IRS Stalking You on Facebook? They Can and Will!

Having fun on Facebook?  Maxing out your time on MySpace? Tweeting away in Twitter?  Happily haven’t paid your taxes?  Better watch out – the IRS is active in the web 3.0 world and will find you!  Call me if you need to settle some back taxes – I can negotiate with the IRS on your behalf.  And, remember – think before you tweet!

MSN Money reports:

Tax collectors trolling Facebook

You might want to pay your taxes before posting a professional profile or making a financial boast on a social-networking site, the taxman’s new tool for tracking deadbeats.
By The Wall Street Journal

Tax deadbeats are finding someone actually reads their MySpace and Facebook postings: the taxman.

State revenue agents have begun nabbing scofflaws by mining information posted on social-networking Web sites, from relocation announcements to professional profiles to financial boasts.

In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his hometown to work as a real-estate broker and gave his employer’s name. The state collected several thousand dollars, the full amount due.

Meanwhile, agents in Nebraska collected $2,000 from a deejay after he advertised on his MySpace page that he would be working at a big public party.

In California, which has recently been so strapped for revenue it has had to pay some bills with IOUs, agents are also using social Web sites. When one delinquent was identified as a rigger of sails, a curious collection agent searched his name and the term online and found a discussion board used by local riggers. In one thread someone asked where the rigger was because his store had closed, and a reply was posted, “Oh, he moved across the bay.” The agent found the man and collected a four-figure sum.

An Internal Revenue Service spokesman declined to say whether its agents use social-networking sites to pursue delinquent taxes or assist audits.

Searches for tax dodgers typically begin with examinations of bank, employment, tax and motor-vehicle records. “These new supplements are often far more efficient than the older ones, such as reading the local newspaper or making inquiries at barbershops and church meetings,” said Jim Eads, director of the Federation of Tax Administrators.

Now, when a tax dodger can’t be found, said Nebraska tax official Steven Schroeder, agents often turn to Google. One agent collected $30,000 of unpaid tax from a resident after a Google search found him listed as a high-ranking local marketing rep for a national firm.

If a Google online search isn’t productive, agents use social sites or chat rooms in a last-chance hunt for their quarry.  There are limits to what state agents can do on the Web. In Nebraska, agents are only allowed to use information that is publicly available online. So, MySpace — owned by News Corp., publisher of The Wall Street Journal — tends to work best because its users often post more public information than do those of sites like Facebook, Schroeder said.

The default settings for adults on MySpace create a public profile, while the default settings on Facebook create a profile only viewable by an approved list of friends.

“Agents are not allowed to ‘friend’ someone using false information,” Schroeder said. The same ethics rules hold in California, according to a spokesman for the state’s Franchise Tax Board.

Not all state tax departments are jumping on the trend. Massachusetts, long known for its aggressive tax collections, said it has “no systematic program” for trawling social media at the moment. According to Eads of the tax administrators’ group, many state tax authorities currently block social sites on workplace computers to prevent employees from spending personal time on them.

“They may change their minds,” he said.

“Using social media is something we will explore,” said Jessica Iverson, a spokesman for the Wisconsin Department of Revenue. A spokesman for Oregon’s revenue agency said his state is also “considering it.”

Other states are looking for ways use Internet information to enhance not only collections but also audits and negotiations.

A Minnesota tax official said that when firms try to negotiate payments by claiming to be strapped for cash, agents always check their Web sites. At the time one tanning business was crying poverty to the state, agents pointed out that its site boasted of supplying all the tans for participants in a big body-building contest.


Pet Care Becomes Tax-Deductible? It Just Might Happen

Beau Here at the Comprehensive Business Services office, we whole-heartedly support the passage of this bill!  We just welcomed little Beau (seen here) into the CompBus family.  If you have pets, please be sure to let us know when we are doing your taxes.

From the Blog:

A new US House Bill (HR 3501) has been proposed by Michigan lawmaker Thaddeus McCotter to make pet care expenses tax-deductible.  The bill, known as the HAPPY Act, or the Humanity and Pets Partnered Through the Years, would amend the Internal Revenue Code to allow a deductions up to $3,500 for “qualified pet care expenses” per individual.

The Pet Industry Joint Advisory Council (PIJAC) has announced their support of this bill, and pet care professionals are likely to support it as well.

Pet moving expenses are currently considered tax-deductible when you are relocating for work purposes. is always happy to provide receipts to customers for tax purposes.

Additionally, deductions for guard dogs, seeing-eye dogs, animal adoption fees, and income tax deductions for canine sport leader are also available to pet owners.  Read more about pet tax deductions here.

What do you think – would you like to see a tax deduction for other pet care expenses?

IRS Okays “Quickie” S Elections for Converted Partnerships

A recent article from Intuit Proline:

In a new revenue ruling, the IRS says that a partnership that converts to a corporation under the check-the-box rules or under a state formless conversion law can also make an immediate S election.

