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Local tax preparer sentenced for preparing false returns -

Google IRS Federal Income Tax - Thu, 2014-09-11 17:51

Local tax preparer sentenced for preparing false returns
He prepared individual federal income tax returns for a number of customers. Ortiz said between January 2007 and April 2012, Fein prepared tax returns that he knew were fraudulent, so that his customers could receive larger tax refunds from the IRS.

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Categories: Tax news

After tax reform triumph, Chile's president faces rockier road

Yahoo Tax - Thu, 2014-09-11 13:41
By Rosalba O'Brien and Antonio De la Jara SANTIAGO (Reuters) - Chilean President Michelle Bachelet has chalked up her first political victory since returning to power as Congress approved a key tax reform, but she faces an uphill struggle to make good on other promises. On Wednesday evening, Chile's Congress, which is controlled by allies of the center-left Bachelet, approved a bill that raises corporate taxes in order to pay for an ambitious package of social reforms, including a planned overhaul of the education system. Some have yet to be submitted to Congress, while others are embroiled in doubt and debate.
Categories: Tax news

The Cost of Tax Compliance

Tax Foundation - Thu, 2014-09-11 12:00

Over the years, the tax code has been altered by changes to statutes, regulations and case law, adding up to over 70,000 pages of instruction to filing taxes. It is the IRS’s job to enforce tax policy, so they keep track of the time and cost of filing taxes for individuals and businesses.

Individual Compliance Burden

Tax filers face the task of understanding IRS instructions in order to comply with paying taxes. According to the IRS, filing taxes will take taxpayers an average of 8 hours and cost $120 for each nonbusiness return. An IRS publication shows nearly 169 million individual tax returns (including all individual tax forms and estimated tax forms) were filed in 2012, costing over $20 billion in compliance costs. This is not the cost of actually paying taxes, but only the cost of filing.

The time consumption is further burdensome to individual tax filers. Considering 8 hours each for 169 million returns, Americans spent over 1.35 billion hours filing individual taxes.

Business Compliance Burden

The IRS states that business returns will take an average of 23 hours to file and cost an estimated $420 each.

Businesses in the U.S. filed over 10 million tax returns in 2012. Assuming the IRS’s estimated $420 filing cost holds true, over $4.4 billion was paid in compliance cost by businesses and non-profit organizations. Again, this does not include the actual tax burden but only the cost of filing.

For those 10 million returns, the IRS estimates it will take on average of 23 hours to file, equaling nearly 240 million hours of filing tax returns.

Business and organization also face additional compliance burdens not dealing with income tax filing. An independent study found that when including labor taxes and consumption taxes with corporate tax filings, the average time for businesses to complete all taxes increased dramatically.

Labor tax compliance alone cost businesses an additional 55 hours. The IRS reported that nearly 30 million employment tax forms were filed in 2012. This adds an additional 1.65 million hours. Maintaining the same $420 IRS estimate, this cost firms an additional $12.6 billion in compliance costs.

Total Compliance Burden

All said, Americans spent over 3.24 billion hours, which is about 369,858 years, preparing and filing tax returns in 2012. Considering individual, business and employment taxes, this costs $37 billion annually in compliance cost for federal taxes alone.

Additional time is spent filing state taxes each year. For most states, the number of expenditures (deductions, credits, exclusions, rebates and other provisions) tallies into the hundreds. Each of these expenditures cost more time to file and many must be verified by state officials after returns are submitted.

A simpler, transparent tax system can greatly reduce the cost of compliance for U.S. taxpayers. A complicated tax system creates not only a huge time and money expenditure for taxpayers, but also for government officials verifying returns, which can lead to higher tax burdens later.

