Morality and Charlie Rangel's Taxes

It's much easier to raise taxes if you don't pay them.

Source: WSJ

Ever notice that those who endorse high taxes and those who actually pay them aren't the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it "the moral thing to do." About his own tax liability he seems less, well, fervent.

Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel's House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.

The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.

Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. "Every time I thought I was getting somewhere, they'd start speaking Spanish," Mr. Rangel explained.

Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.

Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that's another story.)

Mr. Rangel said last fall that "I never had any idea that I got any income'' from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn't know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on "terms that are generally available to the public." Try getting an interest-free loan from your banker.

The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a "homestead" exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel's rent-stabilized apartments in New York have the same requirement.

The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.

All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we'd summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines "moral" behavior when the taxes hit close to his homes.

IRS Urgent Letters and Notices That YOU MUST ATTEND TO

Mike Habib, EA

IRS Audit & Examination Letters

Letter 525 - General 30 Day Letter

This letter accompanies a report giving you a computation of the proposed adjustments to your tax return. It informs you of the courses of action to take if you do not agree with the proposed adjustments. The letter explains that if you agree with the adjustment, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publications explain how to file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Letter 531 - Notice of Deficiency

This letter is notice of the Commissioner's determination that you owe additional tax or other amounts for the tax year(s) identified in the letter. The Internal Revenue Code authorizes the Commissioner to send this notice. The letter explains how to dispute the adjustments in the notice of deficiency if you do not agree. To dispute the adjustments without payment, you file a petition with the Tax Court within 90 days from the notice date.

Letter 692 - Request for Consideration of Additional Findings

This letter accompanies a report giving you a computation of the proposed adjustments to your tax return. It informs you of the courses of action to take if you do not agree with the proposed adjustments. The letter explains that if you agree with the adjustment, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publications explain how to file a protest. You need to file your protest within 15 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Letter 1153 - Trust Funds Recovery Penalty Letter

This letter explains that the IRS's efforts to collect the federal employment or excise taxes due from the business named on the letter have not resulted in full payment of the liability. Therefore, the IRS proposes to assess a penalty against you. If you agree with this penalty for each tax period shown, you are asked to sign Part 1 of the enclosed Form 2751 and return it to the person/office that sent you the letter. If you do not agree you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publications explain how you file a protest. You need to file your protest within 60 days from the date of the letter in order to appeal this decision with the Office of Appeals.

Letter 1389 - 30 Day Letter, Tax Shelter Activity

This letter accompanies a report giving you a computation of the proposed adjustments the IRS made to your tax return because of your tax shelter activity. It informs you of the courses of action to take if you do not agree with the proposed adjustments. The letter explains that if you agree with the adjustment, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publications explain how you file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Letter 3016 - IRC Section 6015 Preliminary Determination Letter (30 Day)

This is a preliminary letter giving you 30 days to appeal the determination for innocent spouse relief under IRC Section 6015. The letter explains that if you do not agree with the determination you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter explains how you file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Letter 3391 - 30-Day Nonfiler Letter

This letter advises you the IRS believes you are liable for filing tax returns for the periods identified in the letter. It includes a report giving you a computation of the proposed adjustments to your tax return and explains the adjustments. The letter explains that if you agree with the adjustments, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publications explain how to file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Letter 3727 - 30-Day Letter Notifying Taxpayer No Change to Original Report Disallowing EIC Based on Failure to Meet Residency Test for Children Claimed

This letter explains why the IRS will not allow your earned income credit (EIC). The letter explains that if you agree with the adjustment, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publication explains how to file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

Letter 3728 - 30-Day Letter Notifying Taxpayer No Change to Original Report Partially Disallowing EIC Based on Failure to Meet Residency Test for 1 Child

This letter explains why the IRS can only give you part of your earned income credit (EIC). The letter explains that if you agree with the adjustment, you sign and return the agreement form. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter or referenced publication explains how to file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

IRS Tax Debt Collection Letters

Letter 11 - Final Notice of Intent to Levy and Notice of Your Right to a Hearing

This letter is to notify you of your unpaid taxes and that the Service intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if you do not agree. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the proposed action with the Office of Appeals.

Letter 1058 - Final Notice Reply Within 30 Days

This letter is to notify you of your unpaid taxes and that the Service intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if you do not agree. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.

