Former IRS Employees Plead Guilty to Receiving Unemployment Benefits While Employed

Six former Internal Revenue Service employees have pleaded guilty to receiving unemployment benefits while they worked at the agency.

Michelle Glavin, 32, and Christopher Castillo, 34, both of Kansas City, Mo., pleaded guilty Wednesday in separate appearances before U.S. District Judge Dean Whipple to the charge contained in a Dec. 10, 2013 federal indictment. Their co-defendants, Jesse Love, 61, and Tiffani Harding, 27, both of Kansas City, Mo., Shalonda Bradley, 41, of Grandview, Mo., and Berneta Weedin, 59, of Platte Woods, Mo., pleaded guilty on Tuesday.

By pleading guilty, each of the defendants admitted they claimed unemployment benefits while employed by the IRS. The defendants are no longer employed at the agency.

Each defendant also pleaded guilty to stealing government property by fraudulently claiming unemployment benefits to which they were not entitled. Under the terms of their plea agreements, the defendants must pay restitution for the amount of benefits illegally received.

Glavin received $5,144 in Missouri unemployment benefits, plus $16,204 in federal benefits while employed at the IRS, for a total of $21,348. Castillo obtained $6,365 in Missouri benefits and $4,727.80 in federal benefits, totaling $11,093. Love got $8,214 in Missouri benefits and$1,404 in federal benefits, for a total of $9,618. Harding received $2,664 in Missouri benefits, plus $8,650 in federal benefits, for a total of $11,315. Bradley obtained $6,279 in Missouri benefits, plus $250 in federal benefits, totaling $6,529. Weedin got $3,014 in Missouri benefits, plus $3,113 in federal benefits, for a total of $6,127.

The IRS often hires seasonal employees to help out during busy season who can legally claim unemployment benefits during the parts of the year when they are not working or being paid

IRS to Step up Penalties for Delinquent Payroll Taxes

Employers owed the Internal Revenue Service approximately $14.1 billion in delinquent Social Security, Medicare and individual federal income taxes that they had withheld from employee paychecks as of June 30, 2012, and the Internal Revenue Service is being urged to do more to assess penalties against them.

A new report from the Treasury Inspector General for Tax Administration found that the IRS’s penalty actions against employers who don’t remit payroll taxes are oftentimes neither timely nor adequate. When a business does not remit trust fund taxes withheld from its employees, the IRS can collect the unpaid taxes from the individuals responsible by assessing a Trust Fund Recovery Penalty, or TFRP, when appropriate.

Employees who have taxes withheld from their wages expect the funds to be properly remitted to the IRS, the TIGTA report noted, and businesses that do not pay their taxes have an unfair advantage over businesses that do pay their taxes in full and on time.

TIGTA found that the IRS’s TFRP actions were not always timely or adequate in 99 of the 265 cases it reviewed in a statistically valid sample of cases. For 59 of the 99 cases, the untimely actions averaged more than 500 days to review and process the penalty assessment. Among the problems, TIGTA found incomplete investigations, unsupported collectibility determinations and expired assessment statutes.

When the penalty assessments are not made in a timely way, taxpayers’ financial ability to pay can decline and the IRS’s chances of collecting the overdue taxes decrease. In addition, the government’s interest is not protected if the potential tax assessments are overlooked or missed.

In recent years, TIGTA acknowledged, the IRS has introduced new guidance to better control the Trust Fund Recovery Penalty process and has achieved some improvement in the average time it takes to complete investigations and assess the TFRP. However, significant untimeliness still exists, the report added.

TIGTA recommended that the IRS emphasize to group managers their responsibilities to monitor TFRP cases and ensure that revenue officers take timely TFRP actions; and enhance TFRP communication and training. The IRS should also ensure the completion and adequacy of scheduled system improvements and take appropriate actions to implement the changes, TIGTA suggested. In addition, the report recommends the IRS revise its TFRP guidance regarding the accuracy of the collectibility determination support and controlling the completion of TFRP investigations when installment agreements or currently not collectible closures are approved.

In response to the report, IRS officials agreed with all of TIGTA’s recommendations and plan to take corrective actions.

Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division, pointed out that the IRS has significantly improved the timeliness of its TFRP case actions in response to a 2008 report from the Government Accountability Office that found businesses owed billions of dollars in federal payroll taxes. She noted that the IRS’s overall average improvement in the timeliness of TFRP case actions increased from 74 percent in fiscal year 2010 to 93 percent in fiscal 2013, and that the sample TIGTA used for the analysis in its report included cases with actions prior to 2012 before the IRS’s improvements had been fully implemented.

“As we discussed during the audit, we worked diligently to implement the recommendations made by GAO and to improve the timeliness and adequacy of all TFRP actions,” she wrote. “Limiting your review to case actions that occurred after FY2012, when increased controls and guidance had been completely implemented, would have provided a more accurate picture of our current program.”

The IRS plans to make programming changes in its Automated Trust Fund Recovery system to ensure it works more efficiently and it will provide additional training to managers.

“We remain committed to continued improvement and recognize the opportunity for additional systemic enhancements to increase our case processing efficiency and accuracy,” said Schiller.

IRS Oversight Board Opposes Private Debt Collectors

The IRS Oversight Board has sent a letter to the leaders of Congress’s main tax committees urging them not to re-instate a privatized tax debt collection program.

A provision in the tax extenders legislation, the EXPIRE Act, introduced last month by Senate Finance Committee chairman Ron Wyden, D-Ore., would restore the private debt collection program that the IRS discontinued in 2009 (see IRS Nixes Private Collection Contracts). The controversial program had attracted both proponents and opponents in Congress.

The IRS Oversight Board said it was siding with National Taxpayer Advocate Nina Olson, who also expressed her opposition to the private debt collection program earlier this month.

“The concept has already failed twice,” said IRS Oversight Board chairman Paul Cherecwich, Jr., in a letter Tuesday to the leaders of the House Ways and Means Committee and the Senate Finance Committee. “When direct administrative costs are included, which the Joint Committee on Taxation failed to do, the program costs more to administer than the revenue retained. We concur with the NTA in that outsourcing federal debt collection is a bad idea and it makes little sense to resurrect, let alone expand the program to include the assignment of all ‘inactive tax receivables’’ to PCAs [private collection agencies]. The IRS Oversight Board respectfully suggests that if Congress wishes to improve revenue collection, it should invest in IRS priority enforcement programs, such as the Automated Collection System (ACS), which has a proven 20:1 return on investment. Funding another private debt collection program is throwing good dollars after bad, and in our view, should be summarily rejected.”

Cherecwich pointed to the two previous efforts at private debt collection of delinquent taxes owed the federal government. “Although America’s taxpayers were promised a high return on investment from the collection of old debts, the opposite proved true,” he said. “The NTA correctly notes that the IRS terminated the last version of the program after concluding it lost money—$17 million—when opportunity costs, such as diverting IRS collection personnel to administer the PDC, were taken into account. In other words, there was a negative return on investment.”

Cherecwich pointed out that independent studies have confirmed that private collection firms did not outperform IRS employees. During the most recent failed private debt collection program from 2006 to 2009, he noted, employees who worked in the IRS’s Automated Collection System function needed to stop working on their own inventory of cases so they could help the private collection agents who could not resolve tens of thousands of cases. If the nearly $68 million in total costs for the 2006 private debt collection effort had been invested in an additional 700 full-time equivalent employees in the IRS’s ACS function, he observed, they would have collected an estimated $1.4 billion in enforcement revenue rather than the loss incurred by the private debt collection program.

“Moreover, the PDC program never came close to being self-funded or operating independently of the appropriations process as promised,” Cherecwich added.

In a letter earlier this month, National Taxpayer Advocate Olson also wrote to leaders of the House Ways and Means Committee and the Senate Finance Committee arguing against the program.

“The Office of the Taxpayer Advocate and I personally were intimately involved in the development of the 2006-2009 PDC program,” she wrote. “We also handled more than 3,700 cases involving taxpayers against whom PCAs sought to collect. Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue. Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money. We have no reason to believe the result would be any different this time.”

IRS commissioner John Koskinen has also objected to the program, telling a hearing of the House Ways and Means Committee this month that the IRS ended up losing money on the private debt collection program.

