Does your workforce include “contract laborers”, “freelancers”, “casual workers”, “contract employees”, or independent contractors by any other name?  If so, then you will want to pay attention to the increasing possibility of claims provoked by treating workers as non-employees under applicable wage-hour laws, particularly under the federal Fair Labor Standards Act and other, analogous federal provisions.

One of the highest priorities at the U.S. Labor Department is to identify situations in which workers are erroneously considered not to be employees or other covered individuals for purposes of complying with minimum-wage, overtime, and recordkeeping requirements and child-labor restrictions of the FLSA and similar federal wage laws it enforces.  The agency calls this its Misclassification Initiative, and these efforts have resulted in significant liability, such as:

• A consent judgment for $1.3 million against a nationwide provider of directory assistance and other information services that supplied its services through workers whom it considered to be independent contractors;
• A $105,000 overtime assessment against a Texas employer that had considered workers to be independent contractors for their first 90 days with the company;
• A $101,000 demand against a Virginia employer that had considered individuals performing work on a government-funded construction contract to be independent contractors or to be subcontractors.

Many other USDOL misclassification investigations are underway across the country.  Moreover, USDOL has entered into alliances to promote enforcement and information-sharing with the U.S. Internal Revenue Service and with officials in 14 states (so far).

As you can see, these misclassifications can be very expensive. But what does the government consider while determining the proper status of a worker? Below are several criteria:

The extent to which the person’s work is controlled by the alleged employer;

Whether and to what extent the individual has any investment in the necessary facilities, equipment, supplies, etc.;

Whether and to what extent the individual has opportunities for profit or loss in a business sense;

The extent to which the person uses any initiative, judgment, or foresight from an entrepreneurial standpoint;

Whether the relationship is permanent or indefinite, as opposed to being temporary or for a definite duration;

If you own a business and utilize independent contractors, it is important that you pay attention. Improperly classifying your workforce could be a very expensive mistake. If you’d like to learn more, or if you’d like guidance determining the best course of action for your specific situation, we would be glad to help.

And if it’s too late, and you already find yourself engaged in a dispute with the IRS, we can help resolve the matter. Give us a call today!

But now that the returns have been filed, there is another concern that often weighs heavily on the minds of taxpayers—the fear of being selected for an IRS audit.

And while it is true that facing an IRS audit can be stressful and time-consuming, there is no reason to panic. In fact, if you’re prepared and if you have “played by the rules”, an IRS audit can be quite painless. Below are three tips to help you prepare for an audit should you be selected to do so, courtesy of a recent CNN.com article:

Know what to expect.

Envisioning a visit from a suit-clad IRS agent with a briefcase? That’s not usually how an audit plays out. The vast majority, or 76%, are correspondence audits, meaning the IRS requests information by mail instead of questioning a taxpayer in person.

These tend to focus on specific items on a return — like itemized deductions for medical expenses — and simply ask for documentation, said John Lieberman, CPA at Perelson Weiner LLP. In-person field audits are broader inquiries about a tax return and often involve verifying income, he said.

In either case, you’ll likely receive a notification by mail explaining which parts of your return the IRS has questions about.

Don’t ignore the letter.

Shoving the letter you get from the IRS in a drawer and pretending it’s not there won’t make it go away. You’re usually given 30 days to respond, so make sure to write back promptly or certain items may be disallowed or automatically corrected. The IRS will then begin collecting on any extra tax it believes you owe.

Get documentation together.

Once you find out what parts of your tax return are in question, you should start collecting any relevant paperwork.  The rule of thumb is to keep tax-related documents for three years from the date a return was filed. If you can’t find the documentation you need in your files, you can usually get another copy elsewhere. If you’re missing the bill for a medical expense you claimed, for example, you can contact your doctor’s office. If you donated money to a charity but lost your receipt, the charity will probably be able to send you a duplicate.

As you can see, the name of the game when it comes to managing an IRS audit really is documentation. If you’ve kept careful records, you usually have nothing to worry about. But even if your record keeping is less than perfect, don’t panic. In many cases, it is relatively easily to track down the necessary paperwork. The key is to be prepared, and most importantly, not to simply ignore the process. Many taxpayers become almost “paralyzed” with fear and simply ignore correspondence from the IRS. This is never the right approach. If you’re facing an IRS audit (or any other tax dispute), we would be glad to help you resolve it. Please contact us today!

A recent example is the case of Jerry Yang. You may recognize his name—Mr. Yang was the winner of the 2007 World Series of Poker main event. But despite that massive payday, he ran into trouble over the past couple of years and has now seen his Main Event bracelet seized by the IRS.

As reported by PokerNewsDaily.com:

Jerry Yang is not the first World Series of Poker champ to sell his bracelet and he won’t be the last. His sale, though, appears to be the only one that is against the player’s will. His 2007 WSOP Main Event bracelet, along with numerous other items, have been seized by the United States Internal Revenue Service and will be auctioned off on April 4th.

