Written by: Karen Reed, EA
On February 22, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012. The bill extends the payroll cut for employees and self-employed individuals through tax year 2012 and includes two nontax provisions an extension of unemployment benefits and a Medicare “doc fix.”
Individuals who receive wages and salaries normally would pay Old-Age, Survivors, and Disability Insurance (OASDI) at a rate of 6.2%. The payroll tax cut, which was first enacted in 2011, reduced the rate by two percentage points to 4.2%. Similarly, the OASDI rate for self-employed individuals was reduced from 12.4% to 10.4%.
The government estimates that 170 million employees and self-employed individuals will benefit from the payroll tax cut extension. The increase in take-home pay for the average worker will be approximately $1,000 for the year.
The long battle over the millionaire surtax and the extension of the Bush-era tax cuts remains at an impasse. While President Obama has promised to veto any legislation that extends tax cuts on higher income taxpayers, Republicans are still refusing to consider a tax increase on millionaires. With the parties far from reaching an agreement on both issues, neither proposal made it into the new bill.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
March 1, 2012
February 1, 2012
Don’t Miss Out on the Earned Income Credit
Written by: Karen Reed, EA
Every year millions of Americans take advantage of the Earned Income Tax Credit, a tax incentive that helps boost income for working families and individuals with low to moderate income. But with the large number of people who have recently experienced a reduction in income, such as a lay-off, or life changes, such as a marriage or birth of a child, the IRS estimates that one in five eligible workers is missing out on the credit.
The Earned Income Tax Credit is available to workers who earn $49,078 or less from wages or self-employment. The amount of the credit a taxpayer may receive will depend on the income earned, filing status, and number of qualifying children. The credit ranges from $464 for taxpayers with no qualifying children to $5,757 for those with three or more. The average credit received last year was about $2,200. This credit is a refundable credit, which means it can reduce the balance owed, create a refund or add to an existing refund.
In order to receive the credit, several requirements must be met, and it is not possible to receive it without filing the federal tax return. Most tax preparation software will alert you to your potential eligibility and take you step by step through the rules to see if you qualify. But unless all of the related questions are answered, the tax program will not include the credit on your return. If there’s a chance you might qualify, be sure to complete all of the questions in the Earned Income Credit section of your tax program − or seek the assistance of a qualified tax professional.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
Every year millions of Americans take advantage of the Earned Income Tax Credit, a tax incentive that helps boost income for working families and individuals with low to moderate income. But with the large number of people who have recently experienced a reduction in income, such as a lay-off, or life changes, such as a marriage or birth of a child, the IRS estimates that one in five eligible workers is missing out on the credit.
The Earned Income Tax Credit is available to workers who earn $49,078 or less from wages or self-employment. The amount of the credit a taxpayer may receive will depend on the income earned, filing status, and number of qualifying children. The credit ranges from $464 for taxpayers with no qualifying children to $5,757 for those with three or more. The average credit received last year was about $2,200. This credit is a refundable credit, which means it can reduce the balance owed, create a refund or add to an existing refund.
In order to receive the credit, several requirements must be met, and it is not possible to receive it without filing the federal tax return. Most tax preparation software will alert you to your potential eligibility and take you step by step through the rules to see if you qualify. But unless all of the related questions are answered, the tax program will not include the credit on your return. If there’s a chance you might qualify, be sure to complete all of the questions in the Earned Income Credit section of your tax program − or seek the assistance of a qualified tax professional.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
January 3, 2012
Independent Contractor or Employee?
Written by: Karen Reed, EA
If you hire or contract with individuals to provide services to your business, it is important to correctly determine whether each person is an employee or independent contractor. This determination will be the basis for how you treat the payments you make to them for their services. The consequences of misclassifying workers can be costly and may include back payments of employment taxes as well as penalties of as much as 100% and interest to both federal and state taxing agencies. Beginning in 2012, the State of California has the authority to assess penalties as high as $15,000 for each improperly classified worker, with matching penalties assessed against the business’s advisors. Other states are expected to follow suit.
