Deadline To File A Tax Return Approaching

by Kenneth Hoffman in ,


It’s time to have a second look at income tax returns that were filed for possible amended income tax returns. Corporate taxpayers who filed extensions have until September 15th to file their returns, while personal returns are due on or before October 15th.

If you have questions about your completed but unfiled tax return, I can answer your questions. See our Tax Review Service.

I am also available to prepare your tax return.

K.R. Hoffman & Co., LLC, counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how we can help you overcome your tax and business challenges. For more information or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday from 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.


You're Fired!

by Kenneth Hoffman in , ,


Nobody really likes paying taxes. Sometimes, even the folks who work for the IRS resent paying the taxes that go towards funding their own salaries. Usually they just grumble about it and then go on with their day. But sometimes they try a little "self help." So now let's look at what one auditor did when she wanted to minimize her taxes.

Jacynthia Quinn spent 20 years as an IRS auditor in El Monte, California. The IRS audited her and her husband for 2006 (when she claimed $23,549 in charitable deductions and $22,217 in medical expenses) and 2007 (when she claimed $24,567 in charitable deductions and $25,325 in medical expenses). The Service disallowed those charitable and medical deductions, among other writeoffs, and the case wound up in Tax Court.

You'd think an IRS auditor would be the first to know how to avoid an audit! So, how did Quinn do on the other end of the hot seat? Well, let's look at those charitable contributions first:

"Petitioner proffered 'receipts' purportedly confirming charitable contributions. They were inconsistent and unreliable. Representatives from seven different charitable organizations credibly testified that the receipts were altered or fabricated. For example, petitioner offered a receipt purportedly substantiating $12,500 of charitable contributions to a religious organization. The purported receipt, however, identified individuals other than the couple as the donors. The organization's records did not reflect any contributions made by the couple and confirmed that the other identified individuals had contributed $12,500."

Uh oh. That doesn't sound good. Bad enough if one donor testifies your receipts are faked. But seven? How about those medical deductions? Any better luck there?

"Petitioner similarly failed to substantiate the claimed medical and dental expenses. Some of her documentation also suffered from authenticity problems and appeared to have been 'doctored.' Petitioner offered three documents purportedly issued by Dr. Christopher Ajigbotafe or his staff confirming more than $9,000 in medical expenses for Mr. Quinn. Each document, however, spelled the doctor's last name differently ('Ajigohotafe,' 'Ajibotafe' and 'Ajigbotafe'). One 'statement' was dated in January 2006 and estimated expenses for the upcoming year. The amount of expenses for 2007 contained in another 'statement' was contradicted by a letter purportedly from the doctor's staff."

Keep in mind here that Quinn is an IRS auditor, with 20 years of training and experience auditing exactly these sorts of deductions! Naturally, the Tax Court didn't show her a lot of sympathy -- they sided with the IRS on every issue and even smacked her with a civil fraud penalty. In fact, the IRS Restructuring and Reform Act of 1998 requires the IRS to fire any employee who willfully understates their federal tax liability (unless they can show the understatement is due to "reasonable cause" and not "willful neglect"). Since Quinn's own "excuse" is on a par with the dog eating her homework, she's likely to lose her job as well.

It's certainly entertaining to read about cases like Jacynthia Quinn's. It's satisfying to see a cheater get her comeuppance. And it's great to see the IRS enforcing the same rules for its own employees as it does for us. But there's a valuable lesson here, even for the majority of us who don't cheat. Dotting the "i's" and crossing the "t's" is important for everyone. That's why we don't just outline strategies and concepts to help you pay less tax. We work with you to implement those strategies and document them to survive scrutiny. And remember, we're here for your family, friends, and colleagues too!

K.R. Hoffman & Co., LLC, counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how we can help you overcome your tax and business challenges. For more information or to become a client, call me at (954) 591-8290 TODAY or drop me a note.

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing.

 


Oregon Allows for Medical Marijuana Deduction

by Kenneth Hoffman in ,


The Oregonian and the Huffington Post are reporting that Oregon is allowing a tax deduction for the costs associated with medical marijuana.

