IRS Increasing Investigations of Preparers of Fraudulent Tax Returns

According to the IRS, the service is stepping up the investigations of fraudulent preparers. Unfortunately for taxpayers, they are often unaware of the intent of the preparers, and generally just happy that they have received a refund. But, with that comes risk. The taxpayer will still have the tax liability, penalties, and interest to pay, causing great financial burden for the taxpayer.

According to the IRS, return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits, or excessive exemptions on returns prepared for their clients. Abusive preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.

The IRS has found that these preparers derive financial benefit from a number of ways, including diverting a portion of the refund for their own benefit; charging inflated fees for the return preparation services; and increasing their clientele by advertising guaranteed larger refunds.

The following are signs of a fraudulent preparer:

           • Claims to be able to obtain larger refunds than other preparers;
           • Fee is based on a percentage of the refund obtained, and:
           • Refusal to sign the return or provide the taxpayer with a signed copy of the return.

The IRS reminds us, “Taxpayers need to keep in mind that they are ultimately responsible for their tax return.” The IRS recommends following these tips when hiring a preparer:

           • Get referrals from satisfied clients (hint: the amount of the refund should not be a factor – a high
                    refund return does not indicate it was prepared properly);
          • Ask the preparer about their training, experience, and current knowledge of tax law;
          • Find out if the preparer can represent taxpayers in an audit. Only Certified Public Accountants,
                    Enrolled Agents, and lawyers are authorized to represent taxpayers in front of the IRS;
          • Consider whether the individual or the firm will be around to answer questions about the
                    preparation of the tax return months or even years after the return has been filed;
          • Always review the return before signing, ask questions on entries you don’t understand, and get a
                    copy of the return for your records;
          • Never sign a blank tax form or one completed in pencil.


Anyone who suspects tax fraud or knows of an abusive tax preparer should fill out Form 3949-A
Form 3949-A

Head of Household When and You're Married?

How can that be right?? A person can claim "Head of Household" while married???

Odd as it may seem, it is quite true. But it's not as simple as just being married. The married taxpayers need to be legally separated AND not have lived together for the last six months out of the tax year. The household must be the principal home of the child(ren). The person claiming Head of Household must furnish over half of the cost of maintaining the household.

The spouse who files head of household may also use the full standard deduction, even if the other spouse itemizes deductions (or vice versa). If you are legally separated, be sure to let your tax preparer know of your status.

Is Your Business Getting the Most out of it's Meals & Entertainment Expense?

We all know that entertaining such people as clients and suppliers, and even employees, can be crucial to the survival of a business. And, we've had no choice but to grudgingly accept the 50% deducitbility of such expenses. However, there is a chance you may be deducting 50% on meals that are completely, 100% deductible.

There are certain instances where meals provided to employees are actually 100% deductible. To take advantage of the 100% deduction of meals for employeess, your company will have to adjust your chart of accounts to accomodate for meals that are 50% deductible and meals that are 100% deducitble.

Here are the meal & entertainment expenses that are 100% deductible:

• Expenses (including the cost of related facilities) for recreational, social, or similar activites (e.g. Christmas party) that are primarily for the benefit of employees that are not highly compensated;
• Expenses directly related to business meetings of employees, stockholders, or directors;
• Expenses included in an employee's moving expenses that are paid or reimbursed by the employer;
• Expenses for on-site meals that an employer provides to an employee for the convenience of the employer (e.g. bank tellers or medical staff that don't have time to leave the premises for a meal). Note that the meals must be furnished on the employer's business premises;
• Expenses for meals that are excludable from an employee's gross income as a "de minimis" fringe benefit.

A "de minimis" fringe benefit is defined as "any property of service the value of which, after taking into account the frequency with which the employer provides similar fringes, is so small as to make accounting for it unreasonable or administratively impractical." Examples would be coffee, soft drinks, or snacks that an employer provides.

Taking advantage of these tax laws could result in an immediate tax savings for you and your company.  Be sure to educate the proper employees as to what constitutes a 50% vs. 100% deducitble meal. If you think any of this circumstances apply to your company, it may be worth the time to review last year's expenses.

Is Printing Your Own Cash the Answer?

Some communities are taking matters into their own hands during these financial times. While it's an interesting concept, I wouldn't be rushing out printing your own currency!

Struggling Towns Printing Their Own Cash

While this may be a fun gimmick for some restaurants and bars, or retailers, the bottom line is like losing at dominoes......  the loser is stuck with all the cash that can't be used any more.  While this may be the for innovation and reinvention, common sense does need to be a part of the equation!

The New College Tax Credit - There Are Big Changes!

With everyone tightening their belt these days and the air of uncertainty, it has becoming increasingly more difficult for parents to pay for their children's college education. The new American Opportunity Credit, which modifies the Hope Credit for 2009 and 2010, raises income phase-outs, the amount of the credit and adds required course materials as a qualified expense, helps to ease the burden.

One of the key features that really stands out is, that for the first time, the credit is partially a refundable credit. Previously, the credit was only available to the extent of your tax liability. For 2009 and 2010, 40% of the credit is refundable. With the maximum credit being $2,500, that means that up to $1,000 for each eligible student is refundable.

Other features of the credit are:

• Required course materials (such as books), also for the first time, qualify as an expense. 
• The maximum credit for each eligible student is $2,500. The credit is for 100% of the first $2,000 of qualified expenses, and 25% of the next $2,000. 
• The income phase out begins at $80,000 and completely out at $90,000 of modified adjusted gross income for single or head of household, and at $160,000 and $180,000 for taxpayers that are married filing joint.

Some of the things to watch for regarding the credit:

• Kiddie Tax - if the student has investment income that is, or may be, taxed at the parents rate are not eligible to have the credit refunded. The credit is available, but just not a refundable credit.
• If you file married filing separate, you cannot take the credit.
• And, it is not available for any student that has already completed their first four years of college. These students may still qualify for the Lifetime Learning Credit or the Tuition and Fees deduction.

If you would like further information, check out Publication 970.  Publication 970