Tuesday, June 30, 2020

IRS Sending Notices With Expired Dates for Action!

On June 22, 2020 National Taxpayer Advocate Erin Collins issued a blog 
post advising readers to keep an eye out for notices with expired action dates. 
As the country continues to grapple with the COVID-19 emergency, IRS campuses are reopening and employees have begun processing the work backlog, including notices.  

During the shutdown, the IRS generated more than 20 million notices; however, these notices were not mailed.  As a result, the notices bear dates that now have passed, some by several months, and some of the notices require taxpayers to respond by deadlines that also have passed.  There is a silver lining, however. The IRS is providing additional time to respond before interest or penalties apply.  


To explain the extended response deadlines, the IRS is including in its mailings “inserts” such as Notice 1052-A, entitled “Important! You have More Time to make Your Payment.”  But even with these inserts, we anticipate confusion for taxpayers.  The challenge will be to review the entire package and reference the insert to determine the revised due date before stressing out.

There are several dozen kinds of IRS notices ready to be mailed in the next month or two.  As the mailing and response dates have passed, the IRS is establishing new response dates.  


For Business Reasons, The IRS Is Not Revising
The Generated Notices.

 Rather, It Is Enclosing An “Insert” In Its Mailings,
Which Consists Of An Additional Page At The End of
The Notice That Provides Updated Due-Date Information.

For that reason, taxpayers who receive these notices may be confused and distressed, believing they missed response deadlines.  Thus, it is critical that taxpayers and representatives read through all pages included in IRS notices and pay special attention to the due dates on the insert.  Here’s what taxpayers can expect:

Initial Balance Due Notices (sometimes called a Notice and Demand)

The IRS has begun mailing the backlog of 1.5 million notices informing taxpayers that their tax hasbeen assessed and they have a balance due.  The law requires the IRS to send these notices within 60 days of making an assessment.  Taxpayers should look for the insert included at the end, Notice 1052-A, entitled “Important! You have More Time to make Your Payment.”  It specifies that:

  • For returns due on or after April 1, 2020, and before July 15, 2020, taxpayers have until July 15, 2020, to make a payment before interest or penalties apply.
  • For income tax returns due before April 1, 2020, or employment or excise returns due on or after April 1, 2020, taxpayers have until July 10, 2020, to make a payment before interest or penalties apply.

Notice 1052-A provides a link to the IRS.gov webpage on coronavirus relief, which provides further details about the relief for filing and payment deadlines.

Math Error Notices Increasing the Amount of Tax

A subset of the notice and demand backlog is math error notices, which include critical deadlines.  When the IRS proposes an increase in tax for a simple mathematical or clerical error, the law provides the taxpayer with 60 days to request a reversal of the math error adjustment.  If the taxpayer does not timely request a reversal, the tax is assessed and the taxpayer loses the opportunity to appeal the liability in U.S. Tax Court, which is the taxpayer’s only opportunity to challenge the liability in court prior to paying it.  TAS worked with the IRS to create a special insert for these notices to ensure taxpayers know what they need to do to protect this fundamental taxpayer right. 

  • The backlog of math error notices will include Notice 1052-B, Important! You Have More Time to Make Your Payment, which provides taxpayers with 60 days after the notice is sent to contact the IRS to request a reversal.

Collection Due Process and Other Backlog Notices

For other notices in the backlog that provide a deadline for action, TAS is working with the IRS to develop insert language that will clarify the new deadlines.  For Collection Due Process (CDP) notices, TAS has recommended the IRS provide a revised deadline to request a CDP hearing that is 30 days after the IRS mails out its backlog CDP notices – and include an insert to that effect.  This approach will help ensure that the taxpayer’s right to request an appeal in an independent forum is not compromised during the coronavirus emergency.

Even with these efforts, there will likely be taxpayers who contact the IRS because they are confused about when they must respond.  In addition to reading the insert, taxpayers and practitioners should check the IRS’s website and look for updates via alternative channels, such as social media and other outreach.  Compounding the confusion surrounding notice dates, IRS transcripts for taxpayers’ accounts will also reflect incorrect dates for some of the notices.  TAS is continuing to work with the IRS to provide guidance to its employees about how to help taxpayers understand their notices and account transcripts. 

Look for and Read the Insert for Applicable Due Dates!

Received a Disparaging IRS Notice?

Contact the Tax Lawyers at
Marini & Associates, P.A. 



for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or 
Toll Free at 888 8TAXAID (888-882-9243) 




What Are My Chances of Being Audited by the IRS ?

