A report released by the Taxpayer Advocate Service found that the IRS performed for the 2012 tax year an additional review of 90 percent of tax returns where the families had adopted a child.  In addition, approximately 70 of families who adopted a child were subject to an IRS audit.

For 2012, only approximately one percent of all tax returns were subject to audit.

The report noted that “The IRS’s misguided procedures, and its failure to adequately adjust these processes when it learned its approach was seriously flawed, have caused significant economic harm to thousands of families who are selflessly trying to improve the lives of vulnerable children.”

The report found that in general tax returns claiming one or more credits, such as the Adoption Tax Credit, were audited at a higher rate than the general population.  Those claiming the Adoption Tax Credit were audited at a particularly high rate.

The report noted that although approximately 70 percent of tax returns claiming the Adoption Tax Credit were audited, the amount of additional tax revenue collected as a result of the audits was relatively small.

“Of the $668.1 million in adoption credit claims in tax year 2011 as a result of adoption credit audits, the IRS only disallowed $11 million — or one and one-half percent — in adoption credit claims.  However, the IRS has also had to pay out $2.1 million in interest in [tax year] 2011 to taxpayers whose refunds were held past the 45-day period allowed by law.”

The report noted that the inefficient use of taxpayer dollars in terms of generating additional tax revenue or minimize expenses of the IRS will continue until the IRS adjusts its criteria for selecting returns for audits to target tax returns more likely to yield a substantial payback amount.

A spokesperson with the IRS defended the audit policy for the Adoptive Tax Credit despite data pointing to its ineffectiveness.

“The IRS implemented the adoption credit program with an approach that balanced the objective of paying legitimate credits in a timely manner with that of ensuring that claims were accurate,” noted Michelle Eldridge with the IRS.  “Our experiences and lessons learned from other refundable credits taught us that high dollar credits have high risk and the potential for fraud.  We must ensure delivery of the credit to those entitled while protecting the government’s interest in minimizing exposure to fraud.”

The report recommended that the IRS provide additional guidance on the proper documentation taxpayers should include when requesting the Adoption Tax Credit, improve options for proving when a child has a special need, and improving guidelines for filing electronic returns with the Adoption Tax Credit.

“The IRS, facing a sizeable refundable credit, reacted with an enforcement strategy that was focused on stopping nearly all returns claiming the credit and subjecting a large percentage of them to an audit, instead of reaching out to stakeholders (including states) to understand the impacted taxpayer population,” the report continued.  “When problems emerged, the IRS simply continued selecting returns for audit.  This approach forced taxpayers to withstand lengthy delays and the IRS to expend valuable resources with very little to show for them.”

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According to official notification, the furlough will take place on May 24, June 14, July 5, July 22, and August 30.  During the furlough, all offices and services of the IRS that interface with the public will be closed.

There is the possibility that two additional days will be added to the furlough during the months of August and September.

The furlough to the IRS and other governmental agencies is the result of the sequester.  The sequester is a series of automatic budget cuts that went into effect when President Obama and Congress could not make enough spending cuts and tax increases to reduce the federal deficit by $4 trillion.

President Obama and Congress agreed to approximately $2.5 trillion in cuts.  The budget cuts from the sequester, which apply to all governmental programs rather than to only select programs deemed of less importance, account for an additional $1 trillion in budget cuts.

“Despite successful efforts over the past year to find cost savings and our recent efforts to minimize the effects of sequestration, we still had to make tough decisions on the furlough dates and the best way to implement them,” noted IRS Acting Commissioner Steve Miller in the memo that will be issued to IRS employees.

The furlough will apply to all employees of the IRS.  Furlough days of personnel involved in physical and information security of the IRS offices will have their furlough days staggered so that these essential controls remain in place.

Miller noted that they attempted to schedule the furlough days such that it did not have a significant impact on a single pay period for the IRS’ employees or consecutive pay periods.

“We wanted to make sure there is only one furlough day a pay period, and we have also worked to stagger the dates further so that there are some pay periods during the summer with no furlough days,” Miller wrote.

