Tax Help for the Rest of Us

Frivolous Tax Arguments: Only Foreign-Source Income is Taxable

noreply@blogger.com (Anonymous) — Fri, 12 Dec 2008 18:03:00 +0000

Some maintain that there is no federal statute imposing a tax on income derived from sources within the United States by citizens or residents of the United States. They argue instead that federal income taxes are excise taxes imposed only on nonresident aliens and foreign corporations for the privilege of receiving income from sources within the United States.

The premise for this argument is a misreading of sections 861, et seq., and 911, et seq., as well as the regulations under those sections.

The Law: As stated above, for federal income tax purposes, “gross income” means all income from whatever source derived and includes compensation for services. I.R.C. § 61. Further, Treasury Regulation § 1.1-1(b) provides, “[i]n general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.” I.R.C. sections 861 and 911 define the sources of income (U.S. versus non-U.S. source income) for
such purposes as the prevention of double taxation of income that is subject to tax by more than one country. These sections neither specify whether income is taxable, nor do they determine or define gross income.

These frivolous assertions are clearly contrary to well-established legal precedent.

In March 2005, a federal district court in Florida barred Gregory T. Mayer from preparing false or fraudulent returns and selling fraudulent tax schemes relying upon, among other things, the frivolous section 861 argument, which falsely claims that income from sources in the United
States is not subject to federal income tax. See http://www.usdoj.gov/opa/pr/2005/March/05_tax_119.htm; see also 2005 TNT 49-63 (Mar. 14, 2005). In August 2005, a federal district court in Florida permanently barred Carel “Chad” Prater and Richard Cantwell from promoting tax-fraud scams relying on the section 861 argument. See http://www.usdoj.gov/opa/pr/2005/September/05_tax_505.html; see also
2005 TNT 204-51 (Aug. 30, 2005).**

** Extracted from http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc153765510

Sixth Frivolous Tax Argument: Wages, Tips and Other Compensation Received For Personal Services Are Not Income.

noreply@blogger.com (Anonymous) — Wed, 10 Dec 2008 15:09:00 +0000

This argument asserts that wages, tips, and other compensation received for personal services are not income, because there is allegedly no taxable gain when a person “exchanges” labor for money. Under this theory, wages are not taxable income because people have basis in their
labor equal to the fair market value of the wages they receive; thus, there is no gain to be taxed. A variation of this argument misconstrues section 1341, which deals with computations of tax where a taxpayer restores a substantial amount held under claim of right, to somehow allow a
deduction claim for personal services rendered.

Another similar argument asserts that wages are not subject to taxation where a person has obtained funds in exchange for their time. Under this theory, wages are not taxable because the Code does not specifically tax these so-called “time reimbursement transactions.” Some take a different approach and argue that the Sixteenth Amendment to the United States Constitution did not authorize a tax on wages and salaries, but only on gain or profit.

The Law: For federal income tax purposes, “gross income” means all income from whatever source derived and includes compensation for services. I.R.C. § 61. Any income, from whatever source, is presumed to be income under section 61, unless the taxpayer can establish that it is
specifically exempted or excluded. In Reese v. United States, 24 F.3d 228, 231 (Fed. Cir. 1994), the court stated, “an abiding principle of federal tax law is that, absent an enumerated exception, gross income means all income from whatever source derived.” The IRS issued Revenue Ruling
2007-19, 2007-14 I.R.B. 843, advising taxpayers that wages and other compensation received in exchange for personal services are taxable income and warning of the consequences of making frivolous arguments to the contrary.**

** Extracted from http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc153765510

Fifth Frivolous Tax Argument: Compliance with an Administrative Summons Issued by the IRS is Voluntary

noreply@blogger.com (Anonymous) — Fri, 05 Dec 2008 17:54:00 +0000

Some summoned parties may assert that they are not required to respond to or comply with an administrative summons. Proponents of this position argue that a summons thus can be ignored. The Second Circuit’s opinion in Schulz v. I.R.S., 413 F.3d 297 (2d Cir. 2005) (“Schulz II”) is often cited to support this proposition.

