TaxScam - It's Worse than We Thought!

President Obama now joins former Pres. Franklin Roosevelt, Kennedy, Johnson, Nixon and Clinton in using the IRS to hammer his political opponents. Treasury officials knew of the attack by the IRS against Tea Party Conservatives in June, 2012 in the middle of Pres. Obama's re-election campaign. The Treasury Inspector General, who is supposed to protect taxpayers from IRS abuse, knew all about TaxScam and did nothing.

Congress is screaming, and President Obama fired the Temporary IRS Director (who was leaving in 3 weeks anyway.) Other than that, nothing changed at the IRS. This simply confirms that the IRS is a political arm of the government, not an objective and neutral agency to fairly administer tax law.

Tax law is not fair and the administration of the law is tilted. Maybe, we need to start over?

Jon Stewart got it Right - Obama is "Iron Man" when it comes to oppressing People

IRS Non-Apology Over Harassing Tea Party Non-Profits

Jon Stewart, on the Daily Show pegged Pres. Obama and the IRS for what they really are:

"You've managed to show that when the government wants to do good things, your managerial competence falls somewhere between David Brent and a cat chasing a laser pointer," Stewart said. "But when government wants to flex its more malevolent muscles, you're f—ing Iron Man." 

The IRS is totally under the control of the politicians and bureaucrats and is being used as a political attack machine. Pres. Obama follows a long line of Executive Branch abuse of the IRS. President Clinton had his IRS hit list, President Nixon had a similar list. Now, the Obama Administration has upped the ante by attacking Tea Party Non-profits to stymie the opposition. Who knows what other dirty tricks lies in the halls of the IRS at the hands of which politicians.

It is time to clean house. If Congress would do its job and reform the entire Internal Revenue Code to make it simple and easily enforceable, it would prevent this abuse of power. Let the IRS be a taxing only agency, not a branch of government designed to force people to do or not do what is politically fashionable.

Give us a break!

First Drones, now ROBOAUDITS - The IRS attacks Small Business

 Drone Attack

In its continuing quest to collect more taxes, the IRS is targeting small business. For the past several years, individuals instead of being audited by a live human being, are being audited by computer and unresponsive mail audits. In order to get more money, the IRS is expanding this secret surveillance to audit small businesses. By using the Robo audits, the IRS can attack more small businesses, and attempt to collect more money.

The way this works is the IRS uses many of its matching computer information documents. For example, if you are retaurant and tips are put on credit card receipts, the IRS will track those tips, determine an average percentage and apply that as additional wages to your employees. This way they can collect more taxes from the employer in the form of 941 employment taxes, and they can also go after the employee to collect more income tax.

The problem with these audits is that there is no educated human being to speak to concerning the issues. Typically the IRS proposes an absurdly large amount of tax due by disallowing many of the proper deductions taken by the business and inflating the gross receipts. It sends a bill to the taxpayer and the taxpayer has a short period of time, 90 days, to file its case in US Tax Court. If not, the taxpayer is stuck having to try to come up with this huge amount of tax and infighting and expensive battle in the US Court of Federal Claims.

Because this just appears to be a letter and not a real audit, many business people will be fooled into not retaining tax professionals, especially tax attorneys and CPAs to help them fight these audits.They will suffer.

First government has drones in the sky keeping track of us, now they have drones doing the auditing and keeping track of all business transactions. I sure feel secure!

Congress wants to hear from you about Tax Reform?

Congress, after failing in its duty to revise the Internal Revenue Code   for decades, has launched a tax reform website. Is this a real attempt at soliciting ideas about tax reform, or just a new twist on getting an email list? To show they are really connected with social media, there is a new Twitter feed.

Let's see how they address the following:

1. Estate Tax Reform
2. Limiting Taxation on US citizens (including businesses) to US Source Income rather than Worldwide Income
3. Address the Earned Income Tax Credit and other refundable tax credits.
4. Adjust capital goods for inflation to eliminate tax on inflation rather than real growth.
5. Honest Tax Simplification.

Ron Cappuccio
www.TaxEsq.com

Happy Mother's Day - Too Much Hype For and Against Living Trusts

A lifetime trust, also known as a living trust, can be the difference between people controlling their estate and being subject to the expense, confusion, and problems that sometimes affect unplanned estates.

Nevertheless, a whole industry has grown around overselling living trusts when they are not really needed. Now, AARP and Kiplinger have gone in the other direction proclaiming that trusts are expensive and not needed. In the June 2013 Personal Finance issue, the newsletter gives really bad advice to avoid trusts.

Frequently, as a tax attorney, I get a call from clients saying "what can we do with Mom's assets? She has dementia, and is being influenced by an acquaintance or family member to give them chunks of money." Unfortunately, it is too late. Unless the family wants to go to court with an expensive and embarrassing lawsuit to prove that their mom is incompetent, there is not much that can be done.

If, however, when the signs of problems first started appearing, a trust would have been formed, and the assets transferred, these issues would have been avoided and Mom would be protected.

The best Mother's Day gift might be to make sure your Mom (and Dad too!) goes to a tax and estate attorney to review all of the options: Will, Revocable Trust, Durable Power of Attorney.

