New Email Phishing Scam

The IRS has been alerted to a new email phishing scam.

The emails appear to be from the IRS Taxpayer Advocate Service and include a bogus case number and the following message:

“Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”

The recipient is directed to click on links that supposedly provide information about the "advocate" assigned to their case or that let them "review reported income."  The links lead to web pages that solicit personal information.

Taxpayers who get these messages should not respond to the email or click on the links. Instead, they should forward the scam emails to the IRS at phishing@irs.gov. For more information, visit the IRS's Report Phishing web page.

The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including TAS, does not initiate contact with taxpayers by email, texting or any social media.

Need last minute help with business taxes?

Is there something about your taxes that have you confused? Join the club.
You have some options - search endlessly through IRS documentations, tips, etc. or you can do it the smart way and that is by contacting Neikirk, Mahoney and Smith CPAs.
at 502-896-2999.

Filing an Amended Tax Return

From Neikirk, Mahoney & Smith CPAs, here are the Internal Revenue Services' Top 10 Tax Tips about Filing an Amended Tax Return

We all make mistakes so don’t panic if you made one on your tax return. You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Men with big dogs won't show up at your door if you goof, but here are some tips to help you handle this sort of thing.

1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.

Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.Gov/HCTC first for more information.

2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.

3. Form 1040X.  Use Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.

Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

4. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See "Where to File" in the instructions for Form 1040X for the address you should use.

5. Other forms or schedules.  If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.

6. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.

7. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.

8. Corrected Forms 1095-A.  If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A.  This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.

In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund.  You may also want to file an amended return if:

 You filed and incorrectly claimed a premium tax credit, or
 You filed an income tax return and failed to file Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.
Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.

9. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.

10. Track your return.  You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is available on IRS.gov or by phone at 866-464-2050.

Still have questions? Contact Neikirk, Mahoney & Smith at (502) 896-2999.

Taypayer Bill of Rights

If you've never seen this before, it's certainly worth reviewing again as we plow our way toward 4th Quarter. Brought to you by the tax professionals at Neikirk, Mahoney & Smith.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. Know your rights and understand the nation's obligations to protect them.

The Right to Be Informed
Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

The Right to Quality Service
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

The Right to Pay No More than the Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

The Right to Challenge the IRS’s Position and Be Heard
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

The Right to Appeal an IRS Decision in an Independent Forum
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

The Right to Finality
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

The Right to Confidentiality
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

The Right to Retain Representation
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

If you have questions, don't hesitate to contact Neikirk, Mahoney & Smith at 502-896-2999.

IRS's Summertime Tax Tips

Straight from the horse's mouth - assuming the IRS is the horse - on this beautiful Friday in the Bluegrass State! If you owe tax, the IRS offers safe and easy ways to pay. Check with Neikirk, Mahoney & Smith CPAs at 502-896-2999 if you have questions or need any help.

Summertime tax payment tips:

• Pay your tax bill.  If you get a bill, you should pay it as soon as you can. You should always try to pay in full to avoid any additional charges. See if you can use your credit card or to get a loan to pay in full. If you can’t pay in full, you’ll save if you pay as much as you can. The more you can pay, the less interest and penalties you will owe for late payment. The IRS offers several payment options on IRS.gov. 
• Use IRS Direct Pay.  The best way to pay your taxes is with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. You can pay your tax in just five simple steps in one online session. Just click on the “Payment” tab on IRS.gov. You can now use Direct Pay with the IRS2Go mobile app.
• Get a short-term payment plan.  If you owe more tax than you can pay, you may qualify for more time, up to 120 days, to pay in full. You do not have to pay a user fee to set up a short-term full payment agreement. However, the IRS will charge interest and penalties until you pay in full. It’s easy to apply online at IRS.gov. If you get a bill from the IRS, you may call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help.
• Apply for an installment agreement.  Most people who need more time to pay can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is the hassle-free way to pay. The set-up fee is much less than other plans and you won’t miss a payment. If you can’t apply online, or prefer to do so in writing, use Form 9465, Installment Agreement Request. Individuals can use Direct Pay to make their installment payments. For more about payment plan options, visit IRS.gov.
• Check out an offer in compromise.  An offer in compromise, or OIC, may let you settle your tax debt for less than the full amount you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. Not everyone qualifies, so make sure you explore all other ways to pay your tax before you submit an OIC to the IRS. Use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be.
• Change your withholding or estimated tax.  If you are an employee, you can avoid a tax bill by having more taxes withheld from your pay. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form. If you are self-employed you may need to make or change your estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for learn more.

