What Records Every Taxpayer Needs to Keep

By Bonnie Lee
Published May 05, 2011, FOXBusiness.com

If you filed your taxes on time this year, it’s time to put away your tax file.

And while you may be looking at the cartons of tax records sitting in the garage and wondering if you can shred some of them, we live in an age of complexity so the answer is: it depends.

The IRS states that you must retain your tax returns for a minimum of three years, which is generally how long it has to audit a tax return. However, three years may not be long enough if you live in a state that levies an income tax. The window of opportunity for audit in most states is four years, so save your tax returns and all the supporting documents to prove your income and deductions for at least that length of time. This includes every bank statement for all your accounts.

The audit clock starts ticking after you file the tax return. For example, you may have filed your 2010 income tax return on April 18, 2011. You should keep a copy until 2014 to make the IRS happy and 2015 to keep the state happy. After that, you can destroy the file.

But wait…don’t roll out the shredder just yet.

The IRS says that if you underreported your income by 25% of the gross income shown on your tax return, you should keep that tax return for six years. It also says that if you have filed a fraudulent tax return you need to keep it forever (no joke). Perhaps you should have it mounted and framed.

But there are other reasons to keep a tax return and other supporting documentation including:

1. If you have a capital loss carry forward, you should keep the tax return on which the original loss was reported. Also keep the documentation that supports the original loss. Keep these documents up to four years after the loss has been used up.

2. If you sold rental real estate via a 1031 exchange you need to keep the tax returns and supporting documents until four years after the disposition of the final property in the exchange sequence.

3. If you sold your previous home before May 7, 1997, and deferred tax on the gain from the sale (rolled it into the basis of your new home) you should keep indefinitely, those escrow closing papers and a copy of IRS Form 2119, which establishes the basis of your new home.

4. If you have passive loss carry forwards, credit carry forwards, net operating loss carry forwards, – or any other type of carry forward, you will need to retain the tax return where the carry forward originated.

Other documents to keep:

1. Receipts for all major improvements made to your home for four years after the sale of your home. The cost of capital improvements is added to the basis of your home when determining if there is a taxable gain upon sale. Especially maintain records proving certification of any energy-efficient products for which you took an energy tax credit.

2. IRA contribution statements Form 5498, Form 1099-R, and IRS Form 8606, should be kept until you take the last distribution from your IRA.

3. Physician’s statement(s) stating you were permanently and totally disabled on the date of your retirement if you are taking the Credit for the Elderly or the Disabled.

4. Keep the last paystub of the year. Union dues, health insurance premiums, charitable contributions withheld from your pay may be deductible and in the event of audit you may need proof of payment.

5. Photographs may be an element necessary to your tax file to help prove certain deductions such as home office or casualty or theft losses.

You may need to keep records even longer for nontax purposes. Your creditors or insurance company may need the data supplied on certain transaction receipts. For example, you purchased the Hope diamond at auction. If it is stolen from you 10 years later, you may need the receipt to prove to the insurance company how much you paid for it.

For more information on record keeping, refer to IRS Publication 552.

Don’t Lose Your Tax Refund Because of Your Spouse’s Debt

By Bonnie Lee
Published March 17, 2011, FOXBusiness.com

“Injured Spouse” is an IRS term for the husband or wife who is forced to watch a tax refund fly out the window instead of into the bank because of debts or taxes owed by the other spouse.

The IRS and many state tax agencies have a habit of taking tax refunds to satisfy other debts, and if your filing status is married-filing joint, your well-earned income tax refund may be in jeopardy if you married someone who:

1. Owes back child support,

2. Is delinquent on student loan payments or other federal agency debts,

3. State income tax liabilities,

4. Repayment of overpaid unemployment benefits.

Instead of a refund check, you may receive a letter from the Treasury’s Financial Management Services Department [FMS] telling you the original refund amount, the amount taken and the agency who received your money. If you did not receive a letter or if you have questions about the offset, you can contact the FMS at 1-800-304-3107 or TDD 1-866-297-0157.

If you feel your tax refund is mostly your money, it would be unfair (even if you live in a community property state) for the funds to be applied to a debt that isn’t yours. What to do? First of all, you may want to change the exemptions you claim on your form W4 on file with your employer so that you will have a break-even situation rather than a refund that can be absconded at tax time. Use the worksheet on form W4 or speak with your tax pro to determine the number of exemptions you should claim to net either no refund or a small amount of tax due. This can result in a bigger paycheck and the knowledge that the government hasn’t had your money tax free all year.

