Small Business | TaxConnections

21 Aug 2013

Repeal 6050W – Small Businesses, IRS “Notices” And The Tax Gap

A recent article in the Wall Street Journal noted that about 20,000 small businesses (out of millions of them) received notices (Letter 5036) from the Internal Revenue Service that they may have underreported their income (“Small Business in IRS Sights,” 8/9/13). The article includes quotes from some small business owners rightfully upset that the IRS presumes they have underreported their income and makes them take the time to explain (again – they already did this on their original filed return) what their gross receipts are. The IRS has acknowledged the sending of notices and offers guidance on how to respond.

The problem ties to Form 1099-K, a requirement added to the law in 2008 (IRC Section 6050W). It requires the companies that process credit and debit card transactions for merchants to issue a 1099-K to the merchant and the IRS showing the amount processed. Paypal and similar processors also have to file, but there is a de minimus threshold for those types of transactions.

There are reasons why the 1099K might not tie to the merchant’s proper amount to report as gross receipts. For example, the small business might be a C corporation using a tax year other than the calendar year used for 1099 reporting. Or, as one merchant notes in the WSJ article, the 1099-K includes the sales tax charged to customers – an amount not reported in the small business’s gross receipts because the sales tax belongs to the state, not the business. Read More

Written by Annette Nellen | Posted in United States

29 Jul 2013

Know a Bad Tax Preparer? File a Complaint!

Late last summer I was approached by several members of the local law enforcement agencies with letters from the IRS. It seems that in 2009 one member of the force had a friend of a friend that was getting him back refunds in the mid 5 figure range every year. Of course, he wanted to share his largesse with his co-workers.

You know the rest of the story, I’m sure. The tax preparer had been taking large, fraudulent deductions on Schedule C forms against the officers off duty 1099MISC income, giving them losses that exceeded their W2 income. In many cases this made them eligible for EITC and other credits even though they married couples actually had income in excess of $100K. And all the returns were done on at home software indicating the return had been self-prepared.

Of course they all got audited for 2009-2011 and once I was done they all owed in excess of $30K plus penalties and interest. Well, I got mad! Did I mention I’m a retired law enforcement officer from this same department? I filed my first sets of complaints against another tax preparer and assisted the clients in doing the same. The clients had the information on the preparer as several had written him checks. A simple internet search gave me the rest of the details I needed.

So, we all filled out and mailed our IRS Form 14157 (for me) and 14157A (for the clients). My clients all got on installment plans and we were able to get the penalties for 2009 abated in most cases under the First Time Abatement program. Read More

Written by Kathryn Morgan | Posted in Military • United States

10 Apr 2013

Preparing Returns For Disabled Veterans

With an increasing number of Veterans returning from serving our country and the previous generation getting old the Veterans Administration (VA) is granting more and more disability ratings for our service members and former service members. If you are a Tax Professional who prepares returns for people who served or are serving in the U.S. Armed Services or you are a Veteran please take a few minutes to look at this step-by-step guide to the best way to make sure Veterans get the full amount of their tax refunds.