What the IRS doesn’t want you to know: Audit Secret

When facing an audit, one is guilt until they prove their innocence.  Moreover most taxpayers are so afraid of the IRS that they never challenge the exhortation assessment made in the audit.  This is why you need a representative who knows whether the auditor is being fair and reasonable or needs to be challenged.

Taxpayers often seek to retain our firm after an audit assessment.  While we can often provide value, it is often much more difficult to achieve a fair and accurate assessment of tax owed.  Those taxpayers who seek competent representation prior to the audit often have a better chance of reducing the assessment or in minimizing penalties.

IRS Updates Publication on Deducting Travel, Entertainment, and Car Expenses

The Internal Revenue Service (IRS) has updated Publication 463 (Travel, Entertainment, Gift, and Car Expenses) for use in preparing 2016 tax returns that are filed in 2017. This publication explains what travel, entertainment, and car expenses are deductible, how to report them on returns, what records are needed to prove expenses, and how to treat any expense reimbursements received.

Highlights of Updated Publication 
Updated Publication 463 contains the following new information:

  • Standard mileage rate. For 2016, the standard mileage rate for the cost of operating a taxpayer’s car for business use is 54 cents per mile.
  • Depreciation limits on cars, trucks, and vans. For 2016, the first-year limit on the total depreciation deduction for cars remains at $11,160 ($3,160 if a taxpayer elects not to claim the special depreciation allowance). For trucks and vans, the first-year limit is $11,560 ($3,560 if a taxpayer elects not to claim the special depreciation allowance).
  • Section 179 deduction. For 2016, the section 179 deduction limit on qualifying property purchases (including cars, trucks, and vans) is a total of $500,000, and the limit on those purchases at which the deduction begins to be phased out is $2,010,000.
  • Special depreciation allowance. For 2016, the special (“bonus”) depreciation allowance on qualified property (including cars, trucks, and vans) remains at 50%.

Infamous International Tax Evaders

It’s not just citizens of the United States that try to get out of paying their taxes—this is a worldwide issue.  Listed below are a few famous tax evaders from around the world:

The number 1 tennis player in the early 2000’s, Boris Becker lived in Germany but claimed he resided in Monte Carlo to avoid paying taxes in the amount of 1.7 million Euro.  He admitted to tax evasion and received a $500,000 fine and two years’ probation. He moved to Switzerland to avoid paying taxes.

Fashion designers Domenico Dolce and Stefano Gabbana of Italy were found guilty of hiding hundreds of millions of Euros.  They received a prison sentence of one year and eight months, but Italian law states that people with sentences less than 2 years do not actually have to serve that sentence.

Australian actor Paul Hogan was accused by the Australian Taxation Office of owing as much as $37.5 million Australian dollars and was banned from leaving the country without paying his taxes.  As part of a deal, he was allowed to leave the country but later sued the Australian government for false accusations of tax evasion.  In 2012 the issue was resolved “without admission”.

Founder of the retail computer chain ComputerLand Corp. sold his company in the late 1980’s for over $100 million. After selling his company he moved to Northern Mariana Islands, which is a U.S. Commonwealth.  While there he never reported his income to the IRS and thus paid no taxes.  He has since disappeared, but is reported to be living in the known tax haven of the Cayman Islands.

And Yet Another New Scheme; The Latest Tax Scam

Issuing an alert to tax professionals and taxpayers, the Internal Revenue Service is warning them about a new fake tax scam involving fake CP2000 notices.

CP2000 notices are sent as part of the IRS’s Automated Underreporter Program when income reported from third party sources, such as employers or 1099’s does not match the income reported on a tax return. It is always sent to the taxpayer through the U.S. Postal Service.

In the new scam, the fake CP2000 notice is sent as an attachment to an email, stating there is additional unpaid taxes owed relating to the Affordable Care Act.

The notices appear to be issued from an Austin, TX address and includes the request that a check be mailed to an Austin post office box.  The email also has a “payment” link within the email.

The IRS is requesting anyone receiving this email forward it to phising@irs.gov and delete it immediately. To confirm any notices received by mail, taxpayers and tax pros should go to the IRS web page and search, “Understanding Your Notice” where you can see an image of an actual form for comparison.

