One facet of tax law is that in most cases, the government is not shy about letting individuals and businesses if they have underpaid taxes. However, when the reverse is true -- when taxes are overpaid -- it is often the responsibility of the taxpayer to try to get that overpayment back.
]]> This is playing out right now in Indiana. The state unemployment fund was running low, and the state had to repay about $2 billion in loans to the federal government. In response, state lawmakers increased the amount of employee wages that businesses had to pay into the fund, in the form of a tax, from the first $7,000 earned to the first $9,500.The original plan was to take effect in January 2010. However, state lawmakers ultimately delayed the implementation a few months later, but many business owners didn't get the message and thus overpaid.
Officials suspect the problems derived from online tax software that did not reflect the tax hike. Ultimately, it was up to the businesses to be aware of the changes, but the state had a role in letting them know about them as well.
Now a yet-unknown number of businesses will have to figure out how much they overpaid in taxes and then file with the state to get that money back. This case can be a lesson to those whose attention might wane at tax time: be sure of the law, even if your tax software claims to be the ultimate authority.
Source: Bloomberg Businessweek, "Ind.: Unemployment tax repayment causes confusion," Tom LoBianco, May 16, 2012
]]>According to prosecutors in the case, the soldier stole the names, birthdates and Social Security numbers of his fellow Marines in Afghanistan. He then sold the information to a woman in Florida who told him she would split the proceeds from filing false returns.
]]> The woman pleaded guilty to tax fraud last month and cooperated with investigators as part of a plea agreement. The Marine who was arrested expected to receive more than $50,000 as part of his role, according to the woman. The woman told the man that she would hold on to his take until he returned from his service in Afghanistan.The case comes on the heels of another big scheme that was thwarted by authorities that involved some former professional football players. In the Internet age, tax fraud is often a temptation that people are unable to avoid.
People who have been caught up in such schemes are obviously in serious trouble. The federal government has been quite aggressive in charging and prosecuting people involved in identity theft. However, for those who are caught up in such schemes, not all is lost. Everyone is entitled to a strong defense and even cases that might seem all but lost at first can end in a favorable outcome for the person who has been charged.
Source: The Miami Herald, "North Miami Marine arrested on tax-related fraud charges," Jay Weaver, May 9, 2012
]]>The man had twice been a candidate for Congress as well as a longtime member of the University of North Carolina Board of Governors. However, prosecutors in the case said the man's law practice was struggling, and he not only underreported his income - leading to the tax fraud charges - but also embezzled from more than one of his clients.
]]> Prosecutors allege that the man received money from clients and trust accounts that he was supposed to forward to beneficiaries and heirs for those accounts. However, authorities say he kept the money for himself to enhance his lifestyle and cover losses at his law firm.Now the former attorney faces severe penalties for his transgressions. The judge in the case told the man he could face as many as three years in prison and be subjected to a fine of up to $250,000. The charges only cover the man's tax evasion charges; he has not been charged with embezzlement, despite the suspicions of the prosecutor in the case.
While not everyone will face such severe problems for the tax issues they have, any problem someone might have with the IRS or tax law should be addressed in a timely manner so that prison time or large fines do not become a possibility.
Source: Citizen-Times, "Neill pleads guilty to tax fraud at Asheville hearing," Clarke Morrison, April 16, 2012
]]>Recent news report indicated that Vonn owed the Internal Revenue Service more than $1.7 million in federal taxes. Earlier this month, the IRS filed a tax lien against the skier and her soon-to-be ex-husband Thomas Vonn. Recently, however, a spokesperson for the skier confirmed that the tax law issue had been settled and her debt had been paid.
]]> Vonn explained that the money was owed for the 2010 tax year. However, it was an issue she only recently learned of. She said she was disappointed with the situation, but learned that it was a mistake for her to rely on someone else to take care of her finances.Vonn has been going through a divorce from her husband and coach, Thomas Vonn.
The tax system in the United States is very complex. This story serves as an example how simple mistakes can lead to bigger problems with the IRS.
