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tax return preparation a separate function from taxpayer representation. This all changed with the licensing of return preparers. Significantly important to Enrolled Agents, who if suspended or disbarred from IRS representation, they would also be suspended or disbarred from tax return preparation. Now the court’s have made this decision come full circle. The IRS Office of Professional Responsibility can suspend an EA, Attorney or Certified Public Accountant from Representing Taxpayers Before the IRS but they have no authority under Circular 230 to keep those individuals from obtaining a PTIN and from preparing Federal Tax Returns. Not my words, those of the Court that said “tax return preparation is NOT representation before the IRS”.

So where does this leave the tax profession? Where we have always been - responsible for our own actions.

We, in the business of tax, know our value to America’s Taxpayers and take pride in accomplishing our goal - to assist America’s Taxpayers to file complete and accurate returns.

Of course we want enforcement on those who conduct themselves without honor, on those who fraudulently prepare tax returns and on those whose deceit robs America’s hardworking taxpayers of their money and their dignity.

Perhaps IRS should take the Full-Time-Employees in OPR and RPO, who were content to administer and track those who passed their minimum competency testing and the education that is no longer required, and have them seek out Incompetent and Fraudulent Return Preparers (IFRP), get the Justice Department to get an injunction against them and take them out of the business of tax once and for all!

Other than that, I have no opinion!

Stay well and Finish Well,Beanna

Beanna@ncpefellowship.com or 877-403-1470

Remarks from Beanna

The Internal Revenue Service has announced that some suspended or disbarred tax professionals are now permitted to obtain or renew preparer tax identification numbers (PTINs) and may again prepare federal tax returns for compensation as a result of a recent court decision.

This change applies to individuals who were sanctioned, suspended or disbarred, with PRIN access blocked, pursuant to Treasury Department Circular 230 between August 2, 2011 and February 11, 2014.

The courts, Sabina Loving, et. al. v. Internal Revenue Service concluded that tax return preparation, without more, does not constitute representation within the meaning of the statute relied on by the IRS to authorize the regulatory actions that were struck down.

In light of the decisions and the injunction, the IRS’ Office of Professional Responsibility (OPR) has determined that a suspension or disbarment from practice before the IRS may not include a restriction on return preparation for compensation, and that access to the PTIN required for such service may no longer be blocked based on discipline under Circular 230.

OPR has sent letters to the individuals who currently are suspended or disbarred from practice before the IRS as a result of disciplinary action taken by OPR. The notice informs the individuals of their change in status.

Any individual who has been suspended or disbarred in a Circular 230 proceeding who does not receive the notice may determine his or her status with respect to PTIN eligibility by calling the main OPR number: 202-317-6897.

Individuals who have been enjoined by a court from return preparation are not affected by this action. And individuals under suspension or disbarment will not be entitled to represent their clients before the IRS for any purpose during their disciplinary period.

For a number of years, the Director of Practice considered

Monthly Newsletter for ncpeFellowship Members Vol. 5 No. 6 June 2014

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Remarks from Beanna (1)

Tax News (4)The SNAFU Economy: People Who Profit When Things Go Wrong (4)Senators Introduce Bill Banning Federal Bonuses for Tax Delinquents (6)Shareholders Looking to Borrow From Their Corporations: Act Now Before Rates Rise (6)

People in the Tax News (7)Tax-writing Congressman Violated Tax Law (7)Tax Denier Wins Damage Claim Against IRS Levy - Kind Of (7)Yul Brynner’s Tax Spat Springs Rush to Give Up U.S. Passports (9)Feds Crack Phony Tax Refund Ring (9)North Carolina Seafood Distributor Pleads Guilty to Tax Evasion (10)Judge Upholds Sale of Woman’s Home Over Delinquent Tax Bill of $6.30 (10)H&R Block Need Not Pay Tax Preparers For Time Spent in Training, Court Affirms (11)Former Minnesota Attorney Pleads Guilty to Tax Fraud (12)318,000 Federal Workers Owe $3.3 Billion in Back Taxes (Delinquency Rate Is 33% Higher Among VA Employees) (12)Alaska Plastic Surgeon Indicted on Tax Evasion Charges for Concealing Bank Accounts in Panama and Costa Rica (12)

IRS News (13)IRS Will Not Take Registered Return Preparer Case to Supreme Court (13)OPR Negotiates the Imposition of Its First Monetary Penalty (13)IRS To Restructure Services For Small Businesses (14)With 131 Million Returns Filed, Millions of Amended Returns Expected (14)EIN to Use When Entity Tax Status Changes (14)IRS Knocks Off Mom & Pop Shop (15)IRS E-Services: Where are We Now? And Where are We Going? (16)IRS Limited in Actions Against Companies with Off-Shore Addresses (16)IRS Tax Collections (17)IRS Commissioner Tells Congress about EITC Challenges with Tax (18)Form 1099K (20)File Form 940, 941 or 944 for Small Form Businesses (20)Highlights of The President’s FY2015 IRS Budget Request (20)IRS Advises Its Attorneys On Arguing That Tax Court Applies Abuse of Discretion” Standard (21)TIGTA Report Uncovers Problematic Discrepancies in Alimony Reporting (22)

Tax Pros in Trouble (24)Justice Department Sues to Stop Miami Tax Return Preparers (24)Chicago Federal Court Shuts Down Tax Preparer (24)5 Minnesota Tax Preparers Charged in Federal Tax Fraud Case (25)Alabama Man Sentenced for Tax Fraud and Identity Theft (25)IRS Announces Disbarment of Former Attorney/CPA (25)Feds Target Alleged Tax Scams in Colorado (26)

Ragin Cagin (26)Social Security Planning At Its Best (26)

Taxpayer Advocacy (28)SB/SE Memo Provides Guidance on Fast Track Settlement Program (28)Can A Taxpayer Refuse an IRS Summons? (28)10 Pointers Regarding IRS Bills, Penalties And Interest Charges (30)

Contents (Page)

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Foreign Tax (31)Tax Authority to Notify IRS on Americans in Israel (31)IRS Notice 2014-33 (31)Americans Abroad – Selling the Principal Residence (31)Expats In The U.S. Needlessly Pay Canadian Tax! (32)

State Tax News of Note (33)States With NO Income Tax (33)NJ Wrongly Tells 2,000 Taxpayers They Underpaid Their 2013 Taxes; Won’t Send Notice About Mistake (35)2014 Best & Worst States for Business (35)

Wayne’s World (36)Additional Information on ACA (36)

Practice Management (38)Too Busy For New Clients (38)

Letters to the Editor (39)Results of the After April 15th ncpeFellowship Member Survey (39)

Sponsor of the Month (40)NCPE - National Center for Professional Education (40)

Tax Jokes and Quotes (40)

Contents (Page)

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Tax News

The SNAFU Economy: People Who Profit When Things Go Wrong

It seems self-evident to say that a SNAFU -- “Situation Normal, All Fouled Up,” as the polite version has it -- is a problem.Or is it?

If SNAFUs are nothing but bad, why do we encounter such resistance to fixing them? Why is fouled-up so normal?

Sometimes, of course, it’s just inertia or ignorance. But some people, on being confronted with a hot mess, work hard not to clean it up.

Are they just jerks?

Maybe, but it may also be because they’re enterprising. For some folks a SNAFU is not a problem, it’s a business opportunity. In fact, a whole economy has grown up around profiting from things that don’t work right.

The SNAFU economy.

Once you start looking for it, you can find examples of the SNAFU economy everywhere.

One of them is the blocking of a neat idea for cleaning up one of the biggest SNAFUs we have: filing taxes.

The idea is return-free tax filing. It’s based on the fact that, despite the complexity of the tax code overall, the average working person’s return is straightforward -- so much so that the IRS could fill it in automatically and offer the taxpayer the choice of accepting the default values or not.

ProPublica researcher Liz Day has been studying return-free filing, which has succeeded in other countries and in a test program in California. She described it this way last March to NPR’s Morning Edition:

President Ronald Reagan supported it and talked favorably about it in 1985. And President Obama has spoken also favorably about it on the campaign trail in 2007. The idea is that you would get a pre-filled return from the government, using the information they already have, to send a pre-filled return to you that you could either accept or throw away. It’s completely voluntary.

It’s like auto-paying your bills. It would save time, money and stress, and you’d always be able to monitor and control things yourself. What’s not to like?

Well, for one thing, it would interfere with a couple of very profitable industries.

One of them is the business of tax preparation software, like

that made by Intuit. According to a recent report by Day, co-produced by ProPublica and NPR, Intuit has been spending a lot of money to stop return-free filing:

Intuit has spent about $11.5 million on federal lobbying in the past five years -- more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit’s disclosures pointedly note that the company “opposes IRS government tax preparation.”

Intuit claims it’s trying to save taxpayers money. The company is also a member of a tech industry campaign called STOP IRS TAKEOVER, which argues that return-free filing is a “massive expansion of the U.S. government through a big government program.”

I guess so, if by “massive government expansion” you mean using computers to give people more choice while saving them time and money. Sounds kind of like the original promise of Intuit.

Tax preparation software isn’t the only business that would suffer if return-free filing were adopted. Human tax preparers would also take a hit. Some of them, of course, provide a valuable service to those whose returns really do need professional attention. But some of them exploit low-income people, by over-charging -- for a service volunteers provide for free -- or by taking a hefty share of a refund that was guaranteed to come even without their “help.”

Fighting to preserve an inefficient, painful tax filing system is just one example of the SNAFU economy. There are more, many more.

Millions of Self-Filing Business Owners Bank on Returns

Getting the numbers right is not so easy and there’s a lot of tax money riding on those self-filer returns.

More than 46 million American’s self-filed their taxes this year from their home computers. Small American Business Owners who self file their taxes have a lot to think about. Even more troublesome, they have a lot to learn. As of 2013, the United States Tax Code is 73,954 pages and is nearly 4 million words long. A recent governmental report published by the General Accounting Office on April 8th, 2014, just one week in advance of one of the most dreaded deadlines in the annual American calendar – Tax Day, April 15th, the headline declared:

“Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant Errors.” (GAO, 14-467T)

The report is nothing short of alarming for tens of millions of Americans who have filed their taxes in recent years. Inaccuracies, inconsistencies misinformation and even incorrect refunds, among other problems pervasively plague paid professional tax preparers. According to the Tax Saving Professionals, which does not file taxes on behalf of clients, but who do provide “tax counsel and strategies,” the ramifications

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on IRS.gov

“Entrepreneurs and small business owners are likely to find not only useful information, but surprisingly potentially significant tax saving opportunities and financial benefits they may be eligible to receive,” says Rogers. Below, Rogers points out some further advantages of a close examination of the new code section IRC 45R.

Available Tax Credits & Filing Requirements

• Eligible small business employers with no more than25 full-time equivalent employees for such tax year willreceive a maximum tax credit in the amount of 35% ofpremiums paid by eligible small business employers fortax years 2010, 2011, 2012, 2013.

• For tax year 2014, the maximum amount will increase to50% for small business employers. The credit is basedon the amount of employer shared premiums paid onbehalf of the employees enrolled in a qualified healthplan offered through a Small Business Health OptionsProgram (SHOP) marketplace.

• On average, small employers that pay at least 50% ofthe insurance premiums of its employees will be able totake advantage of the credit whether at the maximum orscaled down rates assuming their annual wages do notsurpass certain thresholds.

• Under IRC §45R, the credit is a general business creditand thus any unused credit amount can be carried backone year and carried forward 20 years.

• Small tax-exempt employers who are eligible for thecredit can have the credit refunded to them in the eventthey do not have any taxable income.

With these kinds of savings and overall benefits small business owners should actively explore the opportunities available from these credits and the impact it can have on one’s tax liability. While there are a surprising number of potentially valuable tax credits and cash-savings opportunities, one of the most important is the fact that many business owners simply are not aware of the fact that the credit can be carried back and/or carried forward.

Take the “Credit”: It’s Not Too Late

Lastly, for those eligible employers whom have not filed to take the credit, it is not too late to still take advantage of the credit. Small business owners should inquire with their tax professionals to explore the amendment of their business tax returns. For instance, a small business owner who has not claimed the credit but who is eligible should file Form 8941 for the years in question. For example, if the small business owner pays $50,000 a year toward workers health care premiums and qualifies for a 35% tax credit, the small business owner may receive a tax credit of $17,500 for years 2010 thru 2013 for a total savings of $70,000. For tax year

are extensive. The findings of the report don’t just impact on the typical average American taxpayer, but even more so for those in the high income brackets.

Tax Code Changes are hard to Follow: 5,000 Tax Code Changes Since 2001

If tax professionals at large across the country working for some of the nation’s most well-known tax preparer organizations consistently and frequently make errors in the filing of their clients’ taxes, the challenges for the typical American self-filer are not just daunting, but overwhelming. How complicated is the tax code? Since 2001 Congress has made nearly 5,000 changes to the Tax Code. That’s more than a change per day. Just think, if a paid tax professional preparer often, even frequently, doesn’t get it right, what are the chances of a do-it-yourselfer to accurately fill out and understand the labyrinth of cumbersome forms? Probably not that good and that can have serious bottom line cash flow and business consequences.

In fact, according to Nina E. Olson, the lead voice for the National Taxpayer Advocate, in a report delivered in 2012 to the House Committee on Ways and Means and the Senate Committee on Finance, said the following:

“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns. It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay…”

Here are a few potential examples of what a do-it-yourselfer American Business owner may have missed in the filing of their taxes.

Small Business Owners can use the Small Business Health Care Tax Credit, among a host of other financial benefits, to offset mandatory increased insurance coverage for its employees as proscribed by the Affordable Care Act of 2010.

The mandatory increased insurance coverage for employees (for small companies) as proscribed by the Affordable Care Act of 2010 initially had many people worried,” says Marcus Rogers, a Tax Attorney with Tax Saving Professionals, “however, there are a number of provision in the new code that can be valuable and useful.” As with many ratified forms of legislation, the Act is very lengthy and complex, encompassing 10 titles and over 2408 pages of what has been described as “entertaining text” from the certified full length version of the bill.

Tax Credits for Small Business Owners

The Act also creates a tax credit for small business owners under Title 1, Subpart B, Part II section 1421 of the Act. Most small employers are unaware of how meaningful the tax credit can be to offset the increased cost of insurance. The IRS has issued an announcement on March 10, 2014, entitled “ IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit; Helpful Resources, Tax Tips Available

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2014, the maximum amount goes up to 50%, so assuming premiums stay constant the tax credit will by $50,000. For the current tax year, if clients have not already done so they should consider extending their tax return to allow them to have time to discuss with their CPA the applicable small business tax credit under IRC section §45R of the Internal Revenue Code as it may unveil significant tax savings.

Senators Introduce Bill Banning Federal Bonuses for Tax Delinquents

A pair of senators have introduced legislation to prohibit federal workers from receiving bonuses if they aren’t in good standing with their agency or the law, in response to a report from the Treasury Inspector General for Tax Administration that IRS employees who owed back taxes received lucrative bonuses

Senators Kelly Ayotte, R-N.H., and Claire McCaskill, D-Mo., said Tuesday that they have introduced the Stop Wasteful Federal Bonuses Act, bipartisan legislation that would ban such bonuses for federal employees.

The senators’ bill comes in the aftermath of the recent TIGTA report, which found that $2.8 million was paid in bonuses between 2010 and 2012 to 2,800 employees with conduct violations—including more than $1 million for over 1,100 IRS employees who are delinquent on their taxes (see TIGTA: IRS Shouldn’t Award Employees with Conduct Issues). Some agencies, including the IRS, don’t consider conduct problems, including tax compliance, when determining bonuses, the senators pointed out.

Shareholders Looking to Borrow From Their Corporations: Act Now Before Rates Rise

A consensus seems to be emerging that interest rates will be heading up this year, after crawling along the bottom for an extended period of time. For shareholders of closely held corporations who are looking to borrow from their companies, now may be the time to act. Such shareholders may be in the position to borrow money from their companies at low rates without running afoul of the Code Sec. 7872 imputed interest rates.

Imputed interest background. Under Code Sec. 7872, a below-market loan (in general, a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate, or AFR) is recharacterized as a loan by the lender to the borrower in exchange for an interest-paying note, and then a transfer to the borrower of the funds to pay the interest. Then, in separate taxable events, the borrower is treated as paying, and the lender is treated as receiving, interest income.

In the shareholder-borrowing-from-corporation context, the imputed transfer by the lender to the borrower of the funds to pay the interest generally will be treated as a dividend (to the extent of the corporation’s earnings and profits).

A demand loan (i.e., one payable on demand) is a below-market loan if it does not provide for an interest rate at least equal to the AFR; for demand, below-market loans, the imputed interest payments and deemed transfer of a dividend are treated as being made annually. A term loan (any loan other than one payable on demand) is a below-market loan if the present value (PV) of all amounts due on the loan is less than the amount of the loan (i.e., the yield to maturity is lower than the AFR). For a term loan made to a shareholder-employee, the corporation-lender is treated at the time of the loan as transferring as a dividend the difference between the loan amount and the PV of all the future payments under the loan. The term loan is then treated as having original issue discount (OID) and is thus subject to the Code Sec. 1272 rules.

Avoiding recharacterization. In the closely held corporation/shareholder context, the Code Sec. 7872 rules don’t apply if:

(1) The loan balance between the parties in the aggregateon any day does not exceed $10,000 (this is a de minimisexception). (Code Sec. 7872(c)(3)) However, this exceptiondoesn’t apply if the principal purpose of the loan is taxavoidance.

(2) The loan bears interest at a rate at least equal to theAFR. (Code Sec. 7872(e), Code Sec. 7872(f))

For a term loan (the type likeliest to be used by shareholders), the AFR for the term (whether short-term, mid-term or long-term) is the rate under the OID rules of Code Sec. 1274(d) as determined by IRS each month and in effect as of the day the loan was made, compounded semiannually. (Code Sec. 7872(f)(2)(A)) The short-term rate applies to loans for a term of three years or less; the mid-term rate applies to loans for a term of over three years but not over nine years; and the long-term rate applies to loans for a term of over nine years. (Code Sec. 1274(d)(1)) Under proposed regs, the shorter of the compounding period or the payment interval would determine which rate (i.e., monthly, quarterly, semiannual, or annual) is appropriate. (Prop Reg § 1.7872-3(b)(1))

Today’s interest rates, although not at historically low levels, still are relatively low. For example, for the month of May, 2014, the short-term AFR is .33% regardless of the period of compounding; the mid-term AFR is 1.91% for monthly compounding, 1.92% for quarterly or semiannual compounding, and 1.93% for annual compounding. The long-term AFR is 3.22% for monthly compounding, 3.23% for quarterly compounding, 3.24% for semiannual compounding, and 3.27% for annual compounding. (Rev Rul 2014-13, 2014-19 IRB) Thus, for example, a closely held corporation making a three-year loan in April to a shareholder could charge just .33% interest on the loan and escape the imputed interest rules. For a mid-term loan of three to nine years, just 1.91% interest could be charged with monthly compounding, and for a fifteen-year loan, the rate assuming monthly compounding could be 3.22%.

Steering clear of pitfalls. The loan must be set up properly

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to avoid having the entire amount characterized as a taxable distribution under Code Sec. 301, and treated as a dividend to the extent of earnings and profits. Some of the key factors for determining whether a bona fide loan exists are:

(1) Whether a ceiling existed on the amounts that could beadvanced to the shareholder. There would be a practical limiton the amount that could be advanced where the approval ofanother shareholder to the advances was needed.