A second option is to use married-filing-separate filing status. While this may not be beneficial for maximizing the refund you could receive, there are many good legal reasons for using this filing status. Check with your attorney and/or tax pro to determine if this will provide the best protection for you.

Right now, you may be looking at a refund situation for 2010 or prior years and wonder how you can guard your refund against the tax man. Well, there is help!

File form 8379 Injured Spouse Allocation with your tax return. Part 1 contains a series of questions that qualify you for using the form and Part II asks for the names and Social Security numbers of the two spouses in the order listed on the tax return. Check the box to indicate which spouse has been injured.

Part III is an allocation of income, adjustments to income, itemized or standard deduction, exemptions, other taxes (such as self-employment tax, tax on early withdrawal from a retirement plan, etc) and credits (except the Earned Income Tax Credit) between the spouses. Basically, the tax return data is split out to see who should get the lion’s share of the refund. The amount allocated to the spouse that owes the debt will be snatched to satisfy it. The remainder will be refunded to the now happy couple. If you file electronically the refund will be held up for about 11 weeks while the IRS processes it. If you are filing a paper copy, then write “INJURED SPOUSE” and highlight it in yellow at the top of page 1 of Form 1040. Make sure you also sign and date Form 8379 at the bottom of page 2. It will take approximately 14 weeks to get your refund from a paper-filed return.

If you’ve already filed your income tax return, you may file Form 8379 separately. Mail it to the IRS service center where you filed your original return. It takes approximately eight weeks for the IRS to process the separately filed form. And it may be too late to apply it to this year’s income tax refund. Do it anyway. And every year you file, be sure to include a new Form 8379 if you are expecting a refund.

Can’t Pay Your Taxes? How To Set up an Installment Agreement

By Bonnie Lee
Published February 17, 2011, FOXBusiness.com

If you owe current year taxes or liabilities from prior years, you may want to consider setting up an installment agreement with the IRS.

But know this: It’s a revolving payment arrangement and the interest and penalties that accompany the unpaid balance can be killers. Not only that, but there is a one-time user fee (currently $52 for direct debit agreements and $105 for non-direct debit agreements).

If you qualify as a low-income individual, the fee is $43, and if you default on the agreement, the IRS will charge you a $45 fee to reinstate the agreement and they may consider seizing your bank account or garnishing your wages.

Even if you set up an installment agreement, The IRS may still file a Notice of Federal Tax Lien to secure the government’s interest until you make your final payment. This could play havoc with your credit rating.

So if mom, dad, your BFF, the local loan shark, or your banker, is willing to cut you a deal to front the balance owing, take it. You will be better off.

If you owe for the current year only and need less than 120 days to come up with the money, don’t bother applying for an installment agreement. Simply pay what you can with the tax return.Then over the course of the next several months, continue paying off the balance. During the first six months of delinquency, your account is handled by Simon, a giant IRS computer, which generates letters requesting then demanding payment. Simon is nothing to fear.

A real person at the IRS will not be assigned to your account until you have fallen very far behind. It varies of how long the IRS waits until they send someone a callin;’ I’ve seen the IRS loom like predators over some taxpayers and ignore others for years and years.

All that said, if you are still interested in setting up an installment agreement, the process can be fairly easy. If you owe less than $25,000, go to www.irs.gov and complete Form 9465. If you propose a monthly payment amount that will satisfy the debt within a three-year period, your request will likely be accepted automatically.

If the debt is your current year liability, attach the Form 9465 to the front of your tax return. To limit interest and penalties, send as much money as possible with the tax return. Make sure you indicate the tax year and your Social Security number on the memo line of the check.

There are other ways to request an installment agreement. To set up a plan online go to www.irs.gov and from the pull down menu, select “I need to set up a payment plan.” Or call the phone number on the most recent collection letter and set up one over the phone.

I normally recommend you low ball the proposed monthly payment. This will give you some leeway if you experience a lean month and you can always pay extra each month. Just don’t try paying any less than what you propose or you will hear from them.

