May 29, 2007

Tax Season Sets New Records

New records were set for the number of returns e-filed by home computer users, the number of balance-due returns filed electronically and the number and amount of direct-deposit refunds. Among the highlights of new statistics recently released:

A record 22 million taxpayers e-filed from a home computer, up 11 percent over the same time last year and eclipsing 2006’s year-long total of 20.3 million.

The number of balance-due returns filed electronically surged 14.2 percent to a record 9.4 million. For all of last year, almost 8.9 million balance-due returns were filed electronically.

The over 76.7 million e-filed returns accepted through May 4 topped the more than 73.2 million electronically-filed returns received for all of 2006. It’s also an 8.9 percent increase over last year at this time, with most of the increase coming in March and April. Based on current trends, the agency expects about 58 percent of all returns to be e-filed this year. Taxpayers who filed for extensions can use e-file until Oct. 15.

The average refund this year is $2,255, a 2.5 percent increase over last year at this time. More than 59 million refunds, a new record, were deposited directly into savings, checking and brokerage accounts, representing more than 61 percent of all refunds issued. Those who choose direct deposit get their refunds at least a week sooner. Available year-round, direct deposit eliminates the chance of a lost, stolen or undeliverable refund. Taxpayers claiming refunds who have not yet filed may want to consider using direct deposit to get a head start on their 2007 IRA contribution.

This filing season visits to IRS.gov, the agency’s popular Web site, climbed almost 10 percent to more than 140 million.

Nearly $158 billion have been directly deposited so far this year, an 11 percent jump over last year at this time. This surpasses the 2006 year-end total of $149.2 billion.

These statistics are neatly layed out in this chart: Download file

May 24, 2007

Leading Law Firm Pays IRS $39.4 Million Penalty

Sidley Austin LLP Pays IRS $39.4 Million Penalty


The IRS reached a settlement yesterday with the law firm of Sidley Austin LLP, which paid a civil tax shelter promoter penalty of $39.4 million. The penalty results from the firm’s failure to comply with tax shelter registration requirements and promotion of abusive tax shelters.

The firm issued opinions in connection with potentially abusive tax shelters to over 700 high-net worth individuals and corporations. Some of the packages marketed to these individuals included listed transactions such as BOSS (Bond & Option Sale Strategy), variants of the so-called “Son of BOSS” shelter that went by names of BLIPS (Bond Linked Issue Premium Structure), COBRA (Currency Options Bring Reward Alternatives), and COINS (Currency Option Investment Strategy), and others that went by the names of OPIS (Offshore Portfolio Investment Strategy), FLIP (Foreign Leveraged Investment Program), and POPS (Partnership Option Portfolio Securities).

The firm also issued tax opinions in connection with certain potentially abusive non-listed transactions involving distressed assets, bond and equity strips and lease strips.

“Sidley Austin has paid a significant penalty for its role in promoting abusive tax shelters,” said IRS Acting Commissioner Kevin M. Brown. “The firm has also taken concrete steps to prevent a recurrence of this behavior in the future, which they have agreed to maintain going forward. We appreciate their actions and their cooperation in our ongoing investigations.”

May 22, 2007

Tax Court Trumps Court Of Federal Claims Says U.S. Supreme Court

A 1986 amendment to the Internal Revenue Code §6404(e)(1) permits the U.S. Treasury Secretary to abate interest that accrues on unpaid federal income taxes if the interest assessment is attributable to IRS error or delay.

Later, the federal courts uniformly held that the Secretary’s decision not to abate was not subject to judicial review. In 1996, Congress added what is now §6404(h), which states that the Tax Court has “jurisdiction over any action brought by a taxpayer who meets the requirements referred to in section 7430(c)(4)(A)(ii) to determine whether the Secretary’s failure to abate . . . was an abuse of discretion, and may order an abatement, if such action is brought within 180 days after the date of the mailing of the Secretary’s final determination not to abate . . . .” §6404(h)(1).

The IRS denied petitioner Hincks’ request for abatement of interest assessed in 1999 for the period March 21, 1989, to April 1, 1993. The Hincks then filed suit in the Court of Federal Claims seeking review of the refusal to abate.

The court granted the Government’s motion to dismiss, and the Federal Circuit affirmed, holding that §6404(h) vests exclusive jurisdiction to review interest abatement claims in the Tax Court. The Supreme Court held that the Tax Court provides the exclusive forum for judicial review of a failure to abate interest under §6404(e)(1).