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Categories: Tax news

IRS Gears up for Impact of Health Care Reform on Tax Season - Accounting Today

Google IRS Federal Income Tax - Thu, 2014-09-11 11:45

Town Hall

IRS Gears up for Impact of Health Care Reform on Tax Season
Accounting Today
“When filing tax returns, these taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be ...
Bramwell's Lunch Beat: IRS Chief Chastised Over Remark Made During
House Ways and Means Subcommittee on Health HearingInsurance News Net
IRS Commissioner: We Follow The Law "Wherever We Can"Town Hall
all 27 news articles »
Categories: Tax news

The Unemployment Rate Doesn't Tell the Whole Story about Job Creation

Tax Foundation - Thu, 2014-09-11 09:00

On the heels of a poor jobs report—but another drop in the unemployment rate down to 6.1 percent—Adam Hartung published in Forbes a piece titled “Obama Outperforms Reagan on Jobs, Growth, and Investing.”

In the article, Hartung leads with the unemployment rate as his metric to prove President Obama’s success on the job front as compared to President Reagan.

In the first 67 months of President Obama’s administration, the unemployment rate climbed to 10 percent before falling to 6.1 percent. This is a whole percentage point below Reagan’s 7.1 percent unemployment rate after his first 67 months. But this comparison of job performance misses a couple points.

The Unemployment Rate Fell Faster in the 1980s than Following the Great Recession

Instead of looking at the first 67 months of each presidency, let’s consider how long it took the unemployment rate to fall to 6.1 percent (the rate for August 2014) following the peak of unemployment. This will give us a better look at how quickly the economies recovered.

In the 1980s, it took a shorter amount of time for the unemployment rate to fall from its peak rate to 6.1 percent. In December of 1982, the unemployment rate reached a peak of 10.8 percent following a year-long recession. In July of 1987 (55 months later), the unemployment rate had dropped to 6.1 percent. Before the end of Reagan’s term, the unemployment rate had fallen to 5.3 percent in December of 1988.

In the post-Great Recession era, the unemployment rate reached its peak of 10 percent in October of 2009. From here, the peak it took 58 months for the unemployment rate to fall to 6.1 percent in August of 2014. (Note: The unemployment rate drop to 6.1 percent in June of this year before increasing to 6.2 percent in July.)

The Unemployment Rate Depends on Demographic Trends

Another factor worth considering is that the unemployment rate is dependent on both the numerator and the denominator.

The labor force participation rate is the share of working age population who are either employed or actively looking for work. Labor force participation is essentially the denominator in the unemployment rate calculation. If we hold the number of unemployed constant, this means that as the labor force participation rate rises, the unemployment rate will rise. Conversely, as the labor force participation rate decreases, the unemployment rate will decrease.

In fact, over the last couple years, we have seen the labor participation rate influence the unemployment rate. From Bloomberg in May (emphasis added):

“The share of the working-age population either employed or seeking a job declined in April for the first time this year, helping drive the unemployment rate down to 6.3 percent, the lowest since September 2008. At 62.8 percent, the so-called participation rate matches the lowest since March 1978.”

In fact, between October 2009 and August of 2014 (the period over which the unemployment rate fell), the labor force participation rate fell from 65 percent to 62.8 percent. This has contributed to the fall in the unemployment rate from 10 percent to 6.1 percent.

It was different story for the 1980s. As Hartung’s own piece shows, from the late 1960s all the way through the 1980s, the labor force participation continuously increased from 59 percent to nearly 67 percent at the start of 1990 (driven by the large number of baby boomers and women entering the work force).

If we look specifically at the 55 months between December of 1982 and July of 1987, the labor participation rate rose from 64.1 percent to 65.5 percent. Yet, all the while, the unemployment rate fell. This means that while the denominator (labor participation) grew, the nominator (employment growth) saw even greater increases.

The Unemployment Rate Doesn’t Tell the Entire Story

In an editorial earlier this year on Real Clear Markets, Nick Eberstadt of AEI makes the case that, while the unemployment rate once was a good way to measure workless in America, it is not nearly as effective today because the work force is different. In Eberstadt’s words:

“The workplace is no longer a men's club -- in 2014, fully 47% of the civilian labor force is female. And while being without work still entails hardship, it is no longer the financial disaster and source of shame it once was. In that former America, there was basically no alternative to paid work for able-bodied men; no alternative economically, and no alternative socially. But this is no longer true today. Thanks at least partly to the growth of government support programs, voluntary joblessness - or something close to that - is, increasingly, a viable lifestyle option.”

