The IRS will make changes to Allowable Living Expenses, Transportation, Housing and Utilities, on October 2007.  The new standards are not completely known at this time, but the some of the changes are regarding health and living expenses, cell phone use, and transportation.  The IRS will have a new standard for health expenses for taxpayers under 65-years-old and thankfully a separate standard for taxpayers over 65-years-old.  The proposed changes for Allowable Living Expenses are vague at this point, the IRS is stating that “it will be more fair” for all taxpayers and that household income will not be determining factor anymore.  With transportation changes will be the area of the allowance for public transportation and operation costs for a second vehicle.  Cell phone expenses are now being included as an allowed expense. These changes will impact Offer In Compromise and Installment Agreements.  It is not known at this time of existing OIC’s will reviewed under the new standards

The Internal Revenue Service today alerted taxpayers to the latest versions of an e-mail scam intended to fool people into believing they are under investigation by the agency’s Criminal Investigation division.

The e-mail purporting to be from IRS Criminal Investigation falsely states that the person is under a criminal probe for submitting a false tax return to the California Franchise Board. The e-mail seeks to entice people to click on a link or open an attachment to learn more information about the complaint against them. The IRS warned people that the e-mail link and attachment is a Trojan Horse that can take over the person’s computer hard drive and allow someone to have remote access to the computer.

The IRS urged people not to click the link in the e-mail or open the attachment.

Similar e-mail variations suggest a customer has filed a complaint against a company and the IRS can act as an arbitrator. The latest versions appear aimed at business taxpayers as well as individual taxpayers.

The IRS does not send out unsolicited e-mails or ask for detailed personal and financial information. Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

“Everyone should beware of these scam artists,” said Kevin M. Brown, Acting IRS Commissioner.  “Always exercise caution when you receive unsolicited e-mails or e-mails from senders you don’t know.”

Recipients of questionable e-mails claiming to come from the IRS should not open any attachments or click on any links contained in the e-mails. Instead, they should forward the e-mails to phishing@irs.gov (the instructions may be found on IRS.gov by entering the term “phishing” in the search box).

The IRS also sees other e-mail scams that involve tricking victims into revealing private personal and financial information over the Internet is known as “phishing” for information.

The IRS and the Treasury Inspector General for Tax Administration work with the U.S. Computer Emergency Readiness Team (US-CERT) and various Internet service providers and international CERT teams to have the phishing sites taken offline as soon as they are reported.

Since the establishment of the mail box last year, the IRS has received more than 17,700 e-mails from taxpayers reporting more than 240 separate phishing incidents. To date, investigations by TIGTA have identified host sites in at least 27 different countries, as well as in the United States.

Other fraudulent e-mail scams try to entice taxpayers to click their way to a fake IRS Web site and ask for bank account numbers. Another widespread e-mail tells taxpayers the IRS is holding a refund (often $63.80) for them and seeks financial account information. Still another email claims the IRS’s ‘anti-fraud commission’ is investigating their tax returns.

A new law makes Private Mortgage Insurace payments deductible for loans that originated in 2007.  This will eliminate the need for those borrowers who can’t put 20% down to obtain a second piggy back loan.  To claim the deduction you will need to itemize and have a HH income of less than $110,000.  Contact your CPA to learn more.

Boiler Room -“ Just by the filing the Power of Attorney by our firm will get the Levy Released the IRS (or state). Surprise the sales sleaze hired by this firm also want a large fee in advance by asking for caller’s credit card or checking account number.

Reality -Unfortunately that it is nonsense, the Power of Attorney or POA is a form to allow a firm to communicate with IRS on the taxpayer’s behalf, it doesn’t have any inherent magical powers nor do these firms. There is defined process to get a Levy release, in some cases complicated and in others very simple.

The only reason the lie works is because client is desperate for help and hears what they want to believe. Having your paycheck or bank account Levied is powerful tool used by the IRS and the fear it generates is understandable, exactly what the “boiler room” firms are counting on. Asking good questions about the process will help you find a reliable firm.

