Over the years, I’ve represented a lot of clients before the IRS. I’ve listened to hours and hours of IRS hold music. And I’ve had a lot of conversations with IRS reps and agents. But last week something happened that truly shocked me: the IRS hung up on me. On purpose.

The details aren’t all that important. Basically, I called the IRS to discuss a client’s tax matter. While it’s my job to zealously protect the rights of my clients, I am very aware that the person on the end of the line is also doing their job, and as such, I am professional when I speak to the IRS. On this day, I did exactly that. I didn’t raise my voice. I wasn’t nasty. I merely tried to explain that there appeared to have been a cross in communications when the agent cut in abruptly with a brusque “This is how we do it” and then, Click.

I was actually rendered speechless. If you’ve met me, you’ll understand that’s quite the feat.

I called back, only to find that there is no way to speak to a supervisor without putting in a special request. I did exactly that – and I’m still waiting.

It was the first of a number of incidents that I would have previously considered to be out of character for IRS. Shocked by what appeared to be a change of direction from the “kinder, gentler IRS” in the 90s, I asked my colleagues on twitter whether they had noticed a difference in the IRS treatment of taxpayers:

The answer was…to continue reading click on IRS Gone Bad

Blame Congress. TIGTA gives the IRS credit for having to operate in an environment of everchanging tax laws. The American Recovery and Reinvestment Act of 2009, for example, included 56 tax provisions (20 related to individual taxpayers), and The Worker, Homeownership, and Business Assistance Act of 2009 revised the First-Time Homebuyer Credit, causing untold confusion. More tax laws mean more to enforce; more changes mean it’s more likely taxpayers will mess up.

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

To continue reading go to Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

By ROBERT W. WOOD – Forbes.com

Do You Feel Lucky?  No one wants to be audited.  And yet as a tax lawyer advising clients about tax issues, I’m required by Treasury Department rules to assume every return will be audited.  In truth, there might be only a 2% chance of audit. When I say there’s a 50/50 chance a tax deduction will be upheld, I must assume it will be examined.

Because of these strict standards, it can be awkward to talk about audit risk.  But understandably, no matter how sure you are of your return, you don’t want to be audited.  You want your return to look plain vanilla, and nothing prevents you from trying to make it sail through as long as you fully and fairly complete it.  See 10 Ways To Audit Proof Your Tax Return.

Audit Witchcraft? There are many old wives’ tales about what does and doesn’t trigger an audit, but the latest IRS stats are worth a look.  The IRS has pulled back the shroud on audit rates in its 2010 Data Book, providing important clues about your chances.  The numbers reveal some surprising percentages.

To continue reading go to What’s Your IRS Audit Risk? at Forbes.com.

By LAURA SAUNDERS of the Wall Street Journal

In a rare show of leniency, the Internal Revenue Service (IRS) on Thursday announced new rules designed to make it easier for people struggling with tax debts to climb out of the hole.

Among the changes, the IRS said it would place fewer claims on taxpayers’ property and would make such “liens” less damaging to taxpayers’ credit ratings. Other changes are intended to help small businesses and forgive debts of more people who are unable to pay.

Commissioner Doug Shulman called the changes an effort to “stand in taxpayers’ shoes” following “the worst recession in a generation.”

“This is a real effort to consider taxpayers’ needs,” said Benson Goldstein, a tax expert with the American Institute of CPAs.

Nina Olson, the National Taxpayer Advocate tapped by Congress to monitor the IRS, was more muted in her response. She called the changes “a significant step in the right direction,” but added that “they are not sufficient to address the problems we have seen.”

The changes affecting the largest number of taxpayers concern liens, or notices that give the IRS a legal claim to a taxpayer’s property in the amount of an unpaid tax debt. The new rules generally prohibit the IRS from filing a lien unless unpaid taxes exceed $10,000, doubling the previous limit, which had been in effect since the mid-1980s.

The IRS also will ease the damage to taxpayers’ credit scores after the full amount of the debt is paid. In an important technical move, the agency will grant more taxpayers “lien withdrawals”—a higher level of forgiveness than the current “lien release.”

According to Ms. Olson, full withdrawal is often better for taxpayers’ credit ratings because it expunges the lien from the record immediately, whereas a release leaves it on the record for at least seven years. A tax lien can knock 100 points off a person’s credit score. The highest credit score is 850 at FICO, a leading credit scorer. Borrowers often need a score in the 700s to qualify for the best rates on loans.

In addition, liens now may qualify for full withdrawal even if the debt isn’t fully paid, so long as the amount is less than $25,000 and the taxpayer enters into a “direct debit installment agreement.”

This typically allows the IRS to make an automatic monthly withdrawal of a scheduled payment from the delinquent taxpayer’s bank account. Taxpayers may apply for a direct debit agreement online at www.irs.gov.

Mr. Shulman said the agency has found that taxpayers with direct debit agreements are good risks and therefore full withdrawals of liens are appropriate.

To continue reading Lien on Me: IRS Eases Debt Rules at the Wall Street Journal

By Janet Hook and John McKinnon

WASHINGTON—Congress passed the most far-reaching tax bill in a decade late Thursday, averting across-the-board tax increases, enacting new breaks for individuals and businesses and laying a marker for how Washington might work in an era of divided government.

The bill goes to the White House for President Barack Obama’s signature after the House overcame persistent liberal opposition and passed it with an unexpectedly large bipartisan majority of 277-148. The measure passed the Senate earlier in the week also with an overwhelming majority.