7 Tips for Negotiating With The IRS

By Bonnie Lee
Published January 27, 201, FOXBusiness.com

From time to time every taxpayer will have to go head to toe with the IRS. Whether you are setting up an installment agreement, facing the auditor from hell, resolving a misunderstanding, or dealing with collectors on the phone or worse yet, on your doorstep, you would be well advised to heed the following suggestions.

1. You get more flies with honey. Dealing with bureaucracy can be very frustrating, but park your bad attitude and anger at the door. Take a deep breath, demonstrate a cooperative attitude, and proceed in an orderly fashion to resolving your issue. In my 28 years of dealing with the IRS, I have found that most IRS personnel are compassionate humans that bend over backward to find ways to resolve issues and help taxpayers. Of course you are going to run into that power-hungry, condescending, surly agent from time to time, but if you do, you can always trade up to a more understanding and respectful model by asking for the manager.

2.Use IRS lingo. When you use IRS lingo the agent you are speaking with will find you knowledgeable and may treat you with a little more respect. Here is some verbiage you may find useful:

Ask for penalties to be “abated” rather than removed. Tell them, if it’s the case, that your failure to (pay or file or comply with a document request) was due to “reasonable cause.” Use this term if you didn’t just flake and have a good reason, which could include such things as unemployment, losing your records, losing your home, health problems, etc.

If you can’t pay a tax bill because you are suffering financial reversals, you can ask to be deemed “currently not collectible.” If you are granted this status, they will leave you alone for an entire year while you get it together.

If you feel a spouse or former spouse should be responsible for a tax matter, ask to be treated as an “innocent spouse.” There are certain criteria to this status; do some research or discuss the issues with your tax pro.

If defending business deductions during an audit, the term “ordinary and necessary” business expense will help–but only if that’s really the case.

3. Don’t talk too much. IRS agents are trained to draw as much information from you as possible. Answer questions truthfully, but keep your answers short, succinct and to the point. There is no need to elaborate or discuss your personal life or disclose too much. This will only lead to misunderstandings and maybe even investigations.

4. Always tell the truth. Lies have a way of uncovering themselves. Once you are caught in a lie, you will always be suspect. And when you are suspect, you lose the cooperation you would normally receive. Don’t hide assets, don’t run for cover. There are many ways to resolve tax problems using a straightforward and honest approach. Lies may lead to jail time.

5. Only make promises you can keep. This is especially true when it comes to paying your liability. If an IRS agent asks you if you can pay $200 per month on a tax balance and you know you can only afford $100, tell him so. Indicate that you will try to pay extra when you can, but you are not going to set yourself up for failure by promising more than you are able. Throw that in with the fact, (if it’s the case), that you have always timely filed and paid liabilities in the past and now you need a break. Note that this will not work if their analysis of your financial situation indicates you can pay more.

6. Go to them before they come at you. If you are unable to keep a promise you make, tell the IRS immediately. The agency is usually so happy with the cooperation it will likely grant you the extensions you need. The collections department notes your file whenever you or your representative calls.

7. Stop the Interview. If at any time during an audit or a phone conversation you feel intimidated, disrespected, or out of your depth, simply say so and end the interview. Tell the IRS that you will be seeking representation and will get back with them soon. This will give you a chance to take a deep breath and discuss the matter with your tax pro. If you felt disrespected, you can always request a different auditor. Or if it was a matter of a surly customer service rep you were speaking with on the phone, you can hang up and call again in hopes of getting someone kinder or a little more understanding.

IRS Tax Levies: What You Need To Know

William Freudenthal owed the IRS some money. Quite a bit of money, actually – just over $16,000. And Freudenthal hadn’t been exactly timely about paying his tax obligation. He’d ignored notice after notice from the IRS. Finally, the IRS took action. They were going to seize some of Freudenthal’s assets – namely his classic 1965 Chevy Chevelle – to settle the debt.

This was not news that Freudenthal took well. His wife wasn’t exactly thrilled, either, and as you can imagine, the couple had an argument. Events escalated tragically, and Freudenthal struck his wife. The blow killed her.

Now, William Freudenthal is in prison. His wife is dead and his life is wrecked – and the real tragedy here is that the situation was completely avoidable. It didn’t have to end that way. Freudenthal, like every other American taxpayer, was entitled to the protections and procedures that are built into the tax code.

