Thursday, May 21, 2015

Planning ahead - 2015 Forms 1040 will be due on April 18,2016 (for most)

You get an extra weekend to file your tax returns in 2016 thanks to an uncommon mix of holiday's and weekends.  Ordinarily an unextended Form 1040 Individual Income Tax Return is due on April 15th of any given year.  However, when the 15th falls on a weekend or legal holiday, the due date of the tax return is the day after the weekend or legal holiday.

April 15, 2016 is a Friday.  Without more, your income tax return would be due that day.  Yet, the District of Columbia observes Emancipation Day on April 16.  Where Emancipation Day falls on a Saturday, it is observed the day before.  Where Emancipation Day falls on a Sunday, it is observed on the day after.   Because Emancipation Day 2016 falls on Saturday, April 16, it will be observed in Washington D.C. of Friday, April 15.  This makes the 15th a legal holiday.  Altogether, this pushes the Form 1040 due date to Monday April 18th.

If, however, you live in Maryland or Maine, you will have until April 19th due to the statewide observance of Patriot's Day on Monday April 18, 2016.

For greater detail see IRS Revenue Ruling 2015-13.

Wednesday, May 20, 2015

“The IRS is calling…and threatening to arrest me!”


A few days ago, I received a call from a panicked former client.  Two years back we had gone through an IRS tax audit and worked out a reasonable payment plan to resolve the remaining tax debt.  The client had been honoring all obligations of that payment plan: paying on time, filing on time and not incurring any new debts.
 
The client’s immediate fear, however, was triggered by a call from a “US Treasury agent.”  That “agent” was instructing my client to pay a fictional the balance due by cashier’s check before the end of the day. A failure to do so would mean that local law enforcement would come to his home to arrest him. 

My client is sophisticated.  In the past, we had spoken about what the IRS can do and what it cannot.  He suspected it may be a scam, but was still worried that the “agent’s” threat to arrest him might be true.  It wasn't.  The IRS does not act this way.

The IRS will NEVER call and threaten you with arrest for the non-payment of taxes. 

The IRS doesn't have the power or authority to arrest someone for being unable to pay.  Sure, if you commit tax fraud you can go to jail after a thorough investigation.  But, being unable to pay is not fraud.
  
What my client was dealing with was a pervasive telephone scam that remains on the IRS “Dirty Dozen” list of tax scams.  Someone pretending to be from the IRS calls to demand payment of taxes.  The caller may even have certain personal information that appears to lend credibility to any threats they make.  On occasion the victim follows the instruction and sends money.  

A big part of the problem is the mystery surrounding the power of the IRS and the procedures that must be followed before the IRS can do something.  It’s true that the IRS can file liens, garnish wages, levy bank accounts and even seize property when trying to collect a tax debt.  However, there are a number of notices that have to be issued and appeal opportunities that exist before they are able to do so.  You will receive letters (some by certified mail) before they can take anything from you. They must follow these notification procedures.  Putting you in jail for non-payment is not one of those procedures.

If you receive a call from someone claiming to be from the IRS, know that the IRS will never:

·         Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
·         Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
·         Require you to use a specific payment method for your taxes, such as a prepaid debit card.
·         Ask for credit or debit card numbers over the phone.
·         Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you do receive a call, you can file a complaint with the FTC through the FTC Complaint Assistant. You can also contact the IRS or a tax professional to discuss whether you do owe an unpaid tax debt.

The IRS is working to get out information on this scam and have posted the following on their website:



The IRS is also on YouTube  and addresses the scam here: Tax Scams.  


Tuesday, May 27, 2014

Private Debt Collectors to Chase Delinquent Taxes?

As Washington DC legislators in the U.S. Congress consider the provisions of what would become part of the EXPIRE Act of 2014, they are mulling over the institution of a twice failed program to collect past due tax debts – the use of private debt collection agencies.  In each of the last two decades the attempts to use private debt collectors to chase tax liabilities have defied projections and lost more money than was collected.  Recently, the National Taxpayer Advocate has written a letter to the senate (found here) to reiterate that problem and to outline the numerous other concerns with any such program.  These are:
  1.  The private debt collection initiative is premised on the mistaken belief that the IRS does not collect taxes on cases that are inactive or awaiting assignment.
  2. The private debt collection program will require the IRS to incur significant start-up costs, jeopardizing taxpayer service and other IRS operations that are already suffering from budget cuts. 
  3. The government’s objective of maximizing long-term compliance without causing financial hardship for taxpayers is fundamentally different from the profit-maximizing objective of a private collection agency.
  4. The provision appears to target low income taxpayers.
  5. Providing taxpayer identifying information to private companies creates risks that taxpayer data will be misused.
  6. Strict penalties on IRS collection employees who are abusive to taxpayers do not apply to private collection agency employees who are abusive to taxpayers.
  7. IRS employees are openly instructed to be straightforward in dealing with taxpayers, while employees of private collection agencies confidentially instruct their employees to use “psychological” techniques to pressure taxpayers to agree to payments.
  8. Use of “psychological” tactics often results in financially struggling taxpayers feeling pressured into making commitments they ultimately cannot keep.
  9. The proposal would require IRS to send taxpayer cases to private collection agencies where the sole or primary reason for the liability is the Patient Protection and Affordable Care Act (ACA) (either the penalty for not getting coverage or owning back an advance premium credit), which, in turn, could make it more difficult for the IRS to administer the ACA.
  10. The private debt collection program will raise little revenue and is more likely to be another revenue loser.
  11. The proposal would require the IRS to continue the program even if it loses money and does not give the IRS sufficient discretion to make modifications.
  12. The National Taxpayer Advocate is uncertain about what the proposal is intended to accomplish.
It is my hope that this potential program does not make its way into any form of final legislation.  A program that has previously proven to cost more than it makes is simply a bad idea.  Moreover, the Taxpayer Advocate outlines the clear problems that are likely to arise.  The targeted low income taxpayers are less likely to know what their legal options are in contesting asserted liabilities.  Those that do may not be able to afford to hire adequate representation to assist them.  Given the significant budget cuts faced by the IRS, agents are already unable to spend enough time on a file to make sure all rights are protected.  An unrepresented low income taxpayer will be at a greater disadvantage because they may not even know that these rights exist. 


To read the full text of the Taxpayer Advocate’s letter objecting to the use of Private Debt Collectors, click here.  

Wednesday, January 22, 2014

Did you expense the lap dances?

Not long ago, I came across this online gem that has been floating around for while.  The spoof of the most well known scene of the movie "A Few Good Men" questions the whether lap dances at a strip club can be reimbursed as a business expense.  

The video is entertaining, but a more substantive discussion on the issue can be found at Bloomberg.com. The article correctly identifies the questions as whether a lap dance is an ordinary and necessary business expense under Internal Revenue Code section 162 and whether the expenses can be adequately substantiated.  The article generally concludes that a claimed lap dance deduction will not likely hold up on audit.  However, it is a fact based inquiry that will depend on the circumstances.    


 Link to the video: http://youtu.be/xJ_roB9j_B4