IRS Audits

Tax Preparer Fraud – Beware!

May 24, 2009 | Mike Habib, EA

U.S. JUDGE BARS TWO CONNECTICUT RESIDENTS FROM PREPARING FEDERAL TAX RETURNS FOR OTHERS

Father and Daughter Prepared Tax Returns That Falsified and Inflated Deductions for Customers

WASHINGTON – A federal district court in Connecticut has permanently barred Wethersfield residents Deowraj Buddhu and his daughter, Sunita Buddhu, from preparing federal tax returns for others. Mr. Buddhu and/or Ms. Buddhu have operated businesses that provide tax return preparation services under the names Paradise Consulting, Phoenix Consulting and Lotus Consulting, in Hartford, and Wethersfield, Connecticut.

IRS Tax Audits on the Rise

May 24, 2009 | Mike Habib, EA

IRS is hiring hundreds of Internal Revenue Agents

The IRS is hiring hundreds of Internal Revenue Agents – It’s a great time to join the agency!

The IRS has begun a major hiring effort to fill hundreds of critical jobs nationwide. Most of these jobs are for internal revenue agent positions (look for series number 0512). At least 30 hours of college-level accounting coursework is required for revenue agent jobs.

Chances of being audited?

March 16, 2009 | Mike Habib, EA

What are your chances for being audited? IRS’s 2008 data book provides some clues IR 2009-22

Mike Habib, EA Tax Relief & Tax Problem Resolution

IRS has issued its annual data book, which provides statistical data on its fiscal year (FY) 2008 activities. As this article explains, the data book provides valuable information about how many tax returns IRS examines (audits), and what categories of returns IRS is focusing its resources on, as well as data on other enforcement activities, such as collections.

Audit mistakes by the IRS

February 24, 2009 | Mike Habib, EA

TIGTA assesses how well IRS Examination function scrutinizes all open tax periods during audits [Audit Report No. 2009-30-034]:

IRS Examination function employees do not always appropriately inspect and examine prior and/or subsequent year tax returns when warranted, the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit.

Auditors reviewed 68 statistical sample cases and found that 13 (or 21%) of the cases warranted scrutiny of additional returns but none were selected for examination. In 26 (or 38%) of the 68 cases, “there was no evidence that examiners inspected either the prior or subsequent year return to identify similar issues to the years under examination or if large, unusual, or questionable items existed that would warrant examination,” the audit said. Factors that might be considered include the comparative size of an expense, if the nature of the item is significant, the beneficial effect of the manner in which an item is reported, and missing items on the return.

Tax Controversy

January 16, 2009 | Mike Habib, EA

As you can see from the article below, the IRS tax code is getting more complicated than ever. Further, the IRS‘s reach of audits has no limits.

If you have a tax problem, can not pay your tax bill or is facing an IRS tax audit contact us now.

Tax problem complicates Geithner’s confirmation process

As reported by the Los Angeles Times

Many senators want a better explanation from Obama’s would-be Treasury secretary about past underpayments. His hearing is delayed till after the inauguration.

S Corporation Tax

December 30, 2008 | Mike Habib, EA

Capital contributions did not restore or increase shareholders’ tax bases in loans to S corporations Nathel, (2008) 131 TC No. 17

Mike Habib, EA

The Tax Court has held that taxpayers’ capital contributions to S corporations did not constitute income to the S corporations and that the contributions did not restore or increase their tax bases in their loans to the S corporations.

Trust Fund Recovery Penalty

September 29, 2008 | Mike Habib, EA

Once is enough as far as collection of the trust fund recovery penalty is concerned Chief Counsel Advice 200838027

The IRS has issued a new Chief Counsel Advice (CCA) on the trust fund recovery penalty. The IRS notes that the CCA may not be used or cited as precedent.

IRC §6672, imposes a penalty on any person who is required to collect, truthfully account for, and pay over withheld income and Social Security taxes who willfully fails to do so. The amount of the penalty is equal to the amount of the tax that was not collected and paid. The penalty is often referred to as the “trust fund recovery penalty” (TFRP). The penalty is imposed on a “responsible person.” A “responsible person” is anyone within a corporation or partnership who has the duty to collect, account for, or pay over the tax. Depending on the facts of the case, a responsible person could be an officer, a director, an accountant, a comptroller, or even a payroll manager.

IRS Harassment

September 24, 2008 | Mike Habib, EA

TIGTA review finds small number of cases where IRS employees harassed taxpayers while attempting to collect taxes [Audit Report No. 2008-10-162]:

In 2007, there were five cases involving Fair Tax Collection Practices (FTCP) violations for which an IRS employee received administrative disciplinary action, according to a recent audit by the Treasury Inspector General for Tax Administration (TIGTA).

In addition, auditors identified an unspecified number of cases that should have been coded as FTCP violations but instead were coded with other designations. As described in the audit, the FTCP prohibits IRS employees from using abusive or harassing behavior toward taxpayers when attempting to collect taxes. An employee who violates the FTCP may be subject to disciplinary action.

1031 Exchange New Ruling

September 18, 2008 | Mike Habib, EA

IRS OKs use of one property to engineer a reverse and forward like-kind swap Chief Counsel Advice 200836024

In Chief Counsel Advice (CCA), IRS has given its blessing to the use of one property to engineer both a completed reverse like kind exchange and an attempted forward like kind exchange. The forward exchange was necessary because the value of the relinquished property far exceeded the value of the replacement property that the taxpayer received. Because the forward exchange couldn’t be completed within the statutory time limits, however, the taxpayer wound up paying tax on the net cash it received.

Observation: The new CCA is noteworthy because it shows how far the like-kind exchange rules can be stretched, with IRS‘s approval, to accommodate complex conditions.

Avoiding hobby loss restrictions

September 18, 2008 | Mike Habib, EA

Like many of us, you’ve probably dreamed of turning a hobby or avocation into a regular business. You won’t have any unusual tax headaches if your new business is profitable. However, if the new enterprise consistently generates losses (deductions exceed income), IRS may step in and say it’s a hobby–an activity not engaged in for profit–rather than a business.

What are the practical consequences? Under the so-called hobby loss rules, you’ll be able to claim those deductions that are available whether or not the enterprise is engaged in for profit (such as state and local property taxes). However, your deductions for business-type expenses (such as rent or advertising) will be limited to the excess of your gross income from the hobby over those expenses that are deductible whether or not the enterprise is engaged in for profit. Deductible hobby expenses are claimed on Schedule A of Form 1040 as miscellaneous itemized deductions subject to a 2%-of-AGI “floor.” By contrast, if the new enterprise isn’t affected by the hobby loss rules, all otherwise allowable expenses would be deductible on Schedule C, even if they exceeded income from the enterprise.

There are two ways to avoid the hobby loss rules. The first way is to show a profit in at least three out of five consecutive years (two out of seven years for breeding, training, showing, or racing horses). The second way is to run the venture in such a way as to show that you intend to turn it into a profit-maker, rather than operate it as a mere hobby. The IRS regs themselves say that the hobby loss rules won’t apply if the facts and circumstances show that you have a profit-making objective.