Tax Tips for Gamblers, Courtesy of the IRS

The IRS recently released “Five Important Tips on Gambling Income and Losses” for those playing slot machines, betting on ponies, and any other gambling activity. With this release is the firm reminder to gamblers that winnings are fully taxable, and that the winnings must appear on your income tax return. It also notes that losses can be deducted, as long as it does not surpass the amount of winnings.

The five tax tips are as follows:

· If you have any questions regarding what constitutes gambling income, it includes—but is not limited to— lottery winnings, betting on horses, casino winnings, and raffles. Regardless of whether it is a cash winning or the fair market value of prizes, like cars and vacation, it is taxable income that must be reported.

· If you are a lucky winner that falls under the following monetary categories, make sure that you have received a Form W-2G, “Certain Gambling Winnings.” The special circumstances for the receipt of the form are listed below:

o If $1, 200 or more is won from playing bingo or the slots,

o If $1, 500 or more in proceeds is won from keno,

o If more than $5, 000 in winnings is received from a poker tournament.

o If more than $600 or more is won (excluding winnings from the above-mentioned gambling methods) and the amount received is at least 300 times the amount of the money waged.

· In general, all winnings from gambling activity can be reported in the “Other Income” section of your income tax return.

· The section wherein you can claim your gambling losses (up to the amount won, as previously stated) is your Schedule A, Itemized Deductions, below “Other Miscellaneous Deductions.” It is important to note that gambling winnings and losses cannot be reported together. The IRS will do the math. You cannot deduct your losses from your winnings and report that number in your return. The IRS will flag this as an incorrect reporting and you could face questions.

· In order to deduct gambling losses, you must have an accurate accounting—including receipts, tickets, statements, etc.—of your losses. A diary documenting your winnings and losses, or another record in the same vein, is important to keep.

If you have any questions regarding filing a tax return with gambling winnings as income, please contact your knowledgeable tax professionals. They will assist you in reporting your gambling income appropriately.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Agents Arrested for Fraud

According to a press release from the New York State Department of Labor (DOL), two former and two current IRS agents from the Holtsville Revenue Service were arrested for fraudulently collecting unemployment benefits. The benefits were stolen while the individuals were employed by the Internal Revenue Service from 2010 to 2012. The four IRS former employees were each charged with one count of grand larceny, which is a class D felony.

The Department of Labor conducted an investigation in conjunction with the Suffolk County District Attorney’s Office that uncovered the theft of over $37,000. The Office of Special Investigations of the DOL worked with both the U.S. Treasury and the U.S. Department of Labor’s Office of Inspector General to analyze any incongruities that occurred within the payroll records of employees in an effort to uncover fraud. If evidence of fraudulent behavior is found, the Office of Special Investigations turns its focus to local entities, enlisting the efforts of district attorneys to ensure that prosecution for the crimes occurs.

The Suffolk County District Attorney Thomas J. Spota said, in essence, that this should serve as a warning to any individual who seeks to defraud taxpayers by stealing money from those who are unemployed, as the DOL and other federal investigators have their eyes on such activity.

While most IRS agents are honest, there are a few who use their position, unfortunately, to take advantage of the taxpayers and the tax system.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Tax Lien Placed on D.C. Lottery

The Internal Revenue Service has placed an IRS tax lien on the D.C. Lottery and Charitable Games Control Board for the amount of $8,650, which an article in the Washington Business Journal declared to be a “piddling” sum.

In the face of this IRS tax lien, the lottery is refusing to be swaying into turning over the amount, despite the promise of accruing penalties and interests. The executive of the lottery, Buddy Roogow, went so far as to say “these fines and liens are standard fare in the lottery business.”

For those not familiar with this particular business, the article goes on to say that each year, the lottery is required to produce documentation to the IRS that includes the names, addresses, and tax identification numbers of those who have won prizes in the given year that amount to more than $600 dollars. The IRS uses the information provided by the lottery to compare to its own lists of names and Social Security numbers. If the IRS finds any discrepancies between the IRS record and the list provided by the lottery, the lottery is then fined $50 for each one that does not match.

