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Monthly Newsletter for ncpeFellowship Members Vol. 3 No. 3 March 2012

Remarks from Beanna

Are we having fun yet?

This filing season I have heard from many of you regarding:

• E-file problems (Modernized E-file not being used by states so the old Legacy System must be used• Long wait times on IRS assist lines• Problems with PTIN renewals• IRS office visits• IRS audits and collection procedures

And my favorite – How is IRS going to deal with the Medicinal Growing of Marijuana? Some states say it is legal and will allow deductions. Feds say even illegal income is taxable but they will not allow ordinary and necessary business expenses against it. The ncpeFellowship escalated the question to the IRS National Office – Small Business and Self Employed and checking, no one apparently knows the answer. We continue to press for guidance.

This is not the same issue as states that allow same sex marriage vs. federal law. The Defense of Marriage Act – DOMA prohibits same sex couples from filing as Married Filing Jointly. States that allow same sex couple marriage also allow state Married Filing Jointly; however the Federal Return for that same couple must be filed Single for each or in some cases Head of Household.

Although the Department of Justice has been notified by the administration that they will take no action against a same sex couple filing a Federal Return as Married Filing Jointly, clearly we as tax professionals have the obligation to file Federal Returns according to the law of the land – no joint filings for same sex couples.

However, if a same sex couple was to file a Federal Return Jointly, be disallowed by IRS and then take the issue to Appeals and then up the chain to the Courts – the Department of Justice would not take an action against them. It appears this leaves us with quite a dilemma.

Do we tell our same sex couples about the development? It is clear we cannot prepare their return Married Filing Jointly on the Federal Return.

Warning: By the time the case would make it to the Court system, the policy of the Administration may change or the Administration may change.

Until and at such time as the Defense of Marriage Act (DOMA) is overturned by the United States Supreme Court or Congress changes the law, tax professionals will be faced with this question.

Seven states now allow same sex marriage.

Stay well and finish well.

Beanna

Beanna@ncpefellowship.com

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Remarks from Beanna

Tax NewsA Big Tax Present for 160 Million Wage-EarnersObama Administration Requests More Money for IRSUS Forest Service Releases 2011 Tax Guide for Forest LandownersSelling a Business? Keep Tabs on Tax Law Changes10 Things You Didn’t Know About Social SecuritySocial Security Changes Coming in 2012

People in the Tax NewsMany JK Harris Creditors will Get NothingTax Mascot Chases SuspectsChicago Mayor Wants Tax-preparer OrdinanceAccenture Awarded Website Consolidation Contract from the IRSEx-Westchester Senator Admits Tax ObstructionUnited Tax Evasion Defenses Start to Crumble

IRS NewsIRS Faces Surge in Identity Theft Tax FraudNotice 2011-45Proposed Regulations Would Expand List of Preparers Eligible to Obtain a PTINPreamble to Prop Regulation: Reg § 1.6109-2(a)Federal Budget Deficit $349 Billion$115.3 Billion in Improper Payments Made in Fiscal Year 2011 – Decrease in Error Rate on EITCTIGTA Finds Small Improvements in Examinations of Returns – Retirement Income Could Increase ComplianceIdentity Theft Crackdown Sweeps Across the Nation; IRS Announces New Sets of Meetings to Discuss Making Tax Paying Simpler, Ideal Tax Solution Helping Those in Tax Debt Now, to Reap the Benefits of the FutureIRS Releases the Dirty Dozen Tax Scams for 2012Treasury Official Says FATCA and Foreign Tax Credit Guidance is ForthcomingIRS Gives Green Light to Transfer of Pension Funds to Marital Trust, Then to IRAThieves Preying on Tax Returns IRS Stops Tax Preparers Accused of Stealing Client RefundsTax Your Frequent Flyer Miles?If You Don’t File, Beware the Ghost Return

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IRS Revenue Procedure 2011-25 (Updated LanguageTransitional Relief and Filing Guidance for Employers Hiring WOTC-Eligible Veterans

Thoughts from the Ragin Cajun United States Government Requests US District Court to Release Property Tax Records from California Board of Equalization

Tax Pros in TroubleManhattan Tax Preparers Indicted on Tax ChargesLaPlace Tax Preparer Pleads Guilty to Filing False Returns for ClientsWest Pennsylvania Tax Preparer Set to Plead Guilty or No Contest to Filing Refund-Inflating ReturnsJustice Department Permanently Bars Birmingham Tax Preparer from the BusinessFormer Tax Preparers James Morris, Karen Morris Sentenced to PrisonOwners of St. Lucie Tax Preparation Business Indicted for Filing False Tax ReturnsTax Preparer Gets 3 Years for FraudTax Preparer Accused of Filing False FormsAccused Of Stealing Tax Refund, Trafficking In Social Security NumbersMetro Detroit Tax Preparers Filed 352 Returns for Dead PeopleRoyal Palm Beach Man Indicted In Tax Return Scam Former Owner of Spartanburg Tax Preparation Business Pleads Guilty to Fraud in Multi-Million Dollar SchemeWoman Charged with Tax Crimes

Taxpayer Advocacy and Tax Professionals Streamlined Installment Agreements Forms in the 1120 and 1065 series Updated Rules Issued for IRS Communications with Appeals Office

Wayne’s World

Sponsor of the MonthAffordable Checks

Tax Quotes/Funnies

National Center for Professional Education Fellowship

Visit our WebsitencpeFellowship.com

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Tax NewsA Big Tax Present for 160 Million Wage-Earners

Members of the Senate Democratic leadership, (L-R) Sen. Richard Durbin (D-IL) Sen. Patty Murray (D-WA), Sen. Harry Reid (D-NV), and Sen. Charles Schumer (D-NY), speak about the possibility of a payroll tax cut extension during a press conference at the U.S. Capitol February 16, 2012 in Wash., DC

Americans are getting an election-year tax present. Congress voted with rare speed and cooperation Friday to extend a Social Security payroll tax cut for 160 million workers and to renew unemployment benefits for millions more who haven’t seen a paycheck in six months.

With lawmakers’ ratings in the gutter, the legislation sped through both the House and Senate and was on its way to President Barack Obama, who saluted the quick passage.

Taxpayers have grown accustomed to the 2 percentage point cut in the payroll tax over the past year — around $80 a month for someone earning $50,000 a year — and the reduction now will be continued. So will jobless benefits averaging about $300 a week for the long-term unemployed, though the aid will be cut off sooner than before for many recipients.

Both provisions, which were to expire in less than two weeks, had been extended only two months during a December congressional fight that seared Republicans. They were determined to avoid a repeat in campaign season.

The Senate approved the measure on a bipartisan 60-36 vote minutes after the House passed it on a sweeping 293-132 vote. Obama is expected to sign it.

The hope is that the dual measures will inject consumer demand and support a fragile recovery from the worst economic downturn since the Great Depression. The legislation would also protect doctors treating Medicare patients from a steep cut in their reimbursements under an outdated funding formula, a reduction that threatened to make it harder for seniors to find physicians.

The tax cuts, jobless coverage and higher doctors’ payments will all continue through the end of the year.

It may also be the last major bipartisan legislation to make it through a bitterly divided Congress before Election Day. A pile of unfinished business — including expiring tax cuts, Pentagon budget disputes and another hike in the nation’s borrowing cap — awaits after the election in what promises to be a brutal lame duck session that Capitol Hill veterans are already dreading.

“It is amazing what happens when Congress focuses on doing the right thing instead of just playing politics,” Obama said at an appearance at a Boeing factory in Everett, Wash. “This was a good example, and Congress should take pride in it.”

Obama Administration Requests More Money for IRS

The Obama administration has increased its budget request for the Internal Revenue Service for fiscal year 2013 to approximately $12.8 billion to make up for recent budget cuts.

The $12.8 billion represents an 8 percent increase of approximately $944.5 million over the level enacted in fiscal year 2012, but only a 5.3 percent, or $639.3 million, increase from the level enacted for fiscal year 2011.

A significant part of the increase from fiscal 2012 stems from the administration’s request to restore lost revenue resulting from reductions in IRS funding made over the past two years. The request is designed to provide the resources necessary to administer and enforce the current Tax Code, implement recent changes to the law to update the Code, and serve American taxpayers in a timely manner.

In fiscal 2011, the IRS collected $2.415 trillion in taxes, representing 92 percent of federal government receipts. The IRS processed more than 144.7 million individual returns during the 2011 filing season and issued almost 110 million refunds totaling $345 billion, the agency pointed out.

In fiscal year 2013, the IRS expects to identify nearly $71 million in cost savings from increased use of electronic return filing, reductions in non-case related travel, and the streamlining of operations.

The fiscal 2013 budget includes $403 million for new IRS enforcement activities, which are expected to raise $1.48 billion in revenue annually at full performance, once new hires are fully trained and develop broader experience by fiscal 2015, representing a 4.3-to-1 return on investment.

“The return on investment is even greater when factoring in the deterrence value of these investments and other IRS enforcement programs, which is conservatively estimated to be at least three times the direct revenue impact,” said the IRS.

The enforcement budget also includes $200 million in

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additional examination and collection programs that the agency anticipates will generate more than $1.1 billion in additional annual enforcement revenue by fiscal 2015. The IRS plans to use the money to improve international tax compliance by businesses and individuals, in part by hiring more international technical specialists, and to expand its efforts to identity tax refund fraud and tax-related identity theft. The IRS also plans to use the money to implement new information reporting requirements and enhance oversight of complex financial situations, including transfer pricing and uncertain tax positions.

The budget request also includes $35 million to strengthen tax return preparer compliance. The IRS noted that it is developing requirements to establish mandatory competency testing and continuing education for tax preparers to ensure they have a minimum level of competency and adhere to professional standards.

“This initiative is core to the IRS’ tax gap strategy and will increase government revenue, and support high-priority, preparer-related enforcement activities,” said the IRS.

In addition, the budget request provides $128 million to support the agency’s efforts to implement programs designed to ensure compliance with recent changes in tax laws—such as reporting provisions related to merchant payment cards and third-party reimbursements, basis reporting on securities sales, and tax provisions in the health care reform law—and to help taxpayers understand them.

The administration’s fiscal year 2013 budget also requests funding for the IRS to continue the development of new information technology systems. It also provides money for substantial modification and enhancement of the IRS’s existing systems to help implement the new premium assistance tax credit and other tax law provisions related to the insurance exchanges created in the Affordable Care Act.

The IRS said it would continue with the modernization of its IT systems in fiscal year 2013, strategically investing in capabilities such as online taxpayer services, and focus on the second phase of its core taxpayer account database project, known as Customer Account Data Engine 2, or CADE 2, to ensure the long-term viability of the agency’s tax processing systems.

In the past year, the IRS noted that it delivered the most significant update to its core tax processing system in decades. Through the deployment of the first phase of CADE 2, the IRS transitioned to a daily processing cycle from a weekly batch cycle. Also for the first time, IRS processing systems began accepting all 1040 forms electronically through a modernized e-filing capability.

The fiscal 2013 budget request also provides funding for the IRS to continue delivering services using a variety of in-person, telephone and Web-based methods to help taxpayers understand their tax obligations, correctly file their tax returns and pay taxes due in a timely manner.

The IRS said it is committed to expanding the use of electronic transactions, including increasing the electronic filing rate and expanding the taxpayer service options available through the Internet.

In 2011, there were more than 319 million visits to IRS.gov, and more than 77.9 million taxpayers checked their refund status by accessing the Where’s My Refund? page in English or in Spanish on the IRS Web site.

US Forest Service Releases 2011 Tax Guide for Forest Landowners

Federal Income Tax on Timber, complete with a current update of the new tax law changes, provides timely tax reporting information for woodland owners and their advisors.

The Forest Service recently released the 2011 edition of Federal Income Tax on Timber: A Key to Your Most Frequently Asked Questions,, a quick-reference guide to timber tax laws impacting woodland owners.

Since the first income tax Form 1040 appeared in 1913, many timber tax provisions have been added to encourage management and stewardship of private woodland. More recently, sweeping tax law changes have included major provision important to woodland owners. These include the temporary extension of the favorable tax rate applicable to timber, generous depreciation deduction, as well as the brand new tax form required by the IRS affecting timber sale reporting.

For more than 20 years the National Woodland Owner Survey has indicated that taxes are a top concern for private woodland owners and are major costs, yet many tax professionals do not specialize in timber tax. Federal Income Tax on Timber, complete with a current update of the new tax law changes, provides timely tax reporting information for woodland owners and their advisors. It’s written in plain easy-to-understand language and includes examples.

Some of the questions that are answered in the 2011 edition

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of Federal Income Tax on Timber are:

Does my timber sale qualify for the favorable capital gain rate?

How do I claim a loss on my return for timber damaged by fire or storms?

How do I qualify for capital gains for the cutting of standing timber?

Editor’s note: The guide can be found at www.ncpefellowship under Resources – Practitioner Aids.

Selling a Business? Keep Tabs on Tax Law Changes

If you’re planning to sell a business this year, it makes sense to pay attention to tax rules that could affect the deal.

But you’ll have to stay tuned. It’s way too early to know how the IRS tax code will change in 2012, said Dorothy McLin, a certified public accountant based in San Diego. She spoke at a lunchtime seminar on federal tax rules attended by around a dozen business and finance professionals. The event was held in the office of Sheppard Mullin as part of a speaker series organized by the ACG (Association for Corporate Growth) San Diego.

Key issues this year, McLin said, include the upcoming presidential election and the expiration of the Bush tax cuts - which had been extended several times - at the end of 2012.

“It’s as if there are so many moving pieces, and we have a limited time frame to move in,” McLin said. “I think we’re all going to be very busy this year.”

Mclin and William Super, a Carlsbad-based CPA, presented a long list of potential scenarios. The capital-gains tax rate, for example, is scheduled to go up at the close of 2012. Then again, it might not, depending on what happens in Washington. “That’s where we’re at,” Super said. “We really don’t know.”

It’s possible that Congress could extend the tax cuts again, but it’s by no means certain. If nothing happens, beginning Jan. 1, 2013, tax rates and tax credit amounts will revert to their pre-2001 levels, McLin said. As an example, a person who was in the 35 percent income tax bracket this year could end up in the 39.6 income tax bracket next year.

And changes to the tax code could even come in the final few weeks of 2012, McLin noted.

10 Things You Didn’t Know About Social Security

The Social Security program has turned 75. Since Franklin Delano Roosevelt signed the Social Security Act on August 14, 1935, few workers have not been impacted by the social program. Almost all Americans pay into the system and Social

Security is the largest source of income for citizens age 65 and older. Yet this huge entitlement has many facets, some of which are not widely known. Here are 10 things you may not know about Social Security:

The system is bigger than the economy of most countries. For the past 20 years, the Social Security program has been the largest single item in the federal government’s budget. “The amount of money flowing through the Social Security system each year is larger than the total economies of all but the 16 richest nations in the world,” says Larry DeWitt, the U.S. Social Security Administration historian. The Social Security program has collected $13 trillion in income and expended $10.6 trillion in payments since the first tax collections began in 1937 through 2007. That’s an amount of money that Social Security’s first beneficiary, Ida May Fuller of Ludlow, Vt.—who collected initial payments of $22.54 a month for 35 years—probably never dreamed of.

