRS about your tax debt.

The Second-Stringers

I have not noticed that the telephone wait times are much different in December. Perhaps there are more IRS representatives taking vacation in December, but many practitioners and taxpayers do the same — so increased phone traffic is not normally an issue. The IRS does a fairly good job replacing the vacationers, but I have usually found the quality of their replacements to be lacking.  If you call the IRS in December (especially late December) then there is a good chance you will be dealing with a new, inexperienced IRS agent (a “second-stringer”). Of course, a tax relief attorney will know how to use that inexperience to the taxpayer’s advantage.

IRS Computer Maintenance

The IRS information technology staff takes advantage of the holidays to do routine maintenance on IRS computer systems. And they like to get a jump on things. So, if they tell you that everything is going to be shut down on Friday in observance of Christmas, then chances are they will be up and down all day on Wednesday and completely offline by early afternoon on Thursday.

If you get through to a representative who tells you their computers have been up and down, then it might be best to put off the call for another day if possible. The problem is that you will get partway through your call and everything the representative did will be lost when the computer goes down, and you’ll have to start over again.

If you have a tax issue that can’t wait until after the holidays, it is best to enlist the help of a qualified and experienced tax professional.

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Deal Finally Struck on Payroll Tax Cut Extension

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It appears that Congress will be able to go home for Christmas after all. They finally struck a deal in Washington and narrowly avoided an automatic increase in the payroll tax rate.

House Republicans, under severe pressure from the White House, have agreed to the temporary two-month extension of the payroll tax cut that just days ago they killed, saying it was not good enough. Well, they are still saying it is not good enough, but they really had no choice but to pass this temporary measure.  The trade-off?  A conference committee will be appointed to convene in early January to work out a more permanent deal and the possibility of more permanent tax relief.

The stop-gap measure will still include the controversial Keystone pipeline project.

As part of this bill, unemployment benefits will also be extended for two months.

According to House Speaker John Boehner, the agreement should be voted on by unanimous consent before Christmas.

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Hot off the Press: New IRS Publication 17

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IRS Publication 17 contains a whole host of information on filing your 2011 individual federal income taxes. It is the number one source for basic tax filing information, especially handy for those who plan on filing their taxes themselves (without hiring professional help). This publication has been around for over 60 years, but was recently updated for the 2012 filing season.  In a nutshell, Pub 17 covers the topics of Income, figuring you income, deductions, and credits.  But there is also information on taxpayer rights and how to obtain tax relief if you cannot pay what you owe.

But wait, before you click on the link and hit “Print,” you should be aware that this is a lengthy document.  The index alone is over 20 pages long.  The total page count is just over 300, so you’d be better off just saving the link. Besides, if you print it then you lose some of its functionality — Pub 17, in its electronic form, is full of links that (1) help you navigate those 300 pages quickly, (2) help you find additional information on key topics, and (3) take you to other forms and publications you may need when preparing your 2011 taxes.

Preparing your taxes yourself is not always the right choice for everyone. But if you do, you should definitely consider reading Pub 17 or at least keep it on hand as a reference tool.

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