Man Convicted Over Threat To Kill IRS Agent---You Thought Your Audit Was Bad

No one thinks paying tax is fun. Being audited or chased for back taxes isn't either. Many tax collectors know there can be a kind of shoot the messenger mentality, especially when the IRS is trying to collect. That’s one reason among many to hire a professional to handle your tax case. That way you won’t say the wrong thing.

What’s the worst thing you can say to the IRS? Well, make sure you don’t threaten the IRS, not even in jest. In fact, no matter how frustrated you feel—even if you think what the IRS is doing is illegal—don't threaten an IRS Agent or his family.

In fact, doing so has to go down as the worst possible way to try to resolve a tax case. No one in his right mind would do this. Sure, taxes can make you crazy, but there’s a limit to what the government will tolerate.

Andrew A. Calcione of Rhode Island was dealing with the IRS over his 2008, 2009 and 2010 tax debts. The asserted liability was big, over $300,000. Mr. Calcione may even have believed he was getting unfairly hassled. But what was occurring happens in many if not most tax cases. The IRS needed consents to keep the statute of limitations open.

In April 2013, while working on an audit, the IRS Revenue Agent requested Mr. Calcione and his ex-wife to sign a consent form to extend the time for the IRS to make an assessment. Mr. Calcione signed the form but his ex-wife had not. The Revenue Agent left a voicemail message asking Mr. Calcione about returning the form.

In response, Mr. Calcione left two voicemail messages for the IRS Agent threatening to torture the Agent, rape and kill the Agent’s wife, injure the Agent’s daughter and then finally kill the Agent. He evidently forgot the maxim: No Matter How Big Your Tax Bill, You Probably Shouldn’t Threaten to Kill IRS Employees. The IRS Agent reported the calls to the authorities, who determined the voicemails were enough to charge Mr. Calcione.

Then he was prosecuted. And now, a federal judge has found Mr. Calcione guilty of threatening assault and murder. Mr. Calcione is due to be sentenced in September, and could face up to twenty years. Of course, his tax debts don’t go away either.

How long can the IRS audit, and what should Mr. Calcione have done? The IRS usually has three years after you file to audit. If you omit more than 25% of your income, the IRS gets six years. But frequently, the IRS says it needs more time to audit and asks you to sign a form extending the statute, usually for a year.

The IRS asks you to extend the statute, as it did to Mr. Calcione and his ex-wife. Remember, joint tax returns involve two taxpayers. Mr. Calcione signed, which makes sense. In fact, most tax advisers say you should usually agree. If you say “no” or ignore the request, the IRS will assess extra taxes.

However, get some professional advice about your own situation. You may be able to limit the time or scope of the extension. If you file a false return under-report income or willfully fail to file, the time limit is six years or in some cases even longer. The stakes go up too, including potential criminal charges and prison.

And when it comes to prison, unless you want to land there for a very long time, don’t threaten to kill the IRS…or anyone else.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

Ten Facts on Filing an Amended Tax Return

What should you do if you already filed your federal tax return and then discover a mistake? First of all, don't worry. In most cases all you have to do is file an amended tax return. But before you do that, here are 10 facts you should be aware of when filing an amended tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper. Contact us if you need assistance or have any questions about Form 1040X.

2. File an amended tax return if there is a change in, or you made an error regarding your filing status, income, deductions or credits on your original return.

3. In most cases, you do not need to file an amended return to correct math errors because the IRS automatically makes those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. For example, the last day for most people to file a 2010 claim for a refund is April 15, 2014. Special rules may apply to certain claims. For more information see the instructions for Form 1040X or call us.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. Note the tax year of the return you are amending at the top of Form 1040X. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.

6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.

7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.

8. If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.

9. You can track the status of your amended tax return for the current year three weeks after you file. You can also check the status of amended returns for up to three prior years.

10. To use the "Where's My Amended Return" tool on the IRS website, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each.

Questions about amended returns? Give us a call today. We'll take care of it--so you don't have to.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

Supreme Court Agrees To Hear Landmark Case On Whether States May Tax Income Earned In Other States (Forbes)

The Supreme Court had a busy day on Tuesday. 

When the dust settled, however, it had only granted one new case – but it was a big one. The nation’s highest court granted certiorari to Comptroller v. Wynne, setting the stage for a fight that could rewrite tax laws in states across the country.

As noted before, lawyers and judges like to use Latin. Granting certiorari (or “granting cert” for the really cool hipster lawyers) means that the Supreme Court will hear the matter.

Some cases have what’s called “original jurisdiction” in the Supreme Court; those cases, which are defined by statute (28 U.S.C. § 1251) go straight to the Supreme Court. The typical case associated with original jurisdiction would be a dispute between the states. Most cases, however, don’t go that route. To be heard at the Supreme Court level without having original jurisdiction requires the losing party at the appellate level to file a petition seeking a review of the case. If the Supreme Court grants the petition and decides to hear the matter, it’s called a writ of certiorari. And that’s what happened here.