Employers Must Use New Form I-9

U.S. Citizenship and Immigration Services (USCIS) has released a new version of Form I-9, Employment Eligibility Verification. As of January 22, 2017, employers must use the updated form.

Federal law requires employers to hire only individuals who may legally work in the United States–either U.S. citizens or foreign citizens who have the necessary authorization. To comply with the law, employers must verify the identity and employment authorization of each person they hire by completing and retaining Form I-9.

New Form I-9 and Dates
As of January 22, 2017, employers must use the “11/14/2016 N” version of Form I-9 to verify the identity and work eligibility of every new employee, or for the re-verification of expiring employment authorization of current employees (if applicable). This date is found on the lower left-hand corner of the form.

Click here to access the latest Form I-9.

Montana Man Files False Income Tax Returns Using Personal Information Obtained from Craigslist

Steven D. Pjevach, former resident of Nevada and Montana pleaded guilty to one count of corruptly interfering with the administration of the internal revenue laws.

Using personal information he obtained by placing false help wanted ads on Craigslist, including names and social security numbers, Pjevach filed false and fraudulent income tax returns.  Pjevach also opened up bank accounts in the individual’s names in order to receive the fraudulent tax refunds. When questioned by the individuals, Pjevach provided false information on why he had opened up those accounts, and even told one person just to disregard any correspondence from the bank.  Pjevach also created false Forms W-2, which he attached to the returns to deceive the IRS.

Sentencing is scheduled for March, 2017, where Pjevach faces a statutory maximum sentence of three years in prison, a period of supervised release, restitution and monetary penalties.

Tariq El-Shabazz, Philadelphia DA Candidate Battles with IRS

Tariq El-Shabazz, a Democrat running for Philadelphia District Attorney, is starting his candidacy with questions arising over his tax debts.

Philly.com reported that there are more than $190,000 in tax liens filed against him.  Mr. El-Shabazz has stated that he is in a payment agreement with the IRS but has refused to reveal how much he is currently paying or how much of the liability he has paid off.

Dealing with Federal Tax Liens and other tax liabilities can be quite an ordeal for an individual, but the concern that many reporters have is whether he will be able to manage the $52 million budget for the DA’s office.

Mobile Home Park Owners will be Moving to Prison

John and Peggy DeYoung of Montana pled guilty to one count of conspiracy to defraud the United States in Federal Court in January, 2017.

The DeYoung’s failed to file tax returns since 1998, although they earned income from their ownership interests in two mobile home parks.  They were accused of setting up sham trusts using fabricated taxpayer identification numbers and opening bank accounts in the name of the trusts.  Income they earned was deposited into those accounts where they used the funds to pay personal expenses.

The loss to the U.S. Treasury is estimated at $376,350.  Sentencing is set for April, 2017 where they face a statutory maximum sentence of five years in prison, restitution and penalties.

IRS places Federal Tax Lien on school system

The Internal Revenue Service has placed a federal tax lien on the Morgan County School System’s property because of $700,000 in unpaid taxes from the first quarter of 2015.  With penalties and interest, the amount owed by the school system to the IRS is over $1.1 million.

“While we are disappointed that the IRS chose to place a lien on the school system, this course of action is a routine action by IRS in resolving disputes to protect any potential IRS interest. The school system has already filed an objection to the penalties and has already filed a request for penalty abatement,” explained James Woodard, superintendent of schools. “A lien means a public record is created that the IRS intends to protect its interest, if any, in regards to any unpaid interest and penalties.  The filing of a lien also allows the school system to proceed with a Request for a Collection Due Process or Equivalent Hearing – which has already occurred.  Currently Morgan County School System is waiting to hear from IRS on the status of the appeal.”

According to Woodard, an oversight was made when filing taxes in 2015, during a transition of finance personnel.

“Our stance has been that we believe the first penalty was a non-intentional error on our part and we believe we have reasonable cause for the IRS to waive the penalties and any associated interest.  We believe the remaining penalties are not our fault and we are using the hearing/appeal process to verify that our normal routines and process are followed.  We have always intended and continue to pay our taxes and file appropriate reports.”