Avoiding Identity Theft

In the last year several clients have run into the problem of identity theft. In particular one taxpayer simply filed their ordinary form 1040 with IRS as they have done for more than 25 years. The return claimed a refund. The IRS wrote to the taxpayer and advised that a return had already been filed and a refund issued to the same tax number. That’s how it starts at least with regard to tax filings. It was not simply a matter of the taxpayer revealing their true identity which got them eventually the return of their tax refund. So it is best to take steps to avoid identity theft. The IRS has suggested that individuals file their tax returns as early as possible to avoid hackers and thieves who attempt to file early in the tax season using stolen tax information. A recent client who is a musician told me that many of the vendors of her work require her Social Security number. The more a taxpayer gives out that number to numerous vendors the more likely identity theft can occur. My suggestion was to use an employer identification number for all of these business receipts. The EIN can be acquired by a sole proprietor who can use it for any number of businesses and there is no need to incorporate. The IRS website provides guidance for the use of EIN numbers. Recently IRS declared a national tax security awareness week which ended on December 1, 2017 in Revenue Bulletin 2017 – 193 issued November 27, 2017, IRS listed seven steps to help with online safety and protecting tax returns and refunds in 2018. These include the following

Shop at online retailers you know.. Sites using the S designation in HTTPS of the URL are secure; look for the lock icon in the browser’s URL bar

Avoid unprotected Wi-Fi. Unprotected public Wi-Fi may allow thieves to view transactions

Learn to recognize and avoid phishing emails. These emails often suggest a password is expiring or that an account needs to be updated. Phony contact from the IRS is now too common.

Use security software to protect against malware that may steal data and viruses make sure firewalls and browser defenses are always active and updated

Use passwords that are strong, long and unique. Experts say a minimum of 10 characters but longer is better. Use a combination of letters numbers and special characters

Use multifactor authentication which means users may need a security code usually sent as a text to a mobile phone in addition to usernames and passwords

Encrypt and password protect sensitive data if keeping financial records tax returns or any personally identifiable information on computers. This data should be encrypted and protected by a strong password.

IRS also suggests getting a free credit report from each of the three major credit bureaus once a year and creating a “My Social Security account” online with the Social Security Administration where a taxpayer can see how much income is attributed to their Social Security number which will help determine if someone else is using the number.

                

Love the IRS? ..... a Poem

The IRS

Does anybody love the IRS?

 No one that I know

Enjoys that day in April

When you send them all your dough;

It seems an awful waste,

 Money down the drain

Buying us a government

That hasn’t got a brain.

No matter how you slice it,

You’ve got better things to do

Like whipping up a tax return

IRS may just let thru;

“With taxes we buy civilization”

 The philosophers may extol,

But you and I both know

 The money‘s down a hole.

So when it’s that time again,

Months before the summer,

Be prepared, my friend,

 For life to be a bummer.

From: "Here's Rhyme in Your Eye"

By TMD

The Tax Bill Rush

The Tax Bill rush is on and now aiming at Thanksgiving. It’s sure to be a turkey with lots of gravy for some and not much for most. Limits on mortgage interest and state income taxes will make New Jersey, New York and the real estate industry shake for sure. No sense worrying about it just yet. Money plays a large part in the legislative process and lobbyists will be reminding legislators of that fact.

