Category Archives: Alerts

Automated IRS System Helps College-Bound Students with Financial Aid Application Process

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College-bound students and their parents typically want to make every dollar and every minute of the college experience count including money spent on tuition and time spent on the college financial aid application process. The Internal Revenue Service is helping minimize the time spent on the completion of the Free Application for Federal Student Aid (FAFSA) form by automating access to federal tax returns with the IRS Data Retrieval Tool. This tool provides the opportunity for applicants to automatically transfer the required tax data onto the FAFSA form.

Here are some tips on using the IRS Data Retrieval Tool:

  • Benefits The IRS Data Retrieval tool is an easy and secure way to access and transfer tax return information directly onto the FAFSA form, saving time and improving accuracy. Also, the increased accuracy reduces the likelihood of being selected for verification by the school’s financial aid office.
  • Eligibility Criteria Taxpayers who wish to use the tool to complete their 2012 FAFSA form must:
    • have filed a 2011 tax return;
    • possess a valid Social Security Number;
    • have a Federal Student Aid PIN (individuals who don’t have a PIN, will be given the option to apply for one through the FAFSA application process);
    • have not changed marital status since Dec. 31, 2011.
  • Exceptions If any of the following conditions apply to the student or parents, the IRS Data Retrieval Tool can not be used for the 2012 FAFSA application:
    • an amended tax return was filed for 2011;
    • no federal tax return for 2011 has been filed ;
    • the federal tax filing status on the 2011 return is married filing separately; a Puerto Rican or other foreign tax return has been filed.
  • Alternatives If the IRS Data Retrieval Tool can not be used and if the college requests verification documentation, it may be necessary to obtain an official transcript from the IRS. To order tax return or tax account transcripts, visit www.irs.gov and select  Order a Transcript  or call the Transcript toll-free line at 1-800-908-9946.

In addition to helping reduce the time and effort involved in completing and submitting the FAFSA form through the IRS Data Retrieval Tool, the IRS offers money-saving information to college students and their parents.  Important information regarding tax credits and deductions for qualifying tuition, materials and fees is available at the IRS Tax Benefits for Education: Information Center and in IRS Publication 970, Tax Benefits for Education both of which are available at www.IRS.gov.
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Congress inaction risks 2013 tax “disaster”: IRS chief

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WASHINGTON (Reuters) – The commissioner of the U.S. tax-collecting Internal Revenue Service warned on Thursday of “a real disaster” for taxpayers next year should Congress miss a December 31 deadline to decide on billions in major tax provisions.

Congress is expected to wait until after Election Day, November 6, to take up whether to extend the individual income tax cuts passed under former president George W. Bush that expire at the end of 2012.

Most Democrats and President Barack Obama want to extend all but the top two tax brackets, allowing taxes to increase for high-income earners. Republicans want to extend the lower rates for all income groups.

A 2010 “lame duck” session deadlock to extend the Bush tax cuts delayed the start of the tax filing season in early 2011.

Allowing the pending tax decisions to lapse into 2013 will cause confusion for taxpayers, said Douglas Shulman, IRS commissioner, speaking at the National Press Club in Washington.

“We’re going to have real risk in the system” if Congress delays, Shulman said.

“You could have a real disaster in the filing season where there’s total confusion,” especially for the alternative minimum tax “patch,” he said.

The alternative minimum tax is a parallel tax system that applies to higher-income taxpayers. A legislative fix to index it for inflation must be approved before year’s end to prevent the tax from hitting taxpayers in lower income brackets.

In the absence of congressional action by January 1, the IRS might be forced to delay the tax-filing season, which begins promptly with the new year, Shulman said.

As it is, Congress faces a huge workload for the two-month lame-duck period after the elections when about $650 billion of tax and spending provisions expire.

Shulman, appointed by President George W. Bush and now in the last year of a five-year term, defended IRS’s regulation of 501(c)4 groups, including Tea Party organizations, which have received IRS letters asking questions about their political work.

For any non-profit groups that raise red flags, the IRS will “go out and do an audit and gather more facts,” Shulman said in response to a question about IRS investigations into the non-profit groups.