Background on Check-the-Box Rules

Under the IRS’s check-the-box rules, a partnership can elect out of partnership tax treatment and choose instead to be treated as an association taxable as a corporation [Reg. § 301.7701-3(c)(1)(i)]. Alternatively, state law may provide for a formless conversion of a partnership into a corporation without an actual transfer of partnership’s assets or interests to a new corporation.

For federal tax purposes, a partnership that converts to a corporation under a state law formless conversion statute will be treated in the same way as a partnership that makes an election to be treated as an association under the check-the-box rules [Rev. Rul. 2004-59].

Thus, in either event, the partnership is deemed to have contributed all of its assets and liabilities to the corporation in exchange for stock in, and immediately thereafter, the partnership is deemed to have liquidated, distributing the stock of the corporation to its partners [Reg. §301.7701-3(g)(1)(i)].

The S Election

Assuming it qualifies as a small business corporation, the converted partnership can also opt to be taxed as an S corporation. An S election can be made at any time during the tax year before the election year or it can be made during the first two months of the election year.

Timing Matters. An S election made on or before the 15th day of the third month of a year will generally be effective retroactively to the first day of the tax year.

However, an S election made during a tax year will be delayed until the following tax year if the corporation was not a small business corporation during the entire portion of the tax year before the date of the election. For example, the corporation would not qualify as a small business corporation and the election would not apply retroactively if the corporation had a shareholder other than individual (including a partnership) during any part of the tax year before the election is made (see Sec. 1361(b)(1)(B)).

The election will also be delayed if any person who held stock in the corporation at any time during the part of the tax year before the election, and who does not own stock at the time of the election, does not consent.

Crux of New Revenue Ruling

The ruling helps answer this key question:

Can a partnership’s conversion to a corporation and its election of S status take effect simultaneously?

Here’s how the IRS chooses to answer the question now:

Yes. When a partnership becomes a corporation for federal tax purposes, the corporation is eligible to elect to be taxed as an S corporation effective its first taxable year [Rev. Rul. 2009-15].

Let’s see how this can play out:

Example: On January 1, 2009, Alpha Operations, a calendar year taxpayer, is organized as an unincorporated entity that is classified as a partnership for federal tax purposes. Alpha subsequently makes a check-the-box election to be treated as a corporation for federal tax purposes, effective January 1, 2010. On February 1, 2010, Alpha files an election to be taxed as an S corporation, effective January 1, 2010. There is no person who held stock in Alpha on January 1, 2010, who does not hold stock at the time of the S election.

Result: When Alpha elects to be classified as a corporation for federal tax purposes, the Alpha partnership is treated as contributing all of its assets and liabilities to the Alpha corporation in exchange for stock and then liquidating by distributing the stock to its partners. Under the check-the-box rules, these steps are treated as occurring immediately before the close of the day before the election is effective.

Thus, the Alpha partnership’s tax year ends on December 31, 2009, and the Alpha corporation’s first tax year begins on January 1, 2010. The Alpha partnership is not deemed to own the stock of the Alpha corporation at any time during the corporation’s first tax year beginning January 1, 2010. Consequently, the Alpha corporation qualifies as a small business corporation as of the first day of the tax year X and its S election can take effect as of January 1, 2010. In other words, there is no momentary holding of Alpha corporation stock by the Alpha partnership that would disqualify the corporation as a small business corporation eligible to elect S status.

Additionally, because the Alpha partnership’s tax year ends immediately before the close of the day on December 31, 2009, and the corporation’s first tax year begins at the start of the day on January 1, 2010, the deemed steps will not cause the corporation to have a short tax year in which it was a C corporation.

IRS Alert to Homebuyer Credit Fraud

via’s Tax Planning Blog  IRS Alert to Homebuyer Credit Fraud.

Individuals who buy a home for the first time before December 1, 2009, qualify for a federal tax credit worth up to $8,000. The first time home buyer tax credit is fully refundable, and people can amend their 2008 tax return to claim an additional refund related to this credit. The possibility of extra refunds was apparently from such a short-lived tax break was apparently too tempting for one tax preparer from Jacksonville, Florida, who plead guilty to charges of falsely claiming the refund on a client’s tax return. The IRS is now warning taxpayers to be alert against fraudulent attempts to claim this home buyer credit, lest they too face tax fraud charges.Apparently tax preparers aren’t the only people aware of this tax credit. One of my clients recently bought the first home she ever owned, and the whole home buying and escrow process was new and overwhelming. Within days of receiving her initial escrow papers, she started receiving an avalanche of junk e-mail and phone calls, some of them peddling “federal grants” for buying a home. The Department of Housing and Urban Development has already alerted the public that there are no federal grants to help people buy a home.

Some tips for home buyers:

  • Ask your accountant to review the final escrow papers and prepare your homebuyer credit.
  • If you see something suspicious on your tax return, or you’re getting a refund much larger than expected, ask your accountant to explain how he arrived at the results.
  • If you’re preparing your own return, remember to claim the homebuyer credit after escrow closes.