This particular IRS tax lien, filed for the December 2009 year, shows a total of 173 files that the IRS deemed mismatched. According to a calculation done in the article, this indicates that not more than 3% of lottery-provided records showed any discrepancy.

Lottery officials, as a basis for their refusal, cited that attempts had been made to check and re-check identification numbers and other identifying government-issued numbers in an effort to eliminate fraud. They declared, though, that they should not be held responsible through the government lien for something that was a nationwide fraud epidemic.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

A Small Town’s IRS Woes

Even small American towns need tax lawyers sometimes. While the town’s people may be “hardworking and pay their taxes,” this small town is not. The town of Pratt, West Virginia is facing some serious tax issues that could lead to the dissolution of the town itself, says an official from Kanawha County. Last week, county officials learned that both the town and its water plant owe about $140,000 to the IRS. The reason for this is a back tax issue, stemming from the failure to hold federal tax from employees in the years 2008 to 2010.

This isn’t the first time that the town has needed assistance from the county. Earlier this very month, Kanawha County paid $5,000 to stop legislative action from being taken against the town, as the state of West Virginia was making firm threats to sue the town of Pratt if it did not pay a sum of more than $30,000 in retirement contributions owed by the Pratt’s water plant. While money withheld from the employee’s paychecks, the money was never turned over to the West Virginia Public Retirement Board. After the receiving the amount paid by the county, the retirement board has promised to delay a filing a suit, and will not do so if the amount is paid in full by their September 7 deadline.

In light of these dire financial troubles, the future of the town is unclear. According to local media sources, the future of Pratt will be discussed at the next meeting of Kanawha’s City Commission by request of Commissioner Dave Hardy.

Hardy is quoted as saying, “It’s either receivership of dissolution.” His faith, he says, has been lost in the town’s ability to govern its own financial affairs with insight and discretion.

Other county officials are not so hasty in their declarations that dissolution was a definite option. Kanawha County President Kent Carper said that while he and other county officials were not willing to bail the town out completely using county funds, they are willing to take measures to prevent dissolution, which is a last resort.

One way in which to ease the back taxes burden on the town would be to hand over the operation of the town’s water plant to West Virginia American Water. Not only have unreported withholdings been an issue with the town-run water plant, but residents of the town have also been informed that the water they have been drinking for over a year has been contaminated.

Carper said that the people of the town deserve better than this, as the county officials pledge to keep the best interests of the townspeople in mind when resolving the tax issue.

Unfortunately, even small towns can have back tax issues. If you or even your business is facing back tax or other tax withholding issue, contact your competent tax official to assist you in resolving your issues. The IRS is no discriminator of persons or entities—it will come after you.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Agents Attack: Significant Increase in Summons Reported

The IRS is utilizing with more frequency a technique that is aimed at getting the taxpayer’s attention—the administrative summons. When a taxpayer receives the summons, he is notified that he must turn over a thorough accounting of his books and other sensitive documents to the IRS. There isn’t a place to hide secrets when receiving a summons, as the taxpayer is required to submit to the IRS Agents everything that the summons covers.

Taxpayers are taking notice of this new, aggressive technique of the IRS, as there has been an increase in disputes of the summons. According to the Taxpayer Advocate Service, there has been an increase of an astounding 300% in 2011 in the number of legal disputes involving administrative summons in relation to the number of legal disputes filed in 2005. These statistics point to the fact that this was the most litigated issue for the IRS in 2011.

Usually, before an administrative summons is issued, the IRS will issue a less aggressive request in the form of an information document request. If there is a failure to cooperate or comply, the IRS may issue an administrative summons. If the taxpayer continues to be uncooperative, it is at this point that the agency can petition the Justice Department for an order from the court, which gives the summons some “teeth,” so to speak. Those taxpayers who refuse to cooperate can be issued sanctions for criminal or civil contempt.