The Law: A summons is an administrative device with which the IRS can summon persons to appear, testify, and produce documents. The IRS is statutorily authorized to inquire about any person who may be liable to pay any internal revenue tax, and to summons a witness to testify or to produce books, papers, records, or other data that may be relevant or material to an investigation. 26 U.S.C. § 7602; United States v. Powell, 379 U.S. 48 (1964). Sections 7402(b) and 7604(a) of the Internal Revenue Code grant jurisdiction to district courts to enforce a summons, and section 7604(b) governs the general enforcement of summonses by
the IRS.

Section 7604(b) allows courts to issue attachments, consistent with the law of contempt, to ensure attendance at an enforcement hearing "[i]f the taxpayer has contumaciously refused to comply with the administrative summons and the [IRS] fears he may flee the jurisdiction." Powell, 379 U.S. at 58 n.18; see also Reisman v. Caplin, 375 U.S. 440, 448-49 (1964)
(noting that section 7604(b) actions are in the nature of contempt proceedings against persons who “wholly made default or contumaciously refused to comply,” with an administrative summons issued by the IRS).

Under section 7604(b), the courts may also impose contempt sanctions for disobedience of an IRS summons.

Failure to comply with an IRS administrative summons also could subject the non-complying individual to criminal penalties, including fines and imprisonment. 26 U.S.C. § 7210. While the Second Circuit held in Schulz II that, for due process reasons, the government must first seek judicial review and enforcement of the underlying summons and to provide an intervening opportunity to comply with a court order of enforcement prior to seeking sanctions for noncompliance, the court’s opinion did not foreclose the availability of prosecution under section 7210. **

** Extracted from http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc153765510

Fourth Frivolous Tax Argument: The IRS Must Prepare my Return

noreply@blogger.com (Anonymous) — Fri, 05 Dec 2008 17:42:00 +0000

Those proponents of this argument contend that section 6020(b) obligates the IRS to prepare and sign under penalties of perjury a federal tax return for a person who does not file a return. Thus, those who subscribe to this contention claim that they are not required to file a return for themselves.

The Law: Section 6020(b) merely provides the IRS with a mechanism for determining the tax liability of a taxpayer who has failed to file a return.

Section 6020(b) does not require the IRS to prepare or sign under penalties of perjury tax returns for persons who do not file and it does not excuse the taxpayer from civil penalties or criminal liability for failure to file.

Among the relevant cases United States v. Barnett, 945 F.2d 1296, 1300 (5th Cir. 1991) can be cited- where defense counsel in prosecution for willful failure to file individual federal
income tax returns raised inference that the IRS actually had some
statutory duty to file returns for delinquent taxpayers, court properly
instructed jury that IRS has no such duty. **

** Extracted from http://www.irs.gov/taxpros/article/0,,id=159932,00.html#_Toc153765510

Third Frivolous Tax Argument: Filing a Zero Return

noreply@blogger.com (Anonymous) — Fri, 28 Nov 2008 19:39:00 +0000

One of the popular contentions going around is advising taxpayers to file a zero return regardless of their income, in order to reduce their Federal Tax Liability. Adding insult to injury, some of these ill-advised taxpayers claim a refund in addition to filing zero income.

The lowdown: There is nothing in tax law that allows an individual with taxable income to file a zero income return. Taxable income includes but is not limited to: wages, salary, tips, interest, dividends, rental income , retirement plans, pensions, annuities, social security, royalties, unemployment, bribes (yes bribes), alimony, jury duty, prizes and awards, Pulitzer prize, Nobel prize, stolen property (yes, if you steal property you must reported as income) and even bartering.

Of course there are qualifiers and under some circumstances some of this income is not taxable i.e. Social Security. However, if you derive income from any of these sources you must reported on your return and cannot claim zero.

This would apply to the "nunc pro tunc" argument, a similar argument made with the purpose of reducing the tax responsibilities of individuals.

For further information the IRS has written extensively in the document covering the majority of these positions in their Internal Revenue Bulletin 2006-15 (IRB:2006-15).

Second Frivolous Tax Argument: Payment of Tax is Voluntary

noreply@blogger.com (Anonymous) — Tue, 25 Nov 2008 15:25:00 +0000

Where the first frivolous tax argument contends that the law does not impel citizens to file a tax return, this one argues that payment is somehow voluntary. Those who subscribe to this view argue that the Internal Revenue Code does not clearly demand or impose the payment of taxes. The IRS, however, has clearly addressed this position and warned taxpayers of the consequences of this view.