The "New" Tax Bill or Why Nobody Reads the IRS Tax Code

              Reading the tax code is no fun. I know you haven’t done it. Neither have I and I have spent my entire career in tax law. Sure we know the concepts and how to research the details, but nobody, nowhere, no how has ever read the entire Internal Revenue Code. If you have the entire document under your belt send me a note, I will buy you a drink or three. That’s just the way it is. We know what we know and don’t know what we don’t know. Senators and congressmen who will be working on the tax reform bill that the president is attempting to get through by Christmas (or is it Thanksgiving?)won’t read much either. A typical tax bill can run hundreds if not thousands of pages with explanations. They are not going to read it. Even if they did by chance read some they won’t understand it. But they will vote on it and do their best to get it enacted into law. The Senate took a significant step toward rewriting that tax code on October 19, 2017 with the passage of the budget blueprint that would protect the $1.5 trillion tax cut from the Democratic filibuster, so says the New York Times. But as a matter of fact no one on or off Capitol Hill has seen the tax overhaul bill that Republicans are drafting behind closed doors. The Times continues: the swift pace to complete, release and quickly vote on a tax cut is aimed at leaving little time for the type of dissent that has scuttled previous tax proposals. Senators have set up a rapid series of hearings and votes with the aim of getting a bill to Pres. Trump by Christmas.( Thanksgiving?) All of this is ridiculous. What is the rush? Why are we Americans not entitled to have our legislators at least think, discuss and at a minimum read some of the volumes that will become our new tax law? It’s all about idiotic campaign promises and midterm elections, not creating a better tax system. So at the moment all we have is the scuttlebutt of what changes could be included in this new tax world. They include individual tax brackets of 12%, 25% and 35%. Peeling back some deductions like interest on home mortgages and state and local income taxes are also up for grabs. A 25% top rate for owners of pass-through entities such as S corporations and sole proprietorships. A 20% corporate rate and the repeal of the estate tax perhaps in a phase out. I have written before about the danger of tempting taxpayers to disguise their wages as income from an S corporation or sole proprietorship to take advantage of the proposed lower tax rates. Republicans say they are working on ways to eliminate any abuse. That would include implementing a 70/30 wages to profit ratio taxing 70% of income at individual rates and 30% at the new pass-through rate. Pres. Trump on the other hand has talked about punishing taxpayers who attempt to evade their proper taxes using the pass-through scheme. “They should receive coal for Christmas. Not only would that be proper punishment, but it will also help to revive the coal industry at the same time.” Okay, that part is fake news but I couldn’t resist.

Chasing the Independent Contractor

             Round and round we go. Is the worker an employee or an independent contractor? IRS chasing employers, employers dodging IRS. Everyone is doing it or so it seems. But helping to sort out the rules is always welcome, so a recent Senate proposal on worker classification may bear fruit. The law, if passed, would create a safe harbor (we lawyers love that). It would be based on three criteria: the relationship between the respective parties, the existence of a written contract and the location of the services or the means by which the services are provided. You may know that companies like Uber are being characterized as the “gig” economy. Creating “freelance” relationships with what perhaps could be called employees is now the rage. In the old days a worker who described himself as "freelance" meant they were unemployed. As the situation gets more out of hand because of this gig economy legislation in this area is more likely. Included in the proposal will be necessary changes to the form 1099 reporting rules. Passage seems on track and is real.

Tax Reform- Alice and the Rabbit

1)      Boy, $1 trillion just isn’t what it used to be. I was tempted to write that amount down but I wasn’t sure how many zeros I would actually need. But we will soon be finding out. The architects of tax reform are talking about major tax reduction in order to meet the president’s campaign promise. Like everything this president seems to do, he wants things done quickly. If not correctly. So now Republicans are changing their tune with regard to fiscal debt. The federal debt topped $20 trillion earlier this month and is projected to grow by another 10 trillion over the next decade. It seems the tax reform idea and tax cuts are different than the Republican ideal of fiscal responsibility and discipline. That at one time included tax cuts that did not add to the federal deficit. Of course the idea is that economic growth will offset the loss of revenue… said Alice to the Rabbit. 

The SFR and the Tax Return Non Filer

           After more than forty years of experience I can tell you this: lots of people don’t file tax returns. Their excuses run the entire gamut from the simple: “I forgot” to “I didn’t have the money” or “My personal life was a mess.” The IRS is in a continual dance with non-filers. It is no surprise that many individuals and businesses slip through the cracks. In some cases the taxpayers are simply shocked that they never get IRS contact at all. Of course honest taxpayers must bear their undisclosed tax burden. The politics involved doesn’t lend itself to a general amnesty for these nonfilers. Instead Congress has provided and the Internal Revenue Code follows an administrative procedure for creating tax returns for taxpayers who refuse to do it themselves. On the surface this may not be a bad thing. IRS wants those returns, so it goes ahead and creates them itself. Once created by the IRS, the agency is free to begin collection of the dollars that may be due along with interest and penalties. This process is known as SFR, substitute for return. What taxpayers may not know is the difficulties they are about to encounter because of this process. Since no tax returns are filed by the taxpayer the statute of limitations never runs. Also in the calculation used by the IRS any tax information that has been sent to it will be used on the income side but no other deductions or allowances will be given. Thus if a taxpayer is actually entitled to sizable credits or losses and other deductions which would have reduced his tax liability to zero, none of them will be applied. These assessments based on the substitute for returns can result in enforced collection action including federal tax liens and seizures as well. Many clients discover that they had been subject to this SFR procedure only when a collection agent or Notice of Lien or Levy appears at their doorstep. The well advised are told to immediately create their own returns and file them with the IRS. In most cases those actual tax returns will be used for the basis of reducing any prior assessments. In a recent bankruptcy case a taxpayer learned some of the hardships that may be encountered because of this process. In Giacchi, 3^rd Cir. the IRS had created substitute for returns for the taxpayer. The taxpayer later filed his own forms 1040 which resulted in reduced taxes that he still owed. The taxpayer never paid those taxes. After several years the taxpayer filed for bankruptcy and argued that the tax liability should be discharged. The appeals court ruled that his filings after IRS had assessed the taxes were not an honest attempt to comply with the tax law. The court determined that they were not returns for bankruptcy purposes and therefore were not dischargeable. Bankruptcy, it will be remembered, is for honest taxpayers with honest debts. Nonfilers should attempt to obtain IRS transcripts to determine whether or not they have been made subject to the SFR procedure.

