John P. Willis - IRSAllStar

Without question the COVID-19 pandemic is tragic.

The loss of life, the disruption of everyday life and the economic toll is being felt around the world. However, there is also quite a bit of good coming out of it as well.

As a tax resolution attorney, I see this time as an unprecedented opportunity for taxpayers who have not filed or paid taxes in a couple of years. The IRS is being very lenient at the moment, which is a great time to do everything you can to make things right and get on their good side.

Since the tax filing and payment deadline has been extended to July 15th, there is also breathing room for those already in an installment agreement with the IRS, as well as other situations.

For Non-Filers

For taxpayers who haven’t filed in the past few years, you now have time to pull yourself together and find out the best approach for your specific tax situation. We can help you determine the best way to make the most of the IRS leniency. We are able to help our clients with phone meetings as well as virtual meetings.

People don’t file their federal tax returns for a multitude of reasons.

Some people are just plain lazy, and they think they can get by without filing. That’s just plain ignorance. Other people actually live below the poverty line and some of these people are not required to file. Some people are simply afraid, knowing they owe the IRS and knowing they cannot pay what they owe. They may be recently divorced or a loved one became seriously ill or their business went south. The reasons are as individual as each person. And then there are the criminally minded. The people who think they are super smart and can outsmart the IRS and actually evade paying taxes. So, you can see, the reasons people have for not filing tax returns run the gamut from ignorance to pure criminal intent.

Scenario #1: You Live Below The Poverty Line But You Could Be Entitled To A Refund

Some people don’t file a tax return because their income is so minimal that they do not need to file a federal tax return. The minimum earned requirement for filing a federal tax return for a single person under age 65 is $12,200. If you earn less than $12,000 per year you don’t have to file. However, many of these people may have money waiting for them at the IRS because they could be eligible for one or more of the refundable tax credits.

Tax time is coming and there’s not a darn thing you can do to stop it or slow down its arrival.

It’s just a fact of life. You can face facts or pretend it isn’t going to happen and find yourself in a flurry of anxiety and confusion when you just can’t deny it any longer.

The more prepared you can be ahead of time, the better. So, while the majority of people are crowding the malls looking for stuff to put under the holiday tree, you might take the time to do a little preparation and get organized, so you won’t be in for any surprises from the tax man.

Here are a few things to help. Make a list and check it twice and tax time may be a little nicer!

Make Estimated Tax Payments

If you are self-employed and have substantial untaxed non-wage income, this is a great time to check and see if you’ve made quarterly estimated tax payments. This includes taxable Social Security benefits as well as untaxed pension and annuity income. If you haven’t, go ahead and send in at least a partial payment of what you owe. And, you will have a little more time to make another since the deadline for the last estimated tax payment isn’t due until January 15th.

Unscrupulous tax preparers are full of promises that lure people in.

Not only are there tax preparers who will cause you to lose money, there are those who will also steal your identity and get you into deep trouble with the IRS.

Criminal tax preparers could come with great references from friends and business colleagues. You’ll be better off hiring a company that has been in business for a minimum of ten years, instead of just a few years. You can never be too careful when doing your due diligence before hiring someone to file your tax returns.

The three stories I am reposting below are from one of my favorite industry sites, accountingtoday.com. There’s even a chance you are a victim of one of these tax preparers and may find yourself now trying to make things right with the IRS. If that is the case, give us a call. Our reputation is spotless not spooky. We know the IRS is scary enough as it is. No one needs to be doing business with a scary tax preparer.

It seemed too good to be true.

And, like all things that appear that way, it was. Virtual currency. Cryptocurrency. It was like a dream come true for investors. Tax free income on something that most people find impossible to understand, let alone to track and tax! Well, the IRS has found out how to get to some of the U.S. taxpayers who hold virtual currency accounts. And now they are going after them. So, it’s time to face the music.

So Much For Privacy

The IRS started sending the ‘educational’ letters to taxpayers mid-July. By the end of August, more than 10,000 taxpayers will receive these letters. But just how did the IRS get all these names that were supposed to be untraceable? According to the IRS, “The names of these taxpayers were obtained through various ongoing IRS compliance efforts.”