What is a Tax Levy?

A tax levy is the procedure the IRS uses to get money from taxpayers after they’ve exhausted every other avenue available to them. If you won’t voluntarily turn over the money to pay your tax obligation, the IRS will come and get it.

Let’s say you have some outstanding tax debt on the books – taxes that you were supposed to pay, but just didn’t, for whatever reason. The IRS will send you several notices, reminding you that you need to pay your taxes. If it remains unpaid, the IRS will eventually send you a Final Notice of Intent To Levy. This is your final warning to pay your taxes. If you don’t, the IRS is going to seize some of your assets to settle the debt.

What Type of Assets Can The IRS Seize?

The IRS has been given a great deal of latitude in their mission to collect revenue for the government. They can seize many different types of assets, including money from your bank account, real estate, vehicles, or personal property. The IRS can also garnish your paycheck, taking their share of your earnings before you even see it! This is known as a wage levy.

What Should You Do If You Receive A Final Notice of Intent To Levy From The IRS?

If you have received a Final Notice of Intent to Levy from the IRS, you have 30 days to respond. During those thirty days, the best thing you can do is find an expert tax problem solver. You are entitled to file a Collection Due Process Appeal in response to the Final Notice of Intent to Levy. However, it must be filed within 30 days of the date of the Final Notice. This appeal stops the IRS collections process and sends your case to the IRS Appeals Office. At that point, your tax accountant will work with the IRS to find a reasonable solution to your tax problems.

What If More Than 30 Days Have Gone By?

If it’s been more than 30 days since you received the Final Notice of Intent to Levy from the IRS, don’t despair! You still have options. With the assistance of your tax accountant, you can still file a Collection Due Process Appeal. At this point, the IRS collection efforts don’t stop automatically. However, your tax accountant will be working with the IRS to prevent the seizure of your assets.

If a levy has already happened, you still have options. A Collection Appeal, also known as a CAP, can be filed. In order to release the levy, you will have to meet certain conditions. Your tax accountant will let you know what these are, but they generally include filing any outstanding or unfiled tax returns, and submitting a Collection Information Statement along with a proposal of how you plan to resolve your outstanding tax debts. This could include an Installment Agreement, being placed as Currently Uncollectable Status, settling through an Offer In Compromise, or additional time to raise the funds to full pay the outstanding tax liabilities.

What Type of Resolution Can There Be For My Tax Problems?

The IRS has a single goal. They are mandated to collect as much tax revenue as possible, and they are becoming more diligent about this mission with every passing day. However, an experienced tax professional can often work with the IRS to find a resolution you can live with – and that stops the IRS from seizing your bank accounts, property, or classic cars!
Installment Agreements are a common resolution, as are Offers In Compromise to settle the tax debt for a fraction of the original amount owed. If you have to full pay your outstanding tax liabilities, a great tax problem solver will work to see if there is reasonable cause to abate any interest and penalties, which can save you thousands of dollars.

Solving Your Tax Problems

William Freudenthal learned the hard way that the one thing you don’t want to do in this situation is ignore the IRS. The IRS moves slowly, but it doesn’t stop – once they have you in their sights, they’re going to pursue you until the tax debt is settled. Having an expert tax problem solver on your side can help you get the debt resolved and the threats of levies and seizures behind you. Don’t lose everything. Get help for your tax problems!

American Tax Relief Shut Down by Federal Trade Commision

American Tax Relief Shut Down by Federal Trade Commision

TAX MASTERS NO HELP FOR TAX PROBLEMS – ABC NEWS

ABC News expose on Tax Masters

Sharon & Ozzy Osbourne Owe Back Taxes

By Josh Board • Mon, Apr 11th, 2011
Sandiego.com

With tax day around the corner, no better time then now to have a story about the latest singer to run into tax problems. Ozzy and Sharon Osbourne could lose their US home if they don’t pay the $2 million tax debt on it.

They’re one of the wealthiest couples in the UK, and aside from Ozzy’s music career, Sharon has had success with the Osbourne’s reality show, being a judge on the X Factor and America’s Got Talent, and now a panelist on The Talk. Sharon was also the first of the Osbourne clan to run into tax problems, when in 2009 she was slapped with a $23,000 tax bill to the State of California for payments going back to 2007.