“On these days, phones calls to the IRS will go unanswered and Taxpayer Assistance Centers across the country will have ‘closed’ signs in their windows,” Colleen M. Kelley said.  “I believe this is an unprecedented event that leaves taxpayers out in the cold.”

There is also a belief that the furloughs will result in fewer audits of federal income tax returns in 2013 simply because there are fewer man hours in the year to perform the work.  Audits of tax returns fell over 5% in 2012.

Miller noted in April that the reduced staffing levels of the IRS would have a ripple effect, because it would equate to the IRS collecting less tax revenue.

“Without a change in the current budget environment, the American people will see erosion in our ability to serve them, and the Federal government will see fewer receipts from our enforcement activities,” Miller noted before the House Appropriations Subcommittee on Financial Services and General Government.

Visit www.taxlawhome.com for the original content posted here, IRS Furlough of Five Days Scheduled for Summer

The Powerball jackpot on Saturday was for an estimated $590.5 million.  A single winning ticket was purchased at a Publix supermarket in Zephyrhills, Florida, a small town approximately 30 miles northeast of Tampa.

The winner has not yet come forward to collect the lottery winnings.  He has 60 days to claim the winnings.

The winner can elect to receive the winnings in installment payments over the next 30 years or as a lump sum cash amount of approximately $376.9 million.  Either way, the IRS will take their fair share through several different tax avenues.

For purposes of this article, let us assume the winner is one person and they elect to receive the lump sum cash payment (although in the end the tax calculation for the installment payments would be roughly the same).

When the person receives the $376.9 million lump sum cash payment, they will fall into the highest federal income tax bracket of 39.6%.  This means his initial federal income tax bill will be roughly $149.25 million, leaving him with approximately $227.6 million after taxes ($376.9 x (100% – 39.6%).

Florida is one of six states (along with New Hampshire, South Dakota, Tennessee, Texas, and Washington) that participate in the Powerball lottery that do not impose state income tax on lottery winnings.

Seven states do not participate in the Powerball lottery, including Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah, and Wyoming.  Lottery winners in the following states would pay state and city taxes as follows:

If the winner chooses to give some of his winnings to family or friends, he as the donor, not the recipient of the gift, will pay the gift tax.  For 2013, the annual exclusion amount from gift tax is $14,000 per individual.  Alternatively, the lifetime exemption amount from paying gift tax for a donor is $5.25 million.

If the winner is generous enough to give more than $5.25 million away to family and friends, he will pay gift tax of 40% on each dollar given away above that amount to non-charitable or political organizations.

Throughout the winner’s life, he will of course pay sales tax on items he purchases.  The general sales tax rate in Florida is 6%.  This means that for each $1 million in purchases he makes, he will pay $60,000 in sales tax.

Finally, there is ultimately the estate tax, or death tax, to consider.  At the time of the winner’ death, if he has not already given away in excess of the $5.25 million lifetime gift tax exemption amount, his gross estate will be assessed the 40% tax rate on remaining assets above the $5.25 million exemption amount.

While the winner of the latest Powerball lottery has more than enough winnings to last several lifetimes, the government takes its fair share through income, gift, sales, and estate taxes.

Visit www.taxlawhome.com for the original content posted here, Powerball Lottery Winner to Pay over $150 Million in Taxes

A report from the Treasury Inspector General for Tax Administration found that the IRS began to single out conservative organizations at least as early as 2010 when the first formal list of keywords related to conservative organizations was distributed within the IRS in August.

The IRS was able to carry out the unfair treatment because of a lack of oversight by management and clear definitions of criteria for selecting organizations subject to audit.  The additional levels of scrutiny led to more than 80 percent of the conservative organizations having to wait for more than a year to find out if they were approved for tax-exempt status.  Some organizations were under review for as long as three years.

The organizations subject to the year-plus delay included the Tea Party.

The Treasury Inspector General’s report noted that “as of December 17, 2012, many organizations had not received an approval or denial letter for more than two years after they submitted their applications.  Some cases have been open during two election cycles (2010 and 2012).”

The timing of the delays across election cycles is especially incriminating as it appears that those responsible for the criteria were seeking to prevent the conservative organizations from effectively supporting conservative candidates in the elections.

