Putting an End to Other People Fraudulently Claiming Your Children on their Taxes

TIGTA's MISSION: Provide audit and investigative services that promote economy, efficiency and integrity in the administration of the internal revenue laws. Visit them at http://www.treasury.gov/tigta/index.shtml

Every so often, the good guys win.  Every once in a blue moon, putting up a fight for what’s right pays off.  We’ve been campaigning for a long time for the rights of parents whose children have been claimed illegally by other persons.  The IRS has listened, and they’re going to do something about it.

 

Glory Hallelujah!

 

I’d like to tell you that the IRS is responding to the petition that Roberg Tax Solutions sponsored last spring.  I’d like to tell you that but it isn’t true, we didn’t get enough signatures to even get the petition read.

 

But, the IRS is responding to an organization called TIGTA:  Treasury Inspector General for Tax Administration.  TIGTA’s got the muscle to make some changes.

 

TIGTA was auditing refundable tax credits and found that they were susceptible to fraud.  For those of you who have been victimized by those fraudsters—you realize it doesn’t take Sherlock Holmes to figure that out.  But TIGTA was able to come up with some hard numbers—as in of the $2.3 billion dollars that they found to be fraud, the IRS was only able to recover $1.3 billion dollars—that’s a billion dollars gone with the wind!

 

TIGTA’s recommendation is that the IRS implement additional controls to identify and stop erroneous claims for refundable credits before refunds are issued.

 

TIGTA requested an account indicator to identify taxpayers who claim erroneous refundable credits.  Taxpayers with that indicator should be required to provide documentation before their claims for refundable credits are processed and should be considered for pre-refund examinations of claims for all refundable credits.  (That’s basically what Roberg Tax Solutions asked for in our petition!)

 

The IRS management has agreed with TIGTA’s recommendations and they will take corrective actions.  They will develop a pre-refund examination filter so that historical information is available and used as selection criteria.  Now that’s not exactly what TIGTA recommended—but it’s a good start.

 

Is this a perfect win?  No—but for victims of child identity theft, it’s definitely a step in the right direction.  To read more about the TIGTA report, click here:  http://www.treasury.gov/tigta/auditreports/2012reports/201240105_oa_highlights.pdf

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For some more information on this subject, be sure to check out:

Will I Go To Jail For EIC Fraud?
http://robergtaxsolutions.com/2011/04/will-i-go-to-jail-for-eic-fraud/

My Ex Claimed my Kid: Now What Do I Do?
http://robergtaxsolutions.com/2011/01/my-ex-claimed-my-kid-now-what-do-i-do/

Stolen Children
http://robergtaxsolutions.com/2012/05/stolen-children/

Can I Claim My RV as a Business Expense?

Modern Senior On Vacation With Wifi

 

I had a client that owned his own business and he wanted to buy an RV so he could go on vacation with his family.  He wanted to know if he could write off the cost of the RV as a business expense if he put a sign about his business on the RV while he traveled around the country.  The answer to that is a flat out no.  The IRS is all over that idea and they don’t like it.

 

But, it may be possible to write of an RV as a business expense if you really do use the RV for business.  For example, let’s say you have clients in another city that you regularly visit.  When you are visiting those clients, you normally need to spend time in a hotel.  So, maybe the RV might be a good choice for you.  You could travel to the location in the RV and sleep in the RV instead of a hotel.

 

So I said you might be able to claim it—this isn’t a rock solid deduction.  You’ve got to be able to prove it’s truly a business expense.  There are a couple of things you must absolutely do.

 

  1. You must have a log of all of your miles you drive in the RV.  Not one of those, oh I drove some business miles and write it down later—a very serious, a very real mileage log.  Over 50% of the miles you drive must be used for business to try to take the RV as a deduction.
  2. You must also keep a log of all the nights that you sleep in the RV.  Same rule—over 50% of your nights sleeping in the RV must be for business.
  3. You must also keep your business trips shorter than 30 days so that the RV counts as transient lodging.   That means I can’t buy an RV and drive down to Florida for the entire tax season and spend my summers in Missouri.  (Well I could, but I wouldn’t be able to write off the RV as a business expense.)

 

And the main point you must absolutely keep in mind—do not use the RV for entertainment.  No business parties on the RV.  The IRS is pretty strict about that.  Entertainment facilities are not tax deductible (things like swimming pools, hunting lodges, and bowling alleys.)  Make sure that your RV is for lodging or travel—not for entertainment.