According to the Notice of Encumbrances posted on the U.S. Department of the Treasury’s website, Yang owes hundreds of thousands of dollars in back taxes. There are four line items showing money owed to the California Franchise Tax Board, the department that deals with personal income taxes and corporate taxes, totaling $3860.50.

On the federal side, there are three line items for the IRS. One is for just $461.11, but two, showing dates of June 23rd in both 2007 and 2008, are for $571,894.54 each. It is not exactly clear whether Yang is responsible for paying over half a million dollars twice or if the second is just a re-listing of the first (our guess is it’s probably a re-listing). If he’s on the hook for everything, that’s over $1.1 million owed to the federal government.

The IRS has listed 16 items that will be up for auction, including the gold and diamond Corum bracelet Yang received for winning the 2007 World Series of Poker Main Event. A Corum watch he also received for that win is up for bids, as are eight other watches.

Now, without further details, it’s impossible to know exactly what caused Mr. Yang to run afoul of the IRS. But this case (and many others like it) should serve as a reminder and a wake-up call that none of us are immune to IRS controversy. The best course of action, of course, is to make sure that you “dot your I’s and cross your T’s” when filing your returns. Resist the temptation to cut corners as it will only cost you in the long run.

But if it’s too late and you’re already facing an IRS audit or tax dispute, don’t despair. Our experienced professionals will work with you every step of the way and help you put your tax controversy behind you. Please get in touch with us today if you’d like to learn more!

To shed some light on this issue, and to help taxpayers avoid falling victim, the IRS recently published a Special Edition Tax Tip offering three key steps taxpayers should take to avoid identity theft:

• Guard your personal information. Identity thieves can get your personal information in many ways. This includes stealing your wallet or purse, posing as someone who needs information about you, looking through your trash, or stealing information you provide to an unsecured website or in an unencrypted e-mail.
• Watch out for IRS impersonators. Be aware that the IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information or notify people of an audit, refund or investigation. Scammers may also use phone calls, faxes, websites or even in-person contacts. If you’re suspicious that it’s not really the IRS contacting you, don’t respond. Visit our Report Phishing web page to see what to do.
• Protect information on your computer. While preparing your tax return, protect it with a strong password. Once you e-file the return, take it off your hard drive and store it on a CD or flash drive in a safe place, like a lock box or safe. If you use a tax preparer, ask how he or she will protect your information.

The report then continues by identifying several signs which may indicate that you have already been victimized by identity theft. These signs can include:

• You filed more than one tax return or someone has already filed using your information;
• You owe taxes for a year when you were not legally required to file and did not file; or
• You were paid wages from an employer where you did not work.

Respond quickly using the contact information in the letter you received from the IRS so that we can begin to correct and secure your tax account.

If you think you may be at risk for identity theft due to a lost or stolen purse or wallet, questionable credit card activity, an unexpected bad credit report or any other way, contact the IRS Identity Protection Specialized Unit toll-free at 1-800-908-4490. The IRS will then take steps to secure your tax account.

Unfortunately, identity theft becomes more and more common each year. As we continue to move towards a more electronically based economy, the threat of identity theft is likely to rise further. It’s critically important that you take steps to protect yourself and your family while filing your taxes, as the information disclosed on your tax return is a “gold mine” for criminals. If you’d like to learn more, or if you would like assistance preparing and filing your tax returns, please get in touch with us today!

One of the key elements to this program is a change to the “Offer in Compromise” process which makes it easier for taxpayers to settle their debts for less than full cost.

Mondaq.com reports on the subject:

The OIC program permits qualified taxpayers with outstanding and unpaid tax liabilities to negotiate a full settlement for an amount that is less than the tax owed. An OIC agreement generally will not be accepted by the IRS if it believes that the outstanding liability can be paid through a lump sum or other type of payment arrangement. The IRS typically reviews the taxpayers’ income, expenses, assets and liabilities in great detail to make a determination regarding the taxpayers’ ability to pay.

In an effort to expand this program to a greater number of struggling taxpayers, the IRS has become more flexible in what it deems “ordinary and necessary” expenses in arriving at a taxpayer’s net monthly income. Specifically, under the “Fresh Start Program,” the IRS has expanded the Allowable Living Expense Category to include additional expenses, such as credit card payments and bank fees, while increasing the total amount allowable. The program also allows expenses for the repayment of student loans and delinquent state and local taxes.

The most significant change to the OIC program under the “Fresh Start” initiative is the change in the calculation of the taxpayer’s “reasonable collection potential” under the future income component. The “reasonable collection potential” is determined by analyzing the taxpayer’s net realizable equity in assets and future income. The IRS now considers only one year of future income for offers that will be paid in full within five months when previously they considered four years of income. The IRS will now consider two years of future income for offers paid in full within six to 24 months, down from five years of income. For taxpayers whose reasonable collection potential is driven by future income and less by net realizable equity in assets, this change is likely to have a meaningful impact in the determination of whether they qualify for an OIC.