Sen. Chuck Grassley, a senior member and former chairman and ranking member of the Senate Finance Committee, pointed out last week after reading Olson’s comments in the Washington Post that the non-partisan congressional Joint Committee on Taxation, the official estimator of tax provisions, said the current proposal in the tax extenders bill to engage private contractors to collect tax debts would generate $2.4 billion over ten years for the U.S. treasury.

“The use of private contractors is meant to get at legitimate tax debts that the IRS can’t or won’t collect on its own,” Grassley said in a statement. “These contractors are set up to do the work. They aren’t meant to detract from the IRS’ work. They’re meant to make up for what the IRS can’t do, while saving money. And there’s no getting around the estimate from the Joint Committee on Taxation that the current proposal would raise $2.4 billion over 10 years. That says the proposal would work, as intended. Collecting tax debt is only fair to all taxpayers who pay what they owe.”

Sen. Charles Schumer, D-N.Y., reportedly inserted the provision in the tax extenders legislation, according to the Post. Two of the firms that have been approved by the IRS to provide private debt collection services are located in his state, ConServe and Pioneer Credit Recovery. Another approved contractor, the CBE Group, is in Grassley’s state, Iowa. The other approved contractor, Performant Financial, is in California.

Cherecwich disputed the estimate from the Joint Committee on Taxation, noting that it relies solely on gross receipts and the assumption that they will come in for 10 years regardless of the administrative costs.

“From a private sector perspective, such an approach would be contrary to fiduciary responsibility and full financial transparency,” he wrote. “What private sector company would make business decisions based solely on gross revenue while ignoring costs and still stay in business? It is doubtful they would. It would be like a major construction firm making a bid for a contract without taking into account labor costs. In this regard, we believe the JCT should modify its 10-year revenue score for any PDC program.”

IRS Finds Problems with Employee Plan Terminations

The Internal Revenue Service’s Employee Plans Compliance Unit recently looked at whether employee benefit plan sponsors had completed all the necessary steps after filing a Form 5500-series return showing they had adopted a resolution to terminate the plan, and found that many did not.

The IRS unit set up a Termination Project to learn if employee plan sponsors who indicated they adopted a resolution to terminate their plan had completed the termination process, complied with Revenue Ruling 89-87 for their wasting trusts, filed a final Form 5500-series return, and distributed all the trust assets as soon as administratively feasible.

The Employee Plans Compliance Unit found that some plan sponsors who indicated they had adopted a resolution to terminate their plan didn’t file a final Form 5500-series return. In general, the IRS noted, plan sponsors must continue to file a Form 5500-series return for their terminated plan until the last return filed is marked “final return/report” and shows zero assets at the end of that plan year. This is required even if the sponsor was exempt from filing a Form 5500-EZ (the annual return of a one-participant retirement plan) in previous years.

Over 75 percent of the sampled sponsors showed that, although they took additional steps to terminate their plan beyond adopting a resolution to terminate, they didn’t complete the termination process. In many cases, they didn’t file a Form 5500-series return marked as the ‘final return/report’ showing zero assets at the end of the plan year. The IRS noted that being in the process of terminating doesn’t eliminate the Form 5500-series filing requirement. Employee plan sponsors must continue filing their annual return until all plan assets are distributed.

In other cases, the plan sponsors distributed all the plan assets but didn’t mark the Form 5500-series return as final. The IRS noted that sponsors can correct this by filing an amended return. Review your Form 5500 return carefully before filing to prevent errors.

In other cases, plan sponsors terminated the plan but weren’t aware there were still assets in the trust. “All plan assets need to be distributed for the plan termination to be complete,” the IRS cautioned.

In some cases, it took a long time to distribute the plan assets because of difficulty locating participants and beneficiaries. Many plan sponsors weren’t aware of the requirements and procedures for locating missing participants and beneficiaries. Plan sponsors can use the Department of Labor’s Field Assistance Bulletin 2004-2 for guidance in locating missing individuals for benefit distributions. The IRS no longer provides letter-forwarding services (Revenue Procedure 2012-35).

In other cases, the plan sponsors distributed all the plan assets but didn’t indicate zero assets at the end of the plan year on their final Form 5500 series return. The IRS pointed out that sponsors can correct this by filing an amended return.