The question presented in the Petition for Certiorari in Wynne(downloads as a pdf) is:

Does the United States Constitution prohibit a state from taxing all the income of its residents — wherever earned — by mandating a credit for taxes paid on income earned in other states?

Procedurally, the question found its way to the Supreme Court after the Court of Appeals of Maryland “reached the unprecedented conclusion” that a state is in violation of the Commerce Clause in the U.S. Constitution if it collects income taxes from its residents when the income was earned from sources in another state and is subject to tax by the other state.

In this case, a married couple, the Wynnes, reported taxable net income of approximately $2.7 million. More than half of that amount represented a share of earnings in an S corporation with operations in several states. The Wynnes claimed a credit on their Maryland tax returns for taxes paid to 39 other states but not for any county or local government taxes. The State of Maryland denied the credits and issued a notice of deficiency and the Wynnes appealed. At a hearing, the assessment was affirmed.

Eventually, the Wynnes amended their petition to claim that the tax credit statute was in violation of the Commerce Clause of the United State Constitution. That claim was rejected. At appeal, the Wynnes argued that the state of Maryland was constitutionally required to extend the credit for taxes paid to other states to the county as well as the state, raising the question of whether a state had the unconditional right to tax all income based on residency. The Circuit Court agreed with the Wynnes.

On appeal by the state, the Court of Appeals agreed with the Circuit Court. The Court wrote that, based on its belief that the Constitution prohibits “double taxation” of income earned in interstate commerce, a state may not tax all the income of its residents, wherever earned.

That decision, it was argued by the state, conflicted with a number of “fundamental precepts” involving the “well-established principle” that “a jurisdiction… may tax all the income of its residents, even income earned outside the taxing jurisdiction.” However, in Wynne, the Court of Appeals concluded that the Commerce Clause imposes restrictions on a state’s power to tax its own residents: in other words, Maryland was not allowed to tax all of its residents’ income if the resident paid taxes on that income to another State.

The state argued that this finding was inconsistent with prior law and was, in a word, wrong. The consequences, according to the state’s petition, could be the “significant loss of revenue that will amount to tens of millions of dollars annually.”

And that’s why you should care. Not only does this decision have consequences for Maryland but it “has potential repercussions beyond Maryland,” according to the petitioner (downloads as a pdf). The reply brief for the petitioner specifically notes that “while most states provide full credits for income taxes paid to other states, many local jurisdictions do not.” The result, if the Wynne decision holds, according to the state is that “any jurisdiction taxing its residents’ entire income will face needless uncertainty about the viability of its tax system and its potential exposure to onerous refund claims.”

In other words, an affirmation could cost local and state governments millions of dollars.

The loss shouldn't matter, according to Dominic Perella, a lawyer with Hogan Lovells who is representing the Wynnes. He said, about the case: “Maryland’s approach is unfair to people who make money in more than one state.”

US Supreme Court building, front elevation, steps and portico. (Photo credit: Wikipedia)

The question is big enough for the feds to weigh in. The Obama administration issued an amicus curiae brief in April of this year, supporting the petitioner’s position (downloads as a pdf). Amicus curiae is Latin (yes, more Latin) for “friend of the court” and describes an argument made by someone who is not a specific party to the proceedings but believes that the court’s decision may affect its interest. Under the Rules of the Supreme Court of the U.S., “An amicus curiae brief that brings to the attention of the Court relevant matter not already brought to its attention by the parties may be of considerable help to the Court. An amicus curiae brief that does not serve this purpose burdens the Court, and its filing is not favored.”

The feds argued in their brief that “though States often choose to grant tax credits to their residents for income taxes paid in other States, nothing in the Commerce Clause compels a State to offer such credits or otherwise defer to other States in the taxation of its own residents’ income.” Further, “[t]he decision… may lead to challenges to similar tax schemes in other jurisdictions; and is inconsistent with statements made by the highest courts in other States.”

The U.S. Supreme Court clearly agreed that this was a matter that needed to be resolved. Granting cert doesn't mean that the court believes that the petitioner is correct: the regular court rules apply. There will be arguments and more (!) briefs before the Court reaches a decision.

These matters do not move quickly: you shouldn't expect oral arguments on this matter until fall of this year. But expect plenty of speculation – and interest – before then.

Turn Your Vacation into a Tax Deduction

Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did--and was able to legally deduct every dime that he spent on his vacation. Here's how he did it.

1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the "prior set business purpose" required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.

Let's say Tim is a manufacturer of green office products and is looking to expand his business and distribute more of his products. One possible way to establish business contacts--if he doesn't already have them--is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

2. Make Sure your Trip is All "Business Travel."
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100 percent deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day's work and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don't need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Be sure to deduct all of your on-the-road-expenses for each day you're away.
For every day you are on business travel, you can deduct 100 percent of lodging, tips, car rentals, and 50 percent of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50 percent of this amount, or $25.

Tip: The IRS doesn't require receipts for travel expense under $75 per expense--except for lodging.

