Tax Matters

I did not file my tax returns by April 17, 2012 or pay my taxes, what should I do?

2012-04-19T06:17:00.000-07:00

If you did not file your taxes this year by April 17 or request and extension to file, you are encouraged to file your tax returns immediately. If you owe taxes and did not file your return or request an extension by April 17, 2012 deadline, penalties and interest will typically be added to any tax you owe. The IRS will deny an request for extension past the April 17 deadline, but you should file and pay those taxes even though you are late. The late filing penalty is usually 5% per month or part of the month that you are late based on the upaid balance up to 25%. If the tax return is more than 60 days late, the minimum penalty is $135 or the balance due, whichever is less. Also a late payment penalty may apply, which is normally one-half of one percent per month. This will include interest, currently at 3% per year, compounded daily. It is important to remember that interest compounds daily on late paid taxes. Interest and penalties add to the total amount you owe so the sooner you file even if you cannot pay in full, the less you will owe in the long run.

The IRS provides more information about your penalty and interest charges for late filing and late payment in IRS Publication 17. If you have not filed your tax returns and made payment, we encourage you to do so immediately to limit the amount of penalties and interest that will accrue. If you have questions, please contact Matt Porter.

Refund Available If You File Your Tax Return For 2008

2012-03-08T11:45:00.000-08:00

Good News for People Who Did Not File a Return in 2008

Did you not file an income tax return in 2008? The IRS has just issued a news release indicating that it has more than $1 billion for over one million people who did not file a 2008 income tax return. In Ohio, there are over 36,000 individuals who did not file a return and who are due an average refund of $662. All together, Ohioans can claim over $31 million in refunds. Perhaps you did not file because you too little income to require filing a tax return. You may still be due a refund. You may qualify for certain credits, such as the Recovery Rate Credit, or the Earned Income Tax Credit (EITC) such that you are now entitled to a refund.

Must be filed by April 17

To collect your money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012. The tax laws require the return to be properly addressed, mailed and postmarked by this date. There is no penalty for filing a late return qualifying for a refund. The IRS does remind taxpayers that their refunds for 2008 may be held if they have not filed their returns for 2009 and 2010. If you owe any money currently to the IRS, the refund will be applied to those amounts and may be used to offset unpaid child support or past due federal debts, such as student loans.

Contact Matthew R. Porter Today

If you did not file an income tax return (Form 1040) in 2008, you may be entitled to a refund. This is one of those rare opportunities granted by the IRS to provide you with money to which you are entitled. Contact Matthew R. Porter to speak with an experienced tax lawyer to see if you are eligible for money due to you!

More Good News for Professional Gamblers: More Tax Deductions Allowed

2012-02-24T09:20:00.001-08:00

I have been closely following the Internal Revenue Service's stance on tax deductions available for professional gamblers. Tax deductions for professional gamblers have grown recently, especially after the Internal Revenue Service's recent action of decision that announced that the IRS is going to follow the Mayo case. Professional gamblers can now deduct business expenses incurred to gamble professionally to the full extent allowable under Section 162 of the Internal Revenue Code. This is a victory for professional gamblers because their business expense deduction is no longer limited by Section 165(d). If you are a professional gambler, and you incurred expenses that are ordinary and necessary for your professional gambling, you can deduct those expenses in full.

Visit the Nardone Law Group, LLC's website and learn more here.

To determine if you are a professional gambler, visit the Nardone Law Group, LLC's website here.

Important Tax Changes for Your 2011 Taxes

2012-02-20T09:58:00.000-08:00

In preparation of 2011 individual returns, here are some important changes to be sure you are aware of:

Due date. The due date this year is Apr. 17, 2012 because Apr. 15 is a Sunday and Apr. 16 is the Emancipation Day holiday in the District of Columbia. The Apr. 17 due date applies even for taxpayers who do not live in the District of Columbia.

Foreign financial assets. A taxpayer who has foreign financial assets with a total value of more than $50,000 ($100,000 for joint filers) in 2011 may have to file new Form 8938, Statement of Specified Foreign Financial Assets, with his return.

