September 26, 2007

Tax Fraud - Pick Your California Tax Return Preparer Carefully

When the IRS detects the false return, you the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties. This can be a very serious tax problem. Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim false deductions, inflated personal or business expenses, excessive exemptions on returns prepared for their clients or unallowable credits. Preparers may also manipulate income figures to obtain tax credits fraudulently. Sometimes, you may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on your tax returns. While most preparers provide excellent service, be careful when choosing a tax preparer. You are ultimately responsible for all the information on the tax return even if someone else prepares a tax return. Consider the Following When Choosing Your Tax Preparer
No matter who prepares your tax return, you are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form. Use a reputable tax professional who signs your tax return and provides you with a copy for your records. Accept a referral to a preparer from a trusted friend or advisor. Avoid preparers who base their fee on a percentage of the refund amount. Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received? Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months or years after the return has been filed. Accountancy firms that have been around for awhile may continue to be around for awhile longer – at least long enough for your purposes. Review your tax return before and ask questions on entries you don't understand before you sign it. Find out the person’s credentials. Only attorneys, CPAs and enrolled agents can represent you before the IRS in matters including collection and appeals, and audits. Other return preparers may only represent taxpayers for audits of returns they actually prepared. Be careful with tax preparers who claim they can obtain larger refunds than other preparers.

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September 24, 2007

Late Filed Tax Returns And IRS Civil Penalties

If your tax problems result from your not having filed your federal income tax return, three specific penalties will likely be assessed by the IRS when you file your delinquent returns. These are the failure-to-pay penalty, the failure-to-file penalty and the estimated-tax penalty.

The non-filing and non-payment penalties can be waived for reasonable cause when circumstances beyond your control explain not filing your tax return.

Unfortunately, at the time you file your delinquent tax returns, more often than not the Internal Revenue Service will calculate and assess these delinquency-related penalties and you must then request that the IRS consider a waiver of the penalty assessment.

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September 6, 2007

501(c)(3) Determinations Recently Revoked

Did you know that the Internal Revenue Service publishes a list of tax-exempt organizations which have lost their tax-exempt status? You can see a recent list by clicking here. Some of those troubled by tax problems are in California. No longer exempt under section 501(c)(3) of the Internal Revenue Code, these organizations no longer qualify to receive tax-deductible contributions under Code section 170(c)(2).

When the Internal Revenue Service revokes recognition of section 501(c)(3) status, Publication 78 does not immediately reflect the change. Instead, the IRS publishes the change in the Internal Revenue Bulletin (IRB), which can be accessed by clicking on the organization’s name here. Here is a cumulative list of such organizations published in the IRB from November 2005 to present. Click here for a page listing revocations back to January 2005.

Want to form a 501(c)(3) and it's equivalent in California? Call Mitchell A. Port for a consultation at (310) 559-5259.

September 4, 2007

Clarifying Income Tax Withholding Requirements

Are you a California taxpayer with a tax problem involving income tax withholding? Have you found that your employer in Los Angeles County, Santa Barbara County, Orange County or Ventura County can be more helpful without having to consult with a tax attorney? The IRS published a list of 13 questions and answers about compliance with income tax withholding requirements. Here they are:

Q1: In the past, as an employer, I was required to submit all Forms W-4 that claimed complete exemption from withholding (when $200 or more in weekly wages were regularly expected) or claimed more than 10 allowances. What Forms W-4 do I now have to submit to the IRS?
A1: Employers are no longer required to routinely submit Forms W-4 to the IRS. However, in certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance.
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Q2: If an employer no longer has to submit Forms W-4 claiming complete exemption from withholding or claiming more than 10 allowances, how does the IRS determine adequate withholding?
A2: The IRS is making more effective use of information contained in its records along with information reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.
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Q3: If the IRS determines that an employee does not have enough federal income tax withheld, what will an employer be asked to do?
A3: If the IRS determines that an employee does not have enough withholding, we will notify you to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the maximum number of withholding allowances permitted for the employee. You will also receive a copy for the employee that identifies the maximum number of withholding exemptions permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding exemptions. If the employee still works for you, you must furnish the employee copy to the employee. If the employee no longer works for you, you must send a written response to the IRS office designated in the lock-in letter indicating that the employee is no longer employed by you. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. You must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. You will be required to take this action no sooner than 45 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer can not decrease withholding unless approved by the IRS.

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