Eberstadt suggests that there are now three employment statuses in the U.S.: employed, unemployed, and choosing neither to work or look from work. This “flight from work,” as he calls it is clear in the post-recession U.S.

Eberstadt uses a version of the chart below to shows that the civilian employment to population ratio has completely dropped off since the great recession and remained relatively flat between 58 and 59 percent for the last four years.

The drop in the unemployment rate to 6.1 percent tells a story that seemingly isn’t true. As discouraged or tired workers drop out of the labor market, the unemployment rate may drop, but this does not demonstrate the health of the labor market.

A falling labor participation rate and a depressed and stagnant employment to population ratio tell a story of long-term unemployment that require structural changes to address.

Tax reform isn’t the only solution, but it should be one them.

Categories: Tax news

House September Agenda Includes Potential Tax Changes

Tax Foundation - Thu, 2014-09-11 08:45

Majority Leader Kevin McCarthy recently sent a memo to the House of Representatives indicating the agenda for the fall session. In his memo, he advocates for an, “honest, simple and effective” approach to government, and bundles up previous jobs and tax bills into his economic package for the fall.

Key tax and job highlights of the package include:

The Hire More Heroes Act (H.R. 3474)—Allows employers to be exempt from providing healthcare coverage to an employee given the employee already receives healthcare through a Department of Defense Program. The bill prevents double coverage on certain employees (i.e. military veterans) and could save a business, on average, $2.36 per hour, totaling $4,531.20 per year for each employee that qualifies. Permanent Internet Tax Freedom Act (H.R. 3086)—Creates a permanent ban on state and local taxation of internet access. Given a similar system to how states currently tax other expenditures, internet connections would have an approximate 8 percent tax. This bill aims to end discriminatory taxing practices on the internet, but will also decrease sales tax revenue by $1.7 billion. Our previous research discussed the potential economic harm from and the lack of an economic reason for internet taxation. America’s Small Business Tax Relief Act (H.R. 4457)—Permanently allows taxpayers to deduct expenses for certain business investment. Expensing limitation would remain at $500,000 rather than dropping to the pre-2010 level of $250,000 and levels would be adjusted accordingly each year to match inflation. Such tax exemptions and benefits will incur growth in small and medium sized businesses and inspire confidence to invest in the future, as we talked about in a previous blog post. Making Permanent 50 Percent Expensing (H.R. 4718)—Permanently extends 50 percent expensing, often called bonus depreciation, which allows businesses to expense 50 percent of their investments in equipment and software in the year they are purchased before depreciating the remaining cost. According to our previous work, 50 percent expensing helps mitigate the tax code’s bias against capital investment and, if made permanent, it would boost investment, wages, GDP, and federal revenues.

These small and measurable changes can certainly contribute to economic growth, although many of these provisions have previously failed in the senate on individual votes.

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Categories: Tax news

What is an 'illegal tax protester,' and why can't the IRS use that term any more? - Washington Post (blog)

Google IRS Federal Income Tax - Thu, 2014-09-11 07:30

What is an 'illegal tax protester,' and why can't the IRS use that term any more?
Washington Post (blog)
Each year, the Internal Revenue Service deals with individuals who refuse to pay their taxes. Some believe the federal income tax is unconstitutional, others simply don't want to pony up the cash, and a few have done it as a form of protest against ...
Client Sues Tax Advisor For Bad Advice: Is The Settlement Payment Tax-Free?Forbes

all 8 news articles »
Categories: Tax news

Woman pleads guilty to bilking IRS in refund fraud -

Google IRS Federal Income Tax - Wed, 2014-09-10 21:28

Woman pleads guilty to bilking IRS in refund fraud
In a case that officials say cost the US government more than $600,000, a Missouri woman has pleaded guilty to filing a false income tax refund with the Internal Revenue Service. The IRS announced Wednesday that 37-year-old Donita Shields of Kansas ...