It’s not just a retirement program. The original Social Security program paid benefits only to retired workers. Later, disability benefits and payments for a beneficiary’s spouse and children and were added to the program. “If you graduated from college four years ago, you are already protected against disability,” says Edward Berkowitz, professor of history and public policy and public administration at George Washington University. “If you are married and have children, your dependents are protected.” Annual Social Security Administration mailings to all workers age 25 and older include an estimated amount that you would be paid if you become disabled and how much your spouse and children would receive if you should pass away.

You pay 6.2 percent of your income into the system. Almost all American workers (94 percent) pay 6.2 percent of their taxable income, up to $106,800 annually, into the Social Security trust fund. Employers pay a matching 6.2 percent for each worker. Self-employed workers must contribute 12.4 percent of their income annually.

There haven’t always been cost-of-living increases. Annual cost-of-living adjustments didn’t become a part of Social Security until 1975 (as a result of a 1972 law). Prior to 1975, an act of Congress was required to increase benefits to keep up with consumer prices. “Before then, benefits were protected from inflation only when Congress chose to notice it,” says Berkowitz. Now increases in payments are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Annual increases have ranged from 1.3 percent in 1996 and 1998 to 14.3 percent in 1980. For the first time in 2010, there was no cost of living boost because the index did not increase between the third quarter of 2008 and 2009.

Retirees can increase annual payments by waiting to claim. Workers can begin receiving Social Security benefits at age 62. But payouts increase by 7 to 8 percent for each year you delay your start date, up until age 70. Workers who sign up early receive smaller monthly checks over a great number of years, while those who delay claiming receive bigger payouts for the rest of their life. “If you know you are going to live past the age of 80, you are better off delaying

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Social Security,” says Lita Epstein, author of The Complete Idiot’s Guide to Social Security and Medicare. “Baby boomers who know they are going to have a long life are much better off waiting.” Epstein, who is spending down her Roth IRA assets in order to delay claiming Social Security, says her benefits will increase by about $500 each month by waiting until age 70 to sign up.

Couples have extra options. Spouses are entitled to Social Security benefits of up to 50 percent of the higher earner’s check if that amount is higher than the payments based on his or her own working record. Widows and widowers are entitled to the higher earner’s full retirement payout. Dual-earner couples who have reached their full retirement age can even claim twice by first signing up for a spousal payment, then claiming again later based on their own work record (which will then be higher due to delayed claiming). Ex-spouses are also eligible for benefits if the marriage lasted at least 10 years.

Existing beneficiaries can get a do-over. If you’ve already signed up for Social Security and received a reduced payout, it’s not too late to boost your check. If you pay back the entire amount you have already received from Social Security without interest, you can then qualify for higher payments for the rest of your life.

Social Security numbers have significance. The first three digits of your Social Security number are assigned based on geographical region, with the lowest numbers being assigned in the Northeast and increasingly higher numbers assigned to residents in the West. The middle two digits, called the group number, are allocated in a precise but nonconsecutive order between 01 and 99. The last four digits are issued in a sequential order. Over 420 million unique numbers have been issued and they are not reused after a person’s death. Social Security numbers have been assigned shortly after birth since 1989, which makes younger American’s Social Security numbers somewhat predictable if you know a person’s date of birth and home town, which is common information that young people list on social networking websites, according to research by Alessandro Acquisti, an associate professor of information technology and public policy at Carnegie Mellon University. “Do not offer personal information such as date of birth and hometown publicly,” he advises.

Paper Social Security checks will soon be retired. Social Security recipients will be required to collect payments by direct deposit into a bank account or a government Direct Express Debit MasterCard beginning on March 1, 2011. Existing beneficiaries must switch to electronic payments by March 1, 2013. Paperless payments are expected to save $300 million over five years, according to Treasury Department estimates.

The trust fund has a projected deficit. The Social Security trust fund is currently projected to be sufficient to provide payments until the end of 2037. Then, unless changes are made to the program, there will only be sufficient resources to pay about 78 percent of scheduled benefits. Congress is currently considering a variety of potential fixes, including tax increases, benefit cuts, and pushing back the retirement age.

A U.S. Senate Special Committee on Aging report released in May found that relatively minor tweaks could put the trust fund back on sound financial ground for at least 75 more years. “It’s a shame that the tone of the 75th celebration is sort of nostalgic,” says Berkowitz. “I would hope that the 75th anniversary is not only about how good things used to be, but also about how good things could still be in the future.”

Social Security Changes Coming in 2012

Social Security recipients will see bigger payments this year for the first time since 2009. But the future of Social Security taxes for workers remains uncertain. The 2011 payroll tax holiday has been extended only through the end of February and is scheduled to increase in March under current law. Here’s a look at the Social Security changes workers and retirees will experience this year.

A boost in monthly payments. Social Security payments for more than 60 million Americans will increase 3.6 percent in 2012, the first increase since 2009. The typical retiree will see an increase of about $43 per month, although a portion of the increase may be deducted to pay for higher Medicare Part B premiums. Since 1975, Social Security payments have been automatically adjusted each year for inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Cost-of-living adjustments have ranged from 14.3 percent in 1980 to zero in 2010 and 2011.

Higher Social Security tax cap. The maximum amount of earnings subject to Social Security taxes has increased from $106,800 in 2011 to $110,100 in 2012. The Social Security Administration estimates that about 10 million high earners will pay higher taxes as a result of the increase in the taxable maximum.

Social Security tax holiday temporarily extended. The 2 percent payroll tax cut that workers received in 2011 was recently extended through the first two months of 2012 by the Temporary Payroll Tax Cut Continuation Act of 2011. Nearly 160 million workers will continue to have 4.2 percent of their pay deposited into the Social Security trust fund instead of the usual 6.2 percent until Feb. 29, 2012.

However, higher-income employees who earn more than $18,350 in January and February 2012 must pay a 2 percent Social Security tax on the amount they earn between $18,350 and $110,100. “This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions,” according to a statement from the IRS. “The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year.” Under current law, Social Security taxes are scheduled to return to 6.2 percent of pay in March 2012.

Higher earnings limits. Early retirees who work and collect Social Security benefits at the same time can earn $480 more next year before a portion of their Social Security benefit will be temporally withheld. Social Security recipients below their

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full retirement age (66 for those born between 1943 and 1954) can earn up to $14,640 in 2012, above which 50 cents of each dollar earned will be withheld from their Social Security payments. For retirees who will turn 66 in 2012, the limit climbs to $38,880, after which 33 cents of each dollar earned will be deducted from monthly payments. Starting the month you turn your retirement age, there is no penalty for working and collecting Social Security benefits at the same time. At that time, your benefit will also be adjusted to reflect your continued work record and any benefits that were withheld.

Maximum possible benefit grows. The maximum possible Social Security check will grow to $2,513 per month in 2012, up from $2,366 in 2011. To get this amount, a worker would need to earn the maximum taxable amount ($110,100 in 2012) every year after age 21.

People in the Tax News

Many JK Harris Creditors will Get Nothing

The bankrupt tax-resolution company JK Harris will be liquidated by a court-appointed trustee, a judge ruled in Charleston, leaving nothing for consumers in more than 20 states who had been promised cash settlements for claims that the company had misled them.

The Goose Creek firm filed for bankruptcy protection in October, to pre-empt an effort by the Texas Attorney General to force the company into receivership over payments related to consumer complaints. After failing to find a buyer for the heavily indebted company, JK Harris shut down its offices two weeks ago, putting more than 100 local employees out of work.

The company’s bankruptcy case, along with two affiliated companies, was converted to a Chapter 7 bankruptcy, which means a trustee will be appointed to gather any assets available and distribute them to creditors.

With an estimated $34 million in debts — most of which represents the consumer settlements — and most company assets already claimed by a New Jersey lender, unsecured creditors are expected to receive nothing at the end of the process.

“There will be no recovery at all for the $20 million in general unsecured claims,” said William McCarthy, the bankruptcy attorney for the company.

Thousands of clients of the company, who had been counting on JK Harris to help settle their federal tax problems, will need to pursue help elsewhere, with little hope of recovering funds already paid to the company.

Tax Mascot Chases Suspects

Isaac Underwood, a Statue of Liberty mascot for Liberty Tax Services on Monroe Street near Auburn Avenue, promotes the company’s services the day after the office was robbed. Although he has been a Liberty employee for three years,

Isaac Underwood may not know how to deal with complicated tax issues, but he does know a thing or two about trying to right an injustice.

Mr. Underwood’s job with Liberty Tax Service is to wear a Statue of Liberty costume and stand along Monroe Street near Auburn Avenue to advertise the service, directing those with complex tax questions inside the store.

But he found himself chasing a man and a woman who police say held up Mr. Underwood’s employer with a curling iron concealed in a washcloth.

“My first instinct was to run after them,” Mr. Underwood, 27, said.

The robbers escaped down an alley, but police issued an arrest warrant for Sonia Watson, 41, charging her with one count of robbery. She was not in custody as of late Friday night.

Sonia Watson

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Employee Stephanie Knight identified Watson of Macomber Street in Toledo to police as a customer whose taxes she had prepared Monday.

Ms. Knight said a woman and a man went into Liberty Tax Service, 3365 Monroe St., just minutes before the 7 p.m. closing, wearing black cloths over their faces.

“I just didn’t think anything of it because it’s cold outside,” said Ms. Knight, 28, who has worked at Liberty for two years.

Noting other customers, the man and woman sat down in a lobby area and removed the cloths from their faces, Ms. Knight said.

When one of the customers walked out, the duo recovered their faces and approached Ms. Knight.

Ms. Knight said the suspect pointed the concealed curling iron at her and demanded money.

Ms. Knight, thinking the woman had a gun, opened a drawer to comply.

However, she said that when a friend who was waiting for her in the office gave her a look that said the woman did not have a gun, she closed the drawer.

Police say that the woman then told her male accomplice to shoot Ms. Knight.

“He looked confused,” Ms. Knight said. “It wasn’t a thought-out plan.”

Still, the man approached, but was stopped when Ms. Knight’s friend picked up a chair and hit the man with it.

The woman suspect came at Ms. Knight, striking her on the wrist with the curling iron, according to police.

Ms. Knight picked up a nearly full 20-ounce bottle of Pepsi and threw it at her, striking her on the forehead, according to police reports.

During the commotion, according to reports, the female suspect opened a drawer at Ms. Knight’s desk and allegedly stole $280.

“My issue was, I didn’t want her to get anything,” Ms. Knight said. “I didn’t want her to get out of the store with what she was going for.”

The man and woman ran out the front door. The pair split up but reunited near the back of the store, Ms. Knight said.Mr. Underwood saw the commotion and ducked his head inside the store, which Liberty shares with Munchies Wings & Gyros.

“I opened the door and they said we’d been robbed,” said Mr. Underwood, who then threw off his cloth-crown head covering

and gave chase in his Statue of Liberty costume until the thieves disappeared down an alley.

“That’s [a] messed-up thing,” Mr. Underwood said of the robbery. Although he has been with Liberty for about three years, it was Mr. Underwood’s first at the Monroe Street location.

It wasn’t Mr. Underwood’s first brush with fleeing holdup suspects. Last year, when he was a Statue of Liberty mascot on Laskey near Miracle Mile shopping center, a pair of thieves ran past him after robbing a nearby fast-food restaurant. He said they disappeared before he heard a woman shouting about the holdup.

Watson reported herself as a victim of theft hours before she became a suspect in the Liberty heist, police said.

About 2 p.m., she told police she was robbed by an acquaintance who demanded the gift card she got after returning merchandise to Home Depot, 1001 W. Alexis Rd.

The man reportedly gave Watson a ride and wanted the card as payment, but when Watson refused, the man pulled out a small black revolver and pointed it at her, according to a police report.

Watson told police she injured her wrist as she struggled with the man for the gun.

She then jumped from the vehicle and the man drove off with her purse, the report states.

A man who answered the phone at the number for Watson listed on a police report, said she was unavailable.

Chicago Mayor Wants Tax-preparer Ordinance

Chicago’s mayor wants the City Council to pass a new ordinance designed to protect taxpayers from any unscrupulous tax preparers.

Mayor Rahm Emanuel intends to introduce a measure this week that would, among other things, mandate that tax preparers inform taxpayers of their rights and also disclose any hidden fees.

In a statement, Emanuel accuses some preparers of “preying” on taxpayers with promises of fast cash and rapid refunds that ultimately cost families money.

According to the mayor’s office, commercial tax preparers charge low-income families on average $189 for every return. It claims that more than half are sold refund settlement products with hidden fees that can add up to $289.

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Accenture Awarded Website Consolidation Contract from the IRS.

The Internal Revenue Service has awarded Accenture Federal Services a 10-year contract to redesign, develop and manage three IRS portals. The work will consolidate the consumer-facing website, IRS.gov, the registered-user portal for tax preparers and the agency’s employee intranet. The new infrastructure will make it easier to do business with the IRS by streamlining, updating and combining processes for ease of use.

Initial work will focus on design, infrastructure, architecture and operations of IRS.gov, one of the nation’s most trafficked websites with more than 2 billion page views each year. Work also includes content management, web search engine optimization, user analytics and site security.

“The IRS strategy has been to leverage resources wisely to create the greatest operational efficiencies and continue to deliver trusted online resources where taxpayers find what they need to effectively meet their tax responsibilities,” said Craig Cornelius, who leads Accenture’s federal civilian agency portfolio. “The changes to the portals will add new online capabilities and help to improve service options for American taxpayers.”

This contract award is the most recent win in a string of successful projects that highlight Accenture’s work with the IRS, including payment processing and fee accounting. Accenture continues to assist with the IRS’ Return Preparer Registration program, providing a secure online registration and renewal process for tax preparers and filers.

Accenture’s federal business serves every cabinet-level department and 20 of the largest federal organizations. The U.S. federal portfolio spans across clients in civilian, defense, intelligence and public safety agencies.

Ex-Westchester Senator Admits Tax Obstruction

Nicholas A. Spano, an influential former state senator from Westchester County, took advantage of an arcane provision in the law to collect roughly $1 million in consulting payments from a politically connected insurance brokerage over 12 years, federal prosecutors said.

The prosecutors said the fees given to Mr. Spano, a Republican, were tied to the awarding of state contracts to the brokerage.

The accusations were contained in court papers made public as Mr. Spano pleaded guilty to obstructing the Internal Revenue Service by filing fraudulent tax returns. He admitted that he falsely characterized more than $180,000 of the money that he received from the insurance brokerage through a shell company.

Mr. Spano, who became a lobbyist after nearly three decades

as a state senator and assemblyman, was somber during the proceeding in United States District Court in White Plains, standing before Judge Cathy Seibel with his head bowed, wearing a gray suit, a white shirt with his initials embroidered on the cuffs and a light blue tie.

“Today is obviously not a good day for me or my family, but I want to be honest and open about it,” he said in a statement issued through his lawyer. “I did not pay all the income taxes that I should have. For this I am sorry and I take full responsibility.”

Pleading guilty to a single felony tax charge, he faces up to three years in prison. But lawyers on both sides say the sentence will probably be for 12 to 18 months. He will be sentenced on June 12.

Outside the courtroom, he smiled and appeared jovial, making small talk with a group of reporters. He left the courthouse walking side by side with one of his brothers, Leonard, and with his hand on his wife’s shoulder.

As the case came to a close, prosecutors filed court documents that detailed payments made by a small insurance brokerage, referred to as “Insurance Company 1,” beginning in 1993 and continuing until 2008, two years after he left office.