Letter 1085 - 30-Day Letter Proposed 6020(b) Assessment

This letter is to notify you of your unpaid taxes and that the Service intends to levy to collect the amount owed. The letter and referenced publications explain how to request an appeal if you do not agree. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.

Letter 3172 - Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320

This letter is to notify you the IRS filed a notice of tax lien for the unpaid taxes. If you do not agree you can request appeals consideration within 30 days from the date of the letter. The letter and publications explain how to request a hearing from Appeals. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your lien notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.

Notices

CP 90 - Final Notice of Intent to Levy

CP 90 notifies you of your unpaid taxes and that the IRS intends to levy to collect the amount owed. This notice and referenced publications explain how to request an appeal if you do not agree. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.

CP 92 - Notice of Levy upon Your State Tax Refund

CP 92 notifies you that the IRS levied your state tax refund to pay your unpaid federal taxes. This notice and referenced publications explain how to request an appeal if you do not agree. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.

CP 242 - Notice of Levy upon Your State Tax Refund

CP 242 notifies you that the IRS levied your state tax refund to pay your unpaid federal tax. This notice and referenced publications explain how to request an appeal if you do not agree. You need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.

CP 523 - IMF Installment Agreement Default Notice

CP 523 notifies you that the IRS intends to terminate your installment agreement in 30 days. You have the right to request an appeal if you do not agree by following the instructions in the notice.

CP 2000

You receive this letter when the IRS receives income, deduction or credit information that does not match your return. You are provided a computation of the proposed adjustments to your tax return based upon this information. If you agree, you sign and return the agreement forms. If you do not agree, you can submit a request for appeal/protest to the office/individual that sent you the letter. The letter explains how to file a protest. You need to file your protest within 30 days from the date of this letter in order to appeal the proposed adjustments with the Office of Appeals.

If you are serious about resolving your tax problem and getting tax relief, then do not compromise on your representation. Call Mike Habib, EA today at 1-877-78-TAXES or online at http://www.myirstaxrelief.com

Tax Relief

No one looks forward to the tax filing season. This period is associated with endless paperwork and sorting through receipts and other documents to get your tax accounts in order. And even with the use of tax programs, you are still at risk of encountering errors that can get you in the spot light as far as the IRS is concerned. Your problem grows worse once you have the misfortune of owing the IRS monies or getting your return picked out for audit. You can only pray that you have managed to get every entry properly accounted for.

So what should you do?

In case you do find yourself and your tax return subjected to inquiry by the IRS, you need to get proper representation to help you get tax relief. The concept of using a licensed tax representative has risen in popularity over the years as more and more individuals and businesses are beginning to find it more difficult to justify the entries in their tax returns for some reason or come up with the monies to pay their mounting tax debts.

Getting tax resolution through a licensed professional allows individuals and companies to stay on top of every issue that has to do with getting their tax returns properly straightened and settling their tax matters with the IRS.

Advantages of proper tax representation

As a general rule, working with someone who comes with sufficient experience and know-how on taxes and relief programs will make it easier for you to plead your case. The services of a reputable and experienced tax relief firm are especially important for those who owe more than $10,000 worth of back taxes to the IRS. A good tax representative works as a middleman to represent the individual or business with the IRS and plead for a more favourable tax resolution program to help clients pay off what they owe or they might qualify to settle their tax debt for less than they owe.

Tax relief services can help you negotiate with the IRS so you can qualify for a repayment program that will suit your budget. An efficient tax resolution strategy will be drafted so you don't stand to suffer a lot from the consequences of back taxes or improperly recorded entries.

How it works

Tax problem resolution services works as to represent you the taxpayer with the IRS in order to settle and resolve your tax debt that you owe the government. The tax representative will guide you through the process of filling out the right forms to appeal your case and represent you in ongoing negotiations. He will brief you on your options, the steps that you need to take for each and the potential setbacks for each program. By reviewing your current financial status and where you stand as far as the IRS is concerned, you and your partner representative will be able to come up with a more effective resolution to tax debt.