The bill reaches deeply into the life and economy of the U.S., more so than might have been expected when Congress first started tackling the matter. Wage-earners will get a new payroll tax break; wealthy heirs get a lower estate-tax rate; and businesses gain an unexpected plum—a big tax write-off for new equipment purchases.

The $858 billion bill breaks a stubborn political impasse prompted by the Bush-era tax cuts, which were due to expire at the end of this year. The bill provides a two-year extension for all income brackets, kicking the issue into the next Congress and into the middle of the 2012 election. Lawmakers, especially Republicans, said the current economy was too weak to withstand a tax increase.

Obama’s success in moving a tax plan through Congress is the opening step on a new, more centrist course White House officials hope will yield results. Jonathan Weisman discusses. Also, Nick Timiraos says higher mortgage rates, soaring due to rising Treasury yields, are likely to hurt any housing recovery.

In the bill’s sweep, Congress signaled a return to tax cutting as a principal engine of driving economic growth, especially compared with Mr. Obama’s 2009 stimulus bill, which put more emphasis on government spending…

For the complete article, go to Congress Passes Tax Deal at the Wall Street Journal.

By Laura Saunders – Wall Street Journal

There are plenty of reasons for taxpayers to scream. Here it is, year-end tax-planning time, when investors must decide whether to take gains or harvest losses and make important retirement-account choices. Yet crucial questions remain—not only about next year’s tax law but also about this year’s.

If Congress doesn’t pass an extension of the Bush-era tax rates for upper-income earners, the top rate on long-term capital gains will rise by one-third next year—an increase that is double the rise in rates on ordinary income. The rate on dividends, meanwhile, could nearly triple. And many taxpayers are still waiting for answers on the 2010 alternative minimum tax, the estate tax and the gift tax.

Adding to taxpayers’ anxiety, two serious overhaul proposals were just announced in Washington—one from President Obama’s deficit commission and the other from the independent Bipartisan Policy Center. While it is unlikely they would be enacted in current form, they take aim at many prized benefits, from the mortgage-interest deduction to low capital-gains rates. It’s natural to fear that moves made now could prove useless later, or even backfire.

Given all the uncertainty, is your annual year-end tax-planning session worth the effort this year? Yes—in fact it is crucial, because it could be your last chance to take advantage of today’s low rates.

Congress will address taxes in December, and may (or may not) clear up 2010 and 2011 issues before year-end. Advisers like Mark Nash of PricewaterhouseCoopers LLP in Dallas are urging clients to get ready to pounce once the law becomes clear. “We are making plans [for clients] now that can be executed quickly before the end of the year, or looking at moves—like Roth IRA conversions or installment-sale elections—that can be revised next year,” he says.

Even if Congress merely extends current law, understanding “wash sale” rules, loss-harvesting and Roth IRA conversions now can pay off later.

That is because the window is closing on current investment tax rates, now at historic lows. Already, many investors face a substantial tax increase in 2013 passed by Congress as part of the health-care overhaul. Every financial and political analyst interviewed for this story expects taxes on investments to rise more than taxes on wages in coming years.

The good news? Investors have enviable flexibility when it comes to timing income and deducting losses—far more than wage earners. There’s so much to say about investment tax planning that we’re saving other year-end tips for next week.

Capital Gains and Losses

If Congress extends the Bush 2001-03 tax rates for couples earning more than $250,000 ($200,000 for singles), then the top rate on long-term capital gains (those held longer than a year) will remain 15% for a year or two. If lawmakers don’t extend the current law, then on Jan. 1 the top rate on gains will rise to 20%.

For the rest of this story about the income tax, go to the Wall Street Journal.

How To Not Get Audited By The IRS

With increased computer power and more money for staff from the Obama administration, the IRS is gearing up to intensify its audits of individual taxpayers. High income alone is far from the only factor triggering an audit: Last year only 6.4% of the nation’s 440,000 highest-income filers were audited.

That means there are steps you can take–or in some cases, not take–to minimize the chance of getting audited. Many of the precautions revolve around the wisdom of that old Japanese proverb, “The raised nail gets hammered down.” The less attention you can draw, the less likely you are to get audited.

For the rest of this story, go to Forbes and read, How to Not Get Audited by the IRS.

Periodically the IRS updates its “Dirty Dozen” list of things to watch out for. This post is taken directly from the IRS website.

March 16, 2010

WASHINGTON — The Internal Revenue Service today issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.

“Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”

Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.

The IRS urges taxpayers to avoid these common schemes:

Return Preparer Fraud

Dishonest return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by promising refunds that are too good to be true. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued injunctions ordering hundreds of individuals to cease preparing returns and promoting fraud, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents.

Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in the IRS Return Preparer Review issued in December 2009.

Hiding Income Offshore

The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.

Phishing

Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.

Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: phishing@irs.gov.

Filing False or Misleading Forms

The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds that they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund. Phony information returns, such as a Form 1099 Original Issue Discount (OID), claiming false withholding credits usually are used to legitimize erroneous refund claims. One version of the scheme is based on a false theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.

Nontaxable Social Security Benefits with Exaggerated Withholding Credit

The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.

Abusive Retirement Plans

The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.

Disguised Corporate Ownership

Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.
Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts.  While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams

The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and potentially subjects those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

You can find this page on the IRS website

IR-2009-114, Dec. 8, 2009

WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.

Some of these changes include the following:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders: Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.

• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.

• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.

• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.

• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

For additional information on charitable giving:

* Charities & Non-Profits
* Publication 526, Charitable Contributions.
* On-line mini-course, Can I Deduct My Charitable Contributions?