Mailing your return. If you are filing a paper return, you may be mailing it to a different address this year because the IRS has changed the filing location for several areas. See Where Do You File? on the last page of the Form 1040 General Instructions.

Making work pay credit. The making work pay credit has expired. A taxpayer cannot claim it on his 2011 return.

If you have a general tax law questions, please contact tax attorney Matthew R. Porter, Esq. today.

IRS Correspondence Audit Procedures

2012-02-16T12:42:00.000-08:00

A correspondence audit differs from the more common office or field audit. Correspondence audits (aka Campus audits) are normally conducted by mail. You will receive several notices, each with varying degrees of importance, and more fully described below. Correspondence audits are generally limited to issues that lend themselves to verification from records that can be forwarded to the IRS. In most cases, employees at one of the IRS Campuses initiate and carry out correspondence audits. The Campus employee will send you an initial contact letter requesting information, or explaining why the return had to be corrected. If you agree with the correction, then you pay the additional tax liability and the case is closed. But who ever agrees with the IRS?! If you can explain the item in question and provide the information the IRS needs to verify the item, then the issue is resolved in your favor. We help individuals and businesses deal with the IRS during correspondence audits. The below information relates to these correspondence audits and provides you with the information that the IRS is mandated to follow when they select a return for a correspondence audit.

The Automated Underreporter (AUR) program is separated into four phases:
- Case Analysis (may also be referred to as Screening or Pre)
- Response, includes both CP 2501 and CP 2000 (also referred to as Post)
- Statutory Notice, legally required final notice (abbreviated as Stat)
  Note: See Exhibit 4.19.2-1, Glossary, that includes terms, acronyms and abbreviations used in AUR
- Reconsiderations (closed case correspondence)
The Case Analysis phase is the initial screening of a case. A technical determination is made whether:
- A notice needs to be generated
- A case needs to be referred and/or researched
- A case can be closed without further action
- A case should be transferred to another function
There are two other processes completed in the Case Analysis phase:
- Correction of CP 2000 rejects
- Completion of previously referred or incomplete cases
The system auto batches all Electronically Filed (ELF) and Form 1040 EZ (EZ) cases (Virtual batch/Virtual case) in the screening phase.
The clerical functions to support these processes are:
- Building batches
- Inputting manual assessments, identified by tax examiners (TE), into Integrated Data Retrieval System (IDRS)
- Associating returns and/or transcripts to case files
- Refiling closed cases
- Verifying Process Codes
- Disassembling batches
- Associating the case folder and return
- Pulling notices identified as erroneous from the notice mailout
- Pulling and batching reject cases
- Preparing cases for transfer or referral to other areas
- Setting up suspense files in Case Sequence Number (CSN) order
- Remail of undeliverable or erroneous notices
The Response Phase of the AUR Program is the resolution of the AUR issue addressed in the:
- CP 2501, Initial Contact Letter
- CP 2000, Notice Proposing Adjustment to Income, Payments, or Credits
- Subsequent 30 Day Letter (e.g., Letter 2625C, Letter 2626C, Letter 1802C, Letter 2627C), or
- Recomputed CP 2000
The CP 2501 or the CP 2000 issues can be resolved by a response from the taxpayer. If the response does not resolve the issue, there is no response, or if the notice is undeliverable, a CP 2000 notice or a Statutory Notice is issued.
The response may result in:
- Closure and refile
- Assessment
- Miscellaneous Referral
- Research (Unit Suspense)
- Transfer to another area (e.g., Examination or Criminal Investigation)
- Additional correspondence to resolve the issue
The clerical functions to support these processes are:
- Building batches
- Associating responses to the CP 2501s, the CP 2000s, recomputed notices, and letters with the case files
- Verifying Process Codes
- Disassembling Batches
- Assessing tax deficiencies to taxpayers' accounts
- Preparing cases for transfer or referral to other areas
- Mailing additional correspondence
- Sending closed cases to the Federal Records Centers (FRC) to be refiled
- Preparing no response cases for continued processing; CP 2501s to CP 2000 and CP 2000s to Statutory Notice, including all exception handling.
The Statutory Notice phase of the AUR Program is the resolution of the AUR issue addressed in the Statutory Notice of Deficiency (Letter 3219) and Waiver (Form 5564, Notice of Deficiency - Waiver). If the response does not resolve the issue, there is no response, or if the notice is undeliverable, the Statutory Notice is defaulted.
Note: The default process is the preparation of Statutory Notice cases for assessment and closure, including all exception handling.
The Statutory Notice issues can be resolved by a response from the taxpayer. The case is defaulted when:
- Responses from the taxpayer do not resolve the issue(s), and the Statutory suspense period has expired
- No response is received
- The Post Office has returned the notice as undeliverable and IRS has no record of a better address. See IRM 4.19.2.2.27.3, Undeliverable Statutory Notices, for additional information
The Reconsideration phase of the AUR program is the handling/resolution of correspondence received for a case that is closed on the AUR system. Correspondence from closed cases is primarily one of the following three types:
1. A taxpayer request for a change in the AUR assessment made on the case.
2. Correspondence that does not require a tax examiner to resolve - these are not requests for a change to the AUR assessment.
3. Misrouted correspondence that has no impact on the previous AUR case.
See Exhibit 4.19.2-4, Titles of Forms, for a complete list of Forms and their titles used in this IRM.

