The IRS Audit Blog

Archive for May, 2008

Question: Income tax preparer messed up, why did the irs penalize me for her stupidity??

In 2002 when I filed my taxes I went to a local “home business” that was run by a woman out of the basement of her house. In previous years I had only received about $200 to $500 back in income tax checks. Nothing had changed as far as my employment for the 2001 tax year.
When I went to this lady, she told me that because I was paying on a student loan, the irs owed me $1000 back. Althought I had never heard of this before, I figured she knew what she was talking about and went along with it. I got a check back for about $1700 for that tax year.
Two years later the irs made me pay back that extra $1000 plus intrest because I had filed for too much money. I was angry.
What I don’t understand is why didn’t the irs go after this woman who filed the taxes? Her name and address was on the papers. Several of my friends who filed with her had the same problem and had to pay the irs back as well.

Answer: You have learned a valuable lesson. It would be better for you to go to a tax preparer that offers a peace of mind guarantee that if your taxes are incorrect the preparer would go to an audit and remedy the errors.

I-64 Accident Slows Traffic in Cabell County

An accident Sunday afternoon on Interstate 64 has traffic backed-up.

IRS’d Bloopers

Community Calendar

Franklin Park Herald-Journal with news of Northlake welcomes items for the Community Calendar as well as items for Business Briefs, Campus News, Community Briefs, School Digest and Newsmakers. Items must be received a minimum of 14 days prior to publication, but earlier is better.

Should you fund a start-up with retirement money?

With the growing ranks of unemployed, there is an increase in people looking to finance new businesses using 401(k) retirement funds.

Estate Planning : What Happens if an IRA or 401k is Payable to the Estate Trust?

Question: Help with W9 form?

i am filling out a form W 9 and i need some help, How do i know what option do i pick….please help me

1) am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup witholding as a result of a failure to re port all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup witholding, and I am a U.S. person (including a U.S. resident alien).

2)I am subject to backup witholding, and I am a U.S. person (including a U.S. resident alien).

Answer: Normally it would be 1, unless you owe back taxes or have been notified by the IRS that withholding is required due to tax owed or underwithholding in the past.

There is another selection about whether to select to exempt it from withholding. If you would owe tax on the 1099 income anyway, you might as well let them withhold unless it is a small amount or you have it covered by other withholding. Default withholding can vary from 10% to 28% depending what income source (20% from eligible retirement rollover).

There may be an underwithholding penalty (with a few exceptions) if you owe $1000 more tax than any withholding at the end of each quarter (see Form 1040-ES). And check any withholding or estimated tax laws for your state.

UBS Client Wins Case on Transfer of Tax Data to U.S. (Update2)

Jan. 22 (Bloomberg) — A UBS AG account holder won a Swiss court case preventing data from being disclosed in a ruling that may impede a U.S. crackdown on overseas tax evasion.

mi niña bonita

Question: Can an LLC file for a tax ID as a sole proprietor?

I filed as an LLC even though it’s only me working at my business. My friend (who is a lawyer) told me I could get taxed as a sole proprietor anyway, but when I went to file for the number on irs.gov it said:

A sole proprietorship is a business that has only one owner and is not incorporated or registered with the state as a limited liability company (LLC). A sole proprietor can be a self-employed individual or an independent contractor. Sole proprietors (self-employed individuals) report all business income and expenses on their individual tax returns (Form 1040, U.S. Individual Income Tax Return, Schedule C, E, or F). A sole proprietor may or may not have employees.

I’m confused! Is there a way to be taxed as a sole proprietor since I have no employees, even though I filed as an LLC?

Answer: The answer to your question is “Yes”. It is possible to be taxed as a sole proprietor even though you have no employees and are doing business as a LLC.

First, it is not necessary to have employees in order to be a sole proprietor. If you are engaged in a business (meaning you have earned income that is not subject to withholding as an employee), and you are not operating the business as a legal entity such as a corporation or LLC, then the tax law says that you are a sole proprietor.

A sole proprietorship is not a LLC, but in some cases, a LLC can be treated as a sole proprietorship for tax purposes. The IRS explanation was simply defining a sole proprietorship by saying it not a legal entity like a corporation or LLC.

A U.S. based single owner LLC is disregarded by the tax laws, which means that any business income will be reported on Form 1040, Schedule C if the owner is an individual. That’s the same schedule that is used by a sole proprietor. Investment income will be reported on the tax return of the LLC owner the same as if the LLC did not exist. For all other purposes, the LLC is a legal entity with an identity separate from its owner.

If an LLC has more than one member, it will be treated as a partnership for U.S. tax purposes. For those who have an LLC in another country, the U.S. tax law will treat it as a foreign corporation unless the owner makes an election to treat the foreign LLC as a disregarded entity (one owner) or as a foreign partnership (multiple owners).

Tax assistance program available

The IRS Volunteer Income Tax Assistance program is available once again, beginning at 9 a.m. on Saturdays starting this week through March 27 at the Leavenworth Public Library.

Tax Tips from the IRS – PIN to be required for electronic filing