audits

PROCRASTINATORS – APRIL 15th ANXIETY REACHES NEW HEIGHTS

April 15, 2019 by Frank

DEADLY STORM THREATENS MILLIONS IN THE NORTHEAS

A deadly storm travels from the South and hits the Northeast with severe thunderstorms, powerful winds and possible tornadoes. Residents and businesses lose electrical power.

TAXPAYERS WHO PROCRASTINATE PANIC

Fellow tax professionals in PA report that they have lost electrical power due to a major storm that uprooted trees and downed power lines. The preparers are unable to open their tax preparation software without electrical power and thus are unable to e-file the tax returns of their clients or file extensions of time to file. It has been reported that some post offices have no power and taxpayers are calling their tax professionals asking what they should do to meet the April 15 deadline.

THE BENEFITS OF NOT WAITING UNTIL THE LAST MINUTE

There is a very good reason that tax professionals request that taxpayers send their information in by March 15 or some other date well before April 15. Not only are tax professionals inundated by taxpayers requesting that their returns be prepared in the waning days before the April 15 due date, by there are factors that tax professionals cannot control.

This year it is the unexpected storm knocking out electrical power.

In prior years, the IRS computers have crashed due to the number of tax returns filed at the last minute.

WHAT YOU NEED TO DO

Carefully read and complete your tax professional’s tax organizer and send it and your tax documents by the due date set by your preparer. If you are missing a partnership K-1 form or some other tax document, send everything else and include a note about the missing item. This allows your tax professional to begin work on your return ASAP.

Be sure you have whitelisted your tax professional’s email address and frequently check your email inbox.

When your tax professional sends you a draft of your return to review, immediately review it. The longer you wait to review it, the closer the April 15 deadline approaches and returns get backed up at your preparer’s office.

Sign up for EFTPS payments. This is the IRS’s Electronic Federal Tax Payment System (https://www.eftps.gov) that allows you to expeditiously make payments to the IRS and receive an immediate confirmation of the amount, date, and tax year of the payment.

Understand that if your preparer completes your return before the due date and efiles the return, any balance due can be scheduled for payment on the due date. Thus, filing early does not mean that the funds are paid early.

PEACE OF MIND

Taxpayers have a choice. Filing early reduces the liklihood of ID theft by scammers and avoids the panic of what to do when you hit the proverbial wall on April 15 and the best plans go awry.

Or, you can continue to procrastinate and stress yourself by filing at the last minute.

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: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and 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.

FREE TAX RETURNS PREPARED HERE

April 9, 2019 by Frank

WASHINGTON POST WARNS TAXPAYERS ABOUT FREE TAX RETURN PREPARATION SERVICES

While One Should Always be Cautious of Sharing Personal Information, “Tax Time” Always Calls for Increased Caution and Discretion

Everybody loves “free stuff.” Unless you are dealing with a philanthropist, are these free deals really free? According to Geoffrey Fowler in a March 7 article in the Washington Post, we are reminded that nothing is certain except death, taxes . . . and tech companies making grabs for your data.

Mr. Fowler’s article discussed the various “free” online tax services and why they are free. “How is somebody going to make money from this?” he asks. As Fowler so astutely stated, in Silicon Valley the adage is “If the product is free, that means you’re the product.”

He found that some vendors use the intimate details of the taxpayer’s tax returns to:

Bait you to purchase paid services. As examples, he mentioned that TurboTax and H&R Block offer limited free service to sell you more expensive paid services.

Sell you financial services. The data in your tax return is a gold mine. It allows vendors to determine how much you earn and are paying for your current mortgage. If you are wondering why you are being targeted by mortgage refinancing ads or solicitations from investment companies, your free tax return may be the reason.

Credit card solicitations. Some companies make money by showing you tailored “offers” for credit cards and loans based on a profile of your financial life.

PRIVACY CONCERNS

Fowler stated that we’ve been letting free technology blind us to a really important question: When tax prep is free, you may be paying with your privacy. He states there’s a fine line between useful and creepy with surveillance. For some, such offers might be acceptable, even time- and money-saving. Fowler says that offers made by Credit Karma Tax are taking a business idea that hasn’t worked out well with Facebook and applying it to even more sensitive information . . . your personal financial information.

To really understand what free costs, you have to follow the data. Taped on Fowler’s desk are four questions he has learned to ask any business that wants his data:

1. What information is being used?

2. Who is it being shared with?

3. How secure is it?

4. How long are they holding on to it? If you use a service for a year, you tax information could be available “for sale” for several years. You need to read the fine print.

While credit bureaus and data brokers already collect information about your finances, some details are hard for that industry to come by, such as your cash flow, mortgage deduction and savings yield.

