WASHINGTON — The Internal Revenue Service released the 2010 version of its discussion and rebuttal of many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.
Anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read the 80-page document, The Truth about Frivolous Tax Arguments.
The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. It will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.
Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.
IRS highlighted in the document about 40 new cases adjudicated in 2009. Highlights include cases involving injunctions against preparers and promoters of Form 1099-Original Issue Discount schemes and injunctions against preparers and promoters of false fuel tax credit schemes.
Top 12 tax scams
It’s a new year and a good time to remind [you] about the top tax scams. / more+
Pass-through entities must timely file original tax returns claiming new jobs tax credit in order for owners to claim the credit
A new jobs tax credit of $3,000 is available to small businesses with 20 or less employees for each additional net full-time employee hired and employed in California for tax years beginning on or after January 1, 2009. The total amount of the credit that we can allocate may not exceed $400 million, and claims must be made before a statutorily provided “cut-off” filing date. / more+
Using the Annualization Method in 2009 and 2010
Estimated tax payments have undergone many changes since we started filing season one year ago. / more+
Timing is everything
[Are you]considering making an S corporation election? Selling or exchanging 50 percent or more of the total interests in an LLC or limited partnership? / more+
Ask the Advocate
Withholding and estimate tax payment changes
This summer the California legislature again revised the estimated tax payment percentages, and also passed some clean-up legislation to clear up confusion on how wage earners with only wage withholding would meet the new estimated tax payment requirements. / more+
Take a look at the changes happening here at FTB. / more+
[The FTB’s] monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time. / more+
California code of civil procedure and foreclosures
Will you clarify how California civil procedures interact with the Internal Revenue Code (IRC)? Specifically how does California Civil Procedure Code (CCP) Sections interact with IRC Section 108, Income from Discharge Indebtedness? / more+
From The Stupid Preparer Files – Woman Claims Connecticut Residents are Not Subject to Federal Income Tax – a Good Post From the Past
[I do love this story – another good post from the past]
By Stacie Clifford Kitts, CPA
I do enjoy reading about how stupid some tax preparers can be. It’s like a tax preparation train wreck. You know the kind you want to slow down to see. Moreover, the messier the scene, the harder it is to look away.
Nevertheless, regardless of how many stories I read, I am still amazed at tax preparers who are willing to go to jail over some income tax. Honestly, the blatant stupidity is genuinely mind numbing.
A favorite concerns a Connecticut woman, Sunita Buddhu who took over her father’s tax practice following his incarceration. Yes, I said it, his incarceration. Daddy went to jail for -get this – producing counterfeit checks from his place of business. The same business where he also prepared tax returns.
Now what do you suppose she told her father’s tax clients? Ummmm – I am sorry that my dad’s in jail – but no worries, I can still prepare your tax return, no need to worry about that fake check thingy.
Apparently, whatever she said worked because she continued preparing returns. But more baffling even than her clients who agreed to let her continue to work on their returns, is why she agreed to step in. Now let’s see, dad is in jail for fraud, ya think there might be a problem with his tax practice? Ya think- just maybe?
Well yes Sunita, there did appear to be a problem. Following her father’s incarceration, the IRS started a tax preparer investigation and proceeded to audit over 600 returns she and her father had prepared.
Oh, but now the story really gets good. As a result of the investigation, Ms. Buddhu decided it would be a good idea to file amended returns for her clients moving false and obviously disallowed Schedule C deductions to Schedule A. Huh, okay if the deductions are bogus, which apparently they were, hello – they are still bogus regardless of the schedule they’re on. Duh.
But wait, there’s more.
Undaunted, her behavior gets even more bizarre when she informs her clients that the IRS does not have the authority to conduct examinations of Connecticut resident’s tax returns. Okay, talk about frivolous arguments. What is so special about Connecticut?
But wait, there’s more.
She also told her clients that because they were residences living and working in the United States, they were only required to pay social security taxes, but were not subject to income tax. Yep that’s right, according to the Buddhu’s only non-resident aliens are subject to income tax.
But wait, there’s more. Oh, I do love this one.