U.S. Code Title 26, Subtitle A, Chapter 1, Subchapter A, Part I, § 1 clearly spells out tax impositions for taxable individuals and which ones these are. In addition U.S. Code Title 26, Subtitle F, Chapter 62, Subchapter A, §6151 clearly states "...when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return)."

This position has repeatedly been addressed by the courts which continually uphold the view that individual citizens have a responsibility to pay their taxes, Federal and State. As in the case of United States v. Drefke. In this case addressing the state issue the Eighth Circuit Court of Appeals stated "For seventy-five years, the Supreme Court has recognized that the sixteenth amendment authorizes a direct nonapportioned tax upon United States citizens throughout the nation, not just in federal enclaves." citing the United States v. Collins case (920 F.2d 619, 629).

Several other relevant cases can be found such as United States v. Bressler, United States v. Gerards, Schiff v. United States, Wilcox v. Commissioner.

As stated in the initial article, the pursuit of these frivolous tax arguments end up costing the individuals who subscribe to them millions of dollars in legal fees, penalties and interest and even jail time.

First Frivolous Tax Argument: The Voluntary Nature of the Federal Income Tax System.

noreply@blogger.com (Anonymous) — Wed, 19 Nov 2008 19:12:00 +0000

There are two major arguments that apply to the "voluntary" nature of the tax system. Number one is the contention that Filing is voluntary, whereas the second one contends that Paying is voluntary, usually these two arguments go hand in hand. We'll first look at the former.

Proponents of the voluntary nature of the filing system point to IRS' own literature which point to the voluntary nature of the system. At some point even the 1040 instruction book made this mention. Additionally, the Supreme Court's opinion in Flora v. United States decided on March 21, 1960 (see page 362 of the decision) which says "Our system of taxation is based upon voluntary assessment and payment, not upon destraint".

Ever since this decision by the Supreme Court those who oppose the tax system have made reference to this statement in order to push forward their contention, however, the voluntary nature of the filing system is to allow the taxpayer to initially determine the amount of tax liability and complete the appropriate form rather then to have the IRS determine their taxes for them. However, US Code Section 6011 clearly states "...When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations."

Failure to comply with the filing requirement can have severe consequences including civil and criminal penalties, including fines and even imprisonment. Should you find yourself under these circumstances it is imperative that you put yourself in the hands of a competent tax consultant or attorney (in the case of criminal charges) in order to resolve the situation as soon as possible.

Top 10 Frivolous Tax Arguments

noreply@blogger.com (Anonymous) — Wed, 19 Nov 2008 18:47:00 +0000

Today I'll start a series of articles geared toward answering some of the most common misconceptions regarding the authority, history and legality of the tax system. As a Tax Consultant my job is not to change the system, oppose it or transform it. My job is to advice taxpayers on the options available and look for the best solution for their individual needs. Now, there are some unreasonable contentions from some who oppose the tax system, however, there are also some reasonable arguments as well. I respect the opinions of those who oppose the tax system as long as their contention does not improperly advice individuals to illegally stop complying with their tax obligations. This type of advice is very costly to the individual leading as we'll see to tremendous tax burdens, legal difficulties and even prison. Again, there are legitimate ways to contend about the legitimacy of the tax system and our legal system has a due process that needs to be followed in order to put in effect new laws that take some pressure off of the shoulders of taxpayers, not to mention possibility to elect political representatives that agree with one's political views.

Standard vs. Itemized Deductions

noreply@blogger.com (Anonymous) — Wed, 12 Nov 2008 22:18:00 +0000

Who should itemize and when? The IRS gives taxpayers what is called a Standard deduction allowance that is adjusted every year for inflation. This standard deduction allowance varies depending on marital status, filing status and age and it varies between $5,350 for a single person and $10,700 for married person filing jointly. Taxpayers over the age of 65 get additional standard deduction as do the blind.

Now, if your total deductions exceed the standard then you should itemize with your tax return. To itemize means that you account for expenses that you incurred during the year that are deducted from your income, thereby reducing the tax burden.

Among the expenses that a taxpayer is allowed to deduct are, home computer, hobby expenses, legal fees, rental cost for deposit boxes, gambling losses and travel expenses. The most common are medical and dental expenses, property taxes, mortgage interest and charitable donations.