According to reports, the IRS has shown eagerness to issue summons when large quantities of money at speak early on in recent investigations. As is the case with many government agencies, the IRS is trying to collect as much as it can, as quickly as it can. In recent years, the IRS has acquired the ability to obtain more records and documents that could expose abusive tax practices by taxpayers.

The IRS, as is its policy, does not release any information regarding the number of summons it has issued or promised to issue.

In order to work with the significant increase in summons, make sure you contact an appropriate tax professional who can assist you answering a summons, or disputing one if that is your aim. Please be aware, though, that the success rate for disputing a summons is extremely low. If you have a tax issue, it is best to turn to the advice of a competent tax professional who is familiar with the system and with what works in regards to resolving issues with the IRS.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

What Makes a Tax Lawyer a Tax Lawyer?

Not many children dream of becoming tax lawyers when they grow up. Firefighters, superheroes, and ballerinas lead much more exciting, glamorous lives. Thankfully for the perpetuation of the profession, an interest in law increases as children grow older and are  subject to the dynamic parts of the legal profession as portrayed in popular culture. Unfortunately, the heroic lawyers of the courtroom are not usually tax attorneys.

Middle school children read with awe of the courtroom scenes of Atticus Finch, a champion of integrity and justice in the midst of racial prejudice and persecution. Popular television shows of the past and present—Matlock, Perry Mason, and Law and Order—feature attorneys who take it upon themselves to exact justice nobly, handing criminals over to the law neatly and precisely at the end of the show’s allotted hour. In real life, cases are not so easily resolved within an allotted hour and tax lawyers daily lives are nothing like those portrayed in popular television.

Although tax lawyers do not spend much time in the court room, grappling grandly with judges and juries, nor do they take upon themselves the investigative work of their fictitious legal counterparts, they do spend a great deal of time in the midst of something equally as intimidating—the U.S. Tax Code. For many individuals, and even for many lawyers, the U.S. Tax Code is an unnavigable labyrinth of legal complexities. It is within these complexities that both tax lawyers and the Taxman live their lives. Not all attorneys plan to live within the tax labyrinth that frightens the taxpayers with its intimidating language, taking different paths to becoming a tax lawyer, but there are some steps that are required and beneficial that will eventually lead them to a life with the Taxman.

Essential to becoming a tax attorney is, of course, attending law school and passing the bar in the state in which the tax attorney intends to practice. Tax lawyers, though, often possess additional degrees or credentials that enable them to work with the complex tax code. Many tax attorneys become familiar with the tax code early on, studying accounting during their undergraduate education and sometimes even receiving a Masters Degree in Accounting. There are others who choose to go to law school after their undergraduate degree, returning to school to get their Master of Taxation after becoming attorneys. When an individual chooses a tax attorney to represent him in his tax issue, it is important to look for those additional credentials, as they could mean the difference between solving a tax issue and aggravating it.

While spending a lifetime dealing with the dreaded taxman and the Tax Code on a regular basis might seem to some as appealing as watching paint dry, or as tediously uneventful as counting rice, keeping in mind that it was the Internal Revenue Service that was the only government entity able to capture Al Capone might lend a different view to the tax attorney who battles with the IRS daily. If it was the IRS who finally captured the notoriously elusive gangster, then there must be more to working with the IRS than meets the eye. Those who think that life as a tax attorney is dull, uneventful, and just plain boring need only to take a closer look at the life of a practicing tax attorney to think otherwise. The legal issues they encounter come from all avenues, and the players in these cases—the IRS and the ever-mercurial Taxpayer—make each day an interesting one. It is the tax lawyer who must juggle the taxpayers and the IRS, as well as the ethical issues that lie within that relationship.

