Taxable Talk

Yet another late night infomercial house has fallen into trouble. As Janet Novack on Forbes reported, “Owe The IRS? TaxMasters Bankruptcy Shows Why Not To Get Help From TV Pitchmen.”

TaxMasters, like all of the late night infomercial firms, says that they can settle your tax troubles for “pennies on the dollar.” Sure they can, as long as your balance sheet looks like TaxMasters’s. As I’ve said before, anyone can apply for an Offer in Compromise. If you really, really can’t pay your tax debt, you’ll have a chance of having an OIC accepted. On the other hand, if you are making a lot of money and you want an OIC, well, I have a bridge to sell you.

The worst thing about some of these firms (I can’t specifically cite TaxMasters, as I don’t know their business model) is that they wanted huge retainers up front…huge non-refundable retainers. That was apparently the model of Roni Deutch (the now closed “Tax Lady”), which led to a lot of unhappy customers.

I’ll repeat what I’ve said before: If it sounds too good to be true, it probably is.

Here’s a little music to wake up to:

We get mail:

I got married last June and my wife says we need to file as single because we weren’t married for the whole year. Can you set her straight?

Your marital status on December 31st is your marital status for the year (with a few exceptions). If you are married on the last day of the year, you are married for the entire year. You and your wife need to file a Married Filing Jointly return or a Married Filing Separate return.

The exceptions include spouses who do not live together for the entire year and where a spouse dies during the year.

I won a €20,000 jackpot at a casino while traveling in Europe last year. My accountant told me I have to claim that income. That can’t be right, right?

It’s correct. The US taxes you on your worldwide income, even money won in a casino in Europe. You need to convert the Euros to Dollars and include the gambling income as part of line 21, Other Income. The good news is that you get to deduct your gambling losses (up to the amount of your winnings) as an itemized deduction on Schedule A.

I spent a month working in New York last year for my business. My W-2 has New York withholding along with withholding for my home state, California. It appears that both states taxed the same income and that can’t be right! Or can it?

Well, you were working in New York, so you have New York source income, and New York definitely has the right to tax you for that time (and any other New York source income you might have). You’re a resident of California, so you owe California tax on all of your income.

That said, you do get to take a tax credit for the double-taxed income. In this manner you effectively end up paying the higher of the two states’ income tax rates.

I’m looking for a tax professional in the Philadelphia area familiar with the Adult Entertainment Industry.

That can be read in so many different ways….

The first big tax filing deadline of the year is upon us: The deadline for calendar year corporations (both C Corporations and S Corporations) to file their tax returns is Thursday, March 15th. What if you have a corporation and just now realize you need to file your return? That’s simple: File an extension.

You can download the extension form here; you can get the instructions here. Just make sure you mail the form using certified mail, return receipt requested. If you use a tax professional, he or she can likely file your extension electronically.

S Corporations generally don’t owe tax. However, C Corporations may owe tax. If you’re filing the extension for a C Corporation, make an estimate of the tax you owe and set it with the extension.

The next deadline, April 17th, is for individuals, partnerships, and fiduciary returns (trusts and estates).

It’s a leap year, so we get an extra day to get those information returns to the government, right? Well, that’s half-right this year (and also half-wrong).

The deadline for mailing Form 1099s and Form 1096s to the IRS does not change in a leap year. If you file paper forms, they are due tomorrow, February 28th. That’s a postmark deadline, so go to the post office and mail the forms using certified mail, return receipt requested. (You can also use an Automated Postal Center, as those will give you a time-stamped receipt.) If you file late, the penalty starts at $30/information return (and goes up depending on how late you are).

The deadline for mailing W-2s/W-3s to the Social Security Administration does change in a leap year. Those forms must be postmarked by February 29th. Again, I strongly advise using certified mail, return receipt requested.

If you file either of these forms electronically, you have an extra month to get those forms in. And because March 31st falls on a weekend, you have until Monday, April 2nd to file electronically.

Our Tax Code is needlessly complex. Still, there are portions that are straightforward. Take Section 7803(c):

(3) Responsibilities of Commissioner

The Commissioner shall establish procedures requiring a formal response to all recommendations submitted to the Commissioner by the National Taxpayer Advocate within 3 months after submission to the Commissioner.

Now, that seems very straightforward to me: If the National Taxpayer Advocate (Nina Olson) make a recommendation, the Commissioner (or someone he assigns) must respond within three months. There are no ifs, ands, or buts.

Until now. From Tax Analysts (via Joe Kristan/Roth Tax Updates):

IRS Commissioner Douglas Shulman has no plans to respond in writing to National Taxpayer Advocate Nina Olson’s taxpayer advocate directive (TAD) on the IRS offshore voluntary disclosure program (OVDP) despite a statutory requirement that taxpayer advocate recommendations be responded to within 90 days, Olson said February 17.