North Carolina residents who have been contacted by the IRS for potential problems with their taxes would be wise to rely on an experienced tax law attorney. An attorney has a broad understanding of the complex tax laws and can help people settle any potential issues. It can be overwhelming and frustrating for an individual to deal with a tax delinquency issue. However, there are places to turn for help.
Source: USA Today, "Spokesman: Vonn pays off IRS tax debt," April 15, 2012
]]>Many taxpayers in North Carolina this week are finding out what it's like to go it alone when it comes to the IRS. Not only are millions of taxpayers around the country filing their returns, but people with existing tax issues, including audits, are trying by themselves to get help from what is an overworked, understaffed government agency.
]]> Compared with this time last year, the IRS has 5,000 fewer employees. While this might help the overall government picture -- having fewer people working for the government means less money taxpayers have to pay to keep them employed -- it is of little comfort for the people who need help at this time of year.At IRS offices across the country this week, people who wanted in-person assistance waited an hour, two hours or more to get help from an agent. Computer systems were unreliable, tempers were short and at least one person waiting for an hour and a half had to leave the office to use the restroom at a nearby business because the IRS office didn't have any public facilities.
People who need tax help don't have to go it alone. A good tax attorney can go a long way toward streamlining the sometimes interminable IRS process and reducing the stress level of someone facing an audit or other serious issues.
Source: USA Today, "Toughest problem facing taxpayers: Getting help from the IRS," Sandra Block, April 16, 2012
]]>A provision in a bill recently passed in the United States Senate would permit the government to withhold a passport to people the Internal Revenue Service says owes more than $50,000 in delinquent taxes.
]]> While the regulation would not be implemented across the board -- emergency circumstances, payoff plans and humanitarian reasons would likely prevent the provision from being invoked -- it would affect many Americans who owe taxes. When the IRS files a notice of lien, which is not uncommon for people with large amounts of back taxes, it could set in motion a process to revoke that person's passport.As with many proposed regulations at the federal, state and local level these days, the goal is to try to take in money that has escaped the government's grasp. This is being manifested in a variety of ways. At the state level, governments have been doing everything from cutting the duration of unemployment benefits to ordering leftover funds in expired gift cards to be sent to the treasury department.
As with many Congressional bills, the idea's potential path to law is a circuitous one. The legislation is tucked within a bill dealing with highway construction funding. Whether or not the bill ultimately arrives at President Obama's desk with the provision -- and if he would sign it -- is not yet known. But at the very least it should give people who owe back taxes a reason to get their situation under control.
Source: Forbes, "Owe back taxes? No travel for you," Robert W. Wood, April 12, 2012
]]>One method of tax law avoidance that states have become increasingly aware of is a computer practice known as tax-zapping. This is apparently becoming increasingly common among businesses that deal primarily with cash transactions.
]]> The software works by generating a duplicate set of receipts from a cash register. When a sale is made, the register records one figure and calculates the correct amount of income tax due, printing a valid receipt for customers. At the end of the business day, the software can be activated or plugged into the cash register via a flash drive.The program then reduces sale amounts so that it would appear that a lower volume of sales has been generated -- thus showing a smaller tax amount that would have to be turned over to the state. The software creates a parallel set of records for the business: the true sales figures and the doctored ones.
One legal tax expert estimates that up to 30 percent of businesses that deal predominantly in cash transaction use these tax-zapping programs to reduce their tax burden. Five states have already passed laws specifically targeting the programs, and several others are considering doing so as well.
Source: Winston-Salem Journal, "States target tax fraud software," April 4, 2012
]]>As might be expected, those with higher incomes are audited more frequently than those who make relatively little. What might be a surprise, however, is that that percentage is growing. IRS data released recently shows that about 1.1 percent of taxpayers were audited last year, which is about the same amount as the previous year. For those who made between $1 million and $5 million, however, the numbers are quite dramatic.