Heads up

The idea of tax representation and the services that go with it are still fairly new to Americans in the United States. However, some unscrupulous tax relief companies have already faced class-action lawsuits because of false advertising and claims that they are able to get their clients free from IRS debts. Be wary of unscrupulous tax relief companies who make claims such as "pennies on the dollar" and then get your case denied by the IRS. As such, it's important to make sure that you choose the right company and the right tax professional to represent you.

Some companies are just in for the money, failing to qualify you for the offer in compromise program or follow the guidelines that the IRS has set for filing claims and other paperwork as necessary and further taking your money even before they can really qualify their clients for favorable resolution. This is where informed choices become important.

If you're going to get tax representation, better work with somebody who is highly qualified and specializes in this industry. Mike Habib will go through your case personally to help you find the right resolution for your tax issues according to your specific needs and your financial condition.

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IRS Tax Audits and Examination

The US Internal Revenue Service organizes audits and examinations on tax returns to ensure tax compliance by both individuals and businesses. But because it's virtually impossible to actually audit and examine every ITR for discrepancies, the audits are mostly randomized so your chances of getting picked for a particular year is just as high as getting overlooked. Many taxpayers manage to survive every tax season without undergoing an IRS tax audit but there are those that are not as lucky.

The audit selection process

What are the odds that you will get picked anyway? The IRS selects participants for audits through a number of methods. For instance, an IRS examination may be conducted on returns that are linked to individuals and corporations that have already been reported for tax avoidance transactions. Large corporations, on the other hand, typically undergo audits for their Form 1120 every year. There are also those that come up as a result of information matching in relation to payer reports or those that have been involved with transactions with other individual taxpayers or business partners that have also been picked out for the audit.

Individual audits

To ensure that you survive the IRS tax audit practically unchanged, you want to make sure that your Form 1040 is always accurate. The IRS offers a number of opportunities for tax breaks but you are responsible for keeping your records updated in case the IRS requests for proof of your deductions. It would be easier to prepare your return for potential audits if you keep your records properly organized throughout the year. This will help you establish a proper defense in case the IRS actually challenges this year's return.

Here are some tips on how you can survive the IRS' tax exam and keep yourself out of trouble during the audit in case you do get picked.

• Keep at least three years' worth of your tax returns and related records
• Don't throw your checkbook stubs
• Categorize your receipts from your purchases made the whole year
• Track the costs and the basis for expenses incurred when you make taxable investments or for various investments
• Keep your deductible items in a journal and make sure to record them as they occur
• Save your bills and proof of payments accordingly

For corporations

As earlier mentioned, many large and multinational conglomerates undergo IRS examination every year so keeping their affairs in order is practically like second nature. But for smaller companies, there's always the chance that you will get overlooked. But before you get too complacent, you want to take note of certain elements in your Form 1120 that could actually attract the attention of the IRS and merit an audit.

• Large deductions for charity
• Too many business expenses incurred and reported
• Excessive deductions that were itemized
• Prior tax issues
• Complex transactions for investments during the year
• Tax shelter losses

If you suddenly find yourself chosen for a tax audit, it pays to be prepared for it. What you need to do is you need to go over the details of your return and make sure that you understand it so you can effectively answer the questions that IRS may throw at you. It would also help to seek the help of a licensed tax professional. Mike Habib, for instance, can help you go through tax audits so you don't have to deal with the IRS on your own.

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IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits

WASHINGTON -- With 2009 now half over, the Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act (ARRA).

The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.

First-Time Homebuyer Credit

The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.

Taxpayers who didn't own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.

New Vehicle Purchase Incentive

ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010.

Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.

Energy-Efficient Home Improvements

The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for nonbusiness energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010.

Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

Tax Credit for First Four Years of College

The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

Certain Computer Technology Purchases Allowed for 529 Plans

ARRA adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

Making Work Pay and Withholding

The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld, including multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners. Failure to adjust your withholding could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675, and 79 percent of all returns received a refund.

Related Information

For more on the Recovery provisions that may apply to individual taxpayers see the ARRA page on IRS.gov

Drywall victims could get tax relief

WASHINGTON, D.C. - The Internal Revenue Service has declared that residents whose homes have been severely damaged by Chinese drywall may qualify for special tax deductions.

Homeowners may be able to claim a casualty loss on their tax returns if they have Chinese drywall that emits an unusual or severe concentration of chemical fumes that causes extreme and unusual damage.

