Thursday, March 28, 2013

IRS regrets making costly ‘Star Trek’ video parody

The Internal Revenue Service now admits it made a mistake when it spent $60,000 in taxpayer money to produce a video parodying the 1960s Star Trek television series. (AP Photo/IRS)
The Internal Revenue Service now admits it made a mistake when it spent $60,000 in taxpayer money to produce a video parodying the 1960s Star Trek television series. (AP Photo/IRS)

Source: http://tv.msnbc.com/2013/03/25/irs-regrets-making-costly-star-trek-video-parody/

By , @JohnYuro

The Internal Revenue Service now admits it made a mistake when it spent $60,000 in taxpayer money to produce a video parodying the 1960s Star Trek television series, along with a second Gilligan’s Island parody. The Star Trek segment was used to open a 2010 training and leadership conference, while the latter clip was used to avoid the cost of training employees in person.

Ways and Means Oversight Subcommittee Chairman Charles Boustany Jr., R-La., first asked the IRS to hand over copies of the videos in a Feb. 11 letter to Acting Commissioner Steven T. Miller.

“It is important to determine whether and to what extent taxpayer resources were devoted to activities unrelated to your agency’s core functions,” Boustany wrote, claiming the Star Trek video “did not contain meaningful training content.”

Miller acknowledged the existence of both videos in his March 4 response along with the $60,000 price tag. A copy of the Star Trek parody surfaced on Friday.

The IRS said the video “was a well-intentioned, light-hearted introduction to an important conference” in a statement to the Associated Press.

The segment opens with lines similar to actor William Shatner’s original narration: “These are the voyages of the Starship Enterprise Y. Its never-ending mission: to seek out new tax forms, to explore strange new regulations, to boldly go where no government employee has gone before.”

The six-minute plot that follows is simple: The Enterprise must help the planet “No-tax” that is plagued with money laundering, tax evasion using off-planet accounts and alien identity theft–all due to a “lack of tax leaders.”

Famous Star Trek character Spock is on board along with Scotty in engineering, and another crew member doing his best impersonation of the Pavel Chekov character.

“Back in Russia, I dreamed one day I’d be rich and famous” he says in a rough attempt at a Russian accent.
“Me too,” says his fellow crew member. “That’s why I became a public servant.” The two conclude their exchange with a fist bump.

“The IRS recognizes and takes seriously our obligation to be good stewards of government resources and taxpayer dollars,” the agency told AP. “There is no mistaking that this video did not reflect the best stewardship of resources.”

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Thursday, March 21, 2013

12 tax audit red flags

Source: http://money.cnn.com/gallery/pf/taxes/2013/03/21/tax-audit/index.html

To avoid catching the attention of the IRS, beware of these tax audit red flags. 

 

You have foreign assets

You have foreign assets

Stashing money overseas? Then you're probably well aware that the IRS has been ramping up its efforts to rein in offshore accounts.

Launched in 2009, the agency's voluntary disclosure program has already raked in more than $5 billion in back taxes, interest and penalties from tax cheats for illegally hiding assets in offshore accounts.

Taxpayers are asked to check a box on Schedule B if they have an ownership interest in foreign accounts. If they then fail to provide information about those assets, it will undoubtedly trigger an audit, said Mark Luscombe, principal analyst at tax research firm CCH.

Indicating on your return that you do business in foreign countries or take many trips abroad for work could also raise eyebrows if no foreign assets are reported.

And the penalties for hiding offshore accounts are huge, including a fine of $100,000 or 50% of the balance -- whichever amount is greater -- for accounts that are willfully undisclosed. 


Your ex wants revenge 

Following messy divorces, many ex-spouses will go to great lengths to get revenge -- some will have even try to wreak havoc on your reputation by contacting the IRS.

John Lieberman, a CPA at Perelson Weiner LLP, said he has heard of people telling the IRS that their ex-spouse laundered money, committed serious financial crimes, underreported income, even owned a brothel.

"[Ex]-spouses love writing letters to the IRS," said Lieberman.

It's not just the ex-wife or husband you have to watch out for. Lieberman said he worked on one case where the mother-in-law told the IRS that her ex-son-in-law was a money launderer.