 

So although my client with the sign idea couldn’t claim the RV as a business expense just for putting a sign on it, if he chose to drive the RV on his business trips and stayed in the RV overnight instead of a hotel—he might be able to claim part of the RV expenses for his business, as long as his business use was more than his personal use.

 

Remember, trying to claim an RV as a business deduction is kind of “out there” and highly likely to be audited by the IRS.  You’re going to want to have really good documentation and a good accountant to back you up on this one.

Seven Things You Need to Know About Claiming the Foreign Earned Income Exclusion on Your US Tax Return

Euro

Photo by mammal at Flickr.com

If you’re an American citizen working outside of the country, you may be able to exclude some (or even all) of that income from your US income taxes by using Form 2555, the Foreign Earned Income form. Here are some things you need to know about the form:

 

1. Currently, the exclusion for 2012 is $95,100. The exclusion for 2013 will be $97,600.

 

2. In order to claim the exclusion, you must have a tax home in a foreign county. You must also meet the bona fide residence test or the substantial presence test. Basically, if you work full-time inside a foreign country for the entire calendar year, then you’ll meet the bona fide residence test. If you work outside the United States for 330 days out of a 365 day period, then you’ll meet the substantial presence test.

 

3. If you are in a foreign country as a US government employee, then you are not allowed to claim the foreign earned income exclusion.

 

4. When reporting your foreign income, remember to convert any income and expense amounts into US dollars. You can get foreign currency exchange rates from the US Department of the Treasury: http://fms.treas.gov/intn.html

 

5. If your income turns out to be higher than the exclusion amount, your tax rate will be the higher rate, as if you had to pay tax on the full amount of income. For example, if you prepared your tax return and after claiming the Foreign Earned Income exclusion and any other deductions that you were entitled to, let’s say you have $5,000 of taxable income left. Normally for a single person, $5,000 of taxable income would mean $500 of tax—because that’s the 10% income tax bracket. But not in this case. It’s more likely to be $1400, because when you add back the excluded income, it puts that single person back into the 28% tax bracket.

 

6. If you are married and your spouse works, you may each claim an exclusion for foreign earned income.

 

7. If you claim the foreign earned income exclusion, you cannot take the credit for taxes paid to a foreign country on any income that was excluded. If your income exceeds the exclusion amount, it’s generally a good idea to run the numbers both ways to see which gives you the better tax advantage.

 

Expat taxes can be confusing. If you’re trying to navigate your way through the Form 2555, give us a call, we can help.

Say Good-Bye to the Payroll Tax Holiday

Barack Obama and Mitt Romney at the second presidential debate—October 16th

Have you been watching the presidential debates?  I have.  I’ve heard both sides trot their “tax plans” out and I’ve heard a lot about what both Governor Romney and President Obama say they’re going to do with taxes if elected.  Here’s something I haven’t heard—what about the payroll tax holiday?

 

What’s that you ask?  The payroll tax holiday is the 2% tax cut we got back in 2011 and it got extended for 2012. Nobody’s talking about protecting it now.  That means you can pretty much expect your taxes to go up starting with your first paycheck in January.   How much?  Well, if you make $30,000 a year and get paid once a month—your pay would go down by $50 per paycheck.

 

Here’s a link to the Kiplinger calculator so that you can figure out exactly how much this will affect you and your paycheck:  http://www.kiplinger.com/tools/Social_Security_payroll_tax_increase_calculator/index.php

 

Full disclosure here:  I thought the payroll tax holiday was a big mistake in the first place.  That’s money that goes into the Social Security fund—you know the one the tax policy wonks keep saying is going to go bankrupt?  So we’ll take money from that fund?  I wasn’t happy with that.

 

But now that everyone has gotten used to that 2% “tax holiday”, when your first paycheck in January comes and it’s a little lighter, you’re certainly going to feel like you’ve had a tax increase, even though technically, it’s not an increase.

 

Seriously, it’s not considered to be a tax increase because it’s an “expired tax reduction.”  And that’s why both sides can say they are not raising taxes—they’re just letting this reduction slide into oblivion.

 

Personally, I’m just not that sophisticated.  I like plain language.  Taxes are going to go up or they’re going to go down, or they’re going to stay the same.  I know that come January, our taxes are going to go up no matter what the politicians call it.

Bad Calls

Hi-res-152732550_crop_exact

Photo by Otto Greule Jr at Getty Images

Let me start with full disclosure:  I am a card carrying member of Cardinal Nation.    As I write this I am sitting on the sofa wearing my St. Louis Cardinal’s jersey hoping to type this out before the first pitch of the game.   So forgive me if it’s considered blasphemy but, the infield fly rule called against Atlanta during the 2012 Wild Card Play-Off was a bad call.  (http://www.nesn.com/2012/10/infield-fly-rule-prompts-criticism-of-umpires-call-for-instant-replay-in-mlb.html)  Hopefully we would have still beaten the Atlanta Braves anyway, but we’ll never know.

