Nina Olson, head of the Taxpayer Advocate Service (TAS) recently spoke with Kiplinger. Check out the details here. She doesn’t really say anything we haven’t heard her say before, but we do learn that her Washington D.C. office is adorned with toy bulldogs to help remind her staff that they are charged with the task of protecting the little guy from the ruthlessness of the IRS.
Bad Deductions in Iowa
Who: Tax preparers, Howard & Jill Musin
What: Judge ruled in favor of government, stating that the Musins (on their clients’ behalf) “took numerous, unrealistic positions as to business deductions for … quintessentially personal expenses.”
How Much: $21 million in bad deductions
More Info: The couple has already been prohibited from practicing before the IRS; they now face further sanctions.
IRS Announces Plans to Implement FATCA
It stands for “Foreign Account Tax Compliance Act,” – a new tax law on the books since March of last year. It was enacted as a means of curbing foreign non-compliance through offshore accounts. Today’s notice sets out a timeline for the steps that foreign financial institutions (FFIs) and the US government will need to take; steps related to withholding, documentation, and reporting. Some requirements will not take effect until 2013 or 2014. The FATCA requirements will be phased in as follows:
An FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on Jan. 1, 2015.
Due diligence requirements for identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014.
For purposes of the Notice, high risk accounts include private banking accounts with a balance that is equal to or greater than $500,000.
See Notice 2011-53 for more information.
IRS Open House This Weekend
On Saturday, July 16, 2011, the Internal Revenue Service (IRS) will have open houses at Taxpayer Assistance Centers across the country. The purpose of the open house is to provide help with tax filing issues during the weekend. The participating IRS Taxpayer Assistance Centers will be offering the same services that are normally offered on weekdays.
Among the services offered include accepting payments and making payment arrangements. In other words, you don’t have to wait until Monday to pay the IRS. However, for taxpayers seekingtax relief, the Taxpayer Assistance Centers will likely not meet their needs.
IRS Chasing Ghosts
The Internal Revenue Service (IRS) recently announced it will be sending letters to taxpayers who appear to have had tax preparation assistance by ghosts. Such “ghost preparers” are paid tax preparers who attempt to elude IRS oversight programs by not signing the tax returns they prepare. The IRS warns taxpayers that they should never rely on a paid tax preparer that refuses to sign their tax returns and fails to enter a Preparer Tax Identification Number (PTIN).
In the letter to be sent to taxpayers, the IRS will inform such taxpayers of how to file a complaint against their paid tax preparers who failed to sign their returns and explain how to choose a legitimate tax preparer in the future. According to the IRS, the goal of the letters is to protect taxpayers by ensuring that all paid federal tax return preparers are registered with the IRS, and that such authorized preparers sign the tax returns they prepare, and use their identifying number when required to do so.
Additionally, on July 7, 2011, the IRS began to send approximately 100,000 compliance letters to tax preparers who failed to comply with regulations governing third-party tax preparation. All compensated tax return preparers must obtain a PTIN and, when required to do so, sign their names and include their PTINs on the returns and refund claims they prepare for compensation. Compensated tax preparers who are not tax attorneys, certified public accountants, or enrolled agents, must pass a competency exam and suitability check.
The approximately 100,000 paid tax return preparers under scrutiny may have used outdated PTINs or social security numbers as identifying numbers on returns they prepared this past filing season. The letters sent by the IRS explain a new oversight program and informs preparers of how to register for a new PTIN, or how to renew an old PTIN.
New “Death Planning” Venture
Jess Bloomgarden, a Harvard Business School student started AfterSteps to “bring organization, completeness, and knowledge to the end-of-life planning process.” People are often challenged by trying to tie up loose ends after the death of a loved one. The process may involve working with multiple service providers and trying to ascertain the wishes of the decedent. Bloomgarden’s business is unique in that it brings all these things together for the user into a “complete end-of-life plan.” AfterSteps securely stores the plan and related documents, then transfers them to the designated family members after the plan’s owner passes away. The cost of this service is $4.00 per month. Bloomgarden believes that her new venture will simplify the end-of-life process and provide piece of mind to the user and their family members. Too bad she can’t offer a premium plan that would simplify the estate tax!
First Income Tax in the Civil War Was Supposed to be Temporary
Was income tax supposed to be temporary? And what president started income tax? A tax attorney didn’t have much to do before the Civil War. President Abraham Lincoln signed into law the first income tax – The Revenue Act of 1862 – appointing George S. Boutwell to the office of Commissioner of Internal Revenue. The Act was passed as an emergency and temporary measure to help fund the war, and it was supposed to terminate in 1866.