As IRS budgets and audit staff continue to diminish, audit numbers are at an all-time low. But when you file your clients’ returns, the most common question persists: “How likely am I to be audited?”

Taxpayers whose returns stray far away from the norm or have “large, unusual or questionable items” can always be singled out for audit. But overall, as the statistics bear out, the IRS likes to audit taxpayers with certain characteristics.

To start, individuals get more audits than business and specialty taxpayers. In 2017, the IRS reported a 1 in 184 (0.542 percent) chance of being audited for all taxpayers. For taxpayers filing individual returns, the likelihood of audit is 1 in 161 (0.623 percent). Corporations (1120, 1120-S) and partnerships are audited less than individuals – with an audit rate of 1 in 224 (0.445 percent). In 2017, the IRS audited only 1 in every 568 (0.176 percent) employment tax returns (Forms 940/941).

Individual return audit rates Out of the 150 million taxpayers who filed in 2017, here are the IRS statistics on who experienced an audit:

Form 1040 taxpayer types, in descending likelihood of audit

Returns audited

International taxpayers

1 in 19

Taxpayers with gross income before deductions of over $1 million

1 in 23

Sole proprietors with gross income before deductions between $100,000 and $200,000

1 in 48

Sole proprietors with gross income before deductions between $200,000 and $1 million

1 in 64

Taxpayers with self-employment income under $25,000 who claim the EITC

1 in 72

OVERALL INDIVIDUAL AUDIT RATE

1 in 161

Farmers

1 in 228

Wage earners who make under $200,000 and don’t claim the EITC (65% of taxpayers fit this category)

1 in 364

The IRS is focusing its audit resources on areas where it knows taxpayers are traditionally non compliant: small businesses, international taxpayers, high-wealth taxpayers, and possible Earned Income Tax Credit fraud schemes. Traditional wage earners who have traceable income reported on Forms W-2 face much less scrutiny.

Business and specialty tax return audit rates Out of the millions of returns filed by businesses, employers, and specialty taxpayers (estate, gift, trust returns), here are the IRS statistics on who experienced an IRS audit:

Business/specialty taxpayer types, in descending likelihood of audit

Returns audited

Large corporations (Form 1120, assets greater than $5 billion)

1 in 3

Estate tax returns

1 in 12

Large corporations (Form 1120, assets between $10 million and $5 billion)

1 in 23

Excise tax returns

1 in 72

Gift tax returns

1 in 130

Small corporations (Forms 1120, not 1120-S)

1 in 146

OVERALL CORP/PARTNERSHIP AUDIT RATE

1 in 224

Partnership returns (Form 1065)

1 in 260

Estate and trust income tax returns (Forms 1041)

1 in 971

Employment tax returns (Forms 940 and 941)

1 in 568

S corporation returns (Forms 1120-S)

1 in 358

The IRS questions more returns through automated matching notices Audits are not the only way the IRS can question the accuracy of a tax return. Over the past 20 years, the IRS has ramped up more automated return checks in the form of matching programs. For example, in the IRS CP2000 program – the automated underreporter program – the IRS matches income between tax returns and IRS information to look for discrepancies. If there’s a mismatch, the IRS automatically sends out a notice asking for explanation. This program has increased 143 percent since 2000 – and it outnumbered audits 3.1 to 1 in 2017.

Clearly, smaller IRS budgets and personnel over the past seven years have even lowered the number of CP2000 matching notices. But automated notices have become the norm. And although CP2000 notices are not technically IRS audits, they allow the IRS to increase its ability to challenge returns far beyond what it can do through people-intensive audits. Matching notices also feel a lot like an audit for taxpayers. If you add the CP2000 matching program to the IRS “return challenge” rate for individuals, the chances of the IRS challenging an individual taxpayer’s return come out to 1 in 35 instead of 1 in 161.

The cost of an audit can be high Audits are likely to be costly. IRS data shows that over 90 percent of individual audits result in a tax change. The average additional tax owed is $6,014 for a mail audit and $21,918 for a more intrusive IRS field audit. CP2000s can also be costly. The IRS collected $6.7 billion in additional tax on the 3,295,000 matching notices it sent in 2017 – an average of $2,033 per notice issued.

On top of the additional tax for audits and under reporter notices, there are accuracy penalties, which can add 20 percent to the tax bill. Since 2005, the IRS has increased accuracy penalty assessments by 854 percent -- with more than 557,000 taxpayers getting an additional 20 percent penalty on their audit or CP2000 notice.

Do a proactive income review For some taxpayers, like international taxpayers and higher-wealth taxpayers, avoiding an IRS audit can be more difficult because the IRS believes that their returns are more likely to have errors and omissions.

