Monthly Archives: February 2016

IRS returns $154,000 it seized

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

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What’s better than a tax refund? Getting back your life savings that the Internal Revenue Service had seized.

Ken Quran recently got news that the IRS is returning the $153,907.99 that it took from him almost 2 years ago.

The reason for the IRS’ extreme action? The North Carolina convenience store owner’s bank activity prompted the tax agency to use structuring laws to take Quran’s cash.

And cash is the operable word.

Banking rule backfire

Deposits in actual dollars get added attention under the Bank Secrecy Act, or BSA.

The law has a laudable goal. It was created in 1970 as a way to detect and limit criminal business activities, such as money laundering or illegal drug transactions, that typically are conducted in cash.

Under the BSA, when a person conducts a cash transaction of more than $10,000, he or she must file Form 8300.

But the well-intentioned BSA requirements can pose serious problems for law-abiding citizens.

Lots of legitimate businesses operate for legitimate reasons on a primarily cash basis. And even when they don’t hit the $10,000 trigger, the IRS can become suspicious, seeing transactions just under 10 grand as a sneaky way to avoid the reporting rule.

These series of nonreportable cash transactions are known as structuring. The IRS devotes a special section of its employee manual to examining such suspect activity.

That’s what happened to Quran.

Others also walk the $10,000 line

In June 2014, the IRS seized $153,907.99 from the small businessman because he repeatedly withdrew cash from his bank in amounts under $10,000. Quran said the seized money represented his life’s savings.

Quran was not alone.

Around the same time, several other reports of structuring tax seizures from small businesses were getting media attention. Several affected business owners eventually testified before Congress and the IRS subsequently revised its guidelines to (hopefully) avoid future questionable seizure situations.

Meanwhile, Quran continued to wait for resolution of his case. It finally arrived on Feb. 19.

The Institute for Justice, or IJ, announced on that day that it had received a faxed letter from the IRS in which the agency agreed to return Quran’s money. The IJ, a nonprofit legal organization, represents Quran and others in their structuring cases.

IRS returns millions it seized

IJ says that data it obtained from the IRS via a Freedom of Information Act request indicates that the federal tax agency forfeited about $43 million in 618 structuring cases between 2007 and 2013.

In these situations, the only basis for the seized and since-returned money was that the individuals regularly made cash deposits close to the $10,000 BSA limit.

Another businessman, Maryland dairy farmer Randy Sowers, is still awaiting word from the IRS on $29,500 seized from him because of cash deposits for payments of milk he sold at local farmers’ markets. IJ represents Sowers and is hopeful this client, too, will soon have back his money.

“If the IRS is willing to do the right thing for Ken, they should do the right thing for Randy and all the other property owners in the same situation,” says IJ Attorney Robert Everett Johnson, who represents both men. “[The Quran] decision opens a way for other victims of the structuring laws to get back what’s rightfully theirs.”

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.

Beware the 2016 Dirty Dozen tax scams

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

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It’s not just the Internal Revenue Service that’s trying to get hold of your money. Crooks also are out in force during tax filing season.

These unofficial would-be collectors of your tax dollars are con artists, who over the years have come up with a variety of schemes, some quite sophisticated, to separate you from your cash.

Few new, but persistent ploys

The IRS issues an annual list of the top 12 tax scams. Most of this year’s Dirty Dozen are repeats of schemes the IRS warned about last year, ranging from the continuing threat of tax identity theft to phone scams to phishing.

Heck, the IRS says that sometimes we can’t trust apparent charitable groups or even our own tax pros!

The latest scams that the IRS is watching and wants us to keep an eye on, too, are:

  1. Identity theft
  2. Phone scams
  3. Phishing
  4. Return preparer fraud
  5. Offshore accounts
  6. Inflated refund claims
  7. Fake charities
  8. Falsely padding deductions
  9. Excessive business credit claims
  10. Falsifying income to claim tax credits
  11. Abusive tax shelters
  12. Frivolous tax arguments

Increased efforts to fight ID theft

When it comes to the top tax scam, the IRS points to Security Summit measures implemented this year to make it harder for crooks to steal taxpayer identities and refunds.