(2) Whether security is given for the advances. There wouldbe such security if the corporation’s articles of incorporationprovide that the corporation will have a lien on theshareholder’s shares of stock for any debt of the shareholderto the corporation, even if the shareholders are unaware ofthe provision in the articles when the advance is made.

(3) Whether the shareholder was in a position to repay theadvance. The shareholder’s salary as an employee of thecorporation is taken into account in making that determination.(4) Whether there is a repayment schedule or an attempt torepay.

(5) Whether there is a set maturity date. If there is none, actualrepayments may be taken into account to determine when theloan is likely to be repaid.

(6) Whether the corporation makes systematic efforts to obtainrepayment.

(7) The size of the advances.

(8) The extent to which the shareholder controls the corporation.

(9) The corporation’s earnings and dividend history.

(10) Whether a note or certificate of indebtedness was takenby the corporation.

(11) How the shareholder and the corporation recorded theadvances on their books and records.

Editors Note: In chapter One of the ncpe Fall Book you will find a table of the Applicable Federal Rates by year. It supports the premise that if your corporate officer wants a loan from the corporation NOW is the time but make certain the rules are closely followed.

People in the Tax News

Tax-writing Congressman Violated Tax Law

In Washington, Republican Rep. Todd Young helps write the nation’s tax laws, but back home in Indiana he violated state tax law, claiming a property tax deduction for a house he didn’t live in.

In 2012, Young, a member of the tax-writing House Ways and Means Committee, claimed a house in Bloomington was his primary residence and deducted more than $200,000 from his property taxes - saving himself almost $5,000. Turns out, Young was renting the property, not living in it, according to documents obtained by CNN.

Last month, the county auditor notified the second-term congressman that he owed about $5,300 in back taxes and penalties, which Young paid April 14, records show.

It’s not the first time Young has had tax problems. CNN reported last month that Young paid $1,500 in penalties for late payments for his property taxes between 2007 and 2011. In both cases, Young took responsibility.

“I accept full responsibility for these embarrassing oversights and have paid all the taxes and fees I owed. I regret the errors and offer no excuses,” Young said in a statement to CNN.

His spokesman said Young had been eligible for the so-called homestead deduction in prior years, but did not stop claiming it when he moved out in late 2011.

Monroe County Treasurer Catherine Smith said that when Young was in her office in 2012 (paying $4,000 for 2011’s back taxes), she gave him the opportunity to update his records and remove the homestead deduction from the property, but he didn’t.

“It’s homestead fraud. He knew the state law,” the Democratic treasurer said. “A man that makes (a salary) from tax money should be held accountable for his own taxes.”

Smith was already frustrated that the check Young used to pay the $4,000 in back taxes bounced, leading the treasurer to complain that Young’s problems have “created serious complications for our office.”

Monroe County Auditor Steve Saulter, a Republican, said Young just made a mistake when he filed for a homestead deduction he did not qualify for.

“In 99% of the cases we deal with, it simply slips people’s minds. It’s ‘whoops’ or ‘I don’t understand the law,’” the auditor said. “They are not willingly making improper deductions.” “I simply forgot because we have 50 million things going on. It was one of the smoother cases,” said Saulter, referring to how quickly Young paid up.

Tax Denier Wins Damage Claim Against IRS Levy - Kind Of

People who argue that wages are not taxable income generally do not fare well when they make those arguments in federal court. Having one of them win a damage claim against the IRS for fumbling a levy is something worthy of note. The case of Laurie L. Music v United States of America was recently decided in the United States District Court for the Northern District of Georgia (Sorry can’t find a free link). It’s not much

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of a win for the tax deniers, but it is a win. It will be interesting to see what they will make of it.

The Ruling

On April 1, 2014, the court held a bench trial and received evidence from both parties. After a careful review of the record and the testimony presented, the court finds that plaintiff is entitled to judgment in her favor. The IRS failed to exercise “reasonable diligence” in ascertaining plaintiff’s “last known address.” However, plaintiff’s victory is somewhat pyrrhic; the entirety of her requested damages were not proximately caused by the IRS’ negligence and even if they were, she could have reasonably mitigated the damages.

Although plaintiff has not requested it, the court will take judicial notice that plaintiff paid a $350 filing fee to file this action and award that cost as damages. Therefore, plaintiff is entitled to judgment in her favor against defendant for $350.

Ms. Music went fifteen years without filing an income tax return. The last time she filed she listed her address as Summrefield, FL. Around 1998 she moved to Blue Ridge, GA.

Plaintiff’s continued abstention from filing income tax returns piqued the IRS’ interest. Sometime in August, 2005, the IRS sent a letter to plaintiff’s Summerfield address stating that the IRS had no record of receiving her tax returns for the 2001–2003 tax years. Sensibly, the IRS sent the letter to Summerfield, Florida, because that was plaintiff’s last known address. The IRS did not receive a response to its inquiry, so the IRS searched for an alternate address to send a follow-up letter. Plaintiff’s W-2 listed an address in Blue Ridge, Georgia, and the IRS used that address for a follow-up letter dated September 3, 2005. Plaintiff received the Blue Ridge letter and responded that she was not required to file a tax return; under her (extremely flawed) reading of the tax code, she did not have any income. She also claimed that she had not received any letters from the IRS other than the letter dated September 3, 2005.

In late 2005, plaintiff moved from Blue Ridge, Georgia to Epworth, Georgia. She did not leave a forwarding address with the Post Office, and she did not inform the IRS that she moved.

In 2007 Ms. Epworth had some correspondence with the IRS. She argued that she was exempt from withholding and wanted her W-4 to be honored. The IRS sent a response to her Florida address, but when that was returned, they sent a follow-up to her Epworth address. So somebody at the IRS knew she was living in Epworth.

When it came time to send her a notice of deficiency for not filing her returns for the years 2004-2006, it was sent to her Florida address. She did not respond to the notice and the IRS followed through with a levy, the notice of which was sent to her old Florida address. The levy reduced her pay to $779.17 (The case does not say per what) leaving her not enough to pay her living and commuting expenses. So she quit.

The Stakes

The United States may be liable for taxpayer damages incurred due to the intentional, reckless, or negligent disregard of any provision of Title 26 by an IRS officer or employee in connection with the collection of a taxpayer’s federal tax. As a preliminary matter, the taxpayer must show that she has exhausted her administrative remedies. 26 U.S.C. § 7433(d)(1). If she has done so, then she must demonstrate that the IRS intentionally, recklessly, or knowingly disregarded a provision of the Internal Revenue Code in connection the collection of federal tax with respect to the taxpayer. If the court finds that the taxpayer established liability, then the taxpayer is entitled to damages.

The statute caps damages at $1,000,000 if the conduct was intentional or reckless and $100,000 if the conduct was merely negligent.

IRS Was Negligent

The Court found that the IRS was negligent in executing a levy after sending the notice to an address where previous correspondence has been returned undelivered.

Moreover, any concerns initially raised by a history of undelivered mail would have been confirmed by a cursory glance at plaintiff’s file. Plaintiff’s employer was located in Georgia, and plaintiff responded only to IRS correspondence sent to Georgia addresses. Despite these clear indications that plaintiff no longer lived at her Summerfield address and almost certainly lived outside Florida, the IRS sent the notice of intent to levy to plaintiff’s Summerfield address. Every piece of evidence points to the IRS’ blind reliance on the master file’s “last known address” despite obvious indications that plaintiff no longer lived at that address.

The “But It Was The Computer That Handled It” Defense

Defendant also asks the court to draw a distinction between cases handled by the IRS’ Automated Collection System (“ACS”) and cases handled by IRS agents. Since plaintiff’s potential tax liability was relatively small, her case was handled by the computer driven ACS rather than assigned to a revenue officer. Defendant argues that reasonable diligence

9

“cannot be assessed in a vacuum” and that the court should distinguish between cases handled by the ACS and those handled by revenue officers.

The Court did not buy it.

In other words, defendant asks the court to vary the IRS’ “reasonable diligence” obligation based on whether the case is handled by an IRS officer or the ACS. The court will not do so. Defendant’s position has no statutory or regulatory support, and it is contrary to the procedural due process rights extended by Congress to taxpayers in § 6331.

No Damages

The Court did not find that Ms. Music suffered any of her claimed damages as a result of the IRS misdirected levy.

Plaintiff’s damages were not the proximate result of the IRS’ negligent actions. Plaintiff would have suffered the same “damages” even if she received the notice of intent to levy. Plaintiff claims that she does not need to file a tax return because her “wages” are not considered “income” under the tax code. Her position is patently frivolous.

Plaintiff mistakenly equivocates the validity of the levy with the validity of the assessment giving rise to the levy. Even though the levy did not comply with a statutory notice requirement, plaintiff still owes back taxes. All the IRS needs to do to effect a procedurally compliant levy is to provide notice thirty days before reimposing the levy. Accordingly, plaintiff’s damages are, at most, the sum of the pre-levy paychecks she would have received in the thirty days after the levy went into effect.Even drastically reduced, plaintiff’s remaining damages were not foreseeable. Plaintiff’s quitting her job is not a natural and probable consequence of an incorrectly addressed letter.

But She Does Get Her $350 Back

The IRS violated § 26 U.S.C. § 6331 by sending notice of its intent to levy to an address where previous correspondence had been returned undelivered. By doing so, the IRS failed to satisfy its obligation to exercise “reasonable diligence” to determine plaintiff’s last known address. Plaintiff is entitled to her actual, direct economic damages plus the costs of the action. The IRS’ negligent conduct did not proximately cause any actual, direct economic damages to plaintiff, but plaintiff incurred $350 in “costs of the action” damages by filing her complaint. The court finds that plaintiff is entitled to judgment in her favor against defendant for $350. The Clerk of Court is DIRECTED to enter judgment accordingly.

Seriously This Is Disturbing

There are a significant number of people out there who argue that most ordinary Americans are not subject to income tax. Although they always lose on those arguments, and Ms. Music is no exception, when there is actual litigation, this case is evidence that they may be swamping the system. Ms. Music went 15 years without filing. The strains on the IRS

budget make it more likely that more of them will be able to slip through the cracks. The courts, quite rightly, will require the IRS to dot all its i’s and cross all its t’ s, as they are doing in this case. Nothing is requiring Congress to provide them with the resources to do that.

Yul Brynner’s Tax Spat Springs Rush to Give Up U.S. Passports

Almost 50 years after Oscar-winning actor Yul Brynner gave up his passport at the U.S. embassy in the Swiss capital, the number of Americans relinquishing their citizenship jumped 47 percent in the first quarter.

Expatriates giving up their nationality climbed to 1,001 in the three months through March from 679 a year earlier, according to Federal Register figures released May 2. The number tripled to 3,000 in 2013 from the previous year, Internal Revenue Service data shows.

While Brynner, the star of “The Magnificent Seven,” renounced his American citizenship in Bern following a dispute with the IRS, tougher asset-disclosure rules being introduced in July are prompting more of the estimated 6 million Americans living overseas to weigh giving up their passports. The appeal of U.S. citizenship for expatriates dimmed further as 106 Swiss banks prepare to turn over account data on American clients to avoid prosecution for helping tax evaders.

“I feel caught in the battle between the government and the banks,” said John Annen, a 46-year-old American mathematician who has lived for more than decade in Switzerland. “The U.S. government is the biggest threat to my style of living.”

Feds Crack Phony Tax Refund Ring

Federal agents have broken up another criminal ring whose members are accused of using phony federal tax returns to steal millions of dollars from the U.S. Treasury.

Cases of such tax fraud, which authorities have said is controlled by groups of Dominicans in New York and based on massive identity theft in Puerto Rico, has exploded in recent years, growing by more than five times by one government estimate.

Two New York women originally from the Dominican Republic pleaded guilty Friday to conspiracy and theft charges in U.S.

District Court in New Haven in connection with tax refund fraud. Federal prosecutors said they are part of a group that operated in Connecticut and collected more than $2 million between March and August last year by filing 305 fraudulent federal tax returns.

Most of the phony tax filings and refunds are based on social security numbers and other identifying information stolen in

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Puerto Rico, where the island’s exemption from the federal income tax has attracted tax and identity thieves.

Residents of Puerto Rico are issued social security numbers but are not required to pay federal income tax if they live on the island and earn their income from employment there. When thieves file returns based on numbers in Puerto Rico, it can appear to the IRS that the legitimate holder of the number has found work on the mainland and moved to a city such as Hartford.

In recent years, authorities in Puerto Rico report that criminals have broken into and stolen records from schools and other government buildings where hundreds or thousands of social security numbers were kept in files.

Mainland criminals, most of them in New York, file returns based on stolen numbers – returns that typically report high income, high withholding and mainland addresses that are controlled by the ring. Three years ago, U.S. Postal Inspectors arrested a letter carrier in Hartford who they said was paid by ring members in New York to intercept previously identified refund checks.

In previous years, ring members often opened phony bank accounts in the name of the fraudulent tax payers, deposited the refund checks and later withdrew the money. More recently, criminals who file the phony tax returns are simply selling the refund checks at deeply discounted rates to other criminals, who arrange to have them cashed.

The two women who pleaded guilty are Pricilla Brito and Yowandy DeLeon, both 38 and naturalized U.S. citizens from the Dominican Republic. They are accused of selling discounted checks in Connecticut. Federal prosecutors said Brito sold a government informant nine refund checks worth about $60,000 for about $35,000.

When authorities arrested DeLeon, investigators said her mobile telephone contained the names, dates of birth, Social Security numbers, and amounts of refunds for 32 individuals whose stolen identities had been used in filing fraudulent federal tax returns.

Brito pleaded guilty to one count of conspiracy to defraud the U.S. DeLeon pleaded guilty to one count of theft of public funds, and aiding and abetting the theft of public funds. Brito faces a maximum five years in prison, DeLeon faces up to ten years, both are to be sentenced on Aug. 6.

Four other individuals have been charged with crimes in Connecticut in the same case. All have ties to the Dominican Republic,. Three live in Waterbury and one lives in New York.

North Carolina Seafood Distributor Pleads Guilty to Tax Evasion

Jeffrey Wayne Scott, 48, of Wilmington, North Carolina, pleaded guilty to tax evasion in Raleigh, North Carolina, the Justice Department and Internal Revenue Service announced.

Scott was indicted on Nov. 25, 2013, for five counts of personal income tax evasion and one count of filing a false corporate tax return. He pleaded guilty to one count of willfully attempting to evade his personal income tax for tax year 2007.

According to court documents and court proceedings, Scott has owned and operated Greenville Loop Seafood (GLS), a seafood distribution company located in Wilmington, since 1995. For tax years 2006 through 2010, Scott and his wife filed joint individual income tax returns. Scott provided his return preparer with handwritten summaries of gross receipts and categorized expense items for the wholesale and retail fish distribution businesses as well as tax documents provided by financial institutions. Scott, under penalty of perjury, reported that his taxable income for these five years ranged between $23,934 and $92,999, and paid only $91,800 in federal income taxes for this time period. During these five years, however, the Scotts spent far in excess of this reported taxable income on personal expenditures.

According to court documents and court proceedings, between 2006 and 2010, the Scotts paid for nearly all of their living expenses with checks from GLS. This included, among other things, utilities, insurance premiums, landscaping, home improvements, school fees and a country club membership. They also purchased five vehicles totaling more than $200,000, a $100,000 boat and a $2.1 million waterfront home. Scott also made a monthly transfer of $10,000 from GLS’ business account into a personal brokerage account. After the purchase of their home in June 2009, Scott stopped transferring funds to the brokerage account, but instead used funds from GLS’ business account to pay the mortgage and related expenses. Through a bank deposit and expenditure analysis, the IRS calculated that Scott failed to report taxable income for these five years in excess of $1,151,642 and owed at least $390,678 in additional taxes. For the 2007 tax year, Scott failed to report $328,754 in taxable income with an additional tax due and owing of $113,967.

According to court documents and court proceedings, when first contacted by IRS-Criminal Investigation agents in June 2011, Scott falsely stated that he was letting friends stay in his second home rent free. Furthermore, despite being aware that he was under criminal investigation, in November 2012, Scott filed a false 2011 GLS corporate income tax return claiming the painting of his personal residence, repair work by a plumber at his personal residence, and health bills related to his family dog as business expenses.

Chief U.S. District Judge James C. Dever III scheduled the sentencing for the term of court to begin Aug. 18, 2014. Scott faces a statutory maximum prison term of five years and a maximum fine of $250,000.

Judge Upholds Sale of Woman’s Home Over Delinquent Tax Bill of $6.30

A widow was given ample notice before her $280,000 house was sold at a tax auction three years ago over $6.30 in unpaid interest, a Pennsylvania judge has ruled.

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The decision turned down Eileen Battisti’s request to reverse the September 2011 sale of her home outside Aliquippa in western Pennsylvania.

The dispute involves school district taxes, penalties and interest for 2008, which Battisti paid in early May 2009. But because her payment was six days late, an additional interest payment of $6.30 was added. Battisti said she was never notified of the overdue interest after country tax authorities credited her account.

When her home was sold, the Tax Claim Bureau of Beaver County said she was delinquent $234.72.

Eileen Battisti claims she never knew about the tax bill and struggled to take over the family finances after her husband passed away.

From the April 16, 2013 court filing:

Taxpayer and her husband, Anthony Battisti, purchased the Property as their home in 1999. Anthony Battisti was responsible for managing the family’s finances, including the payment of all bills and taxes. He died in 2004. Taxpayer used her husband’s life insurance policy to pay off the mortgage. Taxpayer explains that she has struggled to assume responsibility for the financial matters previously handled by her husband. She has also struggled with both physical and emotional challenges that have caused her to be tardy in paying taxes.

Unfortunately, cases like Battisti’s are not uncommon, as state and municipal tax offices scramble to fill budget holes by aggressively pursuing unpaid property taxes — even if it means auctioning off homes over a few bucks.

As a result, annual tax lien sales have topped $15 billion per year, according to a report released by the National Consumer Law Center last year.

For investors, tax lien sales are nothing less than a gold mine. Big purchasers — for example, debt collectors or large retail banks — can snap up the properties at deeply discounted rates and then sell them at a ridiculous profit.

H&R Block Need Not Pay Tax Preparers For Time Spent in Training, Court Affirms

Tax professionals seeking to be rehired as H&R Block seasonal tax preparers aren’t entitled to pay under the Fair Labor Standards Act for time spent completing 24 hours of continuing professional education required for rehire, the U.S. Court of Appeals for the Eighth Circuit ruled

Affirming summary judgment for H&R Block under the FLSA and state laws, the Eighth Circuit said the tax professionals were “trainees” rather than employees while taking the training because none was guaranteed a job with H&R Block and the training primarily benefits the individuals rather than the employer.

“While the CPE [continuing professional education] requirement is no doubt useful to H&R Block in that the training helps educate the tax professionals and keep them current on tax issues, H&R Block does not reap the benefits until after the tax professionals accept the company’s offer of employment,” Judge Roger L. Wollman wrote.

“Indeed, H&R Block offers courses on substantive tax topics, and tax professionals enrolled in those courses could apply the training in a job with a different tax preparation service provider,” the court said.

The tax plaintiffs argued H&R Block “receives an immediate economic advantage” from their training as the company charges $20 for access to its training and advertises it has “the best trained and most qualified” tax preparers in the industry.

But the court said the $20 fee is “de minimis,” H&R Block allows tax professionals to satisfy its training requirement though courses offered by other vendors, and the company’s advertising does not affect employment status.