A snapshot of the taxpayers who have IRS issues would show an eclectic group of people. The cases they bring to tax lawyers, though they may all lie in a certain framework, are just as varied as the clients that bring them in. From actors to artists, from athletes to lawyers themselves, myriad people need the assistance of a tax attorney in resolving their issues with the IRS. As any tax attorney would attest, most cases fall within that framework, but it is the details that lie within it that make each tax case interesting and unique. There are some taxpayers who find themselves at odds with the IRS over back taxes, wage garnishments, tax liens and levies. No one is immune to scrutiny by the IRS, but there is hope with the assistance of a tax attorney.

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South Dakota Woman Wins Her Battle Against the IRS

After two long years, a woman from Rapid City, South Dakota claimed a victory over the Internal Revenue Service. The woman, Laca Ossenfort, convened a news conference to announce the settlement in her battle against the IRS.

In 2010, the IRS notified Ms. Ossenfort that she was personally liable for taxes and penalties that totaled $1.3 million because of an acquisition by Pioneer Credit Counseling, a company for which she is an administrator. The liability was apparently incurred in 2005 when Pioneer Credit counseling purchased the assets of a company Ms. Ossenfort also had an interest in personally, Savoy.

At the time, there was a service agreement in place between the two companies.

Upon receiving the tax assessment, Ms. Ossenfort, with the assistance of tax attorneys, appealed the penalty in the United States Tax Court. A settlement was reached between Ms. Ossenfort and the IRS before the trial date in September, according to a spokesperson for Ms. Ossenfort.

According to a spokesman from the IRS, the Internal Revenue Service does not comment on any settlements.

Documents from the Tax Court disclose the fact that both parties are paying their own tax attorney fees and that Ms. Ossenfort was not awarded any additional costs that she may have incurred while this case played out.

While the spokesman for Ms. Ossenfort did not disclose the exact details her battle against the IRS, he did say that it was offered by the IRS after it dropped the claim. He also remarked that both Ms. Ossenfort and Pioneer Credit Counseling were content with the settlement reached in the case.

If you have a similar dispute with the IRS, or if you think that you have been unjustly assessed a tax that you should not be liable for, please contact a competent and knowledgeable tax attorney.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

 

 

IRS Fraud Investigator Commits Fraud

Fraud Investigator Agent Beverly Hood of the Fraud Investigation Division testified against several defendants being investigated for something which she, herself, had been investigated: mortgage fraud.

According to reports, Ms. Hood and her husband fell on hard times like many other Americans, filing for bankruptcy at the end of 2009. It is what she did afterward that caused her to be investigated after one the agents she supervised filed a whistleblower complaint against her. After filing for bankruptcy, she and her husband lived in their home for 2 years without making a single mortgage payment. When she was called in by investigators after the complaint was filed, Ms. Hood had no idea why she was being summoned.

While the investigation of mortgage fraud didn’t go past the interviews, it was still embarrassing for Ms. Hood, whose personal financial disaster became the subject of talk among her peers. The fraud investigator bankruptcy filings and unpaid mortgage payments are the markers that would attract IRS’ attention to the average taxpayer. Ms. Hood found out that, especially as an agent, she was no exception.

Ms. Hood, who has had an esteemed career investigating fraud across the country, is seeking to put the past behind her.

If you find yourself in a precarious financial situation, with the IRS investigating you, please contact a tax attorney with experience in dealing with the IRS.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

On the Importance of Being Honest: Finding a Trustworthy Tax Professional

There is a long list of celebrities who have blamed their tax problems on the bad advice of unscrupulous individuals. Unfortunately, these celebrities whose tax problems are highlighted in the media are merely a microcosm of a greater issue that reaches individuals across the country: the prevalence of  untrustworthy tax professionals.

The former IRS agent and tax preparer discussed in the last blog post was an example of this unfortunate problem, but it is Kenneth Star who is a famous and striking example of a trustworthy tax professional gone awry. An article in the New York Times chronicles “The Decline and Fall of a Tax Professional,” is an example of what can occur when trust is put in a scheming individual who does not have your financial health in mind.

