Tuesday, July 2, 2013

Digging for out of state gold

Wow, my last post was February? That’s a bit embarrassing as there has been a lot going on in the tax world. Our tax season last year was challenging to say the least, with twice as many tax clients being put on extension than normal. What with delays by Congress in modifying 2012 tax law until January 2013, and the resulting confusion at IRS about how to create forms, we were pushed back quite a bit.

Fortunately most of our clients understand it wasn’t our fault, and we are working through the backlog still.

Having said that, I saw a news flash come across my desk that I thought I should share, and its prompting me to get technical in this posting. Most people are aware of the ability to do a tax free exchange of business or investment property and delay paying tax on any gains. One of the strategies related to that has been to exchange a California property with a gain for an out of state property, and avoid ever paying tax to California on the deferred gain, even if the out of state property was subsequently sold. This worked particularly well when exchanging into a low (or no) tax state. California has always groused that such deferred gain should be taxable by California, but has lacked the authority and reporting resources to find and tax these transactions.

Not so anymore. Starting January 2014 anyone exchanging a California asset for an out of state asset in a tax deferred like kind exchange will be required to file annual reports with the Franchise Tax Board disclosing the whereabouts and ownership of the acquired asset. If you should ultimately sell the acquired asset California will demand the tax on the portion of gain that was deferred while you owned the in-state property.
Even if you have moved out of California.

Its nice to know that Sacramento finally has come up with a plan to keep businesses from fleeing to low tax states: Instead of lowering regulations and taxes to be competitive, they are simply going to chase you down wherever you relocate and tax you like you were still here anyway, so you might as well stay put.. 

Friday, February 22, 2013

Phony IRS scams

The IRS has come out today and publicly warned taxpayers to be wary of phony IRS audit scams. They remind us that IRS never contacts taxpayers via email or social media to initiate an audit or to correspond with you directly regarding your account.

Also: IRS never asks for personal info such as PIN numbers or passwords to bank accounts.

The ONLY official IRS website is www.IRS.gov. Any other website looking like or claiming to be IRS is bogus.

If you receive a phone call, fax or letter from IRS and you have any reason to suspect that it is a scam, you can call 1-800-829-1040 to determine if it is legitimate.

Suspicious emails should be forwarded to phishing@irs.gov

Tuesday, February 19, 2013

Think you’ve been getting screwed by IRS?

What would you do? You are minding your own business, and out of the blue you get a call from someone who claims she is from IRS, that you are being audited, and that lucky for you your case has been assigned to her. Lucky because she knows all about you and wants to get together…

You’d probably ignore her. This is what Vincent Burroughs did, for a while anyway. Problem was he was being audited and she was the agent assigned. The audit ultimately didn’t go very well, and he owed money. However, he alleges that as the audit progressed, he was subjected to persistent sexually suggestive remarks, overtures & texts. She even texted a picture of her to him in her underwear doing... well never mind.

Finally the agent showed up at his house dressed provocatively and threatened him with substantial financial penalties if he did not “give her what she wanted”, which by the way, was not financial information. Mr. Burroughs gave in and was allegedly forced to submit to the IRS agent physically, against his wishes.

Now he is suing IRS for damages, claiming among other things that he suffered anguish, humiliation, mental distress, depression, loss of income, and loss of trust in governmental authority. His case is pending.

My thoughts: All of the things he allegedly suffered are typical in an IRS exam anyway, with the possible exception of humiliation.  And who knows, maybe that was a function of their meeting at his house. (If I were him I’d probably leave that part out.) Beyond that I’d say his damages were typical and hardly worth a lawsuit. Besides, he can now legitimately claim IRS has screwed him, and besides the obvious benefit, he now has bragging rights. 

Friday, February 8, 2013

Avoiding an Audit

It’s that time again, Tax Filing Season! And with it come endless questions and articles about how to avoid a costly, nerve wracking, and time consuming audit from IRS. In my many years of dealing with IRS exams it is apparent that you cannot bullet proof any tax return from selection, but there are a few simple steps you can take to lower your odds of having any entanglements with “The Man”.

1)      Don’t make any mistakes. Many tax returns are selected because they are patently wrong to the casual observer. Clearly inappropriate deductions, math errors, incomplete forms or missing schedules all cause IRS computers to hit the reject alarm and increase your chances of an inquiry.

2)      Disclose the Details. Attach supporting schedules with as much relevant info as necessary (but not unnecessary data) that gives a reviewer a good picture of the source of your deductions. Large amounts labeled “Miscellaneous” or other nondescript terms will only create suspicion and focus attention on your return.

3)      Match those 1099 forms. Be very diligent to include all your 1099 income in the appropriate category. List them out in detail. IRS is very effective in matching these forms to your return and if they have a problem doing so the response will range from simple letter correspondence up to an audit.

4)      Don’t be greedy. Pigs get fat but hogs get slaughtered. If you are way out there with your deductions and present a picture that seems unrealistic, chances are that IRS computers will recognize this and want to ask you to explain things. Claim what is correct, not what you think you can rationalize.

With a little bit of diligent work up front, you can go a long way towards preventing a major hassle and possible expense later.