Monday, March 26, 2007

I ran across the below post on tigerhawk.blogspot today and I just could not resist its title: "The IRS Mission." Mr. Tigerhawk makes some brilliant observations about the "top quality service" the IRS offers.

I do post this with some hesitation because the comments that follow are both witty and scary.... please, those of you reading this, DO NOT NOT PAY YOUR TAXES FOR FIVE YEARS! Ok, now that I have that off my chest, please enjoy the following article:

Thursday, March 22, 2007

Ok, so there is this $300 billion tax gap and IRS just had a meeting on the hill to discuss this. I have attached a rather boring article about these proceedings.

Basically, the IRS is desperate to close this gap = more audits. Also, it appears that they are under-staffed and plan to continue using third party collection agencies to force tax payers to pay up their due to the government.

This makes me shudder.
Just when you thought that an IRS audit is the worst that could happen, national taxpayer advocate Nina Olson informs us that identity theft could be next?

Wow, all this info could almost make you paranoid... oh wait, already am.

Wednesday, March 21, 2007

Feeling lucky? Check out the below link to some iffy tax deductions that have squeaked by in the past...

Tuesday, March 20, 2007

Breaking news... find out how much the federal goverment has "refunded" the American public so far! Click below...

And as a side note, please observe the third from the bottom paragraph which says: "Going after the corporations and the high income folks was job one for me in the last four years."

Ok, sadly I was one of those people that "he went after" but I am not sure where they got the idea I was wealthy. In fact my original auditer commented on how little money I made in 2003. Nothing like crushing and inappropriate personal comments to make that $3000 audit go down a little easier.
Ok, I just love reading these articles that say that only 1% of people get audited a year... when I was audited it dominated 100% of my life for YEARS! And you go through all of that just to KEEP your money. Sigh.

Anyway, not to give too much credit to the IRS, but below is a link to an IRS consumer advocate's (still not sure what that really means but whatever) advice this tax season. Nice gesture, I suppose, but I think the word "advocate" is pushing it...

Sunday, March 18, 2007

The following article is close to my heart... it is by a Texas web site called Don't Mess With Taxes and as a fellow Texan, I just had to highlight it! With classic, hard-hitting Texas directness, Kay Bell does a good job here explaining why the IRS is not a big fan of "frivolity" in our deductions... who knew? :)

Friday, March 16, 2007

Kudos to Penelope Trunk - and not just because the name Penelope is so cute and underused now-a-days- but also because she wrote a truly excellent article about tax deductions. Though I have never met Penelope, I feel that she and I are "tax sisters"... we think a like! Please read her attempt to stretch her tax deduction potential with various CPAs... if tax deductions could ever be funny, this article would be it...

PS - Obviously the IRS is against "personal enjoyment" of anything or at least we cannot get deductions from things that we get enjoyment from... is this a plot to make sure we are miserable? Something to ponder...
Being audited? You may want to think about who you may have pissed off lately... the IRS has a new audit strategy... revenge...
As if filing your taxes is not enough of a headache... please make note of the correct IRS web site:

Thursday, March 15, 2007

In case you needed another reason to be annoyed at the IRS, please read the below article (written by a concerned citizen not a journalist). He addresses the joy each of us have had/will have when we learn about our tax return amount each year. I am certainly guilty of that and even plan the use of the money before I receive it. But when you really think about it... have we all been "brainwashed"... some interesting thoughts...

Wednesday, March 14, 2007

More good advice, most of this has already been posted here but I really like their idea of conducting an audio recording... wish I had thought of that!
Down with credit cards! Another pet peeve of mine, besides my recent SUCCESSFUL IRS audit, is credit card debt. If you have read my story (first post on my blog), you know that I was $20,000 in credit card debt while going through my tramatic IRS audit. My entire financial life and future was in jeopardy. From the hours it took to analyze my spending in 2003, I figured out that I was spending way too much on unimportant, temporary things and putting it all on credit cards with a very unrealistic view of how it was adding up. If someone had asked me in 2003 what my APR was, I would of laughed and told them that that sounded boring and changed the subject to shoes or boyfriends or shopping.... anything but finance. This attitude was reflected in my credit card debt and it was up to me, and me alone, to solve this. I freelanced for a year which just made it worse so I took on a full time job and freelanced on the side and that did the trick. I paid off my $20,000 debt in 14 months - granted, I was an extremely boring person during those months but it was worth it.
If you use a credit card at all, please read the following article from Yahoo! Fianance. It is time we all stopped playing by the credit card companies' rules and become armed with the tools to prevent credit card debt... enjoy and be inspired...
Great article from Daily Report... gives specific info about what causes the IRS to audit you. I fell into the category of "making a small amount of income but a lot of deductions." Nothing worse than sitting in an audit with your auditor looking at you across their desk and asking... "How did you live on that?"

