Unpaid student loans and the Treasury Offset Program

If you don’t pay certain debts that are guaranteed by the federal government, like student loans, the government will seize your tax refunds and even a portion of your Social Security benefits to cover the unpaid balance(s). Keep in mind that refunds can include earned income tax credits and child tax credits intended to help your family, and you will lose those benefits. This is done under the Treasury Offset Program; a centralized offset program to collect delinquent debts owed to federal agencies and states.

In addition to taking your tax refunds, the government can also take up to 15% of your Social Security benefits but they have to leave you with at least $750 a month. If your income supports the ability to repay your student loan debt but you refuse to pay, or avoid their attempts at contacting you, they can sue you. If you keep thumbing your nose at them they might even arrest you – it happens.

If you receive mailings do not procrastinate; open them. If you owe delinquent student loans the best thing you can do is to contact your lender and make arrangements for payments that you can afford. If your Social Security benefits are being garnished you have rights before the Department of Education to negotiate affordable repayment options.

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The Zapper Program

The most prevalent method of under-reporting business income is by skimming cash from gross income. This method omits an amount of sales from ever being entered it into the accounting system. Now comes modernization and Revenue Suppression Software (RSS), commonly referred to as a Zapper program. Zappers automatically skim off a set percentage of cash transactions from Point of Sale (POS) systems like the ones used in restaurants.

In late 2016 the U.S. Justice Department announced criminal charges against Jon Yin for selling Zapper programs. He was working as a software salesman for a Canadian company called Profitek. Profitek sold an add-on RSS program that could only be used with its POS software. The Zapper software could only be ordered from a supplier in China.

Yin plead guilty to a scheme estimated at costing federal and state taxing authorities more than $3.4 million in tax revenues. The IRS now trains its revenue agents to test for Zapper software in restaurants and all other cash intensive businesses.

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5 Quick Tax Takeaways for Friday, December 21, 2018

First: the Foreign Earned Income Exclusion increases from $102,100 in 2017 to $103,900 for 2018. See IRS Publication 54 for more information.

Second: the 2018 business mileage rate is 54.5 cents per mile, and the 2019 rate will be 58 cents per mile.

Third: the medical expense floor was 7.5% of adjusted gross income for 2018. It is 10% of adjusted gross income for 2019.

Fourth: the contribution limit for a 401K went from $18,500 in 2018 to $19,000 for 2019. If you are 50 years of age or older, you can add another $6,000 under the catch-up rules.

Fifth: the contribution limit for an IRA goes from $5,500 for 2018 to $6,000 for 2019. If you are 50 years of age or older, you can add another $1,000 under the catch-up provisions.

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Michigan seizes property for unpaid taxes

For the small cost of $8.41, an 83 year old Michigan man lost his property. If he had sought out professional advice he should have been able to avoid this catastrophe.

Last year a Michigan court of appeals allowed for the seizure of a rental property purchased for $60,000 in order to satisfy a delinquent property tax debt of $8.41. The owner forgot to pay his $496 in 2011 property taxes, discovered the error, and in 2013 paid the amount in full. He did however fail to properly account for interest and ultimately underpaid by $8.41. The County foreclosed on the property and sold it at auction for $24,500 to satisfy the $8.41 along with $277 in additional penalties and interest. The county refused to refund any of the surplus from the sale.

States like Michigan, Massachusetts, Minnesota, North Dakota and Oregon have aggressive property seizure laws intended to deprive criminals of their spoils and means of continuing their nefarious behavior. The underpayment of property taxes is not a crime in Michigan but a law intended for criminals seems to have been perverted for no other reason than to add to the state’s general fund. Other states will at least return any surplus after the tax debt has been satisfied.

If you have unpaid taxes, either federal or state, you need to at least consult with a licensed tax practitioner. Experienced tax pros know how to make sure that your payoff is correct and binding. You also have rights in the face of tax seizures and we know how to protect those rights. Contact Weiss & Associates for help.

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Late S Corporation Elections

If you are having trouble with any S corporation elections you need to know that there are ways to fix late or incomplete elections. This goes for the S corporation election, Electing Small Business Trust (ESBT) elections, Qualified Subchapter S Trust (QSST) elections, and Qualified Subchapter S Subsidiary (QSub) elections.