Fact is, back in 2014, the IRS classified all virtual currencies as property for tax purposes, meaning that much like a home, the assets can be sold at a profit and trigger tax implications. The agency served a summons against digital currency exchange Coinbase, seeking details about customers who traded digital currencies from 2013 to 2015. Funny how IRS pressure can turn the tightest privacy promises into loose lips.

Chronically late tax filers know all about the penalties the IRS charges.

People who file late typically owe the IRS. It’s rarely the other way around. However, this year The Internal Revenue Service waived the penalties for those whose 2018 tax withholding and estimated tax payments fell short of their total tax liability for the year.

Circumstances That Lead IRS To Waive Penalties

According to the IRS, they had “seen an increasing number of taxpayers subject to estimated tax penalties, which apply when someone underpays their taxes. The number of people who paid this penalty jumped from 7.2 million in 2010 to 10 million in 2017, an increase of nearly 40 percent. The penalty amount varies but can be several hundred dollars.”

The penalty was waived this year for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. However, as a recent Accounting Today article states, “The usual percentage threshold is 90 percent to avoid a penalty, but the IRS lowered the penalty because of requests from Congress and complaints about all the changes in the withholding rules after the new tax law that led many taxpayers to under-withhold and end up owing taxes when they had their tax returns prepared.”

I’ve been alerting readers to the multitude of tax scams that have reached plague-like proportions over the years.

The news media has been getting the word out about the scams and the IRS has been warning taxpayers too. Scammers don’t take vacations and they really get to work during the tax filing season. So, it’s not at all surprising that the U.S. Tax Court has issued a warning as well. Apparently the scammers are posing as Tax Court staff members now.

Most people taxpayers are not familiar with the U.S. Tax Court unless they have a dispute with the IRS about their taxes. While most taxpayers think of the IRS as the judge and jury when it comes to tax matters, there is actually a higher court. Tax disputes that can't be resolved between taxpayers and the IRS may be resolved in the United States Tax Court. Scammers have a nose for digging up the government agencies that will trigger fear and obedience in unsuspecting taxpayers. But, just like the IRS, the Tax Court is not a harsh taskmaster.

Actions Neither The IRS Nor The U.S. Tax Court Engage In

Neither the IRS nor the Tax Court will:

•Call or email to demand payment of Court fees or taxes; •Call or email to threaten an arrest; or •Call or email to insist that a specific payment method be used to pay a tax debt or request credit or debit card numbers over the phone.

In the Tax Court’s warning to taxpayers, they suggest that, “If you have received a phone call, email, or other communication that refers to the Tax Court and which you suspect is a scam and would like to discuss it with a member of the Court’s staff, you can call the Court at (202) 521-3390.

This year many taxpayers are genuinely afraid to file their taxes.

And, with good reason. The horror stories that are coming out on social media are enough to frighten anyone. As it happens, tax refunds are smaller this year by 8.4% according to IRS statistics. So are the number of refunds, which means some people who are accustomed to getting refunds aren’t getting one this year. Chances are many of these taxpayers are going to owe. That, for many, is a frightening proposition. Which makes for procrastination.

No matter what happens on your tax return this year, you must still file. Whether you do it now or later, it is what it is. You have to face the music.

Bite The Bullet And Face The Music

I’m sharing some of the posts I’ve seen from various articles, not to make you more fearful, but to show you that things may not be as bad for you. So, read the stories. Weep if you must. But no matter what, get your taxes filed sooner rather than later.

According to an article on usatoday.com, “The average tax refund issued so far fell to $1,865, down 8.4 percent from $2,035 at the same time last year. The number of refunds issued also dropped by 24.3 percent. Overall, the number of returns the agency has processed so far is off 25.8 percent versus the same time last year. The IRS has also received 12.4 percent fewer returns from taxpayers. The earliest taxpayers could file returns was Jan. 28. In most states, the last day you can file is April 15.”