Generally, the amount of such a deduction is the difference between the value of the house before and after the sudden, unexpected or unusual event causing the damage. In other words, qualifying taxpayers may be eligible to claim tens of thousands of dollars on their tax returns for the damage Chinese drywall has caused them.

Tainted Chinese drywall has been found in homes in abundance in Florida and also in 20 other states. It contains materials suspected of corroding electrical wiring and components of air-conditioning and other household appliances.

The drywall also is linked to health problems for homeowners and their families, including respiratory problems and insomnia. Some homeowners have been forced to relocate and pay for a new home in addition to the mortgage on their tainted house.

"This is coming as some relief to these families," according to U.S. Senator Bill Nelson, D-Florida. "Considering the terrible circumstances they have had to endure, it's only right that they are given special consideration."

While the majority of reports about Chinese drywall come from Florida, Louisiana and Virginia, problems have proved to be widespread with reports coming from 18 other states and the District of Columbia, according to the U.S. Consumer Product Safety Commission, which began investigating in February at Nelson's request.

Read more about problems with imported drywall here

Hawaii Cash Economy Enforcement Act of 2009

On June 18, 2009, Governor Linda Lingle signed Senate Bill 972 SD2, HD1, CD1 into law as Act 134, the "Cash Economy Enforcement Act of 2009."

This Act provides the department with additional resources and tools to target high-risk, cash-based transactions to shore up confidence in Hawaii's tax system. In this regard, this measure ensures that all sectors of Hawaii's economy, including those prone to substantial underreporting, are paying their fair share of taxes.

This Act focuses on the civil collection and enforcement nature of Hawaii's tax laws, by establishing the Special Enforcement Section, a group of tax officials charged with handling sensitive and high-risk civil tax cases as directed by the director. This Act also provides various enforcement tools, including the authority to issue monetary fines and cease and desist citations.

This Special Enforcement Section will investigate reported or suspected violations of tax laws for civil enforcement purposes with a stated priority of investigating cash-based businesses. The personnel assigned to the Special Enforcement Section are not allowed to participate in any criminal investigations.

A cash-based business is defined as a person who operates a business, including for-profit or not-for-profit, where transactions in goods or services are exchanged substantially for cash and where the business is found to have met one or more of a number of factors, which include, substantially underreporting or misreporting the proper amount of tax liability on any tax return, failing to have a license to do business as required by law, having no fixed and permanent principal place of business, or not accepting checks or electronic payment devices for business transactions.

The Special Enforcement Section is authorized to inspect books, records, and premises, without notice, if a warrant or writ of entry is issued by a circuit court based upon probable cause, and may seize and levy any assets in the custody or control of the person.

The Special Enforcement Section may issue cease and desist citations to any person if there is cause to believe the person has violated, is violating, or is about to violate any provision of title 14 or administrative rule adopted there under, which may be appealed to the director and then the circuit court.

The Special Enforcement Section may bring civil actions in the circuit court to enjoin any unlawful act under title 14 by a cash-based business.

This Act adds a number of new civil tax-related fines, applicable to both cash-based and noncash-based businesses:

- A fine for failing to produce upon demand by the Special Enforcement Section any license or permit required under title 14. The fine may not exceed $1,000 for cash based businesses, and may not exceed $500 for all other persons.

- A fine for failing to produce any books or records upon demand of the Special Enforcement Section, if those books or records must be kept pursuant to a provision of title 14. The fine may not exceed $2,000 for cash-based businesses, and may not exceed $1,000 for all other persons.

- A fine for conducting more than ten taxable business transactions per day in cash and failing to provide a receipt or other record of the transaction when the means for issuing a receipt or recording the transaction are available. The fine may not exceed $2,000 for cash-based businesses, and may not exceed $1,000 for all other persons.

- A fine for conducting more than ten taxable business transactions per day in cash and failing to record the transaction in a cash register when the means for recording the transaction in the cash register are available. The fine may not exceed $2,000 for cash-based businesses, and may not exceed $1,000 for all other persons.

- A fine for selling, offering to sell, or otherwise conveying more than one price for any business to be transacted when the lower price is offered if the transaction is paid for in cash, unless there is a legitimate business purpose for the separate prices. The fine may not exceed $3,000 for cash-based businesses, and may not exceed $2,000 for all other persons.