The first income taxes were also higher for wealthier Americans. In 1862 the rate was 3% on income between $600 and $10,000, and 5% on income over $10,000. In 1864 the rate increased to 5% on income of $600-$5,000; 7.5% on income of $5,000-$10,000; and 10% on income of $10,000+.
In 1872, seven years after the war, lawmakers finally did allow the temporary Revenue Act to expire. However, the government continued to raise revenue through income taxes until the Supreme Court declared the Income Tax of 1894 unconstitutional. Then along came the 16th Amendment in 1913 which granted power to Congress to “lay and collect taxes on incomes, from whatever source derived.”
The IRS’ reputation for being understaffed dates way back to the beginning of the agency. They were supposedly still processing 1917 returns in 1919!
Jeter, the IRS, and some guy named Chris – a Tax Relief Perfect Storm
Baseball is full of tradition, and so is the IRS. The New York Yankees’ Captain Derek Jeter recently hit his 3,000th hit. A huge milestone in the game of baseball. Such trophies usually end up in the player’s shoebox, or in Cooperstown. However, in this case, Jeter’s 3,000th hit just happened to be a home run, and was caught by a “lucky” Yankees fan. Christian Lopez was the “lucky” Yankees fan who caught the ball and now needs a tax attorney and possibly even tax relief. After Lopez caught the landmark baseball, he gave the item of memorabilia to Jeter. Then, Jeter’s employer (the Yankees) then gave Lopez luxury seats for the remainder of the season and post-season, assuming the Yankees make the post-season, worth thousands of dollars. Based on Lopez’s windfall, whether categorized as a gift or as income, he’s likely going to have to pay the IRS something come April 2012. Lopez has indicated that if he does owe, his parents will help him out, which is fortunate. However, it would be a good public relations move for the Yankees to make an estimated tax payment on behalf of Lopez so his tax headaches can be avoided. Such is not unheard of in baseball circles, read the fine print for the San Francisco Giants World Series Ring Raffle. If would be wise for Lopez to review his options with a tax attorney, especially if his parents don’t foot the bill, or if the Yankees don’t step up to the plate.
Free Slurpee Day
Free is magic. If you offer something for free, people will gladly spend money to get it.
– Barry Schwartz, professor of psychology at Swarthmore College
Go to your nearest 7-11 convenience store. Walk in a straight line to the Slurpee dispenser. Do not glance to your right, and do not glance to your left. Get your 100% free 7-ounce Slurpee, turn, walk past the beef jerky rack, and leave the store. Oh, and make sure you have plenty of gas in your car before you head out so you don’t have the urge to fill up at 7-11.
If you spend any money while at 7-11 today then you will be contributing to the success of the company’s yearly gimmick! On 7/11/2010 the company handed out 4.5 million free Slurpees and they saw a 38% spike in Slurpee sales that same day. Actually, you know what goes good with Slurpees? Funyuns.
IRS Drops Investigation of Big-Shot Donors
The IRS had been investigating five unnamed donors who each contributed hundreds of thousands, if not millions of dollars, to certain unnamed 501(c)(4) tax-exempt organizations. The nonprofit organizations then spent this money on political advertising. This occurred during the 2010 elections, and is expected to occur in 2012 as well. The question was whether or not these donors had to pay a 35% gift tax on their donations. But it’s not really a question any longer because the IRS decided not to pursue further examinations. Why did the IRS drop the investigation? Because they just don’t have any rules/case-law/guidance on this issue.
As part of their statement, the IRS noted that they will “review the need for additional guidance or legislation [and] it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations.”
It was instant tax relief for these donors. Tax relief, tax avoidance, whatever you want to call itthey didn’t have to pay, and they didn’t have to lift a finger in their defense. Imagine that, 3.8 million words in the tax code and the IRS is still suggesting there isn’t enough.
Said the IRS:
“Questions have been raised regarding the application of gift tax to contributions to I.R.C. § 501 (c)(4) organizations. This is a difficult area with significant legal, administrative, and policy implications with respect to which we have little enforcement history. My office will be coordinating with the Office of Chief Counsel to determine whether there is a need for further guidance in this area.
Until further notice, examination resources should not be expended on this issue. It is anticipated that any future examination activity would be after the coordination described above and would be prospective only after notice to the public. Thus, the Service should not expend examination resources initiating referrals or developing audits. Accordingly, all current examinations relating to the application of gift tax to contributions to I.R.C. § 501(c)(4) organizations should be closed.”
Click here for the official July 7th IRS memo from Steven Miller, Deputy Commissioner for Services and Enforcement.