The above confirms that procrastination and fear is at play. Now for the tales of woe. Please use them to fuel you to get your taxes filed knowing that you will not be alone if the numbers don’t turn out in your favor. If they do turn out better than expected you can then have sympathy for those whose suffering is greater than your own.

Late last year the new tax bill went into effect and there have been a lot of changes made between then and now.

It’s important to review what changes are likely to have a great effect on many taxpayers.

Eliminated Deduction: Moving Expenses

Under the new tax law, if you moved for your job, your moving expenses are no longer tax deductible. This could be a big surprise for some of you. The only time a move is now tax deductible if for active-duty military personnel. So, if you moved during the year and didn’t negotiate a moving reimbursement with your employer, you may be out of luck. If you are planning a job related move in the future, be sure to negotiate expense reimbursement with your employer or know that you’ll be eating it.

Eliminated Deduction: Dependent Exemption

The kiddos are no longer good for a $4,050 tax exemption. Yep, that one has been wiped out. But there’s a little bit of good news. If you can send your kids to camp over the holidays while you have to work, you can get a Child and Dependent Care Credit up to $1,050 for one child and up to $2,100 for two or more kids. In addition, you get the Child Tax Credit which has doubled and is now $2,000 per dependent under 17. That’s how it goes, you win some, you lose some.

Eliminated Deduction: Unreimbursed Employee Expenses

Some employers reimburse their employees for continuing education. And, some don’t. Uncle Sam used to allow tax deductions for classes, but they no longer do. However, you might still be able to take advantage of education tax credits like the American Opportunity Tax Credit up to $2,500 or the Lifetime Learning Credit up to $2,000.

Mother Nature certainly had her way with the Florida Panhandle, as well as the Carolinas, Virginia and Maryland coastlines this year. And, when Mother Nature strikes, the IRS has no recourse but to extend assistance in the form of tax filing and payment deadlines.

Hurricane Filing And Payment Extensions

So, here’s the deal. If you live in or have a business in any of the areas affected by Hurricane Michael or Hurricane Florence, you will be entitled to a postponement of various tax filing and payment deadlines.

In Florida this includes Bay, Franklin, Gulf, Taylor and Wakulla Counties where Hurricane Michael plowed through and left a trail of massive destruction. The tax filing deadlines that started on October 7th are now extended until February 28, 2019.

The IRS offers this relief to any major disaster declaration area designated by the Federal Emergency Management Agency as qualifying for either individual or public assistance. Taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same relief.

In addition, according to accountingtoday.com, “The SEC said it’s providing regulatory relief to accountants, public companies, investment companies, transfer agents, municipal advisors, and others affected by the hurricane. The SEC issued an order that conditionally exempts those who were affected from certain requirements of the federal securities laws for periods after the catastrophic storm. The SEC also adopted interim final temporary rules extending filing deadlines for certain reports and forms required from companies to file under Regulation Crowdfunding and Regulation A.”

Sometimes it seems the more successful one is, the more they think they may be entitled to privileges the rest of us are not privy to.

For instance, one highfalutin' New York City art gallery owner decided she was going to attempt to make an art out of cheating on her taxes and evade paying what she really owed.

She got caught.

According to accountingtoday.com, “Operating a Manhattan art gallery did not entitle Mary Boone to evade paying her taxes,” IRS-CI special agent-in-charge James D. Robnett said in a statement. I find that statement pretty funny. It implies that little miss Mary thought she was entitled to tax-free living. LOL!!

As the IRS special agent pointed out, “It is a felony offense that carries severe consequences. By falsely claiming millions of dollars of personal expenses as business expenses, Ms. Boone cheated all Americans, since law-abiding citizens are expected to pay their fair share.”

It’s been tried more times than you can imagine.

A scammer calls to try to get you to part with some of your hard-earned money by telling you that you owe the IRS back taxes.

You’ve heard about the scams and in a way, you’ve almost been waiting for them to call you. That’s because you think you’re going to outsmart them. I’m telling you now, don’t engage and do not think you’re going to be the one who gets the best of them. They will always get more out of you than you will get out of them.

