The IRS Audit Blog

Archive for November, 2009

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Question: The Specter Of An IRS Audit?

If a woman inadvertently mischaracterized a 401k withdrawal on her 2004 return as a rollover (rather than its actual use — home purchase), and the amount ($20k) was more than 25% of her income:

1. What are the chances the error will be detected if it has not been detected thus far?

2. Is the statute of limitations 6 years from the date the 2004 return was filed?

3. At this point, is there a legal duty to correct the innocent mistake?

Merci.

Answer: 1. The IRS has a habit of waiting until the last minute–just before the limitations period for assessment expires–before opening an audit. But in your case, the initial statute of limitations has passed (see below). So I don’t think it’s likely you would get a letter now.

2. The statute of limitations is three years from the date the return is filed or April 15, whichever is later. HOWEVER, there is a 6-year statute of limitations on assessment of amounts at least 20% of the taxable income on the return. The amount–25% of the income–may not be more than 20% of the TAX she had to report. So it’s impossible to tell without having more detail whether the 3-year period or the 6-year period would apply.

There is NO statute of limitations on fraud. But if she (you) didn’t know of the error at the time you filed the return, then there was no fraud.

3. There is no legal duty to correct an innocent mistake. But the question is, Is it worth the risk of not correcting the mistake, considering all the penalties and interest that come along with it? At this point–after the 3 years is up, but before the 6 years is up–you alreaday would have accrued a lot of interest and penalties, so not too much of a risk.

Retain important records and cut the clutter

As you gather the papers necessary for this year’s tax return preparation, you may be wondering what records you need…

Offer in Compromise | IRS Tax Debt Relief

Question: Post Office Notification of Address Change?

I changed my address with the post office a few months ago. I put in forwarding from my old address to the new one.

All of the sudden, lots of people have my new address that I did not give it to. Not that my mail is being forward, but it is actually coming directly to the new address, before I have called these people to give them the address. For example, my bank changed my address without me giving it to them.

I just called the IRS to give them my new address for my stimulus check, and somehow they already had it in their computer system.

Does putting in an address change with the post office automatically pass on that info to other people? I am just a little bit confused, and concerned about my privacy.

My guess is that these agencies somehow contacted the Post Office and asked them for my new address, but I don’t know how that stuff works.

Thanks!

Answer: Your address is public information to begin with; it is published in the phone book. It’s not unlikely that the post office shares changes of address or that your bank (among other entities) requests notification from the USPS in the event that one of their clients changes address. If you are alarmed, you can try to un-list, but there is a plethora of information about you that is public information for anyone to know, your address is the least of your problems.

MGIC Investment Corporation Reports Second Quarter 2010 Results

MGIC Investment Corporation today reported net income for the quarter ended June 30, 2010 of $24.6 million, compared with a net loss of $339.8 million for the same quarter a year ago.

Michael Minns – IRS Busted on Tax Code – Part 5

Question: A few tax-related questions for the US?

Hello, I cannot find this information anywhere, not even on the IRS website.

1) Which specific types of financial documents and related paperwork do I have to keep in order to complete my tax return? What can I safely throw away?

2) Besides wages, salary, commissions, fees, tips, bonuses, interest, dividends from investments, what other forms of income are taxable?

Thanks!

Answer: 1. anything that is needed to verify your income and deductions.
2. ALL income is taxable.
The only exception is if you are selling a previously purchased item – you sale if for more than you purchased it for = Officially, that needs to be taxed. If you sold it for less than you purchased it for = that is not taxable.

Newsday union asks members to vote on “horrible and unprecedented” contract terms

Attached please find the tentative agreement for the editorial unit, a proposed contract that now awaits the membership’s ratification. Union officials are all quite upset that provisions of the proposed contract include deep cuts in benefits and salaries.

Tips from the IRS-Unemployment Compensation

Question: PLEASE, HOW DO WE ACCESS IRS INCOME TAX FORM 1040A FROM THE IRS, NOT **xxxooo, CURSES?

Hi out there in ask.com. we have been struggling all morning to simply [print out] IRS Form 1040A and we are going every where but there! Maybe we’re just dumb! thanks, counsel_relationships@yahoo.com. Please throw us a life line, somebody!!

Answer: Your computer needs to support pdf files (which most do anymore). If so, simply click: http://www.irs.gov/pub/irs-pdf/f1040a.pdf

Colleges offer free tax preperation for low-, moderate-income residents

Filling out 1040EZ, 1040A or the basic 1040 forms can be taxing.

How to Complete and File a 1040A Tax Form : 1040A Education Credit Tips

Question: OUTRAGE over unfair IRS rule re: changing ownership on my annuity?

I sat down today to start my taxes, and opened an envelope from The Hartford about my annuity. It was a 1099 showing an $8500. distribution, with a 3,000. + tax liability! And, ONLY because in June 2008 I changed the joint owner from one person to a different person. The phone rep. pointed out, that in the fine print I signed, it says, “this change MAY be a tax liabiltiy.” Nothing ever mentioned to me on phone when I made general inquiry about changing joint owner.

Is there anyyyyyyyyyy way around this? I know $3500. may not be big bucks to a lot of people, but, at 67 years old, and on a fixed income, it has literally made me sick to my stomach all afternoon. Any knowledgeable input will be appreciated. Thanks.

Answer: Dear Bill: Sounds like your issue is with “Hartford”. IRS rules are set in stone and there is no wriggle room with them.

This type of transaction generally can not be completed on the phone but requires a signature, because of issues like this. Sounds like they have adopted a CYA attitude.

Do you have a personal rep with “Hartford”? Did you make this change due to some family hardship or other possible event that would possibly lessen a penality?

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent Master Tax Advisor

Financially Speaking: Factors to consider before buying an annuity

Out of concern that millions of Americans are not saving enough for retirement, President Obama has proposed increased tax credits for retirement savings, and he wants to require all employers to provide retirement savings plans to their employees. He…

Poor on Paper