“Who wants to think about money when you’ve got your art?”—the Times claims that this was Starr’s line. Deemed Hollywood’s “money man,” Mr. Starr’s Ponzi scheme reached dazzling celebrity clients, including Martin Scorcese and Al Pacino. His Hampton’s clients recount how Starr told them they were much too busy and important to occupy themselves with dealing with money. Starr would reportedly give some of his clients a yearly allotment, treating them as children while paying their obligations and making investments on their behalf.

Mr. Starr’s personality—soft, pleasing, optimistic—kept clients from questioning him or seeing through his financial jargon to the truth of the situation. He would encourage their dreams; he helped them fund their fantasies with their allowances, allowing them to live happily complacent and blissfully unaware.

He was even able to slyly trick big investment firms like Blackstone. Starr had all the right friends—Barbara Walters, Diane Sawyer, Mick Nichols—to give him the credibility required to infiltrate the upper echelons of the New York society’s financial world. It wasn’t until Mr. Starr’s deceit came to light that the co-founder of Blackstone, Pete Peterson, began to wonder what was happening to the money that Mr. Starr was supposed to be distributing from return flow, or the profit he was receiving on behalf of the aggregator funds he had invested using his clients’ money.

The unraveling of his scheme began with a catalytic moment involving Sylvester Stallone. Mr. Stallone sued Mr. Starr for $10 million dollars after they disagreed over financial shares in Planet Hollywood. It was this settlement that would begin the decline.

His personal life was in shambles, as he was already on his third marriage. As a result, he began to act more desperately with his more vulnerable victims, using them to finance his deteriorating lifestyle. One such vulnerable individual was the late Joan Stanton, who would later file a civil suit against him that would ultimately lead to the Ponzi scheme indictment.

There are many who would say they would have never guessed Mr. Starr was out to commit financial crimes, but there are also those who would say that the signs were there, if only people were observant enough to recognize them.

To assist you in recognizing these signs, there are a few simple steps you can take to prevent yourself from falling victim to a tax scheme:

· Check the credentials of the tax professional you are considering. Keep in mind that only attorneys, CPAs, and enrolled agents have the ability to represent individuals in all IRS matters—such as audits, collections, and appeals. Tax professionals who do not fall into those three categories can only represent taxpayers in audits of tax returns they themselves have prepared. While Mr. Starr had all the appropriate credentials, there are those who advertise their services who do not. Beware of those individuals.

· When receiving advertisements for tax help, always do your research. Make sure you choose the tax assistance firm that provides you with the information and services they promise.

· When speaking to a representative, make sure he or she knows what the issue is and can give you an idea of how to they will help you. Again, it cannot hurt to do your own brief research, so as not to come into a situation blind. If they can’t give you answers to the simplest questions, they probably can’t help you navigate the complexities of the IRS.

· Beware of firms that promise quick, easy, and fantastic resolutions for all situations. Guaranteeing such resolutions is not always realistic. Look for a firm that is frank with you, laying out the possible outcomes, minus the rose-colored glasses. The optimism of Kenneth Starr blinded many people to the reality of the situation. Don’t let that be what happens to you.

· Keep in mind that contracts you sign are binding, and not to be taken lightly. Making an informed decision after doing the appropriate research is absolutely essential. It is also important to keep in mind that the IRS has an eye on you. If there is something awry with your returns, they will catch it and hold you responsible. Alan Scorsese and Al Pacino had this very problem, as tax liens were filed against them when it came to light that they owed on money mismanaged by Starr. Although you may eventually be able to prove that these issues were the result of mismanagement, it is better to save yourself the hassle and find a tax professional that won’t get you in trouble with the IRS.

· And finally, although it may seem cliché, trust your gut. If after you have done your research and spoken to the firm‘s representatives, you still have questions, take that into consideration. You want to feel as though you can trust the tax professional who is working on such a sensitive issue for you.