Loopholes and Tax "Reform"

By definition a loophole is any tax deduction or credit for which somebody, other than you, is entitled to claim. Let’s face it we all have grown up with cherished tax deductions we love almost as much as friends and family. The mere thought of not being able to deduct mortgage interest or a charitable deduction brings chills to your spine. But what are the top tax loopholes that have helped create the hole in the federal fisk? For those few with inquisitive minds they are: the home mortgage interest deduction, charitable contributions, tax deductions for retirement plans and tax-deferred accounts of all varieties, the exclusion for employer-provided health insurance, the favorable tax rates for qualified dividends and long-term capital gain, exclusion of some portion of Social Security benefits from taxation, the deduction for state and local income tax, or real property tax deduction, the earned income credit and the child tax credit. So if anyone is planning to take a shot at tax reform these loopholes will be primary targets. But you can continue to sleep nights, all of them have well paid and well positioned lobbyists in Congress steadfast in their resolve not to let their prize deductions or credits go down the drain. Remember we have the best Congress that money can buy... and it does.

Closing the Door to Cuba...Again

The president took predicted action with regard to travel to Cuba. As part of the new policy we Americans will no longer be able to take our own private trips to Cuba which I did and which I discuss on this blog. We will be forced again to take authorized educational tours which will also be subject to strict new rules and audits to ensure that we are not going just as tourists.Those tours will keep people from going where they want and talking to whomever they please. My urgency suggesting you go to Cuba yourself to see things with your own eyes continues unabated. These new restrictions will only make it terribly more expensive to do so. It appears the Trump position will once again promote the embargo and strategy which has failed over the last 50 years. Cuba will be fine. It is moving forward, I have seen it with my own eyes and talked to many Cubans there who agree, but it is doing it with the help of China and Russia.

Cuba Si Yankee Si?

