How Does The IRS Contact People


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One of the recent IRS Summertime Tax Tips is a good reference tool – ‘How Does The IRS Contact People?”  The tip tells you when an IRS agent or revenue officer may visit your home or business, initiate contact via telephone as well as send correspondence.  The IRS does not start conversations via text or social media (new tax scams have been trying this).

Also, any payments made for taxes must be made to the United States Treasury and do not involve purchasing prepaid credit/gift cards.

The article also recommends asking for credentials and other resources you can look up.

In this day of online scams coupled with spoofed phone numbers, you can never be too safe!

Please check out this Summertime Tax Tip.

Please feel free to leave me your thoughts:

Cheers!

Thomas C. Hodge
Founder

Hodge Group LLC
3943 N. Austin Avenue
Chicago, IL 60634

773.237.6369

Over Reporting Your Income? IRS May Find Out And There Could Be Consequences.


Just read an interesting Tax Court opinion (Cadet, TC Summ. OP. 2015-39) about over reported income.  The taxpayer, who was called ‘a low income filer with very little count_moneywage income’, claimed a profit from a side-business of $17k from selling items at a flea market.  The taxpayer would have been paid $2,100 in self-employment tax, but the extra income would have resulted in about $8,000 total from the child tax credit plus an increased earned income credit.

Normally a tax return is first reviewed by the IRS computer system and, if needed, by reviewers.  In this case, the computers noted the ‘excessive’ income based on the taxpayer’s history and the computers froze the return.  During a review, the taxpayer couldn’t substantiate most of the profit (not enough deposits into bank accounts I’m guessing) so the IRS only allowed what was substantiated and only gave $700 in tax credits.

What’s interesting to me is I’ve  heard of the IRS computers looking for under reported income, but not over reported income.

alimony-iStock_with gavelSomething that wasn’t mentioned is if the IRS charged the taxpayer a civil penalty (usually $5,000) for filing a frivolous tax return – in my mind, it would have been warranted!  That’s the main penalty for filing a false return.

Kudos to the IRS for catching this.  We normally hear about cases of the IRS not catching false tax returns so good to hear a positive case.

 

Cheers!

Thomas C. Hodge, CPA
President

Hodge Group LLC
3943 N Austin Avenue

Chicago, IL  60634

773.237.6369

www.thehodgegroup.com

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Got an IRS notice? Here’s what you should do.


The IRS recently released advice on what you should do if you get a notice from them.  Some good advice 7K0A0079there and recommend reading it, as well as my client handout on the same topic (feel free to download & share!)

If you do get an IRS notice (or one from your state or other taxing body) feel free to contact me through the form below.

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
4118 N. Western Avenue
Chicago, IL 60618

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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Trouble reaching the Wage Levy unit at IL. Dept. of Revenue?


Often, I need to reach out to the government (state, federal, and local) to determine what is happening on a particular tax case.  In case you’re having trouble reaching the Wage Levy unit, here’s what I found out:  it may be easier to go directly to their offices if you don’t have an agent assigned to the case.

It seems the wage levy unit is very understaffed and has a ton of cases per worker (seems like a lot of tax agencies are that way) but this group has particular problems, including only 1 fax machine for an entire floor!  Also, cases may be given to a higher level manager first, and then given to someone else so you may not have a correct contact.  In addition, voice mail wasn’t an option with the person I tried to call (I was told in person that ‘we’d get hundred of messages a day’).

In my case, my client hadn’t filed a few years of tax returns, and had a wage levy on two of the non-filed years.  Normally (and in this case), this is due to the IDR getting a copy of a W2 from thIMG_0925e IRS and then seeing if the tax return is in their (IDR) system.  If not, the IDR will issue notices to the taxpayer asking for their return, and if no return is filed within a certain time, the IDR will file an estimated return for the taxpayer (IRS also does this).  However, the filing always assumes the taxpayer is single, no dependents and no deductions so the estimated tax is almost always higher than the actual return.  Also, the W2 copy the IDR gets from the IRS does not have state withholding so the estimated tax return gives no credit for withholding.  Add in the interest and penalties, and you get a big tax bill.

Also, my client had moved and I’m guessing the IDR had the old address and mail didn’t get to the taxpayer and there were no copies of correspondence in the taxpayer’s file (and it was a well documented file).