Sometimes the claims are completely made up, while others are legitimate. And while some people write in anonymously, others divulge their names -- which is required in order to claim a whistleblower reward of 15% to 30% of any extra money collected as a result of their tip.


Your return has too many zeroes

While rounding numbers on your tax return to the nearest dollar is okay, rounding to the nearest thousand is not -- especially when itemizing deductions like business expenses, unreimbursed employee expenses and job hunting costs.

If you submit figures like $5,000 in auto costs, $2,000 in gas mileage and $4,000 in lodging, it may look like you pulled those numbers out of thin air or inflated them by rounding -- since it's unlikely that every single expense was a perfect multiple of $1,000.

"Having a return with a lot of zeroes on it may be a cause for a return to be pulled," said Lieberman. 


You have a home office

Just because you do some work on your couch while watching TV doesn't mean it counts as a home office.
After years of watching people abuse the home-office deduction, the IRS is on the look-out. In order to avoid being scrutinized, make sure you only claim reasonable expenses -- and only those that directly apply to the part of the home used as an office.

Remember: The credit can only be claimed if the home office is your primary place of business and is used exclusively for work. People get into trouble when the IRS suspects they are mixing personal costs with their business costs.

But if you have a legitimate home office, don't be afraid to claim it.

"Taxpayers entitled to these deductions should still claim them -- just be sure to have documentation to support the claimed expenses, avoid understating income and understand and comply with the home office requirements," said Luscombe.


You forgot some income

For people who earn money from various places, remembering to report every single cent can be difficult. But 'I forgot' isn't a good enough excuse for the IRS.

For any miscellaneous income over $600 you received throughout the year, the company you worked for should send you a Form 1099. If you don't receive it for some reason -- it was mistakenly sent to a previous address, for instance -- you can be sure that the IRS will still get it.

You can either request the missing form from the employer or simply report the income without the form. This is why it helps to track your income throughout the year.

Of course, some people earn money that may not get reported on 1099s -- like side money made giving people haircuts. Even if the IRS doesn't know about it, you must report this income as well or you risk the agency finding out and nailing you for tax evasion.

"Some people have a tendency to forget when they got a few checks here and there, but for some people it's willful," said Lieberman.

You claim fishy deductions

Sometimes claiming a tax deduction you know is a stretch just isn't worth the risk of an audit.
One of the most common gambles: Writing off a swimming pool for medical reasons, said John Lieberman, CPA at Perelson Weiner LLP.

"Just because your back hurts doesn't make your pool deductible," he said.

To qualify, you must be able to prove that you purchased the pool solely to help with the treatment of a verifiable medical condition and this remains its primary purpose. If you don't have a doctor's prescription requiring the use of a pool or if you have easy access to a public pool, the deduction likely won't be allowed and it may lead the IRS to take another look at the rest of your return as well.

A Playboy magazine subscription for a doctor's office, a hip replacement for a dog and pole dancing classes are some other bizarre tax write-offs people have unsuccessfully tried to claim. That said, crazy attempts can occasionally pay off. One taxpayer successfully deducted the cost of caring for the carrier pigeon that he used to communicate with his business partner. 


You're rich

Not only do high-income taxpayers have more complicated returns, but they bring in much more revenue for the IRS with each mistake they make.

While only 1% of the overall population gets audited, the odds jump to 21% for taxpayers with income over $5 million and to 30% for those earning $10 million or more, according to the most recent statistics from the IRS.

"It's not that higher income taxpayers cheat more, it's just that you have a lot more going on on a high-income return," said Betsey Buckingham, an enrolled agent at accounting firm David C. Murray & Company. "Most of the high-income people I've [assisted] are involved in charities or very active in their own business."

Even if you're not rich but live in a wealthy neighborhood, your return could raise questions about how you can afford to live there -- especially if you report surprisingly low income or a big business loss.

"They notice if you don't have an income that closely matches the kind of lifestyle you live," said Buckingham.

You say the wrong things

Watch what you say and who you say it to. Even if you're joking, you never know when a friend or neighbor will decide to rat on you. Talking with the press about personal or business information or making a public statement that doesn't match the information you provide to the IRS can also get you in trouble.

If a newspaper publishes a profile of your business in which you gloat about surging profits but you then post big losses on your tax returns, the IRS may start digging into your file.