Other plan sponsors didn’t distribute all the plan assets as soon as administratively feasible after the plan termination date. “Some plan sponsors had difficulty distributing certain types of plan assets, such as real estate or partnership investments,” said the IRS. “Generally, a distribution which isn’t completed within one year following the date of plan termination will be presumed not to have been made as soon as administratively feasible unless facts and circumstances show otherwise (Revenue Ruling 89-87, 1989-2, C.B. 81). If sponsors don’t distribute all plan assets as soon as administratively feasible, the IRS considers the plan to be ongoing.”

If sponsors don’t complete all termination actions, there is also potential for plan disqualification, discrimination in favor of highly compensated employees, abusive tax avoidance, and administrative penalties, the noted.

Other filing errors included sponsors who mistakenly indicated they were terminating their plan when they actually did not intend to do so. Some plan sponsors incorrectly marked line 5a on the Schedule H (Financial Information) or Schedule I (Financial Information – Small Plan) of their Form 5500-series return to indicate they had adopted a resolution to terminate the plan.
Some plan sponsors mistakenly indicated the plan was terminated when it was actually frozen.

“These sponsors weren’t aware of the differences between a frozen plan and a terminated plan,” said the IRS. It noted that in a frozen plan, participants don’t accrue any additional benefits (whether because of service or compensation) except under special circumstances. A frozen plan must continue to meet annual information reporting and plan qualification requirements including having the plan sponsor amend the plan for current law by the required deadlines; otherwise, the plan may lose its qualified status for tax benefits.

Some plan sponsors mistakenly used the same plan number from a previous or different plan. Once plan sponsors use a plan number, they should continue to use it for that plan on all future filings with the IRS, the Labor Department and the Pension Benefit Guaranty Corporation. Even if the plan sponsor terminated their plan, they can’t use the same plan number for any other plan, the IRS cautioned.

There were also some processing errors that occurred before the implementation of the Department of Labor’s electronic filing system. Plan sponsors now must file Forms 5500 and 5500-SF electronically using DOL’s EFAST2 web-based filing system or through an EFAST2 approved vendor. Plan sponsors paper file the Form 5500-EZ with the IRS. Plan sponsors can’t paper file Forms 5500 or 5500-SF. For more information, see DOL’s EFAST2 site or the IRS Form 5500 corner.

The IRS recommended that employers review their terminated plans to see if they have finished all the steps in the termination process, including:
•  Filing all current and prior Form 5500-series filings
•  Filing a final Form 5500-series return showing zero assets
•  Distributing all assets
•  Finding all missing participants and beneficiaries

Plan sponsors should also recognize the differences between active, frozen, and terminated plans. They should correct any errors you discover and amend your return, if needed. Correct the plan administrative procedures so the mistakes don’t happen again. It may be helpful to ask at least two people to review the 5500 return before it is filed.

Roth IRA Balances Growing Faster than Traditional IRAs

The balances of Roth IRAs grew at more than double the rate of traditional individual retirement accounts from 2010 to 2012, according to a new analysis by the Employee Benefit Research Institute.

Based on the latest results from the EBRI IRA Database, the median increase for a consistent set of owners of Roth IRAs (mid-point, or half above and half below) was 16.6 percent from 2010 to 2012, compared with 7.9 percent for consistent owners of traditional IRAs.

A major factor in these different rates of increase was that new contributions make up a larger proportion of the Roth IRA balances due to the smaller average balances of Roth IRAs as well as the larger percentage of Roth owners making contributions each year than they do for traditional IRAs, which magnified the impact of contributions. EBRI also found that Roth IRA balances grew faster than traditional IRAs at each age group and for each gender.

Looking at individuals who maintained an IRA account in the database over the three-year period, the overall average balance increased each year—from $95,431 in 2010 to $95,547 in 2011 and to $106,205 in 2012. This increase occurred across each owner age group and IRA type, except for owners ages 70 or older (who are legally required to start withdrawing a minimum amount each year from traditional IRAs) and for traditional IRA owners whose balances originated as a rollover from another tax-qualified retirement plan (such as a pension or 401(k)).

For year-end 2012, EBRI’s IRA database contained information on 25.3 million accounts owned by 19.9 million unique individuals, representing total assets of $2.09 trillion.

