Expanden Beneficio Tributario Disponible para Primeros Compradores de Viviendas para 2009 | |
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Esteban Martinez
Tax Office
Tuesday, May 12, 2009
Expanden Beneficio Tributario Disponible para Primeros Compradores de Viviendas para 2009
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Esteban Martinez
Tax Office
Ernst & Young Partners Convicted of Tax Fraud
Ernst & Young Partners Convicted of Tax Fraud
New York
(May 11, 2009)
Two current and two former Ernst & Young partners were found guilty of tax fraud and conspiracy charges related to tax shelters.
The four men were charged in May 2007 with developing and marketing tax shelters for wealthy individuals who were making over $10 million a year. They set up a group at E&Y in 1998 to develop tax shelters known at first as VIPER (Value Ideas Produce Extraordinary Results) and later as SISG (Strategic Individual Solutions Group).
A Manhattan jury found the four men guilty on all counts after a two-month trial. They included former tax partners Robert Coplan of Plano, Texas, and Brian Vaughn of Calhoun, La. The other two partners are on administrative leave: Martin Nissenbaum of Brooklyn and Richard Shapiro of Rye Brook, N.Y.
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Stephen Martinez E.A.
Tax Office
Friday, May 1, 2009
Tax Preparer and large Refunds
Arizona Man Sentenced to Prison for Preparing Fraudulent Tax ReturnsOn April 13, 2009, in Phoenix, Ariz., Huy Phuoc Nguyen, of Glendale, Ariz., was sentenced to 21 months in prison. Nguyen pleaded guilty on November 17, 2008, to one count of aiding and assisting in the presentation of false and fraudulent income tax returns. According to court documents, beginning as early as 2001 to 2005, Nguyen owned and operated Lucky Immigration and Income Tax Service in Phoenix. While operating his business, Nguyen personally prepared tax returns for members of the Vietnamese community. On nearly three dozen tax returns, Nguyen fraudulently represented the taxpayers’ deductions and expenses and understated the taxpayers’ income. Some of these fraudulent representations provided tax credits for education, children and earned income to which the clients were not entitled to receive. Nguyen attempted to conceal his fraudulent practice by listing his ex-wife as the tax preparer for the return. The fraudulent tax returns from Nguyen resulted in a tax loss of over $90,000 to the United States.
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Stephen Martinez E.A.
Tax Office
Monday, October 13, 2008
Verizon Wireless Doing Its Best To Strangle SMS Content
Verizon Wireless Doing Its Best To Strangle SMS ContentVerizon Wireless has put the word out that it’s going to start charging 3 cents for every mobile-terminated text message that goes across its network starting November 1, on top of the existing fees it already charges. See blog by MobHappy
That “poof!” sound you just heard was the SMS content and marketing business in the US vanishing in a cloud of stupidity.
RCR reports “Verizon Wireless representative Brenda Raney said the new fee was necessary to cover the carrier’s overhead in delivering MT messages.” She also added this is the first increase levied by Verizon since 2003 — but what’s changed at Verizon that this huge increase is necessary to “align with [its] costs”? Per-message charges would naturally generate higher revenues as usage grows. It’s hard to see how Verizon’s cost for processing inbound messages could suddenly leap so high that it would have to raise the fee to “align” it.
Also keep in mind that Verizon subscribers get charged for incoming messages, whether on a per-message basis, or as a part of their bundle.
If this charge sticks, it will decimate the commercial SMS business in the United States. Content providers will have to try and suck up the charges, or decide to cut off customers of the country’s second-biggest operator. Neither choice is appealing, and it’s doubtful that very many business plans can adapt to either one. Are many people making more than 3 cents per sent message in revenue?
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Stephen Martinez E.A.
Tax Office
Sunday, October 12, 2008
California Mortgage Forgiveness Debt Relief Law
Mortgage Forgiveness Debt Relief Law
The California mortgage forgiveness debt relief law is effective immediately. It is similar to federal law, but with important differences.
The California law covers qualified debt forgiven in 2007 and 2008, and it:
- Limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately.
- Limits debt relief to $250,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $125,000 for taxpayers who file as married/RDP filing separately.
The federal law covers qualified debt forgiven from 2007 through 2012,1 and it:
- Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
- Does not limit the debt relief amount: it only limits the indebtedness amount used to calculate the debt relief amount.
