It's that time of year again when the IRS publishes their Dirty Dozen Tax Scams. Beware of these and other scams. They are getting really sophisticated. We have seen bogus IRS notices that look very real. Here is the 2011 list.
WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today. “The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.” The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.
Following is the Dirty Dozen for 2011:
Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans. In early February, the IRS announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011. The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. In response to numerous requests, information about this initiative is available on IRS.gov in eight different languages, including: Chinese, Farsi, German, Hindi, Korean, Russian, Spanish, and Vietnamese.
Identity Theft and Phishing
Identity theft occurs when someone uses an unsuspecting individual’s name, Social Security number, credit card number or other personal information without permission to commit fraud or other crimes. For example, a criminal can use someone else's information to run up bills on that person's credit card, empty that person’s bank account or take out a loan in that person’s name. And when it comes to taxes, a criminal with someone else’s personal information can file a fraudulent tax return and collect a refund.
Phishing is one tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. Phishing involves the use of phony e-mail or websites -- even social media. A scammer may pose as an institution such as the IRS. IRS impersonation schemes flourish during tax season. Spyware, which can be loaded onto an unsuspecting taxpayer’s computer by opening an e-mail attachment or clicking on a link, is another tool identity thieves use to steal personal information. Identity theft is a major problem that affects many people each year. That's why it's important that taxpayers protect their personal information. 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 at 1-800-908-4490. More information on identity theft and taxes is available on the IRS website. A suspicious e-mail or an “IRS” Web address that does not begin with http://www.irs.gov should be forwarded to the IRS at phishing@irs.gov.
Return Preparer Fraud
While most return preparers are professionals who provide honest and excellent service to their clients, some make basic errors or engage in fraud and other illegal activities. Dishonest return preparers can cause big trouble for taxpayers who fall victim to their ploys. These fraudsters derive benefit by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by making false promises. 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 dozens of others. To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of requirements for paid tax preparers, including registration with the IRS and a preparer tax identification number (PTIN), as well as competency tests and ongoing continuing professional education. The new regulations require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns in 2011. Higher standards for the tax preparer community will result in greater compliance with tax laws, increase confidence in the tax system and ultimately lead to a better experience for taxpayers.
Filing False or Misleading Forms
IRS personnel are seeing various instances in which scam artists file false or misleading returns to claim refunds to which they are not entitled. In one variation of this scheme, a taxpayer seeks a refund by fabricating an information return and falsely claiming the corresponding amount as withholding. Phony information returns, such as a Form 1099 Original Issue Discount (OID), which claims false withholding credits, are usually used to legitimize erroneous refund claims. One version of the scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS. The IRS continues to see instances in which people file false or fraudulent tax returns to try to obtain improper tax refunds. The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds. Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don’t fall prey to people who encourage you to claim deductions or credits you are not entitled to 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 people to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions 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 or IRS guidance. Nontaxable Social Security Benefits with Exaggerated Withholding Credit The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.
Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution 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 definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.
Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.
Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.
Zero Wages
Filing a phony wage-or-income-related informational return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. 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 of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid 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 to avoid income tax liability and hide assets from creditors, including the IRS. IRS personnel have recently 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.
Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.
How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The identity of the person filing the report can be kept confidential. Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.