Anyway, this article is a must read if you think you have been a little too ballsy with your recent returns...

Tuesday, March 13, 2007

Here is some concise advice from Wells Fargo for all you small business owners/freelancers out there. This "check-list" seems to very accurate and is similar to the list I used when I was a freelancer (and no, that was not the year I was audited, at least not yet!). Enjoy...

Have You Covered All Your Tax Bases?
The 2006 tax year is nearly behind us, but that doesn’t mean everyone is squared away for April 17. It can be easy to forget some of the “low-hanging fruit”: write-offs that can still reduce your tax burden.
Last-minute checklist
If you’re still getting your numbers together for your returns, or you know you’ll be filing for an extension, don’t forget the following write-offs:
Write off the purchases of computers, printers, answering machines, copiers, furniture and other tangible equipment through Section 179 as depreciation expense in the year of purchase. (The maximum Section 179 deduction you can elect for property you placed in service in 2006 is $108,000 for qualified property. This limit is reduced by the amount by which the cost of Section 179 property placed in service during the tax year exceeds $430,000.)
Internet, telephone, and cell phone service.
Professional dues and other business dues, such as Chamber of Commerce, trade group membership, etc.
Office supplies and postage.
Business subscriptions.
Auto expenses deducted under one of the following methods:
Standard mileage: Consider taking the standard mileage rate on all business miles ($0.445 per mile in 2006 and $0.485 per mile in 2007), or
Actual cost: The itemization of auto expenses, which would include the following, multiplied by the appropriate business use percentage.
Auto lease/depreciation.
Repairs and maintenance.
Interest on your auto loan at the appropriate business use percentage.
Parking and tolls.
Legal and professional fees.
Business entertainment (the IRS allows a 50% deduction).
Business meals (the IRS allows a 50% deduction, unless the meals are provided on your business premises, in which case they are 100% deductible).
Interest on credit cards for purchases that are applicable to business use.
Interest on bank loans and lines of credit to buy equipment and pay for business operating expenses is always deductible.
Advertising and promotions.
Seminars and trade shows.
Business travel.
Business gifts ($25 limit per person).
Cost of acquired computer software. Software included in the purchase price of a computer (not separately stated) is added to the basis of the computer and depreciated over five years, or expensed under Section 179. Off-the-shelf software is depreciated over 36 months using the Straight Line method, beginning with the month the software is placed in service.
If you have a home office, you’re also eligible for a range of write-offs based on the portion of your home used “exclusively” for business. Determine the percentage of your home’s square footage used for business as a percentage of the total square footage of your home. If it’s 15%, for example, you can deduct 15% of:
Property taxes.
Interest on your home loan.
Homeowner’s insurance.
Maintenance and repairs.
Lawn care.
Burglar alarm system.
Homeowner’s dues.
Depreciation on your home.
Start-up costs. If you’re a new business owner, you can write off start-up costs connected with setting up or investigating the creation or purchase of a trade or business. These expenses occur before the business begins operations. Start-up costs can include survey of potential markets, advertising for business opening, consulting or other professional fees, cost of training employees, analysis of possible facilities, labor force, supplies, etc., and travel and related expenses to secure distributors, suppliers and customers. An election under Section 195 allows taxpayers to deduct up to $5,000 of start-up costs and amortize the remainder over 180 months. The election to deduct or amortize must be made no later than the filing date for the tax return of the year in which the business begins (including extensions).
Fixed assets. Review your businesses’ schedule of fixed assets and record, if applicable, losses from the sale or abandonment of any of these assets.
Bad debts. Review your accounts receivable to see what can be written off as bad debt. Business bad debts are treated as ordinary losses and can be deducted when they become partially or wholly worthless. In order to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you are a cash-basis taxpayer, as most individuals and S Corps are, you may not take a bad debt deduction for income you expected to receive but didn’t because the amount was never included in your income.
Consider setting up a retirement plan. Many retirement plans need to be set up by year end. However, one that is still available for year 2006 is the simplified employee pension plan (SEP). It does not need to be set up and funded until the due date (including extensions) of the employer’s return (S Corp) or the individual’s Form 1040, which includes Schedule C. For 2006, the maximum deduction is 25% of compensation or $44,000 (whichever is less) with compensation considered limited to $220,000. Note that the earnings from self-employment must be reduced by 50% of the self-employment tax in determining the amount of the retirement plan contribution. Thanks to Jim Dowling, Senior Tax Manager with CPA firm Weaver and Tidwell, LLP’s Tax Practice Services Group.
Are we still paying taxes on the Spanish American War? It appears so... or at least until very recently...
Bankrate is a great resource, this article is a bit complicated but worth scanning as you prepare to file for 2006:
This just in...NYC IRS agent tries to cheat the IRS...,0,5768531.story?coll=ny-region-apnewyork
Interesting concept...