Consistent With DOL Handbook

The court rejected the plaintiffs’ argument that their training primarily benefits H&R Block because the skills learned are nontransferable. That H&R Block’s courses use the company’s internal systems and software “does not render the skills learned at the training courses nontransferable,” the court said.

The Labor Department’s Wage and Hour Division field operations handbook supports the conclusion the tax professionals during training weren’t H&R Block employees, the court said.

DOL identifies six criteria for deciding whether trainees are employees, including the relative benefits to the individual and the employer, whether the trainees displace regular workers and if they are entitled to a job after training.

“While the CPE [continuing professional education] requirement is no doubt useful to H&R Block in that the training helps educate the tax professionals and keep them

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current on tax issues, H&R Block does not reap the benefits until after the tax professionals accept the company’s offer of employment,” Judge Wollman wrote.

The tax professionals failed to raise a triable issue on any factor, despite their argument H&R Block never informed them in writing they wouldn’t be paid for training time, the court said.That alleged lack of notice “does not create a material factual dispute in light of the evidence that the company handbooks explained that tax professionals must complete the training to be eligible for rehire, that doing so was not a guarantee of future employment and that H&R Block charged [$20] for access to its CPE courses,” the court said.

Former Minnesota Attorney Pleads Guilty to Tax Fraud

Barry V. Voss of St. Paul, Minnesota, pleaded guilty today to failure to pay over employment taxes,, announced Assistant Attorney General Kathryn Keneally of the Justice Department’s Tax Division Justice, U.S. Attorney Andrew M. Luger for the District of Minnesota and Special Agent in Charge Kelly R. Jackson of the St. Paul Field Office of the Internal Revenue Service (IRS)- Criminal Investigation. Voss pleaded guilty to one count of failure to pay over employment taxes for the fourth quarter of 2008.

According to the plea agreement, Voss filed quarterly employment tax returns with the IRS from July 2007 through December 2010 which reflected taxes withheld from the salaries of the employees of his law firm, Barry V. Voss P.A., including Voss’ own salary. However, Voss failed to timely pay over to the IRS the full amount of the taxes due and owing. Voss admitted that he intentionally failed to pay these taxes to the IRS, which totaled approximately $160,000.

Voss faces a statutory maximum prison term of five years in prison, a fine of $250,000 and payment of back taxes owed to the IRS. A sentencing hearing has not yet been scheduled.

This case was investigated by special agents of IRS-Criminal Investigation. It is being prosecuted by Trial Attorneys Lori A. Hendrickson and Adam R. Smart of the Tax Division andAssistant U.S. Attorney Karen Schommer of the District ofMinnesota.

318,000 Federal Workers Owe $3.3 Billion in Back Taxes (Delinquency Rate Is 33% Higher Among VA Employees)

318,462 federal workers and retirees owed more than $3.3 billion in back income taxes as of September 30, 2013, a delinquency rate of 3.27% (compared to 8.7% for the entire U.S. population). Among the 18 executive departments, the embattled Department of Veterans Affairs has the second highest delinquency rate among its employees: 4.38% (behind the Department of Housing and Urban Development’s 5.29%).

Among 27 large (> 1,000 employees) independent agencies, the Federal Reserve has the third highest delinquency rate: 6.51%.

The delinquency rate is 4.87% in the House of Representatives and 2.43% in the Senate.

In the tax world, the delinquency rate is 3.02 in the Tax Court and 1.20% in the Treasury Department (the IRS is not separately broken out).

Alaska Plastic Surgeon Indicted on Tax Evasion Charges for Concealing Bank Accounts in Panama and Costa Rica

The Justice Department and Internal Revenue Service (IRS) announced that a federal grand jury in Anchorage, Alaska, returned a superseding indictment yesterday charging Michael D. Brandner, an Anchorage physician specializing in plasticsurgery, on three counts of tax evasion. Brandner has alsobeen charged with seven counts of wire fraud in an indictmentreturned in September 2013.

According to the superseding indictment, Brandner engaged in various activities to evade his taxes for 2008, 2009 and 2010, including making false and misleading statement to IRS special agents and filing false tax returns for each of the three years. In the three false returns, Brandner failed to report the existence of financial accounts in Panama and Costa Rica over which he had signature authority, and also failed to report foreign interest income of more than $9,000 for 2008, more than $150,000 for 2009, and more than $150,000 for 2010. The indictment also alleges that Brandner attempted to evade more than $600,000 in federal income taxes over the three years.

According to court documents, Brandner engaged in a scheme to hide and conceal millions of dollars of assets from the Alaska courts and from his wife of 28 years who was divorcing him. Shortly after the divorce was filed, Brandner left Alaska and drove to Central America after converting assets into five cashier’s checks worth over $3,000,000.

An indictment is merely an allegation and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. If convicted, Brandner faces a statutory maximum sentence of five years in prison for each of the three tax evasion charges and a statutory maximum sentence of 20 years in prison for each of the seven wire fraud charges.

The case was investigated by IRS-Criminal Investigation and by Homeland Security Investigations and is being prosecuted by Trial Attorney Ignacio Perez de la Cruz of the Justice Department’s Tax Division and Assistant U.S. Attorney Bryan Schroder for the District of Alaska.

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IRS News

IRS Will Not Take Registered Return Preparer Case to Supreme Court

Three independent tax-return preparers’ victory over the IRS became final, after the agency declined to file a petition seeking review from the U.S. Supreme Court. The lapse of the deadline marks the conclusion of a two-year battle over whether the IRS had the authority under the “Horse Act” of 1884—a statute passed to govern compensation claims for dead horses brought on behalf of Civil War veterans—to impose a nationwide licensing scheme on tax preparers.

“This brings finality to a major victory for independent tax preparers—and taxpayers—nationwide,” said Dan Alban of the libertarian-leaning Institute for Justice (IJ), lead attorney for the three preparers who filed the suit. “Four federal judges sitting on two different courts have all agreed that Congress never gave the IRS the power to license tax preparers, and an agency cannot just give itself such licensing authority. By not filing a petition for certiorari, the IRS has wisely chosen not to ride this horse law any further.”

If the licensing scheme had not been struck down, some 350,000 tax-return preparers would have been burdened by the new regulations, much to the benefit of entrenched special interests.

“These regulations were classic economic protectionism,” said IJ Senior Attorney Scott Bullock. “The burden would have fallen on small entrepreneurs and consumers, while powerful industry insiders stood to reap the benefits of decreased competition. Instead, taxpayers will enjoy lower prices for tax-preparation services as more preparers compete for their business.”

This case arose when the IRS, following several failures to secure congressional authorization, unilaterally imposed sweeping new regulations requiring all tax-return preparers to obtain a license and submit to ongoing, mandatory IRS-approved education. Three independent tax preparers—Sabina Loving of Chicago, Ill., Elmer Kilian of Eagle, Wis., and John Gambino of Hoboken, N.J.—filed suit in March 2012 in the U.S. District Court for D.C., arguing that the IRS exceeded the scope of its authority by attempting to enact the regulations without Congress’ approval. U.S. District Court Judge James E. Boasberg agreed, and struck down the regulations asunlawful in January 2013.

In February of this year, a three-judge panel of the D.C. Circuit Court of Appeals upheld the district court opinion, ruling that: “The IRS may not unilaterally expand its authority through such an expansive, a textual, and a historical reading of [the statute.]” The case is Loving v. IRS.

Grassley Responds to Criticism of Private Contractor Tax Debt

Nina Olson, the national taxpayer advocate, is quoted as saying the IRS does a good job collecting back taxes that are due and owed, so the use of private contractors to collect those debts is unnecessary. However, the non-partisan congressional Joint Committee on Taxation, the official estimator of tax provisions, says the current proposal in the tax extenders bill to engage private contractors to collect tax debts would generate $2.4 billion over ten years for the U.S. treasury. Sen. Chuck Grassley, a senior member and former chairman and ranking member of the Finance Committee, made the following comment on Olson’s comments.

“The use of private contractors is meant to get at legitimate tax debts that the IRS can’t or won’t collect on its own. These contractors are set up to do the work. They aren’t meant to detract from the IRS’ work. They’re meant to make up for what the IRS can’t do, while saving money. And there’s no getting around the estimate from the Joint Committee on Taxation that the current proposal would raise $2.4 billion over 10 years. That says the proposal would work, as intended. Collecting tax debt is only fair to all taxpayers who pay what they owe.”

OPR Negotiates the Imposition of Its First Monetary Penalty

OPR has negotiated imposition of the first monetary penalty imposed under Circular 230, Section 10.50(c). Although often overlooked, a monetary penalty is a potential sanction prescribed in 31 U.S.C. §330 and in Circular 230 for violation of the regulations governing practice before the IRS. Under section 10.50(c) of Circular 230, a monetary penalty can be imposed in lieu of, or in addition to, other discipline, such as suspension or disbarment from practice before the IRS. Unlike other forms of discipline, however, a monetary penalty can apply not only to individuals, based on their practice before the IRS, but also to any employer, firm, or other entity on whose behalf the individual was acting while engaged in the conduct subject to the penalty, if the firm knew or should have known of the conduct.

The penalty was paid by a firm pursuant to an agreement reached between the firm and OPR. The penalty was imposed in connection with contingent-fee engagement arrangements that the firm entered into with client-taxpayers in 2011 and 2012. After hearing several speeches by the Director on contingent fees and Circular 230 jurisdiction over tax advising firms not owned by Legacy 230 practitioners, the firm approached OPR and made a voluntary disclosure of its practices. In addition to paying a monetary amount, the firm also agreed to implement an internal training and compliance program relating to Circular 230, and changed its client engagement practices to bring them into compliance with Circular 230.

It is important for any firm whose business activities involve federal tax practice, and for the firm’s owners and operators in particular, to recognize and understand that employees and other members of the firm who perform this work are subject

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to the duties and restrictions of Circular 230, including rules regulating the types of fees that may be charged for such services. Additionally, those who have principal authority and responsibility for the firm’s tax practice should be aware that they are required by Circular 230 to take reasonable steps toensure that there are adequate procedures in effect for all firm members to comply with Circular 230. Practitioners who breach their ethical obligations under Circular 230 (whether through inadequate oversight or otherwise) do so at their own risk and their firm’s risk, and can face sanctions including liability for a monetary penalty, the amount of which can be up to 100% of the gross income derived (or to be derived) from the conduct giving rise to the penalty.

IRS To Restructure Services For Small Businesses

The United States Internal Revenue Service (IRS) is looking at a plan to realign compliance operations at its two largest business units, Wage and Investment (W&I) and Small-Business Self Employed (SB/SE).

With IRS examination and collection activities for individuals and small businesses overlapping between W&I and SB/SE, the new concept would consolidate compliance-related operations to avoid organizational duplication, find operational efficiencies, and help more quickly identify emerging compliance risks. For taxpayers and tax professionals, the goal is to improve customer service and speed the resolution of issues.

In general, pre-filing compliance programs would move to W&I, and post-filing compliance programs for individuals and small businesses would move to SB/SE; two new functions would be created in SB/SE – one focused on collection work and one on examination work; and W&I and SB/SE identity theft victims’ assistance work would be centralized under W&I.No employee jobs will be lost as a result of the structural changes within the bodies. The IRS is to publish more information on the change as plans are developed.

With 131 Million Returns Filed, Millions of Amended Returns Expected

As of April 18, almost 46 million returns were e-filed from home computers, more than the total from home computers for all of 2013. The IRS has received more than 131 million returns, of which 88 percent were e-filed.

The IRS also projects that almost 5 million taxpayers will amend their returns by filing Form 1040X during 2014. Taxpayers who need to amend their returns should file this form only after filing the original return. Generally, for a credit or refund, taxpayers must file Form 1040X within 3 years, including extensions, after the date they filed their original return or within 2 years after the date they paid the tax, whichever is later. For most people, this means that returns for tax-year 2011 or later can still be amended.

This year, many same-sex couples may want to consider filing

amended returns. A same sex couple, legally married in a state or foreign country that recognizes their marriage, is now considered married for tax purposes. This is true regardless of whether or not the couple lives in a jurisdiction that recognizes same-sex marriage.

For returns originally filed before Sept. 16, 2013, legally married same sex couples have the option of filing amended return to change their filing status to married filing separately or married filing jointly. But they are not required to change their filing status on a prior return, even if they amend that return for another reason. In either case, their amended return must be consistent with the filing status they have chosen.

As all amended returns must be filed on paper, allow up to 12 weeks for Form 1040X to be processed. Starting 3 weeks after filing their amended returns, taxpayers can use the “Where’s My Amended Tax Return?” tool on IRS.gov to check the status.

EIN to Use When Entity Tax Status Changes

Confusion has existed regarding what EIN to use when the tax status of an entity a changes. Part of this confusion is due to IRS instructions on its web site and in its written publications. Many times we have been asked if a new EIN is required when an entity changes from a partnership taxed entity to a disregarded entity. This email is an attempt to help clarify the rules.

Regulation §301.6109-1 deals with TINs. Paragraph (h) states (quoted):

(h) Special rules for certain entities under §301.7701-3.

- (1) General rule – Any entity that has an employeridentification number (EIN) will retain that EIN if its federaltax classification changes under §301.7701-3.- (2) Special rules for entities that are disregarded as

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entities separate from their owners- - (i) When an entity becomes disregarded as an entityseparate from its owner. – Except as otherwise providedin regulations or other guidance, a single owner entity thatis disregarded as an entity separate from its owner under§301.7701-3 must use its owner’s taxpayer identifyingnumber (TIN) for federal tax purposes.- - (ii) When an entity that was disregarded as an entityseparate from its owner becomes recognized as a separate entity. – If a single owner entity’s classification changes so that it is recognized as a separate entity for federal tax purposes, and that entity had an EIN, then the entity must use that EIN and not the TIN of the single owner. If the entity did not already have its own EIN, then the entity must acquire an EIN and not use the TIN of the single owner.

Revenue Ruling 2001-61 address this same issue with regard to payroll tax filings. It says a partnership taxed entity that becomes a disregarded entity can CHOOSE to continue to use the EIN assigned to the entity OR the disregarded entity can get a new EIN. It also says a disregarded entity that has an EIN assigned to it (such as to a single member LLC) and changes to a partnership taxed entity is REQUIRED to continue using that same EIN. However if the disregarded entity does not have an EIN but only has a TIN, such as a SSN, then the entity must get an EIN when it becomes a partnership.

Changes that take place through the use of a Form 8832 (entity election) or Form 2553 (S election) are telling IRS that the entity that owns the EIN is now changing to a new type of entity. Therefore changes in tax status made on these two forms do not require a new EIN.

Recently IRS also issued Chief Counsel Advise Memorandum (CCA) 201351018 addressing the EIN requirements when a partnership becomes a disregarded entity. Basically this CCA gave the same information as above.

In summary:

– The TIN to use for an entity’s income tax reporting is 1)the TIN of the entity if there is more than one owner, or 2)the TIN of the owner if the entity has only one owner (suchas the SSN if the owner is an individual).

- The EIN to use for an entity’s payroll tax reporting isthe EIN assigned to the entity (does not change due to achange in income tax status) UNLESS the entity is goingfrom a partnership taxed entity to a disregarded entity andCHOOSES to get a new EIN.

Regulation §301.7701-2, Revenue Ruling 2001-61, CCA 201351018

Editor’s Note: This article provided courtesy of David and Mary Mellem, ncpe Instructors.

IRS Knocks Off Mom & Pop Shop

Earnest moralists lament Americans’ distrust of government. What really is regrettable is that government does much to earn distrust, as Terry Dehko, 70, and his daughter Sandy Thomas, 41, understand.

Terry, who came to Michigan from Iraq in 1970, soon did what immigrants often do: He went into business, buying Schott’s Supermarket in Fraser, Mich., where he still works six days a week. The IRS, a tentacle of a government that spent $3.5 trillion in 2013, tried to steal more than $35,000 from Terry and Sandy that year.

Sandy, a mother of four, has a master’s degree in urban planning but has worked in the store off and on since she was 12. She recalls, “They just walked into the store” and announced that they had emptied the store’s bank account. The IRS agents believed, or pretended to believe, that Terry and Sandy were or conceivably could be — which is sufficient for the IRS — conducting a criminal enterprise when not selling groceries.

What pattern of behavior supposedly aroused the suspicions of a federal government that is ignorant of how small businesses function? Terry and Sandy regularly make deposits of less than $10,000 in the bank across the street. Federal law, aimed mainly at money laundering by drug dealers, requires banks to report cash deposits of more than $10,000. It also makes it illegal to “structure” deposits to evade such reporting.

Because 35 percent of Schott’s Supermarket’s receipts are in cash, Terry and Sandy make frequent trips to the bank to avoid tempting criminals by having large sums at the store. Also, their insurance covers no cash loss in excess of $10,000.

In 2010 and 2012, IRS agents visited the store and examined Terry’s and Sandy’s conduct. In 2012, the IRS notified them that it identified “no violations” of banking laws. But on Jan. 22, 2013, Terry and Sandy found that the IRS had obtained a secret warrant and emptied the store’s bank account. Sandy says that if the IRS had acted “the day before, there would have been only about $2,000 in the account.” Should we trust that today’s IRS was just lucky in its timing?

The IRS used “civil forfeiture,” the power to seize property suspected of being produced by, or involved with, crime. The IRS could have dispelled its suspicions of Terry and Sandy, if it actually had any, by simply asking them about the reasons (prudence, and insurance limits) — for their banking practices. It had, however, a reason not to ask obvious questions before proceeding.

The civil-forfeiture law — if something so devoid of due process can be dignified as law — is an incentive for perverse behavior: Predatory government agencies get to pocket the proceeds from property they seize from Americans without even charging them with, let alone convicting them of, crimes. Criminals are treated better than this because they lose the fruits of their criminality only after being convicted.

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Sandy remembers her father exclaiming “Aren’t we in the United States? We did nothing wrong.” They did something right in discovering the Institute for Justice’s activities against civil forfeiture abuse. IJ, a libertarian defender of property rights and other American premises, says that what was done to Terry is done routinely across the nation — indeed, it was done almost simultaneously to the owner of a gas station near Schott’s Supermarket who deposited his cash receipts whenever he could get to the bank, typically every few days.

Civil forfeiture proceeds on the guilty-until-proven-innocent principle, forcing property owners of limited means to hire lawyers and engage in protracted proceedings against a government with limitless resources, just to prove their innocence. Says IJ: “To make matters worse, forfeiture law treats property owners like random bystanders and requires them to intervene in the lawsuit filed by the government against their property just to get it back. That is why civil-forfeiture cases have such unusual names, such as United States v. $35,651.11 in US Currency — the case involving Terry and Sandy.”

In what it probably considered an act of unmerited mercy, the IRS offered to return 20 percent of Terry’s money. Such extortion — pocketing others people’s money — often succeeds when the IRS bullies bewildered people not represented by IJ, which forced the government to return all of Terry’s and the gas-station owner’s money.

IJ’s countersuit seeks an injunction to prevent such IRS thefts and extortions.

IRS E-Services: Where are We Now? And Where are We Going?

When the online e-services of Power of Attorney and Electronic Account Resolution were terminated on Sept. 2, I heard concerns from numerous practitioners. In fact, we received more calls regarding this issue than all other issues combined last year.

The AICPA adamantly voiced members’ frustrations and concerns to the IRS. The backlash the IRS felt from the AICPA and other members of the practitioner community was so severe that IRS officials made it clear they never wanted this situation to repeat itself. This was a top priority to then-Acting Commissioner Danny Werfel. The IRS also quietly looked into different possibilities to bring back these online e-services.