It is always a good idea to consult with an accountant or a tax consultant to determine the best way to file in order to maximize deductions.

5 Overlooked Tax Deductions

noreply@blogger.com (Anonymous) — Wed, 12 Nov 2008 20:51:00 +0000

Every year millions of tax retuns are filed, most of them will overlook legitimate tax deductions creating an unnecessary tax burden. The following is a list of 5 often overlooked deductions:

Moving Expenses.

Accounting Fees for tax preparation services and IRS audits.

Medical and Dental Expenses.

Taxes Paid.

Charitable Contributions.

Moving Expenses: Moving expenses are deductible if certain qualifications are met by the taxpayer. The move has to be work related (transfer, new job, etc...) The taxpayer must start to work within 1 year from the date he/she moved to the new location. Your new home must be closer to your place of work than your old home. Finally, your new job location must be at least 50 miles farther from your from your old home.

Accounting Fees for Tax Preparation Services: A taxpayer is allowed to deduct the cost of tax preparation services for the year that the fees were paid, including all schedules (A, C, E, etc...)

Medical and Dental Expenses: These expenses incurred by taxpayers is deductible if the cost is more than 7.5% of the adjusted gross income. Deductible medical expenses include but is not limited to: Prescribed birth control pills, non-cosmetic eye surgery, contact lenses, hearing aids and certain weight-loss treatment or interventions for the obese.

Taxes Paid: State and local income taxes paid, real estate, foreign real estate and occupational, among others.

Charitable Contributions: Most charitable contributions are tax deductible. Among them are contributions to churches and religious organizations, non-profit schools, war veteran's organizations, Salvation Army, Red Cross and most non-profit organizations.

The of allowed tax deductions is not limited to this list and many restrictions apply. As always, it is best to consult with a competent accountant or tax consultant about these and other liabilities to make sure that the amount deducted on each tax return is maximized.

Traditional IRA Withdrawals & Distributions.

noreply@blogger.com (Anonymous) — Mon, 03 Nov 2008 20:01:00 +0000

Typically, when a taxpayer withdraws money from a Traditional IRA account before the age of 59 ½ they are required to pay an additional 10% tax on the distribution in addition to paying taxes on regular income tax on that amount. There are, however, exceptions to this rule:

You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
The distributions are not more than the cost of your medical insurance.
You are disabled.
You are the beneficiary of a deceased IRA owner.
You are receiving distributions in the form of an annuity.
The distributions are not more than your qualified higher education expenses.
You use the distributions to buy, build, or rebuild a first home.
The distribution is due to an IRS levy of the qualified plan.
The distribution is a qualified reservist distribution. **

Withdrawing money from a Traditional IRA before the age of 59 ½ under any circumstances other than these will create a tax burden. Should you find yourself in these circumstances make sure contact a competent tax consultant.

** Source: http://www.irs.gov/publications/p590/ch01.html

Traditional Individual Retirement Accounts

noreply@blogger.com (Anonymous) — Mon, 03 Nov 2008 19:56:00 +0000

A traditional IRA account is a savings program that allows individuals under the age of 70 ½ to save toward retirement. The key to this savings program is that it allows taxpayers to deduct some or all of contributions from their in addition to tax-deferred growth, meaning that you don’t pay taxes on the income generated by capital gains, dividends and other gains generated by securities held in the IRA.

Now, the amounts that can be contributed to a traditional Individual Retirement Account is affected by marital status, income and if the taxpayer has a 401k program through his or her employer.

The following are the standards for 2008:

_The contribution limit is $5000 or $6000 if you are 50 years of age or older before the end of the year.
_ If you are married and file jointly the deductible contribution amount is $10,000 or $12,000 if both spouses are age 50 or older.
_ If you are covered by a retirement account at work then your contributions are limited if your Modified Adjusted Gross Income (see Modified Adjusted Gross Income article) is:

1. Between $53,000 and $63,000 for single individual or head of household.
2. Between $83,000 and $105,000 for married filing jointly or qualified widow(er).
3. Less than $10,000 for a married couple filing separately.

Caution: One of the most common pitfalls of the Traditional IRA account is that taxpayers are not aware of the consequences of early distributions. Since you cannot borrow money from an IRA as one can from a 401k, large tax liabilities are a dire consequence of these actions.

