Anthony Sykes & Company

            Over the past year, the Internal Revenue Service ( IRS ) has used funding from the Inflation Reduction Act on audit activities for those who earn more than $1 million and have more than $250,000 in tax debt. In that time, the IRS collected $1 billion from the group that met these criteria. The increase in funding will allow for other goals to be reached as well.           More staff has been added and technology is being updated to provide better service to all taxpayers in the coming years. The IRS will now expand its enforcement activity to include complex partnerships, large corporations, and high-income high wealth individuals who do not file tax returns. In recent years the IRS was not consistent with enforcing tax rules in this area and had fallen behind in the ways some had gotten around their tax responsibilities. These new initiatives look to bridge that gap. If you are in need of t...

                 Everyone wants to be treated fairly. That is an essential quality that all people have. But what is fairness? Trying to answer that question can prove to be difficult for some. While fairness is impartial and just treatment without favoritism or discrimination, applying this principle is a challenge. Each person has their own idea of what is fair. That is certainly true when it comes to the current tax system.           The Internal Revenue Service ( IRS ) is aware of that sentiment. After a year of review following the passing of the 2022 Inflation Reduction Act funding, they are determined to make a change. These changes will focus attention on the wealthy, partnerships, and other high-income earners who in recent years have had a sharp reduction in audits. The IRS is planning to use Artificial Intelligence to detect patterns in tax avoidance and new threats. They will al...

           Even with a large backlog, the Internal Revenue Service ( IRS ) still sends out letters and notices to Taxpayers at all times of the year. They could be for several reasons including, the tax return being changed by the IRS , the taxpayer being due a larger or smaller refund, a question about the tax return, or even the need to verify an identity.           There can be an increase in mail sent out in the weeks after Tax Season has finished. If you receive mail from the IRS , please remember some simple things. Do not ignore it . Reading the letter will explain the reason for the contact and what, if anything, should be done. Do not panic. The IRS normally contacts people by mail. The letter or notice will explain what is needed. Read carefully and completely. Everything you need to know is usually in the letter. If a response is needed, the date required will be there. You can always ask your Qua...

            The Taxpayer Bill of Rights is a document that highlights the rights that all have when dealing with the Internal Revenue Service ( IRS ). Each taxpayer needs to know them. In our continuing discussion of them, we arrive at Number 6, The Right to Finality . This involves knowing the time available to challenge an IRS position and how long they have to start an audit or collect a debt.           The IRS usually has 3 years from the date a tax return is filed to assess additional taxes. However, that time frame becomes unlimited if the tax return is determined to be fraudulent. There is a 10 year limit to collect taxes, and that can only be extended as part of a payment agreement or a court order. If the IRS sends a notice that additional taxes must be paid, it will tell you the deadline for when you can file a petition in Tax Court to challenge. This is another way you can determine if a cri...

          This year looks like it will be a more difficult Tax Season than last year. For one reason, determining COIVD-19 relief has made things a bit more complicated for some Taxpayers. Chances are there will probably be more mistakes made because of that. Will that lead to more audits?           That is very unlikely. The percentage of audits has actually gone down in recent years, but the Internal Revenue Service ( IRS ) has the right to audit up to 3 years after a Tax Return in question has been filed. If a mistake is made, an income discrepancy notice will probably be sent. This might be because the income reported in a Tax Return and documents the IRS has on file do not match. For those with a Small Business, they may want a closer look at your business deductions. You may be claiming a tax credit that you now qualify for, such as the Earned Income Tax Credit ( EITC ). Due to past abuse by many Taxpay...

          Whistleblowers have certainly made the news in recent months, for a variety of reasons. Did you know that the Internal Revenue Service ( IRS ) is always willing to listen to individuals if they have information about potential tax cheats? It’s true. They have a dedicated office that open to those who have “ specific and credible information ” to provide.           The process starts by filling out an official form. This can lead to an award between 15-30% of the total liability collected, including penalties and interest. Before going off to point the finger at companies or individuals, remember that these awards are discretionary and cannot be challenged. If the IRS does decide to start a case, it will take years before it will be resolved. They will only move ahead if certain thresholds are met. They want to make sure that the Criminal Investigations unit is not being used as a tool to solve perso...

         Every year, the Internal Revenue Service ( IRS ) publishes a list of the 12 most common tax scams. It is called the “Dirty Dozen”. While these scams may peak at the beginning of the year, they can be found at any time so we must always be vigilant to avoid these situations. It seems that a few large organizations with a Tax-Exempt status may be involved in some land investments with inflated values. The details of why this scheme makes the “Dirty Dozen” list can be read here .           In this latest example, land appraisers, tax preparers, and others may be involved in billions of dollars of inflated deductions. These land deals, called syndicated conservation easements, make it possible for more than 1 person to claim a charitable deduction of property. The legitimate reason to donate these properties is to protect them from future development. The concern from the IRS is that this provision is being...

         Finding money hidden in unreported money in accounts outside the United States is a focal point of enforcement efforts at the Internal Revenue Service ( IRS ). As a result, Offshore Avoidance schemes have earned a place on the 2019 IRS “ Dirty Dozen ” list. The IRS has stepped up their efforts in finding these kinds of accounts, which has resulted in many millions of dollars in taxes paid due to audits. This has also led to criminal prosecutions.           There are different reasons why Taxpayer’s in the US would maintain bank accounts in other countries. If you do, they must be declared to the IRS . For those who try to use a variety of ways to get around this requirement and their tax responsibilities, success is much more difficult than it was in the past. Due to their criminal prosecutions, the IRS understands the ways Taxpayer’s and their accomplices go about hiding assets overseas. With the appl...