Unfortunately, this ship has sailed. I was recently informed (officially) there is no way to turn on the old POA or EAR online services and that due to budget restraints, it won’t be revived in the new platform because:

• The original platform is antiquated;• A total rewrite would be required to transfer the program

to the new platform; • The estimated cost of the rewrite is $10 million; and• The new program needs to comply with Federal

Information Security Management Act (the old system is not compliant with FISMA and this is also the reason the price tag is huge).

Practitioners will need to continue submitting POA through fax or mail and then call the Practitioner Priority Service line for assistance with client account issues. The wait times to speak with an agent averaged more than 1.5 hours.

As an alternative, the IRS said they are developing an intuitive online program to manage POAs. This would be the first tool we’ve seen so far, with the new platform, which is for the benefit of practitioners. In theory, this tool would allow a preparer to authenticate themselves with a valid POA, which in turn would permit the practitioner to access information electronically on behalf of the taxpayer. The pilot of this program would be available in 2015.

As exciting as the news was, a member commented on the fact that had the practitioner community been involved in the initial decision to terminate the online services, this new program could already be in use instead of having the year lag between services.

Since we can’t turn back time to lament the “should have’s” and “could have’s,” the AICPA will focus on opportunities for the practitioner community to have meaningful input on the new tool to make it a truly functional program.

I also hope that this one program isn’t the only tool for practitioners. The IRS focuses heavily on providing additional services for taxpayers; however, practitioners are the front line to over half of the taxpaying population. For example, after the IRS created the online transcript service, which made it easier for taxpayers to request their tax data, many clients still called their practitioners to understand what type of transcripts they needed. I hope that many more practitioner tools will be developed in the near horizon and that this POA program is the gateway.

Editor’s Note: Article offered by, Technical Manager - Taxation, American Institute of CPAs.

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IRS Limited in Actions Against Companies with Off-Shore Addresses

The U.S. Internal Revenue Service probably can’t take regulatory action to stop companies from lowering tax bills through deals that put their legal addresses outside the country, IRS Commissioner John Koskinen said.

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Pfizer Inc. (PFE:US) this week proposed the biggest such deal yet, a $98.7 billion takeover of AstraZeneca Plc (AZN) that would move the largest U.S. drug maker to the U.K. for tax purposes and allow it to pay a lower tax rate.

“We’ve done, I think, probably all we can within the statute,” Koskinen, 74, told reporters in Washington yesterday, saying the trend of corporate moves underscores the need for Congress to change the U.S. tax code. “We try to make sure people are within the bounds, but if they’re within the bounds, if they play according to the rules, then they have a right to do that.”

Koskinen’s remarks show the limits of the U.S. government’s ability to respond while Congress is deadlocked on tax policy. The commissioner’s statement suggests that the Obama administration won’t or can’t make a regulatory move to stop the so-called corporate inversions it opposes.

Pfizer would join at least 19 other companies making or contemplating similar transactions, including Chiquita Brands International (CQB:US) Inc. and Omnicom Group (OMC:US) Inc., the largest U.S. advertising firm.

Cracking down on deals in which U.S. companies move their legal address outside the country to pay lower taxes is a priority for the Obama administration, a Treasury Department official said yesterday.

The official, who requested anonymity to discuss the administration’s plans, said the transactions emphasize the need for a revision of the U.S. tax code that includes reducing rates. Earlier this year, the administration proposed making the deals, known as inversions, harder to accomplish.

The broader tax-code revision and the narrower limits on inversion deals haven’t advanced in Congress.

U.S.-based companies with available cash will continuelooking for opportunities to acquire foreign companies as aplatform for inversions, said Bret Wells, an assistant professorat the University of Houston’s law school.

That will continue, he said, until Congress writes tighter rules that prevent foreign-based companies from loading up their U.S. subsidiaries with deductions for debt and other expenses and then shifting profits into low-tax jurisdictions.

“What inverted companies are telling us is that foreign-based multinationals have a significant advantage,” Wells said. “The capital markets respect earnings per share. That’s what they respect. In gauging an inversion as pennies of benefit to earnings per share, the market’s just going to applaud that.”

U.S. lawmakers have responded to the string of deals by talking about the importance of broader changes to the U.S. tax code, which are months if not years away.

“The last few weeks have presented a textbook for why tax reform is so important,” Senator Ron Wyden, an Oregon

Democrat and chairman of the tax-writing Finance Committee, told reporters this week. “The fact that the headlines are being dominated by how you can game the American tax code with these overseas deals ought to be the wake-up to anybody.” The prospect of Treasury regulations or legislation could encourage companies to accelerate deals.

Such deals have become attractive in part because of the increasing disparity in countries’ marginal corporate income tax rates, which are typically higher than what companies actually pay.

Ireland, which will be the new home address for Charlotte, North Carolina-based Chiquita, the banana distributor, has a 12.5 percent rate. The U.K.’s rate is 21 percent and will decline to 20 percent next year, with no tax on active businesses outside the country.

In contrast, the top U.S. corporate rate is 35 percent. Companies also must pay U.S. taxes when they repatriate foreign profits, after receiving credits for foreign taxes.

The spate of inversion deals mirrors what happened in 2001 and 2002, when companies including Ingersoll-Rand Plc (IR:US) and Cooper Industries Plc moved abroad.

Then, Congress effectively imposed a moratorium as the top members of the Senate Finance Committee announced plans to advance legislation and said any bill would be retroactive to that date.

Two years later, the ensuing law prevented companies from receiving the tax benefit of an overseas merger if their existing shareholders still owned 80 percent or more of the company’s stock after the deal.

In his budget plan released this year, President Barack Obama proposed lowering the 80 percent threshold to 50 percent. That plan would raise $17 billion for the U.S. Treasury over the next decade.

Some members of Congress, including Democratic Senator Jeanne Shaheen of New Hampshire, have introduced bills that would tax inverted companies as domestic if they are managed and controlled in the U.S.

IRS Tax Collections

Now that April 15 has passed, the Internal Revenue Service (IRS) is busy processing tax payments. So it’s a good time to consider historical patterns in the amount the tax authority collects, as well as the fractions that come from different sources: business income, employment, estate, excise, gift, and individual income taxes.

The IRS reports that it collected nearly $2.9 trillion dollars from taxpayers in 2013, the latest year data are available. That’s an increase of $331 billion, or 13.1 percent over 2012 levels. However, it is 5.6 percent lower than the 2007 peak, when measured in inflation-adjusted dollars.

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Nearly all of the money collected by the IRS comes from taxes on individuals. Last year, 53.9 percent came from individual income tax, while 31.4 percent was obtained from employment taxes. Only 10.9 percent was gathered from taxes on business income.

Taxes on business income were not always such a small fraction of total collections. Back in 1960, they accounted for nearly one quarter of what the IRS brought in. But, as the figure below shows, the business income tax share of total collections has hovered in the neighborhood of ten percent since the early 1980s, with only brief upward spikes, and has never returned to the fraction it routinely accounted for in the 1960s and 1970s.

The decline in the share of collections that comes from levies on business income has been offset by a rise in the fraction that comes from employment taxes. Between 1960 and 1989, the share of IRS collections coming from employment taxes rose from 12.2 percent to 35.6 percent. Since 1989, the fraction has fluctuated in the low-to-mid-thirty-percent range.By contrast, the share of the total that comes from individual income tax has fluctuated within a tight band over the past 50 years. In 1970, for instance, the fraction was 53.0 percent, as compared to 53.9 percent last year.

Excise taxes, such as cigarette or gasoline taxes, have declined substantially over the last half century. Back in 1960, they accounted for 12.9 percent of total collections. In 2013, they made up only 2.1 percent.

Estate and gift taxes account for only a small fraction the amount the IRS brings in. In 2013, the former accounted for 0.5 percent of the total garnered by the agency, while the latter made up 0.2 percent. While last year’s figures are smaller than in previous years, estate and gift taxes combined have never reached three percent of total IRS collections.

Share of IRS Collections from Individual Income Tax, Business Income Tax and Employment Tax, 1960-2013

Source: Created from data from the IRS annual Databook.

IRS Commissioner Tells Congress about EITC Challenges with Tax

Internal Revenue Service Commissioner John Koskinen testified before the House Ways and Means Oversight Subcommittee on Wednesday about the 2014 tax filing season and other matters, including problems with administering the Earned Income Tax Credit and oversight of tax preparers.

John Koskinen

The hearing also dealt with other issues facing the IRS, including efforts to prevent waste, fraud, and abuse, implementation of the Affordable Care Act, promoting fairness in examinations and tax administration, and changes at the agency to address the findings of targeting by the Treasury Inspector General for Tax Administration and congressional investigations.

In his prepared testimony, Koskinen discussed these matters, as well as the challenges of regulating tax preparers in the aftermath of a series of court rulings that invalidated the IRS’s efforts to require testing and continuing education of preparers.

“The IRS has continued to focus on service and compliance activities in regard to tax return preparers,” he said. “Return preparers play a key role in increasing taxpayer compliance and strengthening the integrity of the U.S. tax system. The IRS requires anyone who prepares or assists in preparing federal tax returns for compensation to have a valid Preparer Tax Identification Number (PTIN). PTINs allow the IRS to collect more-accurate data on who is preparing returns, the volume and types of returns being prepared and the qualifications of those doing return preparation. Additionally, PTIN data is essential in determining where to direct compliance and educational outreach efforts for erroneously prepared tax returns.”

Koskinen pointed out that the IRS recently held a successful PTIN renewal season, offering enhanced PTIN system usability, troubleshooting tips and other tools. As of March, the number of valid PTINs totaled approximately 677,000.

EITC Problems

Koskinen highlighted the complex nature of the rules governing eligibility for the Earned Income Tax Credit, and pointed out that the IRS engages in significant education and outreach efforts so taxpayers are aware of their potential eligibility for

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the credit. The IRS also takes steps to try to minimize the growing number of erroneous claims for the EITC.

The IRS’s EITC-focused enforcement programs currently protect approximately $4 billion annually, according to Koskinen. The agency has a number of programs that contribute to a broader strategy of identifying improper EITC refund claims as early in the process as possible. These include an automated process in which the IRS has been granted statutory authority to identify certain math or other irregularities on the return and automatically adjust the return for a taxpayer. However, the IRS has also asked Congress to grant it expanded math error authority.

The document-matching process involves comparing income information provided by the taxpayer with matching information from third-party returns, such as Form W-2 and Form 1099, to identify discrepancies. The IRS conducted nearly 1 million of these reviews in fiscal year 2013, in addition to 500,000 audits, Koskinen noted.

The IRS also identifies tax returns and amended returns for examination, and in most cases holds the EITC portion of the refund until an audit can be completed. Of the approximately 500,000 EITC audits conducted by the IRS each year, 70 percent are conducted before the EITC portion of the refund is paid, Koskinen pointed out. The tax returns to be examined are selected using an effective risk-based audit selection model, resulting in a change rate of more than 90 percent. Examinations protected almost $2.1 billion against improper EITC refund claims each year.

The IRS also uses soft notices as a low-cost alternative to audits. “They help educate taxpayers on their compliance responsibilities and are an inexpensive way of recovering payments,” said Koskinen.

In fiscal year 2013, the IRS sent more than 110,000 letters to alert taxpayers that an exemption or qualifying child for the EITC claimed on their returns had also been claimed by another person.

Under Section 32(k) of the Tax Code, the IRS is authorized to ban taxpayers from claiming the EITC for two years if it determines during an audit that they claimed the credit improperly due to reckless or intentional disregard of the rules. The IRS can impose a 10-year ban in cases of fraud, Koskinen noted, but when a ban is imposed, taxpayers are provided their full appeal rights. Last year there were more than 67,000 two-year bans and 45 10-year bans in effect.

The IRS is also continuing working to improve and expand its existing compliance efforts to stop improper EITC payments, but Koskinen said that tax preparers need to be part of that effort.

“Notably, our increased efforts in regard to identity theft-related fraud detection have helped improve EITC enforcement results,” said Koskinen. “In spite of these accomplishments, it is important to note the significant degree of difficulty in

enforcing compliance with the EITC, which derives in large part from its eligibility requirements. EITC eligibility depends on items that the IRS cannot readily verify through third-party information reporting, including marital status and the relationship and residency of children. In addition, the eligible population for the EITC shifts by approximately one-third each year, making it difficult for the IRS to use prior-year data to assist in validating compliance. Given this situation, and given that approximately 57 percent of the returns claiming the EITC are prepared by tax return preparers, we believe that one of the keys to driving increased EITC compliance continues to be strategic programs addressed to the return preparer community, such as our return preparer initiative.”

He cited several examples of the IRS’s preparer-related activities, including compliance and warning notices sent before and during the filing season to preparers who prepare large numbers of EITC returns to educate them on their responsibilities and the consequences of noncompliance; tax preparer audits done by field examiners to make sure preparers are complying with EITC due diligence rules; and “knock-and-talk” visits to preparers by Criminal Investigation agents and auditors, to educate them on EITC laws.

In addition, the IRS has expanded its traditional treatment of EITC preparers to test a new early-intervention component, Koskinen noted. “Over the previous two years the IRS has used data analytics—including an innovative approach—to significantly reduce improper payments associated with the EITC as well as the CTC [Child Tax Credit]. Using this approach, a small data-driven pilot in 2012 identified a group of tax return preparers with a history of submitting incorrect or potentially fraudulent tax returns falsely claiming the EITC, then designed and implemented interventions with these preparers to stop improper claims. The interventions included letters, calls and site visits to selected preparers, both before and during tax filing season to allow preparers to immediately adjust their practices. These efforts reduced improper EITC payments in 2012 by an estimated $198 million for returns prepared by preparers who received the interventions.”

An expanded preparer pilot program in 2013 protected an additional $590 million in revenue from being paid out improperly, Koskinen noted. The 2013 pilot program included a broader set of randomly selected preparers and a broader set of interventions, including the addition of preparer-focused taxpayer audits (for returns that otherwise would have qualified for audit even absent the pilot).

“Many preparers whose error rates did not improve as a result of interventions during the 2012 pilot did so in 2013 after being subject to additional intervention,” said Koskinen. “Preparers who had improved due to IRS interventions during the initial 2012 pilot generally maintained their improved behavior with respect to EITC and related tax credits claimed on returns and claims filed during 2013. Use of interventions for preparers before and during the filing season continued on an expanded basis in 2014.”

Despite all of those efforts, however, Koskinen said the IRS

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continues to be concerned that the improper payment rate for the EITC has remained too high throughout the program’s history.

For fiscal year 2013, for example, the EITC improper payment rate was between 22 and 26 percent. Therefore, the IRS has recently initiated a major review of its activities in this area. “As part of this review we are assessing our many past and current efforts, and are exploring new possibilities, such as options for simplifying EITC eligibility requirements and finding more-efficient ways to distinguish valid claims from excessive claims,” said Koskinen.

Koskinen also outlined a number of legislative proposals from the Treasury Department’s Green Book and the Obama Administration’s proposed budget that he said would play a critical role in the IRS’s effort to lower the improper payment rate. Those include congressional approval of the IRS’s authority to regulate paid tax preparers.

Form 1099K

The 1099-K is an IRS information return for reporting certain payment transactions to improve voluntary tax compliance. You should get a 1099-K by the end of January 2014 if, in 2013 you received payments from:

• payment card transactions (e.g., debit or credit cards)

• in settlement of third party payment networks (i.e.,online sellers) above the minimum reporting thresholds

-gross payments that exceed $20,000, AND-more than 200 such transactions.

Report 1099-K Income

Report the gross receipts or sales from all business operations in any amounts shown on Form(s) 1099-K.

If you get a Form 1099-K for amounts that belong to another person, or are a co-owner who may need to file a Form 1099-K or other information returns for other owners, check the General Instructions for Certain Information Returns.

If you are an independent contractor, the trade or business should continue to report payments made to you on Form 1099-MISC as they have done in the past. No Form 1099-K should be issued.

Make sure the merchant card or third-party clearing house has your correct Taxpayer Identification Number (TIN) by checking the TIN on Form 1099-K against the TIN you reported on Form W-9.

If you have questions about the amount reported, contact the filer (see the upper left corner of Form 1099-K). If you have questions about the merchant or third party transaction network, find the contact in the lower left corner of Form 1099-K.

File Form 940, 941 or 944 for Small Form Businesses

If you are a small business owner, you have two options to e-file tax forms of the 94x series.

Option 1 - Have an IRS Authorized e-file Provider prepare,sign, and e-file the forms for you.

Option 2 - Complete the steps below to prepare your returnand become an IRS authorized e-file signer. Then, have athird party e-file it for you. You can use e-file to prepare upto five employment tax returns a year (e.g., 1 Form 940 and4 quarters Form 941).

• Step 1 - Buy IRS Approved Commercial-Off-the-Shelf(COTS) software. IRS Approved COTS software ismade available through an Authorized IRS Online FilingProvider.

• Step 2 - Complete the online PIN registration withinthe COTS software, submit to IRS for approval as anIRS Authorized Signer, and receive a 10 digit PIN.You should submit the 94x PIN registration 45 days inadvance of the due date of the first Form 94x return toensure timely filing.

• Step 3 - Return the statement of receipt for your PIN tous within 10 business days.

• Step 4 - Use your COTS software to send your return toan authorized transmitter who e-files 94x returns.

Note: We no longer accept the Supporting Statement to Correct Information (Form 941C) electronically. You must make your corrections on the paper Form 94x adjusted Tax Forms.

Highlights of The President’s FY2015 IRS Budget Request

If the President’s request is funded, the IRS will:

Increase telephone level of service to at least 71 percent.

Collect an additional $2.1 billion in enforcement revenue.

Prevent, through improved identity theft fraud detection, an additional $360 million a year in revenue from going out the door.

Enhance online services to make it easier for taxpayers to understand and meet their tax compliance obligations.

Enhance its capability to detect, resolve, and prevent criminal and civil tax noncompliance through the Return Review Program.

Upgrade telephone technology to save taxpayers time when

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calling to address account issues.

Close an additional 13,0000 identity theft cases.

Close more than 500,000 additional cases, including individual audits, employment tax exams and collection matters.

Strengthen its document matching program to identify underreporting of income.

Continue implementing provisions of the Affordable Care Act and Foreign Account Tax Compliance Act.

Complete or continue a number of long term infrastructure projects on the drawing board, such as improving security at IRS facilities.

The IRS Oversight Board believe under-funding the IRS only punishes America’s taxpayers and endangers the fiscal health of our nation and critical programs upon which Americans depend.

Without additional customer service funding, almost half of all calls will not be answered in 2015 due to projected increases in demand anticipated by the Affordable Care Act.

Based on FY2014 funding, the individual examination coverage rate will soon fall below 0.9% for the first time since FY2004.

Editor’s Note: To read the entire IRS Oversight Board FY2015 IRS Budget Recommendation Special Report go to www.ncpefellowship.com, click on Resources - IRS Oversight Board.

IRS Advises Its Attorneys On Arguing That Tax Court Applies Abuse of Discretion” Standard

Chief Counsel Notice 2014-002

In a Chief Counsel Notice, IRS has advised its Chief Counsel attorneys that they should take the position in Collection Due Process (CDP) Tax Court cases that certain specific issues do not involve “the existence of amount of the underlying tax liability under Code Sec. 6330(c)(2)(B) , thus depriving the Tax Court of full de novo review and requiring that the Tax Court’s review be limited to abuse of discretion.