Fact is, they are always on fact finding missions, even if they don’t get money out of you, they may get something even more valuable: more personal information that allows them to steal your identity and get into your financial accounts or file taxes under your name. I am reprinting some valuable information from one of my favorite sources, Forbes.com author, Kelly Phillips. I’m only printing four of her six reasons not to engage.

1. When you engage with a scammer - even if you are blowing a whistle in the phone - you've just confirmed two pieces of information for the scammers: they've called a working phone number AND you'll answer the phone. Why does this matter? Because stealing money from taxpayers is only one part of the equation. Remember that identity theft isn't just about getting money out of you one time or stealing a tax refund check, it's an entire industry. Your data typically isn't getting stolen in one fell swoop: your identity profile is being put together piece by piece. Key bits of information about you may be stored, repackaged and sold from one scammer to the next. The fact that you answered the phone and were willing to engage? That's valuable to scammers who might try it again later - or sell your number to the highest bidder.

In January 2017, the IRS decided to, once again, hire private collection agencies to handle delinquent taxpayer accounts.

(I wrote about this in my January 2017 blog The IRS is Handing Delinquent Taxpayers Over to Private Collection Agencies.) Now, here we are a year and a half later and the program has just been reviewed with pretty dismal results.

Targeting Those Who Can’t Pay

According to what National Taxpayer Advocate Nina Olson discovered upon the review, “43 percent of the taxpayers put into payment plans by private collection agents, had income lower than their allowable living expenses.”

It seems those who have the least are the most willing to pay their IRS debts, since those are the folks the private collection agents appear to target. Why do they always go for the underdogs? I think it’s because they don’t fight back. They don’t have the resources to resist the harassment.

According to the same article cited above, the returns of 4,100 taxpayers whose debts were assigned to private collection agencies were reviewed by the Taxpayer Advocacy Service. Here’s what they found, “The data indicated that 28 percent had incomes below $20,000; 19 percent had incomes below the federal poverty level; and 44 percent had incomes below 250 percent of the federal poverty level.”

It has also been reported that Ms. Olson, “has long criticized the private debt collection program, which has drawn complaints for harassing taxpayers.”

I have to say, it’s difficult keeping up with the criminal mind!

Just when you thought you’d heard of every tax scam imaginable, another one pops up. And this one is trickier, smarter and more dangerous than ever!

The IRS just issued an alert to watch for unexpected IRS refunds being deposited into your personal bank account. Yes, the scammers now have real bank account information and they have erroneous refunds deposited into those real accounts.

Here's how it works.

Thieves use phishing and other schemes to steal client data from tax professionals. Then, using that information, they file fraudulent tax returns and use the taxpayers' real bank accounts to deposit erroneous tax refunds. Finally, after the refunds are deposited, the thieves, posing as IRS or other law enforcement, call attention to the error and ask taxpayers to return the money to them.

You may wonder why the thieves would go to such lengths. The answer is that they are smart. They know it is more difficult to identify and halt fraudulent tax returns when they are using real client data such as income, dependents, credits, and deductions. It’s also harder to track when criminals can find alternative ways to get the fraudulent refunds delivered directly to themselves by the taxpayers. The days of stealing checks out of mailboxes are over.

How The Thieves Get Taxpayers To Turn Over The Refund

Of course, once the IRS deposits the refund into the real bank account, the thieves then have to get the account holder to send the money to them. This is where a little bit of knowledge can really help if you’ve been the victim of this particular scam.

Everyone is talking about it – the New Tax Bill that was signed into law on December 20, 2017.

And the question most people are asking is, “Will it affect my 2017 taxes?”

No Changes Yet

The short answer is “no.” You’ll do everything the same this year that you did last year. If you itemize, you’ll itemize this year. All deductions are the same.

However, according to the IRS, as reported on foxnews.com, "‎We anticipate issuing the initial withholding guidance (Notice 1036) in January reflecting the new legislation, which would allow taxpayers to begin seeing the benefits of the change as early as February."  This means that you should notice a difference between how much money is withheld from each paycheck starting in February.