Remember that when using such free services, you are potentially putting your Social Security numbers at risk along with your address, employer’s name, address and EIN, dates of birth, and dependent children’s names. The IRS has gone to great lengths to redact much of this information in its transcripts system to prevent hackers from stealing your identity and preparing fraudulent income tax returns.

Data breach announcements by large companies appear to be becoming more common today. Using Willie Sutton’s quote as to why he robbed banks, “That’s where the money is.” Consider the potential consequences of voluntarily putting confidential information on the web.

About F. Bryan Haarlander, EA, CTRS:

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 CAREFULLY CHOOSE YOUR TAX PREPARER

April 2, 2019 by Frank

HELPFUL TIPS TO CONSIDER WHEN CHOOSING YOUR TAX PREPARER

IRS Expects More Taxpayers to Seek Professional Help This Year Due to the Most Sweeping Tax Reform Changes Made in More than 30 Years by the Tax Cuts and Jobs Act

Tax Preparer Fraud

In the past few years, the IRS has made significant improvements in its efforts to educate taxpayers. One of its focal points has been to warn taxpayers about tax scams. Unfortunately for taxpayers, one of the major scams the IRS has identified is tax preparer fraud. IRS advises taxpayers to know and look for the warning signs and understand the dangers of using these con artists

Known Benefits of Using a Professional Tax Preparer

With the passage of the Tax Cuts and Jobs Act, the most sweeping tax reform legislation in more than 30 years, our office is seeing more taxpayers choosing to use a paid professional to prepare their tax returns this year. With many tax professionals charging a few hundred dollars to prepare a tax return, it is often viewed as a dollar outlay that brings significant peace of mind to taxpayers knowing that their tax returns were prepared in accordance with IRS rules, and perhaps more importantly, that they have taken advantage of any available tax strategies so as not to overpay their taxes.

There is also the time savings. Whereas it can take an individual several hours to prepare their own return, it is a relatively simple task to complete your tax professional’s tax organizer and send him/her your tax documents.

The IRS reminds taxpayers to be careful when selecting a tax professional. Selecting the right tax professional is vitally important. Remember that taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it.

How to Wisely Choose Your Tax Return Preparer

First and foremost, don’t begin your search by asking the question: “How much do you charge to prepare a tax return?” While the cost to prepare your tax return is an important consideration, it really is one of the least important considerations as you peruse the other considerations listed below.

Inquire about the preparer’s experience in preparing tax years. How many years? If you have a small business or rental property, does the preparer have experience preparing Schedule C and Schedule E?

Does the preparer use a tax organizer or checklist so as not to overlook tax deductions?

Does the tax professional merely prepare tax returns or will s/he look for tax savings strategies that can be implemented to reduce your taxes?

Ask how the preparer about the new Tax Cuts and Jobs Act. You want to make sure that the preparer is familiar with the new law and particularly about the Qualified Business Income deduction if you have a business.

Has the preparer written any books or articles about taxes? Spoken before any industry groups about taxes? This would indicate that the person is knowledgeable about taxes.

Look for a preparer who is available year-round. In the event questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over. Tax planning is ideally done months before the end of the calendar year to allow sufficient time for implementation.

Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on tax returns.

Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant or attorney), belongs to a professional organization or attends continuing education classes. Because tax law can be complex, competent tax preparers remain up-to-date on tax topics..

Check the preparer’s history. Check the Better Business Bureau website for information about the preparer. Look for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.

Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition.

Make sure the preparer offers IRS e-file and ask to e-file the tax return.

You are signing your tax return under penalties of perjury. The preparer should be preparing your return based on your tax documents and not using national averages or fabricated numbers.

Never sign a blank or incomplete return. Work with preparers who provide you with a draft copy of your return for your review before it is e-filed. Make sure your preparer provides you with an opportunity to ask questions if something is not clear or appears inaccurate.

Any refund should go directly to you, the taxpayer, and not into the preparer’s bank account. If using direct deposit or ACH debit payments, review the routing and bank account numbers on the e-file authorization form against your bank information.

Make sure that the preparer provides you with a copy of your tax return.

Understand tax representation rules. Only attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation.

About F. Bryan Haarlander, EA, CTRS:

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.

PA Dept. of Revenue Warns Taxpayers

March 26, 2019 by Frank

TIS THE SEASON WHEN THE IRS REMINDS TAXPAYERS OF THE VARIOUS ID THEFT SCAMS CON ARTISTS ARE USING – THE PA DEPT. OF REVENUE ISSUES ITS OWN ANNOUNCEMENT

While One Should Always be Cautious of Sharing Personal Information, “Tax Time” Always Calls for Increased Caution and Discretion

The PA Department of Revenue issued a reminder to taxpayers to be cautious of scams and “phishing” schemes that are being used by criminals to steal taxpayers’ money and personal financial information.

