Charitable Contributions Require Documention

Posted on November 4, 2015 by Kursti Nakagawa

Charitable Contributions Require Documentation

Although charitable contributions can amount to a significant tax savings, they can also have the negative affect of flagging a return from audit when they are claimed in excess or not reported according to preset IRS guidelines. A case in point is that of Kunkel versus United States Tax Commissioner. In this 2011 United States Tax Court case, the court disallowed over $37,000 in noncash contributions due to lack of substantiation. While the Kunkels maintained that the value of each donation was less than $250, the court questioned the total amount of the contributions. They pointed out that the total donation amount could have only been achieved by making almost 100 trips to various donation sites. In addition, the Kunkels had no dated receipts from any of the receiving charities giving either a value or description of the property being donated.

In order to avoid a situation such as the one described above, it is important to follow the guidelines set by the Internal Revenue Service for reporting charitable contributions. According to these guidelines, increasingly strict documentation requirements are imposed on charitable donations above or below the following preset thresholds:

 Contributions of less than $250

Contributions of less than $250 require 1) the name and location of the charitable organization to which the donation is being made, 2) the date the donation is made and 3) a description of the property being donated. Although it is advisable to get a receipt from the organization to which the donation is being made, this is not required.

 Contributions in excess of $250

In addition to the documentation required for contributions of less than $250, those in excess of $250 must have a written receipt from the charitable organization to which the contribution is made. In addition to a description of the donated property, the receipt must include a good faith estimate of the property’s value as well as a statement indicating whether any goods or services were given in exchange for the contribution.

 Contributions in excess of $500

Charitable donations in excess of $500 require 1) a specific description of the property being donated, 2) the date the property was acquired, 3) the cost basis of the property, 4) the fair market value of the property at the time the donation is made and 5) a statement of the method used to calculate fair market value.

 Contributions in excess of $5000

In addition to all of the documentation required for donations in excess of $500, charitable contributions in excess of $5000 require a qualified appraisal.

With the end of the calendar year fast aproaching, now is as good a time as any to review the IRS guidelines for documenting charitable contributions. Although the IRS sometimes allows charitable deductions even when the reporting taxpayer lacks the required documentation, there is no good reason to take a chance on this being the case. It is better to be safe than sorry! Charitable contributions can amount to a significant savings of tax dollars but proper reporting is essential.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Franchise Tax Board Assessment Stopped

Posted on August 26, 2015 by Kursti Nakagawa

Franchise Tax Board Assessment Stopped

Just one month after finalizing an Offer in Compromise with the Internal Revenue Service, Mr. C contacted Professional Tax Resolution with another tax settlement issue. Having successfully settled his federal income tax debt for less than 20% of the initial amount owed, he now needed our services to help with resolving an outstanding tax liability with the State of California. Just prior to contacting our firm for the second time, he had received and official notice from the California Franchise Tax Board informing him that he owed a back tax amount of 80K for tax year 2005. This amount included both penalties and interest that had been compounding over time.

Mr. C was both confused and upset when he received the tax delinquency notice from the California Franchise Tax Board. Having just settled his federal tax debt for this same year, he was taken by surprise when he received a notice from the state informing him that he still had an outstanding tax liability with them. A member of our staff quickly reviewed the notice and realized the assessment was based on the results of IRS audit. After ruling out the possibilities of fighting the audit based on proof of expenses or of submitting an Offer in Compromise proposal with the state, our staff decided to match the state’s assessment to the Internal Revenue Service transcripts. It was this match that provided the solution to Mr. C’s back tax issue with the California Franchise Tax Board.