I have just returned from Cuba. It was all legal. In years past one was required to go from Europe, Canada or Mexico or some other Caribbean country via a puddle jumper. These days making the trip from the good old USA is a lot quicker and safer. I spent six nights in Havana. The purpose of my trip was professional research.  If you don’t believe me just take a look at the self-certification I filed with the State Department. When you book your air fare your computer screen your airline will give you the choice of things like visiting family, religious reasons, professional research, education and the like. You select one and that’s that. I understand that you are to keep a journal of your activities for at least five years. Fortunately I keep extensive journals of all my travels and can easily comply. I do have to wonder how many people are actually keeping this kind of journal. And what agency of government is charged with reviewing this kind of documentation. IRS? Note that getting a suntan on one of Cuba’s marvelous beaches is not included. For me, I wanted to see with my own eyes how socialism was doing in a country that is 775 miles long and no wider than 120 miles at its widest. Ever since Fidel Castro died his brother Raul has been somewhat relaxing the socialist approach to good old-fashioned making an extra buck or two. Now Havana has got a population of 2 million and the entire country just a little less then 12 million. It has the Atlantic Ocean to the north and the Caribbean Sea to the south and as most people here are aware is a mere 90 miles from Key West. If you’re old enough to remember the Cuban missile crisis you can close your eyes and see a very stern and stressed President Kennedy trying to deal with Russian missile installations that could easily reach the United States. So here is the scoop on Cuba these days: First, let me say unequivocally that you should visit Cuba as soon as you can. There is no need to go with a high-priced tour and traveling directly from Newark is relatively cheap and easy. The flight is under three hours. I was fortunate enough to travel to Russia in 1993 just as the Soviet Union fell apart. Within no time things changed over there dramatically. The same thing is going on in Cuba though the socialist regime does not look like it’s collapsing anytime soon. It will be the comprehensive tax law changes which became effective January 1, 2013 that may lead the way to major change. That law contains 19 different taxes that will apply to Cuban business and Cubans in general. Up to now 80% of Cubans worked for the state and had little concern for any taxes. That has already changed with workers contributing to a Cuban version of Social Security. And there are plenty of other taxes on the way. They include sales tax, a comprehensive income tax, employment taxes, environmental and resource taxes. Starting to sound familiar? Only a tax lawyer would love the complication. There appears to be two tax types: profits based on an accounting and a monthly fee based on occupation. The government sets preliminary monthly tax quotas based on occupations. Rates are set annually in their budget which by itself has to create a great deal of problems.  If the preliminary tax that is paid is higher than that due at the end of the year apparently no refund is made. The taxation of retailers allows a cost of goods sold but it is limited by a figure determined by the government arbitrarily. There is also a property tax on acquisition as well as a 1% tax for property acquired in a divorce. Inheritance taxes will also apply depending on relationship to the decedent. The rates begin at 7% and go as high as 65%. Taxes on public documents and certifications are due and payable by stamp. Not to be outdone there is a tax for using toll roads which amounts to three dollars for each 50 km traveled and applies to cars, motorcycles, trucks, wagons and vans. An airport tax, which I paid, amounts to $25 arriving and departing. Most self-employeds now in Cuba pay their tax under the simplified monthly payment method. Needless to say Cubans are feeling their way with regard to taxation. Excessively high rates will result in the creation of an underground economy. The arbitrary allowance for costs for example allow farmers to deduct 70% of their revenue as costs and small business 40% as their costs. Creating exemptions and favorable tax treatments in no time can turn the Cuban tax structure into the same mess we have here in the states. Several years ago Raul Castro allowed people to apply for permits to have private businesses. In the first year about 1 million of those permits were issued. They include everything from being able to rent your casa to using your private vehicle as a taxi or your pickup truck to load cement. During my visit I stayed in a Casa. Renting the entire apartment through air B&B was simple. Clean and comfortable with hosts that spoke English and were able to answer my many “preguntas”. They told me that they have a permit for their private business which requires them to pay 30 CUC monthly and 10% of their profit. That sounds to me like the simplified method .That leaves a substantial amount left over compared to the average salary of about $25 per month for many Cubans. Cuba has a dual currency at the moment. CUC, Cuban convertible pesos and CUP, pesos for the ordinary Cuban citizen. The CUP is one 24^th of the CUC. The money looks interchangeable at first glance and travelers must be careful. The CUC these days is the equivalent to one dollar. At this time due to the congressional failure to end the fifty year embargo, Cuba extracts a 10% tax when dollars are exchanged for CUC. Dollars are not legal in any transaction in Cuba. Note, to change US dollars into Cuban currency is no problem as there are exchanges at the airport as well as banks in town. ATMs exist but do not accept US credit cards as there are no US banks in Cuba. Cuba is a cash economy and no one buys on credit. Citizens can have debit type cards which can be used at the few ATM in the city. A few miles outside of Havana the world turns into farmland where people rely on horseback and oxen. Our host named Raul and his wife have their air B&B apartment at 505 O’ Reilly in the historic district of Havana. Raul is retired from the military after 25 years of service and told me he receives a pension of about $467 CUP a month. That translates into about $20 US. Remember, for the time being, Cubans receive subsidies for rent, free education and free medical as well as a monthly allowance for foodstuffs via a ration book. It’s the tax system that’s currently firing up that may change all this as the government gets out of providing subsidies and moves to a more targeted welfare system. It may be Cuba Libre, but perhaps not for long. I can also recommend without hesitation the Cuban Mojito. It tasted different than the one here in the states. They use an herb called Yerba Buena...which means the good herb. And so it is with the right mix of rum and sugar. Music is everywhere and the Cubans seem happy and demonstrate a real joie de vivre despite having relatively little. We Americans may be able to learn a thing or two from them about working less and enjoying life more. Oh yes, the streets are filled with American cars from the 1950s. If they aren’t American, they’re Russian Ladas. Remember the Cubans turned to Russia when they were shunned by the United States. The Cubans are incredibly talented in keeping those old beasts running with jerry-rigged engines, transmissions and everything else. I guess that’s what an embargo will do to you… Make you more self-reliant. The New York Times recently reported that the Cuban gross domestic product shrank in 2016 for the first time in 20 years. It also said that about 634,000 Americans visited Cuba last year which was an increase of about 34%.  Overall tourism to Cuba was up 13% in 2016 with over 4 million tourists visiting the island country. A number of hotels are being renovated in the downtown area known as Park Central. The Cuban government says that it is not interested in creating a second Cancun because it values its country’s cultural and historical heritage. But it will most likely be tourism chiefly from the United States which will bring this country into the 21^st century. You have to wonder whether that will be the best result. Then there is the presidential politics of the moment. Donald Trump having made promises to conservative Cuban groups during his campaign to further restrict relation with Cuba citing human rights violations. Needless to say China’s violation of those same rights do not seem to be a problem for the American economy or the American people. But at the time of this writing some form of restriction on further travel by ordinary American citizens to Cuba seems imminent. The talk is that further restrictions on being able to prove the purpose of their trip will be a likely enforcement area. It will be a shame if the window to contact with the Cuban people is further closed by presidential mandate. Anyone desiring to go to Cuba to see for themselves ought to book their trip as quick as possible. Further announcement on restrictions is likely soon and will be made in Miami where the stronghold of Castro exiles exists.