Monday, March 12, 2007

Here is another good resource, answers a lot of the basic questions...
This is what not to do with the IRS... I say fight not flight...

E! News
Wesley Snipes Feels Blade of IRS
by Gina SerpeTue,
17 Oct 2006

White men can't jump. And Wesley Snipes apparently can't figure out a 1040 form.
The Blade star was indicted in Tampa Tuesday on eight counts of tax fraud for allegedly trying to bilk $12 million in fraudulent refunds out of the federal government, for claiming his income was immune from taxation and for failing to file any returns for six years.
If convicted on all charges, the actor could face up to 16 years in prison—though they'll have to catch him first. Last week the U.S. Attorney's office issued a warrant for Snipes' arrest after federal authorities were unable to locate him.
Snipes faces charges of conspiracy to defraud the Internal Revenue Service, presenting a fraudulent claim for payment to the IRS, as well as six counts of failing to file income tax returns. The former two charges carry a maximum penalty of five years in prison, while the other six counts carry one year each.
"The Justice Department will vigorously investigate charges of counseling or committing tax fraud," Assistant Attorney General Eileen J. O'Connor said at a news conference.
According to the indictment, unsealed this morning and posted online by the Smoking Gun (, the 44-year-old actor attempted to seek the eight-figure refund in 1996 and 1997 as part of an ongoing tax scam.
Federal investigators claim the fraud was perpetrated with the help of Eddie Ray Kahn and Douglas Rosile. Kahn is the founder of two organizations—Florida's American Rights Litigators and Guiding Light of God Ministries—which, per the indictment, "promoted and sold fraudulent tax schemes." Rosile is an accountant for the former company.
Federal investigators allege that Snipes, Kahn and Rosile knowingly conspired to cheat the government "through deceit, craft, trickery and dishonest means," by the use of false documents and illicit tax-shelter companies to ensure that the star would not only avoid paying income taxes but also pocket a sizeable refund.
Per court documents, investigators claim Kahn told Snipes that U.S. citizens could only be taxed on income earned from foreign jobs and not from money made within the country, a so-called loophole he deemed the "861 Argument."
In return for this sound financial advice, and for filing the appropriate get-out-of-tax-free forms to the IRS, American Rights Litigators received 20 percent and untold amounts of fees, on Snipes' multimillion-dollar refunds. The 861 Argument has been routinely debunked by legitimate tax lawyers, accountants and the IRS.
But, according to the feds, that didn't stop Snipes from attempting to collect a $12 million refund on income taxes he had already paid. Additionally, the IRS claims the actor allegedly used the same fraudulent logic to avoid filing a tax return altogether from 1999 to 2004.
According to the indictment, in lieu of actual payment, Snipes and cohorts presented the government with something called "Bills of Exchange." While presented under the guise of having been issued by financial institutions by authority of the government, the documents were simply printed by the American Rights Litigators and, while apparently authentic-looking, they held no monetary value.
In 2001, the IRS received a Bill of Exchange in the amount of $12 million, along with a tax form bearing Snipes' name and Social Security number. The following year, the agency claimed to have received a Bill of Exchange from the actor in the amount of $1 million as payment for his taxes.
The indictment, which chronicles the IRS' dealings with Snipes, and the American Rights Litigators from 2000 to 2004, states that the government made several attempts to contact the White Men Can't Jump star regarding his status as a taxpayer only to receive more false documentation from Kahn's company.
"Our system of government depends on citizens paying their fair share of taxes," U.S. Attorney Paul I. Perez said. "Those who intentionally and unlawfully harass the IRS through deceit, trickery and fraud undermine the collection of revenue that is vital to every aspect of the operation of our government."
The indictment was filed in Florida because Snipes owns a home in the affluent town of Windermere.
This is not the first time Snipes has been implicated in tax fraud. In 2002, the Justice Department filed suit against Rosile, who, among other apparently bogus tax claims, sought a refund of roughly $7.3 million for Snipes, after resubmitting the actor's 1997 return—the year he starred in the hit thriller Murder at 1600—to show an adjusted gross income of zero dollars.
And income isn't the only type of tax Snipes has an aversion to. Last year, the star almost lost his Florida estate after failing to pay more than $20,000 in back property taxes. Two years earlier, the bank put the $1.7 million home into foreclosure after Snipes ceased making payments.
While the feds say they don't know the whereabouts of Snipes, Rosile has turned himself in, and reports that investigators believe Kahn may have high-tailed it to Panama.