We quickly came to realize the Franchise Tax Board was over-assessing Mr. C. Not only was their assessment based on a higher income then the IRS transcripts reported, but it incorrectly included taxes on income that was produced outside the state. In response, our professionals quickly prepared a letter of protest informing the Franchise Tax Board of the amount of income that was not produced in California and recalculating the tax amount based on the IRS transcripts. After one month and a close review of our protest, the Franchise Tax Board recalculated their assessment based on the correct income amount and came to the conclusion that our client did not owe any additional tax. The end result was that the case was settled and closed with the most favorable outcome possible. Not only did M. C walk away without paying one dime in back taxes, but the Franchise Tax Board actually owed him money!

Tax Fraud Brings Serious Consequences

Posted on July 15, 2015 by Kursti Nakagawa

Tax Fraud

Tax Fraud Brings Serious Consequences

It turns out that tax fraud brings serious consequences as evidenced by the sentencing, earlier this year, of Rashia Wilson to 21 years in prison for multiple counts of aggravated identity theft and wire fraud. Ms. Wilson, otherwise known as the “Tax Fraud Queen,” was originally convicted and sentenced in 2013 when she plead guilty to stealing over $3 million dollars in a tax refund scam. Her original sentence, which was thrown out on appeal in 2014 due to errors in applying sentencing guidelines, was reinstated earlier this year.

From April of 2009 through September of 2012, Rashia Wilson and several accomplices were successful in carrying out a scheme that defrauded the federal government of approximately $3.1 million in tax revenue. They did this by obtaining personal information from medical billing records and financial statements and using this to generate fraudulent tax returns without the knowledge or permission of the taxpayers whose information was being used. Once the returns were filed, they collected the tax refunds in the form of U.S. Treasury checks and prepaid debit cards. This scheme continued successfully for over three years and four tax seasons until investigators finally cracked the case in the fall of 2012. Throughout most of this time, Wilson bragged about her tax crimes on various social media sites and taunted the IRS, saying that they would not be able to indict her. In her own words, she proclaimed, “I’m Rashia,the queen of IRS tax fraud … So if you think indicting me will be easy, it won’t.”

The filing of false tax returns as Ms. Wilson and her accomplices did is treated very harshly by the legal system. While failing to file a return is considered a misdemeanor, the filing of a fraudulent return is a felony and is typically given a much more severe consequence. Although the national average sentence for identity theft is 43 months, the sentencing judge handed down a much longer sentence in the case of Rashia Wilson. U.S. As U.S. District Judge James Moody Jr. said at her sentencing hearing, “She knew she was doing wrong (and) … reveled in the fact that is was wrong.” He cited a formula that takes into account the seriousness of the offenses as well as the defendant’s prior criminal convictions as the reason for her harsh sentence.

In response to the case of Rashia Wilson and others like it, the IRS has stepped up its efforts to combat identity theft as well as other types of tax fraud. As recently as this week the Financial Crimes Enforcement Network issued a Geographic Targeting Order requiring check cashing companies in two Florida counties to verify the identification of any person cashing a federal income tax refund check. These types of restrictions are aimed at identifying and stopping tax fraud schemes such as the one described above.

The Tax Extension Option

Posted on April 12, 2015 by Kursti Nakagawa

The Tax Extension Option

Tax Extension is a Very Good Option!

You are not alone if you do not file your tax return on or before April 15th. Although this is the official deadline for the filing of personal tax returns, each year more and more people apply for an automatic six-month tax extension. The number of taxpayers requesting an extension increased from 11 million in 2011 to over 13 million in 2013, an increase of almost 20% over the two-year period! Another interesting fact is that, in tax year 2014, 25% of those individuals who had requested and extension were still working on their tax returns in September, just one month before the October 15^th extension deadline.

Although procrastination is one reason for requesting a tax extension, there are other factors that contribute to tax returns not getting filed by the April 15^th filing deadline. Several of those are highlighted below:

Lacking Necessary Tax Information
Although the deadline for the mailing of brokerage statements is February 15^th, the information these statements contain may not be correct. These initial statements often say that changes may be coming. The mailing of corrected 1099s can actually occur right up until April 15^th which does not give the taxpayer enough time to complete the tax return before the filing deadline.