In the their announcement, the IRS revealed that they employ “a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.” Home sales are widely tracked on a number of information databases such as Zillow and Trulia, as well as the various multiple listing service (MLS) databases. Accordingly, it may be advisable to include a copy of the closing escrow statement along with your tax return or amended return to let the IRS know that you did in fact buy the property.

TaxProf Blog: Fleming, Peroni & Shay: A U.S. Perspective on the Worldwide Taxation vs. Territorial Taxation Debate

TaxProf Blog: Fleming, Peroni & Shay: A U.S. Perspective on the Worldwide Taxation vs. Territorial Taxation Debate.

J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Deputy Assistant Secretary for International Tax Affairs) have posted Some Perspectives from the United States on the Worldwide Taxation vs. Territorial Taxation Debate, 3 J. Australasian Tax Teachers Ass’n 35 (2008), on SSRN.  Here is the abstract:

The U.S. approach to taxing foreign-source income is a hybrid worldwide system in form. However, because of deferral of U.S. tax on foreign-source active business income, liberal cross crediting opportunities and other defects, the U.S. system can actually produce a better-than-exemption result in the form of a negative rate of U.S. tax on foreign-source income. Moreover, the current U.S. system involves more complexity than the typical hybrid exemption system without achieving a dramatically greater revenue yield.

These shortcomings of the U.S. system plus the movement of other developed countries towards hybrid exemption systems has led to serious suggestions that the United States should adopt a hybrid exemption system. Most observers agree that the present U.S. hybrid worldwide system is, indeed, unacceptable and requires major reform. Beyond that point of agreement a pair, however, of debates has emerged. Although these two debates are distinguishable and have quite different answers, there is an erroneous tendency to believe that the solution to the first also dictates the outcome of the second. We strongly disagree.

The first of these debates focuses on the question of whether a well-designed hybrid exemption system is superior to the present U.S. hybrid worldwide system. As explained below, we believe that a well-designed hybrid exemption system is preferable to the defective regime presently employed by the United States. This is a spurious and distracting discussion, however, because there is no need for the U.S. system to be so poorly designed. Therefore, it is inappropriate to use the highly compromised U.S. approach as the point of comparison in the argument over whether the United States should adopt a theoretically correct exemption regime.

The second debate is the appropriate controversy. It centers on whether a well-designed hybrid exemption system is superior to a well-designed worldwide system that would differ importantly from the seriously flawed hybrid regime currently being operated by the United States. We conclude that even a well-designed exemption regime is distortive, inefficient and unfair and that a properly constructed worldwide system is the preferable alternative. Unemployment For Busted Entrepreneurs

If your business goes belly up, you might be entitled to some government funds.

Pink-slippers applying for unemployment insurance can hope to receive 30% to 60% of their salary from the past 12 to 18 months (up to their state’s maximum allowance), and can collect that money for up to 26 weeks. But what about the safety net for busted small-business owners?

While each state runs its own unemployment benefit program (each with its own requirements and compensation schemes), there is one general rule of thumb for hard-luck entrepreneurs captured by July’s unemployment figures, released Friday: If you pay unemployment taxes on your salary, and you’re ready and able to work, you are likely eligible to collect unemployment insurance.

In sole proprietorships and partnerships, owners may not draw a salary–some choose to cover living expenses out of whatever earnings their companies manage to generate.

Here’s why. A business owner might choose to pay herself a salary to avoid paying stiff self-employment taxes on the company’s profits. Or, she might prefer to eat that self-employment tax, for two reasons: 1) to avoid hiring a payroll service (necessary to prove to the IRS that she paid herself as an employee) and 2) to avoid the hassle of having to file the 940 and 941 tax forms as an employer of herself. (As it happens, in either case she’d come out nearly the same, says Michael Mandale, a Philadelphia-based tax attorney.)

Owners who choose to pay themselves a salary can opt into their state’s unemployment insurance program. Shareholders (or “members”) of S corporations and Limited Liability Companies take home regular salaries, and therefore are deemed employees with access to unemployment insurance.

One catch: Even if you’ve been paying unemployment taxes, you could still be denied unemployment insurance if the state thinks you’re just, well, temporarily loafing.

Say you own a barber shop that’s structured as an S corporation. Business is slow (the recession is postponing customers’ regular trims), and you figure it’s better to close up shop for a few months while the economy turns around. Even if you’ve been paying into the system, you might not be eligible to collect unemployment insurance.

“Your state’s unemployment office has to believe that you are available to work and actually looking for a job,” says Mathew Paulose, an employment lawyer with Manhattan-based Koehler Isaacs. You might also be asked to prove that your business did not have the funds to stay open–meaning that you can’t just quit or retire and start collecting unemployment benefits.

For more information about your state’s unemployment benefit program, visit the Department of Labor’s State Unemployment Tax Information and Assistance Web site.

Via Melanie Linder