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National Tax Resolution Blog

The possible repeal of the alternative minimum tax

For decades, the alternative minimum tax has been a source of contention for taxpayers in Michigan and across the country. While the aim of the AMT was originally to target extremely wealthy taxpayers, it has been under criticism for impacting upper-middleclass taxpayers instead.

Ironically, the AMT appears not to have served its function concerning wealthy taxpayers. The wealthiest of taxpayers use other tax-avoidance strategies to shelter earnings from taxation.

Taxes and small businesses

If you are a Michigan small-business owner, specific mistakes could result in a much greater chance of you facing an audit and tax penalties. The problem for self-employed individuals is that besides avoiding such penalties, it can still be necessary to take advantage of every deduction merely for your business to survive.

The IRS is particularly focusing in on those business owners filing Schedule C forms. Allegedly, many such sole proprietors underreport income by 57 percent. And due to suspicions of underreporting, the IRS is now targeting small businesses and small proprietors who file Schedule C forms.

Legislators looking at repeal of FATCA

With every new presidential administration, there are likely to be changes in federal tax policy. Some of these changes can radically impact the way that Michigan taxpayers will file their taxes and report on earnings.

One such possible measure involves repeal of the Foreign Account Tax Compliance Act (FATCA). Rep. Mark Meadows and Senator Paul Rand introduced this proposal. FATCA governs the reporting of offshore assets and accounts. Apparently, the purpose of this FATCA repeal bill would be to place limitations on what requires disclosure.

The lengthy process in resolving identity theft claims

We previously reported that identity theft resulted in $3.1 billion in fraudulent tax refunds in 2014. However, many believe this figure to be significantly higher. Wrongdoers are using such Social Security numbers to trigger a refund from the IRS or state revenue offices. Those perpetrating the fraud, besides using the Social Security numbers of actual taxpayers, may be also using the Social Security numbers of deceased taxpayers or children.

The IRS is hoping to create a number of strategies that will prevent identity theft as related to tax fraud from occurring. One such strategy is check the IP addresses of the computers filing the returns. In the event the same computer is responsible for multiple returns, there is a greater chance that returns generated are fraudulent.

The Affordable Care Act and Silent Returns

We don't yet know what ultimately will happen regarding attempts to repeal the Affordable Care Act (ACA), more commonly known as Obamacare. Repealing it may prove more difficult than many of its opponents first claimed. And as of right now, it still remains intact. However, as far as taxpayers are concerned, what is important is determining how strong will be enforcement of the ACA provisions now that we have a new presidential administration. One important provision of the ACA concerns a mandatory penalty for not having health coverage.

At the beginning of our current tax season, President Obama was still in office. During this time period, the IRS was rejecting "silent returns." A silent return is one where taxpayers failed to confirm the existence of health insurance coverage. However, since President Trump has taken office, agencies have eased the burden of ACA compliance.

Tax audits and statutes of limitations

There is understandable concern regarding how far back the IRS can look when auditing tax returns. While generally the IRS can look back three years after a filing during an audit, there are many exceptions to this rule.

The three-year statute of limitations can become six years if there is an omission to report over 25 percent of one's income on a tax return. The IRS interprets such an omission as being much more than not reporting income on a return. Any reporting "that has the effect of an omission of income" can trigger a six-year statute of limitations period.

Why is the IRS auditing me?

We are in the thick of tax season and everyone is scrambling to get their paperwork done. Some individuals may have started at the beginning of the year while others wait until the last minute to do their paperwork. Whichever way you do it, it’s important that the information on your tax papers is accurate and honest. It may be helpful to work with a professional on your tax returns in order to have some peace of mind that the information is sound.

Even if you did your best to be accurate, you may still end up getting an audit notice. That can definitely leave you with a nervous feeling in your stomach. You may ask yourself, “Why is the IRS auditing me?” There is no one-size-fits-all answer to that question, but there are some common issues that may trigger an audit.

IRS renews pledge to find frivolous tax returns

Indeed, most people want to pay only what they are legally required to pay in taxes as a matter of law. But consequences of using frivolous arguments in tax returns to avoid paying taxes should not be ignored. In addition to owing on past due taxes, one faces stiff penalties and interest. Nevertheless, according to an accountingtoday.com report, the IRS is having particular difficulty recognizing when such arguments are being offered.

The Treasury Inspector General for Tax Administration (TIGTA) found that more than 36,000 returns included one of 50 arguments identified as frivolous. This led to the payment of more than $ 27.2 million in improper refunds between 2012 and 2014 The TIGTA then determined that the IRS did not have proper procedures to flag returns with frivolous arguments.

Offshore income and IRS disclosure programs

The Internal Revenue Service will likely continue to crackdown on alleged failures to report offshore income and foreign assets. Any taxpayer with over $10,000 invested in foreign bank accounts could be a target for the IRS. Tax penalties for noncompliance are significant. Not only can the IRS take 50 percent of any value of the account, the agency may also assess fines, penalties and possible criminal charges.

The IRS offers various programs allowing taxpayers to come into compliance with IRS regulations including the Offshore Voluntary Disclosure Program (OVDP). Many join such a program in order to avoid government prosecution. There may also be the advantage of capping penalties by enrolling in the OVDP. However, the penalties one faces while a part of the OVDP (which can also prove to be stiff) have made many individuals at some point decide to opt out of the program.

Cancellation of debt as income

It is important to remember that cancellation of a debt does not mean that your financial worries will come to an end. Any Michigan taxpayer who has part or all of their debt cancelled may nevertheless need to report this amount as income. When lenders cancel $600 or more of your debt, you should then receive a Form 1099-C providing the amount of the debt cancellation.

The IRS does provide exclusions to this cancelled debt as income. For example, there are exclusions that apply to cancellation of mortgage debt on the main home the taxpayer owns. However, such exclusion only applies to loans used in buying, building or improving upon that individual's primary property.

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