 

Another bad call occurred in week 3 of the 2012 NFL season featuring the Green Bay Packers and Seattle Seahawks—a Hail Mary pass was thrown and members of both teams caught the ball while the replacement officials gave conflicting rulings. (http://bleacherreport.com/articles/1346952-packers-vs-seahawks-the-replacement-officials-finally-broke-the-nfl)  That was a horrible call.

 

Sometimes tax preparers make a bad call when they do your taxes.  We’re not perfect either.  The other day I got a phone call from a woman who needed help.  The IRS was going to garnish her paycheck and she needed some help stopping it.  After I got the immediate problem taken care of, I asked her some questions about her tax return.  After getting enough details, I realized that the woman’s previous preparer had missed a pretty major deduction.  I recommended that she amend her return and have it done correctly, it would seriously help with her tax debt.  You see, when you make a bad call on your taxes, unlike some of the referee calls in sports, you have a three year period to make it right by amending your return.

 

The woman asked me what I’d charge to fix her taxes and she was a little shocked by the price.  She told me that her other preparer at “Brand X Tax Company” had only charged her half that much so she wouldn’t hire me.  Ahem.  I used to work for “Brand X”.  I know their billing practices and they charge by the form.  Had the preparer done all the forms that this woman needed to correctly file her tax return, the price would have been much closer to, if not more than, what I was charging.  But besides that, we’re talking about reducing her tax burden by a few thousand dollars.  Really I’m not all that expensive.  So now who’s making the bad call?

 

I remember a few years back, an elderly woman came into my office with an IRS letter.  It said that she owed about $10,000 and she didn’t know what to do about it.  As I looked at the letter and then at her return, I realized that she had a bunch of stock transactions that hadn’t been reported on her tax return.  Although the IRS said that she owed $10,000, when I checked things out, she really didn’t owe anything at all, she just needed to have her tax return done correctly.

 

When I told her the cost, she too was shocked, “But my other lady only charged me $20 to do my taxes,” she said.  “But your $20 tax return is going to cost you $10,000,” I replied.  She was smart, and now her taxes are done correctly.

 

Here’s the big hint—if you get a document that says “Important Tax Document”, you probably need to report something from that paper on your tax return.  If you give your preparer that piece of paper and she ignores it, that’s a red flag that something’s wrong.  Shame on her.  If you don’t give that paper to your preparer, then it’s shame on you.

 

Preparers can make mistakes.  (Even me, that’s why I have my staff review my returns just like I review theirs.  We’re all human.)  If you get an IRS letter, the first thing to do is to contact your tax preparer and give her a chance to fix it.  She might not have even made a mistake; sometimes it’s an IRS mistake.  They’re human too—(some of them.)  But if your preparer can’t or won’t help you when there’s a problem, it’s time to make the right call and move on.

What to Do if You Owe the IRS Lots of Money

Hotline

Photo by splorp on Flickr.com

My phone’s been ringing off the hook this week and this seems to be the big question, “I owe the IRS a lot of money, what should I do?”

 

Although everyone’s situation will be different, here are some general guidelines that might help you muddle through this mess.

 

1.  First, and most important—don’t ignore the IRS.  Make sure you contact them, let them know you’re looking for a solution to the problem and keep them informed.  Your natural reaction may be to want to hide, but that won’t work.  Make them your ally, not your prosecutor.

 

2.  Second—and this is my big issue—do you really owe that much? The reason I ask is because often when people have huge debt, there’s a mistake in the taxes. Not always but quite often. If the IRS did your taxes for you—definitely check that option out. (The IRS doesn’t do taxes very well—no joke.)   I cannot tell you how many times I’ve completely cleared someone’s tax debt because their taxes were just done wrong in the first place.  More likely, I’ve reduced the debt to a more manageable amount.  The point is—getting a second opinion is usually a good idea.

 

3.  Could you afford to make a monthly payment?  Generally an installment agreement can be made for up to 6 years, but if you can pay off the debt in two or less that’s so much better.  The quick and dirty—if you owe less than $25,000, take that amount and divide by 60.  If you can pay that much a month then that’s your installment payment.  Remember, if you can pay more than the minimum—do it.  Penalties and interest keep adding on while you’re paying so the faster you pay it off, the better off you are.

