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Something to Keep in Mind….Tax Tip of the Week | No. 170 October 31, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Good Communication is Key to Lowering Your Taxes

After over 30 years in the tax business, we continue to find that solid accounting and good communication with your CPA is the key to lowering taxes.

Solid bookkeeping for your business enables you to take the most deductions possible while minimizing taxes.

Year-end tax planning also helps you know what to expect on April 15th, prevents unwanted surprises, and saves a lot of taxes for our clients each year through this valuable service we offer this time of year.  We frequently save our fees through solid recommendations.

Business owners are always looking for ways to maximize your profits and minimize your expenses. Occasionally, you may be approached by folks other than us regarding estate or investment planning.

A quick (even 15 minute or less) phone call with your trusted adviser CPA about topics such as these can help you be sure you have considered all the financial and tax impacts on you, your company and your family.

When you are considering any significant financial decisions, we are available.

Give us a call.  Sometimes it can mean saving thousands of dollars.

Let us know if you would like to schedule a year-end planning meeting.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Amended Returns Not Eligible | Tax Tip of the Week | No. 169 October 24, 2012

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An Update on the “Postmark Rule”

As a general rule, a tax return is deemed filed on-time if it was mailed and postmarked on or before the due date of the return.  (In this day of electronic filing this is less of an issue).  It is also a general rule that a taxpayer has three years (including extensions) after the date they filed the original return to file an amended return. 

In a recent Chief Counsel Advice ruling, a corporation found out the hard way that the “postmark rule” does not apply to amended returns.  Here is what happened: a corporation timely filed its tax return on October 14, 2007. Exactly three years after the original return was filed, the corporation filed an amended return and ensured it was postmarked on October 14, 2010.  The IRS sent a letter stating that the amended return, and the subsequent tax savings requested, would not be granted because the statute of limitations to file an amended return had expired.  It appears the IRS did not mark the amended return as received until October 18, 2010. 

The corporation argued they had proof (a postal receipt) that showed the amended return was timely filed.  The IRS responded that, “the postmark rule applies only to returns that are required to be filed.  This rule does not apply to amended returns because amended returns are not required to be filed by Internal Revenue laws.” 

This ruling is important to remember because we can still not electronically file amended returns and have the guaranteed date stamp that electronic filing offers. 

The IRS loves to live by their rules!  Get those amended returns to the post office early! 

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

IRS Chief Counsel’s Office Issues Advice on Identity Theft Returns | Tax Tip of the Week | No. 168 October 17, 2012

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Identity Theft Update

A few weeks ago in (TTW #154) we first talked about identity theft and the growing tax fraud problem.  This week we want to share with you a statement from the IRS’s Chief Legal Counsel on this issue that appeared in the Journal of Accountancy. 

In Program Manager Technical Advice 2012-13, the IRS Office of Chief Counsel explained in a memorandum to Small Business/Self-Employed Division attorneys what the IRS can do when a return is filed by an identity thief in order to generate a fraudulent refund, and the IRS has issued a statutory notice of deficiency based on that fraudulent return.

The PMTA first explained that a return filed by an identity thief is not a valid return because it is not filed by the true taxpayer or with the true taxpayer’s consent and it lacks a valid signature. This is a position the Office of Chief Counsel has taken in prior guidance.

The Office of Chief Counsel then answered the following new questions:

1. Once the IRS issues a statutory notice of deficiency based on the identity thief’s return, can the IRS make adjustments to the victim’s account before the period to petition the Tax Court under Sec. 6213(a) (generally 90 days) expires?

2. Is the IRS required to rescind a notice of deficiency issued based on an identity theft return?

In answer to question 1, the Office of Chief Counsel explained that it had the legal authority to make necessary adjustments to the taxpayer’s account before the expiration of the 90-day period, including abating any assessments that were based on the bad return. The only exception would be if a necessary adjustment required an additional assessment on the victim’s account, but even in that case, the taxpayer could waive the restriction on assessment under Sec. 6213(a) so that the IRS could adjust the account immediately.

In answer to question 2, the Office of Chief Counsel stated that the IRS is not required to rescind a notice of deficiency and may not rescind one without the taxpayer’s consent. However, if the taxpayer establishes that he or she did not submit the bad return, then the issuance of the notice was an administrative error. In that situation, the IRS should rescind the notice if the taxpayer consents, especially because that will preserve the IRS’s ability to later issue a notice if a deficiency is discovered on the victim’s actual return.

