IRS Audits

Business or Hobby?

August 26, 2008 | Mike Habib, EA

IRS Fact Sheet reviews whether a hobby is actually a for-profit endeavor [Fact Sheet 2008-23]:

Taxpayers must follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby, IRS said in a new fact sheet published on the agency’s Web site.

As described in the fact sheet, Code Sec. 183 –often called the hobby loss rule–limits deductions that can be claimed when an activity is not engaged in for profit. There are tax implications for incorrectly treating hobby activities as activities engaged in for profit, IRS stressed. The goal of the fact sheet is to provide information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.

Hiding Income Offshore?

August 21, 2008 | Mike Habib, EA

To disclose or not to disclose, that is the question.

Hiding Income Offshore is not the way to go.

Mike Habib, EA

Tax Return Preparer Fraud

August 21, 2008 | Mike Habib, EA

If It Seems Too Good to Be True, It Probably Is

Tax Return Preparer Fraud

Mike Habib, EA

Fuel Tax Credit

August 21, 2008 | Mike Habib, EA

Yes, we are all fed up with the cost of fuel.

No, I’m sorry to report, not everyone is eligible for the fuel tax credit.

Fuel Tax Credit Scams

Real Estate Gift Tax

August 18, 2008 | Mike Habib, EA

Tiered discount allowed in real estate FLP gift tax case In Astleford, a memorandum decision, the Tax Court permitted a taxpayer to apply a tiered discount in the context of a family limited partnership owning interests in real estate.

Facts. On 8/1/96, Mrs. Astleford formed the Astleford Family Limited Partnership (“AFLP”) to facilitate the continued ownership, development, and management of various real estate investments and partnership interests she owned and to facilitate gifts that she intended to make to her three adult children. On the same day, Mrs. Astleford transferred to AFLP ownership of an elder care facility. Also on the same day, Mrs. Astleford gave each of her three children a 30% limited partner interest in AFLP and retained for herself a 10% general partner interest.

On 12/1/97, Mrs. Astleford made additional capital contributions to AFLP by transferring to AFLP a 50% interest in Pine Bend Development Co. (“Pine Bend”), a general partnership, and her interest in 14 other real estate properties. The Pine Bend general partnership agreement did not contain any provisions relating to the transfers of interests in Pine Bend or whether such transferred interests would be general partner or assignee interests. Pine Bend owned 3,000 acres of land of which 1,187 acres consisted of agricultural farmland (“Rosemount property”).

Tax Scams for 2008 – Fuel Tax Credit Scams

June 16, 2008 | Mike Habib, EA

IRS Announces ‘Dirty Dozen’ Tax Scams for 2008

Phishing Scams, Fuel Tax Credits, Frivolous Arguments, Hiding Income Offshore Top the 2008 Tax Scams

WASHINGTON — The Internal Revenue Service today issued its 2008 list of the 12 most egregious tax schemes and scams, highlighted by Internet phishing scams and several frivolous tax arguments.

Topping this year’s list of scams is phishing, which encompasses numerous Internet-based ploys to steal financial information from taxpayers. New to the “Dirty Dozen” this year is a scheme, which IRS auditors discovered, that relates to unreasonable and/or excessive fuel tax credit claims.

Payroll Tax Audit? Now What Are Your Options?

May 4, 2008 | Mike Habib, EA

IRS or State Payroll Tax Audit & Employment Tax Audit

The word audit can strike a very real sense of fear into the hearts of even the most courageous of men. When you own a business, there is even more at stake than a few minor penalties or fees; you can lose everything you’ve worked so hard to create. If you are facing a payroll tax audit you need to make every effort to cooperate with your auditor. The best way to prepare for a payroll tax audit, and therefore survive the audit, is to keep excellent records for several years past on hand and have them stored completely and according to year in case you are faced with an audit many years after the fact.

The first thing you need to do in order to keep everything straight when it comes to surviving a payroll tax audit is to keep your accounting practices current. Many businesses do this by either outsourcing their payroll responsibilities to firms that deal exclusively with payroll matters, including payroll taxes, or hiring an in-house bookkeeper to handle their payroll. The benefits of either of these is great because laws regarding payroll taxes and withholdings change regularly and are so complex in general.

Audits of S Corporations are on the rise

April 30, 2008 | Mike Habib, EA

TIGTA study finds modest audit rate increase for C corps but marked increase for passthroughs ( S Corps)

Trends in Compliance Activities Through Fiscal Year 2007, TIGTA Reference Number 2008095

A recently released TIGTA (Treasury Inspector General for Tax Administration) report reveals that despite a slight uptick in FY 2007, IRS audits of corporations have declined dramatically over the last ten years. However, audits of S corporation and partnership returns increased substantially over the same period.