The Top 3 IRS Audit Areas Real Estate Investors Should Know

As income for real estate investors increases, so have IRS audits in these areas. While it is important to minimize our tax liabilities, it is just as important that we do so in the most strategic way to protect ourselves from unwanted correspondence from the IRS.

Today, I want to write about some of the top issues that the IRS is focusing their audit efforts on. These are some of the areas where IRS agents are being trained to specifically focus on in the coming years. It's always good to know what these areas of interests are so that we can plan for and document accordingly in case of a potential audit.

Read more...  http://www.biggerpockets.com/renewsblog/2015/03/12/top-3-irs-audit-areas-real-estate-investors-should-know/

IRS Releases the Dirty Dozen Tax Scams for 2013

Since there are just a few days left in the year 2013 and many of you are thinking of your tax planning before the end of the year, this is worth another read...

IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Read more...IRS Releases the Dirty Dozen Tax Scams for 2013

IRS: Gay Spouses in All States Can File Joint Taxes

Married gay couples living in all 50 states can file joint federal tax returns, even if local authorities don't recognize their marriages, the Obama administration said today.

The decision by the Treasury Department implements the Supreme Court’s decision in June to overturn part of the federal Defense of Marriage Act, which had forbidden the Internal Revenue Service from letting married homosexual couples file jointly.

The government’s decision is a victory for same-sex couples who were married in one of the 13 states or the District of Columbia that recognize such relationships and now live in one of the 37 that don’t.

Read more...IRS: Gay Spouses in All States Can File Joint Taxes

Some factors increase chance of audit

When it comes to income-tax audits, there’s usually safety in numbers.

In any given year, the odds suggest the Internal Revenue Service will select someone else’s return for a closer look, rather than yours.

The IRS said it audited more than 1million individuals in fiscal 2012 for the sixth year in a row, collecting more than $50 billion for the third consecutive year.

While those numbers might seem high, audit rates are really quite low — affecting just 1.03 percent of all tax returns filed. To put that into perspective, the IRS said it prevented fraudulent refund payments on three times as many returns, 3 million, stemming from the unlawful theft of Social Security numbers and other personal information from legitimate taxpayers.

Read more: Some factors increase chance of audit

IRS Provides Guidance on Mortgage Modifications

The Internal Revenue Service is offering guidance on mortgage principal reductions in the federal government's program for mortgage modifications for borrowers who have fallen behind on their payments.  Read more....  http://www.accountingtoday.com/news/IRS-Provides-Guidance-Mortgage-Modifications-65438-1.html

IRS pays Swiss ex-banker, whistleblower $104 million - USATODAY.com

WASHINGTON — the largest amount ever awarded by the agency.

Former Swiss banker Bradley Birkenfeld is credited with exposing widespread tax evasion at Swiss bank UBS AG.

Birkenfeld himself served roughly two and a half years in prison for a fraud conspiracy conviction related to the case, which resulted in a $780million fine against the bank and an unprecedented agreement requiring UBS to turn over thousands of names of suspected American tax dodgers to the IRS.

The IRS, which doesn't usually confirm individual award payments, said Birkenfeld signed a disclosure waiver, allowing the agency to confirm his award.

"The IRS believes that the whistleblower statute provides a valuable tool to combat tax non-compliance, and this award reflects our commitment to the law," IRS spokeswoman Michele Eldridge said in an email.

Birkenfeld has become something of a cause celebre among whistleblowers because of the magnitude of his case and the fact that he was jailed after cooperating with authorities.

In a summary of the award provided by Birkenfeld's lawyers, the IRS said, "The comprehensive information provided by the whistleblower was exceptional in both its breadth and depth."

Federal prosecutors had said Birkenfeld withheld information about his own dealings with a former UBS client who pleaded guilty in 2007 to tax charges.

In 2006, Congress strengthened whistleblower rewards. The law targets high-income tax dodgers.

By Stephen Ohlemacher, Associated Press Sep 12, 2012


IRS pays Swiss ex-banker, whistleblower $104 million - USATODAY.com

Report home gift to IRS

Question: How can I deed my home to my two sons and how should they take ownership?

- Frank Daria

Payson


Answer: The transaction is considered a sale, so you can't just quit-claim the deed. You would file IRS Form 709 Gift Tax Return. You use the form to show the amount of the gift you wish to have applied to your lifetime exemption from gift taxes.

Neither you nor your sons should have any out-of-pocket taxes owed from the gift, but your lifetime exemption will be reduced by the value of the house that exceeds $26,000 ($13,000 per son).

The most flexible ownership would be tenants in common. Both your sons would independently own a 50 percent share of the property with full rights to sell their share without consent of the other.

by Dave Cherry The Arizona Republic Aug. 14, 2011 02:11 PM




Report home gift to IRS

Tips: Get your tax paperwork in order

So the federal income-tax filing deadline is getting closer, but you're lacking key information. Where should you go to retrieve it, and what will it cost you? Below find some key pointers on obtaining what you need.