Eligibility to be classified as an S corporation goes further than just filing a form. Pertinent factors that need to be considered include but are not limited to; entity eligibility, shareholder eligibility, legal requirements, capital structure, election process, LLC’s as eligible entities, Q-sub elections, association status, trust structures, and converting from an existing C corporation.

If you failed to make the proper elections, the elections were late, or the elections contained flaws, you need to consult with a licensed tax practitioner to avoid mistakes. Maybe the IRS sent you a letter that your S election has been rejected. Or you’ve been in business a while, filed the tax return for an S corporation and the IRS sends you a letter stating that your corporation has not been granted S status and that you need to re-file using form 1120 for your C corporation. Contact our firm because we can help. Remember that your first attempt failed and your chances to fix this are going to run out.

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Do I Need A Tax Attorney For My Tax Problems?

The answer is maybe. If you owe tens of millions of dollars and have complex situations like international corporate reporting, or you have so many investments that you loose track of them, you may already know a tax attorney.

If you need a lien released, can’t pay the full amount, are behind in filing, have an IRS letter you don’t understand, or are just stressed at the mention of the IRS, pick up the phone and call a CPA firm like ours that specializes in taxpayer representation. If it turns out that you need to go to tax court, or need an attorney rest assured that we will tell you. Don’t wait because if you miss key deadlines you will loose some of your rights and that can cost you. Start at www.taxhelpsource.com and we can help you.

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2018 year end tax tips

The time for 2018 tax planning is over, but there are still some things you can do to lower your federal tax.  Once the year ends you will have lost your chance so act now.

Some quick tactics to reduce your personal federal tax include offsetting capital gains with capital losses, charitable giving (gifts/wealth transfers not required to be reported are limited to $15K), pay your assessed property tax or state taxes if your SALT is less than $10K, max out your retirement account contributions, and consider paying off those medical bills because the floor (currently 7.5% of AGI) goes back to 10% for 2019.

For small businesses you can accelerate paying bills (rent, mortgage, insurance, subscriptions and education) and delay invoicing customers until January. Beware that if you follow this strategy every year you will loose the effectiveness; it’s for windfall years. You can buy equipment or software that you need and probably write all of it off. Stock up on supplies; inventory and job materials follow different rules and you might not be able to expense those so ask your accountant. Have you asked your accountant if your business qualifies for the 20% deduction?

There are many within the tax community who are predicting a shake-up in the 2018 filing season because of the changes under the Tax Cuts and Jobs Act. The big reason is that the payroll withholding amounts decreased in conjunction with the lowering of the tax rates. Any refund that you are used to getting; well that’s not going to happen. You might even owe a small amount of tax – not because your taxes went up, but because your withholding went down even further.

So check your withholding if you want to head off any surprises come April 15. You can use the IRS’s withholding calculator available here:  https://www.irs.gov/individuals/irs-withholding-calculator. You may want to make sure that you set some money aside.

If you make quarterly estimated tax payments, the fourth quarter is due by January 15.

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Are Your Workers Employees or Independent Contractors?

If you have ever prepared payroll then you are familiar with IRS Publication 15, the Employer’s Tax Guide. Just as important is Pub 15-A, the Employer’s Supplemental Tax Guide because this pub will help you to properly classify your workers as either employees or independent contractors.

The general rule for classifying workers as either employees or independent contractors rests on a three factor test but there are also many other factors that may come into play depending on your situation. Those other factors are beyond the scope of this brief discussion so do not rely or act upon this article, it is only intended as general knowledge, get a professional to help you. The three general factors are; the extent of behavioral control that you exert over the worker, the extent of financial control you enjoy, and the nature of the relationship. Pub 15-A goes further in helping you learn and determine the differences between employees, independent contractors, statutory employees and common-law employees. This is important because when a worker is incorrectly classified it is the employer that pays for the costly mistake.