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Categories: Tax news

Vadnais Heights Investment Advisor Pleads Guilty To Tax Evasion - CBS Local

Google IRS Federal Income Tax - Wed, 2014-09-10 14:30

CBS Local

Vadnais Heights Investment Advisor Pleads Guilty To Tax Evasion
CBS Local
According to his guilty plea, Carlson also failed to timely file personal income tax returns for tax years 2005 through 2007, so IRS filed a federal tax lien against Carlson for approximately $495,000. Carlson will pay restitution to the investment ...

Categories: Tax news

The Estate Tax is a Poor Source for Federal Revenue

Tax Foundation - Wed, 2014-09-10 11:45

The estate tax is one of the least effective means of raising revenue in the federal tax code. It combines high administrative costs, low revenues, and implicit taxes on capital. It has a slippery base that creates a cottage industry of tax planning – resources that could be better used in the productive economy. It produces little revenue - only about $18 billion per year. And it is a tax on capital formation, which is highly elastic with respect to tax.

Using the Tax Foundation’s Taxes and Growth Model, we modeled the effects of eliminating the estate tax. The effects were as follows:

The Economic Effects of Eliminating the Estate Tax

Source: Tax Foundation’s Taxes and Growth Model



Capital Stock


Wage Rate


Federal Revenue (annual)

+$3.3 billion

Jobs (full time equivalent)



The estate tax is levied entirely on private saving, or capital stock. Eliminating this tax would, over the long term, increase the capital stock by 1.68%, improving wages. The positive total federal revenue from these long-term changes would outweigh the modest amount of revenue lost from eliminating the tax.

Accumulated wealth is what makes America – in the aggregate – richer. While the direct benefits of estate tax elimination would accrue to wealthy individuals, the indirect benefits of the higher capital stock accrue to everyone. Workers in rich countries have high wages precisely because they have a lot of capital to work with, and a lot of education and skill in the use of that capital. A tax on that capital hurts those workers.

Those who are interested in raising federal revenue from wealthy individuals in an effective manner should look to taxes that are more direct, more income-based, and easier to administer.

Categories: Tax news

Announcement: The Recipients of the 2014 Distinguished Service Awards

Tax Foundation - Wed, 2014-09-10 08:00

We are pleased to announce that the recipients of its 2014 Distinguished Service Awards will be Representative Pat Tiberi of Ohio’s 12th District, former Michigan Governor and President of Business Roundtable John Engler, and Chief Tax Counsel and Deputy Staff Director to the Senate Committee on Finance (minority) Mark Prater. The awards will be presented during the Tax Foundation’s 77th Anniversary Dinner and Gala on Thursday, November 20, 2014 at the Mayflower Renaissance Hotel in Washington, DC.


Pat Tiberi, Representative of Ohio’s 12th District, will be awarded the Public Sector Distinguished Service Award for his leadership in promoting fundamental tax reform, permanent bonus expensing, and a more competitive U.S. business tax system. As Chairman of the Select Revenue Measures Subcommittee of the Ways and Means Committee, he lends a respected voice to these issues, which has helped to bring tax reform to the forefront of the national political debate.


John Engler, President of Business Roundtable and former Governor of Michigan, will be awarded the Private Sector Distinguished Service Award for his leadership in promoting fundamental tax reform and a more competitive U.S. tax system. As a successful governor, and now advocate for the nation’s largest businesses, Engler brings a unique and valuable perspective to these issues that has helped to elevate the tax reform agenda nationally.


Mark Prater, Chief Tax Counsel and Deputy Staff Director to the U.S. Senate Committee on Finance (minority), will be awarded the Exemplar of Excellence in Public Service award for his years of tireless work as one of the most respected tax experts on Capitol Hill to protect the interests of American taxpayers and improve the nation’s tax code. This is only the second time in 77 years that the Tax Foundation has honored a congressional staff member for their service.

We are very optimistic about the prospect of fundamental tax reform because of the caliber of the Tax Foundation’s honorees this year. If Congress is going to get tax reform across the goal line, it will require Members, staff, and stakeholders who are smart, capable, and dedicated to working together for a common goal. Each of these honorees represents the best of those qualities and America’s tax code will be better off because of their efforts.