Partnership Return for 2011: Numerous Changes

2012-01-11T07:20:00.000-08:00

This blog is written to help keep you up-to-date on the ever changing area of tax law. The IRS has released a final version of the Form 1065, U.S. Return of Partnership Income for 2011. The instructions to the form are still in draft, but they reflect numerous tax and nontax changes that you should be aware.

The new changes are indicated in the draft instructions, which will be posted on IRS.gov once they are finalized. Check back at the IRS.gov website periodically to see the status. Here are some new items:

Merchant card and third-party payments. For the 2011 tax year, IRS has deferred the requirement to separately report on Form 1065 the amount of merchant card and third-party network payments from Form 1099-K, Merchant Card and Third-Party Network Payments. Now, partnerships are directed to report gross receipts or sales from all business operations as indicated on the instructions for lines 1a through 1d. Line 1a is entitled Merchant Card and third-party payments including amounts reported on Form(s) 1099(k). Because of the deferral of the separate reporting requirement, partnerships are directed to enter zero on line 1a. Line 1b is entitled gross receipts not reported on line 1a. Partnerships are directed to report on line 1b gross receipts or sales from all business operations (including gross receipts or sales included in any amounts reported to the partnership on Form(s) 1099-K), except for amounts that must be reported on line 4 through 7.
Cost of goods sold. Schedule A (Cost of Goods Sold) is no longer on Form 1065. Cost of Goods Sold is now reported on a new Form 1125-A, which has not yet been finalized but is available in draft form on IRS's website.
Foreign government partners. On Schedule B, Other Information, line 3a, IRS added “any foreign government“ to the list of partners the partnership may need to disclose.
Form 1099. On Schedule B, IRS added new line 18a and new line 18b regarding Form(s) 1099. Line 18a asks whether the partnership made any payments in 2011 that would require it to file Form 1099. If the answer is yes, the partnership must respond on line 18b whether it did or will file all required Form 1099.
Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. On Schedule B, IRS added a new line 19 for Form(s) 5471 filed.

Note that Form 5471 is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations. The form and schedules are used to satisfy the reporting requirements of IRC Sections 6038 and 6046 and the regulations promulgated thereunder.

Loans to/from partners. On Schedule L, Balance Sheet per Books, IRS added new line 7a, Loans to partners (or persons related to partners), and a new line 19a, Loans from partners (or persons related to partners).
Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. The draft Form 1065 instructions note that certain partnerships may have to file Form 8621.
Form 8938, Specified Foreign Financial Assets. The draft Form 1065 instructions note that certain partnerships may be required to file new Form 8938.

Keep these changes in mind when you are preparing your partnership return for 2011. Subscribe to this blog to keep informed in the ever-changing area of tax law.