Archive for the ‘IRS’ Category

Extension Deadline for Business Entities; 3rd Quarter Estimated Tax Payment Deadline

Wednesday, September 14th, 2016

Thursday, September 15th is the filing deadline for business returns on extension: C-Corporations (Form 1120), S-Corporations (Form 1120S), partnerships and LLCs that file as partnerships (Form 1065), and trusts (Form 1041). You can either electronically file or mail your returns (it’s a postmark deadline), but if you mail the return use certified mail, return receipt requested so you have proof of filing.

Tomorrow’s also the deadline for making your third quarter estimated tax payments. You can pay electronically (though if you use EFTPS the deadline was Wednesday for the payment to timely post), or you can mail your payment. If you mail the payment, it’s a postmark deadline.

We’re now just 32 days away from the filing deadline for individuals on extension. As I said before, the time for procrastination is over….

Five Sentenced for Tax Fraud; Justice Department Gets ITINs Wrong

Sunday, August 14th, 2016

A Justice Department press release caught my eye. Five individuals, all Mexican nationals residing in the US, were sentenced to ClubFed for terms between 33 months and 121 months. The five individuals had pleaded guilty to conspiracy to commit mail fraud, and they had indeed done so:

Beginning in 2014 and under the direction of Natividad Medina, the defendants conspired to steal money from the U.S. Treasury and U.S. taxpayers by exploiting the ITIN system. The Medina sisters began by collecting Mexican identification documents from unknown people in Mexico and used those to fraudulently obtain ITINs. The Medina sisters then used those ITINs to submit false and fraudulent income tax returns to the Internal Revenue Service Center in Austin. They requested that the IRS mail refund checks to residences or to one of more than 200 post office boxes in and around the Houston area which Lopez had rented and maintained on behalf of the Medina sisters.

Kudos to the DOJ and IRS Criminal Investigation for stopping these individuals.

Unfortunately, either the Department of Justice or the US Attorney’s Office for the Western District of Texas needs to learn more about Individual Taxpayer Identification Numbers (ITINs). Here’s what they say about ITINs:

According to court records, in 1996, the Internal Revenue Service began issuing Individual Taxpayer Identification Numbers, or “ITINs”. By obtaining an ITIN, an individual who is already disregarding federal law by living in the United States illegally is given the opportunity to comply with federal law by filing taxes. If the applicant can furnish sufficient proof (i.e. foreign birth certificate, national identification card, passport, etc.) that he or she is living in the United States illegally, the IRS will issue that person an ITIN.

While that’s true, there are other purposes ITINs are used for. If a US citizen is married to a non-American, an ITIN can be issued for the spouse. An ITIN can also be issued for a dependent of a US citizen. A non-citizen who has a US tax filing responsibility (and who is not in the US illegally) will also be issued an ITIN. One would think that the DOJ or US Attorney’s Office might look at an IRS web page (like this one) to see the legitimate reasons why one would obtain an ITIN.

While I was on vacation came the news that ITINs will now expire, with ITINs with middle digits of “78” and “79” expiring this year. While a renewal application (Form W-7) will be available by October 1st, and you won’t need to file a tax return to renew the ITIN, I’ve had lots of problems with the ITIN office (lost applications, lost paperwork, problems even when the Taxpayer Advocate Office handed the paperwork in) that I’m glad it appears none of my clients are in the first group of renewals. If you get the idea that I’m expecting problems, you’re right. But I digress….

In any case, I do say well done to the DOJ for putting these scofflaws behind bars. However, next time read up on why some people who are either visiting the US quite legally or are related to a US citizen really need an ITIN in order for them (or a US citizen) to comply with their US tax filing responsibilities.

Exempt Organization Extension Filing Deadline Is Monday

Thursday, August 11th, 2016

The extension deadline for filing Form 990 series returns for tax-exempt organizations is Monday, August 15th. This deadline is for the 501(c) series of organizations that filed extensions back in May, including charitable organizations, welfare organizations, social clubs, and other nonprofits. Most of these entities will not owe any tax unless they have either unrelated taxable business income or are a private foundation with investment income. If filing a paper return I strongly recommend using certified mail, return receipt requested so you have proof of filing. Better yet, just file electronically and you have complete proof of filing.

IRS Transcript Delivery System Down this Weekend

Thursday, June 30th, 2016

The IRS’s Transcript Delivery System (TDS) will be down tomorrow beginning at 12:01am, and will not come back up until Tuesday morning. The IRS announcement indicates they will be performing maintenance during this period. TDS is supposed to be back up by 6:00am EDT on Tuesday, July 5th.