Wednesday, April 13, 2011
Tuesday, April 12, 2011
YIPPIE TODAY (APRIL 12) IS TAX FREEDOM DAY
Tax Freedom Day will arrive on April 12 this year, the 102nd day of 2011, according to the Tax Foundation's annual calculation using the latest government data on income and taxes. Americans will work well over three months of the year—from January 1 to April 12—before they have earned enough money to pay this year's tax obligations at the federal, state and local levels. For those of you that are interested in how taxes have changed over the years check out the Tax Foundation Special Report No. 190, "Tax Freedom Day Arrives on April 12, "http://WWW.taxfoundation.org/research/show/93.html Tax Foundation Staff Economist Kail Padgitt, Ph.D., traces the course of America's tax burden since 1900, examines the composition of today's tax burden by type of tax, and calculates a Tax Freedom Day for each state. "Tax Freedom Day 2011 is later than last year largely because of income changes rather than statutory tax law changes," said Padgitt. "As the economic recovery continues, individuals' rising income pushes them into higher tax brackets. Also, corporate tax revenue has seen a resurgence." Although income increases are the main reason for the later Tax Freedom Day, several tax law changes are also partly to blame. The federal estate tax has returned after a one-year repeal, this time at a rate of 35 percent and with an exemption of $5 million. In addition, taxes associated with the Patient Protection and the Affordable Care Act continue to be phased in. But that does not include the deficit. Add 41 Days to the Cost of Government Tax Freedom Day, like almost all tax burden measures, does not take into account the current year's federal budget deficit. Only taxes that will actually be collected during 2011 count in the tally. In many years the deficit is fairly small as a percentage of total government spending, so Tax Freedom Day alone is a good guide to the size of government. Since 2008, however, deficits have increased dramatically. As a result, Tax Freedom Day may give the impression that the burden of government is smaller than it is. If the federal government were planning to collect enough in taxes during 2011 to finance all of its spending, it would have to collect about $1.48 trillion more, and Tax Freedom Day would arrive on May 23 instead of April 12—adding an additional 41 days to the nation's work for government. This date for a deficit-inclusive measure is the latest since World War II.
Sunday, April 10, 2011
LAST MINUTE TAX FILING REMINDERS
We are getting near to tax filing deadline. For 2010 returns, the tax return deadline is April 18, 2011 since April 16th is Emancipation Day, and April 15th is declared a Legal Holiday in Washington DC. Here are some last minute reminders.
1. Remember to report all income. It is hard to defend the exclusion of income. Reconcile your 1099s and Form W-2 to your tax return.
2. If you have a business or rental property, carefully review all expenses that were ordinary and necessary for the production of income. Many people get sloppy and miss some of the smaller deductions. These missed deductions add up.
3. Look for deductions to charities and costs associated with charitable work. Charities are required to give you receipts for goods and services donated to them during the year. But some donations may not be the responsibility of the charity. For example, did you donate goods or services like driving the scouts to camp? You can deduct 14 cent a charitable mile. The tax court also said that hiring a babysitter while you performed charitable work is also deductible. The out of pocket costs for charitable costs and services add up to more deductions and that will keep more money in your pocket.
4. Can you make a contribution to an Individual Retirement Account (IRA)? If under 50 years of age at the end of 2010, you can contribute the smaller of $5,000 or taxable compensation for 2010. If over 50 years of age at the end of 2010, you may contribute up to the smaller of $6,000 or earned taxable compensation in 2010. The amount that you are allowed may be reduced depending on your Adjusted Gross Income (AGI) and you may be limited if you or your spouse is in a pension plan. The good news is that IRA contributions can be made up to April 18, 2011 and count as a 2010 deduction for income tax.
5. Do you have any tax credits that you can claim? Following is a list of credits to consider: earned income tax credit, Health coverage credits, child tax credit, child and dependent care credit, education credit, foreign tax credits. If you qualify for tax credits they may reduce your tax dollar for dollar.
6. If you inherited property and then sold at a gain, remember to step your cost basis up to the FMV at the date of death. This is often overlooked when preparing tax returns.
7. If you are a member of an LLC, did you incur any supplemental business expense that you did not submit for reimbursement? You may claim these expenses.
8. If you were out of work, remember to review all costs associated with job hunting and starting a new job. (resume writing, travel expense to interview for new position, and moving expense). For 2010, unemployment is also subject to tax.
9. Remember it is okay to take the deductions if you have substantial authority for the expense. Substantial authority includes visits to your rental property, paying kids in your business, and business convention expense in Hawaii or Bermuda. Know the tax rules and how to take advantage of lowering your income tax burden.