TMZ has reported that daughter Kelly was hit with a tax lien of $34,000 last month.

Over the last few years, Ozzy and Sharon have accumulated a bit of debt. Documents filed by tax authorities state that “John” and Sharon Osbourne, ‘self-employed’, owe $718,948 in tax from 2008, and $1,024,175 from 2009.

Sharon did what most celebrities would do in this situation. She fired off a message on Twitter last Saturday. It said: You can’t rely on anyone but yourself. You have to be on top of your own business affairs. My fault. Lesson learned.

The most famous tax problem celebrity is Willie Nelson, who was hit with a $16.7 million tax bill in 1990. That stemmed from him not paying taxes between ’78 and ’82, and owing $6.5 mil. An additional $10.2 million was tacked on in penalties and interest. The IRS froze his accounts and auctioned off items in his personal position. Many of his fans bought those items, only to return them back to Nelson. Eventually, the IRS claimed Nelson owed $30 million, but that they’d settle for $17 million. This got Nelson poking fun of that in various commercials, and even releasing the album IRS Tapes: Who’ll Buy My Memories?

Releasing a record like that was nothing new. Marvin Gaye released an album called Here, My Dear, when he owed money on alimony payments.

When John Cleese played Spreckels Theatre here in 2009, he was calling it The Alimony Tour. His third wife got a $13 million divorce settlement, and he had to pay her a million a year in alimony. Perhaps he should’ve known better before marrying wife #3, but the comedic actor and Monty Python member does have a law degree – and is smart enough never to have run afoul of the IRS.

The Isley Brothers lead singer Ronald declared bankruptcy in 1997 after the IRS seized his property, including a yacht. He’s currently serving a 37-month sentence for tax evasion and failing to file a tax return.

Mr. Vegas, Wayne Newton, filed for bankruptcy in the early ‘90s with $20 million of debt. He got back into financial trouble in 2005, when the IRS claimed he owed them almost $2 million in back taxes.

Another singer that had a big Vegas show – Toni Braxton – filed for Chapter 7 a second time, late last year. She had well over $10 million in unpaid debts to numerous creditors, one of which was the IRS.

Wesley Snipes was recently given a sentence for years of failure to pay taxes. What a lot of people don’t realize is, the IRS is really good about working on payment plans with people, and the interest isn’t outrageous. Snipes was given jail time for continuing to run afoul of the tax laws. He made $40 million since 1999 (thanks mostly to the Blade films) and between 1999 and 2004, he never filed taxes. In 2006, he even tried to get a $7 million refund.

What a lot of people don’t realize is, if you don’t file, the IRS does a Substitute ForReturn for you. This doesn’t work so well for the rich and famous, as the IRS isn’t writing off all the things those folks probably would for deductions.

These days the IRS has more sophisticated resources and incentives (hundreds of billions owed to the federal government) for tracking down non-filers.

I’m guessing the Osbourne’s are in no real danger of losing anything they own. The IRS would have no problem believing they could pay back anything they owe from future earnings, and wouldn’t make them sell houses or personal items, the way David Crosby had to sell a yacht for a million bucks when he ran into financial problems.

Ozzy’s son Jack Osbourne has a production company (Jacko Productions) that has a documentary on Ozzy that is supposed to hit the theatres later this year. One of the things covered is all the craziness his dad was involved in over the years. We assume Jack has learned from the things that almost killed his father, and made him the punchline to many jokes.

Let’s hope Jack doesn’t also follow in the family footsteps and run into problems with the IRS in the future. Let’s also hope Ozzy doesn’t bite the head off an IRS agent.

Webster, Mass., man charged with killing wife shortly after IRS agents seized car for taxes

THE ASSOCIATED PRESS
March 23, 2011

DUDLEY, Mass. — A Webster man charged with killing his wife about an hour after two IRS agents seized their car for nonpayment of taxes has been ordered held without bail.

William Freudenthal (FROY’-den-thal) pleaded not guilty to second-degree murder Wednesday in Dudley District Court.

Worcester District Attorney Joseph Early Jr. says police responded to the 50-year-old Freudenthal’s home Tuesday when he became angry at the IRS agents.