The classification of workers depends on the degree of your control over the worker and the independence of the worker. The factors that need to be considered are the extent to which you control the workers and how they do their jobs, whether or not you provide the tools and supplies needed for the work, and whether or not there are written contracts and/or benefits, such as insurance, retirement plans and vacation pay. Generally, when you as the company owner control what the worker does and provide the tools necessary to perform the work, the worker is considered to be your employee rather than an independent contractor.
At the federal level, employers that are able to show a reasonable basis for not treating a worker as an employee may qualify for relief under Section 530. To establish a reasonable basis, the employer would need to show that one of the following situations applies:
There are major differences in how payments are treated for employees versus independent contractors. For all of your employees you will be required to withhold income taxes, withhold and pay FICA (Social Security and Medicare) taxes, as well as pay unemployment tax on wages paid to employees. To avoid penalties, be sure to take the steps needed to correctly classify the individuals providing services to your business.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
If you hire or contract with individuals to provide services to your business, it is important to correctly determine whether each person is an employee or independent contractor. This determination will be the basis for how you treat the payments you make to them for their services. The consequences of misclassifying workers can be costly and may include back payments of employment taxes as well as penalties of as much as 100% and interest to both federal and state taxing agencies. Beginning in 2012, the State of California has the authority to assess penalties as high as $15,000 for each improperly classified worker, with matching penalties assessed against the business’s advisors. Other states are expected to follow suit.
The classification of workers depends on the degree of your control over the worker and the independence of the worker. The factors that need to be considered are the extent to which you control the workers and how they do their jobs, whether or not you provide the tools and supplies needed for the work, and whether or not there are written contracts and/or benefits, such as insurance, retirement plans and vacation pay. Generally, when you as the company owner control what the worker does and provide the tools necessary to perform the work, the worker is considered to be your employee rather than an independent contractor.
At the federal level, employers that are able to show a reasonable basis for not treating a worker as an employee may qualify for relief under Section 530. To establish a reasonable basis, the employer would need to show that one of the following situations applies:
- Reliance on a court case or IRS ruling
- An IRS audit commenced before 1997 during which the IRS did not reclassify similar workers not treated as employees
- An IRS audit after December 31, 1996, that included an employment tax examination during which similar workers were not reclassified
- A significant segment of their industry treats similar workers as independent contractors
- Reliance on some other reasonable basis, such as the advice of a business attorney
There are major differences in how payments are treated for employees versus independent contractors. For all of your employees you will be required to withhold income taxes, withhold and pay FICA (Social Security and Medicare) taxes, as well as pay unemployment tax on wages paid to employees. To avoid penalties, be sure to take the steps needed to correctly classify the individuals providing services to your business.
------------------------------------------------------------
This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
December 1, 2011
President Signs Three Percent Withholding Repeal and Job Creation Act and VOW to Hire Heroes Act
Written by: Karen Reed, EA
On Monday, November 21st, President Obama signed into law the Three Percent Withholding Repeal and Job Creation Act, and the VOW to Hire Heroes Act. The new legislation permanently repeals the three percent withholding requirement on government payments to contractors and adds new tax credits for hiring military veterans. The IRS’s levy authority over payments to federal vendors is expanded, and increased information exchange between the IRS and the Department of Veterans Affairs has been authorized.
Three Percent Withholding Repeal
The Tax Increase Prevention and Reconciliation Act of 2005 enacted a mandatory withholding of three percent on payments made to contractors by federal, state and local governments after December 31, 2012. The regulation would have been burdensome to businesses and governments and has been permanently repealed.
Repeal of this provision will cost an estimated 12.8 billion in revenue. As an offset, the bill includes a revision of the definition of modified adjusted gross income for the purposes of determining eligibility for the health insurance premium assistance credit.
Returning Heroes Tax Credit and Wounded Warriors Tax Credit
Part of Obama’s American Jobs Act, the VOW to Hire Heroes Act enhances the existing Work Opportunity Tax incentives for hiring veterans with two new credits. The Returning Heroes Tax Credit rewards employers with credits of up to $5,600 for hiring job-seeking veterans. A Wounded Warrior Tax Credit of up to $9,600 is available to employers hiring veterans with service-connected disabilities who have been looking for work for more than six months.