The IRS is proposing that any person, who willfully fails to file tax returns in any three years with any five consecutive year period, and if the aggregated tax liability for the period is above $50,000, would be subject a new aggravated failure to file criminal penalty.  This proposal would classify such failure as a felony, upon conviction, impose a fine not more that $250,000 or imprisonment for not more than five years or both.  The fine for a corporation would be no more than $500,000.  This proposal would be effective for returns that are required to be filed on or after January 1, 2008.  This appears to have a limited chance of becoming law and is an example of how the IRS is looking for new tools to “encourage” non-filers to become compliant

The new Congress is looking to the IRS to collect more unpaid taxes and catch taxpayers who have underreported income to finance an ambitious spending agenda without raising taxes.  Congress believes IRS could collect up to $100 billion by collecting from self-employed taxpayers who are underreporting their income.  The target of the collection efforts will be focused on those individuals whose income isn’t reported through W-2’s or 1099’s.   The proposal would allow the IRS to obtain information about a business’s revenues from credit card companies.  If the income from credit cards were unusual or higher than reported, the IRS would then perform an audit.  The bottom line is the government needs the money and the IRS is going to be charged with finding the dollars no matter where it is.   

The expected confusion around the Telephone Excise Tax Refund (TETR) is now in full swing. Millions of taxpayers are mis-filing the refund, some are attempting to claim they paid more in long-distance excise tax then they earned in income. Once again avoid the predatory practice of tax preparers who falsely claim you can receive “magical refunds”, these preparers are claiming that that many, if not most, phone customers can get hundreds of dollars or more back under this program.

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today and as a result the government authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006.

Mistakes found by the IRS on a sample of 2006 returns filed during January include:

* Filling out the Form 1040EZ-T incorrectly by failing to show a refund amount on Line 1a.
* Failing to request the telephone tax refund on a regular federal income-tax return in situations where the taxpayer appears to qualify.
* Filing duplicate requests.
* Requesting a refund that appears to be based on the entire amount of the taxpayer’s phone bills, rather than just the three-percent tax on long-distance and bundled service.
* Requesting a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income.

Here is link to TETR info the IRS gov website that should help.

http://www.irs.gov/newsroom/article/0,,id=164032,00.html

I met a small business owner yesterday who recently received an audit notice (letter 2205-A) from the IRS Small Business and Self-Employed division. The IRS will be increasing the number of audits in this sector this year, if you receive this letter contact the firm that prepared your returns and ask them how they will represent you, ask good questions about their experience and fees with audits. If you self-prepared, I recommend you contact a few firms about representing you and don’t pay 100% of the fees in advance.

This owner had made the mistake of sending the IRS their original documents and didn’t make any copies. Don’t ever do this; be sure to only send copies of all documents and receipts. We had a client who was an owner-operator truck driver that provided his originals to the IRS, the IRS misplaced the documents, the agent retired, and without any proof, the subsequent examination resulted in a huge tax liability for him. The story had a good ending, he hired our firm (after not getting any results from a large-they advertise a lot on TV firm) and we were able successfully negotiate an Offer-In-Compromise for him. It is likely that he could of avoided the expense of hiring any firm had he make copies of his originals.

A recent article was published in the NY Times about IRS Auditors being pressured by management to rush and close out audits on medium to large corporations was interesting. Purportedly these auditors were forced to end the audit before they could complete a meaningful audit, leaving huge sums of uncollected taxes in the pockets of the corporations.

The IRS is understaffed and is often accused of not being efficient, but I can tell you the business owners of the small to medium businesses that are calling our firm for help would strongly disagree with that article. These owners feel just the opposite, they feel like they are under siege by the auditor and are treated like they are guilty unless they can prove their innocence.

Because of this article some business owners and CPA’s may be thinking that they have nothing to worry about because the IRS doesn’t have time for a complete audit. Imagine basing your company tax decisions on a NY Times article and some disgruntled IRS employees, scary!

I agree with the article in that the new political regime will demand more complete audits for all sized businesses. It is reasonable to expect more audits in 2007 on small to medium businesses because the IRS knows that small to medium sized companies don’t have the experienced audit defense teams that the large corporations do, it is simply easier to get the audit done with people who look like deer in caught in headlights.

If your CPA firm is telling you they none of their clients get audited, watch out, not only are they not prepared to represent your company in an audit, but you are probably paying more taxes than you should because of their timidity. Don’t wait until the audit, change firms before anything happens

It is time again for the annual semi-clever tax refund phishing schemes to appear in email inboxes. These emails are targeted at taxpayers who are trusting enough to respond. The email appears to come from the IRS.gov site, has official sounding language, and contact information. The email states that the recipient can get their refund by providing credit card or bank account information. The IRS will never send taxpayer information by email.

Forward any phishing attempt to:

phishing@irs.gov

Here is a link to the IRS website to learn more.

http://www.irs.gov/individuals/article/0,,id=155344,00.html