The Biggest Tax Cheats: Rich Folks (Who Would Have Thought!)

A new study based on unpublished Internal Revenue Service data shows the rich are different when it comes to paying taxes: They hide more of their income.

The previously unreported study estimates that taxpayers whose true income was between $500,000 and $1 million a year understated their adjusted gross incomes by 21% overall in 2001, compared with an 8% underreporting rate for Americans earning $50,000 to $100,000 and even lower rates for those earning less.

(The "net misreporting rate," as the IRS calls it, includes both underreported income and inflated deductions.)

In all, because of their higher noncompliance rates, those with true incomes of $200,000 or more received 25% of all income but accounted for 40% of net underreported income and 42% of underreported tax in 2001, according to the new analysis.

Talk back: Would you report a tax cheat?

The study was written by Joel Slemrod, an economics professor and the director of the Office of Tax Policy Research at the University of Michigan's business school, and Andrew Johns, an IRS researcher. It has not been officially endorsed or even released by the IRS, but it seems sure to add fuel to the election season debate over whether Americans earning $250,000 or more should pay higher tax rates, as Sen. Barack Obama, the Democratic presidential nominee, has proposed.

The Slemrod-Johns analysis uses unpublished data from special research audits the IRS conducted on a sample of 45,000 individual returns filed for 2001. It was the IRS' first such research effort since 1988, and it led the agency to estimate the 2001 gross "tax gap" at $345 billion.

Many of the world's wealthiest people have been suspected of tax evasion, but convictions for cheating the government out of revenue are relatively rare. Click here to see some of the richest recent tax dodgers.

Easier to hide money The main reason for the income-related disparity in cheating: Higher-income folks receive more of their income from sources that are easier to hide, including self-employment earnings; income from rents, partnerships and S corporations; and capital gains.
"The distribution of noncompliance lines up pretty closely with who gets income that's hard (for the IRS) to keep track of,'' Slemrod said. Still, he noted, the distribution of income by source doesn't explain all the increased noncompliance at higher income levels.

In its 2001 tax gap study, the IRS estimated that individuals underreported business income by 43% overall. Sole proprietors, who report self-employment income on schedule C of their tax returns, underreported their incomes by a stunning 57%.

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In pictures: The world's top tax havens

By contrast, the IRS found, 99% of all wages were reported by individual tax filers. The obvious explanation is that workers have no choice: Their employers report their earnings to the IRS and withhold taxes on them.

Meanwhile, net capital gains for 2001 were underreported by 12%, the IRS estimated. The agency receives reports from brokers of taxpayers' gross sales of stocks and bonds but not of their initial costs and profits. Therefore, it has no way to easily check their reported capital gains. (Last month, as part of the $700 billion bailout bill, Congress mandated that brokers report the basis of any stocks bought in 2011 or later.)

Habits of the superrich

The new study seems to show that the really rich are more tax-compliant than the merely well-off, although not nearly as compliant as middle- and working-class wage slaves. Those earning $2 million-plus had an 11% underreporting rate. But Slemrod said he was "less comfortable" with that finding, noting that the very rich may have made use of techniques that IRS research audits didn't detect.

"I just don't know whether these audits were able to track down really sophisticated noncompliance or Swiss bank accounts. They may underestimate it (noncompliance) at the top,'' Slemrod said.

Who cheats the most
Net misreporting rate
True income
21% $500,000 to $1 million
20% $200,000 to $500,000
16% $1 million to $2 million
13% $100,000 to $200,000

See the full list on Forbes.com

Indeed, in the past several years, the IRS has collected billions in back taxes from wealthy taxpayers who had used dicey tax shelters to manufacture huge phony losses in the late 1990s, 2000 and 2001. But the IRS didn't get a handle on the nature or extent of these shelters until years later and relied on tax shelter promoters' customer lists and special self-disclosure programs, not audits, to find most of the taxpayers involved.

Currently, the government is suing UBS for the names of 18,000 wealthy Americans it believes may have had unreported Swiss bank accounts.

This article was reported and written by Janet Novack for Forbes.com.

Eight Tips for Taxpayers Who Owe Money to the IRS

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who received a tax bill? Here are eight tips for taxpayers who owe money to the IRS.

1. If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

2. You can also pay the bill with your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also http://www.officialpayments.com/) or Link2Gov at 888-PAY-1040 (also http://www.pay1040.com/).

3. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

4. You can also pay the balance owed by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at http://www.eftps.gov/.

5. An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments.

6. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov.

7. You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed. If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request. At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433, is an amount that will full pay the total balance owed within 60 months.

You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information.

8. If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged, and is automatically figured based on your income.

For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov. IRS Publications 594, The IRS Collection Process and 966, Electronic Choices to Pay All Your Federal Taxes also provide additional information regarding your payment options. These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Form 433-F, Collection Information Statement
IRS Publication 594, What You Should Know About The IRS Collection Process
IRS Publication 966, Electronic Choices to Pay All Your Federal Taxes

Litmus Test for Bankruptcy

The "means test" for bankruptcy is a "litmus" test for whether a taxpayer qualifies for the Currently Non-Collectible status with the IRS.

The "means test" is a function of bankruptcy that provides the minimal level of income that a household can generate in order to qualify for Chapter 7 Bankruptcy (i.e. liquidation of assets and debts).


The Bureau of Labor Statistics are used to determine the level of income allowed (based on number in family and the state you reside) to be able to qualify for Chapter 7. Also, these same BLS data is used for IRS Allowable Living Expenses for determination of a client's ability to pay.
Generally (and client has to verify with documentation- our 90% question today), if a person qualifies for Chapter 7 under their circumstances (and these may be temporary circumstances)- they would qualify for CNC (subject to documentation and inability to liquidate assets/full payment of liquid assets).


For example, if a 2-person household in NC has $40,000 in income- $52,355 would be the amount of income they would normally be allowed to have to file for Chap 7- also, this is the maximum ALEs that would correlate to a potential CNC.

http://www.irs.gov/pub/irs-pdf/p908.pdf

Form 1099-A and 1099-C Taxability

By the way, there were over 2 million of these issued in 2008.

Read this:

http://www.irs.gov/businesses/small/article/0,,id=207042,00.html

Haven't Filed Your Tax Return Yet? Here's What To Do

Filing a past due return may not be as difficult as you think. Taxpayers should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved. It is important, however, to know that full payment of taxes saves you money.

Here’s What to Do:

Gather Past Due Return Information

In order for the IRS to assist with preparing a tax return, taxpayers should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.

Prepare and File Forms

You’ll need to get the proper forms and publications. Then sign and date your tax return; and send to the correct address.

Payment Options - Ways to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.

Payment Options – For Those Who Can’t Pay in Full

Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an Installment Agreement, temporary delay, or Offer in Compromise.

Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.
A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.

A monthly payment plan or installment agreement gives a taxpayer more time to pay. Penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. Further, it is important to review all options as the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. It is best that you pay as much as possible before entering into an installment agreement.

A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.

Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.

What Will Happen If You Don’t File Your Past Due Return or Contact the IRS

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.

Need help with filing requirements and IRS debt? Check this out http:www.effectur.com

Form 1099-A and 1099-C Taxability

By the way, there were over 2 million of these issued in 2008- hence, many clients have this issue related to assessment/tax debt

Read this:

http://www.irs.gov/businesses/small/article/0,,id=207042,00.html

Obama Administration "GREENBOOK" Tax Law Changes

From the Obama "Greenbook" of Revenue Proposals for 2010:

Another one of Obama's proposals would make repeated failure to file a tax return a felony. Current law provides that willful failure to file a tax return is a misdemeanor punishable by a term of imprisonment for not more than one year, a fine of not more than $25,000 ($100,000 in the case of a corporation), or both. A taxpayer who fails to file returns for multiple years commits a separate misdemeanor offense for each year.

Under the administration’s proposal, any person who willfully fails to file tax returns in any three years within any five-consecutive-year period, if the aggregated tax liability for such period is at least $50,000, would be subject to a new aggravated failure-to-file criminal penalty. The proposal would classify such a failure as a felony and, upon conviction, impose a fine of not more than $250,000 ($500,000 in the case of a corporation) or imprisonment for not more than five years, or both. The proposal would be effective for returns required to be filed after Dec. 31, 2009.

The administration also proposes to revise the offer-in-compromise application rules to eliminate the requirements that an initial offer-in-compromise include a nonrefundable payment of any portion of the taxpayer’s offer.

Visit Effectur's website for more tax debt help and guidance.

