Tag: tax

CPA Tip: Tax Scam Alerts from the IRS

Rick_E_Norris_An_Accountancy_Corporation_CPA_Tip_Tax_Scam_Alerts_From_The_IRSThe IRS actually tries to help taxpayers.  Here they list the biggest tax scams the hook taxpayers who do not have their guard up.  Be careful of who you are giving your information to, and what you put down on your                                                                                 tax return.

Identity Theft.  Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Combating identity theft and refund fraud is a top priority for the IRS. The IRS’s ID theft strategy focuses on prevention, detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft. This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. If you have received a notice from the IRS, call the phone number on the notice. You may also call the IRS’s Identity Protection Specialized Unit at 800-908-4490. Find more information on the identity protection page on IRS.gov.

Phishing.  Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. If you receive an unsolicited email that appears to be from the IRS, send it to phishing@irs.gov.

Return Preparer Fraud.  Although most return preparers are reputable and provide good service, you should choose carefully when hiring someone to prepare your tax return. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identification Number (PTIN).  For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.

Hiding Income Offshore.  One form of tax evasion is hiding income in offshore accounts. This includes using debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution. Visit IRS.gov for more information on the Voluntary Disclosure Program.

“Free Money” from the IRS & Tax Scams Involving Social Security.  Beware of scammers who prey on people with low income, the elderly and church members around the country. Scammers use flyers and ads with bogus promises of refunds that don’t exist. The schemes target people who have little or no income and normally don’t have to file a tax return. In some cases, a victim may be due a legitimate tax credit or refund but scammers fraudulently inflate income or use other false information to file a return to obtain a larger refund. By the time people find out the IRS has rejected their claim, the promoters are long gone.

Impersonation of Charitable Organizations. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.

False/Inflated Income and Expenses.  Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases the taxpayer ends up repaying the refund, including penalties and interest. In some cases the taxpayer faces criminal prosecution. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims.  In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.

Frivolous Arguments.  Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages.  Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.

Disguised Corporate Ownership.  Scammers improperly use third parties form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.

Misuse of Trusts.  There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits. They primarily help avoid taxes and hide assets from creditors, including the IRS.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Penny-wise and $20 Million Foolish in Charitable Tax Donations

Rick_E_Norris_An_Accountancy_Corporation_Pennywise_And_$20_Million_Foolish_In_Charitable_Tax_DonationsDid you miss a tax deduction because you did not substantiate it correctly? Don’t feel bad, Joseph Mohamed lost a $20 million tax deduction for real estate that he donated to charities.  You see, Joseph wanted to save a few bucks by preparing his own tax return, instead of giving it to a CPA.  An important part of the return required Joseph to file a form for any property above $5,000.  This form was to be signed by a certified independent appraiser.

Joseph not only did not sign the form, but decided to save even more money by appraising the property himself since he was a certified real estate appraiser.  The overall savings of not using a CPA and an independent appraiser? Maybe about $2,000.  The overall cost of not using a CPA and an independent appraiser? $20 million.

The IRS has various rules in donating non-cash items to a charity.  These rule change whether the property is below $500, and above $5,000.  You have to follow the rules exactly, or risk losing your deductions.

But just because you use an appraiser for $5,000 + property doesn’t mean that your appraisal would be accepted by the IRS.  They may challenge the appraiser and bring in their own appraiser.  I worked on a client years ago who seemed to satisfy all of the requirements for donating a Picasso.  I made sure every step was satisfied in regards to the appraisal and valuation.  What I didn’t know is that the appraiser he picked was the dealer he purchased the art piece from.  The IRS questioned the appraiser’s objectivity and brought in their own appraiser who valued the piece much lower than the client’s appraiser.

As a CPA, I see all sorts of donations, so here are some tips:

  1. Take pictures of what you are donating
  2. Get a detailed receipt.  If the organization will not itemize your receipt, type up a list of items and attached it to the paper.   Make sure the receipt states  language that you did not receive any goods or services in consideration for the donation.
  3. It is good practice to itemize what you are donating.
  4. If you are a business donating an inventory item, you will not be allowed the fair market value, just your inventory cost for the donation.
  5. The same goes for artists donating their art.  You are allowed to donate only the value of what the art piece cost you to create, and that does not include your labor which cannot be valued for tax purposes.

Every situation is unique, so contact your tax advisor before making any decisions.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Frivolous Constitutional Claims Against Taxes

Rick_E_Norris_An_Accountancy_Corporation_Frivolous_Constitutional_Claims_Against_Taxes

    Thirty years ago, I lived around the corner from the San Fernando Valley Main Post Office in Van Nuys.  My CPA tax filing season ended on April 14, so I was home on the night of April 15.  I used to walk my dog down to the Post Office that night and watch the people depositing their tax returns at 10:00 pm.  Cars were lined up Sherman Way onto the freeway offramp conjesting the slow lane for about a quarter of a mile.
My favorite pasttime were the people picketing on the sidewalk telling people not to fiile tax returns because it was a violation of the Constitution.  I didn’t let on I was a CPA, but wanted to know their reasoning.
There are piles of case law that has rejected Congress’s right to tax.  Here are a few from:   https://www.irs.gov/pub/irs-utl/friv_tax.pdf
 
 
 
 
 
 

 

  1. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment.

 

There is no constitutional right to refuse to file an income tax return on the ground that it violates the Fifth Amendment privilege against self-incrimination. As the Supreme Court has stated, a taxpayer cannot “draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.”  (So, don’t take the 5th, it may land you in 3 to 5 in a penitentiary.)
  
 
 
 
 
 

 

2. Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment.

 

“If the requirements of the tax laws were to be classed as servitude, they would not be the kind of involuntary servitude referred to in the Thirteenth Amendment.”  (It may feel like slavery, but not the kind imagined in the 13th Amendment.)
 
3. MY FAVORITE, Contention: Federal Reserve Notes are not income.
 
 
 
 

 

Proponents of this contention assert that Federal Reserve Notes currently used in the United States are not valid currency and cannot be taxed because Federal Reserve Notes are not gold or silver and may not be exchanged for gold or silver.

 

The Court has completely obliterated this contention, so don’t try it.
As a CPA, we don’t really consider any basic contention to taxes constitutionality.  Don’t get convinced by a protester, or it can cost you your freedom.  Speak to your CPA or tax advisor before you do anything in the tax arena.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.