- A fine for a person engaging in business in this state for possessing currency in the form of coin or note, where the possession is for tax avoidance purposes. The burden of proof for establishing tax avoidance purposes is on the department. The fine may not exceed $3,000 for cash-based businesses, and may not exceed $2,000 for all other persons.

- A fine for any person intentionally interfering with, hindering, obstructing, preventing, or impeding any investigator, auditor, collector, or other employee of the department from obtaining license information, books, records, articles, or item of business transacted, or other information or property rightfully entitled to the department. The fine may not exceed $2,000. A showing of good cause is an absolute defense to this fine.

- A fine for any person who receives gross income from business conducted in the state without first obtaining a license under chapter 237. The fine may not exceed $2,000 for cash-based businesses, and may not exceed $500 for all other persons.

The director may waive this fine upon a showing of good cause.

This Act also makes it a crime for any person to interfere, hinder, obstruct, prevent, or impede any investigator or employee of the department with violence or threat of violence.

This Act also adds a reporting requirement to the General Excise Tax Law (Chapter 237, HRS) for contractors on a federal construction project. With respect to any construction project located in the State undertaken pursuant to a federal contract, all persons working on the contract who do not possess a valid general excise tax license at the time a federal contract is awarded must report to the department the estimated gross receipts from the construction project and other information requested by the department on Form G-15, "Information Return for Unlicensed Contractors on Federal Construction Projects." This form must be filed within thirty days of the contract being awarded. Failure to report will result in a penalty of $1,000 per month, or fraction thereof, for each month that a failure to report exists, up to a maximum penalty of $6,000.

The provisions in this Act became effective upon approval, except that the citable offenses provided for in Section 2 of the Act became effective on July 1, 2009, and all the provisions will be repealed on June 30, 2014. Additional information regarding the implementation of this Act will be made available as it is developed by the department.

Florida Department of Revenue Administrative Collection Processing Fee Beginning September 1, 2009

Effective May 30, 2009, a new law imposes a 10 percent administrative collection processing fee on any outstanding debt older than 90 days. The fee is equal to 10 percent of the total amount of tax, penalty, and interest owed, or $10 for each collection event, whichever is greater. A "collection event" is defined as any time a taxpayer fails to:

• Timely file a complete return.

• Timely pay the full amount of tax reported on a return.

• Timely pay the full amount due resulting from an audit (after all appeal rights have expired or the result has been determined to be final).

On September 1, 2009, the Florida Department of Revenue will start collecting this fee on any debt from a collection event that is more than 90 days old, as well as any future debt from a collection event that remains outstanding for more than 90 days after initial notification. The collection fee will not be collected prior to September 1, 2009.

The fee will apply to all taxes and fees listed below:

• Communications services (including gross receipts)

• Corporate income/franchise and emergency excise

• Documentary stamp (including surtaxes)

• Estate

• Gross receipts on dry cleaning facilities

• Gross receipts on utility services

• Insurance premium, fees, surcharges, and assessments

• Intangible personal property

• Lead-acid battery and waste tire

• Local option tourist development

• Miami-Dade County Lake Belt Area

• Motor fuel and diesel fuel

• Motor vehicle warranty

• Pollutants

• Registration of secondhand dealers and secondary metals recyclers

• Rental car surcharge

• Sales and use (including discretionary sales surtaxes)

• Severance

• Unemployment

The collection fee only applies when the Department of Revenue administers and collects the tax or fee.

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IRS Releases List of Transactions of Interest (Notice 2009-55)

The IRS has provided a list of transactions that have been identified by the Service as "transactions of interest." The IRS will consider transactions similar to any of the transactions on the list to be transactions of interest for purposes of Code Secs. 6111, 6112, 6662A, 6707, 6707A and 6708, and Reg. §1.6011-4(b)(6).

One transaction of interest (initially identified in Notice 2007-72, 2007-2 CB 544) involves taxpayers who purchase a remainder interest or similar successor member interest directly or indirectly in real property and then transfer such interest to a tax-exempt organization, claiming a charitable contribution deduction significantly higher than the amount paid for the interest. The Treasury and the IRS are concerned that taxpayers may be utilizing the contribution of such successor member interests to generate an excessive deduction.