While these warnings mimic those of the IRS, they serve as a reminder that one can never be too careful about sharing your information with others.

“These scams are especially common at this time of year when people start to file their personal income tax returns,” Revenue Secretary Dan Hassell said. “Criminals use high-pressure tactics and threats to pressure hard-working Pennsylvanians into providing money or sensitive information. We want the public to be aware of these scams to avoid taking action that they’ll regret.”

Common Scam: Criminals Posing as a Government Agency

Criminals Posing as a Government Agency

One prevalent scam involves phony “Final Demand For Payment” notices that have been mailed to many taxpayers. The notices from the “Tax Processing Center” threaten the seizure of a taxpayer’s property if the recipient of the notice fails to make immediate payment to the “State of Pennsylvania.” The notices also provide an 800-number to call to “avoid enforcement.”

This is a classic scam that uses pressure tactics and fear to motivate the recipient into taking immediate action. Criminals may also access public records so they can include taxpayer-specific information on the notices to make them appear legitimate.

Email, ‘Phishing’ and Malware Scams

Individuals should beware of criminals using “phishing” schemes, which involve the use of fraudulent email messages, deceptive software or malicious files that are designed to steal sensitive information, such as passwords, usernames or personal financial information. Scammers often use this information to steal your money, your identity or both.

In addition to individual taxpayers, the IRS reports that these schemes have targeted tax professionals, payroll professionals, human resources personnel and school administrators.

In one common scam publicized by the IRS, criminals pose as a person or organization the taxpayer trusts or recognizes. They may hack an email account and send mass emails under another person’s name, or they may pose as a bank, credit card company or tax software provider.

Criminals also go to great lengths to create websites that appear legitimate but contain phony log-in pages. These criminals hope victims will “take the bait” and provide money, passwords, Social Security numbers and other information that can lead to identity theft.

Tips To Avoid Scams

The PA DOR is encouraging Pennsylvanians to keep the following tips in mind to safeguard against these deceptive scams:

Look for imposters: Criminals often pose as a government entity or an official business. If you are targeted by a con artist through the mail, phone or email, do not provide personal information or money until you are sure you are speaking to a legitimate representative.

Examine notifications and electronic messages: Criminals often design vague communications to cast a wide net to lure in as many victims as possible. Examine questionable notices for identifying information that can be verified. Look for blatant factual errors and other inconsistencies, such as a fake return address. If the notice is unexpected and states “This Is Your Final Notice,” take a moment and verify its legitimacy. The PA DOR will send multiple letters to taxpayers if there is a legitimate liability owed.

Approach unusual attachments and links with caution: Scammers may include a link or an attachment to an email that is infected with malware that can download malicious software. Spyware can track the recipient’s keystrokes to obtain passwords, Social Security numbers, credit card numbers or other sensitive information.

Unusual payment methods: Avoid scenarios where you are asked to pay your debt with reloadable debit cards, gift cards or money wiring services. The DOR and other government agencies will never ask you to pay an outstanding liability using these payment methods. And yet, individuals constantly are pressured to make such payments to avoid being arrested.

Conduct research online: Using information included in a potentially fraudulent notice, such as company name, address or telephone number, conduct a search online to see if a scam has been reported by other people or government agencies.

Steps to Follow If You Are a Victim of a Scam

The DOR reminds taxpayers that it has a Fraud Detection and Analysis Unit dedicated to assisting victims of identity theft and combating tax refund fraud.

If you are a victim of identity theft or discover a fraudulent PA personal income tax return was filed using your identity, please contact the Fraud Detection and Analysis Unit at 717-772-9297 or RA-RVPITFRAUD@pa.gov.

For more information on ways to protect yourself, visit Revenue’s Identity Theft Victim Assistance webpage. You can also find further information about protecting yourself online at PA.gov/Cybersecurity.

About F. Bryan Haarlander, EA, CTRS:

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.

Get IRS Transcripts Now

March 19, 2019 by Frank

Avoid the Rush: Request Your IRS Transcripts Online Today

It’s a Good Idea to Obtain a Copy of Your IRS Tax Return Transcripts – You Never Know When You Will Need Them

Most taxpayers maintain copies of their IRS income tax returns. Most taxpayers do not request copies of their tax return transcripts. Transcripts can prove valuable when you are refinancing a home or requesting a loan. A third party (e.g., a lender) may prefer seeing your transcripts because anyone can print a tax return today online. How does one know if the copy of the tax return provided is true and correct? A tax return accompanied by an IRS transcript may give the lender more credence that the return you are sending them was actually filed with the IRS.

