PENALTIES AND INTEREST.  For every day your tax return is late, filing penalties, payment penalties, and interest will incur on any tax you owe.

THE IRS WILL FILL OUT YOUR RETURN FOR YOU.  If the IRS receives your tax information from a third party (employers, banks, investment accounts, etc.), the IRS will then fill out your return for you, while assessing tax, penalties, and interest.  THIS IS BAD!  The IRS does NOT consider personal exemptions, deductions, credits, etc. when completing your return.  Accordingly, this often results in an overestimate of taxes, penalties, and interest due because the IRS is using incomplete and/or incorrect information!

Once the IRS fills out a substitute return, you become subject to the IRS collection procedures for outstanding balance – according  to their calculations. This procedure can include a levy on wages or bank accounts, and filing a federal tax lien against your property and assets! This is NOT a process that you want the IRS to start, especially if owe a relatively small amount of tax.

YOU ARE DUE A TAX REFUND.  Even if you think you are due a refund, you still need to file.  The IRS only gives you three years from the tax return due date to subsequently file and receive a refund from that tax year – otherwise the government keeps your refund!

OPTIONS IF YOU CAN’T PAY THE TAX NOW.  If you did not file because you can’t afford to pay the tax, consider filing an extension or setting up a payment plan with the IRS.  Even if your failure to file is due to financial hardship, you nonetheless are on the hook for getting your return filed. The Taxpayer Advocate Service or a Low Income Tax Clinic may be able to assist you if you are unable to file due to financial hardship. You can find a Low Income Tax Clinic near you at http://www.irs.gov/pub/irs-utl/pub._4134-04.pdf

MOST IMPORTANTLY:  If you missed the Tax Return filing deadline, FILE A RETURN OR EXTENSION IMMEDIATELY. As long as you file something, the IRS is more likely to work with you on a feasible payment plan. However, the IRS becomes much more difficult to work with once they begin sending you Assessment Notices.  When dealing with the IRS, a couple of old adages hold true:

Since “nothing is certain but death and taxes,” it really is “better late than never” to file your Tax Return.

Having Friends in High Places Won't Get You That Far with the IRS!

Knowing the chances of the IRS auditing your Income Tax Return is relatively slim, are you willing to take that gamble and “modify” the figures on your return to maximize your refund or minimize the taxes owed?  If so, you are definitely not alone!

But before you turn in that return, you might want to consider this – even the smallest misrepresentation on your return is TAX FRAUD! Mistakes are one thing, but knowingly changing items on your return for your financial gain is another.

So you might be wondering, how will the IRS really know if I fudge on my expenses at my rental houses or the amount I donated to the Humane Society?

Recognizing the frequency of these misrepresentations, the IRS has taken an initiative this year to crack down on those Taxpayers making “little white lies” that have flown under the radar in prior years.  And it is not just the “rich” who are subject to the new scrutiny. With the increasing number of IRS “busts” at tax preparation companies – much like the one we reported right here in Gainesville, Florida just weeks ago http://taxattorneyflorida.com/tax-scammers/ – the IRS isn’t taking anything for granted.  

Last night CNBC aired a special broadcast “The American Tax Cheat,” which highlighted the IRS crackdown on taxpayers.  Find out more here: http://www.cnbc.com/id/42154647/THE_AMERICAN_TAX_CHEAT_WILL_PREMIERE_ON_APRIL_14TH

Looks like the IRS has upped the ante – Still want to take the audit gamble?

The Handwritten "Closed, No Longer Open" Sign Attached to the entrance of the Gainesville, Florida Hooters

Tax Day 2011 – Have No Fear, Hooters is Here!!  Well, at least they were here…

According to a handwritten poster on the door, Hooters of Gainesville, located at Southwest 34^th Street in Gainesville, Florida, is

“CLOSED: No Longer Open”

The Gainesville and Ocala locations closed on Monday, March 21, 2011, along with other locations, including Valdosta, Georgia, Montgomery, Alabama, Spartanburg, South Carolina, and four North Carolina locations. These particular Hooters locations were all operated by the company, Owl Eyes.

Reporter, Rick Allen spoke with regional supervisor for Owl Eyes, Brian Greene.  Greene indicated there had been some disagreement between Owl Eyes and Hooters of America over who would assume the franchise fees owed by the previous franchisee when Owl Eyes acquired the locations.