She actually prepared letters that she mailed to the IRS stating her frivolous tax arguments 1) the IRS did not have jurisdiction over Connecticut residents and 2) U.S. residents living and working in the U.S. were not required to pay income tax.
Unfortunately, not only will this crazy out of control tax preparer suffer from this train wreck but so will her clients. They are now responsible for paying the additional taxes and associated penalties and interest that resulted from the audits of their returns. And at least one client had to barrow against their house to pay the debt to the IRS.
This article was taken from the FTB’s Criminal Corner – I think this is right up there with one of my favorites.
“On November 19, 2009, a Sunland interior designer was sentenced after pleading guilty to one felony count of state income tax fraud and one felony count of insurance fraud.
According to court documents, Ronald E. Hunt, 56, continued working as an interior designer from 2003 to 2006, including an appearance on an HGTV home improvement show during the time he claimed to be disabled. An employee with the private insurance company paying Hunt’s disability saw the show and alerted the California Department of Insurance (CDI). An investigation confirmed Hunt intentionally and knowingly concealed his secondary employment from his disability insurance company by falsifying written statements and deceiving a company field representative. During the time Hunt claimed to be disabled, he collected more than $400,500 in income as an interior designer while also collecting $147,600 in disability benefits. Hunt also failed to report this income on his state income tax returns for these same years.
Hunt was ordered to pay $151,700 restitution to the private insurance company and $31,000 to us, representing the unpaid tax, penalties, interest, and the cost of the investigation. He was sentenced to 200 hours of community service and 60 months of probation.
Judge David M. Horwitz handed down the sentence on Tuesday, November 17, in Department 50 of the Clara Shortridge Foltz Criminal Justice Center. Los Angeles County Deputy District Attorney David Berton prosecuted the case. This was a joint investigation between the CDI and us.”
Is it really necessary to say Duh here? I mean really.
By Stacie Clifford Kitts, CPA
The announcement of a new financial crimes task force by the Obama administration has inspired a new installment of the DUH Factor.
The DUH Factor is my take on events, or laws (generally tax) that are so obviously absurd that they fall into the DUH category.
Among the reasons why this new task force qualifies for my DUH Factor is Treasury Secretary Timmy Geithner’s involvement. Of all the people who could have been selected to announce a new financial crimes task force, I think Geithner would have been a little lower on my list.
Lets begin with this quirky post Has Properly Paying My Income Tax Prevented Me From Getting A Job In the Obama Administration? In this post, I mention that Geithner did not calculate and pay the proper amount of self-employment taxes on income that he received. The unpaid taxes as it turns out were related to self employment compensation received from the International Monetary Fund (IMF).
Because of Geithner’s tax oops, some interesting legislation is proposed, H.R.4172 or the Geithner Penalty Waiver Act. Here is what has been introduced:
H. R. 4172
To provide the same penalty rate for taxpayers who voluntarily disclose
unreported income from offshore accounts as was afforded Timothy Geithner with
respect to his failure to pay self-employment taxes with respect to his
compensation from the International Monetary Fund.
December 2, 2009
Mr. CARTER (for himself, Mr. WESTMORELAND, and Mr. BURGESS) introduced the
following bill; which was referred to the Committee on Ways and Means
To provide the same penalty rate for taxpayers who voluntarily
disclose unreported income from offshore accounts as was afforded Timothy
Geithner with respect to his failure to pay self-employment taxes with respect
to his compensation from the International Monetary Fund.
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled,
SECTION 1. ZERO PENALTY RATE FOR OFFSHORE VOLUNTARY DISCLOSURE PROGRAM.
The penalty assessed under the Internal Revenue Service special voluntary
disclosure program for unreported income from hidden offshore accounts shall not
exceed the penalty imposed with respect to Timothy Geithner’s failure to pay the
tax imposed under section 1401 of the Internal Revenue Code of 1986 on his gross
income derived from employment with the International Monetary Fund.
Now granted, we, the public are not privy to the specifics behind exactly why the penalties were waved. Maybe it was perfectly legit.