Celebrities have to be extra cautious. The New York State Department of Taxation went after baseball player Derek Jeter for state income tax, citing public statements he made "professing his love for New York" as part of its argument, according to legal documents from the state agency. That gave the agency enough of a reason to allege the baseball star was a resident of New York (not Florida, as he claimed), said Lieberman.

"Be careful what you say, if even an athlete who says his heart is in New York can all of a sudden get a New York State tax audit," said Lieberman.

You do a lot of 'work-related' driving

With gas prices so high, who wouldn't want to write off all of their driving costs? But unfortunately, you can only deduct gas costs if the driving you did was for business purposes.

Buckingham had a client who owned a catering company and claimed every single trip to the grocery store as a business expense, even when some of those trips were to pick up her own groceries. Those driving costs really added up -- to the point where they created a loss for the business (on paper) since it was making so little income.

So Buckingham and the client had to go through the grocery receipts and separate the personal shopping from the business shopping and claim the gas costs accordingly.

You exaggerate donations

Even good deeds can spark suspicion at the IRS.

If you report extremely high charitable contributions -- especially relative to your income -- make sure you have the proof to back it up.

Receipts for cash donations of more than $250 are required in the event the IRS comes knocking.
Cash donations are a little trickier, because it's common for people to think the items they donate are worth a lot more than someone will actually pay for it. So it's important to be reasonable with your valuations.

"Unless it's something brand new and still has tags, there's some reduction in price," said Buckingham.
Goodwill and Salvation Army even have lists that help you assign values to certain items when donating them. If you donate something bigger, like a car or a boat, the charity will give you a receipt stating the ultimate auction or sale price, she said.

You own a money-losing business

If you own a business that is reporting losses year after year, the IRS may grow suspicious that it's actually a hobby.

"There's a rule-of-thumb saying you must have a profit in two [out] of five years -- if you don't have a profit they're going to look at it as a hobby," said Buckingham. "You can rebut that presumption by showing that maybe what you're doing is increasing the value of assets but not necessarily the profit."

One example is a business like a garden nursery, where you have to spend a lot of money growing trees and plants but won't get a real return on that investment until they are grown, she said.

To fend off the IRS, make sure to keep diligent financial records and do little things like have business cards and company letterhead.

Sometimes, though, it's beyond your control. One of Buckingham's clients, an ice cream store owner, was audited two years in a row after reporting losses for both years. The IRS agent said the agency couldn't figure out how the client was living day-to-day if her primary business was losing so much money.

What they didn't realize was that she had refinanced her mortgage and was living off of that. Both audits resulted in no changes to her refunds, and the audits then stopped.

You have a shady tax preparer

If your tax preparer tries to convince you to claim deductions that sound too good to be true or to report income that doesn't line up with what you would have reported, watch out.

You want a preparer that will get you the best refund possible -- but not if it means breaking the law.
You should also be suspicious if the preparer doesn't ask for documentation like receipts or for expenses or deductions you're claiming.

For example, if they write down their own value for the bag of clothes you told them you gave to Goodwill or estimate that you spent $2,000 on home office furniture without going through everything with you, that's a bad sign.

"A preparer's job is not to suggest a deduction," said Buckingham. "Certainly if [the taxpayer] had a deduction last year, a preparer should ask whether they are still doing this activity, but if a taxpayer says they are, the preparer needs to ask for something that would substantiate it."

The IRS also recommends avoiding tax preparers who calculate their fees as a portion of a taxpayer's refund or promise taxpayers unattainable refunds.

For more about audits, check out this article:

What Triggers an IRS Audit?


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Wednesday, March 20, 2013

The IRS's Worker-Classification Rules Aren't Working

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Tuesday, March 19, 2013

IRS faces class action lawsuit over theft of 60 million medical records


Source: http://www.healthcareitnews.com/news/irs-face-lawsuit-over-theft-60-million-patient-health-records

The Internal Revenue Service is now facing a class action lawsuit over allegations that it improperly accessed and stole the health records of some 10 million Americans, including medical records of all California state judges.

According to a report by Courthousenews.com, an unnamed HIPAA-covered entity in California is suing the IRS, alleging that some 60 million medical records from 10 million patients were stolen by 15 IRS agents.
The personal health information seized on March 11, 2011, included psychological counseling, gynecological counseling, sexual/drug treatment and other medical treatment data.

