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IRS Patrol: An Installment of the IRS’s Own Stupid Preparer Files With Elements of the DUH Factor Too
Looks like the IRS has caught on to The Stupid Preparer Files. This is the second news release by the IRS about stupid preparers in a couple of months. If you are a loyal reader of More Tax Tips you know that I like to keep readers up to date on IRS tax tips and news releases, so I am – shall we say – on top of these releases. I can’t recall seeing this particular topic – not in the last few years anyway.
One other point of interest you will notice as your read about this Stupid Preparer is this story also has elements of the DUH factor too.
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IRS Wins 48-Month Suspension of a Lawyer for Failing to File His Own Tax Return and Late Filing
WASHINGTON — Massachusetts Tax Attorney Kevin Kilduff was barred from practicing before the Internal Revenue Service for 48 months for failing to file one federal tax return and for filing another five returns late.
“Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS,” said Karen L. Hawkins, Director of the IRS Office of Professional Responsibility (OPR).
The OPR had originally sought the 48-month suspension, alleging Kilduff’s conduct was willful and disreputable. OPR enforces standards of conduct under Treasury Circular 230, which governs enrolled agents, attorneys and certified public accountants. Kilduff formerly worked for the IRS Office of Chief Counsel.
The Administrative Law Judge (ALJ) subsequently set the penalty at a 24-month suspension. Kilduff appealed the ALJ decision to the Secretary of the Treasury’s Appellate Authority, which in fact ultimately imposed the harsher 48-month suspension.
Kilduff’s suspension is for a minimum of 48 months. OPR has sole discretion regarding his reinstatement to practice before the IRS. At the very least, Kilduff must file all federal returns and pay all taxes he is responsible for, or enter an acceptable installment agreement or offer in compromise.
The complete decisions of the ALJ and the Appellate Authority are available on the OPR page on this web site.
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So not filing your own tax return is not a good idea. – DUH
Questions From Readers: Flipping Houses as a Hobby
Today I received this question from a reader about flipping houses.
Although I’m in Missouri, there appears to be a great deal of buying of foreclosures and selling at a profit in California. The question I’ve seen asked but not answered is, “Is that a capital gains investment or a business interprise requiring the payment of self-employment tax?”
I am retired at age 65. I have long been interested in real estate and recently purchased a house as an investment/retirement activity at a foreclosure sale. To my surprise, I quickly found a buyer for it this month with a profit of about $15,000. (Our “normal” yearly income from pensions and social security is about $60,000.) I would like to continue buying, repairing and selling 2 or 3 properties a year as a profitable retirement “hobby”, but after learning that there is a risk that the IRS may consider my “flipping” a business activity that includes self-employment taxes, I am reluctant to continue.
Are you aware of any guidance from the IRS to better define this issue. Under what circumstances does the IRS decide an investment becomes a business activity?
Thanks for your input, Larry
Here is my reply
Larry
This is a complicated area. If you are engaged in this type of activity, you should hire a qualified tax professional to assist you with your tax questions.As far as a general discussion, here are some things to consider.
Generally, flipping houses falls under a business with ordinary income aspects that would subject you to self-employment taxes. The houses that are flipped are considered inventory, which would not get capital gains treatment. What you are looking at here is really a facts and circumstances test with regard to the activity.
Whether you pay self-employment taxes is dependent on many factors such as the business entity that you will be operating from. Some entities might require that you get a W2 which will require payroll taxes be withheld. In addition, the business entity will be required to pay the appropriate employer portion of the payroll taxes. Other entities will require you to pay self-employment taxes on your income and still others may allow you to pass-through some of the income without any self-employment or payroll tax issues.
You should be aware that profitable hobbies are subject to income tax where losses from a hobby do not get you a tax deduction.
If you are looking for the rules on the tax treatment of a particular transaction, I encourage you to speak with your tax advisor before you enter into it.
I also found this interesting and helpful article by Kay Bell writen for Bankrate looks like it was picked up by Yahoo. Check it out if you want more information. Tax Consequences of Flipping Real Estate
Stacie's Tax Stuff 