Example: If Tim pays $6 for drinks on the plane, $6.95 for breakfast, $12 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation includes amount, date, place of meeting, and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days count as business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities; otherwise, you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day, since it includes traveling - even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days' worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

Consult us before you plan your next trip. We'll show you the right way to legally deduct your vacation when you combine it with business. Bon Voyage!

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

What to Do if You Haven't Filed an Income Tax Return -

Filing a past due return may not be as difficult as you think.

Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual's circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.

Here's What to Do When Your Return Is Late

Gather Past Due Return Information

Gather return information and come see us. You should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.

Payment Options - Ways to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier's check, or cash.

Payment Options - For Those Who Can't Pay in Full

Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise.

Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.

• A short-term extension gives a taxpayer an additional 60 to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply. Generally taxpayers will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
  
• A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. Taxpayers who owe $25,000 or less in combined tax, penalties and interest can apply for, and receive immediate notification of approval through an IRS web-based application. Balances over $25,000 require taxpayers to complete a financial statement to determine the monthly payment amount for an installment plan.
  
  
  When it comes to paying your tax bill, it is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. You should pay as much as possible before entering into an installment agreement.
  
• You can also pay your Federal taxes using a major credit card or debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee.
  
• A user fee will also be charged if the installment agreement is approved. The fee, normally $120, is reduced to $52 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
  
  

What Happens If You Don't File a Past Due Return or Contact the IRS?

It's important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.

If you haven't filed a tax return yet, please contact us. We're here to help!

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

STS QuickBooks Tips - Spring-Clean Your QuickBooks Company File

Come spring time, most people are eager to throw open the doors and windows, and do some spring cleaning. It's a good time to "spring clean" QuickBooks as well.

It's not difficult to see when your home needs cleaning, but QuickBooks company file errors are harder to detect, including:

• Performance problems
• Inability to execute specific processes, like upgrading
• Occasional program crashes
• Missing data (accounts, names, etc.)
• Refusal to complete transactions, and
• Mistakes in reports.

Figure 1: If some transactions won't go through when you click one of the Save buttons--or worse, QuickBooks shuts down--you may have a corrupted company file. 

Call for Help

The best thing you can do if you notice problems like this cropping up in QuickBooks--especially if you're experiencing multiple ones--is to contact us. We understand the file structure of QuickBooks company data, and we have access to tools that you don't. We can analyze your file and take steps to correct the problem(s).

One of the reasons QuickBooks files get corrupt is simply because they grow too big. That' either a sign of your company's success or of a lack of periodic maintenance that you can do yourself. QuickBooks contains some built-in tools that you can run occasionally to minimize your file size.

One thing you can do on your own is to rid QuickBooks of old, unneeded data. The software contains a Condense Data utility that can do this automatically. But just because QuickBooks offers a tool doesn't mean that you should use it on your own.

Figure 2: Yes, QuickBooks allows you to use this tool on your own. But if you really want to preserve the integrity of your data, let us help. 

A Risky Utility

The program's documentation for this utility contains a list of warnings and preparation steps a mile long.

We recommend that you don't use this tool. Same goes for Verify Data and Rebuild Data in the Utilities menu. If you lose a significant amount of company data, you can also lose your company. It's happened to numerous businesses.

Be Proactive

Instead, start practicing good preventive medicine to keep your QuickBooks company file healthy. Once a month or so, perhaps at the same time you reconcile your bank accounts, do a manual check of your major Lists.

Run the Account Listing report (Lists | Chart of Accounts | Reports | Account Listing). Are all of your bank accounts still active? Do you see accounts that you no longer used or which duplicate each other? Don't try to "fix" the Chart of Accounts on your own. Let us help.

Figure 3: You might run this report periodically to see if it can be abbreviated. 

Be very careful here, but if there are Customers and Vendors that have been off your radar for a long time, consider removing them, but only once you're sure that your interaction with them is history. Same goes for Items and Jobs. Go through the other lists in this menu with a critical but conservative eye. If there's any doubt, leave them there.

A Few Alternatives

There are other options. Your copy of QuickBooks may be misbehaving because it's unable to handle the depth and complexity of your company. It may be time to upgrade. If you're using QuickBooks Pro, move up to Premier. And if Premier isn't cutting it anymore, consider QuickBooks Enterprise Solutions.

There's cost involved, of course, but you may already be losing money by losing time because of your version's limitations. All editions of QuickBooks look and work similarly, so that your learning curve will be minimal.

Also, try to minimize the number of open windows that are active in QuickBooks. That will improve your performance. And what about your hardware? Is it getting a little long in the tooth? At least consider adding memory, but PCs are cheap these days. If you're having problems with many of your applications, it may be time for an upgrade.

A Stitch in Time...

We've suggested many times here that you contact us for help with your spring cleanup. While that may seem self-serving, remember that it takes us a lot less time and money to take preventive steps with your QuickBooks company file than to troubleshoot a broken one.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701