The report continued, noting “in addition [that] some organizations withdrew their applications and others may not have begun conducting planned charitable or social welfare work.  The delays may have also prevented some organizations from receiving certain benefits of the tax-exempt status.”

On Tuesday, Attorney General Eric Holder announced that the Justice Department will be conducting a thorough investigation of the IRS’ unfair treatment of conservative organizations.

Details in the Treasury Inspector General’s report included other details about the mis-managed criteria, specifically points that allowed the IRS to request information about donors to conservative organizations.  Until the IRS first revealed this practice on Friday, it had been believed that requesting donor information from an organization applying for tax-exempt status was illegal.

The fact that conservative organizations had to provide donor information to the IRS likely impacted fundraising for those organizations, as potential donors chose to avoid having their charitable contributions subject to the increased level of scrutiny aimed at such organizations.

The IRS claimed initially that the delays and targeting of conservative organizations was limited to the Cincinnati office.  However, additional documentation released with the Treasury Inspect General’s report indicated the effort was broader in nature.

Representatives from both parties have denounced the practice, referring to it as a “state of purgatory” for conservative organization who were within their right to apply for and obtain tax-exempt status.

“We still do not know why the targeting began, how extensive it was, who initiated it and who knew about it. The IRS must be held accountable to the American people, which requires a full investigation of the circumstances surrounding the facts established in this audit,” noted Representative Jim Jordan of Ohio.

Visit www.taxlawhome.com for the original content posted here, IRS Delays for Conservative Groups Greater Than Reported Initially

According to Lois Lerner, the head of the IRS team that oversees tax-exempt organizations, the IRS specifically targeted organizations whose names on their applications for tax-exempt status included the words “tea party” or “patriot.”  Among other issues, the IRS required that these organizations provide a complete list of those who had donated funds to them.  Requesting a list of donors specifically violates an IRS policy on reviewing such information about groups that apply for tax-exempt status.

“That was wrong.  That was absolutely incorrect, it was insensitive, and it was inappropriate.  That’s not how we go about selecting cases for further review,” Lerner noted at a recent speaking engagement.  “The IRS would like to apologize for that.”

Lerner claimed that employees at an IRS office in Cincinnati initiated the requests for donor information based on the “tea party” and “patriot” key words without authorization from their supervisors or for political motivations.  It was not clear from Lerner’s comments when leadership within the organization became aware of the practice.

The admission by the IRS validates claims made by various conservative organizations during the Presidential elections about targeted harassment.  At the time, those organizations claimed they were being effectively filibustered by the IRS, which was requiring that they complete overly-lengthy questionnaires in order to apply for tax-exempt status.

The forms in question, which were available to the public, required that the applicant organization provide for all of its members information about the political activities, postings on social networking sites, and details about family members.

The admission by the IRS is also counter to previous discussions on the subject with the IRS.  In March 2012, IRS Commissioner Douglas Shulman spoke before a House Ways and Means committee that the IRS did not single out organizations for review based on the political views of that organization.

“There’s absolutely no targeting.  [The tax-exempt application process] is the kind of back and forth that happens to people,” noted Shulman at the time.

Shulman held his 6-year term as IRS Commissioner based on an appointment from then President George W. Bush.  Shulman’s term ended in November 2012.  President Obama has yet to appoint a successor to Shulman.  Steven Miller is functioning as the acting IRS Commissioner until such an appointment is made.

On Friday, Senate leaders called for the Obama administration to conduct a thorough review of the IRS’ processes to ensure other arms of the agency have not adopted a similar practice toward conservative organizations.

“Make no mistake, an apology won’t put this issue to rest,” noted Senate minority leader Mitch McConnell in a prepared statement.  “Now more than ever we need to send a clear message to the Obama administration that the First Amendment is non-negotiable, and that apologies after an election year are not a sufficient response to what we now know took place at the IRS.  This kind of political thuggery has absolutely no place in our politics.”

Visit www.taxlawhome.com for the original content posted here, IRS Targeted Conservative Groups for Inappropriate Reviews

The Senate vote in favor of what is known formally as the Marketplace Fairness Act was 69 to 27.  The bill now moves to the House of Representatives, where it is expected to face various challenges against it moving forward.