The overall result of these changes and improvements is that increasingly more financially troubled taxpayers will qualify for OIC relief.

I realize that this may sound confusing—what doesn’t, when you’re dealing with the IRS. But the net impact is that struggling taxpayers now have a better chance of resolving their disputes with the agency. And that is good news no matter how you look at it. If you’re in the midst of an IRS dispute and you’d like to learn more about your options, please don’t hesitate to contact us today!

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item (such as furniture) for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

Contributions are deductible in the year made. Donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Checks count for 2012 as long as they are mailed in 2012.

Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.

For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property.

If you leave a donation at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.

If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

Keep in mind that every situation is unique—so if you have questions about your specific circumstances, don’t hesitate to contact us today!

However, despite the uncertainty, there are actions you can take today. A recent article published in the Wall Street Journal provides several broad suggestions. They won’t be applicable to everyone, and seeking professional advice is still recommended, but this is helpful information nonetheless:

Make charitable gifts. The best value often comes from donating appreciated assets, because donors can get a full deduction while skipping capital-gains tax on the asset’s growth. Cash donations to charities are often deductible up to 50% of adjusted gross income, while the limit for gifts of other assets is often 30%. Disallowed portions usually carry over to future years.

If you aren’t sure whether the group is eligible to receive tax-deductible gifts, American Institute of CPAs tax specialist Melissa Labant recommends checking “Select Check” at www.irs.gov, a master list of qualified charities.

Are you concerned that the charitable deduction could shrink next year? If so, make a large donation to a “donor-advised” fund and qualify for a full write-off this year. Assets can then grow tax-free in the fund until donors specify tax-free recipients, sometimes years later. There’s no deduction at that point.

If you want to donate IRA assets to charity, wait a bit longer. Since 2006, IRA owners 70½ and older have been able to give up to $100,000 of the required payout directly to a charity. There’s no deduction, but no taxable income either. This wildly popular provision expired at the beginning of 2012, but lawmakers might yet reinstate it—as they did in 2010.

Until lawmakers clarify the issue, would-be donors should “leave room” for their donations because the first dollars out of an IRA count as the required payout. For example, if your required payout is $20,000 and you want to give $3,000 of that directly to your church, withdraw no more than $17,000 until this year’s rules are clear.

Make an extra mortgage payment, or pay down principal. Usually taxpayers can’t accelerate more than one month of mortgage interest, but that helps a bit if you think the mortgage-interest deduction will be curbed next year. Or find cash to pay down principal, which reduces overall interest.

 Don’t fret about the alternative minimum tax “patch” for 2012. If Congress doesn’t fix the AMT, eight times as many households will be subject to the tax as in previous years, and there will be severe disruptions to next spring’s tax-filing season. So it probably will get done, tax experts say.

Maximize contributions to employer-sponsored retirement plans. Unlike with IRAs, the deadline for 401(k) contributions is Dec. 31. This year, the employee limit is $17,000, or $22,500 for workers 50 or older. This pretax contribution has two benefits: It bolsters savings and reduces adjusted gross income that might qualify the taxpayer for benefits that phase out at higher incomes.

Uncertainty and inaction in Washington DC doesn’t mean you can’t exercise savvy tax planning right now. If you have further questions about these issues or others, please don’t hesitate to get in contact with us today!

The news that Steven Miller, deputy commissioner for services and enforcement at the Internal Revenue Service, will become acting IRS commissioner next month is likely to be a welcome development for tax whistleblowers.

Finally there will be a person in charge of the IRS who appears to be invested in its whistleblower program and knowledgeable about its potential.

Miller will replace IRS Commissioner Douglas Shulman, whose term ends Nov. 9.  Shulman took over as commissioner in 2008. Since that time, the IRS whistleblower program has been on a downward spiral.

During Shulman’s tenure, whistleblowers have received the cold shoulder from the IRS, causing whistleblowers to doubt the agency’s commitment to the program.

Shulman’s legacy with whistleblowers is in the numbers.  Since 2009, the number of claims has steadily sunk: The number of whistleblowers stepping forward has declined by a third, to the lowest point in four years.

Miller’s track record shows that his appointment as acting commissioner could invigorate the IRS whistleblower program.  It was Miller who issued an internal memo in June that set timelines for IRS sections to review and act on whistleblower information.

“Timely and comprehensive evaluation of information provided by whistleblowers is essential to the success of this program,” Miller noted. “Please give this subject your personal attention so that the Service can take full advantage of whistleblower information in our compliance programs.”