The Other Side of Independent Contractors

               It is no secret that the IRS has declared war on employers who treat their employees as independent contractors. Needless to say the states have the very same interest. Not only are employers relieved of the task of withholding, but they also avoid payment of employment taxes, medical and pension benefits. The obligation to file and pay taxes falls on the shoulders of the employee as an independent contractor. Those independent contractors however do have a field day with regard to the deductions they can claim on their own personal schedule C business. See#2 above. Every then and again the tables are switched. In Derolf v. Risinger Bros Transfer, District Ct, Ill, truckers who were employed to haul freight claimed that they were in fact employees and not independent contractors. They claimed their employer intentionally misclassified them. The District Court examined the facts and determined that the truckers controlled the work they did, set their own hours, and decided the routes they would drive. They were paid by the mile and most importantly they could haul freight for other carriers and could make a profit like any real business. With that the court decided they were not misclassified and were in fact independents.

What's Wrong with a Low Business Tax Rate?

Now, it comes as no news to tax practitioners, lawyers and accountants alike, that running one’s own business offers the potential for many tax deductions denied to the typical wage earner. One only has to take a look at the infamous 1040 Schedule C filed by business owners versus the Schedule A that most employed individuals file. On that schedule A, a paltry number of deductions are available: medical, charitable, state and local taxes, real estate mortgage interest to name the few. But the Schedule C for taxpayers who claim to be in a business has line after line of tempting potential deductions. It’s been that way for a long time. But with Trump’s idea of creating a 15% maximum tax for business income which would include sole proprietorships and other pass-through entities, the temptation may be too great for many taxpayers to resist. By claiming to be in a business the many deductions available on a schedule C can result in substantially lower taxable income which would then be taxed at the maximum 15% rate. This same income if taxed on the ordinary form 1040 could be taxed as high as 35%. Can anyone blame taxpayers if they attempt to squeeze into this notion? How could the enfeebled Internal Revenue Service deal with detecting and correcting these problems? At the moment being underfunded has resulted in the IRS being paralyzed in many of the areas necessary for current tax administration. How could the agency take on another role of policing the genuineness of business filings? Over the years, the IRS has challenged many taxpayers who have claimed that their hobbies are in fact business filings. But even in that area, the factual nature of the circumstances surrounding the “business” are difficult to detect and to prove. As a practical matter taxpayers who claim a profit from their schedule C business are not the most likely to be audited in the first place. That would be the case for individuals inventing businesses to place their otherwise non- business income. Whether tax legislators will be able to so restrict the application of this 15% pass through business tax idea as to make it workable remains to be seen, but it seems unlikely, if not impossible. Create another loophole and the tax paying public will find a way in. It’s only natural.