Code Sec. 6320(a)(1) requires IRS to give a taxpayer written notice of the filing of a tax lien upon his property. The notice must inform him of the right to request a hearing in IRS’s Appeals Office (a CDP hearing). (Code Sec. 6320(a)(3)(B), Code Sec. 6320(b)(1) ) Code Sec. 6330(a)(1) provides similar rules with respect to a notice before IRS levies on taxpayer’s property.

At the hearing, the taxpayer may raise any issue relating to the unpaid tax, including appropriate spousal defenses, challenges to the appropriateness of collection actions, and collection alternatives. (Code Sec. 6330(c)(2)(A); Code Sec.

6320(c)) However, the taxpayer may challenge the existence or amount of the underlying tax liability only if he did not receive a statutory notice of deficiency for the tax liability and did not otherwise have an opportunity to dispute the tax liability. (Code Sec. 6330(c)(2)(B); Code Sec. 6320(c) ) In addition to considering issues raised by the taxpayer under Code Sec. 6330(c)(2), the Appeals officer must verify that the requirements of any applicable law or administrative procedure have been met. (Code Sec. 6330(c)(1); Code Sec. 6330(c)(3); Code Sec. 6320(c) ) Where the validity of the underlying tax liability is properly in issue, the Tax Court will review the matter de novo. Where it is not properly in issue, however, the Tax Court will review IRS’s determination for abuse of discretion. (Sego, (2000) 114 TC 604; Goza, (2000) 114 TC 176)

IRS has concluded that the following do not involve “the existence of amount of the underlying tax liability” for purposes of Code Sec. 6330(c)(2)(B): issues relating to the validity of an assessment, the expiration of the assessment or collection statutes of limitation, and payments and overpayment credits and their proper application.

IRS began its analysis by noting that there have been Tax Court cases that have held that “the existence of amount of the underlying tax liability” includes the validity of an extension of the collection statute of limitations, expiration of the assessment or collection statute of limitations, and the validity of an assessment due to a failure to issue a notice of deficiency or to obtain a signed waiver of restrictions on assessment of a deficiency (see, for example, Jordan, (2010) 134 TC 1) and cases that have come to the opposite conclusion (see, for example, Hoyle, (2008) 131 TC 197). IRS also noted that some Tax Court opinions have held that a determination relating to the amount of payments and credits, whether Code Sec. 6511 bars the use of an overpayment credit, or whether payments and overpayment credits are properly applied, falls within Code Sec. 6330(c)(2)(B) (see, for example, Landry, (2001) 116 TC 60), and some Tax Court opinions have come to the opposite conclusion (see, for example, Freije, (2005) 125 TC 14).

IRS then noted that the term “tax liability” is not defined in Code Sec. 6320 or Code Sec. 6330 or their legislative history. (Montgomery, (2004) 122 TC 1) “Underlying tax liability” “includes any amounts a taxpayer owes pursuant to the tax laws.” (Callahan, (2008) 130 TC 44) The phrase “existence or amount” modifies the term “tax liability.” Under the common usage of the terms “existence” and “amount,” taxpayers may challenge whether they are subject to a tax imposed by the Code (and, thus, whether the tax exists) and, if so, the correct amount of that tax.

It then analyzed the question of whether IRS’s meeting of administrative and procedural requirements relating to assessment were issues involving the existence or amount of an underlying tax liability. It said that a taxpayer’s liability exists independently of its assessment or collection. For example, Code Sec. 6501 requires that “a tax imposed by this title” be assessed within the periods of limitation specified therein. Code Sec. 6501(a) also permits a collection suit for a tax liability

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even if the liability has not been assessed. (Goldston (CA 10 1997) 79 AFTR 2d 97-567) Proper assessment of a tax and its collection within the collection statute of limitations establishes the parameters of IRS’s ability to collect administratively but does not affect the taxpayer’s underlying liability for the tax.

These requirements instead are subject to the verification requirement of Code Sec. 6330(c)(1). Their satisfaction must be independently verified by Appeals in every CDP hearing, even if the taxpayer does not raise them. (Hoyle ) Treating procedural requirements necessary to administrative collection as a challenge to the underlying tax liability under Code Sec. 6330(c)(2) would deprive taxpayers of the protections provided by Code Sec. 6330(c)(1). Appeals would not be required to verify the satisfaction of these procedural requirements unless they were raised by the taxpayer. If the taxpayer fails to raise an issue, then the taxpayer may not obtain Tax Court review of the issue. Additionally, if a procedural issue falls within the definition of “existence or amount of underlying liability,” the receipt of a notice of deficiency or other opportunity to dispute the liability could prevent the taxpayer from obtaining Appeals’ review. This result is logically inconsistent with the conclusion in Hoyle that Appeals must verify IRS’s compliance with the procedural requirement in every CDP case.

Finally, it analyzed whether issues of payments, overpayment credits and their proper application were issues involving the existence or amount of an underlying tax liability. It did so by juxtaposing the terms “underlying tax liability” and “unpaid tax” as that latter term is used in Code Sec. 6330(c)(2)(A). “Unpaid tax” refers to that part of the underlying tax liability not paid by the taxpayer. Whether IRS’s records accurately show the payments made and overpayment credits available to the taxpayer, whether Code Sec. 6511 bars the use of an overpayment credit, or whether IRS has properly applied the payments and overpayment credits affects the amount of the unpaid tax. Payments and overpayment credits and their proper application have no effect on how much tax is imposed by the Code.

IRS advises its Chief Counsel attorneys based on this conclusion. IRS then advised Chief Counsel attorneys to argue in Tax Court CDP cases that a determination by Appeals about the validity of an assessment, the expiration of the assessment or collection statutes of limitation, or other procedural requirements for administrative collection are determinations under Code Sec. 6320(c) and Code Sec. 6330(c)(1) and are reviewable for abuse of discretion. Counsel attorneys should also argue in Tax Court CDP cases that a determination about payments and overpayment credits and their proper application are determinations under Code Sec. 6330(c)(2)(A) are reviewable for abuse of discretion.

Counsel attorneys should not argue that a taxpayer who received a notice of deficiency or had some other opportunity, such as receipt of a Code Sec. 6320 or Code Sec. 6330 notice for the same tax period, is precluded under Code Sec. 6330(c)(2)(B) from raising statute of limitations or other procedural challenges that could have been raised in a deficiency or other judicial proceeding, or in a hearing with

Appeals. Legal and administrative procedural requirements related to assessment and collection are not issues relating to the existence or amount of the underlying tax liability.

Similarly, Counsel attorneys should not argue that receipt of a deficiency notice or other prior opportunity precludes the taxpayer from raising an issue about payments or overpayment credits or their proper application.

TIGTA Report Uncovers Problematic Discrepancies in Alimony Reporting

A recent report by the Treasury Inspector General for Tax Administration (TIGTA) uncovered a significant reporting compliance gap with respect to alimony. The main issue is a mismatch between the amount of alimony deductions claimed by payors and the amount of alimony income reported by the corresponding recipients, as well as the insufficiency of IRS’s existing procedures to meaningfully address the issue. TIGTA made a number of suggestions to IRS, including that it implement the use of “soft notices” alerting individuals to potential errors on their returns.

Payments of alimony or separate maintenance made under a divorce or separation instrument are deductible by the payor spouse and taxable to the payee spouse. (Code Sec. 215, Code Sec. 71)

According to the TIGTA report, more than 1.7 million tax returns included an alimony deduction claim in tax years 2008 through 2010-577,003 in 2008, claiming $9.9 billion in alimony deductions; 573,904 in 2009 claiming $10.4 billion; and 567,887 in 2010 claiming $10 billion.

The payor reports the amount paid as a deduction on Line 31 (Alimony Paid) on Form 1040 and must include the Taxpayer Identification Number (TIN) of the recipient on Line 31(b). IRS rejects an e-filed tax return claiming an alimony deduction if the recipient TIN is missing or incomplete, and for paper returns, IRS will suspend processing and correspond with the taxpayer to obtain a valid TIN.

According to the report, in its analysis of the 567,887 returns for the 2010 tax year claiming an alimony deduction, there were 266,190 in which it “appears that individuals claimed alimony deductions for which the corresponding income was either not reported on a recipient’s tax return or the amount of alimony income reported did not agree with the deduction taken.” This resulted in a discrepancy of over $2.3 billion in deductions without parallel reporting of income.

Of the 226,190 questionable instances identified above, for 222,895 cases, the person identified on the payor’s return as the recipient filed a tax return. For 36,795 cases, no tax return was filed by the recipient even though the amount of alimony being deducted would, if reported as income to the recipient, have required the recipient to file a tax return. Finally, in 6,500 cases, TIGTA was unable to determine whether the income was reported because the recipient TIN reported on the payor’s return was either missing or not valid.

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Of the 222,895 tax returns filed by identified recipients: in 122,870 cases, the alimony income wasn’t reported; in 75,383 cases, the alimony income reported was less than the deduction claimed; and in 24,642 cases, the alimony income reported was more than the deduction claimed. The overall discrepancy was $3.3 billion in deductions claimed by payors, with $1.4 billion in associated income not reported by the purported recipients.

Each year after returns are processed, IRS’s Examination function performs a match of tax returns with alimony deduction claims to associated recipient TIN tax returns in order to identify tax returns for examination that have a high risk for alimony deduction noncompliance. For those tax returns selected, IRS performs an examination to determine if the deduction is valid, and if it is, then the associated recipient TIN tax return is reviewed to determine if the alimony income was reported correctly. However, IRS will select for examination only those tax returns in which the alimony deduction claim is above a certain dollar amount-meaning that 77,722 of the returns with identified discrepancies, for which over $156 million in alimony deductions was claimed but for which no income was reported by the identified recipient, weren’t even considered for audit selection. Of the remaining 188,468 returns, limited IRS resources meant that only 10,870 were selected for examination.

Since IRS generally has no process or procedures to address this compliance gap beyond examining a small number of returns, TIGTA suggested that the use of “soft notices” could significantly expand the agency’s ability to address these discrepancies by, for instance, alerting individuals to potential errors on their tax return related to the claiming of an alimony deduction or the nonreporting of alimony income as required. A “soft notice” generally provides individuals with information specific to the eligibility or reporting requirements related to the potential error and suggests the filing of an amended return if an error has occurred.

IRS estimates the current cost to print and mail a soft notice as $0.57. If issuance of the notice results in a contact from the individual receiving the notice or an amended tax return being filed to correct an error, the cost to address the individual’s response could be up to $33.21. In a May 2009 study on the effectiveness of soft notices issued in a different context, IRS found that 10% of the individuals who received a notice amended their original tax return and 92% changed their filing behavior in the subsequent tax year. IRS management raised concerns about the use of soft notices because it would create extra work for which IRS doesn’t have the resources to address. However, TIGTA noted that the alternative is to permit the omission of income or over-claimed deductions, even where IRS knows of the problem, and further noted that it forgoes the potentially greater benefit of individuals changing their behavior in future tax years.

Based on the results of completed IRS examinations, TIGTA estimated that noncompliance with regard to those returns not selected for examination totals more than $351 million in unreported tax resulting from an erroneous deduction or

unreported income.

TIGTA also found that IRS’s processes don’t identify all alimony deductions claims in which the payor didn’t provide a valid recipient TIN. Of the 567,887 2010 returns claiming an alimony deduction, 6,500 returns claiming over $95 billion in alimony deductions in which the recipient TIN was missing or invalid were not identified by IRS. Thus, these individuals may have inappropriately reduced their liability for that year by over $27 million. IRS also noted that IRS isn’t using the National Account Profile (a compilation of selected entity data from various master files and the Social Security Administration) to ensure that the recipient’s TIN is valid.

Although Code Sec. 6723 authorizes IRS to assess a $50 penalty when an individual doesn’t provide a valid alimony recipient TIN as required, TIGTA found that, of the estimated 6,500 returns with a missing or invalid recipient TIN, IRS assessed the TIN penalty on only 20 such returns. In addition, the amount assessed was $5 instead of $50. As a result, IRS didn’t assess $324,900 in penalties for missing or invalid recipient TINs, which TIGTA attributed to weaknesses in its processes to identify missing or invalid recipient TINs.

Although TIGTA had notified IRS of this problem back in 2012, it found that it still had not been corrected.

TIGTA made the following four recommendations, three of which were agreed to by IRS (position reflected in italics).

(1) Evaluate current examination selection filters to ensurethat the filters do not inappropriately exclude potentiallyhigh-risk tax returns with questionable alimony deductionclaims. Agreed.

(2) Develop a strategy that adequately addresses thesignificant alimony compliance gap. This strategy shouldinclude determining the net benefit of using soft notices asan alternative approach to address this issue, as well asactions IRS plans to take with regard to individuals whocontinue to misreport alimony deductions and/or income.Agreed, but stated that although soft notices may be a “validapproach in certain circumstances, resource constraintslimit” the agency’s ability to currently test their impact.

(3) Revise processes and procedures to ensure that alltax returns are verified for a required valid recipient TINwhen an alimony deduction is claimed. These processesshould include rejecting e-filed tax returns and sendingpaper tax returns to IRS’s Error Resolution function forcorrespondence with the taxpayer. Disagreed. IRS statedthat, because it lacks the authority to deny the alimonydeduction outside of deficiency procedures, the validationprocess is more efficiently performed within its Compliancefunction. Additionally, IRS stated that its Error Resolutionfunction will either correspond with the taxpayer to obtainthe TIN when the deduction meets certain criteria or assessa penalty for failure to provide the written TIN.

(4) Revise IRS processing instructions to ensure that

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Tax Preparer Gets 4 Years in Prison for False Return Scheme

Verlean Hollins

Chicago tax preparer who admitted writing false tax returns for hundreds of clients was sentenced to nearly four years in prison.

Verlean Hollins pleaded guilty in January to helping clients cheat on their taxes, in what the IRS said at the time was the largest fraud of its kind in Chicago history.

Prosecutor Kaarina Salovaara argued that Hollins deserved a stiff sentence, because the illicit refunds in the case topped $3.3 million.

“The defendant has admitted to a crime of staggering proportions,” Salovaara told the judge. “She clearly matters to her family, she matters to her community, but that made the crime even more disturbing.”

Hollins’ attorney, Raymond Wigell, argued that while the initial numbers were troubling, the actual loss to the Treasury was much less, because most of the taxpayers who received fraudulent refunds ended up paying the money back.

“What Verlean did was wrong, and it was fraudulent,” Wigell told the judge. “But the suggestion that it was millions of dollars was just not the case.”

Wigell argued that the end loss to the government was probably about $470,000. And he noted there was no suggestion in the charges that Hollins personally profited at all.

“None of these people said, ‘I kicked back to Verlean,’” he said, contending that the fraud was just an effort to help out her clients, who took education tax credits they did not deserve.

“She is African American. Most of her clients are African American,” he noted, saying the effort amounted to little more than inflating refunds with a rationale that “getting a little more is not going to hurt the government, but it’s going to help all these people.”

Prosecutors charged that Hollins had other motives, not the

penalties are assessed on applicable tax returns with an alimony deduction claim where a valid recipient TIN was not provided and ensure that the penalty is assessed in the correct amount. Agreed.

Tax Pros in Trouble

Justice Department Sues to Stop Miami Tax Return Preparers

The United States has asked the U.S. District Court for the Southern District of Florida in Miami to stop Lazaro Jesus Toyos, Shirley Ester Almazan, Dilma Toyos Garcia and Daniel Almazan, and their companies L. Toyos Tax Service Inc., Toyos Garcia Tax Service Inc., Toyos Tax Service Inc. and Total Income Tax Services from preparing federal income tax returns for others, the Justice Department announced today.

Lazaro Toyos became a paid tax return preparer in 1979 as an adjunct to his insurance business. In the years that followed, he was joined in the business by his daughters, Dilma Garcia and Shirley Almazan, and Almazan’s husband, Daniel Almazan. Since 2008, these defendants have prepared over 17,000 tax returns for customers. The complaint alleges that the defendants prepare returns that unlawfully understate income tax liabilities and overstate refunds by fabricating and/or exaggerating deductions and tax credits that their clients are not eligible to take. These alleged practices include fabricating business losses for non-existent businesses, falsely claiming the First Time Homebuyer Credit for taxpayers who did not actually purchase a home and falsely claiming American Opportunity Credits for taxpayers who did not incur education expenses or go to college. Altogether, the complaint alleges that loss to the U.S. Treasury from the defendants’ activities may be in the millions of dollars.

Chicago Federal Court Shuts Down Tax Preparer

A federal court in Chicago permanently barred Barbara L. Garrett from preparing tax returns for others or working for any business that prepares tax returns for others, the Justice Department announced today. The court’s injunction, filed in the U.S. District Court for the Northern District of Illinois, also requires Garrett to contact and provide a copy of the injunction order to every customer for whom she prepared a tax return since 2011. Garrett agreed to the permanent injunction, which was entered against her by the court on April 30, 2014.

The complaint alleged that Garrett, while working at multiple Chicago-area tax preparation businesses, including Instant Tax Service, Preferred Financial and Income Tax Solutions, claimed fraudulent deductions and credits on her customers’ federal tax returns. Examples cited in the complaint include returns prepared by Garrett for customers that falsely claimed thousands of dollars in bogus deductions from entirely fake businesses.

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least of which was to inflate her business.

“She did do this, and she did it for reasons of greed,” Salovaara said.

When it was her turn to speak, Hollins asked for mercy from the judge, accepting full responsibility for the fraud she had committed, but begging for mercy so she could continue to provide for her family.

“I’m truly sorry for what I’ve done because it was wrong,” she said. “I’m truly, truly, not a bad person!”

But the judge indicated that the true victims of the crime were the citizens of the United States.

“I was trying to determine if the defendant was a modern day Robin Hood, stealing from the rich to give to the poor,” he said. “But the bottom line is, she stole from the people.”

“This happened in a 3 year period, one after another after another,” he said. “This became a lifestyle.”

Judge Samuel Der-Yeghiayan sentenced Hollins to 46 months in prison.

“You messed up,” he said. “And there are some consequences when you mess up.”

Editor’s Note: This is a judge that “gets it”.

5 Minnesota Tax Preparers Charged in Federal Tax Fraud Case

Five Minneapolis-area tax preparers have been indicted by a federal grand jury for conspiring to defraud the Internal Revenue Service, according to a release from the IRS.

The 70-count indictment charges Chatonda Khofi, Ishmael Kosh, Amadou Sangaray, Francis Saygbay and David Mwangi of conspiracy to defraud the United States, aggravated identity theft, and aiding and assisting in the preparation and filing of false and fraudulent income tax returns.

The indictment claims the defendants – who all worked as tax return preparers for Primetime Tax Services, Inc. in Minneapolis and Brooklyn Center – prepared and filed fraudulent state and federal income tax returns on behalf of their customers from

2007 to 2009.

During that time, Primetime Tax Services filed more than 2,000 income tax returns with the IRS, according to a December 2013 release on the indictment. In the initial indictment, Mwangi wasn’t named as a defendant.

The indictment says the defendants declared false dependents, deductions and wage incomes, among others, which “qualified customers for fraudulently inflated refunds.”

The indictment also states the defendants demanded a portion of their customers’ refund checks in addition to the tax preparation fees the defendants had already charged the customers, the IRS says.

