Wednesday, February 16, 2011

Murder your husband and avoid tax!

Ok, that may not be quite what she had in mind at the time, but that was the effect.

DN, a minor, received a distribution from his father’s 401(k) plan as a secondary beneficiary. He received the distribution because the primary beneficiary, his mother, was in prison for murdering the father. Under Oregon law if you murder your spouse you aren’t entitled to receive his/her retirement benefits. (This law by itself probably prolongs many husbands’ lives more than any healthy lifestyle ever could.)

DN, the child, argued that even though he received the money that his mother was ineligible for, she should be the deemed recipient for tax purposes since she was the primary beneficiary (and still alive).

The courts disagreed, finding that the minor child received the money and should pay the tax. The net effect was that the murderous mom avoided paying tax on the distribution.

She also avoided receiving the money.

Tuesday, February 8, 2011

Falsify Tax Returns, go to Prison

Very rarely do we have a client ask us to fabricate a tax return. Most people, even if they were inclined to do that, know better than to even ask. I have had taxpayers after being asked for their deductions say something like “how much can I get away with?”, but that’s usually as far as it goes. Years ago I actually had one fellow take his data back to another preparer when I explained that his nonexistent horse was not a deductible horse racing business. Even after admitting he didn’t have a horse, he felt that he had gotten away with it for so long he should keep doing it, and that he was paying me to make it look right!

Unfortunately there are more than a few preparers around who feel that a tax return is a good forum for fiction, and the people who hire them think they are getting good service.

But consider the case of Robert Larsen of Riverside, CA. He was a tax preparer who falsified tax returns by overstating itemized deductions and business and investment losses. Clients were told that he possessed specialized knowledge in tax preparation, or that he could obtain receipts if necessary to justify deductions taken. He defrauded the Federal government of $3.6 million by falsifying at least 1162 tax returns.

Mr Larsen was sentenced to five and a half years in federal prison and ordered to pay restitution of over $200,000.

That takes Mr Larsen out of the party, but what about the 1162 tax returns? How did the IRS know it was $3.6 million? The IRS was able to calculate damages by examining those returns. I’m sure that made 1162 taxpayers real happy with Robert. Actually it was probably fewer taxpayers and multiple years per client, but you get the idea. Add to that the love letters they all will receive from the Governor of California asking for his share, and I’ll bet those taxpayers won’t be happy with the great deal they got.

Monday, February 7, 2011

IRS ahead of the curve!

I am rarely in a position to praise the IRS for a job well done. In fact, if you look back at all the previous blogs on the website, I’d be surprised if you found even one entry giving IRS any kind of complement. That’s about to change.

Recently the IRS announced that a free app called IRS2Go can be downloaded from either the Android Marketplace or the Apple App Store. This Smartphone Application will let you check on the status of your refund as well as give you helpful tax information, right on your mobile device!

You can also follow the IRS Twitter news feed at @IRSnews.

Set aside for the moment the obvious question, why would anyone want to? and marvel as I did at how cool it is that this agency which is notorious for having antiquated computer systems and being un-user friendly can suddenly catapult into techie-cool status.

A good example of tax dollars at work.