10. If you are in business don’t forget the new fast depreciation rules.
1. Remember to report all income. It is hard to defend the exclusion of income. Reconcile your 1099s and Form W-2 to your tax return.
2. If you have a business or rental property, carefully review all expenses that were ordinary and necessary for the production of income. Many people get sloppy and miss some of the smaller deductions. These missed deductions add up.
3. Look for deductions to charities and costs associated with charitable work. Charities are required to give you receipts for goods and services donated to them during the year. But some donations may not be the responsibility of the charity. For example, did you donate goods or services like driving the scouts to camp? You can deduct 14 cent a charitable mile. The tax court also said that hiring a babysitter while you performed charitable work is also deductible. The out of pocket costs for charitable costs and services add up to more deductions and that will keep more money in your pocket.
4. Can you make a contribution to an Individual Retirement Account (IRA)? If under 50 years of age at the end of 2010, you can contribute the smaller of $5,000 or taxable compensation for 2010. If over 50 years of age at the end of 2010, you may contribute up to the smaller of $6,000 or earned taxable compensation in 2010. The amount that you are allowed may be reduced depending on your Adjusted Gross Income (AGI) and you may be limited if you or your spouse is in a pension plan. The good news is that IRA contributions can be made up to April 18, 2011 and count as a 2010 deduction for income tax.
5. Do you have any tax credits that you can claim? Following is a list of credits to consider: earned income tax credit, Health coverage credits, child tax credit, child and dependent care credit, education credit, foreign tax credits. If you qualify for tax credits they may reduce your tax dollar for dollar.
6. If you inherited property and then sold at a gain, remember to step your cost basis up to the FMV at the date of death. This is often overlooked when preparing tax returns.
7. If you are a member of an LLC, did you incur any supplemental business expense that you did not submit for reimbursement? You may claim these expenses.
8. If you were out of work, remember to review all costs associated with job hunting and starting a new job. (resume writing, travel expense to interview for new position, and moving expense). For 2010, unemployment is also subject to tax.
9. Remember it is okay to take the deductions if you have substantial authority for the expense. Substantial authority includes visits to your rental property, paying kids in your business, and business convention expense in Hawaii or Bermuda. Know the tax rules and how to take advantage of lowering your income tax burden.
10. If you are in business don’t forget the new fast depreciation rules.
HERE ARE SOME TIPS IF YOU RENT PROPERTY
Do you rent property to others? If so, you’ll want to read the following tips about rental income and expenses. You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. The IRS Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.
1. When to report income. You generally must report rental income on your tax return in the year that you actually receive it.
2. Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it, regardless of the period covered.
3. Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
4. Property or services in lieu of rent. If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.
5. Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses.
6. Rental expenses. Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Don't forget your mileage and supplies.
1. When to report income. You generally must report rental income on your tax return in the year that you actually receive it.
2. Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it, regardless of the period covered.
3. Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
4. Property or services in lieu of rent. If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.
5. Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses.
6. Rental expenses. Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Don't forget your mileage and supplies.
Thursday, April 7, 2011
ARE YOU AN ORGAN DONOR?
Lisa Cochran, a giving and amazing woman, donated her kidney to Domenic Cicala in November. For everything she has been thru in her life and her unselfish act of kindness to Domenic, we are proud to have her as a client and friend.
Please click on the article below by Modern Salon to read more about this gift of kindness: http://modernsalon.com/The-Ultimate-Gift/2011-04-06/Article.aspx?oid=1316308&tid=&utm_medium=facebook&utm_source=twitterfeed
For more information on organ donation: http://organdonor.gov/
Please click on the article below by Modern Salon to read more about this gift of kindness: http://modernsalon.com/The-Ultimate-Gift/2011-04-06/Article.aspx?oid=1316308&tid=&utm_medium=facebook&utm_source=twitterfeed
For more information on organ donation: http://organdonor.gov/
GOODBYE PESKY NEW 1099 REPORTING
As we have posted here several times, last year, a new law was put into place as part of Obama Care that in 2012 required reporting of all transactions over $600 to any vendor in a year. This included business payments to Walmart, your gas station and everybody else for services and materials.
