Monthly Archives: January 2016

Is the U.S. a tax haven or hell? Both

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


The United States is the worst place in the world for business. The United States is the best place in the world for business.

Both statements apparently are true because a tax haven, like beauty, is in the business eye of the beholder.

U.S.-based corporations have for years complained that the Internal Revenue Code puts them at a global disadvantage. In recent months, more American companies have done more than just grumble.

Businesses have turned to inversions, in which a company is purchased by a foreign corporation. Then the non-U.S. business, which sometimes is smaller, becomes the corporate headquarters, at least on paper and for tax purposes.

Legal, but unfair

President Barack Obama has said corporate inversions, while totally legal under the U.S. tax code, are a way for businesses to game the system.

The Treasury Department has stepped up efforts to reduce the tax benefits of inversions.

And it looks like the practice, which some lawmakers say is costing the U.S. Treasury billions of dollars, finally could be the impetus to achieving long awaited tax reform, at least on the corporate side.

Until then, though, the tax maneuver will continue, with Johnson Controls becoming the latest in a long line of corporate inversions.

The Wisconsin-based technology company soon will be an Irish company. On Jan. 25, Johnson announced that it has agreed to combine with Tyco International Ltd. and move its headquarters from Milwaukee to Cork, Ireland. It’s estimated that the new corporate entity will save at least $150 million a year in taxes.

U.S. as tax haven for others

But wait. There’s another side to this tax story.

Last year, the Financial Secrecy Index, or FSI, found that the traditional stereotype of tropical island tax havens is wrong. The world’s most important providers of financial secrecy, according to the FSI analysis done by the London-based Tax Justice Network, are some of the world’s biggest and wealthiest countries, including the United States.

The United States ranked 3rd, behind Switzerland and Hong Kong, in helping shelter some of the trillions hidden from worldwide tax collectors. That ranking for U.S. financial secrecy services at both the federal and state levels is 3 places higher than in 2013, when the last FSI was released.

Since that analysis, it seems the United States has climbed even higher. America reportedly is the world’s favorite new tax haven.

Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming and South Dakota, according to Bloomberg News.

Global account shopping

As with inversions, there is nothing illegal about U.S. banks encouraging foreigners to put money in their institutions by promising confidentiality. And in some cases, wealthy individuals look for confidential accounts in the United States and globally for non-tax reasons.

Still, there’s no argument that lots of rich taxpayers and large companies are shopping around for tax-friendly places to park their assets.

Do you think the United States and other nations should be tougher on financial accounts held by nonresidents? As for U.S. businesses, should there be a law restricting paper organizational moves made purely for tax purposes?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Most taxpayers want paid preparers licensed

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


Is a tax preparer helping you file your taxes this year? If so, are you comfortable with that person’s abilities?

Apparently, most of us are at least a bit concerned about the abilities of tax preparers, at least in general if not about our own tax adviser, according to a new national poll.

A Consumer Federation of America, or CFA, poll released Jan. 20 finds that 80% of taxpayers believe that paid tax preparers should be required to pass a competency test.

Another 83% say that paid tax preparers should be licensed by the state where they practice.

The cost of tax pro errors

The reason for more oversight is the usual one: Money.

Tax return filing represents for most people their largest financial transaction of the year.

“Errors on tax forms put consumers at risk of fines and lost tax refunds,” says Tom Feltner, director of financial services at CFA.

However, notes CFA Senior Policy Advocate Michael Best, only 4 states — California, Maryland, New York and Oregon — regulate tax preparers who aren’t otherwise covered under other professional credentialing programs.

A growing problem

CFA says that multiple rounds of mystery shopper tests over 3 years found instances of tax preparer incompetence and even fraud. The nonprofit group found problems in 24% of the tax returns in a 2008 test, 44% of returns in a 2011 test, and 93% of returns in a 2015 test.

The dramatic increase in issues with tax returns is in part because of new and changing tax laws over the years. Also, the focus on earlier investigations was the price charged for preparing tax returns rather than the accuracy of the filings, according to Chi Chi Wu, staff attorney at the National Consumer Law Center and co-author of 4 tax return testing reports.

Still, other studies also indicate tax return accuracy problems among paid preparers.

Government Accountability Office undercover investigators in 2014 went to 19 randomly selected tax preparer offices. Only 2 of the 19, or 11%, of the returns had the correct refund amount.