"Medical marijuana gets treated just like any other prescription drug,"

Currently, medical marijuana is not approved for a federal income tax deduction. See IRS Publication 502 for more information on what qualifies as a medical deduction for federal tax purposes.

K.R. Hoffman & Co., LLC, counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how we can help you overcome your tax and business challenges. For more information or to become a client, call me at (954) 591-8290 TODAY or drop me a note.


It Pays To Hire A Tax Professional

by Kenneth Hoffman in ,


In Bilal Salahuddin et ux. (T.C. Memo. 2012-141) the taxpayers owed outstanding Federal income tax liabilities for tax years 2004, 2005, and 2006.

The IRS issued them a levy notice to collect those unpaid liabilities. The taxpayers requested a collection due process (CDP) hearing before IRS Appeals pursuant to Sec. 6330, during which they sought an installment agreement. They submitted a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, without supporting documentation. The taxpayer did not use a tax professional to assist them.

An Appeals team manager informed the taxpayers that the IRS's Philadelphia Service Center had calculated their acceptable amount for an installment agreement to be $900 to $1,000 monthly and advised them that their prior submission would be "sufficient". Without further communication with the taxpayers, the Appeals settlement officer closed the CDP hearing and sustained the proposed levy on the ground that the taxpayers had not provided sufficient financial information and that their ability to pay exceeded the proposed $900 to $1,000 per month.

The taxpayers filed a timely petition for review of that determination with the Tax Court, and the IRS moved for summary judgment. The Court held there was a genuine issue of material fact as to whether Appeals, having advised the taxpayers that their submission was "sufficient", abused its discretion in terminating the CDP hearing and rejecting their proposal for an installment agreement, rather than soliciting a satisfactory substitute proposal. The Court denied the IRS's motion for summary judgment.

If the taxpayers had consulted with a tax professional, the taxpayers may have saved themselves a lot of money, time and aggravation. A qualified tax professional would have ensured that the 433-A was properly completed and with the required documentation.  When the IRS said they wanted $900-$1000 per month, a tax professional could have invoked the "One Year Rule" as outlined in the Internal Revenue Manual, to force the IRS to accept payments the taxpayers could have afforded.  KR Hoffman & Co., LLC is that tax professional. Call us at 954.591-8290 to see how we can assist you.

K.R. Hoffman & Co., LLC, counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how we can help you overcome your tax and business challenges. For more information or to become a client, call me at (954) 591-8290 TODAY or drop me a note.


Proper Recordkeeping and Tax Deductions Go Hand in Hand

by Kenneth Hoffman in , , ,


Recordkeeping is critical to securing a deduction. In Gabriel S. Garcia et ux. (T.C. Memo. 2012-139) the taxpayer operated two businesses that provided services to other entities.

The taxpayer paid various workers wages or contract labor expenses. Some of the payments were made by check and some of the payments were in cash. The taxpayer did not maintain complete books and records of the wages or contract labor payments he made during 2007 or 2008. Some, but not all, of the payments were reported to the IRS and to the workers as wages, and some were reported as nonemployee compensation.

Some, but not all, of the workers reported the income received from the taxpayer on their tax returns. Some of the workers provided to the taxpayer incorrect or illegible Social Security numbers. For 2007, the taxpayers reported on their tax return $356,581 as wage and contract labor expenses. The taxpayer was able to substantiate wage and contract labor expenses of only $230,291.

The IRS allowed a deduction $230,291 for 2007. For 2008, the taxpayers reported on their tax return $283,613 as wage and contract labor expenses but could substantiate expenses of only $157,190. The IRS allowed a deduction $157,190 for 2008.

The taxpayers' returns were prepared by his brother, who was not an accountant. The returns claimed erroneous, overstated or unsubstantiated deductions other than the ones for wages or contract labor. While the taxpayer testified he paid the amounts claimed, his testimony was not corroborated by any witnesses and he could not explain how he derived the amounts deducted on his tax returns in the absence of records, and his brother, who prepared the returns, did not testify.

