Tax Relief Blog

IRS Sends $122,783 Check by Mistake

House Cleaner Sensed it was an Error and Returned Check; IRS won't Comment

SOURCE: CBS

A Denver-area house cleaner could hardly believe her eyes when she opened up the mail. She was expecting to pay the Internal Revenue Service, but instead she received a refund check for more than $100,000.

Laura Schultz readily admits she's not a wealthy woman. Her job with Sunshine Maids does not put her in the category that would bring a refund in the hundreds of thousands of dollars; but the IRS sent her a check for $122,783.51.

"It didn't make sense," Schultz said.

It certainly was a real check.

"I didn't feel I was owed that much money, so I called the IRS," Schultz said. "They told me to void it."

CBS4's Rick Sallinger asked the IRS what would happen if somebody decided to keep a mistaken $122,000 check. An official said if they were caught they'd have to pay it back, plus interest.

Schultz voided the check as the IRS requested.

"I feel pretty good about turning it in."

The IRS says it cannot comment on what caused the error, but Schultz still has to pay the $80 she owed.

IRS to Receive Unprecedented Amount of Information in UBS Agreement

WASHINGTON -- The Internal Revenue Service and the Department of Justice today announced the successful negotiation of an agreement that will result in the IRS receiving an unprecedented amount of information on United States holders of accounts at the Swiss bank UBS.

As a result of this agreement, the IRS will receive substantially all of the accounts that it was interested in when it initiated the John Doe summons against UBS.

Under the agreement, the IRS will submit a treaty request to the Swiss government describing the accounts for which it is requesting information. The Swiss government will then direct UBS to initiate procedures to turn over information on thousands of accounts to the IRS. The IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts.

Also, the agreement retains the U.S. Government's right, if the results are significantly lower than expected and other measures fail, to seek appropriate judicial remedies, including resuming actions to enforce the John Doe summons.

The agreement involves a number of simultaneous legal actions:

* The judicial enforcement of the John Doe summons will be dismissed. While this enforcement motion will be withdrawn, the underlying summons remains in effect.

* Upon receiving the treaty request, the Swiss government will direct UBS to notify account holders that their information is included in the IRS treaty request. It is expected that these notices will be sent on a rolling basis with some being sent over the coming weeks and others over the coming months. Receipt of this notice will not by itself preclude the account holder from coming into the IRS under the Voluntary Disclosure Program.

In addition, the Swiss Government has agreed to review and process additional requests for information for other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case.

Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations. The IRS will assess any additional tax, interest and a number of applicable penalties. This includes the penalty for the willful failure to file an FBAR. This penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed.

The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action. To date, the IRS and the Department of Justice have successfully prosecuted four United States customers of UBS whose information was provided to the IRS by UBS as part of the Deferred Prosecution Agreement.

Individuals whose information is obtained by the IRS through this process will, by longstanding policy, not be eligible for the voluntary disclosure program.

Resolve your offshore tax matters today, criminal actions by the IRS are imminent. Tax relief services by Mike Habib, EA at 877-78-TAXES

Kentucky Severe Storms and Flooding Victims May Qualify for IRS Disaster Relief

Indianapolis -- Victims of recent severe storms flooding in Kentucky may qualify for tax relief from the Internal Revenue Service.

Following severe storms, flooding and straight-line winds on Aug. 4, 2009, the President declared Jefferson county a federal disaster area qualifying for individual assistance.

As a result, the IRS is postponing until Oct. 5, 2009, certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts otherwise due between Aug. 4, 2009, and Oct. 5, 2009.

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Aug. 4, 2009, and on or before Aug. 19, 2009, as long as the deposits were made by Aug. 19, 2009.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

Covered Disaster Area

The counties listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 5, 2009, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 4, 2009, and on or before Oct. 5, 2009.

The IRS also gives affected taxpayers until Oct. 5, 2009, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after Aug. 4, 2009, and on or before Oct. 5, 2009.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after Aug. 4, 2009, and on or before Aug. 19, 2009, provided the taxpayer made these deposits by Aug. 19, 2009.

Casualty Losses

In 2008, a change was made to the tax law that provides relief to individual taxpayers whose personal-use property was damaged or destroyed by a casualty in a federally declared disaster area. Under prior law, individuals who suffered casualty losses as a result of a federally declared disaster were required to reduce the loss from each casualty event by $100 and reduce the total of their casualty losses for the tax year by 10 percent of their adjusted gross income. In addition, these individuals were required to claim their casualty losses as an itemized deduction.

In 2009, as a result of the new law, individuals who suffer a casualty loss as a result of a federally declared disaster are required to reduce the loss from each casualty event by $500. The new law removes the 10 percent of adjusted gross income limitation for net disaster losses and allows individuals to claim the net disaster losses even if they do not itemize their deductions. Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year.

Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year's return should put the Disaster Designation "Kentucky/Severe Storms, Flooding, and Straight Line Winds" at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Tax relief and relief from taxes are our tax practice primary focus. We represent taxpayers before the IRS in all tax controversy matters.

California - Personal Income Tax: 2009 Tax Rate Schedules, Exemption and Other Amounts Released

According to figures obtained from California Franchise Tax Board's Tax Practitioner Liaisons Office, there will be decreases in the indexed 2009 California personal income tax rate schedules, return filing thresholds, standard deduction amounts, itemized deduction limitation amounts, personal exemption amounts, credit amounts, and alternative minimum tax exemption amounts. These figures are based on the negative 1.5% inflation rate, as measured by the California Consumer Price Index (CCPI) for all urban consumers from June of 2008 to June of 2009.

Tax Rate Schedules

For 2009, the indexed personal income tax rates, which includes the 0.25% surcharge, for single taxpayers and married taxpayers filing separately range from 1.25% of the first $7,060 (formerly, $7,168) of taxable income to 9.55% of taxable income over $46,349 (formerly, $47,055). For married taxpayers filing jointly and surviving spouses with a dependent child, the rates range from 1.25% of the first $14,120 (formerly, $14,336) of taxable income to 9.55% of taxable income over $92,698 (formerly, $94,110). For taxpayers filing as heads of households, the rates range from 1.25% of the first $14,130 (formerly, $14,345) of taxable income to 9.55% of taxable income over $63,089 (formerly, $64,050).

Return Filing Thresholds

For the 2009 taxable year, a single taxpayer or head of household taxpayer must file a return if the taxpayer's adjusted gross income (AGI) exceeds an amount ranging from $11,698 to $21,008 (formerly, $11,876 to $30,731), or if the taxpayer's gross income exceeds an amount ranging from $14,622 to $23,932 (formerly, $14,845 to $33,700). A surviving spouse taxpayer with dependents must file a return if the taxpayer's AGI exceeds an amount ranging from $14,965 to $21,008 (formerly, $22,176 to $30,731), or if the taxpayer's gross income exceeds an amount ranging from $17,889 to $23,932 (formerly, $25,145 to $33,700). The corresponding AGI and gross income thresholds requiring married couples to file a return range from $23,396 to $37,606 (formerly, $23,752 to $47,557), and from $29,245 to $43,455 (formerly, $29,690 to $53,495), respectively. The number of dependents and the taxpayer's age (under 65, or 65 or older) determine the filing threshold level that applies.

Standard Deduction

For 2009, the standard deduction decreases from $3,692 to $3,637 for single taxpayers and married taxpayers filing separate returns, and from $7,384 to $7,274 for married taxpayers filing jointly, surviving spouses, and heads of households.

Itemized Deduction Limitation Amounts

The AGI thresholds that activate the reduction of California itemized deductions for 2009 are $160,739 (formerly, $163,187) for single taxpayers and married taxpayers filing separately, $321,483 (formerly, $326,379) for married taxpayers filing jointly and surviving spouses, and $241,113 (formerly, $244,785) for heads of households.

Personal Exemptions

Personal exemption amounts for 2009 decrease to $98 (formerly, $99) for single taxpayers, married taxpayers filing separately, and heads of households, and to $196 (formerly, $198) for married taxpayers filing jointly and surviving spouses. The dependent exemption amount for 2009 decreases to $98 (formerly, $309) for each dependent claimed.

The adjusted gross income (AGI) thresholds that activate the reduction of California personal exemption credits for 2009 are $160,739 (formerly, $163,187) for single taxpayers and married taxpayers filing separately, $321,483 (formerly, $326,379) for married taxpayers filing jointly and surviving spouses, and $241,113 (formerly, $244,785) for heads of households.

Credit Amounts

The joint custody head of household credit and dependent parent credit are indexed for 2009 to the lesser of $387 (formerly, $393) or 30% of net tax.

The qualified senior head of household credit is indexed for 2009 to 2% of taxable income of up to $62,874 (formerly, $63,831), up to a $1,185 (formerly, $1,203) maximum credit amount.

The maximum AGI amounts for the renter's credit are indexed for 2009 to $34,412 (formerly, $34,936) for single filers and $68,824 (formerly, $69,872) for joint filers.

Alternative Minimum Tax Exemption Amounts

The alternative minimum tax exemption amounts for 2009 are decreased to $59,114 (formerly, $60,014) for single or unmarried taxpayers, $39,407 (formerly, $40,007) for married taxpayers filing separately and estates and trusts, and $78,817 (formerly, $80,017) for married taxpayers filing jointly and surviving spouses. Exemption phaseouts begin at the following alternative minimum taxable income levels for 2009: $221,674 (formerly, $225,050) for single or unmarried taxpayers, $147,781 (formerly, $150,031) for married taxpayers filing separately and estates and trusts, and $295,564 (formerly, $300,065) for married taxpayers filing jointly and surviving spouses.