Although the turmoil within the franchise may have played

a role in closing these Hooters’ locations, Alachua County Tax Collector Von Frasier’s bright orange NOTICE plastered onto each entrance tells a different story.

The Tax Notice states that all unpaid taxes owed pursuant to Florida law will be a lien on the property and if taxes remain delinquent on April 1, 2011, all property will be levied, seized and sold to pay the Hooters’ outstanding tax liability.  Unfortunately, that is exactly what’s about to happen.  A second Tax Notice on the doors states that “Alachua County Tax Collector Will Auction” all of the tangible personal property of Hooters of Gainesville on Saturday, April 16, 2011.

The Notice of a Tax Auction Posted on the Gainesville Hooter's Entrance

Owl Eyes was allegedly “surprised and caught off guard” upon receipt of the letter telling them to “close the doors.”  The letter is speculated to have came from Hooters of America; however, it’s likely “the letter” was courtesy of the Alachua County Tax Collector – warning that Hooter’s property was about to be seized.

The upside – local Hooter’s fans now have the opportunity to buy all sorts of coveted Hooter’s memorabilia!  The Alachua County Tax Collector will be auctioning off the goods this Saturday, April 16, 2011 at the former Hooter’s location – 3265 SW 34th Street in Gainesville, FL.

Ironically, www.hooters.com is currently advertising an “instant relief for tax day…buy 10 wings, get 10 free.”  Looks like the “tax day relief” will come a little too late for the Gainesville, Florida Hooters!

For more information, see Rick Allen’s coverage of the closing here: http://www.gainesville.com/article/20110323/GUARDIAN/110319547

On Time Tax Consultants after the Raid - You May Not See That Rapid Refund "On Time"

The IRS is cracking down on Tax Fraud by Return Preparers. While most tax return preparation providers are competent  to handle most of your tax return needs, there are still those lurking amongst us whom are con artists filing fraudulent tax returns and stealing their client’s money.

Don’t believe it can happen to you?  Think again!

On March 24, 2011—just a few days ago— On Time Tax Consultants & Mulit Services Inc., tax preparation service  in Gainesville, FL was raided by authorities for alleged fraudulent tax preparation activity.  With bars on the entrance and advertisements on the windows broadcasting such things as “Professional Tax Preparation,” “Fast and Accurate,” “Rapid Refund,” and “Earned Income Credit,” the exterior of the business looks sketchy at best.  I can only wonder if the offers of a “Referral CASH Bonus” and “Bill Pay” enticed unknowing taxpayers into their ploy.

Allegedly, On Time Tax Consultants were making up jobs and income on tax returns to qualify their Customers for a larger tax refund from the Earned Income Tax Credit.  From the tax refunds, On Time Tax Consultants were taking out 30%+ as “compensation” for their services.  Some Customers were receiving refunds as high as $7000.

On Time Tax Consultants, located on 1527 NE Eighth Avenue in Gainesville, Florida is owned by Tyrone Frederic of Lauderdale Lakes, FL according to public Florida business filings on www.sunbiz.org.  Frederic started up On Time Tax Consultants less than six months ago and oddly, his business address is still listed as Sunrise, FL.  Frederic appears to be operating the business with the assistance of Jason Jimeno – the company’s COO and Registered Agent.  See the full story here: http://www.gainesville.com/article/20110324/articles/110329678

How Could This Affect ME?

According to law, YOU, the taxpayer, are ultimately responsible for all information provided on your tax return. Thus, even if someone else, such as a tax preparation service, fills out your tax return, you must act in good faith to ensure all information on the return is correct.

If the information on your tax return is incorrect, the IRS will come after YOU for any underpayment, in addition to penalties and interest.

If you willfully submit a fraudulent tax return, you can be charged with a felony, punishable by up to one year in PRISON and a $10,000 FINE.

Bottom line – You don’t want to be the subject of an IRS audit or investigation, especially for something someone else did!

ANSWER: Yes!

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15.   By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.  You can find out more about the date change for the filing deadline on the IRS’s website.

ANSWER: YES, YES, and YES!

Even though you will not be able to pay the full amount of your taxes when you file your Income Tax Return, you should still file on time to prevent the 5% per month Late Filing Fee.

