Tuesday, January 24, 2006

Waiting for your Refund?- IRS to Review Anti-Fraud Program the Freezes Refunds

Category: Tax Law and Planning

From Yahoo News: IRS to Review Anti-Fraud Program - "WASHINGTON - IRS Commissioner Mark Everson ordered a review Tuesday of a tax fraud detection program criticized for freezing thousands of refunds without notifying taxpayers.

Everson said the tax agency will soon announce new procedures to advise taxpayers when a refund has been frozen. The agency will also revise its fraud screening procedures so that it withholds fewer refunds owed to innocent taxpayers."

Of course, why are you expecting such a large refund in the first place? One way to look at a refund is an interest free loan to the government. After all - all a refund is is a return of your own money that you haven't been able to spend because you voluntarily gave too much to the government in taxes. See my prior post Review your withholding - A Tax Refund is an Interest Free Loan to the IRS about adjusting your withholding to maximize your paycheck.

The article goes on to claim that: "Refunds claimed on tax returns determined to be fraudulent remain frozen for a number of years until the IRS sees the taxpayer file a number of legitimate returns.

The tax agency said it's fighting a rising tide of refund fraud, which it now estimates to be more than $500 million a year. A significant portion involves false earned income tax credit claims, which can amount to $4,400 on a tax return, the IRS said.

Nearly 75 percent of the pool of frozen refunds studied by the taxpayer advocate were low-income families claiming the earned income tax credit, designed to reduce poverty among the working poor.

The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny. The IRS said about 200,000 refunds are held longer than a week, but many of those can be held for months or years."

The IRS admits is does not normally inform taxpayers they are suspected of fraud during the time they are investigating the return - with the result that unless you keep pushing for where your refund is, you may not know why you don't have it.

Having said that, statistics show that the frozen refunds are only a drop in the refund bucket: "The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny."

Monday, January 09, 2006

Is the AMT Coming to get You??

Category: Tax Law and Planning

Much has been written about how the Alternative Minimum Tax (AMT) - including my prior post: AMT - What is it and Why Should You Care?. This parallel tax to the income tax was originally designed to capture very-high income taxpayers and ensure that they pay their fair share by limiting their deductions. Unfortunately, it has been creeping down the tax brackets over the years, until it is now a tax faced by more and more taxpayers.

Don't laugh, but the IRS is coming to your assistance in answering the question "Do I owe AMT?". At the IRS Website at http://apps.irs.gov/app/amt/ there is an "AMT Assistant" - a tool designed to determine whether or not you might be subject to the AMT. The instructions claim: "Most people using the AMT Assistant can complete the AMT worksheet using this tool in 5-10 minutes."

The US tax system is self-reporting, so you the taxpayer need to know not only what taxes you are subject to, but the liability generated by those taxes.

Thursday, January 05, 2006

One Trust, Two Trusts, Can you Merge Trusts?

Category: Estate Planning, Tax Law and Planning, Probate and Estate Administration

From the blog Rubin on Tax, a summary of PLR 200552009, issued December 30, 2005, discussing the tax consequences of two trusts with similar trust merging for administrative reasons (who wants to administer and pay administration expenses on 3 trusts when you can do it for just one?):

"In a recent Private Letter Ruling, the IRS provided that where several identical trusts combined into one trust with similar terms, and all the trusts held similar assets, the merger would not generate gain or loss to the trusts or their beneficiaries. The IRS further went on to provide that the tax attributes of the trusts merged into the new trust, such as net operating loss carryforwards and tax basis, would carry over to the new trust."

Note that a private letter ruling or PLR is only authority for that taxpayer, and cannot be relied upon by any other taxpayer. However, it is an example of the IRS's analysis of certain issues.

In doing estate planning, consider how well the distributive terms of any irrevocable trust you create, such as a life insurance trust or ILIT, match the distributive terms of your Will, or other testamentary document. To the extent that the trust terms for your children match, for example, then the Trustee may be able to combine the insurance trust with the trust created under your Will and only administer one trust per child. The key to being able to match these terms over time is to give someone a power over your irrevocable trusts to modify the distribution terms to the beneficiaries, so that as you modify your will over time, the trust terms can follow.

Wednesday, January 04, 2006

Key 2005 Tax Filing / 2006 Tax Payment Deadlines

Category: Tax Law and Planning

From James Jimenez, CPA, of Fass and Associates:

"Mark These Tax Deadlines in Red

Circle these dates on your 2006 calendar if any of the following upcoming tax deadlines apply to you or your business.

January 17 – Due date for the fourth and final installment of 2005 estimated tax (unless you file your 2005 return and pay any balance due by January 31).

January 31 – Employers must furnish 2005 W-2 statements to employees. 1099 information statements must be furnished to payees by banks, brokers, and other payors.

January 31 – Employers must generally file 2005 federal unemployment tax returns and pay any tax due.

February 28 – Payors must file information returns (such as 1099s) with the IRS. (March 31 is the deadline if filing electronically.)

February 28 – Employers must send W-2 copies to the Social Security Administration. (March 31 is the deadline if filing electronically.)

March 1 – Farmers and fishermen who did not make 2005 estimated tax payments must file 2005 tax returns and pay taxes in full.

March 15 – 2005 calendar-year corporation income tax returns are due.

April 17 – Individual income tax returns for 2005 are due unless you file for an automatic extension. Taxes owed are due regardless of extension.

April 17 – 2005 partnership returns are due.

April 17 – 2005 annual gift tax returns are due.

April 17 – Deadline for making your 2005 IRA and education savings account contributions.

April 17 – First installment of 2006 individual estimated tax is due.

June 15 – Second installment of 2006 individual estimated tax is due.

September 15 – Third installment of 2006 individual estimated tax is due.

October 16 – Deadline for filing your 2005 individual tax return if you filed for an extension of the April 17 deadline. "