The payments were related to a provision of New York law requiring state agencies to have a broker of record on real estate transactions. Insurance Company 1 was Professional Risk Managers, a small insurer based in Purchase, N.Y., which was awarded a state contract to act as a broker of record. The contract came after Mr. Spano was hired by the firm, prosecutors said.

The complaint said payments were funneled through a company — its name was Spano spelled backward — that court documents said “had no employees or offices and was used almost exclusively to receive money” paid to Mr. Spano by the insurance company. It later changed its name to HVM.

Mr. Spano falsely claimed that some of the money he received from the insurance company was rental payments on a property that he owned in Yonkers. He also failed to report actual rental payments he received from the tenants of the same Yonkers property. Separately, he failed to report a $45,000 commission he received from the sale of a commercial property in White Plains.

It was not clear to what extent Mr. Spano engineered the state contract that was awarded to Professional Risk Managers, which was acquired by the much larger Brown & Brown in 2007.

Brown & Brown did not respond to phone messages seeking comment. It currently receives $6 million a year to act as the broker of record on real estate deals for the state.

Mr. Spano also did not properly disclose his business dealings on his state ethics filings, records show.

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In some years, he reported no income at all from the insurance scheme, while in other years; he underreported his income by tens of thousands of dollars. State officials and legal experts said that because Mr. Spano was defeated in 2006, he was unlikely to face any state ethics charges — regulators have limited jurisdiction over lawmakers after they leave office.

The Spano plea deal was only the latest in a cavalcade of legal trouble for Albany politicians in both political parties.

The former Senate majority leader Joseph L. Bruno, an upstate Republican, faces a second federal corruption trial after his 2009 conviction was overturned. Last year, former Senator Carl Kruger, a Brooklyn Democrat, pleaded guilty to federal corruption charges.

Another former senator, Vincent L. Leibell III, a Hudson Valley Republican, was sentenced to 21 months in prison after pleading guilty to obstruction of justice and tax evasion. A former Senate president, Pedro Espada Jr., a Bronx Democrat, is facing a trial on charges that he misappropriated more than half a million dollars in federal money from the nonprofit health care network he operates in the borough.

“It would be great if this were the end of it, but I suspect that’s not the case,” said Russ Haven, legislative counsel for the New York Public Interest Research Group. “You’d think it would be an example, but so far the parade of defendants hasn’t had much of a deterrent effect.”

United Tax Evasion Defenses Start to Crumble

The criminal indictment of Wegelin on Friday and whispers that some banks favor unilateral negotiations with the United States has undermined the coordinated defense of banking secrecy.

UBS - the bank that set off the relentless US attack – and two other heavyweights under suspicion, Credit Suisse and Julius Bär, will hope to soothe jittery investor nerves with solid results.

But news that Switzerland’s oldest private bank, Wegelin, has been virtually destroyed by the first ever US indictment against a foreign bank will hardly boost sentiment in the Swiss financial sector.

Wegelin itself spoke last month of a possible domino effect if it was allowed to be chewed up by the voracious US justice system. Wegelin is one of 11 banks under scrutiny by the US Department of Justice (DoJ) and Internal revenue Service (IRS) for allegedly aiding tax evaders.

First case

“If you let one bank hang it would set a precedent for all of the 11 suspected banks and the Swiss financial sector as a whole,” Wegelin warned in January. A few weeks later, the bank was forced to sell off most of its silverware ahead of formal criminal proceedings in the US.

But US ambassador Donald Beyer told the Sonntagsblick newspaper that the Wegelin managers bore sole responsibility for what had happened.

“They should have known that these activities are illegal, and that the US tax authorities would react,” he said.

But he added that did not know why Wegelin sold off most of its business, since any likely fine would not have brought the bank down.

According to the SonntagsZeitung newspaper, Wegelin senior managing partner Konrad Hummler wrote to clients last week “regretting” what had happened, but maintaining that he and his partner Otto Bruderer had always acted correctly.

The bank had followed the instructions of the State Secretariat for International Financial Matters, which is handling negotiations with the US authorities on behalf of the Swiss government, he said.

Losing faith

Several Swiss media reports have accused some of the 11 banks of handing over data without the knowledge of the Swiss authorities – or at the very least of planning to carry out this operation.

Zurich University’s Swiss Banking Institute, told swissinfo.ch. “They appear to believe that they can get better results by going directly to the US administration.”

It is becoming evident that the US will only agree to a political deal once it has squeezed all it can from the criminal process. And there is no telling how long that could take.

Credit Suisse and Julius Bär were able to settle tax disputes individually with Germany last year by paying out compensation, but a deal with the US would likely be more complicated.

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Litany of mistakes

The Swiss government’s firefighting role in the tax evasion episode has frequently drawn fierce criticism over the past three years.

Most observers agree that the authorities had little choice but to broker a deal once UBS bank had been caught with its fingers in the US cash register in 2009. But critics argue that surrendering the names of thousands of UBS clients left the financial sector wide open to more attacks.

Former UBS chief executive Oswald Grübel recently told the Neue Zürcher Zeitung newspaper that the Swiss government had sent out the wrong message in other ways too.

“If politicians suddenly speak of a ‘clean money’ strategy [as happened in the wake of the UBS scandal], it is very dangerous,” he said. “This implicitly states that we had a dirty money policy beforehand. The effect this statement had abroad was fatal.”

Grübel went on to blame politicians, regulators and bankers for reacting too slowly to the warning signals and then making “illogical” decisions. Part of the problem, he said, was that the banking community has not been cohesive enough.

“[Politicians and banks] will have to cooperate much better than they have before,” he said in the interview. “The Wegelin case is sad, but it could at least lead to the banks finally speaking with one voice.”

Abandon ship?

The one voice strategy looks increasingly out of reach, according to media reports that claim the Swiss finance ministry had to dissuade some banks from handing over raw data separately to the US authorities in recent weeks.

“It looks like an ‘every man for himself’ situation is developing,” Geiger told swissinfo.ch. “The banks would like this problem to go away because these negative headlines are harmful for their business.”

The harm appears to have been limited so far, with Credit Suisse and Julius Bär reporting healthy net inflows of assets last year. This contrasts to UBS, which saw wealthy clients withdraw their riches by the bucketful at the height of the bank’s problems.

This week’s results could shed more light on the issue, according to Bank Sarasin analyst Rainer Skierka.

“There have been no indications so far from either the banks or the markets that this is weighing down on them,” he told swissinfo.ch. “But the issue has gained momentum in the past few months, especially with Wegelin.”

“Most net new money growth has been generated in Asia and Latin America. Growth has been flat or slightly negative in

Europe and the US.”

IRS News

IRS Faces Surge in Identity Theft Tax Fraud

The Internal Revenue Service is grappling with a surge in identity theft-based tax fraud as crooks take advantage of web-based resources including electronic filing.

Identity theft cases, in which criminals obtain living or deceased people’s names and Social Security numbers to defraud the government, ranked No. 1 on an annual “Dirty Dozen” list of tax scams the agency released Thursday. The IRS called ID theft one of the most complex threats it handles.

The IRS estimates 404,000 people were victimized by identity theft tax fraud from mid-2009 to the end of 2011.

“We are seeing growth in this area. There’s no way around it,” said Terry Lemons, IRS director of communications. “But I also think that we’ve gotten better at detecting it.”

The IRS said it stopped nearly 262,000 fake returns based on identity theft from being processed in 2011, preventing nearly $1.5 billion in refunds from going to criminals. That is more than a fivefold increase from 2010, when the agency stopped about 49,000 fake returns seeking $247 million in fraudulent refunds.

The IRS said it has no way of knowing how much in fraudulent refunds made it through the system undetected.

Experts say this type of fraud has increased thanks in part to the Internet. The Web has made it easier for honest people to file their tax returns -- and for crooks to file fake returns electronically. The IRS has been on a major push to encourage people to file electronically.

“That was probably one of the biggest boons for the bad guys,” said Jay Foley, a partner with ID Theft Info Source and an identity theft expert.

With more than 100 million income tax refunds to process each year, the IRS concedes it will never be able to quell such tax fraud completely.

“The IRS cannot stop all identity theft. However, we are committed to continuing to improve our programs,” Steven T. Miller, the deputy commissioner for services and enforcement at the IRS, said in written congressional testimony in November.

The agency has added new filters to screen for potential identity theft tax fraud and is working harder to help victims get their rightful refunds.

In late January, the IRS and Justice Department announced

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a nationwide sweep of arrests, indictments and other actions against 105 suspected perpetrators of the crime in 23 states.

In its testimony to Congress, the IRS said it had initiated 276 investigations into identify theft tax fraud in fiscal 2011, up from 224 the previous year.

The IRS is under tremendous pressure to get taxpayers their refunds as quickly as possible while also accurately screening for fakes. That’s complex because people’s lives are complicated. Many of the things that might flag a return as fraudulent -- such as a change in job, mailing address or name -- are legitimate.

The new IRS filters mean that more people’s tax refunds will get extra screening before they go out, Lemons said.

“I think for the vast majority of taxpayers, they’re not going to see any difference,” he said. “There will be some people who end up having some delays.”

ID theft tax fraud tends to occur early in the tax season as criminals try to file before legitimate taxpayers. (For tips on how to prevent and identify identity-based tax fraud, check the guide posted on the IRS website.)

Despite the agency’s efforts, Foley, the identity theft expert, expects the problem to get worse before it gets better. That’s because criminals keep finding new ways to evade IRS systems.

Still, he thinks the IRS is doing the best it can given its limitations. People want their legitimate tax refunds as fast as possible, but if the IRS doesn’t catch the fraud before the refund goes out, the agency may not even realize fraud has occurred until long after, when the real taxpayer goes to file a return.

“You can’t fix something until you know something is broke,” he said.

The crime appears to have surged in popularity rapidly.

In Florida, NBC television affiliate WFLA and The Tampa Tribune reported identity theft tax fraud had became so widespread that some people were offering classes in how to commit the crime.

The station’s investigation said the criminals dubbed the process “TurboTax” after the popular online software for filing returns.

Julie Miller, a spokeswoman for TurboTax’s parent company, Intuit, said in an email that the company had amped up its own fraud prevention efforts over the past year. She declined to give details for fear of tipping off criminals.

In many cases, the fraud begins when a criminal steals someone’s name and Social Security number, and then uses them as a basis to create fake a return that ensures a hefty

refund. The refund is sent to an address specified by the fraudster.

Another method involves getting the names, addresses and Social Security numbers of recently deceased people from websites such as Ancestry.com, which are meant to help people find their long-lost relatives.

Notice 2011-45:

The notice adds a requirement for a registered tax return preparer using any paid advertising involving print, television or radio, in which the individual represents him or herself to be a registered tax return preparer to display or broadcast the following statement: “The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov.”

The question is are business cards included in the definition of advertising?

The restriction in Notice 2011-45 applies to “paid advertising”. A business card generally is not considered paid advertising. Note: If the tax return preparer pays to have his or her local newspaper print the business card as an advertisement in the newspaper, the business card has been converted to paid advertisement and the statement would need to be included in the advertisement.

Editor’s Note: This question was recently answered by IRS Liaison personnel in Dallas, TX.

Proposed Regulations Would Expand List of Preparers Eligible to Obtain a PTIN

Preamble to Prop Regulation: Reg § 1.6109-2(a)

IRS has issued proposed regs that would expand the list of preparers eligible to obtain a Preparer Tax Identification Number (PTIN) to include preparers working under proper supervision, and those preparing returns not covered by the competency exam for registered tax return preparers (RTRPs). The proposed regs would incorporate earlier guidance issued in a 2011 Notice.

Under final regulations issued in 2010, for tax returns or refund claims filed after Dec. 31, 2010, the identifying number that a tax return preparer must include with the preparer’s signature on tax returns and refund claims is his PTIN or such other number as IRS prescribes in forms, instructions, or other guidance. (Reg. § 1.6109-2(a)(2))

Beginning after Dec. 31, 2010, all tax return preparers must have a PTIN or other IRS-authorized identification number. To obtain a PTIN or other prescribed identifying number, the final regs say a tax return preparer must be an attorney, certified public accountant (CPA), enrolled agent (EA), or registered tax return preparer (RTRP) authorized to practice before IRS under Circular 230. (Reg. § 1.6109-2(d)) However, IRS

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may prescribe exceptions, including the requirement that an individual be authorized to practice before IRS before receiving a PTIN or other prescribed identifying number, as necessary in the interest of effective tax administration. IRS may also specify specific returns, schedules, and other forms that qualify as tax returns or claims for refund for purposes of the regs. (Reg. § 1.6109-2(h))

In Notice 2011-6, 2011-3 IRB 315, IRS said that until further notice, two additional classes of preparers—supervised preparers and signing preparers of non-Form-1040 returns—may obtain a PTIN. The proposed regs would incorporate the guidance in the 2010 Notice into the regs. Nonsigning return preparers working under proper supervision. Individuals 18 years or older who are not attorneys, CPAs, EAs, or RTRPs, would be able to pay the applicable user fee, obtain a PTIN, and prepare, or assist in the preparation of, all or substantially all of a tax return (or claim for refund) for compensation, if they are supervised, in the manner IRS prescribes in appropriate guidance, as a tax return preparer by an attorney, CPA, EA, enrolled retirement plan agent, or enrolled actuary authorized to practice before IRS under Circular 230. The individuals would have to pass the requisite tax compliance check and suitability check (when available). (Prop Reg § 1.6109-2(d)(2)(v))

For PTIN purposes, the terms tax return and claim for refund of tax include all tax forms submitted to IRS unless specifically excluded in other appropriate guidance. (Prop Reg § 1.6109-2(a)(1))

Federal Budget Deficit $349 Billion

The federal budget deficit for the first four months of fiscal year 2012 was estimated to be $349 billion, the Congressional Budget Office (CBO) said on Feb. 7. (Monthly Budget Review) If there is no further legislation affecting spending or revenues, the fiscal year will end with a deficit in the neighborhood of $1.1 trillion, CBO said. “However, enactment of proposals such as pending legislation to extend the payroll tax cut could have a significant impact on the deficit for 2012,” CBO noted. Spending for Social Security benefits was $4 billion higher last month than it was in January 2011, a fact primarily attributed to the 3.6% cost-of-living adjustment that kicked in for 2012. Receipts to date were up 4% compared to the same period in FY 2011. Corporate income tax revenue in the first four months was up $20 billion (or 51.8%) compared to last year, with tax payments $6 billion higher and refunds $14 billion lower. “The large drop in corporate tax refunds reflects a return to a level more in keeping with that seen before the recession,” CBO said, adding that “such refunds were unusually high in the first quarter of fiscal year 2011

$115.3 Billion in Improper Payments Made in Fiscal Year 2011 – Decrease in Error Rate on EITC

Federal government agencies made an estimated $115.3 billion in improper payments in fiscal year 2011, down $5.3 billion

when compared to FY 2010, the Government Accountability Office (GAO) said in congressional testimony on Feb. 7. One of the major contributors to the reduction in improper payments was a decrease in reported error rates for the Earned Income Tax Credit (EITC) program. Improper payments related to the EITC totaled $15.2 billion and the error rate was 23.5%, GAO reported. In FY 2010, EITC improper payments totaled $16.9 billion, which reflected an error rate of 26.3%. The primary causes for the error rate were “the complexity of the tax law, structure of the program, confusion among eligible claimants, high turnover of eligible claimants and unscrupulous return preparers,” GAO said. The EITC program ranked third among the 10 programs with the highest reported improper payment rates in FY 2011. The Small Business Administration’s disaster loan program had an error rate of 28.4% (with $96.3 million in improper payments) and the Agriculture Department’s school breakfast program had an error rate of 25% (with $705 million in improper payments). The corrective actions that were taken to reduce improper payments “primarily focused on completing examinations on tax returns that claimed the EITC before issuing the EITC portion of the refund, identifying math or other statistical irregularities in taxpayer returns, and comparing income information provided by the taxpayer with matching information from employers to identify discrepancies,” GAO said.