Happy Mother's Day!

Ron Cappuccio
www.SaveYourEstate.com

Bitcoin - Not for Avoiding Taxes

Bitcoin transactions are Taxable

Bitcoin has become the rage in the past few months by the so-called asset protection industry. There have been claims that this cryptocurrency cannot be detected by governments and transactions are not taxable. Not true! 

Under the Internal Revenue Code, gross income means all income from whatever source. Trading Bitcoin currency for services or goods is clearly income for US Tax purposes. There is no argument. Just like bartering transactions, the question becomes "what is the value of the Bitcoin transferred?"  With Bitcoin, the answer is online.

If you want to transact business in Bitcoin that is your option. But, the transactions must be included in gross income or you will be committing tax fraud that can be easily proved by the government.

Anyone interested in tax planning and asset protection can get real results by consulting their tax lawyer.

Ron Cappuccio
www.TaxEsq.com

The Tax Miseducation of Lauryn Hill

Lauryn Hill has learned that being a rock star, although it exempts you from many of the burdens of life, does not exempt you from filing taxes. Just like famous actor (Wesley Snipes) and hotel heiress (Leona Helmsley), Lauryn Hill has felt the full wrath of the US Government by being thrown into jail for failing to file tax returns.

It seems, Miss Hill, through her bevy of tax and financial advisers, did not file tax returns for 2005, 2006 and 2007. Three years; that's the magic number for the IRS to have a presumption of "willful" failure to file. Even though she had big tax losses in 2008 and 2009, her late filing and late paying of tax means she is going to Federal Prison for 3 months.

Let's look at the facts:

Failure to File - 2005, 2006, 2007

LATE Payment - $1mil in taxes (note she actually paid the taxes, just late)

Tax Loss - 2008, 2009 when she lost popularity.

So let's see what really happened here. The US government probably spent about $1 million to prosecute a case that wasn't worth very much from a tax standpoint. On the other hand they got tens of millions of dollars, if not hundreds of millions of dollars, of free publicity to scare people into "voluntarily" complying with the US tax laws. So in reality this was a good investment for the government on the back of Ms. Hill.

The real lesson for most taxpayers is if the IRS contacts you, say nothing! Anything you say to the IRS, or a state taxing authority, can and will be used against you. You can end up with huge fines and penalties and possibly even jail time like Lauryn Hill and Wesley Snipes. When the government comes knocking at your door, immediately call your tax attorney!

Typically, criminal investigation agents of the IRS come in pairs for their own protection. So remember "if you see double you're in trouble."

Ron Cappuccio

www.TaxEsq.com

Nexus - When are you "Doing Business" in a State or Country?

Nexus - When are you "Doing Business" in a State or Country?

Google is one of the biggest collection of companies in the world. Wisely, Google has divided itself into many companies to deal with the different tax laws not only in the 50 States of the United States but in dealing with worldwide taxes. By using proper tax planning, Google is effectively avoiding taxes in many countries.

In order to be subject to taxation in a given country, a business must have "nexus" in that country. The word Nexus comes from the same root as "connection". Typically that means a company must have an actual physical presence in the country.

Google has been very wise in its tax planning. It has its main business in Bermuda, a low tax country, and in the Republic of Ireland, also a low tax country. Google has set up a separate entity in the United Kingdom as a "technology and marketing" company. The idea is that technical services are performed by the UK subsidiary as well as general marketing services. No sales services are performed. Rather sales are referred to the Irish company. The sales transaction is technically made in Ireland.  The Irish company then pays the British company for the technological development services as well as marketing and gives the company a fee for services which includes a small profit. The Irish company reaps the profit from the sales and transfers it to the Bermuda company at a low tax cost.

This ingenious method has enabled Google to pay a tax of $16mil on $18 billion of sales in the UK. This technique can also be useful for you other US companies that do not want nexus in various states to avoid state corporate taxes and state sales taxes. This sophisticated tax planning takes advantage of the laws of the jurisdiction in order to allow a company like Google to keep the money it earns.

The full Reuters article is fascinating:

Click Here for Reuters Article

IRS Closing for 5 days in May-August

IRS to Furlough Employees on Five Days; Operations Will Shut Down Entirely

The IRS will be closed for business on five days falling between May 24 and August 30. NTEU Press Release (4/19/13).

Late last week, the National Treasury Employees Union (NTEU) announced that the IRS is sending out furlough notices this week to the entire IRS workforce, identifying the five following furlough days where the agency will shut down entirely: May 24, June 14, July 5, July 22, and Aug. 30. The 30-day notices to employees also leave open the possibility of another two unpaid furlough days.

On those furlough days, all public operations of the IRS will be shut down, leaving taxpayers without access to information and assistance from frontline workers. According to the president of the NTEU, on those days, phone calls to the IRS will go unanswered and Taxpayer Assistance Centers across the country will have closed' signs in their windows. The furloughs are being driven by the ongoing sequestration that is forcing federal agencies, including the IRS, to severely slash their budgets.

NTEU is the largest independent federal union, representing 150,000 employees in 31 agencies and departments.