For most taxpayers, avoiding IRS scrutiny means reporting all wage and income documents (Forms W-2, 1099, etc.) to the IRS. Tax pros can’t get IRS information statements from the IRS before the end of filing season, so they need to rely on their client’s ability to provide them all the information.

Tax pros can do their best tax season due diligence by looking at last year’s return and IRS wage and income transcripts for sources of income. They can also do a post-filing review by obtaining their client’s current-year wage and income transcripts that are available during the summer, before the IRS issues the first CP2000 notices later in November. 

This post-filing review is still proactive before the IRS issues any notices. If tax pros find unreported income, they can file an amended return to avoid any potential accuracy penalty that could be associated with a notice or audit. Clients who don’t avoid an audit or CP2000 notice will look to tax professionals for help. 

This is when tax professionals, especially experienced Tax Attorneys, can show their ultimate value to clients, by helping Fearlessly representing them before the IRS and penalty abatement request.

Have a Tax Problem?


 Contact the Tax Lawyers at
Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or 
Toll Free at 888 8TAXAID (888-882-9243) 


Source: 

AccountingTODAY


Crypto 'Staking' May Generate ‘Rental’ Income

In things are continuously changing with cryptocurrency including the creation of Proof of Stake (PoS), which is a relatively new concept that has steadily been gaining popularity in the crypto community as a better alternative to Proof of Work(PoW) system on which the most popular cryptocurrency, bitcoin, operates. 

But what Is Staking? Before we consider the tax implications of staking, let’s discuss what staking is. Staking is very similar to having an interest bearing bank savings account. Dash, Neo, OKcash, Tezos (XTZ) are some cryptocurrencies you can stake. You can leave these coins in your wallet and/or an exchange that supports staking, and receive periodic payouts based on the amount of funds you stake. The above snippet shows how staking rewards appear on a dashboard of a major US crypto exchange. 

Staking rewards are taxable. However, the exact tax treatment for staking rewards isn’t as clear as one would think. Here is why. 

Taxed as Interest Income? 

Staking rewards resemble interest income, in that the process is quite similar to depositing funds into a bank account and receiving interest based on an annual interest rate. If you apply this theory, staking rewards may look similar to interest income. Interest income is generally reported on IRS Form Schedule B Part I. However, the Internal Revenue Code (IRC) defines “interest income” to see if staking rewards are actually interest income for tax purposes. According to Reg §1.61-7, “Interest income includes interest on savings or other bank deposits; interest on coupon bonds; interest on an open account, a promissory note, a mortgage, or a corporate bond or debenture; the interest portion of a condemnation award; usurious interest (unless by State law it is automatically converted to a payment on the principal); interest on legacies; interest on life insurance proceeds held under an agreement to pay interest thereon; and interest on refunds of Federal taxes”. 

Clearly this definition of “interest income” does not have anything that describes income derived from staking cryptocurrencies. Additionally, per Deputy v. Du Pont, 308 U.S. 488 (1940), “Interest in its usual import is the amount which one has contracted to pay for the use of borrowed money. In the business world, interest in indebtedness means compensation for the use or forbearance of money”. Now, the key here is that the interest is derived from having money as principal. Coins you stake are not treated as “money” for tax purposes. 

According to Notice 2014-21, cryptocurrencies are treated as property. Therefore, it could be argued that staking rewards are not interest income for tax purposes although it may share many characteristics of interest income in the real world. If staking rewards are not interest income, how should it be treated for tax purposes? 

Taxed as Rental Income? 

According to Reg § 1.61-8, “gross income includes rentals received or accrued for the occupancy of real estate or the use of personal property”. Personal property is any property that is not real property like land and building. According to Notice 2014- 21, virtual currencies are treated as property, and all general rules applicable to property are applicable to virtual currencies. 

If we view crypto currencies you are staking as “property”, you could easily argue that you are renting a property and receiving rental income. Income received from renting an asset or property is not clearly interest income. If this is the case, staking rewards could constitute rental income and may also be subject to passive/nonpassive income categories depending on your level of participation in the staking. Rental income is typically reported on Schedule E of Form 1040. 

One thing to keep in mind is that, all communications issued by the IRS related to cryptocurrency taxation have been “general guidance” (Notice2014-21, 45 FAQs & Rev.Rul. 2019-24). These should not be viewed as the tax law. The guidance describes how the IRS believes existing tax laws are applied to crypto transactions. They are intended to help taxpayers with tax filings and improve compliance. Since these guidance are not law, in the court of law, you may argue against certain positions taken by the IRS. 