The IDR wage levy paperwork (copy was given by taxpayer’s employer) had a contact name (or so I thought) on the form, so I did the usual – get Power of Attorney (POA) from taxpayer, attempt to fax a copy to IDR representative, and then call.  This is where it got interesting – the 3 times I attempted to fax to the Chicago-area fax number, the fax didn’t go through and I got an error stating the recipient’s machine had an error.  Ended up calling the problem resolution division in Springfield, IL and the rep there said I could fax a copy to her to enter into the main computer system but she couldn’t help me on the case since there was a rep already assigned.

By this time, I’d called the Chicago rep’s phone at least a half-dozen times over the course of about two IMG_1277weeks and it was busy every single time and never went to voice mail.  I asked the Springfield rep if this was the correct number, and it was.  So, I kept trying, including calling in off hours and on the weekend, and the phone never got picked up and never went to voice mail.  So, long story short – I couldn’t reach the rep listed on the case either via phone or fax.

Decided to go directly to the offices in downtown Chicago and told the receptionist about my case.  She was very pleasant and told me the case wasn’t assigned to anyone and the person who’s name was on the paperwork was a group manager.

Receptionist went in back & came out saying to have a seat and someone would be with me IMG_1012shortly and about 15 – 20 minutes later, two stern faced women came out, sat behind a counter of chairs and asked me to come over.  Neither would introduce themselves (that was odd! and eventually I was told all I needed to do to resolve the case was to fax copies of taxpayer’s W2 forms.

Before leaving, I asked the women how I could get in touch with anyone within the unit – blank stares were exchanged before one suggested fax (please realize that IDR uses e-mail!).  I mentioned the trouble faxing and I7K0A0079 was told, ‘there’s only one fax machine for the whole floor’ [REALLY? – you’ve got to be kidding me, but according to someone else I talked to, that’s the truth!]

I again asked what they’d recommend and the only reply was, ‘well, you can come in again’.  I asked about email and they said that was only when an agent was assigned.

So, if you’re having trouble reaching the Wage Levy unit, I recommend going into their offices – security can be a pain but there wasn’t a long line and I did get the info I needed to release the wage levy (and that was done within 24 hours of faxing the W2 forms).  If you don’t have an agent assigned to the case, not sure what else to try but would love to hear anything you’ve done on your cases.  Please send any ideas, thoughts or comments below:

 

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
4118 N. Western Avenue
Chicago, IL 60618

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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Think Setting Up A New Company Will Eliminate A Tax Debt? Think Again!


I’m dealing with something I’ve not seen in a long time – a potential “Successor of Interest” case.  This is where a company that owes taxes is ‘closed’ and a new one opened in the same field, using the same equipment (or assets) and by the same people or related parties.  A potential client who was recently referred to me tried to do this.

What can happen in this instance is the IRS (or another taxing agency if it’s not Federal Tax) can file a Successor of Interest lawsuit stating the first company was closed simply to avoid paying taxes and go after the new company (“Successor Company”).  The IRS’ success rate in these cases is about 90% as it is fairly easy to follow the trail of assets (especially when there is no bill of sale of said assets from the original company to the Successor Company).  I’ve heard of a case like this where the IRS simply went to the Successor Company and seized the assets (essentially putting them out of business) to pay for the old tax debt.

You may ask, “What if the assets are sold for $1?”.  Then the IRS (and/or the Tax Court) would determine if that is considered an arms-length transaction (fair-market value).  If it is determined the sale price is below the market value then the sale could be invalidated or the ‘deemed amount’ increased to what the IRS/Tax Court decides.  A sale not at fair-market value would not stop the lawsuit.

As you can imagine, the costs of this type of lawsuit can be staggering, both in terms of money and time.  Plus the IRS can (and probably would) put liens or levies on assets, including bank accounts making the situation that much harder.

The best way to resolve a case like this (aside from not closing the first company & setting up the Successor Company!) is to set up a payment plan for the old debt, pay that down over time and keep current with the tax debt on the Successor Company.  Since the original company is ‘closed’, then you can’t offer to pay a lessor amount under these circumstances so the full amount of taxes owed would need to be paid, plus interest & penalties as those accrue.  If the original company is still in operation, then you can possibly negotiate your debt down through an Offer in Compromise – another reason not to close the original company!

You simply can’t close a company & assume the tax debt is forgiven – the IRS and other taxing agencies have ways to get to funds/assets that should have been used to pay the debt.  Highly recommend anyone thinking of trying this potential tactic talk to their accountant and/or attorney before going this route.

Do you have questions on this (or another tax relief issue)?  Please contact me through the form below.