Shulman also touted stronger IRS international enforcement efforts for businesses and individuals.

The agency has hired private-sector experts to better catch businesses that aggressively shift assets and profits offshore.

The new enforcers will help the IRS keep pace with corporations’ evolving tax strategies, Shulman said.

Tax professionals have doubted whether the IRS has the muscle to enforce these “transfer pricing” disputes.

Transfer pricing is a booming field of global tax law. It involves multinational corporations moving goods, services and assets from one subsidiary to another in different countries and how they account for these “transfers.”

(Reporting by Patrick Temple-West; Editing by Howard Goller and Philip Barbara)

More Time to Pay, Penalty-Free

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By Tom Herman | The Wall Street Journal – 19 hours ago
 

For most taxpayers, time is drawing short to wrap up the mind-numbingly complex chore of filling out federal income-tax returns and paying whatever is owed to the U.S. Treasury.

But this year some people are eligible for additional time to pay without getting hit by a stiff penalty.

First, some background: In most cases, the official deadline to file and pay is Tuesday, April 17. (It’s usually April 15, but that falls on a Sunday this year, and April 16 is a holiday in Washington, D.C.) Those who can’t meet the April 17 deadline can ask the Internal Revenue Service for a six-month filing extension. That would give them until Oct. 15 to file—but it wouldn’t give them more time to pay.
Recently, though, the Internal Revenue Service announced plans for “new penalty relief” for some taxpayers on the failure-to-pay penalties.

The IRS is granting a new six-month grace period on failure-to-pay penalties for “certain wage earners and self-employed individuals.” The request for an extension to pay any taxes owed will result in “relief from the failure-to-pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.”

This special relief is available to two types of taxpayers. One is “wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.” The second is for self-employed individuals who experienced “a 25% or greater reduction in business income in 2011 due to the economy.”

But there are strict income limits. “A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household,” the IRS says. “This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.”

To seek the 2011 penalty relief, you’ll need to fill out a new Form 1127A, available on the IRS website (www.irs.gov).

But don’t expect any relief from interest as well. The IRS says it still is legally required to charge interest on unpaid back taxes and doesn’t have the authority to waive this charge. The rate currently is 3% on an annual basis.

9 Warning Signs You’re About to Get Audited

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By Kimberly Palmer | U.S.News & World Report LP – Wed, Mar 7, 2012 12:58 PM EST
 
The IRS is on the prowl–possibly for you. Thanks to improved detection systems and computerized checks, the IRS can more easily identify red flags that trigger audits, says Joseph Perry, a partner at Marcum LLP, a public accounting firm. “They definitely contact taxpayers more frequently,” he adds.

Contact typically starts with a letter requesting more information and can lead to in-person meetings. Perry says it’s usually triggered by a tax return that contains something unusual, such as an above-average deduction or change in income from previous years. As long as the taxpayer can defend his filings with the proper paperwork and logic, Perry says he has nothing to worry about–other than the time it takes to respond.

Before you start looking anxiously at the mailbox, wondering if the IRS will be mailing you a letter, consider whether any of these nine signs that you’re about to get audited apply:

1. You made a lot less money last year. Perry says the IRS looks out for any major changes in income, which can signify that a taxpayer is under-reporting his earnings. Since the IRS tracks historic data, people who suddenly start reporting much less income can be flagged for an audit.

2. You lose or forget to file a form. Since employers send copies of all 1099 forms and W-2 forms to the IRS as well as to you, if you lose your version or forget to file it with your taxes, the IRS can flag your return for review. If you receive a form that looks like it has an incorrect amount or inaccurate information on it, Perry suggests talking to your employer before filing your taxes. You want to make sure the information you provide to the IRS matches up with any other information they are receiving about you.

3. You work for yourself. It might not seem fair, but being self-employed can raise red flags for the IRS, especially if you claim your home office and other costs as business expenses but don’t earn much income. “The IRS questions those type of businesses,” says Perry. His advice is to keep careful track of all paperwork so you can defend any deductions and credits you take.

4. You claim losses from a hobby. While writing off business expenses can be legitimate, it’s illegal to pretend a hobby is a business and then write off the related expenses. For example, if you enjoy woodworking, you might practice the craft on the weekends for fun. Doing so does not enable you to write off the cost of wood and tools. (If you were selling those creations online, that would be a different story.) The difference between a small business and a hobby, says Perry, is that a business “must be entered into and conducted with the reasonable expectation of making a profit.”

5. Deducing home office (or car) expenses. While plenty of people can legitimately claim home office expenses on their taxes, some people do so incorrectly. Merely checking email from home after work, for example, does not justify a home office deduction, says Perry. In order to qualify, the home office must be used for work only. Likewise, claiming a car as a business expense can also raise red flags; Perry urges taxpayers doing this to keep careful track of how much they use the car for business versus personal use.

6. You included expensive meals and entertainment costs among your deductions. The IRS often double-checks these types of claims to make sure they are legitimate business expenses, says Perry.

7. You were particularly generous this year. Perry says the IRS is on the lookout for people who inflate their charitable donations, and that the agency takes a close look at taxpayers who say they donated $500 or just under, since anyone who donates more than that amount must file form 8283. (And if you do donate more than $500, be sure to file that form.)

8. You maintain an overseas bank account. The IRS has added more reporting requirements this year for people with money in foreign accounts. Failing to report one could trigger an audit.

9. Your numbers don’t match. If numbers on various forms don’t match or add up correctly, the IRS is likely to notice and look into any disparities. So treat your taxes like a final exam in algebra and check over all the numbers before submitting.

As long as you know you filed your paperwork properly, you can sit back and enjoy any refunds coming your way.

Tax Scam Warning: Beware of Phony Refund Scheme Abusing Popular College Tax Credit; Senior Citizens, Working Families and Church Members Are Targets

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IRS YouTube Video: Tax Refund Scams: English | Spanish | ASL

WASHINGTON – The Internal Revenue Service today warned senior citizens and other taxpayers to beware of an emerging scheme tempting them to file tax returns claiming fraudulent refunds. 

The scheme carries a common theme of promising refunds to people who have little or no income and normally don’t have a tax filing requirement. Under the scheme, promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.

In recent weeks, the IRS has identified and stopped an upsurge of these bogus refund claims coming in from across the United States. The IRS is actively investigating the sources of the scheme, and its promoters may be subject to criminal prosecution.

“This is a disgraceful effort by scam artists to take advantage of people by giving them false hopes of a nonexistent refund,” said IRS Commissioner Doug Shulman. “We want to warn innocent taxpayers about this new scheme before more people get trapped.”

Typically, con artists falsely claim that refunds are available even if the victim went to school decades ago. In many cases, scammers are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money.

The IRS has also seen a variation of this scheme that incorrectly claims the college credit is available to compensate people for paying taxes on groceries.

The IRS has already detected and stopped thousands of these fraudulent claims. Nevertheless, the scheme can still be quite costly for victims. Promoters may charge exorbitant upfront fees to file these claims and are often long gone when victims discover they’ve been scammed. 

The IRS is reminding people to be careful because all taxpayers, including those who use paid tax preparers, are legally responsible for the accuracy of their returns, and must repay any refunds received in error. 

To get the facts on tax benefits related to education, go to the Tax Benefits for Education Information Center on IRS.gov.

To avoid becoming ensnared in this scheme, the IRS says taxpayers should beware of any of the following:

  • Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
  • Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
  • Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
  • Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
  • Offers of free money with no documentation required.
  • Promises of refunds for “Low Income – No Documents Tax Returns.”
  • Claims for the expired Economic Recovery Credit Program or for economic stimulus payments. 
  • Unsolicited offers to prepare a return and split the refund.
  • Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

This refund scheme features many of the warning signs IRS cautions taxpayers to watch for when choosing a tax preparer. For advice on choosing a competent tax professional, see Tips for Choosing a Tax Return Preparer on IRS.gov.