TIGTA Finds Small Improvements in Examinations of Returns – Retirement Income Could Increase Compliance

Just small improvements in IRS’s examination of tax returns with retirement income could increase compliance and generate substantial revenue, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on Feb. 7. (Audit Report No. 2012-30-011) According to the audit, for tax years 2008 and 2009, taxpayers filed some 21 million returns with taxable Individual Retirement Arrangement (IRA) income totaling $293 billion and 52.2 million returns with taxable pension income totaling $1 trillion. TIGTA found that IRS’s Automated Underreporter (AUR) Program is effectively determining the proper reporting on retirement income when Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., discloses the amount of the retirement distribution. In 2007, AUR Program examiners made tax assessments totaling $607 million on 217,800 tax returns, the audit found. “However, additional tax form information, if available, would improve compliance”.

Identity Theft Crackdown Sweeps Across the Nation; More than 200 Actions Taken in Past Week in 23 States

The Internal Revenue Service and the Justice Department have announced the results of a massive national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.

Working with the Justice Department’s Tax Division and

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local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states. The coast-to-coast effort took place over the last week and included indictments, arrests and the execution of search warrants involving the potential theft of thousands of identities and taxpayer refunds. In all, 939 criminal charges are included in the 69 indictments and information related to identity theft.

In addition, IRS auditors and investigators conducted extensive compliance visits to money service businesses in nine locations across the country in the past week. The approximately 150 visits occurred to help ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.

“This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season,” said IRS Commissioner Doug Shulman. “We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”

“The Justice Department is working closely with the IRS to investigate, prosecute, and punish tax refund crimes committed through the theft of identities,” said Principal Deputy Assistant Attorney General John A. DiCicco of the Tax Division. “Now, more than ever, we must remain vigilant against the unauthorized use of identification information to defraud the U.S. government.”

The national effort is part of a comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

The law-enforcement sweep started last week across the country, reflecting investigative efforts stretching back months and even years.

The nationwide effort by the Justice Department and the IRS led to actions taking place in 23 locations across the country with 105 individuals. The actions included 80 complaints/indictments and information, 58 arrests, 19 search warrants, 10 guilty pleas and four sentencings.

IRS Announces New Sets of Meetings to Discuss Making Tax Paying Simpler, Ideal Tax Solution Helping Those in Tax Debt Now, to Reap the Benefits of the Future

The IRS held the second of a series of public meetings on January 25th. This is to receive feedback on implementing long-term changes to the tax system to reduce the burdens for taxpayers. They state, “The goal of this initiative, called

the Real-Time Tax System, is to improve the tax filing process by reducing burden for taxpayers and increasing overall compliance. Under such a system, the IRS could match information submitted on a tax return with third-party information at the beginning of return processing and provide the opportunity for taxpayers to fix the tax return if it contains data that does not match IRS records. Currently, the IRS conducts a significant number of compliance activities months after the tax return has been filed and processed. At this public meeting, IRS officials will solicit feedback and input from outside stakeholders. This second meeting will feature representatives of large and small businesses, financial institutions, software providers and state revenue commissions.

While it is exciting that the IRS is looking to make tax paying easier, and encouraging more compliance, there is still the issue of Americans who owe back taxes. Tax resolution companies are the light at the end of the tunnel for such taxpayers. Resolving tax debt now makes it so that these new tax benefits can be utilized by all. Once a hole has been dug, in regard to tax debt, year after year the hole gets deeper. This meeting is allowing the IRS to broaden their horizons and find ways to actually help taxpayers. Of course, this is all for the future. For Americans being levied and garnished now or just suffering from a large debt, tax resolutions companies can get them out of their holes. IRS Commissioner Doug Shulman has outlined a vision that would move the agency away from the traditional “look back” model of compliance, and instead perform substantially more “real time,” or upfront matching of tax returns when they are first filed with the IRS.

IRS Releases the Dirty Dozen Tax Scams for 2012

The Internal Revenue Service has issued its annual “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

“Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,” said IRS Commissioner Doug Shulman. “Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.”

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

The following is the Dirty Dozen tax scams for 2012:

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Identity Theft

Topping this year’s list Dirty Dozen list is identity theft. In response to growing identity theft concerns, the IRS has embarked on a comprehensive strategy that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

Identity theft cases are among the most complex ones the IRS handles, but the agency is committed to working with taxpayers who have become victims of identity theft.

The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund.

An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized.

The IRS has a robust screening process with measures in place to stop fraudulent returns. While the IRS is continuing to address tax-related identity theft aggressively, the agency is also seeing an increase in identity crimes, including more complex schemes. In 2011, the IRS protected more than $1.4 billion of taxpayer funds from getting into the wrong hands due to identity theft.

In January, the IRS announced the results of a massive, national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft. Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states.

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.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

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.

It is important to keep in mind the IRS does not initiate

contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare and file their tax returns. Most return preparers provide honest service to their clients. But as in any other business, there are also some who prey on unsuspecting taxpayers.

Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against many others.

In 2012, every paid preparer needs to have a Preparer Tax Identification Number (PTIN) and enter it on the returns he or she prepares.

Signals to watch for when you are dealing with an unscrupulous return preparer would include that they:

• Do not sign the return or place a Preparer Tax identification Number on it. • Do not give you a copy of your tax return. • Promise larger than normal tax refunds. • Charge a percentage of the refund amount as preparation fee. • Require you to split the refund to pay the preparation fee. • Add forms to the return you have never filed before. • Encourage you to place false information on your return, such as false income, expenses and/or credits.

For advice on how to find a competent tax professional, see Tips for Choosing a Tax Preparer.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice to prosecute tax evasion cases.

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While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 30,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to bring their money back into the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of this year, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly. They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware. Intentional mistakes of this kind can result in a $5,000 penalty.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or

as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit when their occupations or income levels make the claims unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

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Abuse of Charitable Organizations and Deductions

IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating schemes that involve the donation of non-cash assets –– including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

Treasury Official Says FATCA and Foreign Tax Credit Guidance is Forthcoming

Lengthy and much awaited guidance on the Foreign Account Tax Compliance Act (FATCA), that expand the information reporting requirements imposed on foreign financial institutions (FFIs) and impose withholding, documentation, and reporting requirements with respect to certain payments made to specified foreign entities, is in the final stages of building clearance, a Treasury official said February 2. The proposed regs will provide for reduced due diligence requirements by financial institutions where possible, and additional lead time for implementation. Additionally, foreign tax credit guidance is also forthcoming under Code Sec. 909 and Code Sec. 901(m).

Generally effective for payments made after Dec. 31, 2012, the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act, P.L. 111-147, 3/18/2010) establishes rules (i.e., the FATCA rules) for withholdable payments to FFIs and to other foreign entities by adding a new Chapter 4 to the Code (Code Sec. 1471 through Code Sec. 1474). Under these provisions, a withholding agent must deduct and withhold a tax equal to 30% of any withholdable payment made to a nonfinancial foreign entity if the beneficial owner of the payment is a nonfinancial foreign entity that doesn’t meet specified requirements. (Code Sec. 1472(a)) Withholding isn’t required if the payee or the beneficial owner of the payment provides the withholding agent with either a certification that the foreign entity does not have a substantial U.S. owner, or provides the withholding agent with the name, address and taxpayer identification number (TIN) of each substantial U.S. owner. (Code Sec. 1472(b)) Several exceptions apply. For example, no withholding applies to any payment beneficially owned by a publicly traded corporation or a member of an expanded affiliated group of a publicly traded corporation or for payments identified by IRS as posing a low risk of U.S. tax evasion. (Code Sec. 1472(c))

In July of 2011, IRS issued Notice 2011-53, 2011-32 IRB 124, which provided that a withholding agent’s Code Sec. 1472(a) withholding obligations for payment to a non-financial foreign entity with respect to amounts described in Code Sec. 1473(1)(A)(i) (i.e,. U.S.-source FDAP payments), will begin on Jan. 1, 2014. The regs under Chapter 4 will implement withholding by withholding agents on withholdable payments in two phases. For payments made on or after Jan. 1, 2014, withholding agents (whether domestic or foreign, including participating FFIs) will be obligated to withhold under Code Sec. 1472(a) only on U.S.-source FDAP payments. For payments made on or after Jan. 1, 2015, withholding agents will be obligated to withhold under Code Sec. 1472(a) on all withholdable payments (including both U.S.-source FDAP payments and gross proceeds described in Code Sec. 1473(1)(A)(ii)).

Code Sec. 909, which was added by the Education Jobs and Medicaid Assistance Act (EJMAA, P.L. 111-226, 8/10/2010), provides a matching rule to prevent the separation of creditable foreign taxes from the associated foreign income. If there is a foreign tax credit splitting event with respect to a foreign income tax paid or accrued by the taxpayer, the tax isn’t taken into account before the tax year in which the related income is taken into account by the taxpayer for U.S. tax purposes under Chapter 1 of the Code. (Code Sec. 909(a)) Similarly, if there is a foreign tax credit splitting event with respect to a foreign income tax paid or accrued by a section 902 corporation—any foreign corporation with regard to which one or more domestic corporations meets the ownership requirements of Code Sec. 902(a) or Code Sec. 902(b)—the tax isn’t taken into account for purposes of the deemed paid credit under Code Sec. 902 or Code Sec. 960, or for purposes of determining earnings and profits (E&P) under Code Sec. 964(a), before the tax year in which the related income is taken into account for U.S. tax purposes by the section 902 corporation or by a domestic corporation which meets the ownership requirements of Code Sec. 902(a) or Code Sec. 902(b) with respect to the section

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902 corporation. (Code Sec. 909(b))

There is foreign tax credit splitting if the related income is (or will be) taken into account by a covered person. (Code Sec. 909(d)(1)) A covered person means, with respect to any person who pays or accrues a foreign income tax (i.e., the payor): (1) any entity in which the payor holds, directly or indirectly, at least a 10% ownership interest (determined by vote or value); (2) any person which holds, directly or indirectly, at least a 10% ownership interest (determined by vote or value) in the payor; (3) any person related under Code Sec. 267(b) or Code Sec. 707(b); and (4) any other person specified by IRS. (Code Sec. 909(d)(4))

“We have tried to answer as many questions as we can,” Treasury Deputy International Tax Counsel Danielle Rofles said of the forthcoming FATCA guidance at the Practicing Law Institute in New York. She said that the guidance would be longer in part because it was preceded by three notices that received numerous comments that Treasury sought to carefully address.

The proposed regs will provide for an extension of time to phase-in the reporting rules and the implementation rules pertaining to passthru payments.

“The reporting that we are not used to doing, for example on gross proceeds, would come later,” Rofles said.

The government had worked closely with financial institutions about account opening procedures and about where the costs of compliance are believed to be in the context of implementing FATCA, she said.

Financial institutions indicated that the due diligence required for preexisting accounts was a substantial investment and Rofles said that the government attempted to take such comments on board in reducing some level of due diligence. She noted, however, that Treasury still wants to be able to identify the high risk preexisting accounts.

“For individuals we have raised the dollar threshold of the accounts that [financial institutions] need to actually look for manually and attempted to limit the scope and better define the scope of what a manual search means for preexisting accounts,” she said.

Rofles also noted that preexisting entity account dollar threshold amounts were also raised to focus on high risk accounts. In general the guidance focuses on passive entities such as shell corporations that may have U.S. taxpayers behind them.

To the extent possible, the guidance will try and rely on the account opening procedures that financial institutions already have in place so that minimal manual review would be necessary for preexisting accounts.

For new accounts, Rofles said that to the extent possible and consistent with the statute, the guidance will rely on the old

account opening procedures that financial institutions already have in place.

“We have tried to increase the scope of deemed compliant institutions that we think pose a low risk,” she said. “That is difficult because you are dealing with pensions, preferred savings plans in local jurisdictions under local law that we are trying to do our best with U.S. concepts to apply local law.”

She said that when the guidance comes out, it will be important for feedback on whether or not the government has properly identified the institutions that should be deemed compliant.

Although Rofles acknowledged that foreign law could serve as barriers to the implementation of FATCA, she put forth the government’s strategy to work around the impediments.

She said that foreign governments could change their laws to protect their banks from 30% withholding on U.S.-sourced payments. Alternatively, she said that the U.S. was open to dealing with foreign governments directly through the U.S.’s treaty network.

“We have been having conversations with foreign governments about the possibility of having foreign financial institutions report directly to the foreign government, which would then pass the information directly to the IRS,” she said.

Rofles comments echoed those of Emily McMahon, Treasury’s Acting Assistant Secretary for Tax Policy, who last week discussed the matter in a speech at a New York State Bar Association event.

Code Sec. 909 regs were also in the final stage of clearance, Rofles said, but provided little additional details of what taxpayers could expect.

“I have said that [the regs would be out soon] many times before, and I have believed it every time I have said it,” she said. “But we really do believe that those will be out very soon.”

Miachael DiFronzo, a principal at PwC (Washington), inquired to the comprehensiveness of the regs, asking if guidance would be provided on issues such as paid-up capital structures in Canada or notional interest in Belgium and Brazil. In response, Rofles provided few answers.

“I think it’s a pretty comprehensive package...[but] the short answer is you’re going to have to wait for it [the regs],” she said.

Code Sec. 901(m) regs are likely to follow shortly after the release of the Code Sec. 909 regs.

“I think the Code Sec. 901(m) project has proven to be more difficult than what we had anticipated,” she said. “We have had to deal with a lot of issues there.”

She said the notice would likely be somewhat longer and acknowledged that taxpayers need the guidance to complete

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their tax returns.

“We get it!” Rofles said. “The 2006 regulations are really hard to administer.”

In 2006, IRS put forth proposed regs that withdrew the ‘91 proposed regs and puts forth rules based on the “foreign exchange exposure pool” method. Under these rules, the foreign exchange exposure pool method would provide that the income of a qualified business unit (QBU) that is subject to Code Sec. 987 is determined by reference to the items of income, gain, deduction and loss booked to the QBU in its functional currency, adjusted to reflect U.S. tax principles.

She said she believes that the rules under the 2006 regs are correct insofar as they should not permit marking-to-market non-financial assets or currency gains. The application of the rules to actual numbers, she said, was extremely difficult at best.

“You really couldn’t do it under the directions in the proposed regulations,” she said. “Our goal is to make those rules administrable.”

She said that she hoped Treasury could come out with new regulations that keep the principles of the 2006 rules, but that provide for a lot of elections that would make them more administrable.

Rofles said that temporary regs under Code Sec. 304 and Code Sec. 367 are scheduled to sunset in February but that the government would meet that date. The government will also meet the temporary anti-inversion regulations under Code Sec. 7874 scheduled to sunset in June.

IRS Gives Green Light to Transfer of Pension Funds to Marital Trust, Then to IRA

PLR 201203033

IRS has privately ruled that the beneficiaries of a decedent’s marital trust to which his retirement plan benefits were transferred at his death will be treated as designated beneficiaries, that his spouse’s life expectancy will be used for determining the distribution period, and that a direct rollover from the plan to an IRA established on behalf of the marital trust won’t be included in the taxable income of the marital trust in the year made.