Another transaction of interest (Notice 2007-73, 2007-2 CB 545) involves certain transactions in which trust grantors attempt to avoid recognizing gain or claiming a tax loss greater than the actual economic loss by purportedly terminating ("toggling off") and then reestablishing ("toggling on") the grantor status of the trust. These terminations and reestablishments usually occur within a brief period of time.

A third transaction (Notice 2008-99, I.R.B. 2008-47, 1194) involves the creation of a charitable remainder trust, contribution of appreciated assets to the trust by the taxpayer and subsequent sale of the assets by the trust and reinvestment of the proceeds of the sale in different assets such as money market funds or marketable securities. The taxpayer and the charity then sell or dispose of their respective interests in the trust to an unrelated third party for an amount equal to the value of the trust's assets. The trust then terminates, with its assets being distributed to the third party. The taxpayer typically takes the position that this set of transactions results in little or no taxable gain. The IRS believes the transaction improperly manipulates the uniform basis rules to avoid tax on gain from the sale of the appreciated assets in this transaction.

The last transaction (Notice 2009-7, I.R.B. 2009-3, 312) involves a U.S. taxpayer who owns a controlled foreign corporation (CFC) that holds stock of a lower tier CFC through a domestic partnership that takes a position that subpart F income of a lower tier CFC does not result in income inclusion. The U.S. taxpayer takes the position that the subpart F income of a lower tier CFC was already included in the domestic partnership's income, which is not subject to U.S. tax and, thus, should not be included in the income of the U.S. taxpayer. Without the interposition of the domestic partnership, the subpart F income of the lower tier CFC would be taxable to the U.S. taxpayer. The IRS is concerned that taxpayers are taking the position that the structures described result in no income inclusion under Code Sec. 951. Therefore, the IRS has identified these structures and other substantially similar transactions as transactions of interest that are contrary to the purpose and intent of the provisions of subpart F.

Generally, persons entering into these transactions on or after November 2, 2006, must disclose their participation in the transaction. Taxpayers who fail to disclose may be subject to civil penalties. Material advisors who make tax statements with respect to transactions of interest may have disclosure and list maintenance obligations.

Oregon: Tax Amnesty Program Enacted

To qualify for participation in the program, a taxpayer must have been required to:

• file an income tax return for a tax year prior to 2008;
• pay income tax for a tax year prior to 2008;
• file an inheritance tax return and pay any required tax if the return was due before 2008; or
• pay the mass transit tax on self-employment, if required to do so, before 2008.

A taxpayer may not participate in the tax amnesty program if the OR DOR issued a notice of deficiency before the start of the program or assessed a tax for a tax year for which the taxpayer could otherwise apply for amnesty. However, a taxpayer who has filed a bankruptcy petition may participate in the program if the taxpayer submits an order from the bankruptcy court allowing participation.

All penalties and 50% of the interest due will be waived for all taxpayers who participate in the program, including those who enter into installment agreements with the OR DOR. However, 25% of the total amount of unpaid tax that would otherwise be due will be added to the amount of outstanding tax liability for any tax year or reporting period for which amnesty could have been sought if the taxpayer failed to apply for amnesty.

In addition, a taxpayer who participates in the OR tax amnesty program is prohibited from requesting a refund of any tax paid under the program and waives the right to appeal any such tax.

Keywords: Oregon Tax Help, Oregon Tax Relief, Oregon Tax Amnesty, Oregon tax problem resolution

Louisiana: Tax Amnesty Program Enacted

The Louisiana Tax Delinquency Amnesty Act of 2009, which requires the Department of Revenue () to develop and implement a tax amnesty program to be effective for a period not to exceed two consecutive calendar months between July 1, 2009, and June 30, 2010, at the discretion of the secretary, is enacted.

The tax amnesty program will apply to all taxes administered by the DOR except for motor fuel taxes and penalties for failure to submit information reports that are not based on an underpayment of tax.

