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Wed, 05 Mar 2008 21:30:39 -0800

http://taxresolutionaries.blogspot.com

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Fri, 16 Nov 2007 18:02:58 -0800

The IRS has announced it's top 5 of the "Dirty Dozen" list of mistakes made by taxpayers. This list provides flags that can trigger an audit. See the full article at http://babyboomer11852.wordpress.com

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Mon, 12 Nov 2007 19:07:44 -0800

"Do we really want to create a generation of plastic babies?" A group of Maryland bankers are visiting high schools to educate and enlighten student on the pitfalls of credit cards and the credit and tax implications of indebtedness. See the full article and video at http://babyboomer11852.wordpress.com.

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Sun, 28 Oct 2007 16:22:34 -0700

Avoiding the 1099 "Cancelled Debt" Trap.....

The rate of debt charge-off and mortgage forgiveness has increased dramatically in 2007. If a federal government agency, financial institution, or credit union cancels or forgives a debt you owe of $ 600 or more, you will receive a Form 1099-C, Cancellation of Debt. A debt includes any indebtedness for which you are liable or which attaches to property you hold. The IRS mandates that you must claim this amount as income on your taxes because you never paid it back- thus making it income. However if you "settle" this debt as "paid in full" (i.e., credit cards payoffs) with the creditor make sure you ask that they agree to the settled in full arrangement and not send the remainder as a loss to the IRS. If the creditor willingly accepts "less than" as "full payment" then make sure they agree not to report remainder. The creditor can refuse but usually does not.

If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest will also be shown in box 3. Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible if you paid it.

Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required.

An example of excluded debt which is not considered as canceled debt in your gross income includes anydebt is canceled in a bankruptcy case under title 11 of the U.S. Code. See Publication 908, Bankruptcy Tax Guide or if you are deemed insolvent. However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent.

Credit card industry facts and personal debt statistics (2006-2007):

Market share ranked by major card type: 1. Visa - 54 percent; 2. MasterCard - 29 percent; 3. American Express - 13 percent; 4. Discover Card - 4 percent (Source: Cardweb)

Did you know...........

The first widely accepted plastic charge card was issued in 1958 by American Express.
The first general use credit card that allowed balances to be paid over time was the BankAmericard (which later changed its name to Visa in 1977), issued in 1959 (Source: PBS Frontline; American Express, Visa USA)

The average interest rate across all existing credit card accounts was 13.46 percent as of May 2007 (Source: Federal Reserve)

There were 984 million bank-issued Visa and MasterCard credit card and debit card accounts in the U.S in 2006 (Source: Visa USA, MasterCard International)
Now let's look at another example of a cancellation of debt, the dreaded 1099-A (Acquisition or Abandonment of Secured Property). Let's say the bank foreclosed on your home in 2007. The resulting debt-forgiveness income was not exempt because you were not "insolvent or bankrupt", then you must report the forgiveness as taxable income on your 2007 Form 1040. As a result you have a balance due on your 2007 Form 1040.

In reading the various tax blog discussions on the subject of home foreclosures and resulting debt forgiveness, tax law professor, Jim Maule of MAULED AGAIN provides an excellent description of the situation in his post "Greed, Stupidity. Poor Judgment and Taxes"; "The recent downturn in the housing market, a predictable and predicted outcome of the rampant speculation in housing fueled by speculators and gamblers bored with the stock market and looking for something more exciting, more profitable, or more instantaneous, has created serious financial problems for homeowners who overreached when purchasing or investing in residential real estate. Those problems include not only loss of the home through foreclosure but higher federal and state income tax liabilities because the foreclosure can generate cancellation of indebtedness income."

In simpler terms - families who wanted to buy a home that they could not afford found lenders willing to give them a mortgage with a minimal down payment, a low interest rate, and small monthly payments for an initial limited period (i.e. Adjustable Rate Mortgage). When this initial limited period passed and it was time to refinance the mortgage housing prices had dropped - so that the principal balance on the loan was more than the market value of the home - and interest rates had gone up. The overextended families could not afford the new monthly payments and the lenders had to foreclose on the properties.

In many situations the borrowers and lenders reached agreements so that portions of the mortgage debt were "forgiven" by the lenders. This debt forgiveness can result in taxable income to the borrower. Here's a very simplified example. You borrow $20,000 and default on the

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Sun, 28 Oct 2007 16:18:48 -0700

"Does the IRS have a "blind-eye" for Federal Employees?"

The Senate Finance Committee found in April that more than 450,000 federal employees and retirees owe back federal taxes (totaling about $3 billion), including almost 5 percent of the employees and retirees of the U. S. Tax Court. [U. S. Senate Committee on Finance (press release), 4-25-07].

"Tax Advocate" groups and "Tax Protestors" are having a field day with this issue. With the IRS cracking down on middle class American's "tax debt", it appears to me that there is a double standard with the IRS.

Spreadsheets obtained by Washington, D.C., radio station WTOP under the Freedom of Information Act show that hundreds of thousands of government employees failed to file a tax return for the 2005 tax year. No federal agency was exempt, though "tax compliance" varied from one agency to another.

Seventy-one employees in the Executive Office of the President, which includes the White House, owe $664,527 in taxes for 2005. Approximately 20 of those employees have entered into an IRS payment plans, bringing the EOP balance down to $455,881 owed by 50 employees.

"In the past, IRS officials have been quick to compare the federal workers' rate of compliance with the general public's. But this year, the IRS is not able to track the compliance rate for the general public." - WTOP

Documents proved that one-third of the employees, or 149,500, entered into payment plans with the IRS. The United States Postal Service was the highest level of noncompliance, and the Treasury Department had the lowest level.

The IRS enters into a contract with new employees that make it a requirement to keep their 1040 filings and payments current or it is automatic grounds for discharge. If the IRS does not enforce the provisions of their own employment contracts, how can they expect and pressure taxpayers to enter into payment arrangements. Instead, they issue an "IRS Levy", Garnishment and even attach personal property?

As a veteran Tax Advisor/Preparer, I have seen how the IRS deals with delinquent filers/payers.....smells like double standards and a "blind-eye" to me!

S. Raines

Senior Tax Preparer/Advisor

Effectur, Inc. http://www.effectur.com)