This will only impact taxpayers in two ways.  First, all IRS call centers will be shut down, so you will not be able to speak with anyone at the IRS on any of these days for any reason.  Second, if you have a deadline to respond to an IRS request on one of those days, the deadline is now pushed to the next day.  However, as I previously mentioned, tax filing and payment deadlines remain unaffected.

The IRS has noted that it may add one or two additional furlough days as well.

Asking for this information in the beginning of a call serves another purpose as well.  Due to the inability to later identify an IRS representative without asking for their information, failure to do so gives some representatives a feeling of anonymity and no accountability for their actions.  This mentality can lead to sub-standard service on their end.  However, if you begin a call by asking the representative to identify himself/herself (both name and ID number), the representative will know they can be held accountable for their service, and you will ultimately see the best results.

Schedule D has been redesigned.  The Revised Schedule D functions as a summary for Form 8949.

Moreover, the instructions have been revised too.

Resources on the Web:

www.taxjams.com

• Schedule D
• Form 8949
• Publication 550, Investment Income and Expenses
• Publication 554, Sales and Dispositions of Assets

This story is indicative of an unfortunate trend within the IRS.  Before making this call, I had heard from people who were told they could not set up a streamlined payment plan because they owed over $25,000, even after the Fresh Start initiative took effect.  Evidently, IRS representatives are denying taxpayers streamlined payment plans, even if they qualify, because they are not specifying that they qualify under the Fresh Start initiative. 

Therefore, if you call the IRS to set up a streamlined payment plan, and you owe between $25,000 and $50,000, make sure you use the magic words, “Fresh Start,” when making your request.  Otherwise, you might be the victim of an unjust denial. 

            Taxpayers that owe the IRS must consider their options before entering into one of several methods of repayment.   For example, to help struggling taxpayers get a fresh start with life the IRS may compromise their tax liabilities for “pennies on the dollar” if they could never pay what they owe and do not have equity in assets to pay the IRS tax debt.  This settlement with IRS is called an Offer in Compromise.

          The goal of the Offer in Compromise program is to help individuals and small business meet their tax obligations or settle them in the least intrusive manner without possible without adding unnecessary burden.  Specifically, the IRS has announced new modified policies in the Offer-in-Compromise programs to help taxpayers pay back taxes and avoid the IRS filing a Notice of Federal Tax Lien.

Here are ten tips to discuss with your representative if you owe money to the IRS:

1.      Tax Bill Payments Voluntary Payments:  How to get them applied in your favor.

2.      Additional Time to Pay:  Ask with the filing of your tax return and you will receive.

3.      Credit Card Payments:  IRS accepts plastic too.

4.      Electronic Funds Transfer:  EFTPS

5.      Installment Agreement:  Streamlined or by the numbers.

6.      Online Payment Agreement

7.      Form 9465 or Form 433-D.

8.      Collection Information Statement:  Form 433 A or B.

9.      User Fees

10.  Check Withholding

The IRS now uses social media websites as a resource during its audit examination of taxpayers.  How, you ask?  For example, LinkedIn is a popular professional networking website.  Commonly, users will bolster their professional experience and career history in order to land a new job.  Unfortunately, IRS auditors now examine taxpayers’ LinkedIn profiles to determine whether the jobs they claim on their tax returns match the jobs they post on LinkedIn.

The implications of this new examination tactic are huge.  Everyone must now keep in mind that every falsity they post on the internet can potentially be used against them in an IRS audit.  Any padding done to your credentials on LinkedIn or Facebook can now be used against you, if it does not comport with your tax returns.

The Lesson:  BE CAREFUL WHAT YOU POST ON THE INTERNET.  You now know the risk.  The IRS can and will use it against you. 

The previous social security tax rate was 4.2% of the employee’s income.  As of January 1, 2013, the new rate is 6.2%, a 2% increase.  While 2% might not seem like a big difference, consider a taxpayer who makes $50,000 a year.  This taxpayer is now responsible for paying an additional $1,000 each year for social security taxes, in addition to the $2,100 the taxpayer was already required to pay.  That’s almost a 50% tax increase.

So, if you notice your paychecks seem lower than before, rest assured that there was no mistake by your employer.  If anybody has a better solution for providing for social welfare for the elderly, I think we are all open to ideas.

While it is easy to keep track of your winnings, most taxpayers do not know how to track their gambling losses.  The best way to track losses is to get a player’s card from every casino you gamble at, and make sure to use the card for all gambling.  The casino will then keep track of all of the money you have spent while gambling.  When it comes time to do your taxes, or if you are ever audited, you can request a letter from the casino showing how much money you have spent there during the course of the year.  The IRS will recognize these letters as proof of gambling losses.

If you have lost a significant amount of money gambling but did not use a player’s card, proving losses becomes more difficult.  The next best proof of losses would be to get bank statements showing any money withdrawals at casinos.  If these withdrawals coincide with your winnings as far as date and location, you can make the argument that the withdrawn funds were spent gambling.

There are a few significant benefits in entering the OVDP if you have an undisclosed foreign bank account or accounts.  First and foremost, in most cases, if you disclose the account through OVDP, the IRS will recommend that the Department of Justice does not pursue criminal litigation.  This recommendation is not taken lightly, and if the failure to disclose was based on ignorance or negligence, and not part of a criminal scheme, the likelihood is that the case will not become a criminal one.