Alabama Man Sentenced for Tax Fraud and Identity Theft

Nakia Jackson, of Montgomery, Alabama, was sentenced to serve 87 months in prison for conspiring to defraud the United States and one count of aggravated identity theft for his role in a stolen identity refund fraud scheme, announced Assistant Attorney General Kathryn Keneally of the Justice Department’s Tax Division, U.S. Attorney George L. Beck Jr. for the Middle District of Alabama and the Internal Revenue Service (IRS).

According to court documents, between January 2009 and March 2011, Jackson obtained stolen identities from an Alabama state employee and used those identities to file false tax returns. Jackson recruited a bank employee, LaQuanta Clayton, to assist him in depositing the false income tax refunds into various bank accounts. He obtained permission from several individuals to use their bank accounts to receive false refunds and when a false refund was deposited, Jackson would direct the individuals to withdraw the money and give the money to him. In total, Jackson filed over 100 false tax returns and requested over $400,000 in refunds.

In addition, Jackson was ordered to serve three years of supervised release and pay $212,856 in restitution.

IRS Announces Disbarment of Former Attorney/CPA

The Internal Revenue Service announced its Office of Professional Responsibility obtained the disbarment of Charles M. Edgar, which revokes his authority to practice before theIRS. Edgar is a former certified public accountant (CPA)and former attorney in Massachusetts. He was disbarred forhaving his CPA license revoked and for falsely claiming to bea CPA on power of attorney forms submitted to the IRS.

CPAs, duly qualified by a state, and lawyers, in good standing with a state, are permitted to represent taxpayers before the IRS. As a result of the proceedings, Edgar is barred from representing taxpayers before the IRS for a minimum of five years.

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A federal grand jury last week indicted Austin Ray, 46, of Denver and Anne Rasamee, 29, of Stockton, Calif., who together operated Cheapertaxes, on charges of conspiracy to defraud the U.S. government and filing fraudulent tax returns.

Ray and Rasamee, each facing one conspiracy count, were indicted by a federal grand jury in Denver last month. Ray, who faces an additional five counts of preparing fraudulent tax returns, was arraigned last week. Rasamee faces 30 additional counts of preparing false tax returns and is scheduled for a May 7 arraignment in Denver.

McCuistion filed at least 1,600 tax returns between 2007 and 2009. In at least 18 of those returns, he falsely inflated deductions including charitable contributions and child care expenses, dropping client taxes by a combined $70,000.

Undercover IRS agents asked McCuistion to prepare their taxes.

“He openly discussed his fraudulent return preparation,” according to Jeff Dorschner, a spokesman for the U.S. Attorney’s office.

The fraud charge carries a maximum penalty of five years in federal prison and a $100,000 fine per count. Preparing a false tax return carries a maximum penalty of three years in prison and $250,000 per count.

Ragin Cagin

Social Security Planning At Its Best

When the most common question asked of a tax professional outside of April 15th is “should I take my social security early?” then tax professionals must know how to assist their clients in deciding when and how to draw their social security.

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In my seventy or so years, I don’t recall ever hearing of an income producing strategy that did not involve at least some kind of market risk or require some kind of capital upfront in order to get a higher return. But there is one that, of all places,

In a formal disciplinary proceeding, an administrative law judge (“ALJ”) determined that Edgar had engaged in misconduct in violation of Circular 230, Regulations Governing Practice before the IRS. Edgar appealed the order of disbarment. However, the Treasury Appellate Authority upheld the order of disbarment on April 18, 2014.

“The representations made by practitioners on powers of attorney forms are not mere procedural niceties. The forms are signed under penalty of perjury. Claiming a nonexistent licensure status puts the IRS in the position of potentially discussing taxpayer information with an unauthorized or unqualified person,” said Karen L. Hawkins, Director of the Office of Professional Responsibility. “We will not tolerate that type of abuse of the tax administration process by anyone.”

Edgar was licensed as a CPA and lawyer in Massachusetts. In December 2010, the Massachusetts Board of Registration in Public Accountancy revoked his CPA license based, in part, on his 1995 federal conviction for making false statements to the government in connection with claims for disability benefits and mail fraud. Edgar’s license to practice law in Massachusetts was suspended in 1995, based on the criminal convictions. His petition for reinstatement to the Massachusetts bar was denied in 2001.

Subsequent to the CPA license revocation, in May 2011, Edgar attempted to represent two individual taxpayers under audit by the IRS. He filed two powers of attorney (Form 2848) in which he claimed to be a CPA duly qualified to practice in Massachusetts.

In an Initial Decision and Order, the ALJ determined that Edgar’s “conduct demonstrates he does not have the integrity or character to be trusted representing taxpayers before the IRS.” The Decision further stated: “The only appropriate sanction therefore is disbarment.”

The Treasury Appellate Authority concurred finding the disciplinary proceeding was brought within the statute of limitations; that Edgar had given false and misleading information to a Treasury employee during the IRS examination process; and, that submitting false powers of attorney to the IRS was a “serious violation[s] that warrants a severe sanction.”

Feds Target Alleged Tax Scams in Colorado

Instead of using accounting wizardry to save their clients money on their taxes, two Colorado tax preparation companies are accused of relying on fraud.

“As another filing season comes to an end, federal officials remind those who prepare and file fraudulent tax returns, they will be criminally prosecuted,” U.S. Attorney John F. Walsh and IRS supervisory special agent Stephen Boyd announced.Lance McCuistion, 46, of Thornton pleaded guilty Monday to one count of preparing a fraudulent tax return. He operated LM Tax Services.

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When Candy files and suspends her benefit, Candy, the stay-at-home spouse, is eligible to collect a spousal benefit of up to $1,250. Since Candy, the stay-at-home spouse does not have to wait four years to get this benefit, this could bring in an additional $60,000 to the household, plus the higher-income spouse, Jerry, gets the higher benefit at age 70.

This information is available at the Resource: Center for Retirement Research – Strange but true, claim and suspend.

When you have two high-income earners, one spouse can use the above “file and suspend” strategy to allow their spouse to take the spousal benefit first and then apply for their own benefit at age 70.

Example:

Jerry files and immediately suspends his benefit at his full retirement age. Since his benefit is suspended, it continues to grow 8% until age 70. However, by filing he also enables his spouse, Candy, to collect a spousal benefit. She does so at age 66 (i.e. their full retirement age) and gets half of Jerry’s maximum benefit, around $2,500/month, giving them around $1,250/month. At age 70, Jerry applies for his own benefit, which could be as much as around $3,400/month. This allows them to take income for four years and still receive their maximum benefit at age 70. In essence, they gain $60,000 plus the higher benefit at age 70.

The retiree who was not quite ready to retire: The retiree who found themselves in a situation where they had to retire, but did not really want to, can hedge their bets for at least one year. They can change their minds. The Social Security Administration allows you to collect benefits for a year and pay them back to receive a higher benefit later – in other words, you are not permanently penalized for taking the benefit early, as long as you pay it back. This is essentially an interest free loan! You are limited to one withdrawal of your application to receive Social Security benefits per lifetime. But where else can you essentially borrow just over $40,000 which represents the maximum benefit for a seventy year old for up to a year without interest?

If you have a less-than-average life expectancy, you may be better off taking Social Security earlier. On the other hand, if you have a longer-than-average life expectancy, you may want to consider delaying Social Security for as long as possible, but not beyond accruing additional benefits of 8 per cent per year.

People are living longer and enjoying more active lifestyles. In fact, life expectancy has increase by at least 1 ½ years in the last 10 and is expected to continue. Strategies are available to get more monthly income with no risk or requirement to add capital.

Serving a Maturing Nation is the next step for a tax professional who wants to increase their value to their clients. At ncpe, we will show you the way, give you the knowledge and enhance your ability with our Serving a Maturing Nation Special

comes from the federal government! Simply maximizing your Social Security benefits does not involve any additional savings or sacrifice. It doesn’t involve worrying about risk or asset allocation to achieve the perfect risk/reward ratio.

Done right, this strategy could result in an increase of tens of thousands of dollars of additional income in retirement, and all you need is knowledge to get it. Your contribution plus that of the match from your employer have made a tidy nest egg for you. Now it is time to benefit from it.

Here are five strategies for increasing your Social Security benefit with no risk and no out-of-pocket cost:

For married couples with a lower-income spouse: Spousal benefits are available starting at age 62 as long as the other spouse has filed for Social Security benefits. This allows the lower-income spouse to collect a spousal benefit, although the benefit is reduced if received prior to the lower-income spouse’s full retirement age. If the lower-income spouse waits until their full retirement age to collect a spousal benefit, the benefit is equal to ½ of the higher-income spouse’s benefit. This strategy also allows the full benefit amount of the lower-income spouse to grow until age 70. At that point, the lower-income spouse can then switch to their own Social Security benefit, if higher. This allows them to delay the benefit until age 70 and collect a spousal benefit as bonus money while they wait. Here is an example:

Your higher-income spouse, Candy, files for Social Security and gets $1,200/month. At your full retirement age your own benefit is $500, so you collect a spousal benefit starting at $600/month, and you collect spousal benefits for the next 4 years. At age 70, you then switch to your own benefit, which would then be higher, since your original $500 a month benefit has increased by 8% a year to $680.

Your stay-at-home spouse, Candy, who never paid into Social Security: With a stay-at-home spouse, since they never paid into Social Security, their only option is to take a spousal benefit starting at or after age 62. Normally, they have to wait until their spouse collects Social Security benefits in order to do so. There is a loophole that allows the stay-at-home spouse to receive a benefit without having to wait for the higher-income spouse to collect their own Social Security benefit. Once the higher-income spouse attains their full retirement age, they can file for Social Security and then immediately suspend the collection of their benefit (a strategy called, unsurprisingly, “file and suspend”). This allows the stay-at-home spouse to receive a spousal benefit without requiring the higher-income spouse to collect a benefit – they can still wait and accrue their higher benefit, since the benefit continues to increase by 8% until age 70.

Example:

The higher-income spouse, Jerry, does not want to take his benefit at age 66 and receive the maximum benefit, around $2,500/month. Instead, Jerry decides to wait until he is 70 to collect his benefit, which would then be around $3,400/month.

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Seminar. Jerry

Taxpayer Advocacy

SB/SE Memo Provides Guidance on Fast Track Settlement Program

IRS’s Small Business/Self-Employed (SB/SE) Division has issued a memo providing interim guidance on the SB/SE Fast Track Settlement (FTS) program. Among other things, the memo covers eligibility for the program, how to apply, the roles and responsibilities of SB/SE during FTS, and closing procedures.

FTS is an optional strategy to reach resolution when the SB/SE examiner and manager and the taxpayer have exhausted established issue resolution strategies. The FTS process is estimated to be completed within 60 calendar days of Appeals’ acceptance of the FTS application. For eligible cases, FTS allows taxpayers that have unagreed issues to work with SB/SE Examination and the Office of Appeals (Appeals) to resolve the issues while the case remains in SB/SE’s jurisdiction. FTS may be initiated any time after an issue has been fully developed.

The SB/SE FTS memo provides guidance and procedures for actions an examiner and group manager (GM) must take related to FTS. The procedures will be incorporated into the Internal Revenue Manual (IRM) by April 4 of next year.

SB/SE FTS is generally available for non-docketed SB/SE examination cases (with no regard to dollar amount) if: (i) all disputed issues are fully developed and facts, procedures, audit techniques, management involvement, applicable law, conclusions and adjustments are documented; (ii) all Examination issue resolution strategies have been exhausted; and (iii) the taxpayer has stated a position in writing (or, if applicable, filed a small case request). However, FTS should not be offered to taxpayers that failed to cooperate, respond, or submit requested information during the audit process, or failed to provide a stated position in writing in response to the proposed issues.

For eligible cases, FTS should be offered (a) by Field Examination—prior to issuance of a 30-day letter; (b) by Office Examination—after the taxpayer has requested their case be sent to Appeals; and (c) in civil penalty cases (both Field and Office Examination)—where the taxpayer has not indicated agreement, prior to the case closing from the group. If the case is eligible for FTS and the 30-day letter has been issued but the case has not closed from the group, applications for FTS should still be referred to Appeals for consideration. In addition, the taxpayer, the examiner or the GM may initiate the FTS process for eligible cases at any time after an issue is fully developed.

The application package must contain: (i) Form 14017, Application for Fast Track Settlement, for the key case and any prior and/or subsequent tax periods; (ii) separate Forms 14017 for related tax returns and unagreed civil penalty cases; (iii) a summary of the unagreed issues and copies of permanent examination lead sheets and workpapers; and (iv) the taxpayer’s written response to the proposed issues. After review, the examiner will forward the package to the GM for review, approval or denial, and processing. The memo also provides specific guidance for when an application is denied by the GM or by Appeals.

In addition to clearly setting out the parties’ roles and responsibilities in the FTS process, the memo also provides for how to address specific situations such as when new information is presented during an FTS session, when the GM rejects the Appeals official’s settlement proposal that has been accepted by the taxpayer; and how and when withdrawal from SB/SE FTS is appropriate.

Different closing procedures apply depending on whether the issues are settled based on hazards of litigation and whether some or all of the issues are agreed. The Appeals official must complete a Form 14000, Fast Track Session Report, which assists in planning the SB/SE FTS session and reports the progress of the issues in dispute. When the case is closed, the Appeals official must prepare an “SB/SE FTS Closing Package,” as described in the IRM.

The memo reminds parties that the prohibition on ex parte communications between Appeals employees and other IRS employees (i.e., communications between Appeals and another IRS function without the participation of the taxpayer or his representative) does not apply to the communications arising in SB/SE FTS because Appeals employees are not acting in their traditional Appeals’ settlement role. The memo further states that the FTS process is confidential with respect to all parties under Code Sec. 6103.

Can A Taxpayer Refuse an IRS Summons?

During the course of an IRS investigation, the IRS has the authority to issue an administrative summons seeking records and testimony (Sec. 7602). The IRS may summons records, whether they are in the taxpayer’s or a third party’s possession, including in the possession of the taxpayer’s business associates, acquaintances, prior employers, and even financial institutions (Internal Revenue Manual (IRM) §25.5.5.2). (One exception to this sweeping rule is that theIRS may not issue a summons or commence an enforcementproceeding if the IRS has referred a criminal tax case to theDepartment of Justice (Sec. 7602(d)).)

Assume that during an IRS audit of a company’s tax returns, the IRS questions large interest expense deductions on the returns. Time is running out on the statute of limitation for assessing a liability for the year under examination, so the IRS asks the taxpayer for an extension of time. The taxpayer refuses. The IRS agent then prepares and signs her final audit report setting forth the proposed adjustments.

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In the appellate level, the Eleventh Circuit held that the recipients of an IRS summons were entitled to an adversarial hearing to explore allegations that the IRS issued administrative summonses for an improper purpose (Clarke, 517 Fed. Appx. 689 (11th Cir. 2013)). The IRS, during an examination of a partnership’s tax returns for the 2005, 2006, and 2007 tax years, questioned a $17 million interest expense deduction claimed on both the 2006 and 2007 tax returns.

As part of the agent’s examination, in September and October 2010 the IRS issued five administrative summonses to third parties directing the individuals to give testimony and produce for examination certain books, records, and papers. In December 2010, the IRS issued a Notice of Final Partnership Administrative Adjustment (FPAA), proposing adjustments to the partnership’s tax returns for the 2005 through 2007 tax years. In February 2011, the partnership filed a petition in Tax Court challenging the IRS’s proposed FPAA adjustments.

When the recipients did not comply with the IRS summons, the IRS, after the Tax Court proceedings had commenced, filed petitions for enforcement in the federal district court. To enforce the summons, the IRS had to establish all four of the so-called Powell factors: (1) The investigation will be conducted pursuant to a legitimate purpose; (2) the inquiry may be relevant to the purpose; (3) the information sought is not already within the IRS’s possession; and (4) the administrative steps required by the IRS have been followed (Powell, 379 U.S. 48, 57–58 (1964)).

To meet these requirements, the IRS agent made a declaration that the Powell factors were satisfied. Once the IRS makes its initial showing of good faith, the burden is on the party challenging a summons to disprove one of the Powell factors or to demonstrate that enforcing the summons would constitute an abuse of the court’s process (Nero Trading, LLC, 570 F.3d 1244, 1249 (11th Cir. 2009)).

In the Clarke case, the recipients of the summonses and the partnership as intervener (the respondents) filed a response to the petition to enforce the summons and subsequently sent a letter to the IRS seeking materials concerning the issuance of the summonses and requesting depositions of the IRS agent and other IRS officials. The IRS declined, reasoning, in part, that the summons proceedings are summary in nature and that the taxpayer is not entitled to discovery.

The respondents asserted that the IRS may have issued the summons for improper purposes, one of which was in retribution for the taxpayer’s refusal to extend the statute of limitation. If the IRS issued the summons only to retaliate, that purpose reflects on the good faith of the particular investigation and would be improper, according to the taxpayer. The respondents sought an evidentiary hearing to question IRS officials about the IRS’s reasons for issuing the summonses. The district court flatly rejected their position and issued an order enforcing the summonses (Clarke, No. 11-80456-MC-RYSKAMP/VITUNAC (S.D. Fla. 4/16/12)).

The respondents appealed. Agreeing with them, the Eleventh

But before issuing the final report to the taxpayer, in an effort to gather information for the investigation, the agent issues a summons to the CFO of another company, who was the counterparty to the transactions that are under audit. The summons directs the CFO to give testimony and produce books and records relating to the IRS’s investigation. The summonsed party is then placed in the not-so-desirable position of having to respond to the IRS summons (i.e., appear before the IRS to give testimony and produce for examination the documents identified in the summons).

At this stage in the proceedings, what options does the CFO have to resist the summons in court? Should a court allow an adversarial hearing where the summonsed party has the opportunity to examine the IRS agent about her motives for issuing the summons? Or is the summonsed party limited to making legal arguments based on the evidence already in his possession without the benefit of discovery?

Stepping back for a moment, one of the factors that the IRS considers before issuing an administrative summons is whether the Service has made an attempt to obtain the information from taxpayers and witnesses voluntarily before issuing a summons (IRM §25.5.1.4). Working with the IRS and complying with information document requests (IDRs) issued during an IRS examination helps to prevent the issuance of a summons.

The IRS Large Business and International Division (LB&I) recently announced a new directive on IDRs that governs the procedures for IDR issuance and enforcement (LB&I-04-0214-004). When both the IRS and taxpayers engagein robust, good-faith communication in advance of an IDR’sbeing issued, summons enforcement procedures should beneeded only infrequently, according to the new directive.

Nevertheless, if meaningful communication breaks down and/or the IRS considers the taxpayer’s responses to the IDRs to be incomplete or inadequate, the IRS may issue an administrative summons to obtain the documents. Taxpayers have certain rights and privileges at this stage in the administrative proceedings, including the Fifth Amendment privilege against self-incrimination, the right to be represented by counsel, and the attorney-client privilege (IRM §25.5.5.4). The IRS may obtain the summonsed party’s testimony in the presence of a court reporter at a federal building, and, unlike in a civil deposition, the rules of evidence do not apply. IRS counsel may be present, and the summonsed party has a right to a copy of the transcript of the proceedings. If the summonsed party fails to show up and comply with the summons, the IRS may bring an action in federal court seeking enforcement of the summons (IRM §25.5.10.4).

But what if the summonsed party wants to resist producing the records or giving testimony? A case pending before the Supreme Court may shed light on the options available to a summonsed party who argues that the IRS issued the summons for an improper purpose and therefore the summons should not be enforced (Clarke, No. 13-301 (petition for cert. granted 1/10/14)).

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the Supreme Court is expected later this year.

Editor’s Note: This outstanding article was authored by Stephen L. Walker, JD.