“An annual snapshot of those contributing to IRAs doesn’t allow you to assess whether the same individuals were contributing on a regular basis, or if different people contributed in different years, whereas a consistent longitudinal sample of IRA owners does allow for this examination,” said Craig Copeland, senior research associate at EBRI and author of the report. “For example, among traditional IRA owners, approximately 6 percent contributed to the IRA each year, but over a three-year period approximately 10 percent of traditional IRA owners contributed in at least one of those years. Among Roth IRA owners, approximately 25 percent contributed in any one year, compared with 35 percent who contributed at some point over the three-year period.”

The EBRI IRA study also found that the overall average IRA account balance in 2012 was $81,660, while the average IRA individual balance (all accounts from the same person combined) was $105,001. Overall, the cumulative IRA average balance was 29 percent larger than the unique account balance.

Rollovers overwhelmingly outweighed new contributions in dollar terms. While almost 2.4 million accounts received contributions, compared with the 1.3 million accounts that received rollovers in 2012, 10 times as much was added to IRAs through rollovers, compared with contributions.

The average individual IRA balance increased with age for owners ages 25 or older, from $11,009 for those ages 25–29 to $192,961 for those ages 70 or older.

IRA owners were more likely to be male. In particular, those with an IRA originally opened by a rollover, or a SEP/SIMPLE IRA were more likely to be male (57.4 percent of the former, and 58.2 percent of the latter).

Males had higher individual average and median balances than females: $139,467 and $36,949 for males, respectively, vs., $81,700 and $25,969 for females. However, the likelihood of contributing to an IRA did not significantly differ by gender within the database.

Younger Roth IRA owners were much more likely to contribute to the Roth IRA than were older Roth IRA owners: 43 percent of Roth owners ages 25–29 contributed to their Roth in 2012, compared with 21 percent of Roth owners ages 60–64.

Congress Introduces Bill to Restrict Corporate Tax Inversions

Democrats in the House and Senate introduced legislation Tuesday to tighten the restrictions on corporate tax inversions, limiting the ability of U.S.-based companies to avoid U.S. taxes by combining with a smaller foreign business and moving their tax domicile overseas.

There have been more than 40 corporate inversions in the last decade, costing the U.S. tax base billions of dollars, according to the bill’s proponents. The Treasury Department estimates that the President’s FY 2015 budget proposal on inversions would raise $17 billion in revenue over the next decade.

Under current law, a corporate inversion is not respected for U.S. tax purposes if 80 percent or more of the new combined corporation incorporated offshore is owned by historic shareholders of the U.S. corporation. The proposed legislation would make it harder for U.S. companies to invert by reducing this threshold from 80 percent or more to more than 50 percent. This would effectively require U.S. companies to merge with foreign companies that are roughly equal or larger in size in order to move their location for tax purposes outside the United States and, thereby, escape U.S. tax. The legislation would apply to inversions completed after May 8, 2014.

Co-sponsors of the House legislation, known as the “Stop Corporate Inversions Act of 2014” (H.R. 4679),  include Ways and Means Committee ranking member Sander Levin, D-Mich., Rep. Charles Rangel, D-N.Y., Jim McDermott, D-Wash., Richard Neal, D-Mass., Lloyd Doggett, D-Texas, John Larson, D-Conn., Danny K. Davis, D-Ill.,, Budget Committee ranking member Chris Van Hollen, D-Md., Rosa DeLauro, D-Conn., and Jan Schakowsky, D-Ill..

“Corporate inversions are a growing problem, costing the U.S. tax base billions of dollars and undermining vital domestic investments,” said ranking member Levin in a statement. “This egregious practice requires immediate action. This legislation would stop American companies from avoiding U.S. taxes simply by purchasing a smaller foreign company.”

The companion Senate legislation was introduced Tuesday by Levin’s brother, Sen. Carl Levin, D-Mich., who chairs the Senate Permanent Subcommittee on Investigations

It largely mirrors the inversion proposal included in President Obama’s fiscal year 2015 budget.

“To those corporations who renounce their American citizenship to dodge their fair share of our national security costs, this legislation says ‘stop: no get-out-of-taxes-free card,’” said Rep. Doggett.  “By exploiting other tax loopholes, Pfizer already pays little in federal taxes, but its proposed inversion to pay even less goes much too far.  Congress should act now to prevent multinationals from demanding the benefits of being American without paying for them.”