An individual we’ll call Ben established a revocable living trust (Trust). He subsequently died at age 62 survived by his wife, Carol, age 61, and his two children (who are not Carols’ children), Diane, age 35, and her younger brother, Edward. At the time of his death, Ben participated in his employer’s qualified defined contribution plan (Plan).

Trust provides for the creation of Marital Trust, a trust for the benefit of Carole, to be funded by the value of any employee benefit plans made payable to Marital Trust. It also provides

for the creation of “Primary Trusts” and “Exemption Trusts” for each of the two children. The Exemption Trusts receive equal shares of Ben’s remaining Generation-Skipping Transfer (GST) exemption. The Primary Trusts receive the balance of the assets of Trust after all other distributions or allocations.

Carole is entitled to receive all net income generated by Marital Trust assets. The trustee may also invade its principal to provide for her health, support, and maintenance. Upon Carole’s death, any remaining property in Marital Trust passes in this manner: (1) from Marital Trust property includable in her gross estate, a share equal to her remaining GST exemption, to be divided equally between each Exemption Trust, and (2) the remaining balance, divided equally between each Primary Trust.

Plan permits a direct rollover of a distribution to a non-spousal beneficiary who is a designated beneficiary and provides that the Plan Administrator may approve non-spousal rollovers on a death claim form.

During life, Ben executed a form designating as primary beneficiary of his Plan account, the trustee of Marital Trust, which was to be created upon his death if his spouse survived him.

For Years 1 and 2, the Trustee of Trust distributed the required minimum distributions for Ben’s interest in Plan to Marital Trust. The required distribution was computed using Carole’s life expectancy.

The following rulings were sought:

That each beneficiary of Marital Trust will be treated as a designated beneficiary under Code Sec. 401(a)(9)(E) and Reg. § 1.401(a)(9)-4

That Carole, having the shortest life expectancy of any Marital Trust beneficiary will be the designated beneficiary for purposes of determining the applicable distribution period under Reg. § 1.401(a)(9)-5

That any direct rollover from Plan to an IRA established on behalf of Marital Trust that is treated as an inherited IRA under Code Sec. 402(c)(l11) won’t be included in the taxable income of Marital Trust in the year in which the direct rollover is made. Employer-provided defined contribution qualified retirement plans are subject to the required minimum distribution (RMD) rules of Code Sec. 401(a)(9). Generally, RMDs must begin by the required beginning date (RBD), which usually is April 1 of the calendar year following the calendar year in which the employee reaches age 70 1/2. But for non-5% company owners, the RBD is delayed to April 1 of the year following the year in which the individual retires.

When an employee dies before his RBD, in general, his entire interest must be distributed within 5 years. However, if the employee designated a beneficiary, distributions can be stretched out over the life expectancy of the beneficiary. (Code Sec. 401(a)(9)(B))

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If more than one individual is a designated beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary for purposes of determining the applicable distribution period. (Reg. § 1.401(a)(9)-5, Q&A-7)

A person who is not an individual, such as the employee’s estate, may not be a designated beneficiary. If a person other than an individual is designated as a beneficiary, the employee will be treated as having no designated beneficiary for Code Sec. 401(a)(9) purposes. However, an exception applies for trust beneficiaries. Under this exception, trust beneficiaries (with respect to the trust’s interest in an employee’s retirement benefit) may be treated as designated beneficiaries if:

(1) the trust is valid under state law (or would be, except for the fact that there is no corpus),

(2) the trust is irrevocable or will become irrevocable, by its terms, on the employee’s death,

(3) the beneficiaries with respect to the trust’s interest in the employee’s benefit are identifiable from the trust instrument, and

(4) relevant documentation has been timely provided to the plan administrator. (Reg. § 1.401(a)(9)-4, Q&A-5)

In order to be a designated beneficiary, an individual must be a beneficiary as of the date of the employee’s death. Generally, an employee’s designated beneficiary will be determined based on the beneficiaries designated as of the date of death who remain beneficiaries as of Sept. 30 of the calendar year following the calendar year of the date of death. (Reg. § 1.401(a)(9)-4, Q&A-4)

IRS ruled that the Marital Trust beneficiaries will be considered designated beneficiaries under Code Sec. 401(a)(9) if it satisfies the requirements of Reg. § 1.401(a)(9)-4, Q&A-5. IRS assumed that for purposes of the ruling that Trust was valid and noted that it became irrevocable upon Ben’s death. Also, a copy of Trust was timely provided to the plan administrator.

The only remaining question was whether the beneficiaries of the Marital Trust were identifiable. For this purpose, a class of beneficiaries will be treated as identifiable if the beneficiary with the shortest life expectancy can be identified. Only individuals may be designated beneficiaries. There was a potential problem because Ben’s son, Edward, had a testamentary power over the remainder of half of the Primary Trust and this power could be exercised in favor of any entity other than himself, his estate, or the creditors of either. However, Edward cured this defect by partially releasing the power before Sept. 30 of the year following the year of his father’s death.

Specifically, Edward irrevocably released his right to appoint at his death any portion of the income or principal of the Primary Trust in his name to any beneficiary who is not a natural person or who was born before Carole. As a result of this release, the class of potential beneficiaries as of Sept. 30 of the year following the year of Ben’s death contained only individuals,

and the beneficiary with the shortest life expectancy was identifiable. Therefore, IRS ruled the beneficiaries of Marital Trust will be treated as designated beneficiaries.

IRS concluded that Ben’s spouse, Carole, is the designated beneficiary of Marital Trust with the shortest life expectancy. Thus, her life expectancy will determine the applicable distribution period for Ben’s interest in Plan.

Under Code Sec. 402(c)(1), if any portion of an eligible rollover distribution from a Code Sec. 401(a) qualified retirement plan is transferred into an eligible retirement plan, the portion so transferred is not includible in gross income in the tax year in which paid.

An “eligible rollover distribution” is any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified trust, except for certain specified distributions. (Code Sec. 402(c)(4))

Distributions from qualified retirement plans may be rolled over (in a direct trustee–to–trustee transfer) to a nonspouse beneficiary’s IRA that’s established for the purpose of receiving the distribution. This “recipient IRA” is treated as an inherited IRA, and so is subject to the required minimum distribution rules that apply to inherited IRAs of nonspouse beneficiaries. (Code Sec. 402(c)(11))

As noted, IRS concluded that the beneficiaries of Marital Trust are Ben’s designated beneficiaries. The ruling request asked IRS to assume that an IRA has been established for the purpose of receiving a rollover distribution from the account of Plan of which Marital Trust M is a beneficiary. Therefore, IRS concluded that the transfer of any portion of a distribution from Ben’s account in Plan to an IRA, established for the purpose of receiving the distribution on behalf of Marital Trust, will be treated as an eligible rollover distribution Code Sec. 402(c)(4), and the IRA will treated as an inherited IRA under Code Sec. 402(c)(11).

Thieves Preying on Tax Returns

The federal government has swooped down on 105 people in 23 states as part of a nationwide crackdown on identity theft and tax-refund fraud that was timed to warn cheats and potential victims to beware this tax season.

The upshot is that if you haven’t filed your tax return yet, someone may have filed it for you. At one Internal Revenue Service office in Florida, at least a dozen tax filers said they spent hours in line to report someone had already filed their returns.

The IRS announced that 105 people in 23 states had been targeted as part of a national identity-theft crackdown, which took place in late January involving the potential theft of thousands of identities and taxpayer refunds.

The sweep ranged from Alaska to Florida and resulted in 80 complaints and indictments, 58 arrests and 939 criminal

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charges. The effort has already produced a handful of guilty pleas and sentencings. Besides the IRS, the Justice Department’s Tax Division, the Postal Service and local U.S. attorney’s offices were involved after investigations that lasted months and, in some cases, years.

IRS officials say the use of stolen identities to fraudulently file for tax refunds, generally involving stolen Social Security numbers, is a growing problem. Last year the agency says it found 260,000 income tax returns with confirmed attempts at identity fraud and blocked the payment of $1.4 billion worth of refunds. In 2010, the IRS says it detected identity fraud in 49,000 returns and prevented the payment of $247 million worth of bogus refunds.

“The timing is not coincidental,” Steven Miller, the IRS’s deputy commissioner for services and enforcement told reporters. “It’s the start of tax season, this is a large issue, and we want to send a message out there.”

Miller said schools and hospitals are a common source of stolen Social Security numbers.

The cases included three women from Dayton, Ohio, who were accused of getting tax refunds by using identities stolen from mentally disabled adults; and a Colorado Springs, Colo., man, who was charged with stealing identities of the clients of a company that had gone out of business to fraudulently file for tax refunds.

The IRS has been dealing with a five-fold increase in taxpayer identity theft that began in 2008, a Government Accountability Office official told a House hearing last summer. Incidents spiraled from about 52,000 in 2008 to nearly 250,000 in 2010.

Over the past week, IRS officials have also visited 150 money services businesses to see if they are involved in identity theft or filing for bogus refunds. This sweep was conducted in nine metropolitan areas it considers high risk: Atlanta; Birmingham, Ala.; Chicago; Los Angeles; Miami; New York; Phoenix; Tampa; and Washington, D.C. In addition, the agency is auditing more than 250 check-cashing operations around the U.S. to try to spot any identity-theft activity.

The IRS already has announced that some early taxpayers who filed on or before Jan. 25 may have to wait a week longer than expected because of new anti-fraud safeguards being installed on computer systems that required “fine-tuning.” Miller said he does not expect those delays to last.

IRS Stops Tax Preparers Accused of Stealing Client Refunds

The Internal Revenue Service’s Criminal Investigation division has cracked down on a pair of Southern California tax preparers accused of stealing their clients’ tax refunds.

In one case, the tax preparer has pleaded guilty and faces up to six years in prison. Ernesto Jesus Suarez, 61, admitted to preparing and filing hundreds of tax returns, including his own,

claiming inaccurate and false items on his taxpayer-clients’ returns. Suarez filed the false tax returns to increase refunds, collecting over $1.4 million of stolen refunds from the IRS.

According to the plea agreement, Suarez would meet clients at their homes and prepare a largely accurate income tax return on his laptop. If the client was due a refund, Suarez would give the client a check from his personal checking account in the amount stated on the accurate return and misrepresent to the client that he would file the accurate return with the IRS.

Later, Suarez would prepare a false tax return, including fictitious items such as false spouses, dependents, child or dependent care, and education expenses, in order to increase the refund amount. Suarez would forge the signature of the taxpayer and then mail the false tax return to the IRS. Suarez would direct the inflated refunds to be deposited into 29 different bank accounts that he controlled.

Suarez also admitted, according to his plea agreement, that he employed a similar scheme on his own 2008 federal tax return, claiming a fictitious spouse and dependent. Suarez also admitted he failed to report his true income from his tax return business and the illegal refunds he received.

As part of his plea agreement, Suarez agreed to a permanent injunction, barring him for life from preparing federal income tax returns for anyone other than himself and his legal spouse and barring him from representing persons before the IRS. Suarez will publish the civil injunction to all of his current clients. He also agreed to make full restitution in the amount of $753,477 and agreed to enter into a closing agreement with the IRS for taxable years 2005 through 2009, correctly reporting his tax liability to the IRS.

Suarez faces a combined maximum sentence of six years in prison when he is sentenced in May, along with a one-year period of supervised release; a fine of $500,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest; and a mandatory special assessment of $200.

In a similar case, Javier Francisco Vega, 52, was arrested and made his initial appearance in court. A federal grand jury returned a 39-count indictment Wednesday charging him with 35 counts of filing false income tax returns and four counts of theft of government property, namely tax refunds and economic stimulus checks.

According to the indictment, Vega filed 35 tax returns claiming false deductions, expenses or credits for which the taxpayer was either not entitled to claim or only entitled to claim substantially less than the reported amount. The false tax returns allegedly included information with respect to false dependents, unreimbursed employee business expenses, education credits, and business profit or loss. Vega allegedly also stole two refund checks and two stimulus checks issued from his clients.

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Tax Your Frequent Flyer Miles?

Citibank has dumped a bombshell on some cardholders: It started issuing IRS form 1099 “miscellaneous income” notices to cardholders that had received big mileage “bonuses” for enrolling. In the past, IRS has generally exempted miles from taxation, but, at least for now, it’s drawing a distinction: Miles you earn by flying or by buying things with a credit card are not taxable, but miles you receive as a gift or premium in a promotion are taxable. Here are my early answers to some key questions you might have:

Do I really have to pay? Yes, at least for now. So the real issue is not whether you have to pay a tax, it’s how much tax you have to pay. And here, Citi is scamming you by overvaluing the miles.

Is Citi’s valuation fair? No, it isn’t. Citi calculates its 1099 amounts at 2-1/2 cents a mile, supposedly based on an average price of $625 for a domestic coach ticket -- a trip that you can get for 25,000 miles. This valuation is, of course, ridiculously overpriced:

-- Reported “average” ticket prices are much higher than lowest available prices because they’re inflated by mixing expensive business tickets in with the cheap leisure tickets.

-- Value based on prices for purchased tickets does not reflect the lesser value of frequent flyer awards because airlines allocate so few seats to lowest-level mileage awards.

But Citi doesn’t care about fair, it cares about profitable. Citi probably pays the airline about 1 cent per mile for the credit. Previously, Citi would write off that 1 cent per mile as a cost offsetting other credit card profits. But if Citi arbitrarily values that credit at 2-1/2 cents per mile, it can write of the full “retail” value of 2-1/2 cents, thereby more than doubling its write off. Say Citi gives 50,000 enrollment bonuses to 10,000 customers, for example, for a total of 500,000,000 miles. On a cost bases, Citi could write off $5 million. But on the inflated value, Citi can write off $15 million, or $10 million more than its true cost, without actually spending another penny.

Can Citi get away with inflating the value? Here, the answer is uncertain. According to some sources, IRS requires that you report only the fair market value (FMV) of a prize, not necessarily an inflated price assigned by the donor. You can’t change Citi’s policy, but you can challenge the price it assigns.

What can I do? For starters, the one thing you cannot do is ignore any 1099s you receive. Issuers send 1099 copies to IRS as well as to you, and IRS really does reconcile them. Unless IRS changes the rules, you probably can’t avoid paying some tax.

But you might be able to base your tax on the real value of the miles, not the bank’s inflated value. One source recommends that you enter the full 1099 value, then enter the difference between the inflated value and the FMV as a negative adjustment. Be prepared for a challenge to your valuation, but

you should have some useful ammunition: Lots of published reports support a valuation around 1 cent a mile. Whatever you do, however, get what guidance you can from your tax preparer or tax preparation software, and document your entries.

Will other banks copy Citi? Probably -- nothing catches on with banks faster than a new way to gouge their customers.

What happens next? Judging from press reports, I believe that Citi’s move blindsided IRS, and that its initial response was pretty much off the cuff. I wouldn’t be surprised to see further “clarification” from IRS in coming weeks. Another complication needs resolution: Airlines say you don’t “own” your miles; the airlines retain ownership. So can IRS tax you for something that really isn’t yours?

I can’t believe that frequent flyers will accept this assault without some resistance. We’ll likely see a lot more about this question in coming months before the dust settles. Stay tuned.

Editor’s Note: Article contributed by ncpeFellowship member Kathy Christian.