May 21, 2007

Robert L. Schulz And “We The People” Sued By Feds To Stop Tax Scam

The Tax Scheme Cost U.S. Treasury $21 Million.

The Justice Department has sued to stop Robert L. Schulz from selling a tax fraud scheme said to have cost the U.S. more than $21 million. Also named in the suit are two corporations, We the People Foundation for Constitutional Education Inc., and We the People Congress Inc.

Many of my California clients - particularly those in Los Angeles County, Orange County, Ventura County and Santa Barbara County - have used We the People to prepare their California living trusts, California Wills, California durable powers of attorney and California advance health care directive only to meet with me later to remedy problems arising in connection with poorly prepared estate plans.

The government says Schulz used the two We the People entities to market a nationwide tax fraud scheme, called the Tax Termination Package, to employers and employees. According to the government, the Tax Termination Package includes We the People forms, which the defendants tell their customers can be used to replace forms the IRS requires employers and employees must use in connection with federal tax withholding from wages.

The suit says that Schulz and the We the People entities state that use of the replacement forms will allow customers to legally stop tax withholding and that these statements are false. According to the complaint, the defendants base the scheme on frivolous arguments about federal tax laws that federal courts have repeatedly rejected. These schemes are on the IRS’s 2007 list of the Dirty Dozen tax scams.

People who sell tax scams and their customers temporarily enrich themselves at the expense of law-abiding taxpayers. The Justice Department and the Internal Revenue Service are determined to stamp out these scams.

Since 2001 the Justice Department has obtained more than 230 injunctions stopping the promotion of tax fraud schemes and the preparation of fraudulent returns.

May 19, 2007

California Small Business Help

The Internal Revenue Service recently came out with its list of what California business owners need to know with regard to federal tax responsibilities. Tax help is available to business owners in Los Angeles County, Ventura County, Santa Barbara County and Orange County by clicking on any of the links below.

Topics include:

Starting, Operating or Closing a Business

Business Taxes

Checklist for Starting a Business

Employer ID Number (Form SS-4)

Understanding and complying with tax requirements

Small Business and Self-Employed One-Stop Resource

Subscription Address to e-News for Small Businesses

Electronic Choices to Pay All Your Federal Taxes

A Virtual Small Business Tax Workshop

Small Business and Self-Employed Tax Calendar

To discuss these and any other business transaction, please contact Mitchell A. Port at (310) 559-5259.

May 16, 2007

What To Do If You Receive An IRS Notice

It’s a moment all of us dread. A letter arrives from the IRS — and it’s not a refund check. Don’t panic; many of these letters can be dealt with easily and painlessly. Tax help may be required from a qualified California tax attorney for certain types of IRS tax problems so you may want to inquire with your tax lawyer before you respond to the IRS.

Each year, the IRS sends millions of letters and notices to us to notify us of a change to our account, request payment of taxes, or request additional information. Each letter and notice offers specific instructions on what we are asked to do to satisfy the inquiry. The notice we receive normally covers a very specific issue about our account or tax return. You should review the correspondence and compare it with the information on your return.

Agree? If you agree with the correction to your account, no reply is necessary unless a payment is due.

Disagree? If you do not agree with the correction the IRS made, it is important that you respond as requested and write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow about 30 days for a reply.

Questions? If you have questions, call the telephone number in the upper right-hand corner of the notice. Have your tax return and the correspondence available when you call so your account can be accessed. Most correspondence can be handled without calling or visiting an IRS office, if you follow the instructions in the letter or notice.

Be sure to keep copies of any correspondence with your records. Sometimes, the IRS sends another letter or notice requesting more information or providing more information to you.

For additional information about IRS notices and bills, Publication 594, What You Should Know about the IRS Collection Process, is a good resource. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax.

For questions you may have about the notice or letter you received, please call Mitchell A. Port at (310) 559-5259 to obtain the tax help you may need.

May 11, 2007

What Does The Numbered Letter I Received From The IRS Mean?

