The IRS comes out every year with a list of tax schemes it seeks to warn people about. It goes by the rather melodramatic name of "the dirty dozen." But it is instructive to review which topics the agency chooses to include. One of them is what the IRS calls "return preparer fraud."
Identity theft that leads to tax refund fraud has been a significant problem for quite some time. The IRS says it is working on the issue. In our December 3 post we wrote about the agency's intention to use new software filters to do a better job at flagging fraudulent tax returns that are the product of identity theft.
The IRS is tightening its regulation of professional tax preparers. The new requirements overseen by the agency start with an electronic registration system in which each preparer must apply for or new a Preparer Tax Identification Number or PTIN. But they also include other components, such as competency testing and continuing professional education.
Some former California residents may have left our state for foreign climes. But while they may have freed themselves from the infamous Southern California traffic, their overseas residence does not by itself relieve them of the responsibility to comply with our country's tax laws.
Some California taxpayers with significant tax debts may have entered into--or contemplated entering into--an offer in compromise with the Internal Revenue Service. An OIC is the exclusive way for taxpayers to satisfy their debts with the IRS for less than the total amount owed. But the amount offered to settle the debt and any additional terms that become part of the agreement are vitally important. Taxpayers must analyze very closely exactly what they agree to, otherwise they could face unintended consequences.
At this time of year, taxpayers in California and around the country are hoping to avoid the dreaded tax audit letter. The good news is that the Internal Revenue Service only audits a small percentage of the overall population--currently about 1 percent. The bad news is that audit rates are much higher among certain groups of taxpayers, whose returns single them out for additional IRS scrutiny.
The legendary complexity of the Tax Code is common knowledge among Californians. While the IRS has taken steps to simplify the tax return process, arcane and difficult rules can come into play for many taxpayers, and mistakes made on returns can lead to contact from the IRS. In addition, the differences between California's tax laws and the federal government's can be enough to confound even the savviest taxpayers.
The very mention of the word IRS audit can cause some taxpayers' stomachs to sink, shoulders to tense and brows to sweat. But while people in California are filling out their 1040s, they should know that the probability of an IRS audit and the actual process itself are not as bad for most people as they appear in the popular imagination.
What do you do if you filed a joint tax return with your spouse, and the refund is applied to your spouse's back taxes? Tax refunds are commonly applied to past-due taxes for state or federal authorities, or to back child support or spousal support payments. They can even be applied to outstanding student loans. If your spouse has some of these debts and your money is seized to pay for them, what recourse do you have?
It's that time of year again...tax time. And while there are no ways to 100 percent guarantee that a business's income tax return won't get audited, there are some steps to take to greatly decrease the chances of a tax audit from happening.