Claiming mortgage forgiveness debt relief for a previously filed 2007 tax return
If you already filed your 2007 tax return, file a Form 540X, Amended Individual Income Tax Return, in order to claim debt relief.
If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column (C).
If the amount of debt relief for federal purposes is the same as the California limit, no adjustment is necessary on Schedule CA (540/540NR). On Form 540X, simply enter on line 2e, column (B), the amount originally entered on Schedule CA (540/540NR) line 21f, column (C).
Claiming mortgage forgiveness debt relief on an original 2007 or 2008 tax return
You can file for debt relief on your original 2007 or 2008 Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.
If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column (C).
If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR).
You must include a copy of your federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) with your original California tax return.
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Stephen Martinez E.A.
Tax Office
Sunday, September 28, 2008
October 15 Deadline Nears; Don’t Let Stimulus Payment Pass You by
October 15 Deadline Nears; Don’t Let Stimulus Payment Pass You byIR-2008-109, Sept. 23, 2008
WASHINGTON — The Oct. 15 deadline to file a 2007 income tax return and to receive an economic stimulus payment this year is fast approaching.
This is the deadline for the estimated 4.3 million retirees and disabled veterans who may be eligible to receive a stimulus payment but who normally don’t file a tax return.
It’s also the deadline for the approximately 10 million people who earlier this year received extensions to file their 2007 income tax return.
“Don’t let the economic stimulus payment pass you by,” said IRS Commissioner Doug Shulman. “If you want the payment this year, you should file by Oct. 15. We recognize that there may be older Americans and disabled veterans who still have not filed for their stimulus payment. If you know of a friend, neighbor or family members who may be in that situation, please give them a hand if they need it.”
The IRS has accounted for nearly 80 percent of the Social Security and Veterans Affairs beneficiaries initially identified as potentially eligible.
The IRS has yet to hear from an estimated 4.2 million people who receive certain Social Security benefits and 178,000 who receive certain Veterans Affairs benefits. The agency twice has sent to this group letters that enclosed a Form 1040A, a sample tax form and instructions for sending the tax return to the IRS. If these instructions have been misplaced, the fastest way to obtain a Package 1040A-3 is to go to IRS.gov or to local IRS offices. There are more than 400 local offices nationwide where people can get assistance in preparing the return as well. A return also can be prepared and submitted for free through Free File which is available at IRS.gov.
People must file a tax return in order to receive an economic stimulus payment even if they normally are not required to file a return.
For eligible individuals, the Economic Stimulus Act of 2008 provided for stimulus payments of up to $600 ($1,200 for married couples) or the amount of the taxpayer’s 2007 net income tax liability, whichever is less. There also is a $300 payment for each qualifying child.
There is an income phase-out, starting at adjusted gross income amounts of $75,000 for single taxpayers and $150,000 for married taxpayers.
For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from earned income, nontaxable combat pay as well as certain benefits from Social Security, Veterans Affairs and Railroad Retirement.
Qualifying income from Social Security includes retirement, disability and survivor benefits. Supplemental Security Income is not a qualifying income. Qualifying income from Veterans Affairs includes disability compensation, disability pension and survivor benefits. Qualifying Railroad Retirement Board benefits include the social security equivalent portion of Tier I benefits. Also, those who are dependents or eligible to be dependents on another’s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.
The IRS has partnered with numerous organizations, including AARP, Center on Budget and Policy Priorities, National Council on Aging, Community Action Partnership, United Way, National League of Cities, National Disability Institute and National Community Tax Coalition. These organizations also are conducting outreach efforts to older Americans and veterans.
Also, each year, there are approximately 10 million taxpayers who request an extension from the April 15 deadline to file their tax return. The extension applies only to filing a return, not to paying any taxes owed. Oct. 15 is a final deadline for these extension taxpayers to avoid any penalties. They, too, may be eligible for the economic stimulus payment but must file a 2007 return by Oct. 15 to receive the payment this year.
By law, the IRS cannot disperse any economic stimulus payments after Dec. 31. However, people who may be eligible for an economic stimulus payment can claim a credit in 2009 by filing a 2008 income tax return.
As of Aug. 29, the IRS has issued $93 billion in economic stimulus payments to 114.8 million individuals and families.
Those who already have filed a 2007 tax return but who have not yet received an economic stimulus payment, can check on the status of your payment by going to “Where’s My Economic Stimulus Payment?” on the IRS.gov Web site.