Good news! On March 5th the Senate passed a bill which President Obama is expected to sign quickly a repeal of this new law. This is great news for anybody in business. However, please note that the old form 1099 reporting requirement for services is still in effect.
Good news! On March 5th the Senate passed a bill which President Obama is expected to sign quickly a repeal of this new law. This is great news for anybody in business. However, please note that the old form 1099 reporting requirement for services is still in effect.
Cosmetics firm warned by FDA for drug-like marketing claims
The Food and Drug Administration (FDA) has sent out a warning letter to a US cosmetics firm for its supposedly drug-like marketing claims. Earlier this month, the US regulatory agency sent a letter to Jaba Labs regarding the product claims that appeared on its Stemcellfacecream and Synovialabs websites.
According to the letter, the StemCellin Intensive Emulsion, StemCellin Deep Wrinkle Serum and Faitoz-25 are ‘promoted for uses that cause these products to be drugs under the section 201(g)(1)(C) of the Federal Food, Drug and Cosmetic Act’. This is due to the fact that the claims suggest the products are intended to affect the structure and function of the human body, the letter continues.
Some of the claims highlighted by the letter include: “Lose your wrinkles! without painful injections” “Hyaluronic acid [an ingredient of Faitoz-25] helps reduce spider veins….” “Argireline mimics the actions of Botulinum by … relaxing muscle contractions....” “This incredible PhytoCellTec apple stem cell cream emulsion is the first product to harness the regenerative potential of your own facial stem cells to renew skin …. It will actually ‘rejuvenate’ your skin by ‘awakening’ your body’s own reservoir of undifferentiated stem-cells.” According to the FDA, the company is required to ensure that its products and labeling are in compliance with the laws and regulations of the FDA and is advised to take prompt action. No one was available for comment at Jaba Labs at the time of publication.
Definition questions Cosmetics, according to the FDA’s definition, are for cleansing, beautifying, promoting attractiveness or altering the appearance. But if a product is intended to affect the structure or any function of the body then it becomes a drug. Many industry insiders have suggested that this definition may need to be updated as it was constructed when cosmetics were very different and may not have kept up with what the science has made possible. Anti-aging creams that were once expected to simply smooth over and fill in the wrinkles, now regularly promise to regenerate, synthesise and repair – claims that very obviously rely on their ability to affect the structure of the body.
According to the letter, the StemCellin Intensive Emulsion, StemCellin Deep Wrinkle Serum and Faitoz-25 are ‘promoted for uses that cause these products to be drugs under the section 201(g)(1)(C) of the Federal Food, Drug and Cosmetic Act’. This is due to the fact that the claims suggest the products are intended to affect the structure and function of the human body, the letter continues.
Some of the claims highlighted by the letter include: “Lose your wrinkles! without painful injections” “Hyaluronic acid [an ingredient of Faitoz-25] helps reduce spider veins….” “Argireline mimics the actions of Botulinum by … relaxing muscle contractions....” “This incredible PhytoCellTec apple stem cell cream emulsion is the first product to harness the regenerative potential of your own facial stem cells to renew skin …. It will actually ‘rejuvenate’ your skin by ‘awakening’ your body’s own reservoir of undifferentiated stem-cells.” According to the FDA, the company is required to ensure that its products and labeling are in compliance with the laws and regulations of the FDA and is advised to take prompt action. No one was available for comment at Jaba Labs at the time of publication.
Definition questions Cosmetics, according to the FDA’s definition, are for cleansing, beautifying, promoting attractiveness or altering the appearance. But if a product is intended to affect the structure or any function of the body then it becomes a drug. Many industry insiders have suggested that this definition may need to be updated as it was constructed when cosmetics were very different and may not have kept up with what the science has made possible. Anti-aging creams that were once expected to simply smooth over and fill in the wrinkles, now regularly promise to regenerate, synthesise and repair – claims that very obviously rely on their ability to affect the structure of the body.
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