]]> In 2010, about 7 percent of taxpayers in that range were audited. However, last year, that figure jumped to about 12 percent. That still pales in comparison to groups who make more: for people who earned between $5 million and $10 million, the audit figure was about 21 percent, and for those who made more than $10 million it was about 30 percent.What could account for the increase in audits for those in the $1 million to $5 million range? Experts say part of the reason is likely due to the extra vigilance placed on offshore tax evasion detection by the IRS. Those with higher incomes are more likely to be involved with these accounts.
Also, some of the reason could be political. As discussed earlier on this blog, presidential candidates have been making headlines with their tax returns and what some see as improperly low rates of tax paid. Some observers say that as a result of some of the bad publicity, the IRS has been trying to demonstrate that millionaires are indeed subject to higher scrutiny.
Source: CNN Money, "Audit rates of millionaires nearly double," Blake Ellis, March 23, 2012
]]>A company familiar to people in North Carolina for its frequent advertising on cable television, TaxMasters offers to settle debts with the IRS for considerably smaller amounts than what is owed. While this may be a possibility, the company has run afoul of at least one state's deceptive trade practices act for its claims and fulfillment of promises made in its ads.
]]> TaxMasters filed for bankruptcy this week, leaving thousands of taxpayers uncertain about how their dealings with the IRS will now go with their paid representatives in a tenuous financial position. TaxMasters does say that it is neither a CPA firm nor a law firm, so people who contracted with them were hopefully aware of that before they chose to move forward with a potential IRS settlement.Taxpayers in North Carolina who are struggling with tax debts need to take a look at firms that offer to settle their debts with overly optimistic terms; if something is too good to be true, it often is. Attorneys who are experienced with the IRS and with tax law are a good resource for people trying to decide how to best tackle their tax issues.
Source: CBS News, "TaxMasters bankruptcy leaves clients in the lurch," Ray Martin, March 20, 2012
]]>The two men worked independently of each other but the government alleges that their goals were the same. Each of the men, authorities say, engaged in cloak-and-dagger methods to try to avoid detection. One of the men would take cash deposits from clients when he visited the United States and then pay out the money to other clients if they requested withdrawals, thereby eliminating a paper trail of events.
]]> Investigators said the other man once had a client request $150,000 from his secret Swiss bank account. The client then received a phone call from an unknown person directing him to an unfamiliar address in Brooklyn, New York. A child allegedly then walked out of a nearby building and handed the client $150,000 in cash, concealed in a bag.Authorities say the between the two of them, the men were responsible for keeping about a quarter of a billion dollars in secret Swiss accounts. One of the banks in Switzerland that housed some of the deposits was indicted separately in February for peddling tax-evasion services to Americans.
Neither of the men were taken into custody, and it was unclear if they were in the United States, Switzerland or some other country.
Source: Reuters, "Two Swiss financial advisers indicted in U.S.," Lynnley Browning, Mar. 14, 2012
]]>The average taxpayer might not understand why he or she has been selected to be audited. In fact there are several factors within a person's return that could raise red flags to the IRS that a return might be audit-worthy. Knowing how to avoid these red flags in the first place is a great way to avoid being audited and save a lot of worrying and hand-wringing.
]]> Some important factors include:• Scoring via computer. IRS computers analyze your data and calculate how likely it is that you have understated your income. This comes out in the form of two computerized scoring functions. High scores are generally a good indicator of being audited.
• Cross-checking. Information about your finances that is already furnished to the IRS, such as your W-2 or 1099s, means the agency can match them with your return to see if the numbers jibe.
• Relationships. If you were issued a tax form by a company that is being audited, that raises your chances of being audited as well.
• Tax avoidance. Similar to the relationships issue, if employees at a business you have a relationship with (such as an account at a bank) are charged with tax fraud offenses, you might be audited as a result.
Source: U.S. News & World Report, "Will You Get Audited by the IRS?" Jim Wang, Feb. 29, 2012
]]>The woman, who was employed by Guilford County Schools, submitted a fraudulent Form NC-4 that claimed she was exempt from North Carolina state income tax. She had no taxes withheld from her paycheck for seven years, from 2004 through 2010. She failed to file tax returns with the state as well. The charges against here were brought about as a result of an investigation by the Department of Revenue's Criminal Investigations Section.