Standard Deductions Remain The Same

For the 2017 tax year, the standard deduction for single taxpayers is $6,350. In other words, you won’t get to use the newly passed $12,000 standard deduction when you file your 2017 taxes in April 2018. Likewise, married couples filing jointly will see a bump from $12,700 to $24,000, but that won’t impact their household finances until they file in April 2019. So, don’t start budgeting around that big tax return, yet.

Charitable Deductions Disappear If You Take New Standard Deductions

On another note, though, if you will benefit by taking the GOP tax bill’s increased standard deductions — and you previously deducted charitable contributions under the old tax plan — consider making your 2018 charitable donations before January 1st. When you go with the new, bigger standard deductions, you’re also agreeing not to itemize your returns, which means it’s not financially beneficial for you to give to charities in 2018. According to a recent article, “This is a point of contention for nonprofits and opponents of the bill. But, there is one way to make sure both you and charities benefit (at least at the moment), and that’s by putting your 2018 contribution on your 2017 taxes instead.”

It’s no joke.

Tax season is typically nerve wracking on its own, but for this upcoming tax season there are a couple of things happening at the IRS that are bound to negatively affect millions of taxpayers.

First of all, whether you are healthy as a horse or sick as a dog, not having healthcare coverage or simply not indicating whether or not you do, could get your tax return booted out of the IRS. And that could make anyone sick. This upcoming 2018 filing season is the first in which the IRS will not accept returns that have not addressed the health care coverage requirements of the Affordable Care Act.

The IRS said that it would not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment. On top of that, the IRS said tax returns filed on paper that don’t address the health coverage requirements may also be suspended pending the receipt of additional information. If you file and you’re expecting a refund, you will have to re-file if the health coverage requirement is left unaddressed on your tax return. Don’t plan on spending your refund any time soon!

A Little News To Make Some Taxpayers Feel Better

Okay, so it’s not all bad news. The IRS has also increased the contribution limit for taxpayers who are enrolled in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. You can now contribute $500 more per year. The previous contribution limit was $18,000. Now it’s grown to $18,500.

Some Things Remain The Same

A couple of other items the IRS has not changed may irritate some taxpayers. Others may be neutral about the news that the limit on annual contributions to an IRA stays unchanged at $5,500. Also, for those aged 50 and above, the additional catch-up contribution limit to your IRA isn’t subject to an annual cost-of-living adjustment and remains $1,000.

Likewise, the catch-up contribution limit for employees ages 50 and over who contribute to 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000. So, if you had hopes of catching up to your retirement savings goals faster, you’ll have to rethink that plan.

If you did underestimate your taxes don’t worry, you have plenty of company.

The IRS has estimated that roughly 10 million taxpayers underestimated the amount of taxes they owe between 2007 and 2016.

That’s up from 7 million in 2006.

Why Income Is Overlooked

According to an article in USA Today, one possible reason cited for the increase is the growing gig economy. More and more people are shifting into this area of self-employment. Many are supplementing a regular job and failing to report income from their gigs.

Filing Requirements And Exceptions

The fact is, if you are self-employed and expect to pay $1000 or more in taxes, you’re required to submit quarterly payments that will cover at least 90% of the estimated tax due on your income. The IRS allows certain exceptions to farmers, fishers, casualty and disaster victims, recent retirees, people who are newly disabled, those who base their payments on the prior year’s tax and people whose income flowed in unevenly during the year.

You Received A Penalty Notice

Now, in the end of summer heat, those taxpayers that the IRS feels made mistakes are receiving penalty notices. This is the prime time for IRS to send out notices. According to USAToday.com, “The tax agency hasn't mounted a special enforcement effort targeting underpayment of estimated taxes.”

It doesn’t seem as if they intend to any time in the near future either. Don’t make the mistake of ignoring this notice. Even though the IRS isn’t making special efforts to come after you, you must respond to the notice.