Tax Tidbits

May 1st, 2012

From time to time issues related to taxes arise that are interesting, informative or humorous that is not directly related to the preparation of a tax return but are related issues associated with federal taxation.

Passports Could Be Revoked for Delinquent Taxpayers – The U.S. Senate has unanimously approved a provision added to a highway transportation bill that would revoke the passports of people with seriously delinquent tax debts. The provision gives the State Department the right to deny, revoke, or limit a passport for individuals whom the Internal Revenue Service certifies as having a “seriously delinquent tax debt.” A seriously delinquent tax debt is defined as a debt in excess $50,000 (adjusted for inflation in subsequent years) for which a notice of federal lien or levy has been filed. The House of Representatives will take up the bill in the next few weeks. Only time will tell if this potential provision will become law.

Unexpected Result for Charity Volunteering – If an employer fails to pay over its payroll taxes, the IRS can seek to collect a trust fund recovery penalty equal to 100% of the unpaid taxes from a “responsible person.” A responsible person is a person who is responsible for collecting, accounting for, and paying over payroll taxes and willfully fails to perform this responsibility.

Payroll taxes withheld from an employee’s salary are monies the employee paid toward his or her tax liability and are not funds that belong to the employer. An employer that uses those funds to pay other expenses is using someone else’s money, and the IRS takes a very dim view of that act, since the government’s only recourse is with the employer and has to credit the employee with the withholding.

Case in point: an individual volunteered (unpaid position) to aid a financially struggling non-profit organization and became actively involved in the financial affairs of the non-profit, including writing the checks for the organization. The organization was behind on its trust fund payments, and the volunteer paid other liabilities ahead of the trust fund deficiency. As a result, the IRS assessed him the penalty of almost $200,000, which he paid and then went to tax court to get back. The tax court ruled in the IRS’ favor.

The case once again demonstrates the perils faced by a taxpayer who becomes involved in running a financially distressed company (for profit or non-profit) and chooses to pay other liabilities ahead of trust fund payments.

Tax Fraud on the Upswing – When a tax return is e-filed, the IRS’s computer will verify that the Social Security number(s) (SSN) on the return have not been previously used on another return for the same year, and will reject the e-file if it has. This most commonly occurs when both of the divorced or separated parents claim their child or children as dependents.

However, recently tax preparers are seeing more and more clients’ returns rejected because the taxpayer or spouse’s SSN has already been used. What is happening is thieves are stealing the taxpayer’s identity and filing phony returns to claim fraudulent refunds, leaving the taxpayer with the task of explaining to the IRS and all the other problems associated with identity theft.

If you believe you have been a victim of identity theft, you should immediately review the guidance provided by the IRS and follow the recommended procedures. If you need assistance, please give us a call and we’ll be happy to assist you.

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