If avoiding criminal prosecution is not motivation enough to enter OVDP, there are also financial benefits.  The penalties associated with an OVDP disclosure include: accuracy-related penalties and failure to pay tax penalties for the foreign accounts, and a 27.5% penalty on the account at its most valuable point.  However, if the account is discovered through an IRS investigation, the penalties are far more severe due to the inclusion of several FBAR (Foreign Bank Account Reporting) penalties that are not included in the OVDP (those penalties are all replaced by the 27.5% penalty).

The IRS has provided this example (in blue) to clearly explain the financial benefit of voluntary disclosure:

The values of foreign accounts and other foreign assets are aggregated for each year and the penalty is calculated at 27.5 percent of the highest year’s aggregate value during the period covered by the voluntary disclosure. If the taxpayer has multiple accounts or assets where the highest value of some accounts or assets is in different years, the values of accounts and other assets are aggregated for each year and a single penalty is calculated at 27.5 percent of the highest year‘s aggregate value. For example, assume the taxpayer has the following amounts in a foreign account over the period covered by his voluntary disclosure. It is assumed for purposes of the example that the $1,000,000 was in the account before 2003 and was not unreported income in 2003.

(NOTE: This example does not provide for compounded interest, and assumes the taxpayer is in the 35-percent tax bracket, does not have an investment in a Passive Foreign Investment Company (PFIC), files a return but does not include the foreign account or the interest income on the return, and the maximum applicable penalties are imposed.)

If the taxpayers in the above example come forward and their voluntary disclosure is accepted by the IRS, they face this potential scenario:

They would pay $518,000 plus interest. This includes:

• Tax of $140,000 (8 years at $17,500) plus interest,
• An accuracy-related penalty of $28,000 (i.e., $140,000 x 20%), and
• An additional penalty, in lieu of the FBAR and other potential penalties that may apply, of $385,000 (i.e., $1,400,000 x 27.5%).

If the taxpayers didn’t come forward, when the IRS discovered their offshore activities, they would face up to $4,543,000 in tax, accuracy-related penalty, and FBAR penalty. The taxpayers would also be liable for interest and possibly additional penalties, and an examination could lead to criminal prosecution.

The civil liabilities outside the Offshore Voluntary Disclosure Program potentially include:

• The tax, accuracy-related penalties, and, if applicable, the failure to file and failure to pay penalties, plus interest, as described above,
• FBAR penalties totaling up to $3,825,000 for willful failures to file complete and correct FBARs (2005 – $575,000, 2006 – $600,000, 2007 – $625,000, 2008 – $650,000, and 2009 – $675,000, and 2010 – $700,000),
• The potential of having the fraud penalty (75 percent) apply, and
• The potential of substantial additional information return penalties if the foreign account or assets is held through a foreign entity such as a trust or corporation and required information returns were not filed.

Note that if the foreign activity started before 2003, the Service may examine tax years prior to 2003 if the taxpayer is not part of the OVDP.

Ultimately, the decision to voluntarily report a foreign bank account to the IRS is yours.  It is important to keep in mind that at some point, you will probably want to transfer the account to the United States, at which point the IRS will almost certainly learn about the foreign account, if there is a substantial amount of money involved.  Therefore, it is in your best interest to enter OVDP while you have the chance, because once this program is terminated, there are no guarantees if and when it will return.   

Every taxpayer who is the target of an IRS collection action must know these rights.  While IRS employees are supposed to explain and protect your rights as a taxpayer throughout their contact with you in a collection action, it is still necessary that you make sure that you have read and understood all of the rights listed in Publication 1 (also listed at the end of this post).

If you feel as though any of your rights as a taxpayer has been violated, you should contact a tax attorney.  The reason an attorney is needed is because the attorney will be able to assess the situation and determine what your best recourse is.  Remedies for a violation of your rights can range from submitting a formal complaint against the IRS agent who violated your rights, all the way to having the collection action terminated.  Therefore, if you are involved in an IRS collection action, it would be in your best interest to take 10 minutes to read Publication 1, or at the very least, read the rights listed below.

Taxpayers’ Rights (from IRS Publication 1)

I. Protection of Your Rights

IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.

II. Privacy and Confidentiality

The IRS will not disclose to anyone the information you give us, except as authorized by law. You have the right to know why we are asking you for information, how we will use it, and what happens if you do not provide requested information.

III. Professional and Courteous Service

If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee’s supervisor. If the supervisor’s response is not satisfactory, you should write to the IRS director for your area or the center where you file your return.

IV. Representation

You may either represent yourself or, with proper written authorization, have someone else represent you in your place. Your representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent. If you are in an interview and ask to consult such a person, then we must stop and reschedule the interview in most cases. You can have someone accompany you at an interview. You may make sound recordings of any meetings with our examination, appeal, or collection personnel, provided you tell us in writing 10 days before the meeting.

V. Payment of Only the Correct Amount of Tax

You are responsible for paying only the correct amount of tax due under the law—no more, no less. If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments.

VI. Help With Unresolved Tax Problems

The Taxpayer Advocate Service can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem. For more information, call toll free 1–877–777–4778 (1–800–829–4059 for TTY/TDD) or write to the Taxpayer Advocate at the IRS office that last contacted you.

VII. Appeals and Judicial Review

If you disagree with us about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals Office to review your case. You may also ask a court to review your case.

VIII. Relief From Certain Penalties and Interest

The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. We will waive interest that is the result of certain errors or delays caused by an IRS employee.