Tag Archives: Blitstein

IRS Increases Audit Examinations

by Michael W. Blitstein, CPA 

The Internal Revenue Service has stepped up its examinations in the past year of taxpayers with high adjusted gross income.

The IRS released its 2012 IRS Data Book on March 25th, providing a snapshot of agency activities for the fiscal year. The report describes activities conducted by the IRS between October 1, 2011 and September 30, 2012, and includes information about returns filed, taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce, among others.

The IRS said it examined just under 1 percent of all tax returns filed and about 1 percent of all individual income tax returns during fiscal year 2012.  Overall, in fiscal year 2012, individual income tax returns in higher adjusted gross income (“AGI”) classes were more likely to be examined than returns in lower AGI classes.

The IRS examined about 12.1 percent of the 337,477 tax returns reporting income of $1 million or more, compared to 2.8 percent of those reporting at least $200,000 and under $1 million, and 0.4 percent of those reporting income under $200,000 who didn’t file a Schedule C, E, F or Schedule 2106, and 1.1 percent of those with income under $200,000 and filing Schedule E or Form 2106. Of the 1.5 million individual tax returns examined, nearly 54,000 resulted in additional refunds. In addition, the IRS examined 1.6 percent of corporation income tax returns, excluding S corporation returns, in fiscal 2012.

During fiscal year 2012, the IRS collected almost $2.5 trillion in Federal revenue and processed 237 million returns, of which almost 145 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 81 percent were e-filed. More than 120 million individual income tax return filers received a tax refund, which totaled almost $322.7 billion.

IRS acknowledged that one of the biggest challenges confronting the IRS today is tax refund fraud caused by identity theft. The IRS has more than doubled the number of staff dedicated to preventing refund fraud and assisting taxpayers victimized by identity theft, with more than 3,000 employees working in this area. As a result of these increased efforts, the IRS during fiscal year 2012 was able to prevent the issuance of more than 3 million fraudulent refunds worth more than $20 billion. Despite these efforts, much more work remains on identity theft as well as on overall refund fraud.

The IRS made significant progress last year on international enforcement, specifically in its efforts to combat the practice of illegally hiding assets and income in offshore accounts. They have continued a two-pronged approach: offering a voluntary disclosure program for those who want to come in and get right with the government, while at the same time pursuing tax evaders and the promoters and banks assisting them.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

Tax Policies of the Major Presidential Candidates

by Michael W. Blitstein, CPA 

On November 6, 2012, Americans will elect the occupant of the White House for the next four years. As President of the United States, the winner will play a major role shaping tax policy and possibly reforming the entire Tax Code. This briefing describes the tax policies of President Obama and former Governor Mitt Romney, with analysis of the potential impact of their tax positions both for the immediate future and for 2014 and beyond.

Impact

Under current law, the Bush-era tax cuts (reduced income tax rates, reduced capital gains/dividends tax rates, and much more) are scheduled to expire after December 31, 2012. Effective January 1, 2013, sequestration under the Budget Control Act of 2011 is scheduled to take effect, with the goal of reducing the Federal budget deficit by nearly $1 trillion over 10 years. In addition, after 2011, a host of so-called tax extenders expired, and after 2012, numerous additional temporary incentives are scheduled to sunset. Moreover, the 2012 payroll tax holiday, which reduced the employee-share of OASDI taxes by two percentage points, is also slated to expire after December 31, 2012. The combination of all these events has many commentators referring to 2013 as “taxmageddon” or the “fiscal cliff.”

The balance between Democrats and Republicans in the House and the Senate may also change on election day. However, whether either party acquires sufficient political capital, let alone a mandate, on taxes to address short-term issues such as sunsetting provisions and long-term issues like tax reform, remains to be seen.

Caution

Between the date of publication and election day, the positions of the candidates may change. CJBS has based this briefing on what we consider accurate, nonpartisan and unbiased information at the time of publication.