The PMTA did not address other issues that arise when a notice of deficiency is issued based on a bad return, such as when the IRS changes the taxpayer’s address to match that on a fraudulent return and sends a statutory notice of deficiency to the false address. The real taxpayer would not receive the notice and would be unaware of the time he has to file a Tax Court petition.  

The PMTA also did not address identity theft issues that arise when an individual (typically an undocumented worker) files a return using his or her name but someone else’s Social Security number or using both the name and Social Security number of another taxpayer, but where the items on the return represent the individual’s actual tax items and the return is not filed to generate a fraudulent refund but represents the individual’s attempt to comply with federal tax law. 

We will continue to keep you updated as this problem appears to be far from over.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Poor Health, Confusion, and Memory Loss is No Excuse for Errors | Tax Tip of the Week | No. 167 October 10, 2012

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An Unforgiving Tax Court Case

• Bernard, T.C. Memo. 2012-221, August 1, 2012

The taxpayer was a former assistant U.S. attorney who suffered from various health ailments, including cardiac disorders, depression, and memory loss. He retired in 2000 because of disability. For 2007, the year at issue, he prepared his own tax return.  He claimed that distributions from an IRA were a return of investments made through nondeductible contributions, and that the gains on those investments should be taxed as capital gains rather than ordinary income. The taxpayer produced no evidence to support his claim that the IRA contributions were made with after-tax funds. Nor could he cite any law to support his claim that the gain on his non-deductible contributions should be taxed as capital gains rather than ordinary income. The Court ruled all of the IRA distributions were taxable as ordinary income.

The Court then considered the accuracy-related penalty. Section 6662(a) and (b)(1) and (2) imposes a 20% accuracy-related penalty on any underpayment of federal income tax attributable to a taxpayer’s negligence or disregard of rules or regulations or substantial understatement of income tax. Section 6662(c) defines negligence as including any failure to make a reasonable attempt to comply with the provisions of the Code and defines disregard as any careless, reckless, or intentional disregard. Disregard of rules or regulations is careless if the taxpayer does not exercise reasonable diligence to determine the correctness of a return position that is contrary to the rules or regulations. The penalty does not apply if the taxpayer acted with reasonable cause and in good faith.

The taxpayer argued that his health problems, which started in 1995, were the cause of the numerous errors on his 2007 tax return. He argued that the penalties assessed by the IRS did not take into consideration his poor health. He also argued that penalties have not been imposed against other taxpayers, such as the Secretary of the Treasury, who relied on TurboTax to prepare their returns. (Editor’s note:  Interesting argument!)

The Court said poor health, confusion, and memory loss is no excuse for errors on a return. The Court said the taxpayer’s failure to seek competent help in preparing the return was negligence. The length and severity of the health problems suggest that a reasonable person in the taxpayer’s position would have sought help rather than adopt his disability as an excuse for inaccurate reporting. The Court ruled the taxpayer was subject to the penalty because he did not exercise reasonable diligence in determining his tax liability.

When in doubt—give us a call!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

IRS Alters Letter-Forwarding Policy for Missing Taxpayers | Tax Tip of the Week | No. 166 October 3, 2012

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A Reduction of an IRS Service

Previously, the IRS abided by the rules of Revenue Procedure 94-22.  Under these rules, the IRS was allowed to assist individuals, companies, plan administrators and others involved with the Department of Labor’s Abandoned Plan Program. After a written request to the IRS, they could use the letter-forwarding program to locate missing plan participants.  Interested parties could also use the letter-forwarding services of the IRS if the action was for humane purposes and there was no other way to relay the information to the taxpayer.  

Revenue Ruling 2012-25 was recently announced which will severely limit the IRS letter forwarding-program.  Due to budget constraints, the IRS has decided to get out of the business of providing free detective services.  An IRS spokesperson stated: “Since the release of the revenue procedure in 1994, several alternative missing person locator services, including the internet, have become available.” 

Under these new rules, the IRS will no longer provide letter-forwarding services to locate a taxpayer that may be owed assets from another organization.  The letter-forwarding program is now limited to situations in which a person is trying to locate a taxpayer to convey a message for a humane purpose or in an emergency situation. 

Questions?  I know we have several as we have no first-hand experience with this service.  If you have a need for this service let us know and we will figure it out together.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.