A number of years ago we had a small-business client who owned some dump trucks as part of his construction business. Unbeknownst to us, this client was paying some drivers as independent contractors despite maintaining complete control over them. One of those drivers knew better and did something about it. At the end of the year that driver left his job for greener pastures. The following March our client received a notice from the IRS that he owed more than $10,000 in back payroll taxes, penalties and interest related to that driver. Best guess is that the driver completed and sent form SS-8 to the IRS, the IRS agreed, re-classified the independent contractor driver as an employee, assumed that all payments made to that driver were now paychecks net of taxes, and then sent our client the bill for the difference.

If you are not familiar with form SS-8 it is titled, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. If you are an employer, despite the instructions suggesting that you can allow the IRS to make your determinations for you, consider the consequences of telling the IRS that, “I run a business, have workers, and don’t know what I’m doing, won’t you please help me?” And they will. Allow me to paraphrase part of a decision written by a U.S. Tax Court judge, “To rely upon the IRS for advice is to do so at your own peril.” Get a paid professional to help you. Your CPA is the best place to start. If you plan on having a larger workforce, you will also want to involve HR experts and attorneys who specialize in labor law.

There was nothing that we could do about the taxes and penalties for our client. We are professional accountants, not TV miracle workers. Sometimes you have to pay for your mistakes and he was lucky it was only $10,000. The labor laws are not for the faint of heart, and if they are new to you then get help. The cost of the consultations will be a good investment compared to any payroll or labor-related pitfalls which can run into the millions of dollars.

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Wesley Snipes’ Continuing Tax Nightmare

The U.S. Tax Court recently upheld the IRS’ rejection of Wesley Snipes’ Offer in Compromise. Snipes has tax liabilities of approximately $23.5 million covering tax years 2001-2006. He already served three years in prison and recently made a cash offer of $842,061 to settle his balance.

His argument centered on a financial adviser diverting funds without his knowledge thus greatly reducing his wealth. At a collection hearing he requested that the IRS conduct a transferee investigation of the financial adviser, and if they found that his wealth was diverted, that his offer be accepted. The IRS denied; Offers in Compromise will never be accepted with conditions, and the collection hearing could not be held open long enough to accommodate an investigation.

The IRS settlement officer did however set Snipes’ Reasonable Collection Potential to $9,581,027 (better than $23.5M) in an effort to compromise for a final settlement. Snipes refused the offer and the settlement officer concluded that it was not in the Government’s best interest to settle. Wesley then filed a petition with the U.S. Tax Court to appeal the IRS decision. The Tax Court sustained the IRS decision.

The court noted that Snipes’ tax liabilities were not an issue. The court concluded that the settlement officer did not abuse her discretion, and that accepting Mr. Snipes’ offer was not in the best interest of the United States.

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Three Tax Takeaways for November 7

The IRS is expected to begin issuing Affordable Care Act penalties for businesses that were non-compliant during 2016. The IRS has already sent letters to businesses that they believe should have filed information returns but did not; this was the warning. If those businesses failed to answer the first letter, the next one, Letter 226J, is the penalty notice.

Head of Household filers are now included in the list of taxpayers who have to be questioned by their tax return preparers for evidence that they are truly entitled to make that money-saving claim. In the past, tax pros have been required to obtain and keep copies of due diligence evidence supporting their clients’ claims to the Earned Income tax Credit, American Opportunity Tax Credit, the Child Tax Credit and the Additional Child Tax Credit. Under the TCJA the due diligence requirements are extended to returns claiming the Head of Household filing status. These claims and credits are worth good money, and sometimes refunds even if you did not pay in. Because they are so enticing, they represent areas rife with fraud. Taxpayer’s are not the only ones stretching the truth here because these attributes are also the most common tools used by fraudulent tax preparers to “Bump up,” a fraudulent refund. So if you go to a fly-by-night tax service that guarantees a higher refund than anybody else, and nobody working there is a CPA or EA, don’t be surprised if you get an IRS letter a year later asking for copies of the college tuition records for kids on your return that aren’t even yours. You should also not be surprised that when you call the tax service, that they are nowhere to be found.

In relation to the above point, number three this week is what happens when you sign your tax return. Above the space where you sign your return you will see this statement; “Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year.” Make no mistake, once you sign that return you are responsible for what it contains because you attested under penalty of perjury, that you did examine it and it is true and correct. Don’t worry about what happens to the preparer, because there is a special place in hell for people that get caught making a living by committing fraud.

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