If You Don’t File, Beware the Ghost Return

When confronted by a letter from the Internal Revenue Service, some people look as though they’ve seen a ghost. And when they open certain letters, a few people do see a ghost — or, more accurately, the ghost of a tax return.

When the IRS detects that a person had reportable income but did not file a return — even after much cajoling — it steps in and does the job itself. Based on what it knows, the agency prepares what it calls a “substitute for return” — a Form 1040. It lists income, calculates the tax due, adds interest and a penalty for failing to file, and sends the recalcitrant taxpayer a bill based on its efforts.

In one way, that may be a relief to procrastinators who just didn’t get around to filing — perhaps for years. But it often comes at a very high price.

Substitute returns are really no substitute for ones that taxpayers could have filed themselves. That’s because the IRS uses data from only the income side when it creates such a return, which means that it doesn’t include all kinds of items that might offset that income, according to Julian Block, a tax lawyer in Larchmont, N.Y.

The I.R.S. works from W-2 reports of wages paid, filed by employers, and reports of payments to self-employed people from companies that used their services. The agency also uses reports from financial institutions about interest and dividends paid and reports from brokers about assets sold. All these things are taxable income.

Sidney Kess, a certified public accountant and tax lawyer at Kostelanetz & Fink in New York, says the IRS. now has an easier task in detecting delinquent taxpayers because it

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receives electronic reports of far more kinds of income than it did several years ago.

What the IRS. does not consider, Mr. Block and Mr. Kess said, are offsetting amounts like exemptions for a brood of six children or deductions for mortgage interest or a big charitable contribution or thousands of dollars of dental work. For self-employed people, in particular, there is often a big disparity between payments received and taxable income, because much of what they receive goes for supplies or salaries or other expenses. But the IRS will know only the gross payment, and will plug that figure into its return.

It does not even know about the original cost of assets that were reported sold.

In other words, the IRS does not include many of the deductions to which a nonfiler may be entitled. But this doesn’t mean that the IRS is being mean or vengeful or evil.

“In fairness to the IRS, they generally give the individual more than ample opportunity to get a return filed” before stepping into the breach, said David Donnelly, a tax and business manager in the Melville, N.Y. office of Marcum L.L.P., a national accounting firm.

The IRS. is candid that it does not even look for deductions. In a fact sheet in what it calls the “tax gap” series on its Web site, the IRS warns that a substitute return it prepares is a “basic” one that “will not include any of your additional exemptions or expenses.” It is, in Mr. Kess’s words, “the worst possible result for the taxpayer.”

Substitute-return calculations “are always based on a standard deduction,” Mr. Block said. “The IRS does it in a straightforward way. It treats you as a single person. It makes no difference that you could have filed a joint return.”

The substitute return is its move of last resort, said Anthony Burke, an I.R.S. spokesman, and is prepared only after sending the taxpayer several letters saying it has no record of a return for a given year. Mr. Block calls them “We miss you” and “We’re thinking of you” letters. Typically, the return will not be prepared for at least a year, after the IRS’s patience has worn out.

The IRS investigates about a million “nonfiler situations” a year, Mr. Burke said. But it does not prepare a substitute return for everyone that it believes failed to file. People in the underground economy do not leave a trail that can contribute to such a return, tax experts said. If those people are caught, they may not get an official printout in the mail. A visit from someone who dangles handcuffs from a belt is more likely.

And the IRS substitute is not used when a taxpayer has filed a return but the agency believes that he or she failed to report some income. It has other methods for resolving those issues — often an audit, Mr. Burke said.

IRS Revenue Procedure 2011-25 (Updated Language)

Mandated e-filing for return preparers requires the preparer to submit a signed statement from the taxpayer stating their desire to file by paper.

In the 2010 Revenue Procedure the language included a phrase “My preparer did not tell me to file by paper”.

The 2011-25 Rev. Proc. Omits this phrase and instead offers the following language:

“My tax return preparer (Insert Preparer’s Name) has informed me that (Insert s/he) may be required to electronically file my (Insert Tax Year) individual income tax return (Insert Type of Return: Form 1040, Form 1040A, Form 1040EZ, Form 1041, Form 990-T) if (Insert s/he) files it with the IRS on my behalf (e.g., submits it by mail to the IRS). I understand that electronic filing may provide a number of benefits to taxpayers, including an acknowledgement that the IRS received the returns, a reduced chance of errors in processing the returns, and faster refunds. I do not want to have my return electronically filed, and I choose to file my return on paper forms. I will mail or otherwise submit my paper return to the IRS myself. My preparer will not file or otherwise mail or submit my paper return to the IRS.”

Editor’s Note: David & Mary Mellen, EAs submitted the article with concern that some software providers did not alter the language in their provided letters. Cautioning that nothing is “wrong” with the 2010 statement but tax professionals not wanting the reference to them may wish to change the language and notify their software providers. Thank you David and Mary.

Transitional Relief and Filing Guidance for Employers Hiring WOTC-Eligible Veterans

Notice 2012-13, 2012-9 IRB; IR 2012-17

IRS has issued a new Notice carrying transition relief for employers hiring qualifying veterans under the liberalized work opportunity tax credit (WOTC) rules in the “3% Withholding Repeal and Job Creation Act” (the Act, P.L. 112-56). The Notice also carries alternative ways to obtain a pre-screening notice that veterans qualify for the credit, and guidance for tax-exempt employers who claim the credit on new Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. The transition relief and alternative methods to obtain the pre-screening notice apply to all employers eligible to claim the WOTC for qualifying veterans.

The work opportunity tax credit (WOTC) allows employers who hire members of certain targeted groups, including qualified veterans, to claim a credit against income tax of a percentage (generally 40%, but 25% for certain part-time workers) of qualifying first-year wages. For non-veterans, the individual

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must begin work for the employer before Jan. 1, 2012 for the WOTC to apply. However, under the Act, employers may claim the WOTC for qualified veterans who begin work for the employer before Jan 1, 2013.

Effective for individuals who begin work for the employer after Nov. 21, 2011, the Act broadened the categories of qualified veterans and increased the WOTC for hiring some of them, as follows:

(1) The individual is a member of a family receiving assistance under a food stamp program under the Food Stamp Act of ‘77 for at least three months, all or part of which is during the 12-month period ending on the hiring date. (Code Sec. 51(d)(3)(A)(i)) The maximum WOTC for hiring qualified veterans in this category is $2,400 (.4 × $6,000 maximum qualifying first-year wages).

(2) The individual is entitled to compensation for a service-connected disability, and has a hiring date that isn’t more than one year after having been discharged or released from active duty in the U.S. Armed Forces, or (Code Sec. 51(d)(3)(A)(ii)(I)) The maximum WOTC for hiring these veterans is $4,800 (.4 × $12,000 maximum qualifying first-year wages).

(3) The individual is entitled to compensation for a service-connected disability, and has aggregate periods of unemployment during the 1-year period ending on the hiring date that equal or exceed six months. (Code Sec. 51(d)(3)(A)(ii)(II)) The maximum WOTC for hiring these veterans is $9,600 (.4 × $24,000 maximum qualifying first-year wages).

(4) The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed four weeks (but less than six months). (Code Sec. 51(d)(3)(A)(iii)) The maximum WOTC for hiring these veterans is $2,400 (.4 × $6,000).

(5) The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed six months. (Code Sec. 51(d)(3)(A)(iv) The maximum WOTC for hiring these veterans is $5,600 (.4 × $14,000 maximum qualifying first-year wages).

Under the Act, effective for individuals who begin work for the employer after Nov. 21, 2011:

A veteran will be treated as certified by the designated local agency (DLA) as having aggregate periods of unemployment meeting the requirements of Code Sec. 51(d)(3)(A)(ii)(II) or Code Sec. 51(d)(3)(A)(iv) (see above), if he or she is certified by the local agency as being in receipt of unemployment compensation under State or Federal law for not less than six months during the 1-year period ending on the hiring date. (Code Sec. 51(d)(13)(D)(i)(I))

A veteran will be treated as certified by the DLA as having aggregate periods of unemployment meeting the

requirements of Code Sec. 51(d)(3)(A)(iii) (see above), if he or she is certified by the local agency as being in receipt of unemployment compensation under State or Federal law for not less than four weeks (but less than six months) during the 1-year period ending on the hiring date. (Code Sec. 51(d)(13)(D)(i)(II))

Additionally, IRS at its discretion may provide alternative methods for certification of a veteran who is a qualified veteran because of unemployment (i.e., is described in Code Sec. 51(d)(3)(A)(ii)(II), Code Sec. 51(d)(3)(A)(iii), or Code Sec. 51(d)(3)(A)(iv)). (Code Sec. 51(d)(13)(D)(ii), as amended by Act Sec. 261(c))

Under the Act, effective for individuals who begin work for the employer after Nov. 21, 2011, a tax-exempt employer (one described in Code Sec. 501(c) and exempt from tax under Code Sec. 501(a)) may, subject to the limits described below, claim a credit for the WOTC it could claim for hiring qualified veterans if it were not tax-exempt. Under prior law, exempts couldn’t claim the WOTC.

The credit is allowed against the OASDI (Social Security) tax that the exempt employer would otherwise have to pay on the wages of all its employees during the “applicable employment period” (with respect to any qualified veteran, the one-year period beginning with the day he or she goes to work for the tax-exempt organization). (Code Sec. 52(c)(2) and Code Sec. 3111(e), as amended by Act Sec. 261(e))

The credit for hiring qualified veterans, which can’t exceed the OASDI tax otherwise payable for employment of all the tax-exempt’s employees during the “applicable employment period,” is calculated as it would be under Code Sec. 51, but with the following modifications:

• The general credit percentage of qualifying first-year wages is 26% (instead of 40%). • The credit percentage of qualifying wages is 16.25% (instead of 25%) for a qualified veteran who has completed at least 120, but less than 400, hours of service for the employer. • The tax-exempt employer may only take into account wages paid to a qualified veteran for services in furtherance of the activities related to the purposes or function constituting the basis of the organization’s exemption under Code Sec. 501. (Code Sec. 3111(e) (2) and Code Sec. 3111(e)(3))

Under Notice 2012-13, any employer who hires any qualified veteran on or after November 22, 2011, and before May 22, 2012, will be treated as satisfying Code Sec. 51(d)(13)(A)(ii), if the employer submits the completed pre-screening notice to the DLA to request certification not later than June 19, 2012.

Under pre-existing guidance, an employers may submit Form 8850 to the DLA electronically if the employer’s system satisfies enumerated requirements in Ann. 2002-44, 2002-1 CB 809. Notice 2012-13, offers employers two alternative methods of certification using electronic signatures in addition

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to the electronic submission of Form 8850:

(1) An employer may print out a paper copy of the Form 8850 that was signed electronically by both the applicant and the employer in accordance with the requirements of Ann. 2002-44, and transmit that paper copy to the DLA (by mail or by facsimile following the rules in Section V of this notice).

(2) An employer may file Form 8850 using a method under which the applicant signs electronically but the employer signs in ink. More specifically, the applicant signs Form 8850 electronically and the Form 8850 is transmitted electronically to the employer in accordance with the requirements detailed at Notice 2012-13, Sec. IV. Once received and printed out, the paper copy of the Form 8850 shows “signed electronically” in the field for the applicant’s signature. The employer signs that paper copy of that Form 8850 in ink, complying with the signature and jurat requirements on Form 8850 and the Form 8850 instructions for the paper copy of Form 8850, and transmits that paper copy to the DLA (by mail or by facsimile following the rules explained below).

Alternatively, IRS will also allow the facsimile transmission of applicant and employer signatures on a Form 8850 if: the applicable DLA accepts Form 8850 via facsimile; the applicant and employer intend the signatures on the faxed copy to be their signatures for purposes of the document; the facsimilies reproduction of Form 8850 that provides the DLA with exactly the same information as the paper Form 8850; and the detailed signature and transmission requirements at Notice 2012-13, Sec. V(2) are met.

IRS also requests comments on alternative methods for certification of a veteran as a qualified veteran in addition to the methods of signing and filing electronically or by facsimile.

Qualified tax-exempt organizations must use new Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, to claim the credit. Although the Code Sec. 3111(e) credit is applied against the employer social security tax liability for the employment tax period in which the credit is claimed, the liability reported on the qualified tax-exempt organization’s employment tax return (e.g., Form 941) is not reduced when that return is filed. Rather, IRS will process Form 5884-C separately and refund the amount properly claimed on that form to the tax-exempt employer, subject to the limit of the amount of employer social security tax liability for the period in which the credit is claimed.

Because Form 5884-C will generally not be processed simultaneously with an exempt’s employment tax return, IRS recommends that it not reduce its required deposits in anticipation of any credit. If the tax-exempt reduces its required employment tax deposits in anticipation of a credit, it may receive a system-generated notice; however, the balance due, including any related penalties and interest, resulting from the reduction in deposits to reflect the credit, will be abated when the credit is applied, generally without any taxpayer action.

Form 5884-C, which is filed separately and should not be attached to any other return, should be filed after the tax-exempt files its employment tax return for the tax period for which the credit is claimed and in accordance with the Form 5884-C instructions. This form can be filed immediately after the qualified tax-exempt organization files its employment tax return and it must be filed within 2 years from the date the tax reported on the employment tax return was paid, or 3 years from the date the employment tax return was filed, whichever is later.

Thoughts from the Ragin Cajun

United States Government Requests US District Court to Release Property Tax Records from California Board of Equalization

The United States Justice Department, on behalf of IRS, has asked a federal judge to issue a “John Doe” summons on the California Board of Equalization requiring the board to turn over records of property transfers for little or no consideration (In Re the tax liabilities of John Does, E.D. Cal., No. 2:10-mc-00130-MCE-EFB, filed 12/27/11).

In the gift tax area, this is the first reported time that the IRS has attempted to use John Doe summons to obtain information. The investigation relates to taxpayers who transferred real property between 2005 and 2010. “Based on information received from examinations across the country and information voluntarily disclosed by other states, the IRS has determined that taxpayers who transfer real property to a related party for little or no consideration frequently fail to file Form 709 and report this transfer, despite the fact that they are required to do so by the internal revenue laws,” wrote Josephine M. Bonaffini, Federal/State Coordinator of IRS Estate and Gift Tax Program in a declaration filed with the District Court. “Thus, the IRS has a reasonable basis to believe that a significant portion of the California taxpayers who have transferred property to their children or grandchildren (as reported to the BOE on forms for exclusion of reassessment) for little or no consideration have failed to report these transfers to the IRS.”

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Because no statute of limitations applies to gift tax returns, the recipient of the gift will be liable to pay gift tax if the donor fails to do it. The IRS reportedly has teams in Florida, Nebraska, New York, North Carolina, Ohio, Washington, and Wisconsin working on gift tax compliance. Unsurprisingly, many states and counties have voluntarily disclosed their property transfer data. Public data reveals that 323 taxpayers have been examined for failing to File Form 709 and another 217 are currently under examination.

With a normal summons, the IRS seeks information about a specific taxpayer whose identity it knows. A John Doe summons allows the IRS to get the names of all taxpayers in a certain group. The IRS needs a judge to approve it, but recent IRS success may to lead to more.

A John Doe Summons is ideal for pursuing investors in tax shelters, account holders at financial institutions, attendees at an event, donors of real estate, etc. After sniffing out American taxpayers with UBS accounts, the IRS did the same with HSBC in India. But the IRS tells its own examiners to use a John Doe Summons only after trying other routes. The IRS Manual says it may be possible to obtain taxpayer identities without issuing a John Doe summons.