"This is an action involving the corruption and abuse of power by several Internal Revenue Service agents," the complaint reads. "No search warrant authorized the seizure of these records; no subpoena authorized the seizure of these records; none of the 10,000,000 Americans were under any kind of known criminal or civil investigation and their medical records had no relevance whatsoever to the IRS search. IT personnel at the scene, a HIPPA facility warning on the building and the IT portion of the searched premises, and the company executives each warned the IRS agents of these privileged records," it continued.

According to the case, the IRS agents had a search warrant for financial data pertaining to a former employee of the John Doe company, however, "it did not authorize any seizure of any healthcare or medical record of any persons, least of all third parties completely unrelated to the matter," the complaint read.

The class action lawsuit against the IRS seeks $25,000 in compensatory damages "per violation per individual" in addition to punitive damages for constitutional violations.  Thus, compensatory damages could start at a minimum of $250 billion.     

This story will be updated.

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Friday, March 15, 2013

Tax changes affect retirement planning

By Constantine von Hoffman / MoneyWatch/ March 15, 2013, 6:49 AM 
 
(MoneyWatch) Tax strategies play a huge role when it comes to planning for retirement. Recent changes in the law, as well as the likelihood of taxes going up in the future, mean it may be time to re-examine your tax planning.

For a long time, the basic tenet of planning for taxes in retirement was that you should count on making less money and being in a lower tax bracket. But this may no longer be true. For one thing, the American Tax Payer Relief Act of 2012 has already introduced new, higher taxes for many people.
Under the law, single taxpayers with adjusted gross income over $400,000 and married taxpayers filing jointly with taxable income over $450,000 are now in a 39.6 percent tax bracket. For people in that bracket, capital gains and qualified dividends might be taxed at 20 percent instead of the 15 percent rate in 2012. Single workers with taxable income of more than $250,000 and married couples with an income of more than $300,000 also can no longer itemize their deductions.

Rande Spiegelman, vice president of financial planning at Charles Schwab, said that retirees are often surprised to find themselves paying higher taxes than they expected. The combination of Social Security income, pensions, taxable portfolio income and retirement account distributions add up to keep them in the same or even a higher tax bracket.

"One of the big mistakes is to assume you will be in a lower tax bracket," he said. "Tax rates may be heading higher, so people should plan around the idea that they will be in the same bracket they are now."

Although it is impossible to predict how the current budget impasse in Washington will be resolved, marginal tax rates likely will go up. Just this week, staunch conservative Rep. Paul Ryan, R-Wis., said he would accept a tax increase under certain conditions. There is also the fact that current personal tax rates are at relatively low historical levels.

So the prudent thing is to assume on being in at least the same tax bracket when you retire. This is a no-lose strategy, because if your tax bill does turn out to be lower, all that will happen is you will have more money than you had anticipated.

© 2013 CBS Interactive Inc.. All Rights Reserved. 

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Thursday, March 14, 2013

Software glitch to delay 600,000 U.S. tax refunds: IRS

Source:http://www.reuters.com/article/2013/03/14/us-usa-tax-refund-delays-idUSBRE92C13F20130314


WASHINGTON | Thu Mar 14, 2013 6:57am EDT
 
(Reuters) - Tax refunds for about 600,000 taxpayers claiming an education credit will be delayed, the Internal Revenue Service said on Wednesday, citing a software glitch at some tax-preparation companies, including industry leader H&R Block Inc.

Refunds may be delayed four to six weeks from mid-February, likely not showing up until late March, the IRS said.

The agency is working with tax-preparation businesses to deliver the refunds, said IRS spokeswoman Michelle Eldridge.

An H&R Block spokesman said the software problem had been fixed and the company was working with the IRS.

Two companies that provide online tax preparation software, Intuit Inc and Jackson Hewitt Tax Service Inc, said their programs were not affected and their education credit customers are not experiencing delays.
Various delays have hampered the tax season this year, slowing the arrival of refunds.

In February, some taxpayers who claimed earned income tax credits were hit by refund delays, the IRS said.
On Tuesday, a Wal-Mart Stores Inc executive said shoppers had cashed about $2.7 billion in tax refund checks at its U.S. stores so far this year. At this point last year, that amount was about $4 billion.