Now, if one of my clients has 90 days to respond and ignores the IRS, he loses. If I ignore my responsibilities (if I have 90 days to respond to something), I will have committed malpractice and (rightly) be sanctioned. But according to Commissioner Shulman, the law only applies to him when he wants it to apply to him.

Joe Kristan has more.

If only we could take a charitable donation made in, say, 2001, and by using a magic printer we could magically change the receipt date to 2011. Imagine all of the donations we could suddenly recycle. Ignoring the illegal nature of this, consider the numerous other applications of such a magical printer outside of tax: No more typographical errors; we could change answers on exams after we got them back; and we’d never have another losing sports bet.

Of course, such a printer doesn’t exist.

So that brings us to a news release from the Department of Justice. Maria Teresita Viray, a tax preparer from Reseda, California (in the San Fernando Valley area of Los Angeles), told her clients that she had such a magical printer. From the Department of Justice press release: “The complaint states that Viray told one customer that she had a special printer that allowed her to change the dates and amounts on charitable contribution receipts.” Added to her problems was allegedly creating phony deductions…and that the IRS discovered this. The Department of Justice was successful in obtaining an injunction prohibiting her from preparing any more tax returns.

If you happened to be one of the “thousands” who used Ms. Viray, you may receive a “Dear Valued Taxpayer” letter informing that your return is being audited; Ms. Viray was ordered to provide a list of her clients to the government.

Finally, this is yet another story of how regulation and mandatory continuing education will prevent such fraud. Well, not really: Ms. Viray appears to have been registered with CTEC (the California agency that regulates non-EAs, non-CPAs, and non-attorney who prepare tax returns). Yet the government lost an estimated $45 million from Ms. Viray’s alleged shenanigans. I leave the obvious conclusion to you….

It’s time for the Dirty Dozen. No, not the movie; rather, the IRS’ annual listing of the worst tax scams.

On top of the IRS’ list is identity theft. It is a major problem, and the IRS is trying to stop it. The IRS does have a special unit dealing with identity theft.

Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft.

Second on the IRS list is phishing. The IRS never sends unsolicited emails to taxpayers. As the IRS notes,

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

You can find the rest of the list here. Remember, if it sounds too good to be true it probably is.

Earlier this week the IRS issued proposed regulations to implement the Foreign Account Tax Compliance Act (FATCA). The press release from the Department of the Treasury states,

After many months of intensive discussions with foreign governments, the Treasury Department today also jointly issued a statement with France, Germany, Italy, Spain and the United Kingdom expressing mutual intent to pursue a government-to-government framework for implementing FATCA – an important step toward addressing legal impediments to financial institutions’ ability to comply with the regulations.

The statement does not contemplate an exemption from FATCA for any jurisdiction, but instead offers a framework for information sharing pursuant to existing bilateral income tax treaties and allows FFIs to report the necessary information to their respective governments rather than to the IRS. [emphasis added]

Given what some countries have looked at as the US sticking its fingers into local law, it will be interesting to see how this plays out. A good test will be Canada, as our neighbor to the north is not happy with how previous discussions on FATCA have progressed.

Other coverage:
TaxProf Blog
Washington Post

Let’s say you own a fixer-upper of a home. Let’s suppose you find that home in another part of town, so you decide to donate your home to the local fire department so they can burn it down. You get a tax write-off, and the fire department can practice on something that’s an eyesore anyway. Everyone wins, right?

Well, there’s a problem with this strategy from a tax standpoint: What’s the fair market value of a home that’s about to be burned down? About zero, right? Joe Kristan has more on a tax strategy that went up in flames.

Here’s some music that backs that up:

As I noted last week, the problem of entering 1099-K’s for recipients of those forms was deferred until 2012. It turns out that the IRS acquiesced to complaints from tax professional and other groups, including the Retail Industry Leaders Association (RILA). In a letter to the RILA, Steven Miller, Deputy Commissioner of the IRS stated,

This is to confirm what I stated in our recent meeting with your organization and other industry representatives. There will be no reconciliation [of Form 1099-K's] required on the 2012 form, nor do we intend to require reconciliation in future years. Our intention is that the reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms. No other changes to these forms related to payment card reporting are contemplated.

So which recipients of Form 1099-K’s need to be concerned? Well, you do need to be reporting your credit card receipts on your tax returns. If you’re not, and you’re audited, you can be certain the IRS will look at the 1099-K’s and ask the obvious questions.

Overall, this is great news for everyone. The problems with reconciling accounting systems designed for multiple types of payments to tax forms would have given everyone involved gray hair. This is no longer a problem deferred: It’s one less needless complexity to deal with.

Hat Tip: RILA