People also can call 1-866-234-2942 and, after selecting English or Spanish language, should press 2 to check on the status of the stimulus payment. People will need their Social Security Number (the one listed first on the 2007 return), filing status (single, married, etc) and the number of exemptions claimed on the return.
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Stephen Martinez E.A.
Tax Office
Saturday, September 27, 2008
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 YearsIR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
- Applies to home purchases after April 8, 2008, and before July 1, 2009.
- Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
- Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
- You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
- You stop using your home as your main home.
- You sell your home before the end of the year.
- You are a nonresident alien.
- You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
- Your home financing comes from tax-exempt mortgage revenue bonds.
- You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:
*If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
- *If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
- *If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
- *If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
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Stephen Martinez E.A.
Tax Office
Thursday, September 11, 2008
People Can Avoid Common Errors that Delay Stimulus Payments
People Can Avoid Common Errors that Delay Stimulus PaymentsIR-2008-103, Sept. 9, 2008
WASHINGTON — People who are awaiting an economic stimulus payment or who have yet to file can avoid common errors that may delay their payment. They also can use the IRS Web site to answer most common questions.
The Internal Revenue Service, which is still issuing economic stimulus payments, has been studying trends and common issues in filing errors and questions posed by people calling its customer service telephone lines.
The most common question posed to the IRS is from people wondering when they will receive their stimulus payment. The question can be answered easily by going to IRS.gov and using the “Where’s My Economic Stimulus Payment?” Web tool.
Here’s how to avoid common mistakes:
*
File only one tax return — People should file only one 2007 tax return. It takes the IRS up to 12 weeks to process paper returns and issue the stimulus payments. However, some people are filing more than one tax return in an effort to receive a stimulus payment, which could further delay their stimulus payment. The IRS is concerned there will be more multiple filings as the Oct. 15 deadline approaches for filing a return in 2008.
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List qualifying income — Some people are listing their monthly income instead of annual income. People must list their annual amount of qualifying income to be eligible for the minimum payment of $300 ($600 married filing jointly). The qualifying income required by law is at least $3,000 in benefits from Social Security, Veterans Affairs and Railroad Retirement, earned income and/or combat pay.
*
Review your tax liability — Some people who have either small amounts of tax liability or no tax liability are getting smaller stimulus payments than they expected or none at all. Generally, the law provided for a maximum stimulus payment of $600 ($1,200 for married couples) or an amount equal to a taxpayer’s tax liability, whichever was less. Tax liability is the net amount of federal income taxes paid after deductions and credits. If people had no tax liability but had at least $3,000 of “qualifying income” from specific sources, they would be eligible for $300 ($600 for married couples). There also is a $300 payment for each qualifying child.
*
Amended return — Generally, people cannot file an amended return solely to get an economic stimulus payment unless they are a retiree, veteran or have other “qualifying income.” While amended returns will be processed to correct the income, deductions and income tax as appropriate, the economic stimulus payment amount will not be adjusted based on an amended return. If people do not receive a payment this year, they can claim it when they file their tax return in 2009.
*
Use most current address — People must use their most current address in order to receive a timely payment. People who change addresses after filing should complete Form 8822 and a change of address card with the U.S. Postal Service. If the postal service is unable to deliver the payment, it is returned to the IRS.
People must file a 2007 tax return by Oct. 15 in order to receive the economic stimulus payment this year, even if they normally do not have a filing requirement because their income is too low or not taxable. The IRS already has issued 90 percent of the economic stimulus payments but will continue to issue payments through December.
For people who filed a 2007 tax return eight to 12 weeks ago but who have not received a payment, the quickest and easiest way to track the status of the payment is to go to “Where’s My Economic Stimulus Payment?” on IRS.gov. The online tool will report when the payment has been issued. People will need their Social Security number, their filing status and the number of exemptions claimed on their tax return to use this tool.
The IRS online tool also can report other issues, such as ineligibility because income was too high or the returning of an undeliverable payment to the IRS.
The economic stimulus payment begins to phase out for individuals whose income is $75,000 or more and for joint returns with income of $150,000 or more. To be eligible, a person cannot be a dependent or eligible to be a dependent of another person. To be eligible, an individual must have a valid Social Security number unless his or her spouse serves in the military. Supplemental Security Income (SSI) does not count as “qualifying income” for stimulus payment purposes.