The tax amnesty program will apply to (1) taxes due prior to January 1, 2009, for which the DOR has issued a proposed assessment, notice of assessment, bill, notice, or demand for payment on or after July 1, 2001, and before May 31, 2009; (2) taxes that became due on or after July 1, 2001, and before January 1, 2009; (3) taxes for which the taxpayer and the DOR have entered into an agreement to interrupt the running of prescription until December 31, 2009; or (4) taxes that became due on or before July 1, 2001, if the taxpayer was ineligible for an earlier amnesty program due to having a matter in civil litigation.

Participation in the amnesty program will be conditioned upon the agreement of the taxpayer that the right to protest or initiate an administrative or judicial proceeding is barred.

The amnesty will not be granted to taxpayers who are parties to any criminal investigation or criminal litigation.

Taxpayers with existing liens on their property, both movable and immovable, as well as taxpayers the DOR has initiated proceedings against under the assessment and distrait procedure, are eligible for amnesty. Taxpayers are required, however, to pay any and all lien fees associated with the tax periods for which they apply for amnesty.

The amnesty will only be granted for eligible taxes to eligible taxpayers who apply for amnesty during the amnesty period on forms prescribed by the secretary and who pay all of the tax, all fees and costs, if applicable, and half of the interest due upon filing the amnesty application. If the amnesty application is approved, the secretary will waive the remaining half of the interest and all of the penalties associated with the tax periods for which amnesty is applied. No installment agreements will be entered into for tax periods that are approved for amnesty.

Top Seven Tips for Taxpayers Starting a New Business

IRS Summertime Tax Tip 2009-02

Anyone starting a new business this summer should be aware of their federal tax responsibilities. Here are the top seven things the IRS wants you to know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.

2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.

4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.

5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

Construction Industry Tax Issues

Accumulated Earnings Tax

Closely held C corporations are more likely to accumulate earnings and profits beyond the reasonable needs of the business in order to avoid income taxes on its shareholders than are large C corporations. Each accumulated earnings case is unique. No pro forma guide for calculating a taxpayer's reasonable needs can be prepared. Reasonable needs that would usually be considered in any accumulated earnings case are the need for sufficient net liquid assets to pay reasonably anticipated, normal operating costs through one business cycle and sufficient net liquid assets to pay reasonably anticipated, extraordinary expenses and capital improvement financing.

In addition, the following represents a non-exclusive list of specific items that should be considered for construction contractors:

1. Working Capital necessary for Bonding Purposes: The general rule of thumb is that working capital needs to be at least 10% of "backlog" for bonding purposes. A specific taxpayer's situation may result in a different percentage based on the bonding company's requirements. Thus, this percentage should be determined on a case-by-case basis. "Backlog" work program is the sum of contracts in process less the billings from those contracts plus contracts not started.

2. Equipment Needs: Contractors who have high equipment needs will generally have a need to replace the equipment on a periodic basis.

The following information is included to assist an examiner during an examination of a construction company in determining whether an accumulated earnings tax issue exists. When considering whether an IRC Section 531 issues exist, examiners are advised to apply the Bardahl, Mead, or similar method used in determining the reasonable business needs. However an examiner must consider that, unlike most entities, a construction company normally needs to retain earnings and profits to have adequate bonding capacity. Relevant court cases involving the accumulated earning tax and construction contractors are:

1. Ready Paving and Construction Co. v. Commissioner, 61 T.C. 826 (1974): A paving contractor had permitted its earnings to accumulate beyond the reasonable needs of its business. A "modified" Bardahl formula was used with the case hinging on what items were and were not to be included in determining working capital.

2. Thompson Engineering Co. v. Commissioner, 80 T.C. 672 (1983) 751 F.2d 191 (6th Cir. 1985): A construction subcontractor was liable for the accumulated earnings tax. The IRS determined the taxpayer's reasonable business needs by applying the "Bardahl" formula. The court agreed with the taxpayer that the Bardahl formula has "little or no value when applied to a mechanical contracting business that lacks a routine operating cycle." The bonding capacity, and not the Bardahl formula, is the major consideration in determining the taxpayer's business needs. This case was appealed and reversed.

3. Peterson Bros. Steel Erection Co. v. Commissioner, T.C. Memo. 1988-381, 55 T.C.M. (CCH) 1605 (1988): The taxpayer, involved in the steel erection of high-rise buildings, was not liable for the accumulated earnings tax. The petitioner's ability to obtain a bond on a job when required is of primary importance and is clearly a reasonable need of the business. The fact that the petitioner was rarely required to provide a performance bond on its jobs is immaterial since it had to be prepared to provide a bond if required.