SELECTED POSITIONS
Obama —Individual taxes Romney – Individual taxes
2013 rates higher for higher-income taxpayers only 2013 rates same as 2012 for all taxpayers
Unspecified future date: lower rates for middle/lower income brackets Unspecified future date: 20% income tax rate reduction for all taxpayers
Higher capital gains/dividend rate for higher-income taxpayers Eliminate tax on investment income for AGI below $200,000
$3.5 million estate tax exemption/45% rate Abolish the estate tax
Replace AMT with “Buffett rule” Repeal the AMT
Obama – Corporate Taxes Romney—Corporate Taxes
Reduce maximum corporate tax rate to 28% (25% for manufacturing) Reduce maximum corporate rate to 25%
Maintain worldwide system but with reforms Implement territorial system of international tax
 SELECTED CHANGES IN FEDERAL TAXES: 2012-2013 IF CONGRESS FAILS TO ACT
2012 2013
Top individual tax rate 35% 39.6%
Capital Gains 15%* 20%
Dividends 15%* Taxed at ordinary income rates
Top estate tax rate 35% 55%
Child tax credit $1,000 $500
AOTC Up to $2,500 Unavailable
Code Sec. 179 dollar limit $139,000** $25,000
WOTC for veterans Up to $9,600 Unavailable
Research tax credit Unavailable Unavailable
Wind energy PTC Available Unavailable
*Zero percent for taxpayers in the 10 and 15 percent brackets
**As adjusted for inflation

Individuals: 2014 and Beyond

The basic goal for tax reform on the individual tax level expressed by both candidates is to broaden the tax base and lower tax rates. The candidates agree that tax reform should be revenue neutral. Each candidate also forecasts an improved economy from the savings of a simplified tax system and lower overall rates.

Businesses: 2014 and Beyond

Corporate tax reform, and business tax reform in general, has been raised by several Congressional committees and both candidates over the past year as a necessary long range step in making businesses more innovative and competitive. Based upon the multilayered considerations involved, however, concrete changes are not anticipated until 2014 or later.  Specific issues include:

  • Corporate Tax Rates
  • International Proposals
  • Other Business Reforms

Note: A more comprehensive PDF version of this brief can be seen on the CJBS website at: http://www.cjbs.com/Email/October2012/CJBS_long.pdf

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

IRS Ramping Up For Increased Tax Audits

by Michael W. Blitstein, CPA 

One of the greatest fears of taxpayers is facing an audit by the Internal Revenue Service.  Many clients we have represented in IRS audits liken the experience to going to war.  There is the mentality of “us vs. them”.  And this mentality is often warranted.  Even though virtually every Federal agency is under budget scrutiny in Washington, the IRS has been provided with additional resources to add personnel to conduct taxpayer audits.

Back in the late 90’s, Congress was very critical of the IRS for aggressive collection tactics used on individual taxpayers.  Staff and budgets cuts followed.  Now, the IRS has been given initiatives to grow.  The 2012 budget calls for a 9% increase in funding.  Administrators are looking to spend $339 million with the goal of raising $1.3 billion from taxpayers. The IRS states that about 84% of taxes are paid voluntarily.  The difference is the gap they aim to reduce.

In 2006, tax returns with $1 million or more of income were audited 5.25% of the time.  By 2010 this rose to 8.36%.  Similar percentage increases exist for taxpayers with lesser income.  Businesses with less than $10 million of assets were audited just 0.32% of the time in 2004.  By 2010, that percentage almost tripled to 0.94%.

Many of these audits will be correspondence audits.  That is, rather than having to go in and meet with an IRS agent, requested information is mailed to the IRS.  Correspondence audits are less expensive for the IRS to conduct and are becoming more frequent.  Of more than 1.6 million audits conducted last year, 78% were correspondence audits.  This represents a 13% rise in audits from 2009, and a 93% increase from 2003.

While the chance of being audited may be minor, taxpayers should be aware that the possibility of selection is increasing. Compliance and documentation are key factors in navigating your way through an audit successfully. Please contact us with any questions you may have regarding your status, or if we may assist you with any audit examination matters. 

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.