State vs. federal oversight

The Internal Revenue Service has tried in recent years to implement more oversight over paid tax preparers who aren’t already receiving training and credentials from other professional groups.

Those efforts, however, were struck down by federal courts that ruled only Congress could grant the IRS authority to regulate tax preparers. Now the IRS is relying on a voluntary education program for tax professionals.

And while there has been some sporadic movement on Capitol Hill toward giving the IRS the ability to set stricter tax preparer rules, that effort has stalled. So the CFA and other consumer groups now are focusing on state-by-state tax preparer regulations.

Eventual IRS oversight is a possibility, says Best, “but the timeline is extremely uncertain. It behooves us to focus on state levels.”

In the meantime, if you don’t live in a state that regulates paid tax preparers, it’s up to you to make sure the tax pro you hire is up to the task.

Do you get professional tax help? Have you ever had a problem with your tax pro?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

‘False’ fraud filters delay IRS tax refunds

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

taxes-blog-False-fraud-filters-delay-IRS-tax-refundsThe Internal Revenue Service is walking a thin line in trying to simultaneously screen for potentially fraudulent tax returns and issue refunds to rightful taxpayers. Sometimes, says the National Taxpayer Advocate, the tax agency crosses that line, forcing hundreds of thousands of legitimate taxpayers to wait for their refunds.

The problem, according to National Taxpayer Advocate Nina E. Olson in her 2015 annual report to Congress issued Jan. 6, is a growing rate of false positives in a key tax fraud filter used by the IRS in processing returns.The Pre-Refund Wage Verification Program, referred to as “income wage verification,” or IWV, in Olson’s report, allows the IRS to temporarily freeze an individual’s refund when it detects possible false wages and withholding. That in itself is not bad. But these refund holds, says Olson, are snaring more honest filers, whose legitimate refunds are substantially delayed.

18-week wait for refund

The Taxpayer Advocate Service’s analysis of 2014 tax year filings found that nearly 180,000 legitimate filers who had their returns flagged under the IRS’ Electronic Fraud Detection System had to wait on average nearly 18 weeks before they got their refunds.

Things got worse for filers in 2015, when the IRS moved potential identity theft returns identified by the electronic detection system to the Taxpayer Protection Program, or TPP, for processing. The TPP’s false positive rate jumped from 19.8% in calendar year 2014 to 36.2% in 2015.

Making matters worse, says Olson, is that many of the affected taxpayers were unable to contact the IRS to verify their identity. At one point during the peak of the 2015 filing season, only 1 out of 10 calls got through to an IRS representative, says Olson.

The IRS also increased the testing of another application to detect identity theft or fraud, the Return Review Program. This system experienced an increase of more than 500% in erroneous refund holds.

Taxpayer Advocate helps, but still takes time

Almost 37,000 taxpayers contacted the Taxpayer Advocate Service for help in resolving the holds on their refunds in the first 9 months of 2015, according to the report. That’s a nearly 15% increase over the prior year, making it the 2nd most common reason taxpayers came to the IRS’ internal watchdog office for help.

Even with the Advocate’s help, it took an average of more than 8 weeks for these wrongful refund holds to be resolved.

Olson acknowledges that any effective tax identity theft and refund fraud screening method will result in false positives, no matter how well designed. However, she says, the high false positive rates in all of the IRS’ fraud detection programs “are unnecessarily high.”

IRS not tracking false fraud positives

More worrisome, according to the report, is that the IRS does not track the false positive rates for the IWV program, meaning it cannot determine exactly which fraud filters are stopping legitimate refunds.

Also, says Olson, “The IRS doesn’t have adequate procedures to promptly review and adjust its fraud detection filters, rules and models.”

And taxpayers whose refunds are frozen cannot reach a real person to help them resolve the problem. If a taxpayer tries to get information from the agency’s automated online Where’s My Refund? program, the filer receives a generic message prompting a call to the IRS. Even if the taxpayer does reach an IRA representative, that agent doesn’t have access to the fraud detection histories and cannot give specific responses to taxpayer inquiries.

Olson’s conclusion: Despite certain improvements in balancing fraud detection and taxpayer rights, the IRS has a ways to go.

To avoid finding yourself facing a possible tax identity theft/fraudulent refund situation that puts your real refund on hold, keep an eye on your personal data.

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