Police returned less than an hour later after getting two 911 hang-up calls from the home. Officers found Jennifer Freudenthal on the bathroom floor with head and neck injuries. She was pronounced dead at a hospital.

William Freudenthal’s lawyer called the death an accident.

Police say they have gone to the home several times for alleged domestic violence incidents.

Lots of Big Stars Are in Big Trouble With the Tax Man

By Lindsay Carlton
Published March 21, 2011|FoxNews.com

March 26, 2010: Al Pacino poses for a portrait in Beverly Hills, Calif.
Despite their high-priced tax attorneys and mega-millions, big stars can find themselves in big trouble come tax time.

Take Hollywood director Martin Scorsese. He was recently nailed with a $2.85 million bill for unpaid taxes. Scorsese was charged for past-due tax and related interest penalties. Although Scorsese’s spokeswoman Leslee Dart says the entire amount is now paid in full and that he has no current IRS debts, sources say the Oscar-winning director’s tax woes are due to his dealings with celebrity accountant Kenneth Starr. Starr was jailed for seven and a half years for a $33 million ponzi scheme, and has duped other superstars in his corrupt plots. He scammed Hollywood heavyweights such as Uma Thurman, Lauren Bacall and Al Pacino, to name a few.

Pacino allegedly failed to pay taxes for two years, a bill for $169,143 in 2008 and $19,140 in 2009, totaling $188,283. Anyone who would stiff this “Godfather” star out of $200,000 might be sleeping with the fishes too, but luckily for Al Pacino, the IRS doesn’t handle their business the same way the mob does. Pacino poured the blame on Starr, his business manager and close friend for years. The money hungry financier apparently used a lot of his fraudulent earnings to play sugar-daddy to his younger wife, ex-pole dancer Diane Passage, who enjoyed a lavish lifestyle. “Managers can be very helpful, but many are not skilled in the area of tax planning and some are outright greedy when given control of celebrities finance,” said Ray Lucia, a certified financial planner.

A spokesperson for Pacino said the “Scarface” actor is working to resolve the situation as soon as possible with a new financial manager.

Another Hollywood cash cow who skipped his IRS bill is Jennifer Lopez’s husband, Marc Anthony. The Latin crooner owes $3.4 million for unpaid taxes on his Long Island mansion. Anthony has a history of running from the tax man. In 2007 he failed to pay taxes on his $15 million income over a five-year-period and ended up paying $2.5 million in back taxes. One might assume that such a power couple would have a better handle on their finances, but some tax attorneys aren’t surprised. “They live in a world where everyone gives them more and more leeway and slack — and they slowly develop an attitude of being above it all,” said Doug Burns, a federal prosecutor who has prosecuted dozens of tax fraud cases.

One pop star even sang a song about paying bills, the aptly titled “Bills Bills Bills,” but then forgot to fork up the cash herself. Former Destiny’s Child singer Kelly Rowland owes $98,634 in back taxes. The government filed a lien against her on Nov. 8, according to the Detroit News. The songstress hasn’t had much success since splitting from the Beyonce Knowles-led girl group. She also recently parted ways with her long-time manager and Beyonce’s father, Matthew Knowles. “Celebs who are attending to other details in their lives may brush taxes aside for later, but by then it’s too late,” said CelebTV.com host Kelli Zink.

“Survivor” winner Richard Hatch has had his fair share of tax trouble. The reality star spent three years in jail for failing to pay taxes on the $1 million prize money he won on the hit show. Hatch is heading back to the slammer for not settling a tax bill that is now reportedly up to $2 million. Hatch is currently starring in Donald Trump’s “Celebrity Apprentice” show. Although the episodes of the series have already been filmed, he will miss the live finale in May while he finishes his sentence behind bars. Along with his prison term, Hatch will remain under supervision for 26 months, and 25 percent of his wages will be garnished to pay back the IRS.

Joe Francis, founder of “Girls Gone Wild,” also spent some time behind bars for his tax tribulations and says the IRS targets celebrities every year around tax day. To avoid glitches in your taxes, Francis recommends Hollywood newcomers hire reputable business managers and get references from their other clients. “Good financial managers are helpful, ones like Bernie Madoff are awful. I was young, I was making a lot of money,” Francis said. “You trust people like lawyers and accountants. I didn’t even sign my own tax return. I didn’t even question it.”