The Court noted the taxpayer did not have any time records or other evidence from which we could estimate the amounts that he paid without substantiating documents. He did not identify any sources for cash payments to workers. The Court noted that it could have made an estimate of the expenses, but noted it could do so only when the taxpayer provides evidence sufficient to establish a rational basis upon which the estimate can be made. Without such evidence, the Court would not make an estimate. It allowed no more than the IRS allowed.

If you have any questions about this topic, tax law changes, have questions about your business, or want to become a client, please call us at 954-591-8290 or use our Contact form.


Charitable Contributions Substantiation and Disclosure Requirements

by Kenneth Hoffman in , ,


A recent summary opinion by the United States Tax Court highlights the importance of following the substantiation and record-keeping rules that the federal tax code has put in place for charitable contribution deductions. It is imperative that churches and other religious organizations do their part to comply with these requirements to ensure that their church members are eligible to receive charitable contribution deductions for their gifts and tithes.

In Gomez v. Comm’r, (T.C. Summary Op. 2008-93, 2008) a husband and wife contributed a total of $6,548.27 to their local Texas church. The taxpayers made the donations by writing 20 separate checks. Ten of the checks were each for an amount over $250. The IRS challenged the deductions related to the ten donations over $250 by arguing that the petitioners failed to meet the substantiation requirements imposed by section 170(f)(8) of the Internal Revenue Code (the “Code”).

Specifically, section 170(f)(8)(A) of the Code disallows a charitable contribution deduction of $250 or more unless the church member substantiates the contribution by a “contemporaneous written acknowledgment.” The acknowledgment must come from the church and must include the following information: (i) the amount of cash and a description (but not value) of any property other than cash contributed by the church member to the church; (ii) whether the church provided any goods or services in consideration, in whole or in part, for anything the church member contributed; and (iii) a description and good faith estimate of the value of any goods or services provided by the church, or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. To be “contemporaneous,” a church must provide the written acknowledgment on or before the earlier of: (i) the date on which the church member files a return for the taxable year in which the contribution was made; or (ii) the due date, including extensions, for filing the return.

Because their church did not provide the Gomez family with a contemporaneous acknowledgement, the Tax Court denied them a deduction for any of the contributions that were for $250 or more. The Tax Court determined that a letter from the church written almost three years after the contributions did not meet the federal tax law requirements for a “contemporaneous” acknowledgment. The court was careful to note that even though it was clear that the Gomez family wrote checks for tithes to their church, and the cancelled checks for these tithes were “reliable,” the failure to meet the necessary substantiation requirements required the court to disallow the claimed charitable contribution deductions for checks equal to or greater than $250. (The IRS allowed the Gomez family to deduct eight other checks that were less than $250, and the court acknowledged that this was the appropriate result with respect to those checks.)

The Tax Court again reiterated that a taxpayer cannot deduct a charitable contribution without complying with the § 170(f)(8)(A) substantiation requirements. Durden v. Commissioner, T.C. Memo. 2012-140 (May 17, 2012).

Mr. & Mrs. Durden contributed $22,517 to their church in 2007. Although the church provided them with a timely statement acknoweldging the $22,517 contribution, it did not state whether they had received any goods or services as required by § 170(f)(8)(A) (the “first acknowledgment”). After being notified by the IRS of this deficiency, the Durdens obtained another statement from the church acknowledging the $22,517 contribution and stating that they received no goods or services (the “second acknowedgment”)..

The Tax Court accepted the IRS’s position that both acknowledgments failed § 170(f)(8)(A): (1) the first acknowledgment did not include the required goods or services statement; and (2) the second acknowledgment was not contemporaneous within the meaning of Reg. § 1.170A-13(f)(2) because it was not received by the Durdens before they filed their 2007 return.