Sunday, March 11, 2007

Appeal, people! The Wall Street Journal thinks you should...

May 17, 2006

Research Shows Fighting IRS Is Often Worth It

As Tax Agency Increases Audits,Appeals Division Frequently GivesTaxpayers at Least Some Relief
So you've filed your tax return. Now comes nail-biting time, as you pray that the Internal Revenue Service's plans to increase the number of audits this year won't include you.
But even if you are audited and are hit with additional taxes and penalties, a new government report shows your chances of getting those charges reduced -- or even eliminated -- may be better than you think. In the first in-depth study of its kind, the U.S. Government Accountability Office estimated that taxpayers who took their case to the IRS's appeals division won at least some relief in about 41% of the cases.
The IRS receives some 135 million individual income-tax returns a year and has been auditing a growing number of these, cracking down especially on high-income individuals and those who use tax shelters -- transactions the agency believes have no real purpose other than dodging taxes. Last year, the IRS audited about 1.2 million returns, up some 20% from 2004. It plans even more audits this year.

If the IRS audits you and says you owe money, consider taking these steps:
• You can appeal the decision to the IRS's appeals division (see IRS Publications 5 and 556 at• Another option is to go to court -- the U.S. Tax Court, federal district court or the Court of Federal Claims.
IRS audits come in many different forms: Some are handled by mail, such as when the IRS asks for documentation to support an item on your return. In other cases, the audit may take place in your home, workplace, your tax adviser's office or at an IRS office. If you disagree with the outcome, you can ask the appeals office to review your case.
Many people assume it isn't worth the time, trouble or expense to challenge the IRS unless the amount of money at issue is large. But the GAO's report, released last month, confirms the belief of many lawyers and accountants who say taxpayers shouldn't automatically surrender if they feel they have a strong case, or believe an auditor made a mistake. The GAO estimates that 41% of the 102,623 cases closed in 2004 "were not fully sustained" by the IRS appeals unit.
Unlike other IRS staffers, appeals officers are authorized to settle cases based on the "hazards of litigation" -- which means they can offer to settle based on their judgment of what could happen if the case goes to court.
For example, a client of Alan Straus, a lawyer and certified public accountant in New York, donated a painting to a museum. The client's appraiser came up with a "very different" value than the IRS's art advisory panel thought was correct. The outcome: The IRS appeals office "split the difference with us," Mr. Straus says -- saving his client several thousand dollars.
In a separate case, another client of Mr. Straus -- a woman under psychiatric care -- was hit with hefty penalties for not having filed two years of returns. The outcome: The IRS appeals office agreed to waive the penalties in view of her medical problems, but she had to pay the taxes due plus interest.
Appeals officers typically are "very seasoned" and "more savvy" about tax law than auditors and collection staffers, says Charles Rettig, a lawyer at Hochman, Salkin, Rettig, Toscher & Perez in Beverly Hills, Calif. "There's an old line: 'The deals are made in appeals.'"
If you get an audit letter now, it will probably pertain to a tax return you filed in years past, not the 2005 return that you filed earlier this year. Appealing an unfavorable outcome could take roughly a year. If you're not satisfied with the outcome, you can slug it out with the IRS in court, either in the U.S. Tax Court, federal district court or the U.S. Court of Federal Claims. Most people who go to court choose the Tax Court because they aren't required to pay the contested tax up front.
With about 1,900 employees, the appeals division closes more than 100,000 cases a year. Most involve individuals, although some involve corporations, says David Robison, who headed the appeals unit until recently when he left to join the law firm Skadden, Arps, Slate, Meagher & Flom as senior adviser for tax-resolution strategies. It hears a wide variety of cases involving such matters as challenges to IRS audits and collection issues. The appeals office typically resolves about 80% to 85% of all the cases it receives each year, Mr. Robison says.
The appeals unit has to deal with some of the toughest types of cases. Among them are "innocent spouse" disputes, such as when someone argues he or she shouldn't have to pay taxes caused by an ex-spouse's errors or omissions on their joint return. There are also numerous cases involving an "offer in compromise," in which a taxpayer in financial distress has asked the IRS to accept less than the full amount owed. Many other cases involve collection issues, such as when the IRS slaps a lien on someone's property.
Some lawyers contend that the appeals division's independence has eroded in recent years and that appeals officers often are tougher than they once were, reflecting the IRS's overall enforcement crackdown. "They are being harder, no question about it," says Richard Shaw, a lawyer at Higgs, Fletcher & Mack in San Diego and a former head of the American Bar Association tax section. Moreover, says Alan Straus, "the level of proof and documentation that you need to supply to be successful has increased over the past few years."
IRS appeals-division officials strongly defend their independence and say they're trying to resolve as many cases as possible in a fair manner without giving away the store. "Independence is central" to the appeals division's mission and effectiveness, says Sarah Hall Ingram, an IRS lawyer who took over as chief of appeals this month. The Treasury Inspector General for Tax Administration, in a report last year, concluded the overall independence of the appeals office "appears to be sufficient."
In its report, the GAO urged the IRS to step up efforts to analyze feedback data from the appeals office in order to identify problems and assess whether additional actions, such as new IRS guidance or additional training, are needed to improve the consistency of decisions. The IRS agreed.
Good tax advice from Yahoo! Finance...