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
3040 N. Menard Avenue
Chicago, IL 60634

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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Alimony on your tax return? IRS may be looking at it


 

The IRS has announced areas that will be given extra scrutiny and one area is alimony (both paid and received).  My opinion is the updated IRS computer systems are able to match information between personal returns, like they have been able to with payroll info (W2, 1099 or 1098 forms, etc.).  With this cross-checking of info, discrepancies, such as alimony paid or received would be easier to spot and track.

 

Alimony (sometimes called spousal support) is a payment from one person to another for the maintenance (i.e. living expenses) of the recipient.  By law, alimony is income to the recipient, and a deduction to the payer.  The payer reports the amount of alimony as a deduction to their Total Income to arrive at Adjusted Gross Income (bottom third on the first page on form 1040 – shown below).  The recipient reports the money on line 11 on the form 1040 (Alimony Received).

 

Alimony on tax return

 

Please note this does NOT have anything to do with child support – those payments (for the benefit of any child or children) are not taxable to the recipient nor a deduction for the payer.

 

alimony-iStock_with gavel

So, why the need for extra scrutiny?  Conjecture is the IRS looked at the amount of money claimed by the payer and compared it to the amount claimed by the recipient, and discovered enough discrepancies to warrant extra attention.  I’ve heard of people who’ve accidentally claimed the child support as alimony, and also people who intentionally overstate their payments (payer) or don’t report alimony as income (recipient).  In addition, since individuals are generally calendar year basis taxpayers, if there was a delay in getting a payment between December & January, that could cause a variance.  Whatever the reason, there must be enough of a difference to have the IRS name alimony out as an item to investigate.

 

In the past, I’ve had a client audited who paid alimony, and I brought a copy of divorce decree, year-end pay stub (showing monies being withheld by his employer) and a record from his employer showing payments made to his ex-spouse.  This was more than enough to prove his side – if the IRS looked at the return of the ex-spouse, I have no idea.

 

If you find a letter from the IRS asking for information on alimony, it will probably be a correspondence audit where the IRS is requesting additional information.  Don’t ignore it – try to send the IRS whatever information they ask for.  If you have questions, be sure to contact your tax professional for advice.

 

If you have any questions or comments, including suggestions for other tax topics, please leave them in the contact form below.

 

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
3040 N. Menard Avenue
Chicago, IL 60634

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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An IRS Examination Exposes Past Tax Mistakes For A Couple


When I bring a client to an IRS hearing/examination, I always advise the following:

  1. Be polite & respectful
  2. Dress well and look good – no torn jeans, t-shirts, etc.  Suit & tie not required but look tasteful
  3. No overwhelming perfumes or colognes – usually meetings are in a small room or cubicle
  4. Bring water or something to drink – IRS offices tend to be warm & dry
  5. Answer questions directly and stay on topic
  6. Don’t tell stories unless giving background information

The latter 2 items should have been told to one couple who talked too much during an examination.  According to a Tax Court case (Cohen, District Court, N.Y.), a couple’s return was being examined for a particular tax year and hubby was chatting away & mentioned a home sale in the year prior to the audited year.

The couple claimed the home sale was tax free because of the home sale exclusion for principal (primary) residences.

Married taxpayers can exclude up to $500,000 in gains on the sale of a primary residence as long as:

  • They filed a joint return for the year the residence was sold
  • Either spouse owned the home for at least 2 years in the prior 5 years before the date the home was sold (ownership test)
  • Both spouses used the home as their primary residence for at least 2 years in the prior 5 years prior to date of sale (usage test)
  • Neither spouse took the $500,000 exclusion within 2 years prior to the date of sale

For individuals, the same basic tests apply as a sole owner, but the exclusion amount is $250,000.

Going back to the couple in question, even though the prior year wasn’t in question during the audit, the IRS agent decided to expand the audit to cover the prior year.  The agent found out the home was actually rented out to their son and his family for a few years and the couple didn’t actually live in the home and the “usage test” noted above was not satisfieIMG_1012d.

The IRS then issued a correction notice, and the couple appealed stating the IRS shouldn’t have audited that year since that wasn’t in question during the review.  However, the District Court in New York sided with the IRS, and the couple had to pay over $150,000 in tax, penalties and interest.  OUCH!!!

So, remember to only answer what is asked during an IRS examination!

 

Please leave any questions or comments in the form below:

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
3040 N. Menard Avenue
Chicago, IL 60634

773.237.6369

www.thehodgegroup.com

Best Tax Preparers Website

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