Example: Say the IRS is investigating a tax shelter promoter, the identity of shelter investors may be relevant to investigating the promoter, so the IRS could issue a standard summons as part of its promoter investigation.

The IRS Manual warns this works only if an investor identity is relevant to investigating the promoter. Still, a “dual purpose summons” can be a great way for the IRS to kill two birds with one stone. The IRS says examiners should consider a dual purpose summons before a John Doe summons.

Jerry

Tax Pros in Trouble

Manhattan Tax Preparers Indicted on Tax Charges

Dolores Tejada and Norma Jimenez ran separate businesses offering tax preparation services in Manhattan, according to a spokesman for the Internal Revenue Service. Tejada’s business operated under the name DT Multiservices. Jimenez operated a business under the names Coastland Insurance and Coastland Tax Service from approximately 2006 through 2010, preparing hundreds of tax returns for her clients as well as clients of DT Multiservices.

Both Tejada and Jimenez conspired to file false tax returns from 2007 through 2011, according to the IRS. Tejada allegedly offered to sell clients the personal identification information of others so they could falsely claim dependents on their tax returns. In exchange for the sale and use of the personal

identification on their returns, Tejada allegedly would charge clients a fee and then bring their tax information, including the personal identification of others, to Jimenez.

LaPlace Tax Preparer Pleads Guilty to Filing False Returns for Clients

A LaPlace tax preparer has pleaded guilty to filing false tax returns for clients that led to the Internal Revenue Service paying more than $90,000 in false claims. James Nelson, 60, entered his plea in federal court on Thursday to filing false claims against the United States, tax evasion and obstruction of justice, according to U.S. Attorney Jim Letten’s office.

Nelson operated Nelson’s Computerized Tax Service, with branches in LaPlace, Vacherie and Boutte, since 1992 and had hundreds of clients annually, according to a factual basis filed in the case.

From approximately 2006 to 2011, according to the factual basis, Nelson, or employees under his direction, prepared and filed false income tax returns for his customers. The false information included listing fictitious businesses for clients, with false profits, losses and expenses, and artificially inflating certain deductions claimed by his clients. Additionally, according to the factual basis, Nelson claimed losses to his clients due to natural disasters such as Hurricane Gustav in 2008 when they had no losses.

In return, Nelson charged substantial tax preparation fees for the false returns, according to the factual basis.

Clients and employees of his business were prepared to testify to the wrongdoing if the matter had gone to trial, according to the document.

In addition, Nelson received taxable income that he did not claim on his personal federal income tax return for 2006, 2008 and 2009, resulting in the tax evasion charge. Nelson owed the government about $21,000 in income taxes, according to the factual basis.

Nelson was charged with obstruction of justice, according to Letten’s office, because upon learning that the IRS was investigating a client’s tax return, he falsified and assisted in falsifying a worksheet to support the fraudulent business claims. Video and audio evidence of the 2010 encounter with his client existed, according to the factual basis.

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Nelson is scheduled to be sentenced May 10 in front of U.S. District Judge Lance Africk. He faces a maximum sentence of five years in jail, three years of supervised release, a $250,000 fine and a $100 special assessment fee for each of the charges of filing false claims and tax evasion. The obstruction of justice charge carries a maximum penalty of 20 years in prison and three years of supervised release.

West Pennsylvania Tax Preparer Set to Plead Guilty or No Contest to Filing Refund-Inflating Returns

Statistics don’t lie, and Internal Revenue Service agents say that’s why they’re sure a rural western Pennsylvania tax preparer filed bogus returns for hundreds of hard-working coal miners and others, who flocked to him because he had a reputation for getting them bigger refunds than other preparers.

Larry Snow, 62, of Seward, pleaded guilty Thursday to filing a fraudulent 2004 tax return by overstating one couple’s itemized deductions so they’d get a bigger refund. He will return for sentencing June 6 before Senior U.S. District Judge Maurice Cohill.

Snow “had a reputation of being able to get larger refunds than other tax preparers, but (his customers) did not provide any of the false numbers he used on their returns,” Assistant U.S. Attorney Leo Dillon told the judge.

Instead, Snow instructed his employees to inflate his customers’ itemized deductions using what he called “IRS gimmes” — or deductions that didn’t need to be documented — and an office “cheat sheet” that told his workers what fake numbers to use, Dillon said.

Snow showed up on the IRS radar when a review determined more than 90 percent of his clients received refunds. Agents who reviewed returns he prepared from 2004 through 2007 found other patterns that suggested widespread cheating.

Snow’s office handles up to 1,500 returns each year and in 2004, 720 of them included itemized deductions. That, in itself, isn’t unusual except that 232 of those returns listed the exact amount — $3,229 — for charitable contribution deductions. Another 207 returns listed charitable deductions of $3,224, each, Dillon said.

Assistant U.S. Attorney Leo Dillon told a federal judge in Pittsburgh on Thursday that Larry Snow, of Seward, “had a reputation of being able to get larger refunds than other tax preparers” — and that he did that by inflating his customers’ itemized deductions, apparently without their help or knowledge.

In 2006 and 2007, the IRS allowed people to deduct less than $250 in cash and less than $500 in non-cash contributions to charity without documenting the donations. Dillon said 1,160 returns from those two years each listed charitable deductions

totaling $748 — or $249 in cash and $499 non-cash — the maximum allowable without proof.

While those were the big “red flags” in the case, Dillon said Snow fudged deductions for everything from unreimbursed employment expenses to medical costs.

Defense attorney Stephen Stallings, a former federal prosecutor, told the judge his client disputes some of Dillon’s details, but agreed there’s enough proof to convict him on the filing a fraudulent return charge and to hold him accountable for a tax loss of more than $98,000 for the 63 returns the IRS audited as part of its investigation. Snow was indicted for just 36 of those returns last March, but can legally be held accountable for the rest because they amount to criminally “relevant conduct,” Dillon said.

Snow and Stallings declined comment after the plea hearing, although Snow told the judge a key factor in his guilty plea was stress.

“I’m just having a lot of problems handling this situation,” Snow said, telling the judge his doctor’s advised him to end the case now instead of fighting it. But Snow also told the judge some of his stress is work-related, saying he remains “very busy” because “it’s tax season.”

Special Agent Andrew Hromoko, the spokesman for the Pittsburgh IRS office, confirmed Snow is still in business. Typically, the IRS won’t act to revoke a person’s legal permission to prepare tax returns until after they are sentenced, Hromoko said.

“However, Mr. Snow’s status with the IRS as a tax practitioner is currently being evaluated and addressed,” Hromoko said.

Justice Department Permanently Bars Birmingham Tax Preparer from the Business

A Birmingham tax preparation service has been shut by a federal court order, after allegations of using fraud to inflate customer IRS refunds.

The Justice Department said it has permanently barred Lakeisha Pearson from preparing federal tax returns for others. A Justice Department statement said Pearson’s business operated under the names “LGS Tax Service,” “PositiveEndeavors LLC,” and “AGA Tax Service.”

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aggravated identity theft, said officials for the U.S. Attorney’s Office’s Southern District of Florida.

Tax Max owner Ernst Pierre committed the crimes between October 2009 and May 2011, according to a news release. The business was in the 1800 block of Southwest Angelico Lane, Port St. Lucie.

Investigators said he would take the names and Social Security numbers of relatives of some clients and claim them as dependents for tax returns for himself and other clients. That resulted in higher refunds for those returns, federal officials said.

Pierre could spend decades in federal prison if he is convicted, according to his indictment. He was indicted on three counts of wire fraud, which carry a penalty of 20 years each. The indictments also include 12 counts of filing false tax returns and three counts of identity theft.

Tax Preparer Gets 3 Years for Fraud

Tax preparer Lois Torres helped several people take advantage of first-time homebuyer credits on their IRS returns.

The problem is those clients never even owned a home.

Operating as a Uvalde business called A Little Bit of Everything, Torres submitted at least 15 tax returns claiming the credit, for refunds totaling more than $111,000. She eventually was caught by the Internal Revenue Service, and was sentenced this week in Del Rio to three years in federal prison, the maximum.

Her case is one of several filed against tax preparers in San Antonio and Del Rio as the IRS’ Criminal Investigation division cracks down on fraudulent preparers amid the tax season, according to special agent Mike Lemoine, spokesman for the IRS-CI in San Antonio.

Lemoine said taxpayers considering a preparer should:Review a return before signing it and ask questions about anything they don’t understand.

Avoid tax preparers who claim they can obtain larger refunds than other preparers and who base their fee on a percentage of the amount of the refund.

Use a reputable tax professional who signs the tax return and provides clients with a copy of it — and who seems likely to be around to answer questions about its preparation months, or even years, after it has been filed.

Never sign a blank tax form.

A reputable preparer will ask to see your receipts and will ask multiple questions to determine your qualifications for expenses, deductions and other items, Lemoine said.

“If you decide to have your tax return prepared by a return

A judge in U.S. District Court in Birmingham found, the Justice Department said, that Pearson used several fraudulent schemes to increase her customers’ earned income tax credit claims to generate large, erroneous tax refunds.

The court found that Pearson repeatedly prepared tax returns with claims that she knew or should have known were false or inflated. The fraud amounted to $8.3 million in erroneous refunds, the Justice Department said.

Pearson was ordered to provide a list of all of the customers for which she prepared tax returns since 2008.

Former Tax Preparers James Morris, Karen Morris Sentenced to Prison

According to Christopher R. Thyer, U.S. Attorney for the Eastern District of Arkansas, two former tax preparers were sentenced to prison on multiple charges.

Officials say that James Bruce Morris, 66, will serve 48 months in prison. His wife, Karen Sue Morris, 49, will serve 24 months in prison. Each was sentenced to three years of supervision after their prison terms.

In addition, they will not be allowed to engage in tax preparation business as part of their sentencing. Officials say that they are ordered to report to the Bureau of Prisons by noon on May 7.

On April 26, 2011 the Morrises were convicted of 44 charges, including theft from Social Security Administration and the Veterans Administration. Mr. Morris is said to have concealed his work and earnings from his business in order to qualify for benefits. The couple was also convicted in defrauding the Department of Education, regarding false FAFSA applications; and filing false tax returns for themselves and their clients. They would under-report income so that deductions were overstated. In some cases, the Earned Income Tax Credit was fraudulently received.

Owners of St. Lucie Tax Preparation Business Indicted for Filing False Tax Returns

The owner of a tax preparation business has been indicted for 18 crimes, including filing false returns, wire fraud and

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preparer, don’t forget that you are ultimately responsible for all of the information on the return,” he said. “If the return contains incorrect information, you will be responsible for paying the additional taxes and penalties long after you have spent that big undeserved refund.”

Tax Preparer Accused of Filing False Forms

The owner of Tammy’s Tax Service in Moncks Corner is accused of filing bogus tax returns to obtain fraudulent refunds for her clients.

Investigators from the state Department of Revenue arrested Tammy Brinson. He is charged with nine counts of willfully assisting in the preparation of false or fraudulent tax returns, according to Samantha Cheek, the Revenue Department’s spokeswoman.

For tax years 2007 and 2008, Brinson met with clients and filed income tax returns in their names with fraudulent information, Cheek said. The clients, who received improper refunds, were unaware that Brinson was doing anything wrong, she said.

The Revenue Department would not say how much money was involved in the bogus refunds.

Brinson did not return a phone call to her office Thursday. But she shared her opinions on the state charges in a post made to her Facebook page.

“Tax man can try and bully me, but i will always fight for my clients and see to it that they get what they pay for!” she wrote. “It’s unfortunate that some lied to me and i have to face this madness but it will be ok. Truth always prevails!”

Investigators still are trying to determine the motive for Brinson’s actions, Cheek said.

In some cases, unscrupulous tax preparers try to drum up business by falsely promising that they can get the filer a larger refund than their competitors, Cheek said. Others try to inflate the refund because their fee is based on the amount of money their clients get back, she said.

If convicted, Brinson could face up to 45 years in prison and/or $4,500 in fines, Cheek said.

Accused Of Stealing Tax Refund, Trafficking In Social Security Numbers

The New York State Department of Taxation and Finance announced that a Westchester County tax preparer has been charged with nine felonies and a misdemeanor.

Charges against Catherine Vidarte, 29, stem from allegations that, while working for Pupilo Agency, Inc., she stole a client’s tax refund, trafficked in social security numbers, and filed fraudulent personal income tax returns on behalf of clients of the Pupilo Agency, Inc. and herself. The agency is located at 206 South Broadway, Yonkers, N.Y.

Vidarte, of 57 Hearst Street, Yonkers, was charged in City of Yonkers City Court with Grand Larceny in the Fourth Degree, a class E felony, for having stolen a $2,925 tax refund which had been issued to a State Tax Department undercover officer for tax returns that Vidarte had prepared. The felony complaint also charged her with Attempted Criminal Tax Fraud Act in the Third Degree for having fraudulently listed as a dependant on those same tax returns a child of another client.

Vidarte was also charged with Criminal Tax Fraud in the Fourth Degree, two counts of Offering a False Instrument for a Filing in the First Degree, all class E felonies, and Aiding or Assisting in the Giving of Fraudulent Personal Income Tax Returns, a misdemeanor, for having placed the social security numbers of another client’s children on two years of personal income tax returns that Vidarte had prepared for her cousin. The felony complaint alleges that Vidarte purchased the social security numbers from the children’s mother through an intermediary.

The complaint also charged Vidarte with Criminal Tax Fraud in the Fourth Degree and Offering a False Instrument for Filing in the First Degree for having prepared and filed a New York State personal income tax return for a husband and wife who were clients of the Pupilo Agency, Inc. in 2010 - which fraudulently inflated the client’s charitable contributions and made other misrepresentations. It is alleged that Vidarte’s misrepresentations resulted in the filing of a tax return which understated the clients’ tax liability for that year by more than $3,000.

Vidarte was also charged with three additional counts of Offering a False Instrument for Filing in the First Degree for having submitted New York State personal income tax returns for herself in 2008, 2009 and 2010 which contained false statements.

Investigators from the State Tax Department’s Criminal Investigations Division arrested Vidarte following an investigation which included the use of an undercover officer, an informant, recording devices and court ordered search warrants being executed at the defendant’s residence and at the Pupilo Agency, Inc.

Vidarte is next scheduled to appear in the City of Yorkers City Court on February 8, 2012. She faces four years in prison if

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convicted.

Westchester County District Attorney Janet DiFiore and Assistant District Attorney Nicole Gamble aided the State Tax Department in its aggressive prosecution of this case.

The defendants are presumed to be innocent unless and until proven guilty.

Metro Detroit Tax Preparers Filed 352 Returns for Dead People

Two tax preparers from Metro Detroit were arrested and accused of submitting false tax returns for dead people.

Detroit resident Renita Adams, 20, and Adreann Turnage, 21, were arraigned in federal court on a charge of conspiracy to defraud the government. A third person, Willie T. Watkins, 41, of Southfield is at large.

Watkins, Adams and Turnage submitted 352 phony tax returns to the IRS and tried to collect more than $800,000 in refunds, according to federal prosecutors.

“The IRS is aggressively pursuing those who steal others’ identities in order to file false returns,” Steven Miller, IRS deputy commissioner for Services and Enforcement, said in a prepared statement.

The identities allegedly used by the trio belonged to people from Michigan, Massachusetts and Arizona, among other states. The identities belonged to people who had died within the previous year.

The identities were found on various websites, prosecutors said.