It is very important if you find yourself in this situation to contact an expert in tax liability and consult about the different options available.

Rental Property

noreply@blogger.com (Anonymous) — Thu, 16 Oct 2008 22:29:00 +0000

Question: I recently made some renovations to my rental property. I understand that these are tax deductible. What are the guidelines?

Answer: It all depends on the type of renovation. The cost of a general repair that is designed to keep the property in good working condition and does not add to the value of it is deductible. An improvement, on the other hand, is not tax deductible. In other words, anything that adds to the value of the property, prolongs its useful life and or adapts it to new uses is not deductible and must be depreciated, this includes any “repairs” that are part of an extensive remodeling project and or restoration.

As always, remember to consult with a competent tax professional.

Child Tax Credit

noreply@blogger.com (Anonymous) — Thu, 16 Oct 2008 22:24:00 +0000

If you have a child who is you son, daughter, stepson, stepdaughter, legally adopted child, brother, sister, stepbrother, stepsister, foster child (placed with you by an authorized placement agency or by court order) or a descendant of any of them you may be eligible for a Child Tax Credit. The child must also meet the Residency Test (live with you for more than 6 months out of the year), Age Test (under the age of 17 by December 31) Support Test (the child does not provide for himself more than half of his/her expenses) and be a U.S. citizen.

The child tax credit is as much as $1000 per child depending on your income. If you are married and filing jointly your credit will be reduced if your income is over $110,000.
If your status is single, head of household or widow(er) your child tax credit starts being reduced after $75,000. Finally, for married couples filing separately they credit is reduced when the income is over $55,000.

Now, the Child Tax Credit is non-refundable, however, if the Child Tax Credit is greater than the amount of income tax owed, it may be refundable through the “Additional” Child Tax Credit.

As usual, always make sure to consult with a competent accountant or tax consultant.

Free Tax Assistance

noreply@blogger.com (Anonymous) — Thu, 16 Oct 2008 22:23:00 +0000

The IRS has programs that offer free tax assistance to low income people, from tax preparation to tax counseling. The following is a list of some of these programs:

VITA
The Volunteer Income Tax Assistance or VITA is an organization made up of college students, law students, religious, military and community group volunteers that helps low-income taxpayers. Among other things they can assist in the preparation of basic tax returns. VITA is usually located across the country in neighborhood centers, libraries, schools and shopping malls. To find the nearest location contact the IRS.

TCE
Tax Counseling for the Elderly or TCE provides help to taxpayers that are 60 years of age or older. Through a network of volunteers the provide tax counseling to the elderly and low income individuals. To find a volunteer site contact the AARP at (888) 227-7669.

LITC
The Low-Income Tax Clinic also provides assistance either for free or a nominal fee. In addition to low-income taxpayers they also help individuals that with limited English proficiency or who speak English as a second language.

For additional information or a free consultation about your tax liability and / or unfiled tax returns you can contact a Tax Consultant.

Taxpayer Advocate

noreply@blogger.com (Anonymous) — Thu, 16 Oct 2008 22:20:00 +0000

What is the taxpayer advocate, what is their roll and how can they be of help to you?

The Taxpayer Advocate Service or TAS, was created back in 1979 in order to help taxpayers whose problems were not being resolved promptly or properly. This department, however, remains a big unknown resource for most taxpayers.

Although a part of the Internal Revenue Service, it remains independent, impartial and confidential. Their mission is to “help taxpayers resolve problems within the IRS and recommend changes that will prevent problems.”

The TAS is able to:

_ Listen to the taxpayer’s position.
_ Investigate.
_ Evaluate.
_ Correct the situation.
_ Request the IRS takes a second look.
_ Advise the taxpayer of their options.

How to contact the TAS: The Taxpayer Advocate can be contacted at 877-777-4778. They can be contacted 5 days a week, and they provide services in both English and Spanish.

It should be emphasized that the TAS should be considered a last resort, after all efforts have been exhausted to resolve the problem directly with the IRS.

A free consultation with a competent Tax Consultant can help you understand your options.

Source: Internal Revenue Manual, Part 13, Chapter 1, Section 1.