The biggest mistake of all would be failing to file a 2007 return in order to receive the stimulus payment, especially for people who are eligible but who do not normally file a tax return because their income is low or nontaxable. People in this category can use a Form 1040A, provide a little information to complete the return and send it to the IRS by Oct. 15. People also are urged to help friends, family or neighbors who may be in this category and unaware of their eligibility.
People who do not file a tax return by Oct. 15 can still obtain their economic stimulus payments when they file their 2008 tax return. If they wait until next year to file, their payments will be based on their 2008 income and personal situations rather than on 2007 information.
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Stephen Martinez E.A.
Tax Office
Tuesday, September 9, 2008
Nicolas Cage Settles with IRS
Nicolas Cage Settles with IRSSept. 5, 2008
LOS ANGELES -- Nicolas Cage, who plays a jaded hit man in his new movie opening Friday, Bangkok Dangerous, has agreed to pay substantial back taxes and penalties to the U.S. Internal Revenue Service, which said that for years he improperly deducted personal expenses.
Nicolas Cage has agreed to pay substantial back taxes and penalties to the U.S. Internal Revenue Service.
In papers filed in U.S. Tax Court, Cage and his Los Angeles-headquartered Saturn Productions said they would pay $666,000, plus unspecified interest. Nearly one-fifth of the base amount, or $99,000, is an "accuracy-related" penalty for "negligence or disregard of the rules."
Forbes was the first to report in February that Cage, under his legal name of Nicolas Coppola, and his company filed parallel U.S. Tax Court cases contesting IRS determinations that he wrongly wrote off $3.3 million in personal expenses from 2002 to 2004, including limos, meals, gifts, travel and his Gulfstream 1159A turbojet. The IRS was seeking a total of $1.8 million in back taxes and penalties, plus interest. However, because of double counting, the amount actually at issue, exclusive of interest, was likely closer to $1 million.
At the time, Cage's business manager, Samuel J. Levin, defended the deductions as "customary in the entertainment industry" and based in part on the actor's "security needs."
Cage's representatives did not respond immediately on Friday to requests for comment on the settlements. The 20% penalty in the settlements, which a Tax Court judge approved in early August, makes clear that the IRS considered the matter a case of noncriminal negligence rather than something more grave.
By Tax Court standards, the Cage complaints made for colorful reading, especially about his opulent lifestyle. He listed $185,000 in employment taxes for household help while the IRS disputed upward of $500,000 spent on his oft-photographed jet. In 2004, the year he starred in National Treasure, Cage listed his 2004 taxable income as $17 million. (The IRS thought it was $18.5 million.)
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Stephen Martinez E.A.
Tax Office
Monday, August 25, 2008
Is Your Hobby a For-Profit Endeavor?
Is Your Hobby a For-Profit Endeavor?FS-2008-23, June 2008
The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby.
Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”
Taxpayers may need a clearer understanding of what constitutes an activity engaged in for profit and the tax implications of incorrectly treating hobby activities as activities engaged in for profit. This educational fact sheet provides information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.
Is your hobby really an activity engaged in for profit?
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.
The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:
*
Does the time and effort put into the activity indicate an intention to make a profit?
*
Do you depend on income from the activity?
*
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
*
Have you changed methods of operation to improve profitability?
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Do you have the knowledge needed to carry on the activity as a successful business?
*
Have you made a profit in similar activities in the past?
*
Does the activity make a profit in some years?
*
Do you expect to make a profit in the future from the appreciation of assets used in the activity?
An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).
If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
What are allowable hobby deductions under IRC 183?
If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.
Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:
*
Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
*
Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
*
Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
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Stephen Martinez E.A.
Tax Office
Lone Accountant Takes on IRS and Wins
Lone Accountant Takes on IRS and WinsBy CHRISTOPHER S. RUGABER (AP Business Writer)
Aug. 25, 2008 (Associated Press) -- WASHINGTON - It took seven years, but Charles Ulrich did something many people dream about, but few succeed at: He beat the IRS in a tax dispute.
Not only that, but tax experts say potentially millions of other taxpayers could benefit from his victory.
The accountant from Baxter, Minn., challenged the method the IRS has used for more than 20 years to tax shares and cash distributed by mutual life insurance firms to their policyholders when they reorganize as public companies.
A federal court recently agreed with his interpretation.
"There's a tremendous amount of money at stake," said Robert Willens, a New York City-based tax analyst at Robert Willens LLC. "Tens of thousands of people could be in line for a refund."