If convicted, Watkins, Adams and Turnage face up to 10 years in prison and a $250,000 fine.

Royal Palm Beach Man Indicted In Tax Return Scam

A Royal Palm Beach man has been indicted on charges that he filed false income tax returns for himself and his clients, fraudulently claiming the First-Time Home Buyer Credit and other tax credits and deductions.

Gregory J. Salgado Jr., 39, had his bond set at $50,000 Monday in federal court in West Palm Beach.

According to the federal indictment, Salgado filed a false personal income tax return in which he falsely claimed the FTHBC of $7,500 for 2008, even though he knew he wasn’t entitled to the credit.

The indictment also alleges that Salgado filed false tax returns for his clients by entering fabricated information to support a false claim that the taxpayers were entitled to the FTHBC.

Federal prosecutors said this occurred while Salgado operated a tax return preparation business in Palm Beach County, preparing and electronically filing tax returns for his clients for $175 each.

The Housing and Economic Recovery Act of 2008 established a refundable tax credit for first-time home-buyers equal to 10 percent of the purchase price, up to $7,500, for home purchases completed in 2008. The taxpayer is required to repay the credit interest free for the next 15 years.

Former Owner of Spartanburg Tax Preparation Business Pleads Guilty to Fraud in Multi-Million Dollar Scheme

The former owner of a Spartanburg tax preparation business pleaded guilty in her role in a multi-million dollar federal fraud case, one of the largest tax fraud cases ever handled in the state.

Lisa Mendoza, 44, of Spartanburg was the owner of Seguros Internationales, a tax preparation business with its main office at 7980 Asheville Highway and a branch office at 1008 S. Alabama Ave., Chesnee. There was another location in Forest City, N.C., according to the U.S. Attorney’s Office.

Assistant U.S. Attorney David Stephens said about 12,000 false federal income tax returns claiming between $20 million and $30 million in refunds were filed primarily from December 2008 to November 2009. During that time, the federal government paid more than $10 million in fraudulent returns, he said.

During that period, people, mostly illegal immigrants, would serve as “runners” and find documents such as birth certificates and identification documents supposedly belonging to a taxpayer and his/her dependents, Stephens said.

Residents are allowed to file tax returns for the current year and two prior years, if no returns were filed for those years so each “customer” would have filed three returns, he said. Mendoza and her employees would knowingly file the false deductions or credits, to which the filer was not entitled, according to a statement from the U.S. attorney’s office.

Mendoza pleaded guilty to her role in the scheme on Wednesday and has agreed to pay $1 million in restitution. U.S. District Judge J. Michelle Childs will sentence Mendoza at a later date. She faces up to five years in prison and a maximum fine of $250,000.

Stephens said that most of the defendants, all of whom have pleaded guilty, are illegal aliens and will be deported after serving their sentences. Mendoza is a legal U.S. citizen and is currently out on bond until her sentencing date is scheduled.

Woman Charged with Tax Crimes

A 51-year-old tax preparer from Patterson was arrested at the

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U.S. District Courthouse in Fresno for alleged tax evasion and money laundering.

Nohemi Villarreal Noriega, an enrolled agent who owns Livingston-based Villarreal’s Business Services, pleaded not guilty to both tax evasion and structuring in front of Judge Barbara McAuliffe before she was released on her own recognizance. She was charged with the crimes in a sealed indictment Jan. 12.

Noriega allegedly evaded paying more than $167,000 in taxes between 2006 and 2008 while using the Employer Identification Number of Patterson Financial, owned by her sister, former Mayor Becky Campo, according to a federal indictment.

Prosecutors also say she structured more than $1 million of withdrawals from her bank accounts in smaller amounts to avoid disclosing her unreported income.

Noriega could not be reached for comment Thursday, Feb. 16, and Campo did not return calls seeking comment.

Federal prosecutors allege that many of Noriega’s clients were Mexican citizens who were in the country illegally and used false names and Social Security numbers. She went through the process to obtain new tax identification numbers for her clients’ relatives in Mexico and then listed them as dependents on her clients’ 1040 returns, the indictment stated. In addition, it alleged that she included wage income on 1040 forms for jobs in which her clients did not work.

Prosecutors claim that Noriega directed most of her clients’ direct deposit refunds into bank accounts that she controlled. The indictment states that she deposited and withdrew money in increments of $10,000 or less to avoid filing a Currency Transaction Report.

Prosecutors also allege that Noriega under-reported her income to the Internal Revenue Service for three years in a row. In 2007, Noriega reported that her taxable income the previous year was negative $2,110, when it was actually $35,403, the indictment states. The next year, it indicated her reported taxable income dropped down to negative $21,754, when it was actually $169,127. By 2008, her taxable income had increased to $291,065, but she listed it as negative $1,246, according to the indictment.

The maximum penalty for tax evasion is five years in prison and a $250,000 fine, while the maximum penalty for structuring is 10 years in prison and a $500,000 fine. If convicted, Noriega’s actual sentence will be determined at the court’s discretion after considering applicable statutory factors and the federal sentencing guidelines

The court hearing followed an extensive investigation by the Internal Revenue Service, according to Department of Justice officials.

Noriega is scheduled to appear back in court Feb. 27 for a

status conference.

Editor’s note: This article was submitted by Fellowship Member, Marty Stein who is currently recovering from heart surgery – we sincerely wish Marty a speedy recovery.

Taxpayer Advocacy and Tax ProfessionalsStreamlined Installment Agreements

This interim guidance memorandum is being issued to Collection Field function employees to implement policy changes to Streamlined Installment Agreements. These changes are effective immediately and will be placed into the next revisions of the IRMs 5.14.5 and 5.14.10.

The primary changes to the Streamlined IA criteria are:

º The dollar threshold increases from $ 25,000 to$ 50,000 aggregate unpaid balance of assessment (SUMRYbalance); and,

º The timeframe to full pay increases from 60 monthsto 72 months.

Based on these new criteria, when working accounts where the aggregate unpaid balance of assessment (SUMRY balance) is $ 25,000 or less, the ONLY criterion that changes is that the taxpayer now has 72 months instead of 60 months to full pay. All of the other criteria remain the same:

º CSED protected

º Type of Entity

º IMF

º Out of Business BMF

º BMF Income Tax ONLY (Form 1120)

º No lien determination required

º No managerial approval required

º No CIS required

However, when working accounts where the aggregate unpaid balance of assessment (SUMRY balance) is $ 25,001 - $ 50,000, the streamlined IA criteria become more specific. The criteria for these accounts are:

º Payable within 72 months

º CSED protected

º No lien determination or managerial approval required

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º Type of Entity

º IMF

º Out of Business Sole-Proprietors

º Agreement must be established as a Direct DebitInstallment Agreement (DDIA); and

º Ability to pay verified by securing a CollectionInformation Statement (CIS) per IRM 5.1.10.3.2 andIRM 5.15.1 or use of the Streamlined IA Calculator(SLIAC).

Streamlined IAs may not be granted where the first payment on the agreement is a lump sum payment that is made to pay down the balance to meet the $ 50,000 or less aggregate unpaid balance of assessment (SUMRY balance) threshold. Taxpayers must meet the $ 50,000 aggregate unpaid balance of assessment (SUMRY balance) threshold at the time the Streamlined IA is granted. However, for a Streamlined IA, taxpayers with a liability greater than $ 50,000 can be considered if they pay down the liability to $ 50,000 or less prior to the agreement being granted.

The key changes in treatment for a Streamlined IA when the aggregate unpaid balance of assessment (SUMRY balance) is $ 25,001 - $ 50,000:

º Type of taxpayer can ONLY be an individual (IMF)or an Out of Business -- Sole Proprietor;

º Agreement must be established as a DDIA; and

º Ability to pay verified by securing a CollectionInformation Statement (CIS) per IRM 5.1.10.3.2 andIRM 5.15.1 or use of the SLIAC.

The new SLIAC will use the base Allowable Living Expenses (ALE) standards to determine whether the taxpayer has sufficient income to sustain the minimal IA payment at a particular debt level for 72 months.

The “Streamlined IA Calculator” is the verification tool that validates whether the taxpayer has adequate income to support the proposed IA payment. If the SLIAC indicates a higher payment can be made, the proposed payment amount will still be accepted.

The SLIAC is a selection within the Installment Agreement menu on ICS. When this option is selected, you will navigate to the Streamlined IA Calculator link. When the SLIAC is used, copy the results to the ICS history.Some forms instruct taxpayers to await penalty notices before offering excuses

Forms in the 1120 and 1065 series

Starting with 2011 forms, the instructions to various return forms in the 1065 series (relating to partnerships) and the 1120

series (relating to corporations) state that if an entity receives a notice about late-filing or late-tax-payment penalties after the entity files its return, it should send IRS an explanation and IRS will determine if the entity meets the reasonable cause criteria. The entity is instructed not to attach an explanation when the return is filed.

Code Sec. 6651(a)(1) imposes an addition to tax for failure to file a Federal income tax return by its due date, determined with regard to any extension of time for filing previously granted. The addition equals 5% of the net amount due for each month that the return is late, not to exceed 25%. (Code Sec. 6651(a)(1), Code Sec. 6651(b)(1)) The penalty does not apply if it is shown that the failure to timely file is due to reasonable cause and not due to willful neglect. (Code Sec. 6651(a)(1)) A delay is due to reasonable cause if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time. (Reg. § 301.6651-1(c)(1))

Code Sec. 6651(a)(2) imposes an addition to tax for failing to pay taxes shown on a return on or before the date prescribed (taking into account any extension of time for payment), unless it is shown that the failure is due to reasonable cause and not due to willful neglect. A failure to pay will be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship if he paid on the due date. (Reg. § 301.6651-1(c)(1))

If a return isn’t made on time, or if a tax payment is late, a taxpayer who wishes to avoid the addition to tax for failure to file a tax return or pay tax must make an affirmative showing of all facts alleged as a reasonable cause for his failure to file the return or pay the tax on time in the form of a written statement containing a declaration that it is made under penalties of perjury. The statement should be filed with the district director or the director of the service center with whom the return is required to be filed. (Reg. § 301.6651-1(c)(1))

Starting with 2011 forms, the instructions to various return forms in the 1065 series (relating to partnerships) and the 1120 series (relating to corporations) including the following state that if an entity receives a notice about penalties after the entity files its return, it should send IRS an explanation and IRS will determine if the entity meets the reasonable cause criteria:

For 1065, U.S. Return of Partnership Income, Form 1065-B, U.S. Return of Income for Electing Large Partnerships.Form 1120, U.S. Corporation Income Tax Return,Form 1120-C, U.S. Income Tax Return for Cooperative Associations,Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons,

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In addition, today’s revenue procedure includes several changes suggested during a public comment period, following the issuance of a proposed revenue procedure last summer. For example, when there is a breach of the ex parte communication rules, Appeals employees will now ask the affected taxpayer or their representative for input on the appropriate remedy and the appropriate remedy will be determined by a senior management official.

The Office of Appeals resolves more than 100,000 tax cases each year. More information about the Office of Appeals and the appeals process is available on IRS.gov.

Wayne’s World

Individual income tax returns — including those of public figures — are private information, protected by law from unauthorized disclosure. Indeed, the Internal Revenue Service is barred from releasing any taxpayer information whatsoever, except to authorized agencies and individuals.

Like all other citizens, U.S. presidents enjoy this protection of their privacy. Since the early 1970s, however, most presidents have chosen to release their returns publicly. In the hope of making this information more widely available, the Tax History Project at Tax Analysts has compiled an archive of presidential tax returns.

The web site is TaxHistory.Com and includes 2012 Presidential Candidates Mitt Romney (Family Trust) for 2010 as well as the 2010 US Individual Federal Income Tax Return of Newt Gingrich.

President Barack H. Obama and Mrs. Obama have their 2000 through 2010 tax returns posted.

Additionally, Vice President Joseph R. Biden, Jr. and Mrs. Biden have returns posted.

Previous candidates, John McClain and Sarah Palin have their 2006 and 2007 returns posted.

Former Presidents and Vice Presidents, George Bush and Dick Chaney, Bill Clinton, Ronald Reagan, Richard Nixon,

Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts,Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies,Form 1120-S, U.S. Income Tax Return for an S Corporation, and Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B).

The entity is instructed not to attach an explanation (i.e., with regard to a reasonable cause for the late-filing or late-tax-payment) when the return is filed.

Updated Rules Issued for IRS Communications with Appeals Office

The Internal Revenue Service has updated existing rules on permissible communications between the Office of Appeals and other parts of the IRS. The updated rules are in Revenue Procedure 2012-18, posted today on IRS.gov.

The updates are necessary because the IRS has made changes to some of its business practices and adopted new ones since the existing rules were issued in October 2000. These rules address ex parte communications, which are communications between the Office of Appeals and other parts of the IRS that take place without the taxpayer or the taxpayer’s representative being given an opportunity to participate in the communication.

These rules implement a provision in the IRS Restructuring and Reform Act of 1998, aimed at ensuring that the Office of Appeals remains an independent and flexible vehicle for settling audit and collection-related disputes between taxpayers and the IRS. A part of IRS, but independent of the agency’s compliance functions, Appeals serves as one of the checks and balances built into the U.S. system of tax administration.

“Our mission is to impartially resolve tax disputes, without litigation, in a way that is fair to both the taxpayer and the government,” said Chris Wagner, IRS Chief, Appeals. “Independence is the cornerstone of Appeals, and we believe these new ex parte rules will help us carry out our mission more effectively by providing everyone involved with the clear and consistent guidance they need.”

IRS Chief Counsel William Wilkins added, “I am pleased that the revenue procedure provides safeguards and procedures to preserve independence, while still ensuring that Appeals has access to the full and frank legal advice that it needs.”

In one key change from the 2000 ex parte communication rules, Appeals will no longer participate on issue management teams (IMT) but can be briefed by IMTs, as long as the discussion remains generic rather than case specific. IMTs include representatives from various IRS components, typically Compliance and Counsel, and the IMT meetings usually involve general discussions of how to handle technical issues or procedural matters.

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George Bush and Jimmy Carter returns are posted.

Franklin D. Roosevelt has his more copies of his tax return posted than any other President or candidate, from 1913 to 1937.

The Internal Revenue Service does not disclose this information. It comes directly from the White House in each case.

Paper copies of the returns can be ordered from Tax Analysts using the associated document numbers. Copies are also available from the Bush, Carter, Nixon, Reagan, and Roosevelt presidential libraries.

Some of the images are of mediocre quality, reflecting the poor photocopies released by the White House. We’re searching for better copies and will make them available as soon as possible; (2) most of the missing years reflect a quirk of the calendar. Presidents release tax returns only for years they serve in office and only while they still hold that office. Consequently, Jimmy Carter did not release a return for 1980 nor did Ronald Reagan release one for 1988 — each left office before returns were due. Likewise incoming presidents do not release returns for the year before they assumed office, even though they hold office when returns for that year come due.

Why is America interested in the tax returns of our Presidents and Presidential candidates? Because inquiring minds want to know.

Wayne

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Tax Quotes/Funnies

Next Edition of Taxing Times: April 1st, 2012

“I owe the government $3,400 in taxes. So I sent them two hammers and a toilet seat.” Michael McShane

“On my income tax 1040 it says ‘Check this box if you are blind.’ I wanted to put a check mark about three inches away.”

Tom Leher

“What’s the difference between a tax auditor and a Rottweiler? A Rottweiler eventually lets go.” Anonymous