10 Pointers Regarding IRS Bills, Penalties And Interest Charges

1. Federal income tax returns are systematically checked formathematical accuracy. If there is any money owed, you willbe sent a bill. So don’t worry so much about math errors onthe federal tax return as it will be caught. Generally speaking ifyou catch a math error after the tax return was submitted it canmake sense in many instances to wait for the IRS to contactyou with the changes before going through the brain damageof filing an amended federal income tax return. The tangiblecost incurred for waiting will be the assessed penalties andinterest for the difference between the original underpaymentand the actual balance owed.

Keep in mind too that a math error on a federal tax return will also impact your state income tax return and various states react differently to errors. So you will want to reach out to your state department of revenue with any necessary adjustments as soon as they are discovered.

2. Generally, interest is charged on any unpaid tax from thedue date of the return until the date of payment. The interestrate, determined quarterly is the federal short-term rate plus 3percent compounded daily. This in and of itself is not so onerous however when penalties are added in a $10,000 balance duefor example can jump to $15,000 in approximately 5 months.

3. If you file a return but don’t pay all amounts shown as dueon time, you will generally have to pay a late payment penaltyof one-half of one percent for each month, or part of a month,up to a maximum of 25%, on the amount of tax that remainsunpaid from the due date of the return until the tax is paid infull. The one-half of one percent rate increases to one percentif the tax remains unpaid 10 days after the IRS issues a noticeof intent to levy. If you file by the return due date, the one-halfof one percent rate decreases to one-quarter of one percentfor any month in which an installment agreement is in effect.

4. If you owe tax and don’t file on time, the total failure to filepenalty is usually five percent of the tax owed for each month,or part of a month that your return is late, up to five months. Ifyour return is over 60 days late, the minimum penalty for latefiling is the lesser of $135 or 100 percent of the tax owed.

5. In that you must file your return and pay your tax by thedue date to avoid interest and penalty charges, oftentimes thefunds necessary to pay your tax can be borrowed at a lowereffective rate than the combined IRS interest and penalty rate.

6. To ensure your payment on a bill for tax is credited properly,be sure to return the tear-off stub on your bill. Make your checkor money order payable to the United States Treasury. Enterthe primary social security number or employer identificationnumber, the tax year and form number, and your telephone

Circuit vacated the district court’s order and remanded the case for the district court to hold an adversarial hearing. The court held that the respondents were entitled to a hearing to explore the allegation of an improper purpose. And, at that hearing, the respondents could question IRS officials concerning the IRS’s reasons for issuing the summons. According to the appeals court,

Requiring a taxpayer to provide factual support for an allegation of an improper purpose, without giving the taxpayer a meaningful opportunity to obtain such facts, saddles the taxpayer with an unreasonable circular burden, creating an impermissible “Catch 22.” [Clarke, 517 Fed. Appx. 689, slip op. at 6]

The Clarke case has sparked controversy because the Eleventh Circuit’s holding conflicts with the decisions of every other court of appeals. In light of this, the government appealed the case to the Supreme Court, and as of this writing it was set for oral arguments on April 23. The precise issue before the court is “Whether an unsupported allegation that the IRS issued a summons for an improper purpose entitles an opponent of the summons to an evidentiary hearing to question IRS officials about their reasons for issuing the summons.”

While the issue before the court is narrow, the Supreme Court’s decision may provide guidance on what procedural options are available for a taxpayer who wants to resist an IRS administrative summons in federal court.

The government’s position before the Supreme Court is that the IRS has broad authority to issue summonses and that summonses should be summarily enforced. In light of this sweeping authority, the government asserts that:

• A summons opponent is entitled to a reasonableopportunity, including, if appropriate, an in-personadversarial hearing to present legal arguments why asummons should be quashed;

• At that hearing, the opponent is entitled to apprise thecourt of any evidence already in his possession thatsubstantiates the allegation; and

• If a summons opponent offers only an unsupportedallegation of IRS bad faith, a district court does notabuse its discretion by declining to provide the opponentwith an adversarial hearing giving the opponent theopportunity to examine IRS agents about their motivesfor issuing the summons.

See United States of America, Petitioner v. Michael Clarke, et al., Brief for United States. In other words, someone who objects to a summons is not automatically entitled to an evidentiary hearing at which he may question IRS officials about their motives for issuing a summons, according to the government (id. at 10).

Whether the Supreme Court agrees with the government’s position remains to be seen. Stay tuned, as a decision from

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number on your check or money order.

7. The penalties for filing and paying late may be abated if youhave reasonable cause and the failure was not due to willfulneglect. If you’re billed for penalty charges and feel you havereasonable cause, send your explanation along with the bill tothe IRS Service Center that sent you the bill.

8. Making a late payment as soon as you are able may help toestablish that your initial failure to pay was due to reasonablecause and not willful neglect. Generally, interest charges arenot abated; they continue to accrue until all assessed tax,penalties, and interest are paid in full.

9. There are possible exceptions to the general deadlines forfiling a return and paying tax. One possible exception is if youare a member of the armed forces and are serving in a combatzone. Refer to Publication 3, Armed Forces’ Tax Guide, foradditional information and qualifications. Another is if you area citizen or resident alien working abroad. Refer to Publication54, Tax Guide for U.S. Citizens and Resident Aliens Abroad,for details. The IRS also has the authority to extend filing andpayment deadlines in certain disaster situations.

10. If you believe there is an error on your notice or bill, writeto the IRS office that sent it to you within the time frame given.You should provide photocopies of any records that may helpcorrect the error. Also, you may call the number listed on yournotice or bill for assistance. If you are correct, they will makethe necessary adjustment to your account and send you acorrected notice. If you do call be prepared for long wait timeson hold. The best service may not be obtained by telephonecontact and you may want to communicate with the InternalRevenue Service by written correspondence for a completeand accurate record.

Foreign Tax

Tax Authority to Notify IRS on Americans in Israel

The Israel Tax Authority will notify the US Internal Revenue Service (IRS) about the accounts of Americans in Israel, under an agreement in principle between the Ministry of Finance and the US Department of the Treasury for implementing the provisions of the Foreign Accounts Tax Compliance Act (FATCA).

The agreement regulates the transfer of information to the IRS by the Tax Authority, which will receive the information from Israeli financial institutions. The information that will be transferred will include details about financial accounts in Israel held by American persons (citizens, Green Card holders, and residents, as well as legal entities in which Americans have a substantial holding). The parties also agreed that, in future, the IRS may notify the Tax Authority about income in accounts of Israelis in the US.

IRS Notice 2014-33

Notice 2014-33 announces that calendar years 2014 and 2015 will be regarded as a transition period for purposes of IRS enforcement and administration with respect to the implementation of FATCA by withholding agents,

Foreign financial institutions (FFIs), and other entities with chapter 4 responsibilities, and with respect to certain related due diligence and withholding provisions under chapters 3 and 61, and section 3406. This notice also announces certain intended amendments to the regulations under sections 1441, 1442, 1471, and 1472, including amendments providing that a withholding agent or FFI may treat an obligation (which includes an account) held by an entity that is opened, executed, or issued on or after July 1, 2014, and before January 1, 2015, as a preexisting obligation for purposes of sections 1471 and 1472, subject to certain modifications set out in the notice.

Taxpayers may rely on Notice 2014-33 regarding these proposed amendments to the regulations prior to their issuance.

Americans Abroad – Selling the Principal Residence

When it comes to considering gross income for tax purposes, Section 121 of the US Internal Revenue Code allows for the exclusion of up to $250,000 in gains arising from the sale of a “principal residence.” The exclusion should apply whether the property is in the US or a foreign country. In the case of married couples filing a joint return, up to $500,000 may be excluded. The tax law is very specific in how it defines a “principal residence”, and in the “ownership” and “use” requirements that form part of the definition for utilizing this exclusion.

In order for a property to qualify as a principal residence, the residence must have been owned and occupied by the taxpayer for a minimum of 2 years (specifically, 730 days) during the five-year period ending on the property’s date of sale. This can be one continuous period of residency, or multiple periods which total 730 days. “Residence” is defined quite broadly and can include trailer homes and houseboats. The residence that the taxpayer uses a majority of the time during the year will ordinarily be considered the taxpayer’s principal residence. However, this test is not dispositive. The Treasury Regulations provide a nonexclusive list of factors that are relevant in identifying a property as a taxpayer’s “principal residence”.

The definitional requirements raise some unique implications for US citizens working abroad. Perhaps an expatriate couple initially only intended to work overseas for a year or two, but have now found themselves staying for longer and possibly looking to sell their former residence. There is effectively a time limit for taking advantage of the exclusions under Section 121. Waiting too long to sell a property can result in it no longermeeting the requirements of a “principal residence”.

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residence and will also need to be considered.

In general, Section 121 will not apply if the taxpayer owns the property through an entity such as a holding company. When a corporate entity owns the property, the ownership and occupancy/use tests cannot be met since the corporation cannot “occupy” or “live” in the residence.

Properties owned through a trust are more complicated. Section 121 may apply if the taxpayer selling the property has met the 24-month occupancy requirement in addition to being considered the “tax owner” of the trust for the same period.

So-called “covered expatriates” who give up their US citizenship or green cards are, among other things, subject to what is commonly called, an Exit Tax. Basically, the individual is treated as if he has sold all of his world wide assets at fair market value on the day before the expatriation date. Thus, the individual must pay US income tax on the deemed gain (the “Exit Tax”).

If all gains from the sale of a principal residence are excluded under Section 121, then unless you have received Form 1099-A, no additional reporting is required. For gains exceeding $250,000 (or $500,000 in the case of a joint return), Form 1040 (Schedule D) and Form 8949 should be used.

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court.

Expats In The U.S. Needlessly Pay Canadian Tax!

Canadian citizens are not subject to Canadian tax on worldwide income if they are not resident in Canada. Rather, a Canadian citizen who is a non-resident of Canada is only subject to Canadian tax on certain Canadian source income (most commonly, rents or capital gains from Canadian real estate; dividends from Canadian companies; income from employment in Canada). This is no different than any other non-resident-citizenship generally is not relevant in determining liability for Canadian taxation.

Every year thousands of Canadians move to the U.S. to continue their careers there. In many cases, these Canadian expats continue to file Canadian tax returns and pay Canadian tax on their U.S. employment income under the assumption

It is also important to note that the exclusion of gains under Section 121 can only be applied to the sale of one property every two years. If a taxpayer has two properties he is planning to sell, and has alternated in using each of them as a residence, it is possible for either to qualify under Section 121 if he has occupied each of them for the required 730 days out of the preceding five years. In order for both to qualify, they must be sold at least two years apart. This two year period is measured not in tax years, but as two calendar years from the date of sale of the first residence.

Section 121 provides an allowance for “short, temporary absence(s)” which may be counted towards the 24-month occupancy requirement. This is permissible even if the taxpayer is not present, and even if the taxpayer has rented the property during the absence.

The tax law is vague about what constitutes a “short” and “temporary” absence. Annual two-month vacations are specifically mentioned as permissible, whereas a one-year sabbatical is not. Commentators had suggested that the IRS include exceptions to these rules for taxpayers who have been away for longer periods of time due to international employment, and have not purchased a new residence. The IRS specifically addressed these points when it adopted the final Treasury Regulations and stated it would not accept these suggestions.

The tax law allows for partial exclusions of gain if a residence was not occupied for the required 730 days during the five years leading up to the date of sale, but only if the sale was required “by reason of a change in place of employment, health, or … unforeseen circumstances.” Some safe harbor rules are provided in the relevant Treasury Regulations. If the safe harbor is not met, then tax law looks to the facts and circumstances of each case instead.

Married couples filing jointly may exclude up to $500,000 on their return only if both of them have occupied the residence for the required 24 months over the five years preceding the date of sale, and at least one of them was the owner of that residence during the occupancy period. In addition, neither spouse may have excluded gains on the sale of a principal residence in the last two years.

In the case of a principal residence in a foreign country, co-owned with a spouse who is not a US citizen or US resident (e.g., a green card holder), the Section 121 exclusion may not exceed $250,000 because the non-US spouse’s share from gains on sale will not be subject to US taxes (this assumes the tax return is being filed using the status, “Married Filing Separately”). The couple can make a special tax election and file using the status “Married Filing Jointly” and thereby treat the non-US spouse as a US taxpayer. If this is done they can receive the $500,000 exclusion for gain on sale of the principal residence. More information on the tax filing options available when married to a non-US spouse can be found in my previous blog postings here (Part I) and here (Part II).

Keep in mind that additional taxes may apply in the country of

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that they are still tax residents of Canada. This generally translates into a big tax cost. Even though Canada will grant a foreign tax credit for any U.S taxes paid, there will usually be a substantial residual Canadian tax liability, because of the fact that personal income tax rates in Canada are generally significantly higher that they are in the U.S.

In numerous cases, the decision to continue to file Canadian tax returns as a resident is based on a lack of understanding of the law.

Often, Canadian expats will think that, if they still maintain certain “residential ties” to Canada, such as bank accounts, drivers’ licenses, club memberships, credit cards, and membership in professional organizations, they will still be Canadian residents for tax purposes, even though they are living in the U.S. Information found on the website of the Canada Revenue Agency will often reinforce that conclusion.

However, what those expats usually fail to understand is the fact that the “tie breaker rule” found in Article IV(2) of the Canada-U.S. Tax Convention (“the Treaty”) will usually have the effect of overriding the fact that, based on domestic law concepts of residency, they may still be Canadian residents.

In the simplest, and most common, situations, a Canadian living in the U.S. will be a U.S. resident, and not a Canadian resident, under this rule, as long as the following three elements are present:

(a) The individual is a resident alien of the U.S. for taxpurposes (whether by virtue of holding a “Green Card” orby virtue of the “substantial presence” test),

(b) There is no “permanent home available” to that individualin Canada, and

(c) There is a “permanent home available” to that individualin the U.S. (NB-a rented apartment will normally qualify).

In that scenario, subsection 250(5) of the Income Tax Act will deem the Canadian expat to be a non-resident of Canada. This will be the case regardless of how many “residential ties” he or she may maintain to Canada.

In most such cases, the individual will not even have to file any Canadian tax return at all, unless they are earning income from renting Canadian real estate. Canadian expats living in the U.S. may be able to ask CRA to look at their situation and refund taxes incorrectly paid for up to ten prior taxation years.

Michael Atlas, CPA, CA

Mr. Atlas is a Toronto-based Chartered Accountant who practices as an independent consultant on a wide-range of international and domestic tax issues

State Tax News of Note

States With NO Income Tax

There are seven U.S. states with no income tax, while another two states have no income tax on wages but do tax interest and dividends -- an important consideration for retirees. The grass isn’t always greener on the other side of the state line, though. These states still need money for government services, and they raise it through other means, namely sales taxes, property taxes, and other fees. Depending on your situation and your willingness to move, with some planning you could start paying less in taxes and keeping more of your income.

States with no income tax:

AlaskaFloridaNevadaSouth DakotaTexasWashingtonWyoming

States with nearly no income tax:

TennesseeNew Hampshire

Let’s examine each of the states with no income tax using each state’s data on tax revenue as well as the Tax Foundation’s most recent data, which is for 2011. The Tax Foundation has been collecting data on taxes since 1937, and its data takes into consideration a per-capita average of both state and local taxes.

1. Alaska

If saving money is your only concern, Alaska is the best place for you. Of course, with its distance from the rest of the country and harsh winters, America’s northernmost state is not for everyone. According to the Tax Foundation, the average state and local tax paid per capita was $3,319 -- the 18th-lowest amount out of all 50 states. Senior citizens get an added incentive to live in Alaska, as the state exempts them from the first $150,00 of assessed value for property taxes.

With no state sales tax and relatively low property taxes, Alaska funds itself through royalties on oil and gas production. Besides low taxes, residents of Alaska get a direct benefit from these royalties through Alaska’s Permanent Fund, which pays full-year residents of Alaska a yearly dividend based on the earnings of the royalties.

The fund has paid out an average of $1,100 per year the past five years! Though the level has been decreasing as oil and gas prices and Alaskan production have dropped, that’s still

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6. Washington

Washington is a great example of the need to check all the data. The state primarily funds itself through a 6.5% sales tax that makes up more than 60% of its revenue. Localities add to this, so the sales tax can be as high as 9.5% in some areas. While the state has no corporate income tax, it does have a gross receipts tax, which charges businesses roughly 1% of revenue. This may not sound like much, but if a business is losing money, it still owes the government money at the end of the year, which is not the case with a corporate income tax. Such high sales taxes and property taxes add up. In 2011, the average per-capita state and local tax paid was $4,366, according to the Tax Foundation -- the 12th-highest in the U.S.

7. Wyoming

Wyoming funds itself mainly through its natural-resources taxes, as well as property taxes. The state has a property tax rate of 9.5%, though its sales tax is only 4%. In 2011 the average per-capita state and local tax paid was $3,500, according to the Tax Foundation -- the 22nd-lowest in the U.S.

States with nearly no income tax

1. Tennessee

Tennessee has no income tax but does have a “hall tax” -- that is, a 6% tax on interest and dividends, which is specifically allowed by the state constitution. Tennessee also has a 7% sales tax. Income taxes are a contentious issue in Tennessee. The state constitution gives the government the right to tax property as well as income from stocks and bonds, but it does not mention personal income. Every so often lawmakers try to institute an income tax, as the constitution does not specifically bar this. This November, Tennesseans will vote on an amendment to the state constitution to ban any future taxes on payroll or personal income.

While Tennessee has no income tax on wages, if you are a retiree living off of dividends and interest income, you should think twice before moving to Tennessee for the tax benefits. In 2011, the average per-capita state and local tax paid was $2,777, according to the Tax Foundation -- the second-lowest in the U.S.

2. New Hampshire

New Hampshire, like Tennessee, has no income tax on earned income but has a 5% tax on interest and dividends. The state has no sales tax but has an 8.5% corporate tax rate, as well as high property-tax rates, which add up. In 2011, the average per-capita state and local tax paid was $3,769, according to the Tax Foundation -- the 22nd-highest in the U.S.

When it comes to a state’s tax rates, there’s more to consider than income tax, but it doesn’t hurt to start there, especially if you’re living off interest and dividends.

a decent chunk of change for simply living in the state. If you subtract the average dividend from the average per-capita state and local taxes paid, you get $2,200. That would be the lowest net per-capita state and local tax bill by $400.

2. Florida

Florida’s warm weather has long been a draw for tourists from around the world and retirees who are fed up with winter. As an added draw for residents, Florida has not had a state income tax since it was repealed in 1855. The state mainly funds itself with a 6% sales tax and property taxes. In 2011, the average per-capita state and local tax paid in Florida was $3,699, according to the Tax Foundation -- the 24th-highest out of all 50 states.

3. Nevada

Nevada’s gambling and tourism industry has long been the state’s main draw, though its non-gambling tourism has grown through the years through shows, conventions, retail, nightclubs, and electronic dance music. The lack of individual and corporate income taxes is a big draw for businesses and residents alike. However, Nevada has a modified business tax that taxes businesses 1.17% (2% for financial institutions) on the wages paid in the state after deducting health care expenses.Like other tourist-friendly states, Nevada funds itself through sales and use taxes, which start at 6.85% and make up 72% of the state’s revenue. In 2011, the average per-capita state and local tax paid was $3,221, according to the Tax Foundation -- the 15th-lowest out of all 50 states.