Don Alexander, an IRS commissioner in the 1970s and now a tax attorney in Washington, said while it's not unusual for individuals to take on the agency, "most of them lose."
Alexander called it "quite a significant case."
The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as "demutualization."
Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.
All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.
The IRS held that the recipients hadn't paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.
That didn't sound right to Ulrich, 72, an accountant for 49 years. He began researching the issue in 2001, when he received shares from two companies, Prudential and Indianapolis Life.
Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.
That could make a significant difference in what a taxpayer owes. If a company distributed shares worth $30 and a recipient subsequently sold them at $32, under the IRS' view they would pay taxes on all $32. Under Ulrich's interpretation, they would owe taxes only on the $2 per share gain.
In 2003, Ulrich publicized his views by contacting tax and insurance experts and setting up a Web site.
"Largely I was regarded as a lunatic," he said, who "would never prevail against the IRS."
Still, some people who'd paid taxes contacted Ulrich and asked him to file refund requests, which he did, for a fee. Some of those refunds were granted, he said. Tax experts say the IRS doesn't always closely scrutinize small refunds.
One of his clients, Jean Prevost and her husband, Jim, who live near Minneapolis, received a refund of almost $1,500 in federal and state taxes in 2003.
"It wasn't a huge amount of money, but it was ours," she said.
But the IRS wasn't pleased with Ulrich, accusing him of promoting abusive tax shelters and demanding the names of his clients, which he said he refused to provide.
The agency backed off in 2004 with help from the IRS's Taxpayer Advocate office, Ulrich said.
IRS spokesman Bruce Friedland said the agency is prohibited from commenting on its interactions with taxpayers.
One of Ulrich's clients, Eugene Fisher, a trustee for a Baltimore, Md.-based trust, sued the IRS in February 2004 after being denied a refund.
Judge Francis Allegra of the Court of Federal Claims in Washington sided with Fisher and called the IRS' view "illogical" in an Aug. 6 decision. He ordered the agency to refund $5,725 in taxes plus interest to the trust overseen by Fisher.
It's not clear how many people could benefit from the ruling. Many of the 30 million policyholders are probably too late to seek refunds, since claims must be filed within three years of the April 15 tax deadline. That means the statute of limitations for taxes paid for 2004 ran out April 15, 2008.
Many individual taxpayers may not have enough at stake to go to the trouble, said Burgess Raby, a Tempe, Ariz.-based attorney who represented Fisher. Still, millions of policyholders could benefit from the court's ruling, he said.
Raby credits Ulrich with being the driving force behind the issue.
"The genesis for this was Chuck's real feeling that this was an unfair position" by the IRS, Raby said.
The government could appeal the ruling and likely will fight future refund claims, perhaps hoping for a different outcome in a separate court, tax experts said.
Charles Miller, a spokesman for the Justice Department, said the government hasn't yet decided whether to appeal.
Still, taxpayers should request refunds if they're eligible, the tax experts said, because even if the IRS rejects the claim, doing so extends the deadline for a potential refund for two more years.
Ulrich will prepare refund requests for interested taxpayers, for a fee, and has posted additional information at his Web site, http://www.demutualization.biz ->
But he said the principle is more important to him.
"I think it's important that taxpayers' rights be protected," he said. "We should have had a Boston Tea Party over this."
© Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Stephen Martinez E.A.
Tax Office
IRS Plans New Taxpayer Warning Letters
IRS Plans New Taxpayer Warning LettersWashington, D.C. (Aug. 22, 2008)
By WebCPA staff
The Internal Revenue Service is planning to increase its enforcement efforts by sending out warning letters to a larger group of taxpayers who may be underreporting their income.
The new warning letter, the CP2057, will differ from the CP2000 letter that the IRS has been sending out for years, according to The Wall Street Journal. The earlier type of letter included suggestions for proposed changes to areas such as income, credits and deductions, while the CP2057 will mainly ask taxpayers to double-check parts of the return and file an amended return if they have made a mistake. Unlike the CP2000, it will not include the exact amount owed.
The IRS will begin testing the new automated notices later this year and expand their use if they succeed in collecting extra revenue.
"The Automated Soft Notice (CP2057) is a test involving approximately 31,000 notices mailed this fall," said IRS spokesman Bruce Friedland in an e-mail. "If the test results indicate limited underreporting in the subsequent year and self-correction of unreported income, we hope to expand the use of this notice. A very small portion of our staff is assisting in this test - again, it is designed as an automated notice. The CP2057 asks the taxpayer to file an amended return, or work with the document issuer to correct erroneous documents."