But come on, the guy who has inspired “fairness” legislation, because it “appears” that he has received special treatment concerning his financial dealings and the incorrect application of certain tax laws, is probably not the right guy to be introducing a new financial crimes task force. DUH
For some more interesting coverage of this proposed legislation, check out the Wandering Tax Pro’s blog.
In an effort to encourage you to turn in tax evaders, the IRS is offering a pretty nice cash incentive.
From the IRS:
The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.
Who can get an award?
The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.
The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue – this is not a program for resolving personal problems or disputes about a business relationship.
What are the rules for getting an award?
The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) – Whistleblower Rules.
The IRS also has an award program for other whistleblowers – generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) – Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million.
If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.
What Happens to a Claim for an Informant Award (Whistleblower)Procedures used and the criteria followed to identify and process informant cases
History of the Whistleblower/Informant ProgramHistorical information on the evolution of the concept of paying for leads from its inception up to the current law followed today
Whistleblower LawA brief synopsis of what the new whistleblower law entails. This is the most significant change to the Services’ approach to informant awards in 140 years
How Do You File a Whistleblower Award ClaimStep by step procedures to follow to file an informant claim for award
Confidentiality and Disclosure for WhistleblowersThe rules governing confidentiality of informant information
IRC Section 7623(b) – Whistleblower RulesThe requirements of the new rules enacted in IRC Section 7623(b), the Whistleblower Program
IRC Section 7623(a) – Informant Claims ProgramThe requirement of the rules governing claims that do not meet the requirements of the provisions in the whistleblower program under IRC Section 7623(b). These claims are part of the Informant Claims Program
IRS Form 211Application for Award for Original Information
News Release IR-2007-201Procedure Unveiled for Reporting Violations of the Tax Law, Making Reward Claims
Notice 2008-4 Guidance to the public on how to file claimsClaims Submitted to the IRS Whistleblower Office under Section 7623
Reporting other information to the IRS
If you have information about tax noncompliance but are not interested in an award, or you have other information you believe may be of interest to the IRS:
For information on how to Report Suspected Tax Fraud Activity, if you have information about an individual or company you suspect is not complying with the tax law, and you do not want to seek an award . You can remain anonymous
The IRS sets professional standards for attorneys, certified public accountants and enrolled agents who represent taxpayers before the IRS. To learn more about those professional standards, or how to report a violation, see Office of Professional Responsibility At-a-Glance – Report Circular 230 Violations – email OPR@irs.gov
Report Fraud, Waste and Abuse to Treasury Inspector General for Tax Administration (TIGTA), if you want to report, confidentially, misconduct, waste, fraud, or abuse by an IRS employee or a Tax Professional, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). You can remain anonymous.
The federal “Cash for Clunkers” program has generated a lot of interest among consumers and we have received many inquires about the tax implications of this popular program. / more+
Did You Know NHSC Loan Repayment Awards Are Exempt Under California Law?
National Health Services Corps (NHSC) loan repayment program provide payment of student loans for participants who provide certain services in areas where shortages of these services exist. / more+
Federal and State Income Tax Changes
Federal, State, and Revised 2009 Withholding Tables. / more+
How to Select a Tax Preparer
How to Select an Income Tax Return Preparer, FTB 982, is an educational tool for taxpayers. / more+
Chiang Determines Date to Stop Issuing IOUs
State Controller John Chiang today announced he has completed “stress testing” the Department of Finance’s cash projections from the state’s newly-revised budget and has determined the new spending plan will provide the State Treasury with enough cash to stop issuing IOUs on September 4, almost one month earlier than expected. / more+
Does Your Client Know to Dissolve, Surrender, or Cancel Their Business Entity When They Are No Longer Doing Business?
It is very important for taxpayers to understand that business entities registered with the California Secretary of State (SOS) must be dissolved, surrendered, or canceled when they are ceasing operations in California.
Ask the Advocate
Recently, I have received requests from taxpayers to have certain penalties waived for what they believe may qualify for reasonable cause. / more+
New Policy for FTB Installment Agreements
We have implemented a uniform Installment Agreement (IA) Policy throughout our department, and external website. / more+
Our monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time./ more+