Saturday, March 10, 2007

My Audit Story - Part 1...

On Sunday, May 16, 2004, I received a notice that I was being audited by the IRS. I was 28, unemployed/self-employed, $20,000 in credit card debt and I just thrown out all my 2003 paperwork.

After a massive panic attack, my girlfriends convinced me to still meet them for brunch. Catatonic, I brought along the paperwork and the three of us just stared at it. They were scared to touch it, in case bad luck was contagious.

I called my tax lady who had filed for me that year. She was rather elderly so I was relieved when she answered the phone. I did not need this woman dying on me during my time of need.

My tax lady chuckled when I delivered the bad news. She told me to get my 2003 paperwork together and we could meet the day before my audit appointment.

"But I do not have any paperwork... my boyfriend was mad that the box was in the middle of the living room and he suggested I get rid of it. Which I did." I explained, waiting for her to make this problem go away... isn't that her purpose as my tax person to fix this for me!?

"Well, you better get the paperwork." she said and she hung up.

This news was followed by another panic attack/pity party. That lasted about a week.

Of course, I called my parents. They were sympathetic but there was not much they could to help me either. After all, I was a 28 year old woman who should be able to solve her own problems by now. And they had lost a five year battle with the IRS a few years earlier so they could not even be encouraging or optimistic.

I proceeded to take a regular job. I was lucky to get a senior position at a company that was FAR FAR away. My commute was roughly 3 hours round trip every day. I wanted to die but knew this was the only way to get out of this financial rut. If I didn't soon, I would drown in it.

I spent every second of my commute calling my bank, utility companies and credit card companies begging for copies of my statements from 2003. Every time I explained that I needed this paperwork for an audit, I would hear a sympathetic gasp at the other end of the line. Great, now I am an IRS leper.

For three months, I sat in the same place on my couch and spent every spare second highlighting statements, organizing them in piles that covered the entire living room floor and diligently entering dollar amount after dollar amount into an Excel spreadsheet, that ended up totaling 65 pages.

I did not go out except to go to work. I did not see friends, I did not go on dates, I did not take trips... I sat on my couch surrounded by piles of my potential financial ruin.

And my September 9th date with the IRS was rapidly approaching... the next chapter of my story to come soon...