Extension to File. You can also file an IRS Form 4868 “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” Filing Form 4868 must be done by the regular due date for your return and gives you an additional six months to file your income tax return. Although this extension for time to file extends the period for you to file your return without incurring Late Filing Fee penalties, your payment of income tax is considered due on the regular due date for your return. This means that you may still owe interest and penalties for Late Payment.

Remember, if you do not file anything by the regular due date for your return, you will owe both Late Filing AND Late Payment penalties. And most importantly, failure to file income tax returns is a CRIMINAL ACT which you do not want to catch up to you!

Understanding why the IRS is contacting you can help expedite the process and get the IRS out of your life as quickly as possible.  Furthermore, understanding the correspondence will help you decide whether it’s necessary to enlist the services of a tax attorney.

In some situations, the IRS sends correspondence after an audit without any prior communication.  Alternatively, the IRS correspondence may serve as notice that they are planning to audit your return.

The following explains various types of audit letters and notifications:

• IRS Form 566(CG): Correspondence Audit. A correspondence audit is requested when there are questions regarding specific items on your tax return. This is the most common type of audit, and is conducted by correspondence with the IRS through the U.S. Mail. This type of audit is triggered by the IRS computer systems when there is an error in computing the tax contained within the tax return itself. This is usually due to a mathematical error on the tax return, and you will be either issued a refund or assessed additional tax accordingly. The IRS may also request through Correspondence Audit additional information or documentation from you to substantiate such items as income, deductions, credits, and expenses claimed by you on your tax return.

• IRS CP 2000: Automatic Adjustment Notice. In most cases, this letter from the IRS is simply a Request for Information. It will contain a proposed change to your income tax return which may propose that you owe additional tax. This proposed change is generated by a “matching error,” which is a discrepancy between information you provided on your tax return and information provided to the IRS by other sources. The IRS compares the income, payments, credits, and deductions you provide on your tax return with the information your employers, banks, businesses, and other payers report to the IRS. If the information you provided on your tax return and the information provided by other sources do not “match,” then the IRS sends the CP 2000 Letter. This letter proposes any corrections and changes in the amount of your tax liability based upon the information provided by other sources. If you agree with the proposed changes to your return, then you can accept the changes by paying the amount of tax owed. However, if you do not agree with the proposed changes, you may provide documentation to the IRS to prove or explain any discrepancies which triggered the changes. If you do not respond to the CP 2000 Letter, the IRS will treat the proposed changes as correct and continue to assessment of the additional amount of tax in the proposal. For a step-by-step guide to answering questions concerning the CP 2000 letter, see the IRS website: http://www.irs.gov/individuals/article/0,,id=136857,00.html

• IRS Form 3572: Audit at the IRS Office. These types of audits are usually directed at self-employed persons and small businesses. This type of audit requires the taxpayer to gather and provide requested information and documentation at a meeting with a field agent at the local IRS office. This type of audit is usually conducted to allow a taxpayer to prove certain deductions, credits, or business expenses. In this situation, it is the duty of the taxpayer to provide documented proof of any item questioned by the IRS.

• Field Audit. This type of audit is the most comprehensive form of IRS audit, and is most common for businesses. In conducting this audit, the IRS will send field auditors to the business owner’s home or business and conduct an on-site examination of the business’ records. The field auditors’ main objective in a Field Audit is to determine whether your deductions are accurately stated on your tax return. Usually the field auditors not only inspect business records, but also the business facility and physical items claimed as deductions, expenses, etc. Field Audits usually require several visits from the auditors and are the most complex and difficult to resolve.

Traditional IRAs

Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA for 2010 is $5,000. For 2010, a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,000 for these individuals. For 2010, the AGI phase-out range for deductibility of IRA contributions is between $56,000 and $66,000 of modified AGI for single persons (including heads of households), and between $89,000 and $109,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed.

Spousal IRA

If an individual files a joint return and has less compensation than his or her spouse, the IRA contribution is limited to the lesser of $5,000 for 2010 plus age 50 catch-up contributions, or the total compensation of both spouses reduced by the other spouse’s IRA contributions (traditional and Roth).

Roth IRA

This type of IRA permits nondeductible contributions of up to $5,000 a year. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 59¹/₂. Distributions may be made earlier on account of the individual’s disability or death. The maximum contribution is phased out in 2010 for persons with an AGI above certain amounts–$167,000 to $177,000 for married filing jointly.