When you are looking for someone to represent you, keep these key points in mind. It could mean the difference between becoming a victim of fraud or a contented taxpayer.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Tax Problems – How to Effectively Handle

Tax problems can arise in many different forms. One of the more common tax problems for small business-owners involves payroll tax problems.  This is one of those tax problems the IRS aggressively pursues and one of those tax problems that can often become extremely problematic if not handled timely and effectively.

Often, payroll tax problems arise from a business either not filing a payroll tax form on time, or not filing the required form(s) at all.  Payroll tax problems can often be easily resolved if a business-owner made payroll tax deposits and simply had a problem with the form(s).  In such instances, the IRS will typically let the business-owner clear up the tax problems simply by getting the form(s) completed and to the IRS as soon as possible.  The IRS may assess a small penalty, but at least the tax problems have been resolved and don’t get worse.  These types of relatively minor tax problems don’t usually require the help from a tax professional.

The more serious tax problems arise when a business-owner fails to make the required payroll tax deposits on time and/or in the correct amounts. Serious tax problems can arise when business-owners are also the businesses’ only employees.  The owners sometimes don’t appreciate they’ve still got to adhere to specific deposit requirements for themselves as employees. Tax problems are created when required deposits are not made.  These mandatory deposits include: 1) Medicare tax; 2) Social Security tax; 3) Federal income tax; and Federal Unemployment tax.

In addition to withholding funds from their employees’ wages, and depositing those funds on their behalf to avoid tax problems, business owners are also required to pay a matching amount for some taxes. Business-owners are required to report some of their tax liabilities to the government on a quarterly basis (see IRS Form 941) while other tax liabilities are to be reported annually (see IRS Form 940).

To avoid tax problems, you shouldn’t confuse reporting with depositing. Many payroll tax problems arise when a business-owners doesn’t understand that these are two entirely different processes. As you might expect, reporting tells the government how much the business-owner owes. But depositing is the process of actually sending the government the money in a timely manner and in the correct amount.  To avoid tax problems, it is often advisable to get assistance from a competent tax return preparer familiar with payroll tax requirements and other business tax reporting.

Depending upon the size of the business’ regular payroll, the business-owner may be required to make payroll tax deposits either semi-weekly or monthly. To avoid serious tax problems it is important to understand the IRS will determine how often the business is required to make deposits. It’s at least equally as important the business adheres to the IRS’s schedule. It is not up to the business, but rather the IRS to choose whether the business must make semi-weekly or month deposits.  Serious tax problems can arise if the business does not make timely periodic deposits in accordance with the IRS’s schedule.

Business-owners who find themselves with payroll tax problems ordinarily end-up there because they miss one or more required payroll tax deposits. Whether the business-owner simply forgot to make a deposit, or he/she didn’t have the money and planned to “catch up later,” the outcome is the same.  You’ve got big tax problems and need to get them fixed sooner, as opposed to later.

Tax problems arise once the business misses even one deposit.  Thereafter, the business will start receiving an automated series of letters from the government discussing the nature and extent of the tax problems. These letters may start out fairly cordial but, before the business-owner realizes it, the IRS has started threatening civil and legal penalties including fines, interest, penalties, and, in extreme cases, criminal prosecution if the tax problems are not immediately resolved.

When such occasions arise, it may be extremely helpful to a business-owner to seek out professional help to deal with the tax problems.  If the business can solve the tax problems immediately either by filing the missing tax reporting forms (940 and/or 941), and/or making the missing deposit(s) then it is strongly advisable to consider just filing the forms, paying the taxes as well as the fines, interest and penalties to quickly resolve the tax problems.  Most would agree that’s probably the cheapest and easiest solution to fixing these types of tax problems.

If however, the business’ payroll tax problems reach a more serious level, the business will most likely need to engage a tax professional to handle the tax problems with the IRS.  Retaining an IRS tax attorney is typically a business’ best choice for dealing with more serious types of tax problems.

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