Blog

September 16, 2011

I would be making an understatement if I said the economy has been unkind these past few years. Many Americans have experienced significant financial difficulties and with threats of a double-dip recession looming, I do not see the outlook brightening in the near future (take this as you may, I am not an economist by any means).

1099-MISC and Estimated Tax Payments

August 19, 2011

If the majority of your income is reported to the IRS in Box 7 of Form 1099-MISC, then please heed the following message: Make Estimated Tax Payments. A number of my clients owe money to the IRS because they simply did not have enough money to pay their tax liability in full when the returns were due. While many taxpayers run into this predicament, the situation is exacerbated for those whose earnings are listed as nonemployee compensation on Form 1099-MISC. Why? These taxpayers simply do not account for the added self-employment tax on top of their income tax.

New Rule for Innocent Spouse Relief

August 5, 2011

First, let me apologize for pushing this blog to the side these past few months. Client work has kept me more than busy, but that is no excuse. I have decided to re-dedicate my efforts toward maintaining a blog with topics that on the surface may seem dry and boring, but are incredibly relevant to many taxpayers. Today’s topic briefly discusses the changes made to Internal Revenue Code (“IRC”) Section 6015, commonly known as Innocent Spouse Relief. Effective July 25th, 2011, the IRS abandoned its two-year deadline for those taxpayers requesting relief from joint and several liability under IRC Section 6015(f).

April 27, 2011

I want to start by clarifying some misinformation which has been circulating amongst those who make their living on sites like Ebay. The repeal recently signed into law by President Obama does not effect, in any way, the reporting requirements mandated upon Paypal and other payment processing sites that began this year. For lack of a better term, the “Paypal” law deals with information reported on a 1099-K. The President’s repeal deals only with certain information reported on a 1099-MISC, which is an entirely different form.

A Proposal for Pro-activeness

April 21, 2011

On April 6, 2011, IRS Commissioner Doug Shulman addressed the National Press Club and offered suggestions on improving tax return reporting. The goal of his proposal is to allow for more accurate reporting and a decrease in the number of audits due to mismatched information.

April 6, 2011

On March 24th, The Treasury Inspector General for Tax Administration (the “TIGTA”) released an audit report of the IRS’s Correspondence and Discretionary Examination (the “CDE”) Program. CDE is the formal name for IRS audits via the mail system. When a tax return is selected for audit under the CDE Program, a taxpayer is sent a letter requesting additional information to support specific tax items listed in the letter.

Know Your Taxpayer Rights

March 29, 2011

Last week, I received a frantic call from a woman who had utilized a free IRS service to file her 2010 taxes. While conversing with the IRS representative who helped her file her 2010 taxes, she found out that her 2009 return, which was filed electronically, was rejected and never re-filed. She immediately went to a pay-for tax service and filed that return. The woman was concerned that due to the non-filed 2009 return, the IRS would show up within days to repossess her property and/or garnish her accounts or wages. Why did she think this way? Because that is what the IRS representative who helped file her return told her.

Audit Triggers

March 16, 2011

Tax returns are audited for several reasons, but the methods by which the IRS flags a return for audit are more limited. There are essentially two main ways an audit is triggered – (1) selection based on a closely guarded IRS computer scoring system and (2) selection based on mismatched information filings (i.e., W-2’s and 1099’s).The automated scoring system is known as the Discriminate Inventory Function System (the “DIF”).¹ This program compares your tax return to other returns deemed “normal” for people in similar tax situations. If the DIF finds discrepancies between your return and the return of other similarly situated people, it assesses a numeric value to that portion of your return. The higher the overall numeric value, the more likely your return will be flagged for an audit.

IRS Updates its Lien Process

March 4, 2011

The IRS recently announced changes to its lien process. The goal is to help individuals and small business owners who are struggling to pay back taxes. IRS Commissioner Doug Shulman stated that the changes “reflect a responsible approach for the tax system.”1 At this point I’m going to have to say I agree. What is a Lien? A federal tax lien gives the IRS a legal claim to all of a taxpayer’s property and rights to property. By filing a Notice of Federal Tax Lien, the IRS makes a public claim on a taxpayer’s personal property and is another step toward the collections process, which could result in the IRS physically seizing property, selling it and applying the proceeds to pay back tax liability. Other collection methods include wage and/or bank garnishments. It is also important to note that a lien is left unattended to will negatively impact a taxpayer’s credit report.

February 25, 2011

A couple of weeks ago I received a call from a single mother who needed some help. This mother had no filing requirement, so she had decided to let the father of her child claim the child on his tax return. When the father went to file his taxes, however, the return was rejected. The reason is that someone had already filed a tax return claiming the child as their own. When I spoke to the mother, she was fairly certain who had inappropriately and illegally claimed her child, but was not certain. Regardless, that person absolutely should not have claimed the child, but did so anyway.

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