Frivolous Claims To Avoid

The Internal Revenue Service today issued a notice that lists four additional erroneous legal positions that taxpayers should refrain from using as an excuse to avoid paying their taxes.
An individual or group may not avoid paying their fair share of taxes by making “frivolous” legal arguments such as those listed in this notice. The IRS publicizes these frivolous claims to help taxpayers understand the law and avoid penalties.
Notice 2008-14 lists positions identified as frivolous for purposes of the penalty under section 6702 of the federal tax code for filing a frivolous tax return or submitting to the IRS a frivolous request for a collection due process hearing or application for an installment agreement, offer-in-compromise, or Taxpayer Assistance Order.
Taxpayers who file a tax return or make a submission based on a position listed in this notice are subject to a $5,000 penalty. This notice adds to the positions listed in Notice 2007-30, 2007-14 I.R.B. 883. The positions that have been added are found in paragraphs 9(g), 11, 14, and 25.
The four new frivolous claims pertain to the following:


*Misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending.
*Erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States or the IRS.


*A nonexistent “Mariner’s Tax Deduction” (or the like) related to invalid deductions for meals.
*Certain instances of misuse or excessive use of the section 6421 fuels credit.


In 2006, Congress increased the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

IRS Announces 2009 VITA Grants

The Internal Revenue Service has awarded almost $8 million in matching grants to support its Volunteer Income Tax Assistance program.Under the VITA Grant Program, the IRS awarded matching grants to 111 organizations that plan to offer free tax preparation sites in 2009. The sites will be located in all 50 states and the District of Columbia.“This is the first time we’ve been able to provide matching grants to support the VITA program. These grants can be used to expand free services to some of the millions of taxpayers served each year by these VITA sites and their volunteer tax preparers,” said Richard E. Byrd, Jr., IRS Commissioner, Wage and Investment Operating Division.The funds will be used to:

Enable VITA programs to extend services to underserved populations and hardest to reach areas, both urban and non-urban
Increase the capacity to file returns electronically
Heighten quality control
Enhance training of volunteers
Significantly improve the accuracy of returns prepared by the VITA sites

There was an overwhelming response to the first-ever VITA grant with 379 organizations submitting applications requesting more than $30 million in matching funds.VITA partners are organizations that provide free federal tax return preparation and electronic filing for low to moderate income individuals. For tax year 2008, individuals and families with an adjusted gross income of $42,000 are eligible for assistance.The VITA program has enjoyed tremendous support in the years since its creation in 1969. Along with Tax Counseling for the Elderly, another volunteer return preparation program sponsored by IRS for older individuals, more than 3 million tax returns and economic stimulus payment requests were prepared and filed in 2008 at nearly 12,000 locations nationwide.

Monthly Disposable Income

Did you know that Monthly Disposable Income is the determining value of how much the IRS will negotiate a payment for? The key is knowing what goes in to determining how much you can afford and what the IRS deems as a necessary living expense.

As a general rule, the IRS has standards for food, clothing,car payment,medical expenses. Say for instance, if one person lives in the household, the IRS standard for food,clothing is $507 with medical expense as $57, car payment would be around $489. The IRS also allows for a car maintenance standard but has to take in consideration the state/county one lives in.

When attempting a resolution with the IRS, a taxpayer will have to provide full financial disclosure (of liability exceeds $25,000) including but not limited to utilities, mortgage payments, car payments, other secured debt, medical payments, and car insurance. Other permissible expenses would need to be court ordered or secured by another financial institution.

Determining ones Monthly Disposable Income (MDI) means taking your income minus your expenses. If you have tax liability, it would behoove you to hire a professional to assess what your best possible outcome by determining your MDI. There are so many factors to take into consideration (while determining this MDI) that the average taxpayer is not inclined to know.

There are tax professionals in a growing industry that can help you today !

Obama's Plans To Tax The MLB Teams

Going once...going twice...signed by the major league baseball team willing to pay a signing bonus before December 31st.

That is what we might hear from baseball players' agents after they have considered the real possibility that Barack Obama's intention to hike the tax rate on the wealthiest Americans will impact their clients.