IRS Levies
The new law expands IRS levy authority with respect to payments made to federal vendors with unpaid tax liabilities. Such vendors will be subject to continuous IRS levies against 100% of any payment due them from the federal government, including payments due for good or services sold or leased.
Non-tax Initiatives
A number of non-tax initiatives have been enacted that are aimed at making it easier for soldiers to transition back into the civilian workplace. The new programs include career counseling, education and training and are expected to reduce the high jobless rate for post 9/11 veterans.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
On Monday, November 21st, President Obama signed into law the Three Percent Withholding Repeal and Job Creation Act, and the VOW to Hire Heroes Act. The new legislation permanently repeals the three percent withholding requirement on government payments to contractors and adds new tax credits for hiring military veterans. The IRS’s levy authority over payments to federal vendors is expanded, and increased information exchange between the IRS and the Department of Veterans Affairs has been authorized.
Three Percent Withholding Repeal
The Tax Increase Prevention and Reconciliation Act of 2005 enacted a mandatory withholding of three percent on payments made to contractors by federal, state and local governments after December 31, 2012. The regulation would have been burdensome to businesses and governments and has been permanently repealed.
Repeal of this provision will cost an estimated 12.8 billion in revenue. As an offset, the bill includes a revision of the definition of modified adjusted gross income for the purposes of determining eligibility for the health insurance premium assistance credit.
Returning Heroes Tax Credit and Wounded Warriors Tax Credit
Part of Obama’s American Jobs Act, the VOW to Hire Heroes Act enhances the existing Work Opportunity Tax incentives for hiring veterans with two new credits. The Returning Heroes Tax Credit rewards employers with credits of up to $5,600 for hiring job-seeking veterans. A Wounded Warrior Tax Credit of up to $9,600 is available to employers hiring veterans with service-connected disabilities who have been looking for work for more than six months.
IRS Levies
The new law expands IRS levy authority with respect to payments made to federal vendors with unpaid tax liabilities. Such vendors will be subject to continuous IRS levies against 100% of any payment due them from the federal government, including payments due for good or services sold or leased.
Non-tax Initiatives
A number of non-tax initiatives have been enacted that are aimed at making it easier for soldiers to transition back into the civilian workplace. The new programs include career counseling, education and training and are expected to reduce the high jobless rate for post 9/11 veterans.
------------------------------------------------------------
This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
November 1, 2011
Withholding for Employees: End of Year Planning
Written by: Karen Reed, EA
If you are an employee and usually receive a large tax refund each year, it’s likely that you haven’t claimed enough withholding allowances on the Form W-4 you filled out at work. Having too much money withheld from your paychecks means that you are effectively giving the government an interest-free loan while missing out on a larger paycheck and the interest income you could be earning on your own money. If you find yourself in this situation, consider filing a new W-4 with your employer.
Ideally, you should try to claim the amount of allowances that will result in withholding that matches as closely as possible the amount you owe. Since many life situations can change your tax status during the year, it’s important to review your allowances annually to make sure that your withholding is close to your tax liability. A good time do this is in November, as this will give you enough time to make an adjustment on your W-4, if needed. If your withholding is too low, you can file a new W-4 with your employer and have an additional amount withheld from your paycheck on top of your regular withholding for the remaining two months of the year.
As long as your withholding is equal to at least 90% of your tax liability in the current year, or 100% of your prior year’s tax liability, you won’t be subject to a penalty for under withholding. The percentage goes up to 110% if your income is over $150,000, or $75,000 for married taxpayers filing separately. Also, you generally won’t be subject to a penalty if you owe less than $1,000.
The Form W-4 has a worksheet that will assist you in claiming the correct number of allowances. In 2011, each additional exemption that you claim on your tax return reduces your taxable income by $3,700. If you are in the 25% tax bracket, for example, adding an exemption will reduce your refund or increase the amount you owe by $925. If you work more than one job, or have just gotten married or divorced, had a child, or bought a new home, you may want to review and adjust the allowances you are claiming.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
If you are an employee and usually receive a large tax refund each year, it’s likely that you haven’t claimed enough withholding allowances on the Form W-4 you filled out at work. Having too much money withheld from your paychecks means that you are effectively giving the government an interest-free loan while missing out on a larger paycheck and the interest income you could be earning on your own money. If you find yourself in this situation, consider filing a new W-4 with your employer.