Item/issue	How to get it	Other details
W-2 forms showing last year's pay	If you haven't received your W-2 by now, contact your employer. If you don't have it by Feb. 16, call the IRS (1-800-829-1040) for help. You'll need your Social Security number, dates of employment and employer's name, address and phone number.	The IRS will contact your employer and issue you a Form 4852 (substitute Form W-2) to fill out if you don't receive your W-2 in time to make the tax deadline. But even if you don't receive W-2s or other documents, that's not an acceptable excuse for not filing.
Tax transcripts	The IRS doesn't charge for transcripts, which are available for the current tax year and three prior years. These summaries come in two forms: Tax-return transcripts show most line items from your return as originally filed, including forms and schedules. Tax-account transcripts show later adjustments made by you or the IRS after you filed.	Order at www.irs.gov (click on "Order a Transcript") or call 1-800-908-9946. Order through the mail using IRS Form 4506T-EZ. Businesses, partnerships and individuals who need data from other forms or a tax-account transcript must use Form 4506T. On online or phone orders, plan on five to 10 days to receive your tax-return transcript. Allow 30 days for orders requiring Form 4506T or 4506T-EZ.
Forms such as 1099s and 1098s*	Contact your bank, brokerage, mutual-fund company or other financial firm to retrieve these tax documents if they haven't arrived.	If you have signed up to access online statements, many financial firms will let you download your 1099s and 1098s from their websites.
Capital-gain records showing your basis in an investment	Basis is the amount of your investment on which you don't face taxes. Check your statement or online account to see if your financial firm tracks this, or call the company. Basis reporting becomes mandatory starting in 2011 (for stocks), 2012 (mutual funds) and 2013 (bonds and options).	Various entities can help you determine your fee, which can be helpful if your investment was made many years ago or you no longer have an active financial account. One source is Netbasis, a program from NetWorth Services in Phoenix (netbasis.com, 1-888-802-2747), which starts at $19.50 for one transaction.
Tax-filing extensions	If you can't get your records together, request an automatic extension by filing Form 4868 by April 18, giving you until Oct. 17.	With an extension, you still should estimate and pay your 2010 tax bill by April 18. Otherwise, interest and penalties could apply.

by Russ Wiles The Arizona Republic February 7, 2011

Tips: Get your tax paperwork in order

Patience is key to filing your taxes

by Russ Wiles The Arizona Republic Jan. 24, 2010 12:00 AM

If you felt like devising a slogan for the coming income-tax season, a good one might be: "Patience required."
Filing a tax return can be a daunting exercise even in normal years, but Congress has added several new wrinkles that undoubtedly will confuse people. These include everything from new tax breaks for college expenses to those for energy-efficient home improvements and new-vehicle purchases.
Even in a normal year, tax complexity is the top problem facing taxpayers and the Internal Revenue Service alike, warns Nina E. Olson, the IRS' national taxpayer advocate, whose office estimates individuals and businesses spend 7.6 billion hours each year dealing with filing requirements.
This year, anyone seeking to get answers over the phone from the IRS could be in for a real struggle, Olson warned in a recent report to Congress.
"This year's Number 1 most serious problem for taxpayers: the declining level of service for IRS toll-free lines," she wrote.
The IRS' ability to handle callers has declined for a couple of years, as wait times have lengthened. For the current fiscal year, the agency has set a goal of answering 71 percent of the calls with a live person rather than a recording.
"In other words, the IRS is planning to be unable to answer about three out of every 10 calls it receives," Olson wrote. "Moreover, those taxpayers that are able to get through to an assistor will have to wait, on average, 12 minutes."
If the IRS is able to handle 71 percent of callers with a live person, that actually would be an improvement over the 64 percent who got through last year, down from 77 percent in 2008 and 83 percent in 2007.
When callers get frustrated about not getting through in a timely fashion, Olson wrote, it creates "downstream consequences," such as avoidable mistakes committed by some taxpayers and a failure by others to file at all.
• Could the IRS make the tax-filing exercise easier on taxpayers by studying them more carefully?
One of Olson's suggestions is for an in-house IRS "cognitive research lab" that would be charged with understanding taxpayer behavior to devise more effective programs, clearer forms and notices, and so on. The idea would be to bring IRS officials together with psychologists, sociologists and other experts to conduct tests on taxpayers and observe their reactions to various forms, notices, programs and the like.
Although it sounds a bit like Big Brother in action, Olson argues the effort would result in improvements over the current situation, whereby the IRS releases products and programs without knowing whether they're effective.
• The IRS for years has encouraged people to file tax returns electronically, but anyone claiming the credit for first-time homebuyers this season won't be able to do so.
The documentation rules designed to deter fraud in connection with the program require taxpayers to file paper returns. Taxpayers still can use IRS Free File or other software products to prepare their returns, but they will need to print out and mail everything.
Those documents include a copy of a home-purchase settlement statement or a copy of the certificate of occupancy on newly constructed homes.
Existing homeowners who buy a new principal residence under the program need to supply additional paperwork.
The IRS also warns of delays in processing returns submitted by taxpayers who claim the credit, with the first refunds likely to be issued no sooner than late March.
• Enjoy the current tax rules, because next year's could be more complex.
So warns tax-researcher CCH Inc., which notes Congress will need to address a slew of issues in 2010, including several provisions that typically are extended on an annual basis such as those pertaining to the alternative minimum tax and optional sales-tax deduction.
Plus, the future of the estate tax hasn't been resolved and - even more critical - ordinary income-tax rates are set to expire at the end of 2010.
The White House has proposed keeping tax rates about where they are for low- and moderate-income filers, but higher rates loom for people earning more than $125,000 (individuals) or $250,000 (joint filers), said Mark Luscombe, principal federal-tax analyst at CCH.
If that's not enough, the tax code's complexity could rise several more notches if the government passes health-care reform this year.