The Self-Employment Tax While Employed???

Tuesday, June 28th, 2016

One of my clients was quite upset this morning. She had received an IRS Automated Underreporting Unit (AUR) notice alleging that she owed about $4,000 in additional tax. She sent me a copy of the notice and I looked at the change: The IRS added self-employment tax to her return.

My client (and her husband) were both employees in the year in question. There was no self-employment tax on the original return because you have to be self-employed to owe self-employment tax. As I told my client, this ranks with the most ridiculous of IRS notices I’ve seen.

Still, my clients had to respond to the notice; if they didn’t tax would be assessed. My client completed the response form, included a short letter noting why they didn’t owe self-employment tax, and they mailed it off (certified mail, of course).

I don’t know why my client got “lucky” and got this notice. The only conclusion I can draw is the computer goofed. When I spoke to my client, I let her know that two-thirds of IRS notices are wrong in whole or in part. Yet the IRS keeps sending them out for a simple reason: People pay them blindly. “If it comes from the IRS it must be right,” they think. The reality is sadly different.

Most of the AUR notices I see (even those that are wrong) have at least a kernel of truth in them. Clients do forget to include 1099s, or they misclassify items on returns. This notice was one of the rarer ones where nothing on it made sense. Well, they did spell my clients’ names correctly….

Why You Use Certified Mail

Sunday, June 12th, 2016

A client was in IRS Appeals contesting the late filing penalty for his 2012 tax return. His return, which was ineligible for electronic filing, was on extension. The extension was timely electronically filed. The client believes he went to the Post Office and mailed his return on October 15, 2013. The IRS said it was mailed one week later. Unfortunately, in a move his records were lost by the movers. The problem is that if you don’t file timely (within the extension period), it’s as if you never had an extension!

The IRS Account Transcript shows the return was late filed. Using the Freedom of Information Act, we obtained a copy of the Administrative Record for his return; that included a copy of the envelope he mailed the return in. It clearly shows the postage being purchased at a post office on October 15, 2013. The envelope has two postmarks: The original (purchased at a post office) and a second from halfway across the country a week later! Most likely, the Postal Service routed the envelope incorrectly, so it ended up going through the system twice. In any case, I showed the Appeals Officer the copy of the envelope, and he agrees that the return was timely filed (for purposes of the late filing penalty) and my client now owes nothing. (My client had already paid the tax, interest, and the late payment penalty.)

Yes, my client was lucky that the administrative record showed the envelope. Yes, it would have been easier had he still had the certified mail receipt (or had the movers not lost that particular box).

Consider what would have happened if he had not used certified mail (or the envelope had not been shown in the record): He would be writing a check for about $20,000. Certified mail costs $3.30 (a return receipt will add $1.35 or $2.70 to that cost depending on whether you have it emailed or mailed to you). Yes, you have to wait in line at a post office, but that’s well worth it when you compare the alternative.

Only the IRS Can Unite Democrats and Republicans

Monday, May 30th, 2016

Last week Congress held a hearing on the IRS refusing to return wrongly seized small business owners assets. Only the IRS could unite Democrats and Republicans this year, and once again the IRS managed to do so. As reported in The Hill:

“You’ve brought a subcommittee together who can’t agree about what time of day it is,” said Rep. Peter Roskam (R-Ill.), chairman of the House Ways and Means oversight subcommittee, which held a hearing on the topic.

“The capacity to treat people in the dismissive way in which the departments have treated them is the part that all of us really find just jarring,” Roskam added.

The top Democrat on the subcommittee, Rep. John Lewis of Georgia, agreed that this is a topic on which Democrats and Republicans are strongly united.

“On this issue, we are on one accord,” he said.

There’s not much to say on this. There are apparently more than 600 taxpayers who have had $43 million seized that are still waiting for their money to be returned. While the IRS has apparently apologized over this (Commissioner Koskinen has stated that’s been done), I suspect individuals would much prefer having their funds returned. Unfortunately, Kenneth Blanco, deputy assistant Attorney General for the Department of Justice, could not give a time-frame when this would occur.

The only solution to these sorts of issues is a rule that imposes the same deadline and penalties on the IRS as are imposed on taxpayers. I’m not holding my breath on Congress enacting this.

Bozo Tax Tip #1a: They Shoot Jaywalkers, Don’t They? (Or Ignoring the FBAR!)

Friday, April 15th, 2016

I have, unfortunately, become quite competent in the Report of Foreign Bank and Financial Accounts. That form is better known as the FBAR. It used to have the form number TD F 90-22.1 (yes, it really did) but now goes by Form 114. The form must be filed online through the bsaefiling center of FINCEN, the Financial Crimes Enforcement Network.