In the absence of clear laws, it is extremely important that you treat staking income consistently every tax year, until clear guidance are issued. Clearly, staking income is taxable and you should definitely report that on your taxes irrespective of the interest income vs. rental income argument. It’s also a good practice to use Form 8275 when you take controversial tax positions on your return. 

Also remember that if you receive staking rewards, make sure you check “yes” for the crypto question on Schedule 1. 

Have a Crypto Currency Staking Problem?


 Contact the Tax Lawyers at 
Marini & Associates, P.A. 
 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid







Sources:






IRS Says That the Tax Filing and Payment Deadline of July 15 Will NOT Be Postponed!


The Department of the Treasury and IRS on June 29, 2020 announced in IR-2020-134 that the tax filing and payment deadline of July 15 will not be postponed. Individual taxpayers unable to meet the July 15 due date can request an automatic extension of time to file until Oct. 15.

Due to COVID-19, the original filing deadline and tax payment due date for 2019 was postponed from April 15 to July 15.

The IRS Reminds Taxpayers Filing Form 1040 That They Must File Form 4868 By July 15 To Obtain The Automatic Extension To Oct. 15 and The Extension Provides Additional Time To File The Tax Return – It Is Not An Extension To Pay Any Taxes Due.

The IRS urges people who owe taxes, even if they have a filing extension, to carefully review their situation and pay what they can by July 15 to avoid penalties and interest. 

Taxpayers can also get an extension by paying all or part of their tax due and indicate that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card

When Getting An Extension By Making A Payment, Taxpayers Do Not Have To File A Separate Extension Form And Will Receive A Confirmation Number For Their Records.

Payment options

Taxpayers who owe taxes can choose from the following payment options:

The IRS recommends that taxpayers who are unable to pay their taxes in full should act as quickly as possible. Tax bills can quickly accumulate more interest and penalties the longer they sit. The usual penalty rate of 0.5% per month is reduced to 0.25% For the calendar quarter beginning July 1, 2020, the interest rate for underpayment is 3%.

Most taxpayers who cannot pay in full have the following payment options:

  • Installment Agreement — Taxpayers who do not qualify to use the online payment agreement option, or choose not to use it, can also apply for a payment plan. 
  • Temporarily Non-Collectible — You can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves. Penalties and interest continue to accrue until the full amount is paid.
  • Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. 
Taxpayers Should File, Even If They Can’t Pay The Full Amount Due. 

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance, that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15. The current interest rate is three percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.

Taxpayers who have finished their returns should file by the regular July 15 deadline, even if they can’t pay the full amount due. In many cases, those struggling with unpaid taxes qualify for one of several relief programs, including the following:
  • Most people can set up a payment agreement with the IRS. Those who owe $50,000 or less in combined tax, penalties and interest can use the Streamlined Procedure to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. 
  • Some struggling taxpayers may qualify for an Offer in Compromise  This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. 
Can't Pay Your Taxes?

Contact the Tax Lawyers at
Marini & Associates, P.A.
  
 
for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or 
Toll Free at 888-8TaxAid


Monday, June 29, 2020

More Employers Gets Criminally Prosecuting For Failure To Pay Withheld Payroll Taxes!

On October 29, 2019 we posted The IRS is Now Criminally Prosecuting Employers For FailureTo Pay Withheld Payroll Taxes! where we discussed that the IRS is stepping up criminally prosecuting business owners for failing to turn over withheld payroll taxes, on June 4, 2020  we posted Another Employer Gets Criminally Prosecuting For Failure To Pay Withheld Payroll Taxes! and now according to the DoJ, a Greensboro, North Carolina, business owner was sentenced to 18 months in prison for failing to pay employment taxes.

According to documents and information provided to the court, Elizabeth Wood, 40, and her mother Rebecca Adams, 57, operated a temporary staffing businesses in Greensboro under the names A & R Staffing Solutions, Inc., Wood Executive Services Inc., and Adams Staffing Enterprises Inc. 

Wood and her mother withheld federal and state taxes from employees’ paychecks but did not pay those taxes over to the IRS or the State of North Carolina. 

In 2015, Wood pleaded guilty to embezzling employee state tax withholdings and was sentenced to prison. 

After Her Release, Wood Resumed Her Role At The Staffing Business Where She Continued To Withhold Federal Taxes
From Employees’ Paychecks, But Again Did Not Pay Those Taxes Over To The IRS. (Really?)



She Also Did Not File With The IRS The Required Quarterly Payroll Tax Return.

