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.

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

Not So Professional...Residents of Lincoln Estates found Liberty Tax Service marketing scheme to be "racist, disturbing and disrespectful"

Last week I spoke about the raid and bust of On Time Tax Consultants for allegedly scamming low income taxpayers.  Unfortunately, On Time Tax Consultants are not the only local tax preparation service targeting lower income individuals in our community.  

Liberty Tax Service, located at 3320 Southwest 35^th Boulevard, Gainesville, Florida, has also been under investigation for preying on low income individuals.  Although Liberty Tax Service has not been charged with doing anything illegal, they are still being scrutinized by the community.

As part of a marketing scheme to attract minority, low income customers in the Lincoln Estates Neighborhood, Liberty Tax Service allegedly made insinuations of compensating their customers with a $50 bill and DRUGS in exchange for utilizing Liberty’s Tax Services. The promotional “mailers” consisted of a baggie filled with a realistic-looking fake fifty dollar bill and two rocks, resembling crack cocaine.

Lincoln Estates has battled a reputation for being a lower income demographic with a persistent drug problem, but has recently partnered with law enforcement to revitalize their community and distant themselves from the drug problems.  Accordingly, residents of Lincoln Estates became concerned and contacted police after seeing the baggies, believing that such had been mistakenly left behind by a drug dealer.   Residents were outraged after learning the baggies were a marketing ploy from a tax service on the other side of town – allegedly targeting a particular demographic.

After complaints from Lincoln Estates residents whom were concerned the baggies contained real drugs, the Gainesville Police became involved and the mailers were pulled.  See the full story and what residents and Gainesville Police had to say about the situation:

http://www2.wjbf.com/news/2011/feb/17/tax-service-florida-hot-water-crack-promotion-tax–ar-1476840/

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:  Depending on your particular situation, there are several options.  If you are going through a financial hardship, the IRS may be willing to suspend collection activity to allow you the opportunity to get back on your feet.  This process is explained below.

Economic Hardships

You may have the funds to pay the tax you owe the IRS, but if you used those funds to pay your income taxes you may not be able to afford your necessary living expenses and other bills. If you can show that collection of the taxes would cause you or your family financial hardship, the IRS may classify your account as “currently not collectible” and not pursue collection against you. This will allow you to improve your financial condition so that paying income taxes is not an economic hardship. In order to request this status, you must file IRS Form 433-A (employees and self-employed individuals) and/or 433-B (for businesses). Note the following aspects which apply to the suspension for economic hardship:

• Collectability Reviewed Every Year. “Currently not collectible” accounts are reviewed each year. If your financial situation improves during the year, the IRS may remove the suspension and initiate collection of payments. The IRS then may also enter into a compromise agreement with you to satisfy your full tax liability.
• Penalties and Interest Continue. During the period that collection on your account with the IRS is suspended, penalties and interest continue to accrue on the amount of the tax. Even though you do not have to make payments toward the tax liability during the suspended period, it is costing you money in penalties and interest to keep collection at bay during the period.

Keep in mind, the IRS is the most powerful creditor in the United States. If you owe the IRS taxes, as a creditor they can levy on almost any asset or account that you have.  You do NOT want to give the IRS reason to use this power against you, therefore you must report all assets and property to the IRS.  Failure to report all assets may even expose you to liability for tax fraud, which is a CRIMINAL OFFENSE you do not want to defend against!

The most important advice I can give, is urge you to stay in contact with the IRS and keep them informed with your situation and your intent to pay your tax liability.

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!

• IRS Letter 531: Notice of Deficiency. This is a notice from the IRS that you owe additional tax for certain years that are listed in the notice. If you do not agree with the additional assessment of taxes for the year(s) listed, you may file a petition with the tax court within ninety days of the date on the notice.

• IRS Letter 692: Request for Consideration of Additional Findings. This letter from the IRS is sent with a report detailing adjustments made to your tax return. If you do not agree with these adjustments, you must submit a Request to Appeal/Protest within 15 days of the date on the notice.

• IRS Letter 915: Letter to Transmit Examination Report. This letter from the IRS is sent to notify you of adjustments in your tax amount. If you do not agree with these adjustments, you must file an Appeal/Protest within thirty days of receiving the letter.

• IRS Letter 950: 30 Day Letter Straight Deficiency or Over Assessment. This letter is sent after IRS Field Audits. It is used for unagreed, straight deficiency or straight over assessment. If you do not agree with the findings, then you must file an Appeal/Protest within thirty days of the date on the letter.

• IRS Letter 3391: 30 Day Non-filer Letter. This letter from the IRS is sent to notify you of any proposed adjustments in tax liability due from returns which you have not filed. If you do not agree with the adjustments, you must file an Appeal/Protest within thirty days from the date on the letter.

To learn more on the letters listed above or if you received a letter not listed, check out the information provided by the IRS:

http://www.irs.gov/individuals/article/0,,id=96199,00.html?portlet=1

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.

FTC Shuts Down American Tax Relief Scam

New York Times, FTC Says Company Promised Tax Relief but Failed to Deliver:

Who wouldn’t like to settle with the IRS for pennies on the dollar?

In recent years, some 20,000 people have turned to American Tax Relief of Beverly Hills, Calif., to do just that after seeing the company’s advertisements on television, the Internet or in print, where actors portraying clients say the company reduced their back taxes to say, $2,000 from $24,000 or $40,000 from $200,000.

But the Federal Trade Commission said Wednesday that despite collecting $60 million to $100 million in upfront fees from often-desperate clients in recent years, American Tax Relief rarely, if ever, delivered on its promises. It did, however, according to the F.T.C., deliver $30 million in customers’ funds to the accounts of the company’s owners or their relatives — money that was spent on a $3.4 million house in Beverly Hills; a garage full of cars, including a Ferrari, a Rolls Royce, a Bentley, two Porsches and two Mercedes-Benzes; and other luxuries. …

Of the 20,000 clients that the F.T.C. says it believes that American Tax Relief signed up, “we have not been able to find a single one” that the company helped to reduce a tax burden, said David Vladek, the chief of the commission’s division of consumer protection.

This IRS screw-up could be costly for the unfortunate taxpayers affected.  When the First-Time Homebuyer’s Tax Credit appeared in 2008, it was structured as 15-year, no interest loan, with the 1st of the 15 installments due at the time of filing the taxpayer’s 2010 tax return.  The Credit in 2009 and 2010, however, does not require repayment unless either the home is sold within 36 months of the purchase date or the home ceases to be the taxpayer’s primary residence.

The problem arises if the IRS recorded a 2008 purchase date for a home purchased in 2009 or 2010.   Accordingly, the IRS will be trying to collect the first installment payment by April 15, 2011 from the 2008 first-time homebuyers–including those with an improper 2008 purchase date.

Finally, here’s a few pointers for those of you who took advantage of the Credit in 2009 or 2010 and receive a deficiency notice from the IRS:

1. Don’t freak out!
2. Contact the IRS immediately.
3. Find out where the tax assessment is coming from (i.e. your 2007 1040).
4. Be prepared to dig up your closing documents to correct the recording date.
5. If you cannot resolve the issue by following the above steps, you may need to contact a tax attorney.