Since 1941, the Tax Foundation has awarded the Distinguished Service Award to a wide range of tax professionals, elected officials, and business leaders. Former recipients include President Dwight D. Eisenhower, Senators Max Baucus and Orrin Hatch, House Ways and Means Committee Chairman Dave Camp, Eli Lilly Chairman and CEO Sidney Taurel, Treasury Secretary James A. Baker III, Caterpillar CEO Jim Owens, Federal Reserve Chairman Paul Volcker, and many more.

Categories: Tax news

Tax Professionals Sue the IRS to End PTIN Fees - (registration)

Google IRS Federal Income Tax - Tue, 2014-09-09 14:27 (registration)

Tax Professionals Sue the IRS to End PTIN Fees (registration)
Since 2010, the IRS has required PTINs for any individual preparing taxes for others, but no specific training or experience is required to prepare other federal income taxes for other taxpayers. In 2011 and 2012, the IRS tried to enact a program that ...

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Categories: Tax news

Tax Professionals Sue IRS, Treasury Dept. to End PTIN Fees - (registration)

Google IRS Federal Income Tax - Tue, 2014-09-09 14:27 (registration)

Tax Professionals Sue IRS, Treasury Dept. to End PTIN Fees (registration)
Since 2010, the IRS has required PTINs for any individual preparing taxes for others, but no specific training or experience is required to prepare other federal income taxes for other taxpayers. In 2011 and 2012, the IRS tried to enact a program that ...
IRS Hit With Class Action Suit Over Tax Preparer User FeesForbes
CPA practitioners sue to stop PTIN feesJournal of Accountancy

all 9 news articles »
Categories: Tax news

Economic Development Officials Call for Special Tax Incentive Session in North Carolina

Tax Foundation - Tue, 2014-09-09 10:45

After North Carolina’s general assembly adjourned without renewing several tax credits or offering funding for several economic development programs, municipalities and economic development offices have begun calling for a special session. The main programs in question are the Job Development Investment Grant (JDIG), which allows qualifying businesses to be rebated a share of withholding taxes paid by new employees, the film tax credit, the historic preservation tax credit, and the renewable energy tax credit. All of these programs have been reduced or allowed to expire as part of North Carolina’s landmark base-broadening tax reforms in the last few years.

Retiring such narrow, distortionary incentives is a vital part of sound tax reform. Lower rates cannot be sustainably paired with bigger incentives and deductions (i.e. a narrower base). Simplifying the tax code by removing incentives for historic preservation, renewable energy, and film tax credits, in combination with reduced headline rates, is likely to boost economic efficiency. While some interest groups and politically favored sectors may lose out in the short run, ultimately, lower, simpler taxes are more supportive of economic growth.

Economic development offices understandably have concerns with reduced tax credits, because these tools give them flexibility to compete for big, flagship companies. But while that sounds like a feature of tax incentives, it’s actually a fault. The big headline companies do get special tax preferences, while smaller companies with long histories in North Carolina don’t, and foot the full freight of the tax. Then, the next time that big new company is looking to expand operations, they’ll come calling for an even bigger incentive to stay. On the other hand, states could save money on economic development expenditures by simply offering lower taxes to all companies, and removing the need (and cost) to negotiate special deals.

That’s the whole idea behind lowering rates and broadening bases: eliminate special provisions to finance lower taxes for everyone. North Carolina succeeded in lowering the rates, but is starting to face pushback now on broadening the base. The state has taken a big step towards smarter tax policy: now it remains to be seen whether policymakers will remain committed to last year’s groundbreaking reforms, or backtrack away from the principles that underlay those reforms. Of course, if North Carolina’s tax changes this year are any indication, then it seems likely that simple, sound, pro-growth tax policy will win out.

Read our North Carolina tax reform guide here.

Read more on North Carolina.

Read more on tax incentives.

Follow Lyman on Twitter.