The Audit Lottery

When IRS is not issuing regulations trying to stay on top of what the federal tax law means, it is of course responsible for enforcing the tax laws and collecting the revenue. In that regard, the audit process is its only real weapon. While computers have leveled the playing field somewhat, the agency over the last five years has lost more than 2500 revenue agents. These folks are in the trenches of tax compliance. For the most part, they are losing the battle. For all taxpayer classes, tax audit frequency is dropping. The individual tax audit rate fell to .7% which is about 1 return out of every 143 returns filed. And these audits are not being conducted in a full-blown fashion, but rather are handled by correspondence to a taxpayer focusing on perhaps one or two issues. For business tax returns, the audit rate was .49%, down 17% from last year. Those agents assigned to enforce the criminal tax law have also generated fewer tax cases. In 2016 only 3,395 criminal proceedings were initiated. A loss of some 12% over the prior year. Now enter Donald Trump and his proposal to cut the IRS budget by more than 14% in order to pay for additional funding for the defense budget and it is not difficult to see where audit rates and frequency will go in the next few years. Will paying taxes one day be a truly voluntary donation? They say for every dollar spent on IRS, the agency collects four. The Donald may be missing billions by being stubborn on this funding issue....or is he?

Tax Amnesty?

Birds do it, bees do it, even educated fleas do it… No, not that. With apologies to Cole Porter. What everyone is doing is tax amnesty. When New Jersey realized it was broke what did it do? Tax amnesty. Now Pennsylvania and Virginia are getting into the act. Pennsylvania will offer an amnesty program from April 21 to June 19. The offer is to waive all penalties and one half of the interest for taxpayers with tax delinquencies as of December 31, 2015. Failing to take advantage of the offer will result in an additional 5% penalty. In Virginia, tax amnesty will begin sometime from July 1, 2017 until June 30, 2018 and is scheduled to last 60 to 75 days. Other states continue to view the windfall for their tax coffers by offering some type of amnesty program. How far in the future is a federal tax amnesty program? Certainly IRS has had a great deal of success with its offshore tax compliance program which brought billions of dollars into the federal treasury by offering reduced penalties for those who came forward without the agency spending a great deal on enforcement activity. As the IRS budget shrinks further, it would seem that some type of tax amnesty across the board to all taxpayers may in fact be warranted. None has been offered to date. But these are strange times, indeed. So tax dodgers and non-filers may soon find a welcome mat back into the tax fold. But the best advice may be to do something now just in case this amnesty stuff ends up just a pipe dream.

Tax Advocate on Tax Filings

The Tax Advocate is on the side of tax reform and simplification. The national taxpayer advocate Nina Olson said that the code must be simplified. In her report to Congress her office stated that IRS data shows that individuals and businesses spent about 6 billion hours yearly complying with the tax code’s filing requirements, not including millions of additional hours spent responding to IRS audits or notices. The report says: “If tax compliance were an industry it would be one of the largest in the United States” To consume 6 billion hours the tax industry requires the equivalent of 3 million full-time workers, so says the report.. The current tax code contains more than 200 tax deductions credits, exclusions and similar tax allowances, if all tallied they amount to $1.42 trillion that’s more than Congress pays to run the entire federal government. Olson also requested that IRS change its culture from one that is enforcement oriented, to one that is service oriented and naturally she recommends that Congress give additional funding to the IRS to meet taxpayer needs. Not likely....

Tax Scammers...and the IRS Dirty Dozen

The tax scammers are having a field day. Millions of people are being cajoled and threatened into sending money or revealing damaging personal information to telephone callers and emailers. My professional email is being filled these days by scammers posing as prospective clients. Tags like “urgent- please help” or “I have been referred to you” or just a typically American surname is used as the reference. Opening an email from one of these conmen caused a virus that swallowed my laptop. But it could be worse. The tax scammers are working tax professionals this way. The “client”will seek advice in filing their individual or business tax returns. If the practitioner responds requesting tax data, the scammer forwards an email file for review. Once opened that file contains either a virus or a program designed to infiltrate the practitioner’s computer to obtain identifying and other confidential information. I now simply delete all of these emails as soon as received. If there is in fact a client seeking my services they will have to go about it in the old fashion way. The IRS has listed this scheme as one of the “Dirty Dozen” they publish every year along with many of the usual cast of characters including: Identity Theft, Return Preparer Fraud, Fake Charities (giving out fake news BTW), Padding Tax Deductions( America’s favorite indoor sport), False Credit Claims, Tax Shelter Abuse and Offshore Tax Schemes of all kinds. The list is revised from time to time as the tax season and the year proceeds.  