You must file an FBAR if you have $10,000 aggregate at any time during the year. The report for 2015 is due June 30, 2016; there are no extensions.

The form is fairly simple and straightforward: Note every foreign financial account you have with name, address, account number, and maximum balance at any time during the past year. Let’s say you have one foreign account, a bank account at the Royal Bank of Canada. You would take your maximum balance and convert it to US dollars from Canadian dollars (you should use the year-end Treasury Department conversion rates no matter when the high balance was). The form must be electronically filed and is filed separately from your tax return.

The penalties for not filing it are quite high. Willful non-filing has a minimum penalty of $100,000 or half the balance in the account–and that’s per account! There’s also possible jail time.

So what must be reported:
– Foreign Bank accounts;
– Bank accounts outside the US of a US financial institution;
– Foreign financial accounts where all you have is signature authority;
– Foreign securities accounts;
– Foreign mutual funds;
– Foreign life insurance with a cash or annuity value; and
– Online gambling accounts if outside the US.

There are probably others, too.

The IRS does have a chart that lists most things that need reporting on the FBAR and Form 8938. Form 8938 is the “cousin” of the FBAR; this form needs to be filed if you have larger balances in foreign accounts.

Millions of FBARs are filed each year. When I started in tax, filing an FBAR was a huge audit red flag; that’s no longer the case. There are just too many FBARs filed. Do note that if you have an FBAR filing requirement you must note that in question 7 at the bottom of Schedule B.

To end this with some humor, one of my pet peeves in dealing with taxes is that there are three different sets of abbreviations for foreign counties used in tax. The FBAR has one set; question 7 at the bottom of Schedule B has another set, and Form 8938 has a third set. Some countries are noted identically while others are not. On one of of the abbreviations Curacao is “CU” while that means Cuba in another.

In any case, the FBAR is no laughing matter. The IRS’s mantra here is to shoot jaywalkers. Don’t become such a person: If you have an FBAR filing requirement, file it! Again, the FBAR is due June 30th this year and there are no extensions.


Now this is the real end of our Bozo Tax Tips for the 2016 Tax Season. I’ll be back no later than April 25th with new content.

Bozo Tax Tip #3: Let Your IRS Notice Age Like Fine Wine!

Wednesday, April 13th, 2016

My brother is a wine connoisseur. As all my friends know, I’m anything but a wine aficionado. But I have learned one difference between fine wine and a notice from the IRS: Wine can age very well but IRS notices don’t.

Almost all IRS notices come with deadlines. You need to act to stop the IRS. If you ignore the notice, you usually will get a second notice. After that, you may receive a Notice of Deficiency. If that ages the tax is assessed.

Yet most IRS notices are wrong in whole or in part! The last study I saw showed that two-thirds of IRS notices are wrong. That’s a shockingly high percentage. An obvious question is why doesn’t the IRS change its procedures so that the bad notices aren’t issued? The answer is simple: People pay those notices. The IRS’s Automated Underreporting Unit is a huge profit center for the agency.

What does this mean for you? Put simply, if you get an IRS notice read it carefully. Let your tax professional know about it when you receive it, not on the day a response is due. It’s a lot easier (and cheaper) to act earlier in the process than later.

My brother tells me that some of the best wine he’s tasted have been old varietals. I can tell you that I’ve never seen a tax notice get better with age.

Bozo Tax Tip #4: Honey, You Don’t Exist!

Tuesday, April 12th, 2016

Ah, Spring is in the air. And with that come the inevitable wedding invitations. I had an invitation to a wedding on April 9th. No, I didn’t attend.

With weddings comes changes in tax status. Your marital status on December 31st determines your marital status for the year. If you are married, you file as Married Filing Jointly or Married Filing Separately. (In some rare cases, if you’re married you can file as Head of Household.) But you can’t file as single. Likewise, if you’re single you can’t file as married.

Perhaps it’s something in the water, but this year I have seen multiple cases of individuals who have ignored that marriage license and filed as single if married. There’s a good reason for that, of course: They save on taxes. A big issue is rental real estate: If you’re actively involved in rental real estate you get to take losses of up to $25,000. But there’s an income cap (the deduction begins to phase out at an income of $100,000 and completely phases out at $150,000). This particular deduction is neither indexed for inflation nor does it vary if you are single or married.

There’s a problem taking deductions you’re not entitled to: tax evasion. It’s a Bozo act to claim things you’re not entitled to.

Marriage has its ups and downs. Claiming you’re single on your tax return when you’re married will in the long-run cause you nothing but downs.