On the Senate side, 14 Democrats are co-sponsors, including Carl Levin, D-Mich., Sheldon Whitehouse, D-R.I.,  Dianne Feinstein, D-Calif., Tim Kaine, D-Va., Brian Schatz, D-Hawaii, Mazie Hirono, D-Hawaii, Ben Cardin, D-Md., Jay Rockefeller, D-W.Va.; Barbara Boxer, D-Calif.; Bill Nelson, D-Fla.; Tim Johnson, D-S.D; Angus King, I-Maine; Debbie Stabenow, D-Mich.; and Elizabeth Warren, D-Mass.

The bill would effectively impose a two-year moratorium on inversions, the practice of shifting a corporation’s tax residence overseas through acquisition of an offshore company to avoid paying U.S. income taxes. The two-year moratorium would be achieved through a two-year sunset provision designed to provide time for Congress to work on bipartisan comprehensive corporate tax reform.

“These transactions are about tax avoidance, plain and simple,” said Carl Levin in a statement. “The Treasury is bleeding red ink, and we can’t wait for comprehensive tax reform to stop the bleeding. Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform.”

A corporate lobbying group, the Alliance for Competitive Taxation, said it opposed the legislation and released a statement of its own. “The fact that we’ve seen a growing number of American companies in recent months announce plans to merge with foreign companies and reincorporate abroad only highlights the many deficiencies of the U.S. tax code,” aid ACT. “The U.S. has the highest corporate tax rate in the developed world and still uses an outdated system of international taxation, making it harder for American businesses to compete in the global marketplace. If we want to encourage companies to locate, invest, and create jobs in the U.S., then we have to address the root cause – America’s broken tax code. We have serious concerns that the legislation proposed by Senator Levin and Congressman Levin would do nothing to address the competitive disadvantages inherent in our tax code. It would actually make the situation worse and could lead to even more jobs and businesses leaving America. We continue to believe that leaders in Washington should focus on enacting comprehensive tax reform that establishes a modern, globally-competitive tax system and aligns the United States with the rest of the world.”

Ten Tax Tips for Farmers

Are you in the farming business or thinking about it? If so, you should be aware that there may be tax benefits available for you come tax time. Farms include plantations, ranches, ranges and orchards. Farmers may raise livestock, poultry or fish, or grow fruits or vegetables.

Here are 10 things about farm income and expenses you should keep in mind this year.

1. Crop insurance proceeds. Insurance payments from crop damage count as income. Generally, you should report these payments in the year you get them.

2. Deductible farm expenses. Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means a cost that is appropriate for that business.

3. Employees and hired help. You can deduct reasonable wages you paid to your farm’s full and part-time workers. You must withhold Social Security, Medicare and income taxes from their wages.

4. Sale of items purchased for resale. If you sold livestock or items that you bought for resale, you must report the sale. Your profit or loss is the difference between your selling price and your basis in the item. Basis is usually the cost of the item. Your cost may also include other amounts you paid such as sales tax and freight.

5. Repayment of loans. You can only deduct the interest you paid on a loan if the loan is used for your farming business. You can’t deduct interest you paid on a loan that you used for personal expenses.

6. Weather-related sales. Bad weather such as a drought or flood may force you to sell more livestock than you normally would in a year. If so, you may be able to delay reporting a gain from the sale of the extra animals.

7. Net operating losses. If your expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid in prior years. You may also be able to lower your tax in future years.

8. Farm income averaging. You may be able to average some or all of the current year’s farm income by spreading it out over the past three years. This may lower your taxes if your farm income is high in the current year and low in one or more of the past three years.

9. Fuel and road use. You may be able to claim a tax credit or refund of excise taxes you paid on fuel used on your farm for farming purposes.

10. Farmers Tax Guide. Publication 225, Farmer’s Tax Guide, is a useful resource that you can obtain from the IRS. However, if you have specific questions, don’t hesitate to call us. We are here to help you get the tax benefits you deserve.

Eight Facts on Late Filing and Payment Penalties

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. If, for whatever reason, you missed the deadline you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. Here are eight important facts every taxpayer should know about penalties for filing or paying late:

1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. Contact us if you need help figuring out how to pay what you owe.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the 1/2 percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time. Give us a call if you have any questions about what constitutes reasonable cause.