The Not So "Innocent" Spouse-----in Rhyme

The Not So Innocent Spouse             1/7/17                         

It’s not for love and happiness that married people yearn

It’s for the chance to finally file a joint return;

Accountants often say

They’d have it no other way;

Oh, for once to beat the tax man

And maybe save a couple grand;

Then the troubles begin and fingers point

Why did I ever file that return joint!

The Devil made me do it for I am but an innocent child

He/She’s the monster, She/He knew it all the while;

I studied fine art and basket weaving

He majored in law and minored in deceiving;

Of those deceptions I am green

Thank heaven for Code Section 6015;

My Ex, the skunk, over the coals IRS should rake

I am but an innocent spouse and I deserve a break!

“But of these things you knew well;

Violate your oath and it’s straight to hell”

“But Judge have mercy my ring a fleck, a tiny pill

My clothes no labels and from GoodWill

My car a lease way over due

And this marriage has made me, oh, so blue”

“I sympathize with your tax mess

But that resolution is for the IRS”

And so it goes, how it may burn

Having filed that damn joint return.

When Taxes are Owed to IRS-The Installment Agreement

When a taxpayer falls behind with the Internal Revenue Service whether because a tax return has been filed and tax payment not made or there has been an audit of that filed tax return and the liability to the IRS is then discovered, the taxpayer is in for enforced collection by IRS. Needless to say some taxpayers simply draw the covers over their head and hope the problem will go away. Others of course resort to more elaborate tax dodging by becoming part of the underground economy. As the IRS computers have gotten more sophisticated playing groundhog has gotten more difficult. At the same time IRS has intentionally liberalized some of its rules to welcome taxpayers who owe tax debts back into the fold. Even in the case of the non-filer, IRS is interested in having the taxpayer file delinquent returns and make arrangements for payment. In fact the IRS voluntary compliance program aims at just that. Jail time is reserved for more egregious tax violators. So what to do? Lawyers who represent clients in this area note that the options are several: 1) Try to convince IRS that the client does not have the current ability to pay any amount toward their back tax liability. This is known as code 53 on an IRS transcript. Following this path can result in the statute of limitations on collection running out while the taxpayer’s file sits quietly in uncollectible status. 2) For those taxpayers who are perhaps closest to bankruptcy an offer in compromise may be appropriate. Here the taxpayer basically offers whatever he has in assets and income stream to appease the IRS in exchange for being released from the balance of tax, interest and penalty which may be due. 3) Those who are in fact eligible to file a bankruptcy may find that some or all of their income taxes are dischargeable under the bankruptcy rules as well. While indeed all of these should be discussed with the client who owes back taxes, in reality not many will qualify for any of these procedures. What then? As a practical matter most taxpayers will end up entering into an installment agreement with the Internal Revenue Service. Clients can think of this as Levy insurance. A Levy is the act of IRS taking property from the taxpayer. No Levy can be issued so long as an installment agreement to pay back taxes is in effect. The amount payable to the Internal Revenue Service will depend upon financial Form 433 being filed with the IRS which discloses assets and income the taxpayer has available. IRS will apply its own standards and amounts to come up with a monthly payment schedule. Once entered, while the IRS reserves right to review the financial status of the taxpayer from time to time, for the most part the client’s tax issues have been effectively dealt with. The agreement is a formal contract which both parties are to observe. Taxpayers are precluded from running up any further tax debts or from failing to file any tax return required. Installment agreements can be arranged at the IRS website or by dealing with IRS collection officers in local offices or by contacting IRS regional offices. Section 6159 authorizes IRS to enter into these installment agreements. That can be done whether the tax will be paid in full or partially. Though taxpayers are seeking to pay up under an installment agreement IRS still charges them in order to enter into such an agreement. In general this fee has been $120 or $52 if a direct debit installment agreement is entered. The latter eliminates the IRS worrying that the taxpayer will not send his check. Starting January 1, 2017 these fees will be increased. To enter a regular installment agreement the fee will be $225 and the direct debit installment agreement will be $107. An online payment agreement however will cost $149. To reinstate a defaulted installment agreement the fee will be $89. All things considered the installment agreement for many clients may be the only real alternative to handling their tax liability.