Roth IRA Conversion Rule

If you have funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax-sheltered annuity or §457 government plan, it may be advantageous to consider rolling a portion of such into a Roth IRA this year.  A rollover is treated as a taxable distribution, hence, you will pay tax on the amount converted.  However, depending on your current age and projected AGI for 2010, a Roth conversion may provide you significant tax savings.

Beginning in 2010, taxpayers are able to make Roth IRA conversions without regard to their AGI. If you convert to a Roth IRA in 2010, you have the option of spreading the income ratably over two taxable years (2011 and 2012). This opportunity is available only for conversions in 2010. For conversions in 2011, the tax will have to be paid in the year of conversion.

401(k) Contribution

The §401(k) elective deferral limit is $16,500 for 2010. If your §401(k) plan has been amended to allow for catch-up contributions for 2010 and you will be 50 years old by December 31, 2010, you may contribute an additional $5,500 to your §401(k) account, for a total maximum contribution of $22,000 ($16,500 in regular contributions plus $5,500 in catch-up contributions).

SIMPLE Plan Contribution

The SIMPLE plan deferral limit is $11,500 for 2010. If your SIMPLE plan has been amended to allow for catch-up contributions for 2010 and you will be 50 years old by December 31, 2010, you may contribute an additional $2,500.

Catch-Up Contributions for Other Plans

If you will be 50 years old by December 31, 2010, you may contribute an additional $5,500 to your §403(b) plan, SEP or eligible §457 government plan.

Maximize Retirement Savings

In many cases, you are required to set your 2011 retirement contribution levels before January 2011. You may want to increase your contribution to lower your AGI in order to take advantage of some of the tax breaks described above or to avoid future tax rate increases. Maximizing your contribution is generally a good investment move and can provide an array of tax saving opportunities.

Need Help?

If you have further questions or concerns as you make plans to maximize your retirement investment, give our office a call.  We are currently offering complimentary phone consultations for issues concerning retirement investments.

With a month and a half left before our tax code reverts back to the pre-Bush era, Obama’s debt panel released (3) new tax reform options:

The co-chairmen of President Obama’s National Commission on Fiscal Responsibility and Reform released a discussion draft in advance of its final report to be issued on December 1.  The report presents three tax reform options:

Option 1: The Zero Plan

• Consolidate the tax code into three individual rates and one corporate rate
• Eliminate the AMT, Pease, and PEP
• Eliminate all $1.1 trillion of tax expenditures
• Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates
• Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero expenditure low

Option 2: Wyden-Gregg Style Reform Individual Tax Reform

• Repeal AMT, PEP, and Pease
• Establish 3 rates – 15%, 25% and 35%
• Triple standard deduction to $30,000 ($15,000 for individuals)
• Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
• Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
• Limit charitable deduction with floor at 2% of AGI
• Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of FEHBP standard option
• Modify and repeal several other tax expenditures
• Dedicate portion of savings to deficit reduction Corporate tax reform * Reduce corporate tax rate to 26%
• Permanently extend the research credit
• Eliminate and modify several business tax expenditures, including:
• Domestic production deduction
• LIFO method of accounting
• Energy tax preferences for the oil and gas industry
• Depreciation rules
• International tax reform including a territorial system

Option 3: Tax Reform Trigger

• Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012
• Put in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted
• Haircut would limit proportion of deductions and exclusions individuals could take to around 85% in 2015. Similarly, corporations would only take some proportion of their general business credits
• Set haircut to increase over time until tax reform is enacted

Please note, I try to avoid asserting political opinions into my website, thus, I present the information below solely to increase awareness of the current tax issues at the state level.  However, I welcome comments that would encourage a healthy discussion thereof.

FLORIDA STATEWIDE TAX ISSUES

Amendment 1 on the statewide ballot would repeal taxpayer financing of statewide political campaigns.

Amendment 2 on the statewide ballot would give active duty members of the U.S. military and Florida National Guard deployed outside the continental U.S., Alaska, or Hawaii a property tax exemption.

Amendment 4 on the statewide ballot would require the utilization of taxpayer-funded elections to make actual changes to pre-approved comprehensive land use plans.

Amendment 8 on the statewide ballot would repeal a constitutional class size mandate in public schools.

Referendum 1 on the statewide ballot would ask Congress to add an amendment to the U.S. Constitution requiring a balanced federal budget.