Freelancers' Charitable Giving

William Perez, writer for About.com had a great article for freelancers on charitable giving write-offs.

Can Freelancers Write off the Value of Time for Charity?
Friday May 1, 2009

Freelance professionals often have non-profits and charities as clients. Oftentimes the freelancer will agree to work for free because they believe in the work the non-profit is doing and want to cut them a break on their fees. So the question naturally arises, "Is freelance work done for charity deductible?" (This interesting question was sent to me by a reader via twitter.)

The short answer is no. The IRS explains in Publication 526 that "You cannot deduct the value of your time or services, including... [t]he value of income lost while you work as an unpaid volunteer for a qualified organization."

However, there's an alternative strategy that freelancers might consider. The freelancer could charge the non-profit for their services, and then turn around and make a tax-deductible contribution for the same amount. This strategy has multiple tax consequences, so let's see how the math would work out in one scenario.

Let's assume, for our example, that an freelancer is filing a Schedule C to report her income, and she also itemizes her deductions, and she is in the 25% tax bracket. She charges the non-profit $1,000 for some web design work, and then separately she donates $1,000 to the charity. In this scenario, our freelancer has increased her self-employment income by $1,000, and so this extra income will increase her self-employment tax by roughly $141. This transaction would increase her deduction for half of the self-employment tax by roughly $70, and would increase her charitable deductions by $1,000. Now her income has increased $1,000, but this will be offset by the charity deduction. So overall, her taxable income is reduced only by the extra $70 deduction for self-employment tax, which would lower her income tax by about $17. Her tax impact: she pays an extra $141 of self-employment tax, but pays $17 less in income taxes, leaving her with $124 in higher taxes overall.

In this scenario, the freelancer does not come out ahead. The charity effectively pays nothing for the services, but the freelancer generates a tax hike for herself because the increase in her self-employment taxes is larger than the tax savings. The freelancer would be better off volunteering her services for free rather than charging a fee, and then turning around and donating the same amount.

However, this scenario may not fit your exact situation. So it would make sense to run your own numbers to see how it would work on your tax return.

What Happens After I File?

Most taxpayers have already filed their federal tax returns but may still have questions. Here’s what you need to know about refund status, recordkeeping, mistakes and what to do if you move.
Refund Information

ou can go online to check the status of your 2008 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2008 tax return available because you will need to know the filing status, the first SSN shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

Go to IRS.gov, and click on “Where’s My Refund.”

Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.

Call 1-800-829-1954 during the hours shown in your form instructions.

What Records Should I Keep?

Good record keeping allows you to prepare a complete and accurate income tax return. You should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.

Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending filed returns or preparing future ones.

Change of Address

If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also notify the post office serving your former address, which will ensure your check makes it to your new address.

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return. Here are five reasons to file an amended return:

You did not report some income,

You claimed deductions or credits you should not have claimed.

You did not claim deductions or credits you could have claimed.

You should have claimed a different filing status. Taxpayers who filed a joint return cannot choose to file separate returns for that year after the due date of the return. However, an executor may be able to make this change for a deceased spouse.

If you bought or are thinking of buying home, you may be able to file an amended return to claim the First Time Home Buyer Credit. Taxpayers who purchased a qualifying home can claim the Homebuyer Credit on the 2008 return without waiting until next year to claim it on their 2009 return.

Visit IRS.gov for more information and Frequently Asked Questions regarding refunds, record keeping, address changes and amended returns.

Where's My Refund
Publication 552, Recordkeeping for Individuals
Form 8822, Change of Address
Form 1040X, Amended U.S. Individual Income Tax Return

What To Do If You Receive An IRS Notice

It’s a moment many taxpayers dread. A letter arrives from the IRS — and it’s not a refund check. Don’t panic; many of these letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

Agree? If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

Disagree? If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

Be sure to keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, What You Should Know about the IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Publication 594, Understanding the Collection Process (PDF 129K)
Publication 17, Your Federal Income Tax (PDF 2,072K)
Tax Topic 651, Notices — What to Do

IRS 2009 "Dirty Dozen" Tax Scams

The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said.
“There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.
Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts.

The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. More information is available on IRS.gov.

False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement. Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is "Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

Tax Facts About Amended Returns

Taxpayers who need to make a change or adjustment on a return they already filed can do so by filing an amended return. Here are the top 10 things every taxpayer should know about amending your federal tax return.