IRS Offers Tips for Starting a New Business

When you start a business, a key to your success is to know your tax obligations. You may need to not only know about tax rules but also on rules payroll tax.

Here are five tips IRS tax that can help make your business off to a good start.

Business structure. Need early to decide what type of structure will choose for your business.

Business tax. There are four general types of business taxes. These are: income tax, self-employment tax, employment tax and excise duties. In most cases, the types of taxes you pay your business depends on the type of business structure that you set. You may have to make payments of estimated taxes. If you do, use IRS Direct Pay to pay. It's fast, easy and secure way to pay for your checking or savings account so.

Employer Identification Number (EIN). You may need to get an EIN for federal tax purposes. Visit IRS.gov to find out if you need it and to apply online.

Method of accounting. An accounting method is a set of rules used to determine when to report income and expenses. You must use a consistent method. The two most common are the cash method and accrual method. Under the cash method, you generally report income and expenses deducted in the year they are received or paid. Under the accrual method, you generally report income and deduct expenses in the year in which the gains or incurred. This is true even if the income is earned or paid the expense in a year later.

Employee health care. The health tax credit for small businesses helps small businesses and tax-exempt organizations to pay for the health care coverage they offer their employees. A small employer is eligible for the credit if you have fewer than 25 employees working full time, or a combination of full time and part time. The maximum credit is 50 percent of the premiums paid by small business employers and 35 percent of premiums paid by small tax-exempt employers such as charities.

The provisions of the shared responsibility of the employer of the Health Care Act Affordable affect employers who employ at least a certain number of employees (usually 50 full-time employees or a combination of full- and time partial). These employers are called large employers applicable (ALE).

ALEs must offer minimum essential coverage for full-time employees (and their dependents), or potentially make a payment dela shared responsibility of the employer to the IRS. The vast majority of employers fall under the threshold number of employees of ALE and, therefore, not subject to the provisions of shared responsibility of employers.

Employers also have the responsibility to report the information in relation to the minimum essential coverage offered or provided to full-time employees. Employers must send reports to employees and the IRS about new forms that the IRS created for this purpose.

Get all the tax bases of starting a business on IRS.gov in the Small Business Center and the Center for self-employment taxes.

IRS Removes Automatic W2 Extensions

The Internal Revenue Service has issued final and temporary regulations removing the automatic 30-day extension of time to file information returns on forms in the W-2 series, with the exception of Form W-2G, in an effort to combat tax-related identity theft, starting in 2017, according to an article in Accounting Today by Michael Cohn.

They are doing this to fight identity theft.

If you'd like to read the entire article, click here.

Inverting Companies Regain Contract Eligibility

In an article published in Bloomberg News, Zachary R. Mider reports that the Obama administration quietly handed a victory to U.S. companies that avoid taxes by claiming a foreign address, suggesting that virtually all of them are still eligible for government contracts.

The Department of Homeland Security last year endorsed a legal memorandum that argued in part that a 2002 law banning such companies from federal contracts was invalid, according to a copy of the memo obtained by Bloomberg News. Although President Barack Obama later began publicly criticizing the tax maneuvers known as inversions, there’s no sign that he has reversed the department’s decision.

The March 2013 memo was submitted to Homeland Security by one of the country’s largest inverted companies, the manufacturer Ingersoll-Rand Plc. The company argued in part that U.S. trade agreements with foreign governments invalidated the law that would prohibit it from winning federal contracts.

You can ask a real person what this means by calling Neikirk, Mahoney & Smith CPAs at 502-896-2999.

To read the full article, click here.

Tax Tips for Students with Summer Jobs from Neikirk, Mahoney & Smith

Students often get a job in the summer. If it’s your first job it gives you a chance to learn about work and paying tax. The tax you pay supports your home town, your state and our nation. Here are some tips students should know about summer jobs and taxes:

• Withholding and Estimated Tax.  If you are an employee, your employer withholds tax from your paychecks. If you are self-employed, you may have to pay estimated tax directly to the IRS on set dates during the year. This is how our pay-as-you-go tax system works.
• New Employees.  When you get a new job, you will need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.
• Self-Employment.  Money you earn doing work for others is taxable. Some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction can cut taxes.
• Tip Income.  All tip income is taxable. Keep a daily log to report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
• Payroll Taxes.  You may earn too little from your summer job to owe income tax. But your employer usually must withhold social security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
• Newspaper Carriers.  Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from social security and Medicare taxes.
• ROTC Pay.  If you’re in ROTC, active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training is not taxable.
• Use IRS Free File.  You can prepare and e-file your tax return for free using IRS Free File. It is only available on IRS.gov. 
• You may not earn enough money to be required to file a federal tax return. Even if that is true, you may still want to file. For example, if your employer withheld income tax from your pay, you will have to file a return to get a tax refund.