How to Request A Transcript from the IRS:

The IRS makes obtaining your tax transcripts relatively easy. Visit the IRS website at Get Transcript Online. Due to concerns about ID theft, taxpayers must pass the Secure Access identity verification process. Select the “Tax Return Transcript” and use only the “Adjusted Gross Income” line entry. If you maintained a copy of your prior years’s tax return, you will need it as the IRS asks for you to enter your Adjusted Gross Income (AGI) as part of its security verification process.

While on the IRS website, you will notice that the IRS allows you to receive your transcript by mail. You can also call the IRS at 800-908-9946 to obtain a transcript. Again, the IRS will request your prior year’s AGI so be sure to have that tax return in front of you when you call.

The IRS has redesigned tax transcripts to partially mask all personally identifiable information for any person or entity on the 1040-series return. All financial entries remain fully visible. Taxpayers who need a tax transcript for income validation purposes can still use Get Transcript Online or by Mail. Review About the New Tax Transcript and the Customer File Number for more details. If you call the IRS and request a copy of your tax transcripts, you can request that an unredacted transcipt be sent you.

About F. Bryan Haarlander, EA, CTRS:

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.

S CORP Shareholder-Employee Form 1099 or W-2?

March 6, 2019 by Frank

S CORP Shareholder-Employee Form 1099 or W-2

Can a Shareholder-Employee of an S Corp Be Issued a Form 1099-MISC? You Need to Understand the Tax Consequences When an Owner of S Corp. Improperly Receives a 1099-MISC

Fact Pattern: PA resident purchases goods on the Internet that are subject to PA sales tax. The vendor selling the goods on the Internet is not registered with the PA DOR because the vendor lacks nexus in PA. There is no PA sales tax charged by the vendor on the sale. The PA resident was required to remit PA’s use tax (6% – the same rate as the PA sales tax) on the taxpayer’s PA-40). The taxpayer’s remittance of the use tax was on the honor system – PA really had no means to check if the taxpayer remitted all of the use tax that was due. For PA, with Delaware next door without a sales tax, it became even more of a challenge.

Background

Assume that a single shareholder (owner) of an S Corporation receives compensation for his services and either fails to issue himself a W-2 or decides to issue himself a Form 1099-MISC instead of Form W-2. The motivations for not following the law are usually to (1) avoid penalties related to the late remittance of payroll taxes associated with a W-2 filing; (2) avoiding the expense of engaging a payroll processing company; and (3) the flawed thinking that as long as the compensation is reported to the IRS, it makes no difference how the compensation is reported to the IRS because the shareholder will pay income taxes and self-employment taxes under either scenario.

This thinking is flawed because IRS FS-2008-25 states that corporate officers are specifically included within the definition of an employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and FIT (federal income tax) withholdings under the Internal Revenue Code.

Generally, an officer of a corporation is an employee of the corporation. The fact that an officer is also a shareholder does not change the requirement that payments to the corporate officer be treated as wages.

The one known and limited exception to not paying a shareholder/employee W-2 compensation is discussed in our Feb. 21, 2017 blog post.

Let’s discuss some of the perils a business owner faces by ignoring the requirement to issue the officer/shareholder a W-2. IRS audits of payroll taxes is becoming more common. If compensation is not reported as wages, the IRS can assess:

Unpaid payroll taxes for multiple periods as the statute of limitations starts when returns are filed;
Interest on the unpaid payroll taxes:
Penalties for failure to file quarterly Form 941;
Penalties for failure to timely pay the tax withholdings to the IRS;
Penalties for failure to file and issue Form(s) W-2;
Back taxes for state and local payroll filings, intgerest, and penalties;

AND, there is more bad news . . . .

What many employers do not realize is that even though the “independent contractor” who is paid via a Form 1099 pays all of the self-employment, Social Security and Medicare taxes, that the payment of self-employment taxes is a different tax than payroll withholding taxes even though they are both taxed at 15.3%. Thus, the employer could still be found liable for payment of the employer and employee share of Social Security and Medicare taxes (Western Management case).
The Tax Cuts and Jobs Act introduced the Qualified Business Deduction which uses “reasonable compensation” to determine business profits which in turn . . .
Causes the IRS to place more emphasis on audits of businesses to determine if the shareholder-employee is being paid a reasonable compensation. If it is determined that a reasonable compensation is not being paid, those distributions made to the shareholder-employee run the risk of being reclassified as hidden compensation resulting in the penalties and interest assessments discussed above.

While almost everyone always focuses on federal taxes, don’t forget those state auditors. States generally prefer wages over self-employment income because wages are subject to state unemployment taxes, another source of revenues for the states.

About F. Bryan Haarlander, EA, CTRS:

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.