Dependents

noreply@blogger.com (Anonymous) — Thu, 16 Oct 2008 22:15:00 +0000

Question:

My cousin is currently living with me due to a terminal illness. He has no one to support him and cannot work. Can he be claimed as a dependent on my tax return?

Answer:

Dear tax payer, the IRS has very specific stipulations for someone to be claimed as a dependent and they are broken into two categories, a qualifying child and a qualifying relative. It sounds like your cousin falls on the second category, however, I’ll provide you with both guidelines:

Qualifying Child:

In order to qualify as dependent child he or she must:

_ Be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
_ Must be under the age of 19 by the end of 2008, or under age 24 at the end of the year and a full-time student, or any age if permanently and totally disabled.
_ Must have lived with you more than 6 months (some exceptions apply).
_ The child must have not provided more than half of his or her own support for the year.

In order to be a qualifying relative he or she must:

_ Not be the qualifying child or the qualifying child of any other taxpayer.
_ Be one of the following: child, stepchild, foster child, legally adopted child or a descendant of any of them. Brother, sister, half brother, half sister, stepbrother or stepsister. Father, mother, grandparent or direct ancestor (not a foster parent). Stepfather or stepmother, son or daughter of your brother or sister. A brother or sister of your mother or father, your son-in-law or your brother-in-law or sister-in-law.
_ Not have income higher than $3400 for the year.
_ You must have provided more than half of the person’s total support for the year.

Source: IRS Publication 501, “Exemptions, Standard Deduction, and Filing Information”.

For additional questions about this and other tax issues you can reach a Tax Consultant for a free consultation.

Is Social Security Taxable?

noreply@blogger.com (Anonymous) — Thu, 16 Oct 2008 22:11:00 +0000

Question:

I’m a 77 year old retired school teacher. In addition to social security I receive my pension. Am I subject to income tax?

Answer:

Dear retired school teacher:

The answer to your questions depends largely on other factors. I’d need to know your marital status and income information, how much you receive from Social Security and how much from your pension. I can give you some general guidelines as set out by the IRS.

_ In cases where Social Security is your only source of income, your income is not taxable.
_ If you derive income from other sources in addition to Social Security it may become taxable if your modified adjusted gross income exceeds the “base” amount for your filing status.

_ To determine your “base” amount there is a worksheet in the Form 1040 instruction booklet on page 25. (Link: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf ).

_ 2007 base amounts are:

· $32,000 for married couples filing jointly.
· $25,000 for single, head of household, qualifying widow/widower with a dependant, or married individuals filing separately who did not live with their spouses at any time during the year.
· $0 for married persons filing separately who lived together during the year.

Note: HOW TO FIGURE OUT YOUR BASE AMOUNT

1. Add one-half of the total Social Security you received to all other income, including any tax exempt interest and other exclusions from income.
2. Then, compare this total to the base amount of your filing status. If the total is more than your base amount, then some of your benefits may be taxable.

Source: http://www.irs.gov/newsroom/article/0,,id=179091,00.html

For additional questions you can contact a Tax Consultant for a free consultation.

1099-Misc

noreply@blogger.com (Anonymous) — Thu, 14 Aug 2008 21:32:00 +0000

Question: I recently worked for a company as a sub-contractor and received a 1099-Misc. What does this form mean?

Answer: Form 1099-Misc is similar to a W-2 that employees receive every year from their employer. The company that you worked for did not withhold taxes from your pay in this case; therefore you are required to pay self-employment taxes.

A copy of the 1099-Misc is also sent to the IRS and goes to your file. You must report this income on a Schedule C when you file your return in April.

You will get a chance to deduct the expenses that you incurred in doing this work as a sub-contractor. Make sure, however, that you keep good records including a mileage log if deducting mileage.

Self-Employment Tax

noreply@blogger.com (Anonymous) — Thu, 14 Aug 2008 20:33:00 +0000

One of the very common problems for the self-employed is the failure to make estimated tax payments to cover their Self-Employment tax. The rate of these taxes is 15.3% and consists of 12.4% for social security and 2.9% for medicare. The former is applied to the first $94,200 of the combined income, while the latter applies to all income.
The IRS form 1040ES is a worksheet that helps self-employed individuals figure out their taxes.
It is important to notice that the Estimated Tax Payments are paid every quarter and are due on the following dates:

1st Payment: April 15
2nd Payment: June 16
3rd Payment: September 15
4th Payment: January 15

Partial payments, late payments or no payments will be subject to penalties.