If you have more questions, or if you could use some advice, contact Neikirk, Mahoney & Smith PLLC, at (502) 896-2999.

Tax Tips From the IRS for Self-employed Folks

IRS recognizes Small Business Week May 4 – 8, 2015, by highlighting some of its most popular educational products, videos and webinars to help your small business thrive. If you are self-employed, be sure to view the IRS webinar “Business Taxes for the Self-Employed: The Basics.” 

Here are some topics included in the webinar or on IRS.gov that you should know:

Accounting Method.  An accounting method is a set of rules about when to report income and expenses. Many small businesses use the cash method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Find out more in IRS Publication 538, Accounting Periods and Methods.

Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. You may have to pay self-employment tax as well as income tax if you make a profit. Self-employment tax, or SE tax, includes Social Security and Medicare taxes. You may need to pay your taxes by making estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

Tax Forms.  There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form. Use Schedule SE, Self-Employment Tax, to figure your SE tax. If you owe this tax, make sure you file the schedule with your federal tax return.

Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business. View the webinar “Small Business Owners: Get All the Tax Benefits You Deserve” to learn more.

Business Use of a Vehicle.  If you use your car or truck for your business, you may be able to deduct the costs to operate the vehicle for the business use. Refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses for details.

Follow the IRS on Twitter! The IRS has three key accounts: @IRSnews, @IRStaxpros and @IRSenEspanol. For all the IRS Small Business Week information, keep an eye on these IRS Twitter accounts and the key hashtags: #IRSsbw15 and #DreamSmallBiz.

Retirees Face April 1 Deadline

Many Retirees Face April 1 Deadline to Take Required Retirement Plan Distributions
IR-2015-55, March 19, 2015 — The IRS today reminded taxpayers who turned 70½ during 2014 that in most cases they must start receiving required minimum distributions from Individual Retirement Accounts and workplace retirement plans by Wednesday, April 1, 2015.

Beware of the IRS' "Dirty Dozen" Tax Scams

This just in from Neikirk, Mahoney & Smith, one of Louisville's leading accounting firms, the Internal Revenue Service wrapped up the 2015 "Dirty Dozen" list of tax scams today with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year's filing season.

The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.

Phone scams and email phishing schemes are among the "Dirty Dozen" tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on IRS.gov highlighting these 12 schemes for taxpayers.

"We are doing everything we can to help taxpayers avoid scams as the tax season continues," said IRS Commissioner John Koskinen. "Whether it's a phone scam or scheme to steal a taxpayer's identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams."

Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax returns even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

Here is a recap of this year's "Dirty Dozen" scams:

Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season. (IR-2015-5)

Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6)

Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)

Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. (IR-2015-8)

Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)

Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR-2015-12)

Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)

Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns. (IR-2015-18)

Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)

Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)

Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21)

Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23)

Fresh from the IRS

Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).

The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

Questions and Answers for:

• Payroll Tax Exemption for Hiring Unemployed Workers
• Business Credit for Retention of Certain Newly Hired Individuals in 2010

HIRE News Releases:

• Form to Claim Payroll Tax Exemption for Hiring New Workers Now Available
• Special Payroll Tax Exemption Form Now Available
• Two New Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers

GAO Says IRS' Internal Controls Could Result in Security Breaches

Neikirk, Mahoney & Smith, an accounting firm based in Louisville, reports that in their most recent audit, the General Accounting Office (GAO) has slammed the Internal Revenue Service, citing ongoing weaknesses in internal controls and management that could result in taxpayer security vulnerabilities.

Citing "serious control deficiencies", the GAO says the corrective actions the IRS has taken have fallen short because of the failure of the IRS to fully address the system enhancements that will be required to fix the problems. System weaknesses cited in the audit include weaknesses in information security, including missing security updates, insufficient monitoring of financial reporting systems and mainframe security, and ineffective maintenance of key application security.