The IRS has added more filters to screen suspicious federal returns. Other Security Summit participants, which include state tax departments and the tax software industry, also have beefed up their defenses against fake return files, such as asking for taxpayer driver’s license numbers to help verify that filings are legitimate.

And, says IRS Commissioner John Koskinen, taxpayers must take preventative steps, too.

“We urge people to use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues because scams can take on many sophisticated forms,” Koskinen said. “Keep your personal information secure by protecting your computers and only giving out your Social Security numbers when absolutely necessary.”

If you do find that crooks have your personal or tax information, you can monitor your credit with free tools from myBankrate.

Year-round criminal tax activity

Most of the tax scams peak during filing season. However, tax crooks operate year round.

And schemes that appear to save filers some tax dollars can actually end up costing even more. Once the scam is revealed, victims will owe not only their tax bills, but also penalties and interest.

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.

Tax law changes mean inflation adjustments

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

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In addition to making some temporary tax breaks permanent, 2 measures that became law on Dec. 18, 2015, also provide for annual inflation adjustments to the tax benefits.

The Protecting Americans from Tax Hikes, or PATH, Act dealt primarily with tax extenders, those tax laws that expire and must be renewed. PATH was rolled into the Consolidated Appropriations Act, or the fiscal 2016 spending bill, which also included some tax provisions.

3 tax laws that are permanently in the Internal Revenue Code thanks to those laws now require the Internal Revenue Service to calculate the effect of inflation and annually adjust the tax breaks accordingly.

The IRS has now done that. Here are the inflation-adjusted amounts for the 2016 tax year for educators’ classroom expenses, commuting costs for workers who use public transportation as well as a popular business write-off.

No 2016 increase for teachers’ deduction

Teachers and certain other elementary and secondary school employees can deduct some of their out-of-pocket costs for classroom items. When this above-the-line deduction, meaning you don’t have to itemize to claim it, was made permanent, the long-standing $250 deduction amount was set as the base.

The expense amount also was tweaked so that it will increase as inflation dictates. That’s good news for educators. But since inflation in 2015 was low, the IRS says that there won’t be any bump up for the 2016 tax year. The deduction stays this year at $250.

Public transit benefit bump

Employers can subsidize their workers’ commuting or parking costs with pretax dollars up to an allowable monthly limit. Previously, the amount allowed for parking benefits was greater than that given employees who commuted using public transit.

As part of the tax extenders, that disparity was evened out. And as part of the December tax law changes, parity between the two transportation options was made permanent.

In addition, the amount allowed for van pool and other transit options are now pegged to inflation. In 2015 that monthly amount was $250. For 2016, it goes to $255. The increase applies to parking benefits, too.

Enhanced business expensing

One way businesses can reduce their tax bills is to write off the costs of new equipment. In many cases, this requires spreading the costs over several tax years through depreciation.

But section 179 expensing allows for some costs to be deducted in one tax year. And at the height (or depth) of the great recession that began in 2008, Congress increased the expensing amount to help economically struggling businesses continue to operate and grow their companies.

With the December extenders and spending bills, lawmakers permanently set the maximum amount of newly acquired property costs that a business can expense, or deduct, in one year at $500,000.

Once a business exceeds a certain amount of qualifying equipment purchases in a tax year, the deduction is reduced. Under the new law, that phaseout starts at $2 million in purchases

Both of those limits now were indexed for inflation.

For 2016, low inflation means that the IRS did not hike the $500,000 deduction amount. However, the $2 million phaseout threshold increases this year to $2.01 million.

Now that the new permanent tax breaks are on the books, look for these adjustments to be included in the annual announcement of other inflation-affected tax provisions that the IRS releases each fall.

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.

 

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.