        You may be surprised to find out that the IRS, and state income tax agencies, do not communicate very well with each other. This has been true for many years. However, a recent review has shown that this has led to almost $300 million in taxes going unpaid. When there is confusion, certain individuals can slip through the cracks.           The IRS response to this problem is the State Audit Program. This program creates a way for state agencies and the IRS to share information and make sure that tax laws are followed. In theory, this would be a great way to stop tax cheats and make sure everyone paid their fair share. In reality, this program is voluntary, and it takes a lot of work for government organizations to work together and share. While this program is being streamlined, the state and Federal governments are getting closer to being able to work together and enforce tax law.

         For many, one of the key parts of the Taxpayer Bill of Rights is found in right #9, The Right to Representation . This provision allows for a taxpayer to choose an individual to represent them in dealings before the IRS. This fills a critical need, especially since many will only seek help after they have an issue with the IRS. However, it seems that proposed changes are going to make it much more difficult to provide care in this area.           The IRS has proposed some troubling new changes to the Transcript system. When a Taxpayer has an issue with the IRS and does not have their own Qualified Tax Professional, they will likely look for one. In that case, the Tax Professional will need to see the documents in question, to provide the best care for their client. Unless their client has kept immaculate records, copies know as transcripts, will need to be requested from the IRS. This is a standard pro...

         Now that Tax Season is over and you have filed your Tax Return or received an extension, it can seem to be a time to rest. However, some may be concerned about a potential audit in the future. That is never an enjoyable process, but let us take a closer look at what the odds actually are.           In reality, just over 0.5% of all individual Tax Returns are selected for an audit. Most people do not need to have a morbid fear of this occurring to them. But there are different factors that can change this percentage. For example, those who do not own a business, claim no Tax Credits, or make less than $200,000 have about 0.2% chance of getting an audit. These individual tax filers will have simple returns that are less likely to set off any IRS red flags. The opposite can also be true.           Areas of Tax Credit, business and rental income, along with the fo...

         Congratulations on making it through another Tax Season! We did it together. After going through all the records and receipts to put together a complete Tax Return, there are probably a lot of papers that have been put in files. A logical question to ask is: How long do I need to keep all these records? Since the Tax Return has been filed, can I throw the documents away? Every situation is different and State taxes are not treated the same as Federal, but in general you should hold on to them.           Tax records should be kept for at least 2-3 years. In the event of an audit, its scope usually goes back 3 years. Having the records on hand and ready to hand over will speed up the process. If a Taxpayer were to claim a loss from a bad debt deduction, that Tax Return should be kept at least 7 years. For those who do not file a Tax Return, their records should not be thrown away. These figures are just ...

           Tax obligation is based on a simple principle, that the Government has the right to a percentage of all profits from financial transactions made in this country. Although it is a fact that all understand, many do not fully agree. They therefore devote much time and energy to avoid paying their share. There have been a variety of methods used to accomplish this goal, but one that had recently gained mainstream attention was Cryptocurrency.           Whether it is called Bitcoin, Litercoin, or something else, they all had the same attraction. These forms of currency operate independent of any central bank. This means, in theory, that there could be no restriction of personal wealth and it would not be under the authority of any government because it is digital. These currencies and exchanges have been around for a few years, but have gained some prominence because more people have started to use th...

          IRS audits are the largest source of Criminal Tax cases. This is a part of the IRS that most people are unfamiliar with, and never want to see. The IRS Criminal Investigation Division handles these cases. If ever visited by one of these Special Agents (yes, that is their title), keep in mind that lying to them can result in a Felony. Always ask to see identification, ask for a business card, and consider what to say, if anything.           Often they may approach a person and say they are not the target of an investigation, just a witness. That might be true at the time. There is nothing to keep the answers given at the time, to be used against a person if/when the investigation changes. This is a situation when a Taxpayer needs to go find legal representation. It is their right to communicate with the Criminal Investigation Division through an attorney. Usually a qualified Tax Profes...

          It’s widely known that Federal Tax Law is complex. This is part of the reason for audits, the civil review of tax filings. How can those reviews turn into a criminal case? There is no simple answer.           One common area is income . Always report all of your income. Numbers that don’t make sense can start audits, and upon further review, it’s up to the discretion of the IRS Auditor where to go. Another contributing factor is statements made during the auditing process. A false statement given is a great way to prolong an audit. This is another area where a qualified Tax Professional will help a Taxpayer. They are a great representative for the Taxpayer to the IRS, and will be able to provide the documents being reviewed.           If the conduct displayed, or the information provided move past a certain threshold for the Auditor, the...

           The IRS just updated the information on how auditors will handle employment Tax exams. The key points will stay the same. Audits usually start off because of a risk area, or because of previous history with the employer. When the examination starts, they will look at the internal controls. That means they are looking to determine if the business keeps good written records and are in compliance with all applicable laws or obligations. If this can be proven, the audit tends to be quick, if not, the search will expand. Here are the consistent problems that are found in many cases.           Wrongly categorizing employees as independent contractors. When this is done, the proper taxes are not being paid. That will lead to the taxes, along with penalties being assessed. Our previous post described some of the points that the IRS uses to make this determination. Businesses need to us...

          The IRS wants all businesses and business owners to know the difference between an Employee and an Independent Contractor. One will have income tax, Social Security, and Medicare withheld from their pay, the other will not. This may seem like a small issue, but our next post will discuss why it matters.           Here are a couple of points to keep in mind to help make the distinction. How the business exerts behavioral control , such as determining what work should be accomplished and directing how it is done, that matters to the IRS. Financial control such as how the worker is paid and the extent they can make their services available to the market are also taken into consideration.           Apart from the aspect of control, how the relationship is defined plays a key role. This will include written contracts, the provision of a pensi...