The most frightening aspect of the GAO's report is until the problems are resolved, there is an increased risk that taxpayer data will be vulnerable to "inappropriate and undetected use, modification or disclosure."

From the audit report, the "IRS did not maintain effective internal control over financial
reporting as of September 30, 2014, because of a continuing material weakness in internal control over unpaid tax assessments. GAO’s tests of IRS’s compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements detected no reportable instances of noncompliance in fiscal year
2014.

The material weakness in internal control over unpaid tax assessments was primarily caused by financial system limitations and errors in taxpayer accounts that rendered IRS’s systems unable to readily distinguish between taxes receivable, compliance assessments, and write-offs in order to properly classify these components for financial reporting purposes. These deficiencies necessitated the use of a compensating estimation process to determine the amount of taxes receivable, the most material asset on IRS’s balance sheet.

Through this compensating process, IRS made almost $17 billion in adjustments to the 2014 fiscal year-end gross taxes receivable balance produced by its financial systems. Serious control deficiencies related to unpaid tax assessments are likely to continue to exist until IRS significantly enhances the capabilities of the systems it uses to account for unpaid tax assessments, and improves
controls over the recording of information in taxpayer accounts so that reliable transaction-based balances for taxes receivable can be ultimately recorded in its general ledger system.

However, IRS’s current corrective action plan does not fully address all of the system enhancements needed to accurately classify unpaid tax assessment transactions, and IRS has yet to identify the underlying control deficiencies causing the errors in taxpayer accounts.

During fiscal year 2014, IRS continued to make important progress in addressing deficiencies in internal control over its financial reporting systems. However, GAO identified new and continuing deficiencies in internal control over information security, including missing security updates, insufficient monitoring of financial reporting systems and mainframe security, and ineffective maintenance of key application security, that constituted a significant deficiency in IRS’s
internal control over financial reporting systems.

Until IRS fully addresses existing control deficiencies over its financial reporting systems, there is an
increased risk that its financial and taxpayer data will remain vulnerable to inappropriate and undetected use, modification, or disclosure.

In addition to its internal control deficiencies, IRS faces significant ongoing financial management challenges associated with (1) safeguarding the large volume of sensitive hard copy taxpayer receipts and related information, (2) its exposure to significant invalid refunds from identity theft, and (3) implementing the tax provisions of the Patient Protection and Affordable Care Act. The difficulties confronting IRS in its efforts to effectively manage each of these challenges are further magnified by the need to do so in an environment of diminished budgetary resources.

Read the full audit report here. http://www.gao.gov/assets/670/666863.pdf

Conservative Groups' Lawsuits Against IRS Dismissed

A federal judge has dismissed a pair of lawsuits against the Internal Revenue Service by over 40 conservative groups over the IRS’s handling of their applications for tax-exempt status, according to Michael Cohn in Accounting Today.

Judge Reggie Walton of the U.S. District Court in Washington pointed out in his ruling Thursday that the IRS had changed the way it reviewed the tax-exempt applications and had approved most of the groups, and that federal courts do not allow financial claims against individual defendants in the IRS for constitutional violations.

The lawsuits were filed on behalf of conservative groups such as True the Vote and Linchpins of Liberty by the American Center for Law and Justice.

The IRS has come under fire from conservative groups since last year for using terms such as “Tea Party” and “Patriot” to review applications for tax-exempt status under Section 501(c)4 of the Tax Code. The controversy led to the ouster of the former director of the IRS’s Exempt Organizations unit, Lois Lerner, along with other IRS officials.

The head of at least one conservative organization was dismayed by the dismissal of the lawsuits. “This ruling is offensive to every citizen who believes in equal treatment under the law,” said FreedomWorks executive vice president Adam Brandon in a statement. “It doesn't matter when the IRS bullied conservative groups or if they stopped, the point is that it was done, and the IRS has to be held accountable. Today's decision was the legalization of federal bullying and unchecked discretionary authority, so long as agencies can play the waiting game long enough to correct their misdeeds. The fact that it occurred in the first place was appalling, but the fact that it was excused by the courts was disgraceful."

If you - or someone you know - is considering a filing for tax-exempt status, contact Neikirk, Mahoney & Smith. Neikirk, Mahoney & Smith's tax experts can help you streamline the process and maximize the chances for a prompt approval from the Internal Revenue Service.