 

4.  If you owe more than $25,000 or you can’t afford the minimum payment—you’ll need to provide the IRS with financial information to prove your situation.  At this point you may want some professional help to get you through the paperwork.  If you’re really broke, or unemployed, you might qualify for the currently uncollectable status.  It gives you a temporary break from making payments until you get back on your feet.  Unfortunately, penalties and interest keep getting added.

 

5.  One option may be an offer in compromise (OIC).  That’s where you offer the IRS a smaller amount of your debt –a compromise.  Watch out for those late night TV ads selling OICs.  Sadly, many of those companies are rip-offs.  They charge somewhere between $5000 to $8000 for the OIC but the fine print says “if an offer in compromise can’t be reached we will do an installment agreement.”  There’s a formula for doing an OIC—they pretty much know up front if you’ll qualify or not.  Paying $8000 for an installment agreement that you could negotiate yourself is a rip-off.  Ask lots of questions and get references.

 

6.  Another thing to look at is how old is the debt? Not only are you paying interest, there’s a late payment penalty of 1/2 of 1% per month up to 25%. If the debt is for 2011—well then you’re still paying that extra 1/2% per month—that’s an additional 6% per year on top of the IRS interest rate.   You might be better off putting the debt somewhere else. Most credit cards have higher rates than that, but if you’ve got access to cheaper credit elsewhere, that might be worth your while to pay the IRS debt off.

 

7.  Also, if this is only one year of taxes that you owe—then you might be able to have the penalties abated. If you have a couple of years of debt—that’s another story. Don’t ask for the penalty abatement until you’ve got the taxes paid off—otherwise they’ll just start accumulating all over again. But keep that in mind as you get closer to the payoff. A penalty abatement is where you ask them to take the penalties off your debt. Often, if this is the first time you’ve ever owed like this, you can get an “abatement.” That’s the word you want to use.

 

8.  Last but not least, if you got hit with a big tax bill, you need to make some adjustments to your withholding or estimated tax payments so that it doesn’t happen again.  Once or twice—okay that happens, but if this is happening every year, that’s just plain irresponsible.  If you have an offer in compromise and wind up with another tax debt—it can void the offer making you owe those taxes all over again.  It can also terminate your installment agreement. It’s really important to keep current with your taxes.

Tax Court Determines that Poor Health and Turbo Tax is No Excuse for a Bad Tax Return

Red Blindfold

Photo by left-hand at Flickr.com

This is one of those geeky tax court issues that I usually don’t report on, except this is sort of a big deal for normal people, so I figured I should write about it.

 

The quick scoop of the case is that Robert and his wife Diolinda filed their 2007 tax return with lots of mistakes.  To be brutally honest, I think they were trying to pull a fast one and got caught, but the court document refers to the tax underreporting as “errors” so I will too.

 

Anyway, these “errors” amounted to Robert and Diolinda owing an additional $44,643 in taxes.  That’s a lot of money.  And if the IRS finds that you’ve under reported the tax you owe by over 10%, they add additional penalties.  In this case, the penalties amounted to an additional $8,179.

 

So why is any of this relevant to the rest of us?  It’s because of those penalties.  Robert argued in his case that he shouldn’t have to pay the penalties because he suffered from various health ailments including depression, cardiac disorders and memory loss.  He had suffered from those ailments since 1997.  He also claimed that he used the tax software Turbo Tax and that other people who used Turbo Tax did not get assessed penalties due to computer errors.

 

The response from Tax Court?  Well I’m paraphrasing here but basically they said, “Garbage in, garbage out.”  You see, if you use Turbo Tax and you follow the directions and prepare your return the way Turbo Tax tells you to—well then you should get a proper tax return.  If you input your numbers correctly and Turbo Tax messes up your return, then Turbo Tax would be to blame.  But if you go and input a bunch of crazy crap—then it’s your own fault your taxes are wrong and you can’t blame the errors on Turbo Tax.  The court basically decided that Robert and Diolinda input a bunch of crap (like I said, paraphrasing.)

 

What about the argument that Robert’s poor health, confusion and memory loss was an excuse for the errors?  The Tax Court held that since he failed to get competent help for preparing the return that it counted as negligence—so bam—penalties.

 

So what does this mean?  If you are mentally or physically unable to prepare your own taxes properly, then you need to get competent help to assist you.

 

The case is Robert L. Bernard and Diolinda B. Abilheira v. Commissioner of Internal Revenue.  It was filed on August 1, 2012.  Here’s a link if you want to read the whole case:  http://www.ustaxcourt.gov/InOpHistoric/bernardmemo.TCM.WPD.pdf