You see, the current minimum yearly salary for a big league player is $400,000. That puts the lowliest of bench warmers and pinch hitters into the top 1% of all wage earners in this great country. Obama campaigned on the promise of restoring the top income tax rate to 39.6%, the applicable level during the Clinton administration.

That minimum salary figure equals the increase in yearly taxes that will be paid by a major leaguer who makes $10,000,000 a year if the Obama tax plan becomes law. Incredible. So what's a super-agent to do in this first week of activity in the free agent market?

He has to devise a strategy to get major league clubs to pay some of a player's 2009 compensation prior to the end of 2008. The only way that can happen is in the form of a signing bonus and a quick negotiation before the end of the year.

This year I think he'll try to convince the clubs that it may be in their best interest as well as a tax advantage for them to characterize salary as a bonus.

Penalty Abatement

Recently I had a client that assumed we would be able to lower their liability for them. This is a very broad statement and one that is possible, but needs some major substantiation. According to the IRS, the only reasons they would abate penalties on liability would be for the following reasons:

* Incarceration
* Lost/Misplaced Documents
* Severe Medical Condition
* Erroneous Advice gievn by an IRS agent

[http://www.irs.gov/pub/irs-pdf/i843.pdf]


All this would prevent a taxpayer from being able to physically file their returns.

The IRS will never abate interest, but would possibly abate penalties provided they meet the above qualifications.

For example, I had a client that said he was the primary care giver while going through a difficult
divorce. He asked if he qualify for penalty abatement, to which I said unfortunately not, because he physically able to file his returns to consequently prevent further penalties. If he were the one with a medical condition, then the outcome would be different and would be more advantageous to file for penalty abatement.

Part Two Of SE IRA Deduction

Qualifications to claim deductions
If you are self-employed, you may qualify for a tax deduction for contributions you make to a qualified retirement plan. You must have self-employment income to qualify. Self-employment income consists of net profits from Schedule C or Schedule F.

The deduction is the total plan contributions you can subtract from gross income on your federal income tax return. Limits apply to the amount deductible. You can avoid examinations and additional assessments by making sure you qualify for the deduction.

The self-employed retirement plan deduction may not be allowable if:
- Form 1040, Schedule SE, Section A (if applicable), Line 4, is less than the amount on Form 1040, Line 28.
- Form 1040, Schedule SE, Section B (if applicable), Line 6, is less than the amount on Form 1040, Line 28.
- Form W-2 indicates an individual is a Statutory Employee and the amount in Box 1 is less than Form 1040, Line 28.


Deduction limits for the self employed
If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment — which takes into account both of the following deductions:
- Deduction for one-half of your self-employment tax.
- Deduction for contributions to your own SEP-IRA.

Use the rate table or worksheets in chapter 5 of IRS Publication 560, “Retirement Plans for Small Business” for figuring your allowable contribution rate and tax deduction for your SEP-IRA plan contributions.


Deducting contributions
When to deduct contributions for a year depends on the tax year on which the SEP is maintained. If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year.

For example, you are a fiscal year taxpayer whose tax year ends June 30. You maintain a SEP on a calendar year basis. You deduct SEP contributions made for calendar year 2008 on your tax return for your tax year ending June 30, 2009.

Self Employees Can Deduct Retirement Plan Expense

Retirement plans are not just for big businesses. They are also available for sole proprietorships. If you are self-employed small business owner, you can set up a qualified retirement plan for yourself and your employees.

If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustee fees if contributions to the plan do not cover them.

The Internal Revenue Code provides significant tax incentives for employers that establish and maintain retirement plans that comply with the requirements of the Code. Such plans include Simplified Employee Pension (SEP) plans and Savings Incentive Match Plan for Employees Individual Retirement Account (SIMPLE IRA) plans.

Generally under these plans, contributions that are set aside for retirement may be currently deductible by the employer, but are not taxable to the employee until distributed from the plan.
You must set up and fund a qualified retirement plan such as a SEP or SIMPLE-IRA. No matter what type of plan for the self-employed you are considering, you must actually make contributions to a qualified and properly maintained retirement plan account. This fact sheet provides a quick look at preventing incorrect deductions for retirement plan.