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Archive for July, 2010

Top 10 Things Every Taxpayer Should Know about Identity Theft

July 30th, 2010

Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with a taxpayer by e-mail.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

  • Stealing your wallet or purse
  • Posing as someone who needs information about you through a phone call or e-mail
  • Looking through your trash for personal information
  • Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx

6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.

7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.

8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your Social Security number.

10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.

Five Tax Scams to Avoid this Summer

July 27th, 2010

The Internal Revenue Service issues a list of the top 12 tax scams each year – known as the Dirty Dozen. The scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. These scams don’t just happen during the tax filing season, they can happen anytime during the year. Here are five scams from the 2010 Dirty Dozen list every taxpayer should be aware of this summer.

  1. Phishing Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites and they try to mislead consumers by telling them they are entitled to a tax refund from the IRS and they must reveal personal information to claim it. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. If you receive an e-mail that you suspect is a phishing attempt or directs you to an imitation IRS website, please forward it to the IRS at phishing@irs.gov. You can also visit IRS.gov and enter the keyword phishing for additional information.
  2. Return Preparer Fraud Dishonest tax return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers are skimming a portion of their clients’ refunds, charging inflated fees for tax preparation or are attracting new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education.
  3. Hiding Income Offshore Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from more than 14,700 voluntary disclosures received last year. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
  4. Abuse of Charitable Organizations and Deductions The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.
  5. Frivolous Arguments Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on IRS.gov. These arguments are false and have been thrown out of court.

For the full list of 2010 Dirty Dozen tax scams or to find out how to report suspected tax fraud, visit IRS.gov.

Eight Reasons to Visit an IRS Taxpayer Assistance Center

July 26th, 2010

Do you need assistance with a tax issue that can’t be handled online or on the phone? If you want to meet with an IRS representative face-to-face, come to your local IRS Taxpayer Assistance Center. Here are eight reasons to visit an IRS TAC.

  1. Notices or letters Have you received a letter or notice and need face-to-face assistance to understand the next step? No appointment is necessary — just walk in.
  2. Multilingual Assistance Don’t let a language barrier prevent you from getting the face-to-face tax assistance you may need. Multilingual services are offered to taxpayers in over 150 languages. These services are provided through bilingual employees and an Over-the-Phone Interpreter.
  3. Payments You can make payments at your local IRS TAC. Be sure you know the tax period and the type of tax for the payment you are making. If you received a notice from the IRS, be sure to bring it with you. F
  4. ree Federal Tax Return Preparation Your local TAC will prepare both current and prior year basic tax returns for those who qualify for Earned Income Tax Credit or those whose income is less than $49,000.
  5. Form 2290, Heavy Highway Vehicle Use Tax Return Your local TAC can help you prepare Form 2290, accept your payment and provide the needed receipts for you to take when registering your vehicle.
  6. Individual Taxpayer Identification Number If you are not eligible for a Social Security Number but need to file a tax return, bring the completed tax return, Form W-7, Application for IRS Individual Identification Number and certified identification documents to your local TAC to apply for your ITIN and file your return. For more information, see Publication 519, U.S. Tax Guide for Aliens.
  7. Alien Clearances Before leaving the United States, most aliens must obtain a certificate of tax compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You can get the permit from your local TAC. For more information, see Publication 513, Tax Information for Visitors to the United States.
  8. Tax Return and Tax Account Transcripts Do you need a copy of your tax return for financial aid or to obtain a mortgage? If so, a tax return or tax account transcript will generally meet the requirements of these lending institutions. Visit your local TAC for free transcripts, which are generally available for the current and past three years.

TAC locations, business hours and an overview of services are available at IRS.gov. Just go to the “Individuals” tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.

Five Facts about the Making Work Pay Tax Credit

July 19th, 2010

1. This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

2. Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.

3. Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:

  • Married couples with two incomes
  • Individuals with multiple jobs
  • Dependents
  • Pensioners
  • Workers without valid Social Security numbers

Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.

4. The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.

5. A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right. Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?. Adjustments can be made by filing a revised Form W-4, Employee’s Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.

Six Tax Tips for New Business Owners

July 16th, 2010

Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.

  1. First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
  2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
  3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
  4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
  5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
  6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business.

Four Tips on Preparing for a Disaster

July 12th, 2010

Planning what to do in case of a disaster is an important part of being prepared. The Internal Revenue Service encourages taxpayers to safeguard their records. Some simple steps can help taxpayers protect financial and tax records in case of disasters.

Listed below are tips for individuals on preparing for a disaster.

  1. Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.
  2. Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims.
  3. Update Emergency Plans Emergency plans should be reviewed annually. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.
  4. Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, clearly identified as a disaster related request.

CPA Disbarred for Failure to Exercise Due Diligence and Compliance Problems

July 6th, 2010

The Office of Professional Responsibility (OPR) has prevailed in an agency appeal involving issues which include the due diligence responsibilities of a CPA under the Rules of Practice before the IRS (Circular 230).  The May 28th decision of the Appellate Authority has upheld the Administrative Law Judge’s (“ALJ”) disbarment of CPA Tim W. Kaskey finding, among other things, that Kaskey failed to exercise due diligence in preparing tax returns for a corporation and its husband and wife shareholders. 

“This is yet another decision highlighting that practitioners have a duty to the system as well as to their clients. Practitioners who do not take this duty seriously can expect to be held accountable,” said Office of Professional Responsibility (OPR) Director Karen L. Hawkins said.

Kaskey is a CPA and tax advisor who also prepared individual and corporate tax returns. 

OPR alleged that Kaskey failed to exercise due diligence under Circular 230, section 10.22 when he failed to determine the correctness of the representations he made to the IRS on the tax returns of a corporation and its married shareholders.  OPR also alleged that Kaskey’s misconduct included a failure to comply with the requirement to advise clients of potential penalties and any opportunities to avoid such penalties by disclosure contained in Circular 230, former section 10.34(b) (now section 10.34(c))

When Kaskey failed to respond, or appear, at the administrative proceeding, the ALJ deemed the allegations against Kaskey admitted and entered a default judgment for disbarment.  Kaskey appealed. On review, the Treasury Appellate Authority agreed that disbarment was proper.  Kaskey defended against the due diligence allegations by arguing that his clients had misrepresented their income to him. The Appellate Authority observed that there was “a great deal of evidence reflecting the lack of due diligence by [Kaskey] in the preparation of these returns…[and that] “it was inconceivable that [the individual taxpayers] could pay their living expenses based on the income reported on their returns.”
 
“Practitioners who think OPR isn’t serious about due diligence should take heed,” added OPR Director Hawkins.  “Practitioners may not ignore the implications of information already known, and must make reasonable inquiries if the information furnished by a client appears to be incorrect, inconsistent, or incomplete.”