Taxpayers needing to amend their return use Form 1040X, Amended U.S. Individual Income Tax Return.

Taxpayers can use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The 1040X can also be used to correct a return filed electronically.

Taxpayers should file an amended return if they discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.

Generally, you do not need to file an amended return for math errors as the IRS will be ale to make the correction for you.

You also do not usually need to file an amended return because you forgot to include forms – such as W-2s or schedules – when you filed; the IRS normally requests those forms from you.

Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS processing center for the area in which you live. The 1040X instructions list the addresses for the centers.

If the changes involve another schedule or form, attach it to the 1040X.

If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.

If you owe additional tax for 2008, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Form 1040X, Amended U.S. Individual Income Tax Return (PDF 110K)
Form 1040X Instructions (PDF 45K)
Tax Topic 308 — Amended Returns

What Do You Know About Tax Refunds?

Are you expecting a refund from the IRS this year? Here are the top ten things you should know about your refund.

Refund Options

You have two options for receiving your individual federal income tax refund: a paper check or a direct deposit.

Separate Accounts

You may use Form 8888, Direct Deposit of Refund to More Than One Account, to request that your refund be allocated by direct deposit among up to three separate accounts, such as checking or savings or retirement accounts.

Paper Return Processing Time

If you file a complete and accurate paper tax return, your refund will usually be issued within six weeks from the received date.

Returns Filed Electronically

If you filed electronically, your refund will normally be issued within three weeks after the acknowledgment date.

Check the Status Online

The fastest and easiest way to find out about your current year refund is to go to the IRS.gov Web site and click on the “Where’s My Refund?” link available from the home page. You will need your Social Security number, filing status and the exact whole dollar amount of your refund to check the status online.

Check the Status By Phone

Call the IRS Refund Hotline at 800-829–1954. When you call, you will need to provide your Social Security number, your filing status, and the exact whole dollar amount of the refund shown on your return.

Delayed Refund

There are several reasons for delayed refunds. For things that may delay the processing of your return, refer to Tax Topic 303 on IRS.gov, which includes a Checklist of Common Errors When Preparing Your Tax Return.

Larger than Expected Refund

If you receive a refund to which you are not entitled, or one for an amount that is more than you expected, do not cash the check until you receive a notice explaining the difference. Follow the instructions on the notice.

Smaller than Expected Refund

If you receive a refund for a smaller amount than you expected, you may cash the check, and, if it is determined that you should have received more, you will later receive a check for the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks after receiving the refund, then call 800–829–1040.

Missing Refund

The IRS will assist you in obtaining a replacement check for a refund check that is verified as lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check. For more information, visit IRS.gov or call 800-829-1040.

Where’s My Refund?
Form 3911, Taxpayer Statement Regarding Refund (PDF 62K)
Tax Topic 152 — Refunds
Frequently Asked Questions

Need More Time to File Your Tax Return?

If you can't meet the April filing deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.

Here is what you need to know about filing an extension:

An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.

If your return is completed but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov and use the pull-down menu under “I need to …” and select “Set Up a Payment Plan.” If you are unable to make payments, call the IRS at 800-829-1040 to discuss your payment options.

Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April 15, 2009, or make an extension-related electronic credit card payment. For more information about extension-related credit card payments, see Form 4868.

You can e-file an extension request using tax preparation software on your own computer or by going to a tax preparer that has the software. The IRS will acknowledge receipt of the extension request if you file by computer.

You can use Free File Fillable Forms to file for an extension. You can access Free File Fillable Forms via the IRS Web site at IRS.gov.

If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers and must also have available the adjusted gross income from your 2008 federal income tax return to verify your identity. For information on these and other methods of payment, visit IRS.gov or call 800-TAX-1040 (800-829-1040).

To obtain a copy of Form 4868 or other forms and publications use E-file tax preparation software, download them from IRS.gov or visit your local IRS office. Forms and publications can be ordered by calling 800-TAX-Form (800-829-3676). However, telephone requests normally take 10 days to fill and may not arrive before the tax deadline of April 15.

Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return (PDF 50K)
Form 9465, Installment Agreement Request (PDF 100K)
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
Publication 3, Armed Forces' Tax Guide (PDF 206K)
Official Payments Corporation
Link2 Gov Corporation