How Long should You Keep Tax Records

1. Tax Returns. ALWAYS keep tax returns.They take very little space and if there is ever an argument the return was not filed, at least you have a copy.


2. Backup records. Any written evidence that supports figures on your tax return, such as receipts, expense logs, bank notices and sales records, should generally be kept for at least the three-year period.  If possible keep the records for 7 years.

Note: There are some cases when taxpayers get more than the usual three years to file an amended return. You have up to seven years to take deductions for bad debts or worthless securities, so don't toss out recoSecurities. To accurately report taxable events involving stocks and bonds, you must maintain detailed records of purchases and sales. These records should include dates, quantities, prices, dividend reinvestment, and investment expenses, such as broker fees. Keep these records for as long as you own the investments, plus the statute of limitations on the relevant tax returns.

3. Individual Retirement Accounts (IRAs). The IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRA accounts. With the introduction of Roth IRAs, it's more important than ever to hold onto all IRA records pertaining to contributions and withdrawals in case you're ever questioned.

If an account is closed, treat IRA records with the same rules as securities. Don't dispose of any ownership documentation until the statute of limitations expires.

4. Issues affecting more than one year. Records that support figures affecting multiple years, such as carryovers of charitable deductions, net operating loss carrybacks or carryforwards or casualty losses, need to be saved until the deductions no longer have effect, plus seven years, according to IRS instructions.rds that could result in refund claims for those items.

5. Real estate records. Keep these for as long as you own the property, plus three years after you dispose of it and report the transaction on your tax return. Throughout ownership, keep records of the purchase, as well as receipts for home improvements, relevant insurance claims, and documents relating to refinancing. These help prove your adjusted basis in the home, which is needed to figure the taxable gain at the time of sale, or to support calculations for rental property or home office deductions.

For Further Information

Applicable Federal Rates - Interest Rates for Tax Underpayments, Investments

Rev Rul 2013-11, 2013-20 IRB

The Applicable Federal Rates for May 2013 are reproduced below.

                                  Table 1
                Applicable Federal Rates (AFR) for May 2013
                          Period for Compounding
                Annual         Semiannual       Quarterly        Month
                                  Short-Term
     AFR         .20%           .20%             .20%             .20%
110% AFR         .22%           .22%             .22%             .22%
120% AFR         .24%           .24%             .24%             .24%
130% AFR         .26%           .26%             .26%             .26%
                                  Mid-term
     AFR        1.00%          1.00%            1.00%            1.00%
110% AFR        1.10%          1.10%            1.10%            1.10%
120% AFR        1.20%          1.20%            1.20%            1.20%
130% AFR        1.30%          1.30%            1.30%            1.30%
150% AFR        1.51%          1.50%            1.50%            1.50%
175% AFR        1.76%          1.75%            1.75%            1.74%
                                  Long-term
     AFR        2.60%          2.58%            2.57%            2.57%
110% AFR        2.86%          2.84%            2.83%            2.82%
120% AFR        3.12%          3.10%            3.09%            3.08%
130% AFR        3.38%          3.35%            3.34%            3.33%

                                  Table 2
                         Adjusted AFR for May 2013
                          Period for Compounding
                   Annual         Semiannual        Quarter          Monthly
Short-term
adjusted AFR        .20%            .20%              .20%            .20%
Mid-term
adjusted AFR       1.00%           1.00%             1.00%           1.00%
Long-term
adjusted AFR       2.60%           2.58%             2.57%           2.57%

                                 Table 3
                    Rates Under Section 382 for May 2013
Adjusted federal long-term rate for the current month                  2.60%
Long-term tax-exempt rate for ownership changes during the
current month (the highest of the adjusted federal long-term
rates for the current month and the prior two months.)                 2.70%

                                  Table 4
                Appropriate Percentages Under Section 42(b)(1)**
                                for May 2013
Appropriate percentage for the 70% present value low-income
housing credit                                                          7.41%
Appropriate percentage for the 30% present value low-income
housing credit                                                          3.18%

                                  Table 5
                    Rate Under Section 7520 for May 2013
Applicable federal rate for determining the present value of an
annuity, an interest for life or a term of years, or a remainder or
reversionary interest                                                    1.20%

**Note: Under Code Sec. 42(b)(2) , the applicable percentage for non-federally subsidized new buildings place in service after July 30, 2008, and before Dec. 31, 2013, is not to be less than 9%.

IRS Interest Rates Remain at 3%

3% personal and 2% Corporate Overpayment Rates

IRS has announced that the interest rates for tax overpayments and underpayments for the calendar quarter beginning Apr. 1, 2013, will remain the same as for the first quarter of 2013.

For noncorporate taxpayers, the rate for both underpayments and overpayments for the second quarter of 2013 will remain unchanged at 3%. The 3% rate also applies to estimated tax underpayments for the second quarter in 2013.

For corporations, the overpayment rate for the second quarter of 2013 will remain at 2%. Corporations will receive .5% for overpayments exceeding $10,000. The underpayment rate for the second quarter of 2013 for corporations will be 3%, but will be 5% for large corporate underpayments.

Interest factors for daily compound interest for annual rates of 0.5% are published in Appendix A of Rev Rul 2012-32.