Form 1040ES has a payment voucher that is sent in along with each payment so that it is properly applied. As always it is imperative to work with a competent tax representative to walk you through the process.

Notice of Levy

noreply@blogger.com (Anonymous) — Thu, 14 Aug 2008 20:01:00 +0000

Question: I heard that the IRS can garnish your bank account if you owe back taxes, is this true?

Answer: The IRS does have the legal right to levy bank accounts and or wages. In addition to that they may choose to sieze and sell property such as cars, boats or houses. In order to do this the IRS needs to satisfy the following requirements:

* Assess an amount due.
* Notify the tax payer of the amount due via a certified letter (usually a number of letters).

If a tax payer neglects or refuses to the pay the tax liability, the IRS will send out a Final Notice of Intent to Levy (Form L1058) at least 30 days before the actual levy takes place.

A bank levy freezes the funds available at the time up to the total amount of the liability for 21 days. The bank is then required to "freeze" the funds for 21 days and then to forward the monies to the IRS.

Although the IRS can place several bank levies, this type of levy freezes the funds that are on the account at that time, any subsequent deposits are not levied unless a second levy notice is filed.

A wage levy, however, is a continuous levy until the taxpayer reaches an agreement with the IRS to resolve the tax liability.

As always, when a tax liability reaches this point it is important to consult with a competent tax professional about the different options.

Statute of Limitations

noreply@blogger.com (Anonymous) — Tue, 12 Aug 2008 15:04:00 +0000

Question: I recently received a letter from the IRS saying that I owe taxes from 2001. I thought that the IRS cannot collect after 7 years.

Answer: The Statute of Limitations for the IRS to collect on a Federal tax liability is 10 years from the time that the liability was assessed. There are many factors that can extend this 10 year period, giving the IRS additional time to enforce collection. Some of these factors include filing an Offer in Compromise, filing a bankruptcy that includes the tax liability, and residing overseas for a continuous period of at least six months. A competent representative can research the origin of the tax liability, statutes of limitation, and options available for reaching an agreement with the IRS that will prevent the enforcement of collection.

IRS Sharing of Confidential Information

noreply@blogger.com (Anonymous) — Tue, 12 Aug 2008 14:39:00 +0000

When a tax payer is under investigation, the IRS has legal authorization to disclose confidential information to other government agencies, including city and state tax agencies and the department of justice. In addition to this, they have the freedom to interview neighbors, former and present employers or employees and family members. A competent representative will be able to let the taxpayer know his or her rights and provide proper representation in order to bring the investigation to a close by reaching a proper agreement with the IRS.

IRS Representation (continued)

noreply@blogger.com (Anonymous) — Tue, 12 Aug 2008 14:01:00 +0000

If the representative is to appear before the IRS without the taxpayer, a Power of Attorney will be necessary. Ideally an IRS Power of Attorney will be used (form 2848). This document contains specific legal disclosure that the representative agrees to abide by, including but not limited to: Being aware of regulations contained in Treasury Department Circular No. 230 and not being under suspension or disbarment.

In the case that a non-IRS power of attorney is used, a copy of form 2848 will have to be attached to it and signed by the representative.

A representative may also be authorized to receive confidential information without providing representation, in which case a Power of Attorney is not necessary, this can be achieved by filing a form 8821, Tax Information Authorization.

IRS Representation

noreply@blogger.com (Anonymous) — Wed, 09 Jul 2008 13:04:00 +0000

Question: Who can I seek to represent me with the IRS?

Answer: In order to represent taxpayers before the IRS you need to be one an Attorney, CPA (Certified Public Accountant), Enrolled Agent or an Enrolled Acutary. Any of these can be competent to represent a tax payer before the IRS regarding their rights, priviliges and or liabilities.

An unenrolled tax preparer can also represent their client, however, the scope of representation is greatly limited, meaning they can only represent a client with respect to a return that they themselves prepared and only with IRS's customer service, revenue agents and examination officers. They cannot, however, represent a client with other offices of the IRS, such as Collections or Appeals, meaning that they cannot execute closing agreements, execute waiver or extend the statutory period for tax assessments or collection of tax.