The IRS has taken some encouraging steps recently, making awards to a number of whistleblowers, including an award of $104 million to the UBS whistleblower, Bradley Birkenfeld. We can only hope that Miller will continue to see the value of whistleblowers to tax enforcement and will give the whistleblower program the “personal attention” he has requested from others.

Obviously, bending the law in order to minimize your tax liability is a bad idea. The bottom line is that sooner or later, the IRS is likely to track you down—and when they do, you’ll be far worse off than if you had simply followed the law in the first place. Nonetheless, the prospect of an increase in whistle-blowing is disturbing for many taxpayers and businesses. The last thing any of us need is further aggression on the part of the IRS—not to mention the time that is demanded in order to deal with the agency. The lesson? Be more careful than ever to comply with tax laws so that you don’t find yourself on the wrong end of an investigation.

For some of you, it may be too late—you may already be staring down the barrel of an IRS dispute. If that’s the case, we can help! Please get in touch with us today to learn more.

The IRS can keep more than $409,000 seized from a luxury car dealer accused of structuring cash deposits to duck reporting requirements, a federal judge ruled.

U.S. District Judge Ed Kinkeade said the government “had reasonable belief to file forfeiture proceedings against the defendant property and finds proper notice/publication of the forfeiture action was made,” according to a final judgment of forfeiture signed Monday.

 Authorities accused Brigette Brown, owner of Carrollton-based International Motor Productions, of making several deposits below $10,000 to skirt IRS reporting requirements. They seized the money in December 2010.

Brown admitted to a local NBC affiliate that she had broken up larger cash payments to avoid IRS scrutiny. Cash deposits larger than $10,000 must be reported to the IRS under federal law.

“I didn’t know there was anything wrong with it,” she told NBC 5. “I run a very honest, legitimate business.”

She denied structuring the deposits, however, saying “they were simply deposited as they were earned.”

Brown told the station that she will miss the money, but is ready to move on. She said she hopes her case will be a lesson for other business owners who do not understand deposit reporting requirements.

“I’ve always been told you want to stay under the radar with the IRS,” she told NBC 5. “I think everyone under the sun thinks that same thing.”

In August, Brown was charged with one count of failure to file an IRS Form 8300, which reports cash payments of more than $10,000.

She faces up to five years in federal prison and a $250,000 fine.

The moral of the story is simple: seek expert guidance when it comes to tax reporting. The cost of hiring a professional is nothing compared to the potential penalties you face if you make a mistake, innocent or otherwise. And given how outrageously complicated our tax code has become, it is highly likely that even the most intelligent business owner will make a mistake at some point. It is a risk that is quite simply not worth taking!

If it’s too late, and you’re already facing a dispute with the IRS, we can help! We’ll deal with the IRS and help you come up with a plan to resolve the situation as quickly and painlessly as possible. Give us a call today and take your first step towards RELIEF from your IRS dispute.

The best way to avoid this scenario, obviously, is to avoid running afoul of the Internal Revenue Service in the first place. To that end, Forbes.com recently published an article with three helpful tips to reduce the probability of being audited:

1. Keep Good Records. You might think good records help only if you’re audited. Actually keeping good records can keep you out of trouble in the first place. Most audits are by correspondence: your deductions will be disallowed unless you produce records substantiating them. To respond quickly and thoroughly, be prepared.

2. Respect Those 1099s. Much of what the IRS does is information return matching–the endless correlation of taxpayer identification numbers and payments. Even small mismatches will be caught and can trigger bigger problems. There are different Forms 1099 for miscellaneous income (Form 1099-MISC), interest (Form 1099-INT), etc.

How you handle them year round matters. Don’t just stick them in a drawer when they arrive, look at them. If you receive an incorrect 1099 (as is common), contact the payor that issued it. Explain the error and ask if they have already sent a copy to the IRS. If they have, ask for a “corrected” 1099 (there’s a special box for this).

You need a system to record and track 1099s. That’s exactly what the IRS does.

3. Keep Business and Personal Separate. You may do things with a dual motive like a pleasant lunch with a business colleague, a boondoggle with your best customer or buying a vacation home you also intend as an investment. But your tax life will be easier if you avoid morphing personal into business, including:

• Deducting the cost of your divorce because your business is at risk;
• Deducting a miserable vacation with a client; or
• Claiming your hobby was really for profit.

It’s safer to separate your business and personal lives. Simple but effective.

These tips will help you stay out of trouble with the IRS. But if it’s too late for that, don’t despair! At IRSALLSTAR.com, we specialize in dealing with the IRS so that you don’t have to. We will put a stop to intimidating phone calls and other threatening tactics. We’ll work tirelessly to achieve the most favorable solution for your situation. We’ll remove the stress that is caused by dealing directly with the IRS. Don’t let IRS Problems make your life miserable… give us a call today if you’d like to learn more!