Missing Required Tax Forms
If a taxpayer holds investments that are structured as partnerships, they must wait for the K-1 Forms that are based on partnership income. These partnerships must first finish their own tax returns which can be extended until September 15^th before these forms are generated. This means that partnership K-1 Forms could be in the hands of taxpayers as late as the month preceding the extension deadline.

Increased Complexity of Tax Code
The increased complexity of the tax code has made tax returns more and more difficult to complete which, in turn, has made it harder to get them submitted by the April 15^th tax filing deadline. In addition to the introduction of such changes as the net investment income tax, two different dividend tax rates and the alternative minimum tax, taxpayers must now report all overseas holdings. All of these changes require increased tax preparation time for certain categories of taxpayers which, in turn, has resulted in an increase in the number of requests for tax extensions.

Although filing a request for a tax extension does not relieve a taxpayer of the obligation to pay any taxes owed, it is definitely a better option than filing an incorrect or incomplete return. As long as the request for a tax extension is either e-filed or postmarked before the end of the day on April 15^th, it will allow the requesting taxpayer to avoid the late filing penalty which usually amounts to 5% of any unpaid tax balance for any month or partial month that the return is late. In addition, it will give the requesting individual six full months to submit a complete and correct tax return.

IRS Becoming Aggressive About Offshore Tax Evasion

Posted on February 8, 2015 by Kursti Nakagawa

IRS/ Offshore Bank Accounts

IRS Becoming Aggressive About Offshore Tax Evasion One problem the IRS has to tackle is that of United States taxpayers who dodge paying taxes by placing their funds in offshore accounts and then failing to report them. In the last several years, the IRS has made it clear that this is breaking the law and that taxpayer’s who are caught hiding foreign assets may face penalties, fines and even criminal prosecution. “It’s a bad bet to hide money and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”

The IRS has recently become more aggressive in finding taxpayers who are hiding their money in offshore accounts. In 2009, they started the Offshore Voluntary Disclosure Program. This program allows United States citizens who have foreign bank accounts to voluntarily disclose the accounts to the IRS and, in return, be assessed lowered penalties and avoid criminal prosecution. Since the inception of this program, the IRS has collected over seven billion dollars in back taxes and penalties from offshore accounts. They have also issued rules under the Foreign Account Tax Compliance Act mandating foreign financial institutions to inform them of any accounts held by United States citizens.

As part of their ongoing attempt to combat offshore tax evasion, the IRS has set aside a page on its website devoted to this issue. The page, entitled “Abusive Offshore Tax Avoidance Schemes” explains the laws governing the reporting of foreign income as well as outlining some of the legitimate offshore activities. It also highlights some of the institutions and activities that are in the IRS radar as far as avoiding foreign taxes are concerned.Some of those include:

Private banking (U.S. and offshore)
Personal investment companies
Captive insurance companies
International Business Companies (IBCs)
Foreign (offshore) partnerships, LLCs and LLPs
Foreign trusts
Foreign corporations
Offshore private annuities
Captive insurance companies
Offshore bank accounts and credit cards
Related-party loans

In summary, the IRS is constantly on the lookout for schemes designed to avoid paying taxes on income from assets held in offshore accounts. They claim that, to date, they have audited thousands of offshore back accounts. In the process, they have collected billions of dollars in restitution and initiated numerous criminal investigations. The long and short of this issue is that failing to report income and assets held in foreign accounts is not a wise move in light of the recent IRS crackdown! If you have questions about the reporting of assets held in foreign accounts or about a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your situation free of charge. (https://allproshadeconcepts.com/) For more information about our services, call us today at 877.889.6527 or visit us at www.professionaltaxresolution.com. With over 16 years in the business of resolving tax problems, we have a thorough understanding of both domestic and foreign tax law tax together with the experience to know how to apply that knowledge to your specific financial situation.[/tab] [/tabcontent] [/tabs]