Special penalty relief may apply to taxpayers under certain conditions such as taxpayers affected by natural disasters. If you think this applies to you, don’t hesitate to contact us for additional information.

Ten Facts on Filing an Amended Tax Return

What should you do if you already filed your federal tax return and then discover a mistake? First of all, don’t worry. In most cases all you have to do is file an amended tax return. But before you do that, here are 10 facts you should be aware of when filing an amended tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper. Contact us if you need assistance or have any questions about Form 1040X.

2. File an amended tax return if there is a change in, or you made an error regarding your filing status, income, deductions or credits on your original return.

3. In most cases, you do not need to file an amended return to correct math errors because the IRS automatically makes those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. For example, the last day for most people to file a 2010 claim for a refund is April 15, 2014. Special rules may apply to certain claims. For more information see the instructions for Form 1040X or call us.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. Note the tax year of the return you are amending at the top of Form 1040X. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.

6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.

7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.

8. If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.

9. You can track the status of your amended tax return for the current year three weeks after you file. You can also check the status of amended returns for up to three prior years.

10. To use the “Where’s My Amended Return” tool on the IRS website, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each.

Choosing a Retirement Destination

With health care, housing, food, and transportation costs increasing every year, many retirees on fixed incomes wonder how they can stretch their dollars even further. One solution is to move to another state where income taxes are lower than the one they currently reside in.

But some retirees may be in for a surprise. While federal tax rates are the same in every state, retirees may find that even if they move to a state with no income tax, there may be additional taxes they’re liable for including sales taxes, excise taxes, inheritance and estate taxes, income taxes, intangible taxes, and property taxes.

In addition, states tax different retirement benefits differently. Retirees may have several types of retirements benefits such as pensions, social security, retirement plan distributions (which may or not be taxed by a particular state), and additional income from a job if they continue to work in order to supplement their retirement income.

If you’re thinking about moving to a different state when you retire, here are five things to consider before you make that move.

1. Income Tax Rates

Retirees planning to work part-time in addition to receiving retirement benefits should keep in mind that those earnings may be subject to state tax in certain states, as well as federal income tax if your combined income (individual) is more than $25,000. Combined income is defined as your adjusted gross income + Nontaxable interest plus 1/2 of your Social Security benefits. If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000. If you see this scenario in your future, it may be in your best interest to consider a state with low income tax rates (Pennsylvania, Arizona, or New Mexico for instance) or no income tax such as Florida, Nevada, Alaska, or Washington state.

2. Income Tax on Retirement Income

Income tax on pension income varies for each state. In 2014, three states, including Pennsylvania, Illinois, and Mississippi do not tax it at all. In twenty-one other states a portion of pension income is exempt, and fifteen states tax pension income in its entirety. Remember however, that state tax laws, like federal tax laws are always changing. Call us if you have any questions about tax law changes in your state.

3. Tax on Social Security

In 2014, fourteen states tax social security income in addition to taxing social security income at the federal level. Among them are Colorado, Connecticut, Montana, New Mexico, Vermont, and West Virginia.

4. State and Local Property Taxes

Despite a decline in property values, property taxes have not decreased for most homeowners. Some states however, offer property tax exemptions to retirees who are homeowners and renters. Again, this varies by individual state. Please consult us if you have any questions about your state or the state you are planning to move to.

5. State and Local Sales Taxes

State and local sales taxes may or may not be a factor in the overall decision about where you decide to retire, but keep in mind that only five states, Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose any sales or use tax.

6. Estate Taxes

Estate tax may or may not matter, depending on your estate and whether you care about what happens to your estate after you die. Like other state taxes, estate tax varies depending on which state you reside in. In eighteen states, there is a tax on estates below the federal threshold amount ($5.34 million in 2014). Three states, Delaware, Hawaii and North Carolina, use the same threshold amount as the IRS when figuring federal estate tax, and three states have no estate tax whatsoever–Kansas, Oklahoma, and Arizona.

So what’s the bottom line? When it comes to retirees, relocating, and taxes there are a number of factors to consider–including the overall tax burden. And, as you’ve read here, not all states are created equal. If you’re thinking about retiring to another state, please consult us first. We’ll help you figure out which state is best for your particular circumstances.