On Feb. 5, 2020, Wood and her mother, Adams, pleaded guilty to failing to pay over employment taxes. Adams is scheduled to be sentenced on July 9, 2020. In addition to the term of imprisonment, U.S. Senior District Judge N. Carlton Tilley Jr., ordered Wood to serve three years of supervised release and to pay approximately $2,338,766 in restitution to the United States.
 
Thinking of Borrowing From Your Company's
Payroll Tax Withholdings?
You Better Thank Again, if You Like Your Freedom!


Have Payroll Tax Problems?
 
 
 Contact the Tax Lawyers at 
Marini & Associates, P.A.  

for a FREE Tax HELP Contact Us at:
orToll Free at 888-8TaxAid
 

Thursday, June 25, 2020

TIGTA - IRS Large Case Examination Selection Method Results in High No-Change Rates


TIGTA issued its report Reference Number:  2020-30-031 on June 22, 2020 to the Commissioner of Internal Revenue.

The IRS’s primary objective in selecting returns for examination is to promote the highest degree of voluntary compliance. The LB&I Division has a variety of examination programs and uses a multitude of methods to select returns.  However, it consistently spent most of its examination resources on large business returns.

The IRS compiles Tax Gap data to periodically update appraisals of the nature and extent of tax payment noncompliance for use in formulating tax administration strategies.  

The IRS Estimates The Average Annual Gross Tax Gap For
Tax Years 2011 Through 2013 To Be $411 Billion.

The largest component, $352 billion, is attributable to underreporting of taxes. Large corporation (assets of $10 million or more) tax noncompliance contributes an estimated $26 billion to the average annual underreporting Tax Gap.

This audit was initiated to evaluate the selection process, use of resources, and examination productivity for corporate returns examined as part of the Large Business and International (LB&I) Division’s Discriminant Analysis System (DAS) workstream.  Approximately 44 percent of Form 1120, U.S. Corporation Income Tax Return, examinations during Fiscal Years 2015 through 2018 were closed from the DAS workstream. If

TIGTA Analyzed The 10,755 Returns Closed in the DAS Workstream During Fiscal Years 2015 Through 2018 

and Found That 47 Percent Were Closed
With No Change to the Tax Return.


TIGTA analyzed the potential cost for excessive time charged to no-change returns, i.e., time in excess of 200 hours, and estimated that potentially $22.7 million was spent examining no‑change returns in excess of 200 hours.

Of the 10,755 returns:

  • 7,831 returns (73 percent) were systemically selected, i.e., were selected as the primary tax return to be examined.  
  • The overall no-change rate for these returns was about 55 percent (4,327 of the 7,831), and 
  • The no‑change rate was generally high across all activity codes for businesses with assets of $10 million or more (ranging from 44 percent to 61 percent).

The LB&I Division is updating the DAS model to improve the no‑change rates.  However, TIGTA found that the LB&I Division is not leveraging all available information to improve the model, such as the examination scope and which tax issues are the most productive to examine.  LB&I also plans to test the new formulas only on returns that are nearly a decade old.

TIGTA Reviewed The Examination Results For The 10,755 DAS Returns and Found That the LB&I Division
Is Not Adequately Monitoring DAS Examination Results
To Assess Whether The Model Is Effectively Ranking Returns
Based On The Likelihood of Potential Tax Adjustment.

When assessing the productivity of its models, the LB&I Division does not use the actual examination amount when an examination results in a refund.  Instead, it treats examinations that result in a refund as no change in tax.  By not using the actual examination amount for refunds, the LB&I Division’s productivity is skewed to the positive and does not accurately reflect the true compliance impact.

TIGTA recommended that the LB&I Division:

  • Develop an action plan to reduce the examination no-change rates; 
  • Avoid working pickup returns unless issues are established on primary tax returns that may affect prior or subsequent years; 
  • Minimize hours expended on no‑change closures; 
  • Test newly developed formulas on current examined returns;
  • Consider breadth of scope and noncompliance issues found in past examinations; and 
  • Analyze DAS return actual examination results on a regular basis. 

The LB&I Division agreed with two recommendations and will formulate a plan to reduce the no‑change rate and hours incurred.  The LB&I Division also plans to analyze examination results on a regular basis.  


The LB&I Division disagreed with three recommendations pertaining to the DAS model and noted that it released a new DAS model in April 2020.  The LB&I Division also disagreed with using actual examination dollar results for evaluating the effectiveness of the DAS model.

 

To view the report, including the scope, methodology, and full IRS response, go to: https://www.treasury.gov/tigta/auditreports/2020reports/202030031fr.pdf.

Have a Tax Problem?


 Contact the Tax Lawyers at 
Marini & Associates, P.A. 
 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid