Business Strategies

Remember It Takes Two to Tango – When You Sign Your Tax Return, You Are Attesting, Under Penalties of Perjury That Your Return Is True and Correct – Don’t Become a Co-Conspirator

Let’s take a look at three recent Department of Justice investigations into unscrupulous tax return preparers.

Philadelphia Area Tax Preparer Creates False Business Losses

According to court documents and statements made in court, Abdoulaye Coumbassa owned and operated Abbi Tax Services and Accounting (Abbi Tax). From at least 2012 to 2015, Coumbassa prepared and filed fraudulent tax returns and related forms and schedules on behalf of his clients. By reporting fictitious businesses with false business losses, Coumbassa sought inflated refunds for his clients from the Internal Revenue Service (IRS). At times, Coumbassa included the fake business losses without the client’s knowledge. In total, Coumbassa caused a tax loss of $2.1 million to the IRS.

In addition to being sentenced to 24 months in prison, U.S. District Judge R. Barclay Surrick ordered Coumbassa to serve one year of supervised release and to pay approximately $250,000 in restitution to the United States.

Georgia Tax Preparer Creates False Business Losses, False Business Gains, and False Tax Credits

The US Justice Dept. announced that it filed a civil injunction suit seeking to bar Wesley Adam Kroll from owning or operating a tax return preparation business and preparing tax returns for others. The complaint also seeks an order that Kroll disgorge ill-gotten return preparation fees that he obtained through his alleged misconduct.

The complaint alleges that Kroll operated three tax return preparation stores in Albany and Moultrie, Georgia, under the names United Tax Service, American Tax Service, American Tax, and Tax South. 

The government alleges that Kroll prepared tax returns claiming fabricated businesses and business-related profits or losses, and various false tax deductions and credits, including education, childcare, and earned income tax credits. The complaint estimates the lost tax revenue from federal tax returns prepared by Kroll and his employees exceeded $1.9 million. According to the complaint, the IRS took multiple steps to correct Kroll’s unlawful behavior, including conducting in-person educational visits with Kroll in 2012, 2014, and 2015; issuing him warning letters in 2013 and 2016; and assessing him with $182,500 in tax return preparer penalties. But, the government alleges, these efforts have failed to curb Kroll’s unlawful behavior.

Georgia Tax Preparers Shut Down for Improperly Claiming Tax Credits, False Business Losses, and False Itemized Tax Deductions

A federal court in Columbus, Georgia, permanently barred Stacy Lee and Heather Lee from preparing tax returns for others and from owning, operating, or franchising a tax return preparation business. The court also ordered Stacy Lee and Heather Lee to close their tax return preparation stores. Stacy Lee and Heather Lee consented to the relief.

According to the US Justice Department, Stacy Lee operated two tax return preparation stores under the names Fast Track Tax Service in Talbotton, Georgia, and TimeLee Tax Service in Columbus, Georgia. Stacy Lee’s daughter, Heather Lee, allegedly prepared tax returns at the two stores as well. From 2013 to 2018, Stacy Lee prepared 3,728 tax returns and Heather Lee prepared 1,116 tax returns, the complaint alleges.

The government further claimed that Stacy and Heather Lee prepared false federal income tax returns, understated federal income tax liabilities, and improperly claimed tax credits in order to obtain inflated tax refunds for customers. The defendants fabricated deductions for charitable contributions, unreimbursed employee business expenses, and medical expenses; reported profits and losses for fictitious businesses; and claimed false education credits, energy credits, and childcare credits. 

“The Tax Division will work with its IRS partners to shut down return preparers who claim improper or illegal deductions and credits for their clients,” said Principal Deputy Assistant Attorney General Zuckerman. “Taxpayers should be vigilant so they do not file tax returns claiming false deductions.”

Tax Planning Tip #1

NEVER sign a tax return without first reviewing it. You are ultimately responsible for what is reported on your tax return, even if the preparer included fictitious business losses to increase your refund or decrease the taxes you owe.

Tax Planning Tip #2

Inflating business profits may sound counter intuitive as one may think that the taxpayer would be subject to additional income taxes, but some tax credits, such as the earned income tax credit, could result in additional refunds to the taxpayer by showing more business profits.

Tax Planning Tip #3

Due to taxpayers filing false returns claiming tax credits, and tax preparers preparing false returns claiming illegitimate child care and tuition credits, the IRS is now requiring tax preparers to perform due diligence by asking questions and documenting the taxpayer’s responses to the required questions in the IRS’s efforts to combat tax fraud.

Tax Planning Tip #4

When you engage an unscrupulous tax return preparer, you are increasing the odds that your return will be audited by the IRS. When the IRS identifies an unscrupulous tax preparer, it runs the returns prepared by that person through IRS computers looking for similarities. For example, if a preparer is claiming erroneous childcare or educational credits, the IRS computers will identify all taxpayers who have claimed those credits who used that tax preparer.

Tax Planning Tip #5

Return preparer fraud is one of the IRS’ Dirty Dozen Tax Scams and taxpayers seeking a return preparer should remain vigilant. The IRS has information on its website for choosing a tax preparer and has launched a free directory of federal tax preparers.

The three preparers discussed above is a very small sampling of the types of tax preparers to avoid. In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers. Information about these cases is available on the Justice Department website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2020 Keystone Financial Solutions, Inc.  All rights reserved. 

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Do You Simply Complain About Taxes, or Do You Have a Strategic Plan to Reduce the Taxes You Pay?

Background

We have yet met a businessperson who does not complain about paying income taxes. The typical small business owner works very long hours only to see the tax authorities walk away with a significant percentage of their earnings.

Despite not liking taxes and wanting to pay less of them, many entrepreneurs lack a tax strategy. The lack of a tax strategic plan can be quite costly.

Why Are Taxes Ignored

We believe that many entrepreneurs focus too much on making sales. From the day that the business begins, the business plan (assuming one exists) is to make as much revenue as possible to pay the expenses of the business. Business owners often ignore tax planning when the business is started because the owner is attempting to conserve cash because of limited financial resources and in the early years is reporting losses or minor profits. The owner very likely is thinking that “I’ll worry about tax planning when the business becomes profitable.” The problem with this approach is that it does not change when the business grows and taxes become a significant outlay.

While revenues from sales are very important, other facets of the business should not be ignored. One facet of the business that is often ignored is engaging in meaningful tax planning. Forget about net profits from a business perspective where net profits are equal to revenues less expenses. Remember that your “true” net profits are revenues less expenses, and one of the most significant expenses you pay, are income taxes. You need to think on a cash flow basis. If you can decrease the taxes you pay, your net cash flows will increase and your business becomes more profitable.

Examples of Meaningful Tax Planning

Work with an experienced tax professional. If you call your tax professional and s/he does not know the answer, do they get back to you after researching the issue? While working with an experienced tax professional may be more expensive, remember that you get what you pay for. If you attempt to cut corners, it usually will cost you more in the long run.

Consider taxes to be a business expense that needs to be periodically reviewed to keep it in check. If you take your tax liability as a percentage of your business revenues, where does it rank? It very likely is one of the largest expenses the business pays, if not the largest.

Periodically request a meeting with your tax advisor to discuss what s/he considers to be meaningful issues your business needs to address.

Work with a tax professional who keeps you abreast of current tax developments. If your tax pro has a blog, read it to keep abreast of important matters.

Read the information your tax pro sends you about important tax issues. After carefully reading those materials, call your tax pro to discuss how they may impact your business. Do not simply ignore those emails or letters thinking that they don’t apply to your business or you will get around to them later (you won’t).

Inquire if your tax entity is tax efficient. Tax laws are constanting changing. Have you reviewed your tax entity (sole proprietorship, partnership, C corporation, S corporation) with your tax advisor? The ideal tax entity when the business was formed may no longer be the ideal entity in today’s tax climate.

Understand how your business entity’s taxes are computed. It is not uncommon for a business owner not to understand how tax flow-through entities work, basis requirements, and what constitutes reasonable compensation.

Call your tax professional to understand how new tax laws impact your business. Tax laws are constantly changing. Perhaps you need to make changes in your business.

Compare the cost of buying new equipment against leading. Leasing conserves the initial cash outlay and may be a consideration if obsolescence is of concern or having the latest technological advances is necessary.

Tax Planning Tip:

Nobody knows your business better than you and nobody should be more concerned about controlling your company’s expenses than you. Taxes are a very significant expense for business owners. Be proactive and call your tax professional today.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2020 Keystone Financial Solutions, Inc.  All rights reserved. 

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

How to Proceed When You Sell Stock Acquired or Inherited Many Years Ago and You Need to Know Its Tax Basis

Background

You decide to sell securities (“stock”) that you acquired 20 years ago or inherited from a deceased family member. Perhaps you participated in a dividend reinvestment program (DRIP) or moved your stock from one brokerage company to another.

When you sell the stock, the brokerage firm reports the sales proceeds to the IRS. You provide the brokerage statement to your tax professional so that the sale is properly reported to the IRS.

Your tax preparer calls you and informs you that “The brokerage statement you sent me only shows the sales proceeds. There is no cost basis shown on the statement. Please provide me with your tax basis.” If you reply that you do not know your basis, the tax professional will very likely say “In such cases, the tax rules require that I show a zero basis for this stock which means that you will report the sales proceeds as your gain. This could result in you overpaying your income taxes. You really should try to substantiate your basis.”

Steps You Can Take to Establish Your Tax Basi

Ask the tax preparer to compute your tax basis:

This is likely going to be the most expensive alternative. First, you will need to spend time educating your tax professional as to how and when you acquired the stock. Then the tax professional will need to create worksheets showing the date acquired, number of shares acquired, how acquired, and much more. Sometimes the preparer will need to work backwards by starting with the number of shares sold, then working with the company’s website or transfer agent, looking for DRIP dividends, stock splits, stock dividends, mergers, etc. to work back to the year that the stock was purchased. This can be a very time-consuming process which is why it can be expensive.

The preparer will also likely inform you that he does not have the time to do this during the busy season and this project will need to be completed after April 15. He will need to file an extension and suggest that you pay the estimated tax based on the total sales proceeds by April 15 to avoid late payment penalties.

You compute your tax basis:

If you participated in a DRIP program, contact the transfer agent for the DRIP stock and request that it send you the history of your stock transactions. The summary will show the dates that dividends were paid, number of shares purchased, and the value of those dividends which become your cost basis since the dividends are reported as taxable income on Form 1099-DIV.

Check the Internet for websites that provide historical information about stocks. One such site is Wolter Kluwers Capital Changes. This site offers more than 100 years of data and a wealth of detail. It includes corporate actions that will significantly reduce the time spent on your analysis. It reflects historical events such as mergers and acquisitions, spin-offs, exchange offers and reorganizations. Its website says “Subscribers can work backwards to obtain the information needed to adjust a security’s basis or accurately track a corporation’s history. Our historical data, tax analysis and concise summaries of corporate actions provide you with the necessary information to understand the corporate actions as well as the tax consequences of such actions.”

Create a detailed worksheet showing the date of acquisition, number of shares acquired, cost on date of acquisition, and then update the worksheet for any changes to the number of shares you own showing the date of the event, the cause of the event, and the basis of the shares related to that event. Be sure to maintain any third-party support you used to determine your basis.

Tax Planning Tip #1:

There is no time like the present. Carefully look at your monthly brokerage statements when received. Whereas the statements always show the fair market value of the stocks you own, they sometimes also show the tax basis (cost). If the tax basis is not shown, do not wait until you sell the stock to compute your tax basis. You should compute the basis immediately and provide it to your broker for inclusion in the next monthly statement.

If audited by the IRS, the IRS should accept the cost basis shown on the brokerage statement.

Tax Planning Tip #2:

If you acquire stock by gift, immediately determine the stock’s basis. Your basis is the same as the donor’s basis. Therefore, when thanking the donor for their generous gift, ask that person what their basis is. Document that basis in your permanent tax records file and provide that basis to your broker so it is reflected on your brokerage statements.

Tax Planning Tip #3:

If you acquire stock by inheritance, immediately determine the stock’s basis. Your basis is usually the fair market value (FMV) of the stock on date of death. The decedent’s estate will have likely determined the FMV if an estate or inheritance tax return was prepared. If you did not receive a copy of those returns or the basis of the stock was not provided to you, contact the executor/administrator of the estate to obtain your tax basis in the shares inherited. Provide that basis to your broker so it is reflected on your brokerage statements

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2019 Keystone Financial Solutions, Inc.  All rights reserved. 

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.