The online sales tax bill has seen support from large brick-and-mortar retailers including Wal-Mart and Best Buy, online retailers including Amazon, and state legislatures, who are looking to the collection of online sales tax as a way to close the budget shortfalls faced by many states.

Amazon is specifically looking for passage of such a bill as it will simplify the various state tax measures enacted against only Amazon because of its immense size.

Opposition to Internet sales tax from the Republican-controlled House of Representatives is based on concerns with how complex the bill is, the impact it will have on small businesses, and opposition to what is effectively new taxes.

“Call me a conservative, but I believe the right approach to tax fairness is to reduce rates, not force higher rates onto others,” noted Tom Graves, a House Republican from Georgia.

An Internet sales tax is also not without opposition from merchants, including eBay and Overstock.com, as well as states that do not have sales tax.  These states include Montana, New Hampshire, and Oregon.

To date states have generally been unable to force online retailers to collect sales tax unless the retailers had a physical presence in a given state.  A physical presence can include corporate offices, warehouse or distribution centers, and retail stores.

Consumers are supposed to remit taxes related to online purchases on their own, in many cases as a part of filing state income tax returns, but few consumers do so.  The Internal Revenue Service has not taken steps to enforce collection of sales tax.

Supporters of the bill say that Internet sales tax is not a new tax because in the vast majority of states consumers should already be remitting those tax dollars to the government, and this bill is simply taking the necessary step to enforce collection of those taxes.

Opposition to the bill has also come in the form of concerns about how it would affect the overall economy, which is still recovering from the sluggishness it has experienced over the past few years.

“This bill goes in the exact opposite direction,” noted Senator Ted Cruz of Texas. “It would be a mistake to do anything to impinge the entrepreneurial growth of the Internet.”

The bill would allow states to require collection of online sales tax from online retailers even when they do not have a physical presence in a state.  However, the bill does not require that states implement sales tax against online retailers.  In addition, the bill cannot be enforced against retailers who have annual sales of less than $1 million in a given state.

Because of the various opposition against the online sales tax introduced in the bill and in spite of the Senate voting to pass the measure, experts believe it is unlikely that the bill will make it through the House during 2013.

Visit www.taxlawhome.com for the original content posted here, Senate Vote Passes Online Sales Tax Bill

The South Carolina House of Representatives passed a bill on Wednesday that, should it become law, would make ObamaCare “null and void.”  The bill passed the House by a vote of 65-39.

The nullification bill, known as the Freedom of Health Care Protection Act, would specifically bar employees or representatives of the state from “enforcing or attempting to enforce such unconstitutional laws” and “establish criminal penalties and civil liability” for anyone who participates in actions aimed toward implementing or enforcing ObamaCare.

ObamaCare, known formally as the Patient Protection and Affordable Care Act, requires that all Americans obtain health insurance.

Various lawsuits against portions of ObamaCare are still pending, including from various Christian-based employers whose religious beliefs are being violated by having to adhere to ObamaCare’s provisions related to providing contraceptives.  In addition, many individuals are opposed to the legislation because it has been deemed a tax, which is believed to violate Article I, Section 7 of the Constitution, which states that all bills designed to raise revenue must originate in the House of Representatives.  ObamaCare originated in the Senate.

The South Carolina nullification bill would empower the state Attorney General to take necessary actions to stop anyone causing harm by implementing ObamaCare.  In addition, the nullification bill would allow any South Carolina taxpayer who has to pay a penalty related to ObamaCare to fully deduct the amount of that penalty from their state income tax, thus leaving the individual zero dollars out of pocket.

The act now goes to the state Senate for further review.

South Carolina Governor Nikki Haley supports the nullification bill, as she is opposed to the expansion of Medicaid insurance as well as other facets of ObamaCare.

“South Carolina does not want, and cannot afford, the president’s health care plan, “Haley declared at a recent Conservative Political Action Conference in March.  “Not now, and not ever.  To that end, we will not pursue the type of government-run health exchanges being forced on us by Washington.  Despite the rose-colored rhetoric coming out of D.C., these exchanges are nothing more than a way to make the state do the federal government’s bidding in spending massive amounts of taxpayer dollars on insurance subsidies that we can’t afford.”