Categories: Tax news

New Earnings Stripping Bill is Fundamentally Unserious

Tax Foundation - Tue, 2014-09-09 10:45

This week, Senator Chuck Schumer (D-NY) released a discussion draft for a bill that would further limit the amount of interest an inverted corporation can deduct from its taxable income. The aim of this bill is to make it harder for inverted corporations to reduce their taxes paid to the U.S. Treasury through a procedure called “earnings stripping.” This bill would apply to all future companies that invert and companies that have inverted in the last twenty years.

The proposed bill is unfair in its retroactive application, takes aim at insignificant revenue loss, and does not address the fundamental issues with the United States’ current tax code.

A Further Limit on Interest Deductions for Inverted Firms; Retroactive Application of Limits

Under current law, the United States already limits the amount of interest a corporation can deduct from its taxable income. The Section 163(j) rules were passed in the late 1980s in order to prevent U.S. corporations from using excessive interest deductions in order to reduce their taxable income in the United States and shift their income into countries with lower tax rates. The rules do not allow corporations to deduct interest from their taxable income and pay that interest to related corporate subsidiaries under two conditions: when a company has a debt-to-equity ratio greater than 1.5 to 1 or the amount of interest a company can deduct exceeds 50 percent of their taxable income.

For example, a company may earn $100 in taxable income the United States. This U.S. company would only be able to deduct up to $50 in interest in the United States and pay that interest to a subsidiary in Canada.

Senator Schumer’s bill alters these rules specifically for inverted companies. The law reduces the interest limit to 25 percent of taxable income.

The second half of the law changes the definition of an inverted company in two ways. First, it broadens the definition of an inverted company in a way that reduces the ownership requirement from 60 percent to 50 percent. Second, it retroactively applies these new restrictions to companies that inverted after 1994.

Retroactive Tax Policy is Bad Tax Policy

There are two issues with retroactive taxation.

First, retroactive tax changes are unfair. Businesses have been operating, planning, and investing under a specific set of rules. It is not fair if they are then later told that they will be taxed on this past behavior differently.

Second, it is usually thought that retroactive tax changes are efficient in so far as businesses and individuals cannot plan for them and alter their behavior. However, this only holds if there is no prospect of future retroactive tax changes. When a retroactive tax is applied, it gives the impression that the government is open to future retroactive tax changes. This will make businesses and individuals more cautious about future planning and can drastically cut back on future investment and economic activity.

Makes Tax Code More Complex and Less Competitive to Prevent Little Revenue Loss

This bill is being proposed as a way to stop a significant erosion to the corporate tax base, but there is not much evidence to support that earnings stripping or inversions are a significant revenue cost. This bill will make the corporate tax code more complex and uncompetitive with little benefit.

According to the Joint Committee on Taxation, inversions are projected to cost the U.S. Treasury approximately $20 billion over ten years. While this seems like a significant amount, it pales in comparison to the $4.5 trillion the CBO projects the U.S. Treasury to collect from the corporate income tax.

There is also a lack of evidence that earnings stripping, specifically from foreign-owned (or inverted) corporations, is a big deal either. According to IRS data, foreign-owned subsidiaries (which include inverted companies) deduct less interest than domestic corporations. If earnings stripping were a big deal, foreign-owned companies, the opposite would be the case.

This Bill Does Not Address the Fundamental Problem with our Tax Code

The biggest issue with this law is that it does not address the fundamental issue with the United States’ tax code: its high corporation income tax rate and its worldwide taxation of corporate profits.

For inversions, the biggest benefit is the fact that most countries do not have worldwide corporate income tax systems. Most countries have what are called territorial systems that only tax income earned in their border. This means that any profits earned inside a country are taxed by that country and any profits earned outside of a country is not taxed. So if a U.S. corporation relocates to the United Kingdom, it would no longer be liable for that additional U.S. tax on its foreign profits.