The IRS published on its website an interesting list and explanation of some of its letters and notices most commonly received by the taxpaying public. Tax help in California and throughout the U.S. is available for a tax problem resulting from receipt of one of these letters or notices. Here's the partial list:

Examination Letters
Letter 525 – General 30 Day Letter

Letter 531 – Notice of Deficiency

Letter 692 – Request for Consideration of Additional Findings

Letter 1153 – Trust Funds Recovery Penalty Letter

Letter 1389 – 30 Day Letter, Tax Shelter Activity

Letter 3016 – IRC Section 6015 Preliminary Determination Letter (30 Day)

Letter 3391 – 30-Day Nonfiler Letter

Letter 3727 – 30-Day Letter Notifying Taxpayer No Change to Original Report Disallowing EIC Based on Failure to Meet Residency Test for Children Claimed

Letter 3728 – 30-Day Letter Notifying Taxpayer No Change to Original Report Partially Disallowing EIC Based on Failure to Meet Residency Test for 1 Child


Collection Letters
Letter 11 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing

Letter 1058 – Final Notice Reply Within 30 Days

Letter 1085 – 30-Day Letter Proposed 6020(b) Assessment

Letter 3172 – Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320


Notices
CP 90 – Final Notice of Intent to Levy

CP 92 – Notice of Levy upon Your State Tax Refund

CP 242 – Notice of Levy upon Your State Tax Refund

CP 523 – IMF Installment Agreement Default Notice

CP 2000 – Information Does Not Match Your Return

A more complete explanation of each of these is provided - click on this link.

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May 9, 2007

I Just Received A Notice Of Deficiency From The IRS - A 90-Day Letter - What Do I Do?

The notorious 90-day letter. This gives us our day in court – Tax Court, that is. Matters like this are not part of the California court system since State law does not apply; however, the Tax Court has a branch . If the IRS has made proposed adjustments to your account, and you didn't respond or couldn't reach an agreement, then you will receive a notice of deficiency. The notice of deficiency allows you to go to the Tax Court and tells you the procedures to follow. If you don't go to Tax Court in the time allotted you will receive a bill for the amount of tax due.

Q. I recently received a Notice of Deficiency. I sent in additional information to the IRS and now they say I owe less than what is in the notice. Either way - I still don’t agree with the IRS. Should I file a petition with the Tax Court as the notice directs, or should I continue to work with the IRS?

A.
Nothing can extend the 90-day period for filing a petition. There are no exceptions. If you don’t file a petition before the end of the 90-day period and you do not resolve the matter with the IRS, the IRS will close your case and your right to any appeal will be lost. You should continue to work with the IRS, but as the 90th day comes near and if you are unsure of the outcome with the IRS, you should file a Tax Court petition to protect your appeal rights.
Once you file a petition and your case becomes docketed before the Tax Court your file will go to an Appeals office. Someone from the Appeals office will contact you to try to resolve your issues without the need for a trial.

Q. I received the Notice of Deficiency saying I need to file a petition with the United State Tax Court if I don’t agree. How do I do this?

A. If you don't agree with the decision then write to the Tax Court address shown on the first page of the letter or visit their web site at www.ustaxcourt.gov to review the procedures and obtain forms.

Q. I never appealed my IRS office or field audit, and when I got the Notice of Deficiency, I did not file a petition with the Tax Court. Now the IRS is sending me bills and I don’t think I owe the tax. What do I do now?

A. Your case is closed as far as any question about how much tax you owe, so there is nothing for you to appeal. You have three options to get your case re-opened so the IRS can consider whether you owe any additional amounts:

Follow the instructions in Form 656 and file an Offer in Compromise, Doubt as to Liability.

Follow the instructions in Publication 3598 and request an Audit Reconsideration. Note that you must submit new information the IRS did not previously consider in order to have an audit reconsideration.

Pay the amount due in full and file a claim for refund. If the IRS disallows your claim you will have the right to appeal at that time.

To discuss this and other tax controversies, call Mitchell A. Port at (310) 559-5259 for tax help.

May 2, 2007

Tax Audits And Examinations Are On The Rise

I don't suggest planning based on the odds of the IRS catching you. To the contrary, such planning is both unethical and foolish. In general, tax help, and in particular help from a California tax attorney, could be more necessary than ever for those who attempt to play the odds.

Audits are definitely up this year - in almost all categories - as compared to prior years!

Odds are that playing fast-and-loose with the information you report doesn't pay. Whether you live in Los Angeles County, Orange County, Santa Barbara County or Ventura County, tax problems can easily arise when tax avoidance is overly aggressive.

The latest IRS data book has just been released. It contains some eye opening information on the number and percentages of audited income tax returns and where the IRS concentrates.

Here's the most recent tax audit data for the number of tax returns examined by the IRS: Download file

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