The issue considered by the Tax Court in Gomez is inherent in the context of church-plate offerings. Thus, it is important that both donee churches, as well as their tithing members, are aware of the recordkeeping requirements for charitable contribution deductions. In this regard, churches and other religious organizations should consider the following:

  • Churches should encourage church members to make donations using checks rather than cash. A cancelled check provides the tithing member with an appropriate “bank record” to substantiate the donation and makes it easier for the church to track and record each donation for purposes of preparing a written contemporaneous acknowledgement.
  • For church members making cash contributions, churches should provide an envelope for a donor to fill out his or her name and the date and amount of the contribution. The church can then use this envelope for providing a written communication to the church member that the member can use to meet his or her recordkeeping requirements.
  • Churches should keep ongoing records of the amounts received from each church member and update those records each week. See the IRS Publication 1771 Charitable Contributions: Substantiation and Disclosure Requirements.
  • As soon as possible after the close of each calendar year, churches should send a letter containing the following information to each tithing church member: (i) the amount of each contribution of cash (whether made in currency or by check); (ii) a statement explaining whether the church provided any goods or services in consideration, in whole or in part, for anything the church member contributed; and (iii) a description and good faith estimate of the value of any goods or services provided by the church, or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. Delay in sending out this letter could result in a tithing member being unable to deduct his or her tithes on his or her federal income tax return.

If your church or religious organization has additional questions concerning these or other substantiation and recordkeeping requirements for charitable contribution deductions, please contact us at 954-591-8290 or use our Contact form.


Is That 1099-C Correct?

by Kenneth Hoffman in ,


In McCormack v. IRS, T.C.  Memo 2009-239, the Tax Court ruled that the IRS cannot rely on merely the fact that a Form  1099-C has been issued by a creditor, when the taxpayer has  made a good faith dispute of the amount due and owing, and there is then  a settlement reached between the parties to that dispute. 

The IRS must  do more than rely on the amounts set forth in the Form 1099-C.  Under  IRC Section 6201(d), in any court proceeding, if a taxpayer asserts a  reasonable dispute with respect to any item of income reported on an  information return and has fully cooperated with the IRS, the burden is  then on the IRS to produce reasonable and probative information  concerning a deficiency, in addition to the amount identified on the  information return. 

In the case, the taxpayers asserted reasonable  disputes as to the amounts reflected on Forms 1099-C, and the IRS failed  to produce reasonable and probative information independent of the  third party information returns.

While not at issue in the McCormack case, taxpayers need to know that there is a provision in the tax law  providing taxpayers with the right to be protected against the  fraudulent issuance of information returns.  Under Internal Revenue Code Section 7434 of the  Internal Revenue Code, civil damages can be assessed if any person  "willfully files a fraudulent information return with respect to  payments purported to be made to any other person."  Damages recoverable  are equal to the greater of $5,000 or the sum of any actual damages  sustained by the taxpayer as the proximate result of the fraudulent  information return, including any costs attributable to resolving the  deficiencies asserted as a result of such filing, plus the costs of the  action, and in the court's discretion, reasonable attorney's fees

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance with minimal tax liability.

Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

If you found this article helpful, I invite you to leave a commit and  please share it on twitter, facebook or your favorite social media site and  with your friends, family and colleagues. Thank you. 


Tax Return Review

by Kenneth Hoffman in


Worried about red flags? Not sure where that item goes on your tax return? Can I deduct this? Want a second opinion? Let Kenneth Hoffman review the tax return you prepared, or a tax return prepared by another firm.

Please contact me or call me at 954.591.8290 to schedule your Tax Return Review.

Once your Tax Return Review is scheduled, you will confirm and reserve this date by paying for the package.

Details about the Tax Return Review are:

  • A pre-review phone call with Kenneth Hoffman to discuss your general tax situation and to identify any areas of concern.
  • A copy of my Tax Info Checklist to assist you in compiling your tax documents.
  • Review of your federal and state tax return for possible mistakes and missed opportunities.
  • A written list of recommend changes.
  • A post-review phone call with Kenneth Hoffman to discuss the recommended changes. 
The fee for the Tax Review Package is $149.95, payable in advance.

After consulting with Kenneth Hoffman, if you would like him to file an  amended tax return, or to professionally prepare your tax return, the Tax Review Fee will be credited toward the tax preparation fee.
 