The IRS delayed the start of the tax filing season by eight days, to January 30, due to the enactment of tax law changes made to resolve the "fiscal cliff.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and John Wallace)


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Monday, March 11, 2013

8 States Making Tax Changes: Some Painful, Some Pleasant

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Thursday, March 7, 2013

2013 Tax Tip: Beware of Bogus IRS Emails

Beware of Bogus IRS Emails for online tax scam prevention
Source: http://southwindsor.patch.com/articles/2013-tax-tip-beware-of-bogus-irs-emails-49640791


A press release from the Internal Revenue Service:

The IRS receives thousands of reports every year from taxpayers who receive emails out-of-the-blue claiming to be from the IRS. Scammers use the IRS name or logo to make the message appear authentic so you will respond to it. In reality, it’s a scam known as “phishing,” attempting to trick you into revealing your personal and financial information. The criminals then use this information to commit identity theft or steal your money.

The IRS has this advice for anyone who receives an email claiming to be from the IRS or directing you to an IRS website:
  • Do not reply to the message;
  • Do not open any attachments. Attachments may contain malicious code that will infect your computer; and
  • Do not click on any links in a suspicious email or phishing website and do not enter confidential information. Visit the IRS website and click on 'Identity Theft' at the bottom of the page for more information.
Here are five other key point the IRS wants you to know about phishing scams:
1. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information;

2. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts;

3. The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on their site and report it to the IRS;

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to phishing@irs.gov;

5. You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website to get details on how to report scams and helpful resources if you are the victim of a scam. Click on "Reporting Phishing" at the bottom of the page.

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What triggers an IRS tax audit?

Don't let the IRS audit you by claiming intelligently on your tax return!
(MoneyWatch) The IRS examined 1.1 percent of all individual tax returns in 2010 and 2011, so the chances that your tax return will be audited are only about 1 in 90.

But the odds of an audit can increase substantially depending on your income, types of income, deduction amount and changes you have made since filing your last tax return.

The IRS uses a computerized process to check all tax returns for math and clerical errors, such as incorrect Social Security numbers and addresses. If a mistake is detected, a notice of the error and a recalculation of the tax due is sent to the taxpayer.

The IRS also runs tax returns through a process that compares the information you report from your bank,  employer, and W-2, 1099 and other forms and documents. If you omit an item from your tax return, it's very likely to be picked up by the IRS's computers. The agency will send a computer-generated notice that includes a recalculation of your tax and the additional interest and penalties you will owe.

A few newer items that can trip up some taxpayers include payments received by businesses from credit and debit cards and investors who report the sale of their investments. As for businesses who accept credit and debit card payments, those gross and monthly totals are reported to the IRS by banks and other settlement entities that process the transactions. So it's important to make sure these amounts are reported accurately on the businesses tax returns.

Also, individuals who report gains from the sale of their investments should also take note that the securities industry is now reporting to the IRS the cost basis of investments that were sold as the gross proceeds from the sale.

Meanwhile, the IRS assigns numerical weights to certain tax return characteristics. These weights are added together to obtain a national composite score for all tax returns. When the total score of all selected items on your tax return exceeds the national average score set by the IRS, the agency will flag the return for a possible audit. The exact items the IRS zeroes in on and scoring method is a closely guarded secret, but some of the things the agency is believed to scrutinize include:
- Large amounts of income not subject to tax withholding
- Unusually large amounts of deductions claimed than seem reasonable when compared to your income
- A large number of dependent exemptions claimed that doesn't square wtih reported SSNs, tax withholding allowances and so forth
- Large deductions for charitable contributions, casualty losses, home office expenses, and travel and entertainment expenses
- Indicating a change of address when not reporting a sale of your residence and not changing your home related deductions

While an IRS audit is not something most sane folks want to go through, it also isn't something to be feared. If you have kept complete and accurate records of all of your deductions and have reported all of your income, you should be fine. In fact, in about a quarter of audits, the IRS makes no changes or issues a refund.

© 2013 CBS Interactive Inc.. All Rights Reserved.
Read more: http://www.cbsnews.com/8301-505144_162-57572902/what-triggers-an-irs-tax-audit/

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