For earnings stripping, any benefit comes from the fact that the United States’ corporate income tax rate is higher than every other country’s tax rate in the OECD. Take the tax differential between the United States and Canada (39.1 percent vs. 26.3 percent). A corporation has an incentive to realize income in Canada (because of its low income tax rate) and realize costs in the United States (because of its high income tax rate). Another way to look at this is that if the U.S.’s corporate tax rate was lower than other countries, there would be no incentive to strip earnings from the United States, there would actually be an incentive to move earnings into the United States.

If lawmakers wanted to treat this issue seriously, they would look to lower the corporate income tax rate and move to a territorial tax system.

For more on corporate tax inversions see: “How much do Corporate Inversions Cost,” “Everything You Need to Know about Corporate Inversions,” and “More Perspective on Inversions: Not a Threat to the Tax Base, but the Face of U.S. Uncompetitiveness.

Categories: Tax news

Local man pleads guilty to identify theft, agrees to be deported - FOX19

Google IRS Federal Income Tax - Tue, 2014-09-09 10:20

Local man pleads guilty to identify theft, agrees to be deported
A local man pleaded guilty to one count of identity theft in a scheme to file false federal income tax returns with the Internal Revenue Service (IRS) in an effort to secure false claims for income tax refunds. Julio Lopez, 38, faces a maximum of 15 ...

Categories: Tax news

IRS Releases More Detail on EITC Over-Payments

Tax Foundation - Mon, 2014-09-08 12:45

One of the major issues with the Earned Income Tax Credit is that is suffers from a high amount of payment error. In any given year, the error can amount to approximately 25% of total payments and cost $14 billion dollars.

It is usually not clear exactly why these errors occur. There are two common stories behind them. The first story is about plain fraud. Taxpayers, or the preparers that help them file taxes, are purposefully misrepresenting their information in order to receive the EITC, or increase their EITC.

The second story is that EITC filers, which are typically lower-income individuals with lower levels of education, are making a high number of mistakes when filing. For instance, they may claim their child as a dependent (which leads to a much larger EITC), but their ex-spouse may have claimed their child as well. The result being that one parent is non-compliant.

Recently, the IRS released an update to a study it did in 1999 on the EITC and source of its high errors. The 2006-2008 EITC compliance study uses tax audit data to study the source of EITC non-compliance. While it doesn’t really answer the above questions about whether errors are fraud or mistakes, it has a few important data points that we should keep in mind.

Most Errors were Income Misreporting, but Most Dollars were Qualifying Child Errors

The most common error was income misreporting. This represented 58 percent of total errors. However, since these errors averaged around $800, this type of error only accounted for 35% of total error dollars.

The second more common error was claiming a child when the taxpayer shouldn’t. Although this only accounted for 21 percent of the total number of errors, it accounted for 38 percent of the total cost. This is due to the fact that claiming a child in error resulted in an average error size of $2,384. This makes sense, given the structure of the EITC, which increases its value greatly for each child a taxpayer has.

Break Down of EITC Non-Compliance

Type of Error

Percent of Total Errors

Percent of Total Error Dollars

Average Error Size

Income Misreporting Alone



 $           807.00

Qualifying Child Errors Alone



 $        2,384.00

Both Income and Child Errors



 $        2,451.00

All other Errors



 $        1,447.00


8.4 Million

$11.4 Billion


Only 9 percent of those who claimed the EITC in error had both types of errors. These errors had the highest average value at $2,451. The remaining 12 percent of errors include issues like filing status errors and invalid social security numbers and averaged about $1,447.

Those Who Claim the EITC Were More Likely to have Someone Else Prepare Their Tax Return

An important thing to keep in mind about those who claim the EITC is that they prepare their tax returns in a systematically different way than taxpayers who don’t. Specifically, they are far more likely to have others (paid preparers or free preparers) fill out their tax return for them. According to the IRS report, 68 percent of those claiming the EITC had someone else prepare their tax return for them. This is compared to the 55 percent of taxpayers who did not claim the EITC who used a preparer.

