How to Be a Tax Whislteblower

                 Looking for an interesting part time job? Consider becoming a federal tax whistleblower. The feds have had a statute for years that provides for payment to people who kindly supply information that results in collected taxes. Before 2006 there was a real question whether any payment was being made to a whistleblower as such payments were discretionary by the Internal Revenue Service. However in that year section 7623(b) was amended to make payment mandatory when certain standards are met. Information supplied is given under penalties of perjury and must meet a tax floor before IRS will be interested. However, if qualified, a whistleblower can go home with 15 to 30% of the amount of taxes collected. IRS has created a separate whistleblower office which is unfortunately only staffed by thirty or so employees. Recently 28,000 claims were filed so this may be a part-time job where payment will not be made for a number of years. This is not only due to the short handedness at the whistleblower office but the statute itself which requires that the time period for all appeals have passed for the taxpayer with regard to the collected taxes. So the wait for the big pay back for the whistleblower could be 6 to 7 years or longer. Well, if you’re interested in getting started see Form 211. If the whistleblower has shared or participated in any scheme like the one he’s divulging his chances of success are nil. Should IRS deny the claim the whistleblower can go to the United States Tax Court for review. Lawyers who are contacted by whistleblowers should realize that simply insinuating that wrongdoing has occurred will not be enough. Doing as much investigation as is possible and verifying statements to be supplied to the IRS will be necessary. Submitting the form 211 without backup is almost a guarantee that it will not be accepted. By the way, the state of New Jersey also maintains a whistleblower statute but it does not provide for payment to anyone. New York on the other hand has a statute similar to the federal where payment of 15 to 20% can be made. But motivation for the whistleblower can sometimes be revenge rather than money. It is said that New Jersey examines all whistleblower allegations. 

Kinder Generous Corporations?

        Before the tax bill passed it was reported that a group of CEOs were asked what they would do with the additional money rendered from the tax benefit that corporations would receive. Not surprising most said they would expand their business and increase profits and dividends to shareholders. When asked about workers most seemed to just scratch their heads. Now the entire theory of this tax reform is Ronald Reagan’s trickle-down effect. Give the rich what they want and eventually it will find its way into the pockets of ordinary citizens. Of course this does not does not take into account the primary purpose that corporations exist. We don’t have to go too far back into American history to learn that before corporations were created wildcat entrepreneurs tried establishing colonies in the New World using their own funds. After one devastating disaster after another those rich entrepreneurs like Lord Baltimore and Sir Walter Raleigh simply refused to fund these dangerous enterprises any longer since the burden of cost and loss was upon their individual shoulders. By inventing the corporation these wildcatters were allowed to make their investments and should they produce profits the crown would get a share, i.e. a tax, and if losses were generated their liability was limited to their investment. In essence the birth of the modern-day Corporation. So from its beginnings its purpose was to insulate investor- risk takers and shareholders not to take care of workers. Notwithstanding this analysis some companies have already joined the tax reform bandwagon. Walmart recently announced that it would be increasing wages from a crummy $7 an hour to a still crummy $11 an hour. It cited the relief it was getting in the tax reform bill for its willingness to begin sharing with its employees. Walmart, they say, is the bellwether in low wage employment. Curiously at the same time Walmart announced that it would be closing 63 stores and putting thousands of workers out of jobs. The Ying and the Yang of corporate America. Walmart has not as yet revealed just how great a benefit it will receive from the tax reform bill but one can only guess. Fiat Chrysler says that because of the tax credits involved in the new tax bill it will be moving its pickup factory from Mexico to Michigan as well as awarding $2000 bonuses to each of its 60,000 hourly and salaried employees in the United States. The company said that the action was made possible by the tax bill and that it was “only proper” that employees share in the savings generated by the new law. The US treasury has gotten into the act as well. The other day it released new tax withholding tables and encouraged companies to incorporate them as soon as possible so workers can begin seeing bigger paychecks. Those lower withholding rates should go into effect no later than February 15. Things look pretty rosy right now. We’ll have to see where we are by year end.

The Skinny on the New Tax Law

        Okay the tax reform machine is now in business. Many taxpayers in high income and property tax states doled out their money before December 31, 2017 to try to take advantage of the last vestige of deductibility. But now it is 2018 and the new tax law takes effect. Taxpayers will be scrambling with their advisors to figure out their personal situation. Nobody is an expert, including the IRS, of all the changes and what the effects will be. Hell, Congress didn’t know what it was doing either so how can we professionals expect to know a whole lot more. But the pundits are churning out their newsletters as fast as they can. And there’s nothing like major changes in the tax law to bring once reluctant clients out of the woodwork and to the conference table. This reform bill more perhaps than any since 1986 could be called the Tax Attorney and Accountants Full Employment Act of 2018. So among those that appear to be really part of the law are the following:

 

• Slightly lower and broader tax brackets

 

• Elimination of the personal exemption

• Double the standard deduction, $12,000 for single and $24,000 for couples

• Limit mortgage interest deduction to that on a $750,000 mortgage

• Elimination of home equity deduction for interest

• Limit the deduction for property and state income taxes to $10,000

• Repeal all 2% allowable deductions for employee business expenses, casualty, theft losses and gambling expenses

• Allow casualty losses only in federally declared disaster areas

• Create a pass-through deduction of 20%

• Lower the corporate tax rate to 21% maximum

• Increase bonus depreciation to 100%

• Increase the estate tax exemption

 

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.