Ideally, you should try to claim the amount of allowances that will result in withholding that matches as closely as possible the amount you owe. Since many life situations can change your tax status during the year, it’s important to review your allowances annually to make sure that your withholding is close to your tax liability. A good time do this is in November, as this will give you enough time to make an adjustment on your W-4, if needed. If your withholding is too low, you can file a new W-4 with your employer and have an additional amount withheld from your paycheck on top of your regular withholding for the remaining two months of the year.
As long as your withholding is equal to at least 90% of your tax liability in the current year, or 100% of your prior year’s tax liability, you won’t be subject to a penalty for under withholding. The percentage goes up to 110% if your income is over $150,000, or $75,000 for married taxpayers filing separately. Also, you generally won’t be subject to a penalty if you owe less than $1,000.
The Form W-4 has a worksheet that will assist you in claiming the correct number of allowances. In 2011, each additional exemption that you claim on your tax return reduces your taxable income by $3,700. If you are in the 25% tax bracket, for example, adding an exemption will reduce your refund or increase the amount you owe by $925. If you work more than one job, or have just gotten married or divorced, had a child, or bought a new home, you may want to review and adjust the allowances you are claiming.
------------------------------------------------------------
This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
October 5, 2011
First Due Dates in October for Electing Portability of Estate Tax Exclusion
Written by: Karen Reed, EA
An important deadline this month applies to the estates of taxpayers who died in January of this year. The 2010 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, signed into law last December, includes a new provision for “portability” of the estate tax exclusion amount between spouses. Beginning January 1st of this year, when one spouse predeceases the other, an election can be made to allow the surviving spouse to add the deceased spouse’s unused exclusion amount to his or her estate’s exclusion amount. This allows a married couple to exclude up to $10 million from estate tax when both spouses die within the specified period.
The portability election is available only to the estates of taxpayers dying after December 31, 2010, and before December 31, 2012. A timely filed estate tax return (Form 706) for the predeceased spouse’s estate is required to pass on the unused exclusion amount to the surviving spouse, even if there is no estate tax due. While there are no special entries to make or boxes to check on the form to make the election, an estate that chooses not to allow the surviving spouse to claim the decedent’s unused exclusion amount must indicate so by attaching a statement to the return, or including the statement “No Election Under Section 2010(c)(5)” at the top of the first page of Form 706.
Since an estate tax return is due nine months after the date of death of the taxpayer, the first due dates occur this month for filing estate tax returns for estates eligible to make the new “portability” election for spouses. Estates that are unable to meet the deadline should file Form 4768 for an automatic six-month filing extension.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
An important deadline this month applies to the estates of taxpayers who died in January of this year. The 2010 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, signed into law last December, includes a new provision for “portability” of the estate tax exclusion amount between spouses. Beginning January 1st of this year, when one spouse predeceases the other, an election can be made to allow the surviving spouse to add the deceased spouse’s unused exclusion amount to his or her estate’s exclusion amount. This allows a married couple to exclude up to $10 million from estate tax when both spouses die within the specified period.
The portability election is available only to the estates of taxpayers dying after December 31, 2010, and before December 31, 2012. A timely filed estate tax return (Form 706) for the predeceased spouse’s estate is required to pass on the unused exclusion amount to the surviving spouse, even if there is no estate tax due. While there are no special entries to make or boxes to check on the form to make the election, an estate that chooses not to allow the surviving spouse to claim the decedent’s unused exclusion amount must indicate so by attaching a statement to the return, or including the statement “No Election Under Section 2010(c)(5)” at the top of the first page of Form 706.
Since an estate tax return is due nine months after the date of death of the taxpayer, the first due dates occur this month for filing estate tax returns for estates eligible to make the new “portability” election for spouses. Estates that are unable to meet the deadline should file Form 4768 for an automatic six-month filing extension.