Likelihood of Claiming EITC by Type of Preparer


Did not Claim EITC

Claimed EITC










National Tax Preparation Firm



Unenrolled Return Preparer



IRS Preparer



The type of preparer used differed between those who claimed the EITC and those who didn’t. The biggest difference is the use of CPAs vs. the use of National Tax Preparation Firms and Unenrolled Preparers. According to the IRS, 16 percent of those who did not claim the EITC used a CPA, while only 6 percent of those claiming the EITC did so. In contrast, 21 percent and 26 percent of those who claimed EITC used either a national tax preparation firm or an unenrolled preparer, respectively. This may be due to price (CPAs may cost more), or availability (national tax preparation firms may be located in more low-income areas compared to CPAs).

Regardless of Preparer Type, Error Rates are High

The report also showed the likelihood of EITC over claims by preparer type. The biggest takeaway is the fact that there is not statistically significant difference in the likelihood of over reporting between self-preparers and paid preparers. 47 percent of self-prepared returns over-claimed the EITC compared to 51 percent of paid preparer returns.

EITC Non-Compliance by Preparer Type

Type of Preparer

Likelihood of Over claims



Paid Preparer






Enrolled Agent


Employee of Taxpayer




National Tax Return Prep Firm


Unenrolled Preparer


Type Unknown


IRS Preparers


Note: These are the upper-bound estimates


What is also interesting is that fact that the likelihood of error among almost all types of paid-preparers is high. CPAs, which had an over claim rate of 49 percent, were almost as likely to make an over claim error as an individual who prepared the return themselves.

It should also be noted that some of these subtypes of preparers, especially IRS paid preparers, attorneys, and employees of taxpayer have a very low sample sizes (only 3 percent of all returns claiming the EITC were prepared by the IRS). The fact that IRS preparers and friends have the lowest error rates may be due to chance, rather than for any systematic reasons.

Overall, the report found that between 43 and 50 percent of all returns had an error in favor of a higher EITC payment between 2006 and 2008. This represents an over claim dollar amount of about 28 to 39 percent. 

Categories: Tax news

IRS Hit With Class Action Suit Over Tax Preparer User Fees - Forbes

Google IRS Federal Income Tax - Mon, 2014-09-08 12:30


IRS Hit With Class Action Suit Over Tax Preparer User Fees
Paid preparers may not prepare federal income tax returns without a valid PTIN. In 2012, a group of tax preparers (Sabina Loving of Chicago, Illinois; John Gambino of Hoboken, N.J.; and Elmer Kilian of Eagle, Wisconsin) filed suit against the ...
CPA practitioners sue to stop PTIN feesJournal of Accountancy

all 9 news articles »
Categories: Tax news

Russia's PM signals $40 billion state help for Rosneft possible: Vedomosti

Yahoo Tax - Sun, 2014-09-07 23:38

Russian Prime Minister Dmitry Medvedev said that the state oil champion Rosneft , in need of funds to service its huge debt, may receive 1.5 trillion roubles ($40.6 billion) from state coffers over time, Vedomosti newspaper said on Monday. Last month, a government source said that the company's head Igor Sechin has asked for 1.5 trillion roubles from the National Wealth Fund, one of Russia's sovereign wealth funds, to help the company weather western sanctions against Moscow for its policy on Ukraine. I recently held a meeting on Rosneft’s investment program: the company needs to maintain its production levels, because Rosneft is a major source of tax revenue," he said.

Categories: Tax news

Doubts return at SandRidge a year after CEO ousted by investors

Yahoo Tax - Sun, 2014-09-07 22:14

By Anna Driver HOUSTON (Reuters) - In June 2013, activist investors got the board of SandRidge Energy Inc to fire its CEO Tom Ward, arguing that he had mismanaged the Oklahoma City company and destroyed billions in shareholder value. The oil and gas producer’s shares rose as much as 50 percent in the year following Ward’s ousting on optimism about the impact of cost cutting, asset sales and higher initial production rates from some of its wells. The energy company’s oil and gas output has dropped below Wall Street expectations, casting doubt on its growth prospects, and its Chief Operating Officer David Lawler – who had been seen as key to some of the improvements it had made - departed for BP Plc’s  U.S. At the same time, a restructuring proposal that would have tax benefits is being held up by the Internal Revenue Service.

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