Other aspects of ObamaCare are also encountering difficulties as well.  The Obama administration was planning to enact special provisions to make implementing the act easier on small businesses.  However, implementation of those provisions has not been delayed until 2015 at the earliest.

“Lots of small businesses struggle with providing insurance for their workers so this was supposed to facilitate it and make it easier for small business to do this,” noted Jim Capretta of the Ethics and Public Policy Center.  “It was a huge portion of the sale job.  When they passed the law in 2010 there were many senators and members of Congress who were saying ‘I am doing this because it’s going to help small businesses.’”

With the delay of those provisions, the help provided to small businesses related to ObamaCare is now in question.

Visit www.taxlawhome.com for the original content posted here, South Carolina House Passes Bill Nullifying ObamaCare

These results were released at the same time the Obama administration published simplified forms for use under ObamaCare, in response to previous criticism from consumers that the old forms were too confusing.

The new forms are 5 pages for individuals and 12 pages for families, although those page counts include instruction pages as well as several pages that many may not have to fill out depending on their situation.

Most consumers will first see the forms when enrollment in insurance benefits for 2014 opens on October 1.  But those consumers who have insurance benefits through their job will not have to complete the ObamaCare forms, only those individuals and families who are uninsured.

Under ObamaCare, individuals and families who do not receive insurance coverage through their employers will be able to purchase insurance through a private insurance company.  In addition, ObamaCare guarantees insurance coverage for those who are already ill at the same rates as healthy applicants.

Many middle-class applicants whose income levels qualify will receive tax credits under the program in an effort to make purchasing of insurance more affordable.  Low-income applicants will generally be directed to Medicaid or other governmental coverage programs.

The benefits of ObamaCare to the uninsured will go into effect on January 1.  Experts estimate that ObamaCare will provide insurance coverage to approximately 30 million Americans who do not presently have insurance benefits.

Although initial feedback from consumer groups indicates the shortened forms are an improvement, the forms still require that applicants provide a significant amount of information about their income from all sources.  The application process also requires various documentation to prove an applicant’s income level, including paystubs and tax returns.

Under ObamaCare, it is necessary to gather income information in order to determine if a given individual or family qualifies for the program.

“There has got to be a balance between getting adequate (financial) information to make sure everybody gets the help they’re entitled to under the law, while at the same time trying to keep the process consumer-friendly,” said Ron Pollack, the executive director of Families USA who supports the program but was critical of the initial version of the forms.

The forms can be completed online and will automatically route an applicant to the appropriate insurance provider, whether a private insurance provider or Medicaid.  Once the application is complete, the system is intended to automatically verify the applicant’s identity, citizenship, immigration status, and income level by interfacing with other governmental agencies including the Department of Homeland Security and the Internal Revenue Service.

“Consumers will have a simple-easy to understand way to apply for health coverage later this year,” noted Medicare chief Marilyn Tavenner, who is responsible for the rollout of ObamaCare.  Tavenner noted that the updates forms are “significantly shorter than industry standards.”

Visit www.taxlawhome.com for the original content posted here, ObamaCare Unveils Simplified Forms, as Poll Shows Many Americans Still Confused

Under the program, the IRS has reduced penalties and eliminated jail time for taxpayers who come clean on foreign income they had to date hidden from the IRS.  In all, almost 40,000 taxpayers have taken advantage of the amnesty program.

In addition, the IRS has noted an increase in the number of foreign income investment accounts reported on tax returns over the past few years.  Government investigators suspect many of these accounts existed previously and taxpayers are simply beginning to report those accounts without formally acknowledging the accounts existed before or the taxpayers taking advantage of the amnesty program.

“[The] IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest, and penalties that would otherwise be owed,” noted a report released by the Government Accountability Office.  “But based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so.”

In some cases, taxpayers are reporting previously undisclosed foreign income without paying any fines or penalties, even the reduced fines and penalties being offered under the amnesty program, by amending previously filed returns to include foreign income.  In other cases, taxpayers are simply adding their foreign income accounts to their current year tax returns without making any adjustments or disclosures on prior-year returns.