4. South Dakota

South Dakota has the fifth-smallest output in the U.S., and its economy is mainly powered by farming and tourism. The state is known for numerous national parks, the historic city of Deadwood, and the Sturgis Motorcycle Rally.

With no income tax on individuals or corporations, the state funds itself through a 4% sales tax and various use taxes. In 2013, the sales and use tax made up 71% of the state’s revenue. Perhaps unsurprisingly, given the state holds the largest motorcycle rally in the U.S., motor fuel taxes are the second-largest contributor to the state’s coffers at 9%. In 2011, the average per-capita state and local tax paid was $3,052, according to the Tax Foundation -- the seventh-lowest out of all 50 states.

5. Texas

Texas funds itself through a 6.25% sales tax, taxes on motor vehicle sales and fuel, and taxes and royalties on oil and natural-gas production. Texas has no corporate income tax and is greatly helped by the oil and gas throughout the state and the Gulf of Mexico. In 2011, the average per-capita state and local tax paid was $3,088, according to the Tax Foundation -- the eighth-lowest out of all 50 states.

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NJ Wrongly Tells 2,000 Taxpayers They Underpaid Their 2013 Taxes; Won’t Send Notice About Mistake

Some New Jersey taxpayers may overpay their taxes because of a mistaken Division of Taxation notice. The state says it’s not sending a second notice to tell taxpayers of the mistake. (

New Jersey wrongly notified about 2,000 taxpayers that they underpaid their 2013 taxes, but the state won’t notify them about the error unless the taxpayer asks, possibly causing taxpayers to send the state money that wasn’t owed.

About one percent of the more than 242,000 taxpayers who made an estimated tax payment in 2013 received a letter from the state in recent weeks saying they owed more money on their tax bills.

“Taxpayers inadvertently received underpayment notices because of an error that was discovered on the estimated payment voucher,” said Department of Treasury spokesman Joseph Perone.

Perone said the state did not tabulate the total of the wrongly billed tax amounts.

Meg Bracelin of Long Valley received one of the warnings.

“I knew I made all of my estimated tax payments per my accountant’s instructions,” she said. “As a citizen I thought to myself, ‘They already have quite enough of my money.’”

She said she almost paid the $410 bill, but at the last minute called her tax preparer, Gail Rosen.

While Rosen investigated Bracelin’s case, she said she heard from a lot of her other estimated tax clients who said they received the same notice. After talking to other accountants whose estimated tax clients also received the notices, Rosen said she realized the issue was more widespread.

What’s worse, Rosen said, is that the state hasn’t sent new notices to taxpayers to tell them there was an error.

“What worries me is that some taxpayers are just going to pay this erroneous bill that they don’t owe because they just want it to go away,” she said.

The state confirmed it isn’t sending notifications to the affected taxpayers to tell them the amounts are not owed. Instead, Perone said, the state explains the problem when someone calls and asks.

“All of the accounts have been corrected. Those taxpayers do not owe anything,” he said, noting the error was fixed quickly. “It is unfortunate for those taxpayers, but it had a relatively small impact because we have 3.9 million filers.”

But without official notification from the state, Rosen, the

accountant, said some may pay the amount indicated on the notice.

“Unless you call or write to New Jersey and ask, it’s possible you’ll never know if you made an overpayment,” she said.

2014 Best & Worst States for Business

In the 10th annual survey of CEOs concerning their views of the best and worst states for business, over 500 CEOs across the U.S. responded. Business leaders were asked to grade states with which they were familiar on a variety of measures that CEOs themselves have said are critical. These include the tax and regulatory regime, the quality of the workforce and the quality of the living environment. For example, a state’s attitude toward business is viewed as a critical component of its tax and regulatory regime, while employees’ attitude toward management is considered a crucial factor in the perceived quality of a region’s workforce. Public education and health are also important factors in the living environment, as are such things as cost of living and affordable housing.

Texas continues its 10-year historical position as the best state overall; but Florida, which ranks No. 2, is edging up and even overtaking Texas in its quality of living environment. “We’ve learned from Texas how to tell our story better and it helps that we’ve cut taxes 25 times—about $400 million,” Florida Governor Rick Scott told Chief Executive. Scott points to what he calls the Jim Collins “flywheel effect” where momentum is generated as more big name companies invest in his state. “When companies like Hertz, Amazon, Deutsche Bank and Verizon add jobs here, it causes more people to look at us. Business is comfortable that we’ll keep the tax base low and improve our workforce.”

Tennessee edged out North Carolina to take third place with North and South Carolina respectively capturing 4th and 5th place. Indiana, Arizona and Nevada finished 6th through 8th, respectively. Having jumped 31 positions from 40th in 2010 to No. 9 this year, Louisiana is the Cinderella state of Chief Executive’s ranking, proving that a concerted effort to transform old habits and policies can truly pay off. Wisconsin comes close with a meteoric thrust from 41st five years ago to 14th in 2014. Having survived a bitter recall last year, Wisconsin Governor Scott Walker recently signed Senate Bill 1, legislation that provides $504 million in tax relief over the next two years to state taxpayers. The bill reduces income- and property-tax rates, as well as eliminates income-tax rates for manufacturers, making the Badger state even more competitive.

Likewise, Ohio has seen dramatic improvement due, in part, to an energetic governor in former congressman John Kasich, who, like Walker, pushed a vigorous turnaround. During his tenure, Ohio became the No. 5 job creator in the nation and No. 1 in the Midwest. Unemployment is now 6.5 percent, the lowest in Ohio since June of 2008. Likewise, Ohio has gone from an $8 billion deficit to a $1.5 billion surplus over the same period.

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California, New York and Illinois continue to rank among the worst three states in 2014, with virtually no change from previous years. California has gained breathing space since Governor Jerry Brown took office and is credited with a budget surplus. But despite the return of fiscal discipline, it has exchanged acute problems for merely chronic ones. It is a state that continues high personal income tax rates and regulates with a very heavy hand. Its top, marginal tax rate of 33 percent is the third-highest tax rate in the industrialized world, behind only Denmark and France. This situation creates a bias against savings, slows economic growth and harms competitiveness.

The Economist reports that it takes two years to open a new restaurant in the Golden State compared to six to eight weeks in Texas. The task of unraveling the byzantine layers of regulations seems insurmountable. The jungle is too thick to be pruned. That’s why Carpinteria, California CKE Restaurants (owner of Carl’s Jr.), is committed to opening 300 restaurants in Texas, but has no plans for new restaurants in California. According to Dun & Bradstreet, 2,565 California businesses with three or more employees have relocated to other states between January 2007 and 2011, and 109,000 jobs left with those employers. As one CEO commented, “personal income tax rates and too much ‘big government’ regulation…public employee unions dominate California to its detriment.”

The state is justly famed for its natural beauty, exceptional universities and high-tech clusters, but consider that one of its best-known tech firms, Palo Alto-based Tesla, is looking elsewhere to build its $5 billion “gigafactory” battery plant. California’s real estate is simply too expensive; and because its taxes are higher, general costs of living are higher. As a result, wages have to be higher, as well. The state is also known for policing companies more heavily than just about any other state—and sometimes more than the federal government.

“California likes to say that Texas can have all those low-wage jobs,” says Richard Fisher, CEO of the Dallas Federal Reserve, “but from 2000 to 2012, job growth percentage change by wage quartile was better in Texas.” Texas won another bragging right last February when Site Selection magazine reported that it surpassed California in global technology exports in 2012.

If there is a pattern in the survey, it is that states have diverged in recent years in their experimentation with economic freedom. Those lightening the burden of government have generally improved economic growth over those insisting that state-directed spending and governance is best. Apart from their geographic locations, many states are similar; and thus, they offer a natural experiment in economic policy.

John Hood, president of the John Locke Foundation, a state policy think tank in North Carolina, points to numerous academic research studies that compare such policies over time. Writing in Reason, he cites 112 studies that examined high, overall state and local tax burdens and found that 72 of them—64 percent—showed a negative association with

economic performance. Some analysts counter that isolating variables, such as high taxes, misses the point. States are better served, they argue, when they increase tax burdens to “invest” in education, infrastructure or other government programs.

Hood counters that this may seem plausible in theory but almost never works out this way. Of 43 studies testing the relationship between total state and local spending and economic growth, he says only five concluded it was positive.

Sixteen found a negative correlation and the rest were inconclusive. The problem is that states don’t invest effectively. States like Texas, Florida, Tennessee, North Carolina and South Carolina, Indiana and others have figured out that economic freedom works. Economists who create the Fraser Institute’s Economic Freedom of North America index examined state economic growth from 1981 to 2009. They found that if a state adopts fiscal and regulatory policies sufficient to improve its economic freedom score by one point, it can expect unemployment to drop by 1.3 percentage points and labor-force participation to rise by 1.9 percentage points.

The question is why have states nearer the bottom of the ranking not acted on this insight? The answer is likely complicated, but it has much to do with power and control. There will always be leaders who have convinced themselves that they act from superior knowledge and wisdom. And such figures have their adherents. However, business leaders are not bound to indulge such delusions and neither do citizens who continue to vote with their feet and abandon such states for friendlier places.

Editor’s Note of Appreciation: Marty Stein, fellowship member has the unique ability to discover stories that are both important and relevant to the business of tax. Thank you Marty for your sharp eye and discernment.

Use Resources and Toolsfor Tax Professionals

On Our WebsitencpeFellowship.com

National Center for Professional Education Fellowship

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Marketplace in 2014.

Calculating your payment requires you to know your household income and your tax return filing threshold.

• Household income is the adjusted gross income fromyour tax return plus any excludible foreign earnedincome and tax-exempt interest you receive duringthe taxable year. Household income also includes theincomes of all of your dependents who are required tofile tax returns.

• Tax return filing threshold is the amount of gross incomean individual of your age and with your filing status (e.g.,single, married filing jointly, head of household) mustmake to be required to file a tax return.

2014 Federal Tax Filing Requirement Thresholds

Examples

In the examples below, we assume that the payment amounts do not exceed the national average premium for bronze level coverage for the individuals involved. These examples are used only to represent the mechanics of calculating the payment and are not estimates of current or future health insurance premium costs.

Example 1: Single individual with $40,000 income

Jim, an unmarried individual with no dependents, does not have minimum essential coverage for any month during 2014 and does not qualify for an exemption. For 2014, Jim’s household income is $40,000 and his filing threshold is $10,150.

• To determine his payment using the income formula,subtract $10,150 (filing threshold) from $40,000 (2014household income). The result is $29,850. One percentof $29,850 equals $298.50.

• Jim’s flat dollar amount is $95.

Wayne’s World

Additional Information on ACA

The Internal Revenue Service has recently published some important information regarding the Individual Shared Responsibility, the penalty or Tax, taxpayers will pay in 2014 for not having met the requirements of the Affordable Care Act, ACA.

The information included:

The individual shared responsibility provision requires you and each member of your family to either have basic health insurance coverage (also known as minimum essential coverage), qualify for an exemption, or make an individual shared responsibility payment when you file your federal income tax return. It is important to remember that choosing to make the individual shared responsibility payment instead of purchasing minimum essential coverage means you will also have to pay the entire cost of all your medical care. You won’t be protected from the kind of very high medical bills that can sometimes lead to bankruptcy.

If you must make an individual shared responsibility payment with your return, the annual payment amount is the greater of a percentage of your household income or a flat dollar amount, but is capped at the national average premium for a bronze level health plan available through the Marketplace. You will owe 1/12th of the annual payment for each month you or your dependent(s) don’t have either coverage or an exemption.

For 2014, the annual payment amount is:

The greater of:

• 1 percent of your household income that is above thetax return filing threshold for your filing status, or

• Your family’s flat dollar amount, which is $95 per adultand $47.50 per child, limited to a family maximum of$285,

• But capped at the cost of the national average premiumfor a bronze level health plan available through the

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Eduardo and Julia are married and have two children under 18. They do not have minimum essential coverage for anyfamily member for any month during 2014 and no one in thefamily qualifies for an exemption. For 2014, their householdincome is $70,000 and their filing threshold is $20,300.

• To determine their payment using the income formula,subtract $20,300 (filing threshold) from $70,000 (2014household income). The result is $49,700. One percentof $49,700 equals $497.

• Eduardo and Julia’s flat dollar amount is $285, or $95per adult and $47.50 per child. The total of $285 is theflat dollar amount in 2014.

Because $497 is greater than $285 (and is less than the national average premium for bronze level coverage for 2014), Eduardo and Julia’s shared responsibility payment is $497 for 2014, or $41.41 per month for each month the family is uninsured (1/12 of $497 equals $41.41).

NCPE is prepared to assist you in understanding not only the Individual Mandate but the delayed and revised Employer Mandate. Be sure and make plans now to join us for these educational sessions.

Wayne

Practice Management

Too Busy For New Clients

Do you fall into the trap of that portrays you as too busy to take on additional clients? Things that we say, the appearance you give, the response to questions and without realizing it, we lose potential new referred clients.

Do you ever have clients ask you, “Are you taking new clients?” or “Do you have time for a new client?” Questions like this mean you are possibly conveying the wrong message to your clients. For some reason they think you are not accepting new clients. You want to be perceived as popular, not over worked.

Generally, the taxpayer thinks individuals in the tax profession work day and night, seven days a week during the tax season. This is a perception that is perpetuated by the media and the majority of tax professionals. It’s almost like a badge of courage that many are proud of, but not a label you want, if you wish to maximize your referral rate.

Here is a list of frequently encountered traps:

Trap #1: During an interview, we all have some social interaction with the client. Frequently they will ask; “How are things going?” Don’t fall into this trap. Your response should be something like “Great, we are having a very smooth year.” Don’t respond with comments about being tired, working 7 days a week, etc. These comments send the message “Too

Because $298.50 is greater than $95 (and is less than the national average premium for bronze level coverage for 2014), Jim’s shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).

Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return, which is due in April 2015.

The chart shows some types of coverage that qualify as minimum essential coverage and some that do not.

Example 2: Married couple with 2 children, $70,000 income.

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3. During the filing season I found emails from theFellowship to be:

Informative and helpful 80.65%Somewhat informative and helpful 19.35%Intrusive and bothersome 0%

4. Considering all your memberships in tax organizations how would you rank your membership in thencpeFellowship?

More important than others 80.65%Less important than others 19.35%Least important 0%

5. The Fellowship offers many services to its members.Which of the following do you rank the most important to youas a member?

Newsletter 45.16%Resources 25.81%Court Cases 0%New Tax Law 9.68%Email messaging 6.45%Being able to speak with Beanna 12.90%ncpe text book on line, searchable 0%

6. Have you tried the NEW Tax Research Center?And what do you think?

Found and is useful 19.35%Found and did not find useful 0%Have not used 38.71%Have not used but will 41.94%

7. Of the features on the web site, which do you findleast important to you?

Newsletter 0 %Resources 3.23% Court Cases 32.26%New Tax Law 3.23%Email messaging 12.90%Being able to speak with Beanna 19.35%ncpe text book on line, searchable 29.03%

8. The Taxing Times Newsletter, published monthly, isprovided to keep the membership informed as to the manyvarious issues in the world of tax. What new category of news would you find useful and helpful in our practice?

Section on tax law 35.48%Estate Planning Section 19.35%Practice Management 38.71%Technology - software, etc. 6.45%

9. In the Taxing Times Newsletter, which columns orsections do you find most of interest and value.

Notes from Beanna 16.39%Tax News 22.95%

busy.”

Trap #2: Your appointments get backed up and your clients have to wait for long periods. This also sends the message “Too busy” and can’t keep up with all your work. We all tend to book appointments close, but don’t schedule them so tightly that clients have a long wait in the lobby.

Trap #3: Towards the end of a long day, all of us begin to look a little tired and overworked. The gentlemen have grown a six o’clock shadow and the women need to spruce up their makeup and all have clothes that are extremely winkled and may have coffee stains. To avoid this trap, freshen up every 4 or 5 hours and take a 15 minute walk. You’ll feel better and not look so overworked.

Trap #4: You have files stacked everywhere and your office is untidy. It has the appearance of someone who is unable to handle the work they have. Keep your desk clean, your shelves neat and all those unfinished files out of sight. Being unorganized creates mistakes and once more the message is “Too busy.”

Take your time and ask personal questions about their activities and let them know that you always appreciate new clients. Above all, do not complain about your bad clients and slow payers. After all, you want them to stay with you and you want to be their “Trusted Tax Advisor.”

Editor’s Note: Patrick Hurley, ncpeFellowship Member, is a master at practice management and has provided just the right article to initiate this new section of Taxing Times. Pat has been honored as the top tax professional by his local newspaper and marketed that honor into increasing his client base. We are hopeful Pat will continue to share his tools to success in the business of tax.

Letters to the Editor

Results of the After April 15th ncpeFellowship Member Survey are as follows:

1. My Tax Season was:

58.06% - More difficult than in past years16.13% - Less difficult than in past years22.56% - About the same as in past years 3.23% - This is my first tax season

2. During the filing season I used the Resources onncpeFellowship:

Never 12.90%Once 16.13%More than once 64.52%Frequently 6.45%

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People in the Tax News 3.28%IRS News 6.56%Tax Pros in Trouble 4.92%Ragin Cagin - Mr. Jerry 12.00%Taxpayer Advocacy 6.56%Foreign Taxes 3.28%State Tax Matters 1.64%Wayne’s World 12.59%Letters to the Editor 4.92%Tax Jokes and Quotes 4.92%

10. What is your suggestion to improve the ncpeFellowshipand make your membership rank #1 for your tax practice?

Many responses were complimentary of the web site. I will share the suggestions:

“I currently have more nonresident alien clients than US citizens. Information relative to these taxpayers is always welcome because calling the IRS is of no help whatsoever!”

“The newsletters are a little long.”

My favorite comment ..... “I am a sole practitioner. Having NCPE and Beanna as “backup” is priceless. 3 or 4 times during tax season I emailed her questions - which she promptly answered. It helps take the “sole” out of the practice and just makes the Fellowship worth every cent invested in the purchase price.”

Thank you to each of you who took the time to respond to the survey. Your thoughts and expressions were appreciated and keep us on the right track providing what the Membership needs, wants and desires. We really do it all for YOU!

Sponsor of the Month

NCPE - National Center for Professional Education

“Serving a Maturing Nation”

A comprehensive course of study on older taxpayers, their need for income during retirement, social security, Medicare and Medicaid planning, Long-Term Care, tax issues from accessing retirement funds and estate planning.

If you have older clients, if you are an older tax professional, make plans today to attend at a seminar near you.

2014 Schedule:

New Orleans, LA Level 1 June 2 & 3New Orleans, LA Level 2 June 4 & 5New Orleans, LA Level 3 June 6

Sarasota, FL Level 1 June 23 & 24Sarasota, FL Level 2 June 25 & 26Sarasota, FL Level 3 June 27

Las Vegas, NV Level 1 July 7 & 8Las Vegas, NV Level 2 July 9 & 10Las Vegas, NV Level 3 July 11

Atlanta, GA Level 1 July 14 & 15Atlanta, GA Level 2 July 16 & 17Atlanta, GA Level 3 July 18

Tarrytown/White Plains, NY Level 2 July 14 & 15

Denver, CO Level 1 July 21 & 22Denver, CO Level 2 Oct 22 & 23Denver, CO Level 3 October 24

Raleigh, NC Level 1 Sept 25 & 26

Call NCPE to register at - 1-800-682-2163

You will be glad you invested the time to know how to serve this valued segment of our society and to increase your value means you increase your income.

Tax Jokes and Quotes

Next Edition of Taxing Times: July 1st, 2014