Watchdog Growls At IRS' Audits By Mail

Source: forbes.com

A new report from the Treasury Inspector General for Tax Administration lends support to growing complaints about the Internal Revenue Service's big audit-by-mail program.

The IRS has increasingly relied on these correspondence audits, focused on one or two narrow issues, to maintain its audit coverage of normal taxpayers as its auditor corps has shrunk. Taxpayers are sent a letter that, for example, says their charitable or un-reimbursed employee business deductions will be denied and a certain amount of extra taxes assessed unless they provide acceptable documentation supporting the deductions within 30 days.

But the TIGTA report concludes that the correspondence audit results reported by the IRS are "inaccurate and overstated" and that there are operational problems with the program, including significant mail processing delays. These delays can cause taxpayers who respond with documentation within the required time to be assessed extra taxes because their responses don't get to the right IRS employee in time. Eventually, they may be able to get those taxes abated through an "audit reconsideration," but the average time to conclude one of those is 159 days, TIGTA estimates.

A new mail-handling system was scheduled to be implemented by the IRS by October 2009, but it might be delayed until the end of fiscal 2010, according to the report. In its response to the report, the IRS was vague: "We have a team studying the possibility of a comprehensive mail sorting process."

Correspondence audit foul-ups have drawn loud complaints from accountants and "enrolled agents" who handle tax disputes with the IRS for many taxpayers.

"One IRS agent told me, 'You send us something, you'd better call to make sure we got it,' " reports Claudia Hill, an enrolled agent in Cupertino, Calif. who is editor of CCH's Journal of Tax Practice and Procedure. Hill has heeded that advice and says she recently spent 24 minutes on hold waiting to confirm that information she sent had arrived. (See "Ten Tips For Taming The Tax Cops.")

One hopeful sign Hill notes: The IRS has added fax machines to accept taxpayer information. "The problems aren't going to go away," she concludes. "It's just a matter of whether they can make things better."

TIGTA isn't the first government watchdog to hone in on problems with the program.

In her last annual report to Congress, National Taxpayer Advocate Nina Olson cited difficulties responding to correspondence audits as one of the most serious problems taxpayers encounter.

Even as the complaints have mounted, the number of correspondence audits has steadily increased. The IRS did 1.1 million correspondence audits in fiscal year 2007, up from 440,000 in fiscal year 2000. The bulk of by-mail audits concern the Earned Income Tax Credit.

The new TIGTA report deals with a subset of by-mail audits, the "discretionary" correspondence conducted by the IRS' wage and income division, which is responsible for the 123 million individual taxpayers who don't have self-employment, farm or rental real estate income. Discretionary audits don't deal with the EITC. Instead, the items challenged in these letters are typically un-reimbursed employee business expenses, and charitable and mortgage interest deductions. In fiscal year 2007, the division conducted 234,508 of these audits, more than double the 107,382 in fiscal year 2004. (The IRS is using correspondence audits in the self-employed and small-business division too to challenge items on Schedule Cs, reporting self-employment income, and Schedule Es, for investment real estate.)

Practitioners say one big problem with the wage and investment division letters is that many go to taxpayers who don't owe anything, but are so scared of the IRS that they send in money anyway. "It seems like the IRS is trying to raise money by plucking low-hanging fruit from frightened taxpayers," says William Stevenson, a Merrick, N.Y., tax accountant who counsels his clients to call him immediately upon getting an IRS notice.

Over the past four years, the percentage of folks whose cases resulted in no change--meaning after they sent in their documents the IRS agreed they didn't owe anything extra--ranged from 17% in fiscal year 2007 to 26% in fiscal year 2005. Taxpayers agreed to pay the deficiency in 36% of the total cases, representing only 24% of the dollars assessed in audits. In an astonishing 46% of cases in fiscal year 2007, representing 72% of the dollars assessed by wage and income correspondence audits, folks either didn't respond or the IRS' mail was undeliverable. It's not clear how much the IRS later collects in such cases.

While the IRS reported it assessed $785 million through the discretionary audits in 2007, TIGTA says that number is inflated because it includes the 10% of cases where the IRS later agrees to reconsider the audit on the basis of documentation it hadn't been sent (or had misplaced) before.

In fiscal year 2007, about 20,000 audit reconsideration cases were closed. Based on a sample of cases, TIGTA found that in 78% of them, the IRS reduced or threw out its own assessment, leading to 68% of the assessed tax dollars in closed cases to be abated. TIGTA estimates that of the $785 million in assessments the IRS credited to the discretionary audits, $44 million was later wiped out during audit reconsiderations.

"The group charged with correspondence audits has completed their work; they've charged the assessment; the problem is there are so many bad assessments in there, it's not fair to the taxpayers," says Hill.

In reviewing the sample of audit reconsideration cases, TIGTA found that in 8% there was a record of complaints from taxpayers or their representative that documents had been misplaced by the IRS. Moreover, in 4% of the cases, the files contained multiple copies of requested documents, each having different IRS stamp dates.