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Orange County Tax Law Blog

IRS Criminal Investigation snapshot reflects digital shift

The agency overview highlights the amount of data seized during tax fraud and other financial crimes investigations in the last year: 1.76 petabytes. How much is that? It is huge and equivalent to 4,000 digital photos a day over your lifetime. Our brains are estimated to store memory data equivalent to 2.5 petabytes.

Tax crimes related statistics included 1,714 tax crime investigations with prosecutions recommended in 1,050. The overall agency conviction rate remains high at about 92 percent. Identified tax fraud accounted for nearly $10 billion. In this post, we discuss continuing areas of focus.

How long does an Offer in Compromise appeal take?

An Offer in Compromise (OIC) allows you to settle tax debt for less than the full amount owed. The IRS Office of Appeals has the mission of resolving disputes that arise between the government and a taxpayer in a fair and timely manner.

Appeals offers one more opportunity to resolve a case before filing a petition with the tax court. If your OIC is denied, you have the right to appeal, but it may take longer than you'd expect. You should expect to wait between 90 days and one year. In this post, we’ll explain why it can take so long.

California FTB updates delinquent taxpayer list

Last month, the Franchise Tax Board published its list of the top 500 delinquent California state taxpayers. This list includes addresses, when tax liens were filed and professional licenses. The total collectively owed is more than $646 million.

This semi-annual update has been lauded for bringing in $845 million since its inception in 2007. Real estate agents, contractors, dentists, attorneys and taxpayers with addresses in other states make the list. In many cases, tax liens have been pending against these taxpayers for years.

Changes in mortgage interest deduction rules

A lot has been written about the cap on the state and local tax deduction – now $10,000. Another area that will see change for 2018 taxes is the mortgage interest deduction.

With the increased 2018 standard deduction of $24,000 ($12,000 for singles) from $12,700/$6,350 in 2017, some will find they no longer need to bother with a Schedule A itemization schedule. For others in Orange County, a cap on mortgage interest deductions will have an effect.

What to look for on an IRS audit notice

Last year, the IRS audited about 1 million tax returns. While overall the 0.5 percent rate is low, the rate increases for high income earners. On the other end of the spectrum, those who claim an Earned Income Tax Credit (EITC) are also more likely to get an audit notice.

ProPublica annotated an audit notice sent to a taxpayer who had claimed the EITC in 2017. In this situation, the audit delayed the expected refund of several thousand dollars and disallowance of EITC would have resulted in a tax bill. Here are some important pieces of information in an audit notice.

Q & A on 20-percent pass-through business deduction

How is the new 20-percent (section 199A deduction) deduction calculated for pass-through businesses? Knowing some acronyms helps: Qualified business income (QBI) and specified service trade or business (SSTB).

Section 199A allows certain domestic businesses to deduct up to 20 percent of QBI. The deduction comes with income caps and limitations – the threshold is $315,000 for a married couple filing jointly or $157,500 for others.

Tax fraud typology and IRS investigations

When the IRS’s Criminal Investigations division (CI) looks in to possible tax fraud, it never does so in the abstract. To the contrary: the CI is transparent about how it classifies the areas it the areas and lines of inquiry it may pursue.

What are these classifications for tax fraud investigations?

Business loss limitations going into effect

How will a lesser-known rule in the Tax Cuts and Jobs Act of 2017 affect wealthy flow-through business owners? The new limitation on loss deductions might be worth an Q4 discussion with a tax professional.

In the past, losses from an LLC or partnership could offset personal income. For taxable years from December 31, 2017 until January 1, 2026, noncorporate taxpayers will only be able to deduct aggregate losses from a trade or business up to $500,000 for married filing joint or $250,000 for others.

Charitable record keeping depends on the value of the gift

Over the summer, the IRS published final regulations with charitable contribution substantiation and reporting rules. You should now keep a record for all cash gifts that you will use as a tax deduction – a letter from the organization or a bank statement is usually enough.

For donations of property, the rules are based on valuation and may require a qualified appraisal. In this post, we’ll describe requirements for the four basic categories – under $250, $250 to $500, $500 to $5,000 and $5,000 and more.

FAQs about the CP508c and your passport

The IRS initially communicates with taxpayers via form letter through the mail. Each of the forms has a different identification code. In the case of CP508c, the Service is notifying you that it has certified your tax debt to the State Department as seriously delinquent.

A provision tucked into the 2015 Fixing America’s Surface Transportation (FAST) Act gave the IRS authority to work with the State Department to develop rules and regulations for denying or revoking passports for taxpayers with seriously delinquent tax debt. In this post, we answer several common questions about the new IRS collection tool.