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Orange County Tax Law Blog

Behavioral economics and tax compliance

This comes from the other coast, but is an interesting story that looks at tax compliance. A Duke graduate student noted that a sizeable number of people in Guilford County, North Carolina did not pay their property taxes on time.

Building a master’s project around the issue, the student investigated whether small tweaks to property tax notices could increase compliance. Could changes to the reminder letter affect behavior?

Software lured me to take the deduction = Not a valid excuse

How much reliance can you place in tax software marketed to consumers? What are some red flags that you might need to seek specialized advice?

A cautionary tale comes from a recent Tax Court case. In the case, the taxpayer made mistakes in claiming deductions for alimony and business-related expenses including interest payments. His excuse: software “lured” me into claiming the deductions.

The newest twist on a summer tax scam

On this blog, we have followed a number of different tax scams over the years. Each summer, there seems to be a slightly different variant of a tax phone scam. And this summer is no different.

The latest notification from the IRS is of a scam linked to Electronic Federal Tax Payment Systems (EFTPS). A person calls claiming to be with the IRS (caller ID may even show the call is from the IRS) and then demands you make an immediate payment with a prepaid debit card.

Lottery/gambling winnings - How much could you owe in tax?

A Fountain Valley gas station recently sold a winning Powerball ticket worth approximately $1.6 million. But no tickets were sold that matched all six numbers, so the jackpot was expected to grow to $435 million for the Saturday drawing.

While on the way to get your ticket, consider the CNBC statistic that the odds of winning the grand prize are 1 in 292,201,338. Even with long odds though, you could win. How much tax would you owe Uncle Sam?

Dragnet tightening on offshore accounts

The flow of tax information between countries used to be very limited. In recent years, the Foreign Account Tax Compliance Act and the tax information sharing agreements have opened the tap resulting in a torrent of data crossing borders.

For anyone who still holds investments offshore in layered entities like trusts or foundations the odds of an IRS investigation are increasing. Since the crackdown on offshore accounts in 2009, the Wall Street Journal reports that 55,800 people have paid approximately $9.9 billion to resolve past missteps.

Fraud penalty assessed against former IRS agent

A knowledge of the tax code developed over a career working for the IRS. Why was it used in assessing a fraud penalty in a recent tax court case?

The taxpayer who tried to challenge his assessment and fraud penalty had been an IRS revenue agent for 29 years. He had been trained to determine allowable business expenses and was a certified forensic examiner. But on his personal tax returns he had a pattern of inflating business expenses with personal expenditures for holiday decorations, parties, flowers and gifts.

Worker classification: How to prove taxes have been paid?

A recent tax court case involved a novel argument in a case where the IRS alleged the employer had improperly treated workers as independent contractors. The line between independent contractor and employee can be fuzzy.

It has been more than a year – a January 2016 blog – since we have visited the topic of worker classification. An employer must withhold payroll and income taxes for employees. 

Larry Bird house-rental case shows need for careful recordkeeping

The former French Lick, Indiana, home of basketball great Larry Bird was the subject of a new U.S. Tax Court decision that interpreted the so-called vacation-home rules. The court in its May 1 decision agreed with the IRS disallowance of significant business deductions and losses claimed by Christopher Cooke, an Alaskan lawyer who was one of two members of a limited liability company that owned the home. 

Cooke and his domestic partner — the other LLC member — operated the home as a bed and breakfast for a short time after which Cooke still claimed business expenses and losses for two more years on his tax return: 2010 and 2011. The court agreed with the IRS that the taxpayer underpaid taxes for those two years, based on the vacation-home rules. 

Back taxes: Checking passport validity

Much has been written about the newest IRS collections tool: passport denial and revocation. Passport applications are are not yet being actively denied or revoked based on past due tax debt. The IRS did start certifying tax debts to the State Department in March, however.

What do you need to know if you are travelling? Passports are issued for five year to those under age 16. For adults, a passport is good for 10 years. If you have had your passport for some time, you may not question its validity.

Update: More arrests in IRS phone scams

We’ve followed a variety of tax-related scams over the years. The IRS phone scam is by far the most prevalent. The recent arrests of eight people in Florida detail the success of the scheme.

How does the scam work? An individual impersonating an IRS agent calls and demands an immediate payment of back taxes (for example, $945.67 – something that probably sounds plausible) via MoneyGram or Walmart2Walmart Money Transfer. Threats that law enforcement are on the way to your door to arrest you are designed to get your attention.