Alternative Minimum Tax

Taxpayers who are not required to use PCM under IRC Section 460) may owe alternative minimum tax. IRC Section 56(a)(3) states that the PCM must be used for long-term contracts for alternative minimum tax purposes. Therefore, taxpayers on the cash, accrual or completed contract methods must compute alternative minimum taxable income on the percentage of completion method. Exceptions to the required use of PCM for AMT:

1. Homebuilders: IRC Section 56(a) applies to long-term contracts except for home construction contracts

2. Small Corporations: Exempt from AMT for tax years beginning after 1998. Small corporations are C corporations with average annual gross receipts of $5,000,000 remain exempt in subsequent years until their average annual gross receipts exceed $7,500,000.

Many construction companies are required to prepare certified financial statements for bonding and lending purposes. Financial statements must be prepared on percentage of completion method. (Statement of Position 81-1) Thus, the difference between the percentage of completion method and the tax return method can easily be determined for alternative minimum tax purposes.

Employment Tax

The use of subcontractors is common within the construction industry. Many taxpayers treat employees as subcontractors to avoid paying employment taxes. The agent may need to seek guidance from an employment tax specialist when confronted with potential employment tax issues. Back-up withholding can apply to subcontractors. The bargain sale of a house to an employee involving a discounted sales price could produce employment tax liability.

Conclusion

Many issues are common to all industries. However, some issues are specific to the construction industry, due to the nature of the business and the special accounting methods available. Additional facts and tax research will be necessary to develop the issues in this chapter.

Keywords: construction tax problem, construction tax help, construction IRS audit, construction IRS examination.

IRS El Monte, CA-IRS Los Angeles, CA-IRS El Segundo, CA-IRS Laguna Niguel, CA-IRS Camarillo, CA-IRS Glendale, CA-IRS Woodland Hills, CA

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IRS Did Not Fail to Properly Credit Checks Against Married Couple's Tax Liability (Kovacevich, TCM)

The IRS properly credited five checks toward the outstanding tax liability of a law firm and not the individual tax liability of an attorney and his wife. For the tax year at issue, the taxpayer/husband was improperly characterized as an independent contractor rather than an employee of his law firm and the IRS determined that the couple failed to report income and improperly claimed deduction. The taxpayers requested a collection due process (CDP) hearing after the IRS sent a notice of intent to levy. Although one of the disputed checks was not presented to the Appeals Officer, the Tax Court could consider it because the Tax Court did not follow the record rule, and therefore, could consider evidence not produced at the CDP hearing as long as it was relevant. Since the IRS did not make an evidentiary objection to the check at trial, any objection for relevance was waived. Because the taxpayers received a notice of deficiency, their underlying tax liability could not be challenged in the CDP hearing. Questions about whether a particular check could be credited to a taxpayer's account for a particular tax year, however, were not challenges to the taxpayer's underlying tax liability. The Appeal's officer's determination to the contrary was a harmless error of law and not an abuse of discretion because the IRS did correctly credit the checks against liabilities other than the taxpayers' unpaid individual tax liability for the tax year at issue. The taxpayers payments were voluntary and so their designations controlled. Designations on the checks, such as the employer identification number of the law firm that was liable for the employment taxes with respect to the taxpayer, supported a conclusion that the payments were meant to pay the law firm's tax debt, not the taxpayers' individual tax debt. Although one check arguably could have been for the payment of trust fund recovery penalty against the taxpayer as a responsible person for his law firm, the liability was for a tax year outside of the CDP hearing and the Tax Court lacked jurisdiction over those taxes.

The taxpayers failed to present evidence that the employment taxes were overpaid prior to the year at issue and that the overpayment should be credited toward their individual deficiency. The taxpayers presented no evidence of their income from earlier years nor stated how the amounts should be credited or how the credits reduced the deficiency. Finally, the Appeals officer did not abuse her discretion in refusing to send the Social Security Administration information about the taxpayer's additional income. The issue was not related to an unpaid tax or levy and so was an issue that could not be raised at a CDP hearing.