“If successful, these techniques result in lost revenue for the Treasury and undermine the offshore programs’ fairness and effectiveness,” the GAO report noted.

Peter Zeidenberg, a partner with the Washington-based law firm DLA Piper that specializes in tax law, confirmed that many foreign income accounts taxpayers are now reporting outside the amnesty program have likely been around for years.

“I don’t think you get an increase like that from people just all of a sudden getting the idea I’m going to open an account in Switzerland,” Zeidenberg said.

In response to the GAO report, acting IRS Commissioner Steven Miller indicated the IRS is working to improve efforts to catch taxpayers who are choosing not to participate in the amnesty program.

The IRS stepped up efforts to enact the amnesty program in 2009 after the Swiss bank UBS AG paid the United States $780 million in fines and disclosed account details related to thousands of taxpayers who it was believed were not disclosing the foreign income on their tax returns.

The GAO report noted that there are numerous valid reasons for a taxpayer to hold an offshore account, such as a desire to diversify investments or make monies more readily available when overseas for work or leisure activities.  However, many uses these foreign investment accounts purely for the purpose of reducing their tax liability by hiding assets and income in those accounts and then not reporting the income on their tax returns.

The IRS has a history of not pursuing jail time against taxpayers who willingly report previously undisclosed foreign income, so long as those taxpayers pay taxes due along with interest and penalties.

Under a law passed in 2010, for those taxpayers who have come forward, the IRS is requesting information from those foreign banks on additional accountholders.  If the foreign banks refuse to provide information on additional accountholders, the United States is authorized to withhold up to 30 percent of any payments due to the bank, which provides a large financial incentive for those banks to cooperate with the United States.

Visit www.taxlawhome.com for the original content posted here, Amnesty Program for Tax Cheaters Allows IRS to Net $5.5 Billion

But what if you have not filed your income tax for 2012 and you did not bother to file an extension?  Should you just sit back and wait for the IRS to contact you?  Read on to learn more.

Tax Penalties and Interest

It probably goes without saying, but the IRS wants their money, that is the taxes you owe.  While in extreme cases of tax evasion the IRS will seek to place offenders in jail, this is the exception rather than the norm (because those in jail cannot earn sufficient money to repay the IRS).  Often those placed in jail for tax evasion are celebrities whose name recognition is intended to communicate to the general public that no one is above the law when it comes to taxes and thereby generate compliance with following the tax laws.

Therefore, when you do not file your tax return or pay the tax liability you owe, the IRS makes it painful through the charging of penalties and interest:

• The Failure to File Penalty is the most expensive penalty, which is charged when you fail to file your tax return on time.  The IRS applies this penalty at the rate of 5% of the tax liability you should have paid per month until you file your tax reutrn, up to a maximum of 25% of the tax liability.
• The Failure to Pay Penalty is charged based on the amount of tax liability that is unpaid.  The IRS applies this penalty at the rate of .5% of the tax liability you should have paid per month until you pay your tax liability in full.
• Interest is also charged at the rate of 3% per year on any unpaid tax liability until you pay your tax liability in full.

Because of these penalties and interest, it is in your best interest to file your tax return sooner rather than later, even if you cannot afford to pay the tax you owe.  At a minimum, filing now will stop the incurring of great penalties under the Failure to File Penalty.

If you file, owe taxes, and cannot afford to pay what you owe, the IRS has an installment plan and other options to help you pay what you owe over time.  But any payment you are able to make will reduce the Failure to Pay Penalty and any interest charges.

Speaking with a Tax Attorney

Every tax situation is a bit different even though we are all living under the same tax laws.  Therefore, if you need specific help with your tax return or questions, you can get that help by calling the phone number located at the top of this page.  A tax attorney who knows the tax laws of your state will get in touch with you.  The first conversation is free of charge, but anything you discuss with the attorney is completely confidential.

Therefore, please make the call today to get the help you need to file your tax return.

Visit www.taxlawhome.com for the original content posted here, Now Better Than Later When It Comes to Late Tax Filing