]]> Ultimately the Greensboro woman was convicted of seven felony tax evasion charges, one for each year she had no taxes withheld. Her prison sentence was suspended and she will be on supervised probation for three years. She also has to file returns for two years that she has not yet filed, pay a fine and also pay restitution to the state.While the woman's defense was novel -- that she was a sovereign citizen -- it was rejected by the jury in Wake County, North Carolina. In most cases, when people believe they have found a way around paying taxes that seems too good to be true, it usually is. An experienced tax attorney is often able to sort out the difference between a legitimate defense and one that a jury will not find believable.
Source: WFMY News 2, "Gloria Tatum-Wade Found Guilty of Tax Fraud In NC," Feb. 28, 2012
]]>In the case, a couple from Japan admitted to filing a false corporate tax return to the tune of about a quarter of a million dollars. An immigration judge decided that the crimes were aggravated felonies and thus ordered them to be deported. The baseline for an aggravated felony is one stemming from "fraud or deceit" in which the revenue loss to the government is more than $10,000. The couple appealed to the Board of Immigration Appeals, which agreed with the immigration judge, and so the couple appealed again.
]]> In its ruling, the Supreme Court disagreed with the couple that the statute regarding aggravated felonies did not apply to tax cases. The couple argued that by filing a false tax return, they had not committed fraud or deceit, as specified in the statute, and the government did not have to prove deceit in order to secure their conviction of filing a false tax return.In the end, the court upheld the couple's deportation to Japan, and since they have exhausted their appeals in the case, it seems likely that they will have to give up their fight and return to their native land.
Source: Forbes, "Supreme Court Finds Tax Crimes Are Grounds for Deportation," Kelly Phillips Erb, Feb. 22, 2012
]]>As a result, innocent spouses who might have otherwise been on the hook for unpaid taxes would still be liable for them on what was essentially a technicality. The national taxpayer advocate, however, has been urging that the IRS take a look at the policy because it might be hurting those whom it was supposed to be helping.
]]> Until this relatively recent change in philosophy, the IRS would not generally grant relief if a spouse signed a return that he or she knew was fraudulent. However, this did not take into account spouses who would do so under threat of abuse when the other spouse had financial control. As one expert says, "Knowledge is no longer a fatal factor." As many as 90 percent of taxpayers who assert the innocent spouse defense are women.Currently the agency sees about 32,000 innocent spouse cases filed every year, and only about one-fifth of them are granted full relief. That number will likely change, but it is not known by how much. People who think they may fall under the criteria as an innocent spouse can work with a tax attorney to determine the best process for them to pursue.
Source: The New York Times, "For 'Innocent Spouses,' a Helpful Shift in I.R.S. Policy," Carla Fried, Feb. 11, 2012
]]>A man who had businesses in Wilmington, North Carolina, now has to experience for himself what those penalties will be. The 65-year-old was sentenced on income tax evasion charges last month in federal court. The man had been accused of owning and operating three video gambling establishments, which were illegal under North Carolina law.
]]> According to authorities, rather than report the income from the gambling businesses for 2004 and 2005, the man filed tax returns under the name of a furniture refinishing business. He claimed no income from this business on the returns; however, according to the IRS, he actually made nearly $500,000 from the gambling enterprises. Prosecutors say that this led to the government being underpaid by nearly $150,000.As a result, the man was sentenced to just over a year in federal prison followed by two years of supervised release. The IRS also seized cash and currency worth more than half a million dollars, four vehicles, and even the man's home because they were all allegedly obtained as a result of the illegal businesses.
People in North Carolina who find themselves the target of IRS action are often benefited by consulting with an attorney experienced in tax matters and in negotiating with the IRS.
Source: CarolinaLive.com, "Little River Man sentenced for income tax evasion," Jan. 26, 2012
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