The warning letters are part of the IRS's ongoing effort to close the estimated $300 billion tax gap by looking for ways to identify people who may be dodging taxes or miscalculating. The automatically generated letters will leverage computer technology for matching information on the returns that taxpayers submit with other forms the IRS receives, such as 1099 and K1 documents, in an effort to find more discrepancies and abuses.
"We believe this approach will allow taxpayers to correct underreporting issues without having to correspond extensively with the IRS, thus benefiting both the taxpayer and the service," said Friedland. "We continue to issue CP2000 notices (an important component of our enforcement efforts) and expect to continue issuing these notices as appropriate, even if we expand the use of CP2057."
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Stephen Martinez E.A.
Tax Office
More than 8,000 California businesses are being notified of impending visits from State Board of Equalization
State Board of Equalization News ReleaseState Board of Equalization • 450 N Street, Sacramento, CA 95814 • 800-400-7115
Ramon J. Hirsig
Executive Director
www.boe.ca.gov
NR 64-08-G
For Immediate Release Contact: Anita Gore
August 21, 2008 916-327-8988
Board of Equalization Announces Enhanced Compliance Effort
Businesses Get Answers Regarding New Statewide Outreach Program
Sacramento – More than 8,000 businesses in seven different zip codes throughout the state are being notified this week of impending visits from Board of Equalization (BOE) specialists who will be canvassing the areas to ensure the businesses are properly registered and paying taxes.
This new enhanced compliance effort is slated to begin mid-September. The first areas to get visits under this program are: 94608 - Emeryville; 95826 - Sacramento; 95110 - San Jose; 91406- Van Nuys; 90505 - Torrance; 92701 - Santa Ana; and 92570 - Perris.
The BOE held an advisory meeting today with business representatives about a new statewide compliance enhancement program to be launched in the coming weeks. The meeting gave businesses and their representatives a chance to learn about the new program, get their questions answered, and voice any concerns. The BOE meeting is one of many outreach efforts to inform businesses of an upcoming increase in door-to-door visits by BOE representatives statewide.
The goal of these visits by BOE specialists is to ensure all businesses are properly registered so there is no an unfair business advantage over those businesses that are properly registered and reporting their taxes/fees. It is estimated that over three percent of businesses operating in California do so without the appropriate permits or licenses that allow for collection of sales and use tax, as well as other taxes and fees. A recent two-year pilot Business License Inspection Program showed this to be an accurate estimate. Non-compliance is a part of the more than $2 billion sales and use tax gap.
The BOE specialists will conduct checks for seller’s permits of all storefronts and other known business locations in each neighborhood. Initially, there will be seven teams located throughout the state that will begin their door-to-door visits based on zip code. Registered retailers will be checked for appropriate permits and licenses as well as service industry businesses, especially if the particular service industry also sells taxable retail items. Those businesses found to be out of compliance will be given instructions on how to register with the BOE and given information about other necessary licenses.
The advisory meeting in Sacramento was the first of two meetings intended to educate businesses throughout California on what a visit from a BOE specialist will entail. A second meeting will be held in the BOE’s Culver City Board Room on August 26, 2008.
The five-member California State Board of Equalization is a publicly elected tax board. The BOE collects more than $53 billion annually in taxes and fees supporting state and local government services. It hears business tax appeals, acts as the appellate body for franchise and personal income tax appeals, and serves a significant role in the assessment and administration of property taxes.
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Stephen Martinez E.A.
Tax Office
Tuesday, August 19, 2008
¿Dónde se Puede Reportar Actividad Fraudulenta de Impuestos?
¿Dónde se Puede Reportar Actividad Fraudulenta de Impuestos?Si sospecha o tiene conocimiento de que un individuo o corporación no está cumpliendo con la ley de impuestos, usted debe reportar esa actividad. El reportar una actividad sospechosa o fraudulenta se puede hacer por teléfono, a través del correo, o visitando la oficina local de IRS.
Para reportar actividades sospechosas de fraude contributivo, llene la Forma 3949-A o escriba una carta que contenga información similar, y envíela por correo al Internal Revenue Service, Fresno, CA 93888.
Las oficinas de Servicio al Contribuyente del IRS
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Esteban Martinez
Tax Office
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