 

Kenneth Hoffman of K.R. Hoffman & Co., LLC is a highly sought after tax and business counselor. Counseling Entrepreneurs, Professionals and Select Individuals who are struggling with ever changing tax laws and who are paying too much in taxes. All the while he is protecting his clients from the IRS and other taxing authorities using proactive tax planning strategies, ensuring compliance with minimal tax liability while bringing his clients Peace or Mind.

Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.

If you found this article helpful, I invite you to leave a comment and  please share it on twitterfacebook or your favorite social media site and  with your friends, family and colleagues. Thank you.  

I truly value your business and I appreciate your referrals. Refer your family, friends, acquaintances, and business colleagues to KR Hoffman & Co., LLC. 

Follow us on Twitter at @TaxReturnCoach, and let us know how we're doing

 

Introducing Our Tax Packages!

by Kenneth Hoffman in ,


Tax season is underway as we speak. Sounds fun, right? But we love to serve you, so we are looking forward too that opportunity again.

We'll be doing some different things this year to deliver greater options to you and seriously increase the value we deliver in the preparation of your tax return.

Value and Transparency

You will have four options to chose from as we serve your tax return needs: Gold, Silver, Bronze and Basic. We want these to bring transparency in what we will do for you while allowing you to choose the value you perceive in each option. You get to choose your price according to what YOU need and value. Here are the details:

Under the Gold Tax Package, we will deliver your completed return to you within 4 days of you delivering all of your tax information to our office and your tax return price payment. We will also review your last 3 years tax returns looking for mistakes and missed opportunities. We will also include our IRS Letter Notice service, that is, we will respond to any IRS Notice for the tax returns we prepare at no additional charge. Our IRS Letter Notice does not include audits. Additionally you have unlimited access to us via telephone or email for any tax questions you may have throughout the year. If your tax questions require additional research, you will enjoy a 50% discount off our normal rate. Lastly, we will provide tax planning in the fall and you will enjoy a 25% discount on any services we provide to you. This package will be 80% higher than our normal tax preparation rate.

Under the Silver Tax Package, we will deliver your completed return to you within 8 days of you delivering all of your tax information to our office and your tax return payment. We will also include our IRS Letter Notice service for a 50% discount off our normal rate. That is, we will respond to any IRS Notice for the tax returns we prepare. Our IRS Letter Notice does not include audits. Additionally you have unlimited access to us via telephone or email for any tax questions you may have throughout the year. If your tax questions require additional research, you will enjoy a 25% discount off our normal rate. This package will be 40% higher than our normal tax preparation rate.

Under the Bronze Tax Package, we will deliver your completed return to you within 14 days of you delivering all of your tax information to our office and your tax return payment. We will also include our IRS Letter Notice service for a 15% discount off our normal rate. That is, we will respond to any IRS Notice for the tax returns we prepare. Our IRS Letter Notice does not include audits. This package will be 15% higher than our normal tax preparation rate.

Under the Basic Tax Package, we will extend your tax return to be completed during non-busy season hours, to be completed within one month after the tax deadline filing date. But you will receive a 10% LOWER price off our normal tax return rate.

Now you have total choice! For those that value a quick turn around time and premium added services, we've provided that option for you. And for those of you who value lower prices more than a quick turn around time, you get to have your way too! We know you will have questions about these options, so feel free to contact us and ask questions.

What to do next? Once you tell us which package you want to choose, all you have to do is provide your tax information to us after January 15th, make your deposit payment, and we'll do the rest!. All Tax Return Packages require a deposit of $150 before we begin. You can pay your deposit securely online by check or credit card HERE.

Please note, our normal tax return consists of one IRS Form 1040, Schedule A, one state return if required and e-filing. Additional forms and schedules incur additional costs. For the 2011 tax season our normal tax return preparation fee is $225, and our IRS Letter Notice service is $150. Please contact us for your custom price quote.

All tax returns must be paid-in-full before e-filing. 

Thanks for letting us serve you.