Interesting article from the Old Gray Lady...

"Tax Tactics Threaten Public Funds" says New York Times' Eduardo Porter.

"When the European Commission charged this week that Ireland’s sweetheart tax treatment of Apple amounted to an illegal corporate subsidy, the company said that it had done nothing wrong. Apple executives might have added that whatever they did, they were not alone.

"Corporate tax strategies intended to minimize global taxes, by hook or by crook, are by now standard practice. Google and Facebook move money through Ireland to lower their taxes. Starbucks uses the Netherlands, a practice that is under review by Europe as well."

Here's the rest of the article - definitely worth your time - http://www.nytimes.com/2014/10/02/business/economy/multinational-tax-strategies-put-public-coffers-at-risk.html?ref=todayspaper&_r=0

And if you have questions about this or any tax related issues, call Neikirk, Mahoney & Smith at (502) 896-2999.

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2014 Statistics of Income Bulletin is available

WASHINGTON — The Internal Revenue Service today announced that the summer 2014 issue of the Statistics of Income Bulletin is available at IRS.gov. 

The Statistics of Income (SOI) Division produces the online Bulletin on a quarterly basis. Articles provide the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue includes articles on the following topics:

Foreign-Controlled Domestic Corporations, 2011. Foreign-controlled domestic corporations (76,793) accounted for a small share (1.3 percent) of all U.S. corporation income tax returns filed for tax year 2011. Collectively, these corporations produced 16.2 percent ($4.6 trillion) of the total receipts reported by all U.S. corporation income tax returns for the year; however, a small portion of these corporations accounted for most of this amount. 

FCDCs accounted for 14.4 percent ($11.7 trillion) of the total assets reported by U.S. corporations for 2011.  

Municipal Bonds, 2011. The municipal bond market was still dominated by the more than 21,000 tax-exempt governmental bonds issued in 2011, raising $297.3 billion in proceeds for public projects, such as schools, transportation infrastructure, and utilities. Tax-exempt bond proceeds totaled nearly $384.3 billion, accounting for almost all (98.4 percent) municipal bond proceeds for the year.

SOI Bulletin articles are available for download at IRS.gov/taxstats. For more information about these data, write to the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, 1111 Constitution Avenue NW, (K-Room 4112), Washington, DC 20224.

If you have any questions, contact Michael Maier at http://nmscpas.com/contact or call (502) 896-2999.

Related Items:          

SOI Bulletin: Summer 2014

Historical Tables and Appendix

Tax Statistics

GAO slaps IRS' internal controls

The Internal Revenue Service is suffering from several new deficiencies in its internal controls, although it has managed to address a number of older problems, according to a new report from the Government Accountability Office.

The report comes in the midst of lingering questions over the IRS’s loss of two years of emails between the former director of its Exempt Organizations unit, Lois Lerner, and people outside the agency, after her computer crashed in 2011. The agency has been struggling with a series of budget cuts in recent years that have negatively affected taxpayer service.
If you have any questions or concerns regarding the status of your own business' internal controls, contact Neikirk, Mahoney & Smith today!

Read more in Accounting Today

IRS Expecting Millions of Edited Returns This Year

By Michael Cohn, Accounting Today

The Internal Revenue Service anticipates that nearly 5 million taxpayers will amend their returns by filing Form 1040X this year. If you're considering doing the same thing, contact Neikirk, Mahoney & Smith CPAs at (502) 896-2999.

Nearly 46 million returns were electronically filed from home computers as of April 18, more than the total from home computers for all of 2013. The IRS said Friday that it has received more than 131 million tax returns, of which 88 percent were e-filed.

Taxpayers who need to amend their returns should file this form only after filing the original return, the IRS noted. Generally, for a tax credit or refund, taxpayers must file Form 1040X within three years, including extensions, after the date they filed their original return or within two years after the date they paid the tax, whichever is later. For most people, this means that returns for tax-year 2011 or later can still be amended. 

Read more here

Read This If You Have A Home-based Business

The Internal Revenue Service today reminded people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

The new option is available starting with the 2013 return taxpayers are filing now.  Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return. Self-employed individuals claim the home office deduction onSchedule C Line 30, farmers claim it on Schedule F  Line 32 and eligible employees claim it onSchedule A Line 21. 

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.

Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

For further details on the home office deduction and the new option, contact Neikirk, Mahoney & Smith PLLC, one of America's premier business accounting firms.