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This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
September 2, 2011
Improvements Needed at IRS, According to TIGTA
Written by: Karen Reed, EA
The IRS has the authority adjust our tax returns to correct math errors without performing an audit. And while we have the right to dispute adjustments the IRS makes to our returns, a recent review by the US Treasury Inspector General for Tax Administration (TIGTA) found that the Agency’s process for responding to disputes is in need of improvement.
According to TIGTA’s July report, the IRS issued approximately 8.6 million math error notices during a period of approximately seven months during 2010. Of these notices, 98.4 percent were agreed to by the taxpayer. Given the IRS’s known history of sending out erroneous notices, this indicates that many taxpayers are paying tax bills that are not necessarily correct. In fact, in our experience at TaxResources, we have seen many instances in which a taxpayer has mistakenly paid the bill without having a professional review the notice first.
TIGTA reviewed 260 of the 133,186 responses from taxpayers who disputed the adjustments, finding that 104 of the cases were not resolved in a timely manner and 43 were not handled accurately. Extrapolating from these numbers, TIGTA estimates that 17,627 taxpayers may not have had their responses resolved accurately during the review period. These inaccuracies could result in approximately $39.5 million in lost revenue to the Federal Government and approximately $29.2 million in tax benefits that taxpayers will not receive over the next five years, the report estimates.
As a result of these findings, TIGTA has recommended that the IRS (1) develop a process to monitor timeliness of working responses to math error adjustments, (2) prioritize the working of written responses relating to Earned Income Tax Credit (EITC) math error adjustments, and (3) reinforce to staff the need to thoroughly and accurately work responses to math error adjustments. Though the IRS agreed to make improvements in training staff about the importance of thoroughly and accurately responding to taxpayer disputes of math error adjustments, the Agency said a process for monitoring timeliness is already in place and disagreed that a new one is needed. The IRS also disagreed that changes are needed in their processes for handling of EITC disputes.
One of our most important rights as taxpayers is our right to representation. Concerns about both the accuracy of IRS notices and the handling of disputes make it clear that representation by an experienced tax professional is important when it comes to any type of IRS contact, even one as simple as mathematical correction letter.
------------------------------------------------------------
This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
The IRS has the authority adjust our tax returns to correct math errors without performing an audit. And while we have the right to dispute adjustments the IRS makes to our returns, a recent review by the US Treasury Inspector General for Tax Administration (TIGTA) found that the Agency’s process for responding to disputes is in need of improvement.
According to TIGTA’s July report, the IRS issued approximately 8.6 million math error notices during a period of approximately seven months during 2010. Of these notices, 98.4 percent were agreed to by the taxpayer. Given the IRS’s known history of sending out erroneous notices, this indicates that many taxpayers are paying tax bills that are not necessarily correct. In fact, in our experience at TaxResources, we have seen many instances in which a taxpayer has mistakenly paid the bill without having a professional review the notice first.
TIGTA reviewed 260 of the 133,186 responses from taxpayers who disputed the adjustments, finding that 104 of the cases were not resolved in a timely manner and 43 were not handled accurately. Extrapolating from these numbers, TIGTA estimates that 17,627 taxpayers may not have had their responses resolved accurately during the review period. These inaccuracies could result in approximately $39.5 million in lost revenue to the Federal Government and approximately $29.2 million in tax benefits that taxpayers will not receive over the next five years, the report estimates.
As a result of these findings, TIGTA has recommended that the IRS (1) develop a process to monitor timeliness of working responses to math error adjustments, (2) prioritize the working of written responses relating to Earned Income Tax Credit (EITC) math error adjustments, and (3) reinforce to staff the need to thoroughly and accurately work responses to math error adjustments. Though the IRS agreed to make improvements in training staff about the importance of thoroughly and accurately responding to taxpayer disputes of math error adjustments, the Agency said a process for monitoring timeliness is already in place and disagreed that a new one is needed. The IRS also disagreed that changes are needed in their processes for handling of EITC disputes.
One of our most important rights as taxpayers is our right to representation. Concerns about both the accuracy of IRS notices and the handling of disputes make it clear that representation by an experienced tax professional is important when it comes to any type of IRS contact, even one as simple as mathematical correction letter.
------------------------------------------------------------
This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1-4), and §10.35(b)(2),(8), and (10). This written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondence, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.
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