IRS releases 5-year plan

The IRS has released its Strategic Plan for the next 5 years, the two overarching goals of which are to: 1. Improve service to make voluntary compliance easier. 2. Enforce the law to ensure everyone meets their obligations to pay taxes. What does this mean? The government needs money. With tax revenues decreasing due to the current state of the economy, we can expect the IRS to increase efforts to collect from delinquent taxpayers. A summary of the key points of the plan, and some suggestions for taxpayers, is available here.

What not to do

As we posted recently, if a "tax philosophy" sounds too good to be true, it probably is. Given the complexity of the tax law, people make mistakes. Lots of them. Including Presidential administration nominees. (Lots of them). But there's a difference between honest mistakes and flagrant disregard for the law. Tax practitioner Russ Fox recently discussed 3 sure-fire ways to get into trouble with the IRS, and to possibly go to jail. His post also includes the details of specific taxpayers who are in deep trouble because they did at least one of the following:

1. Pay employees in cash, and don't report it. Also, don't remit payroll tax to the government.
2. Skim some of the revenue off the top from a business, and don't report it on your tax returns.
3. Argue that there is no such thing as an income tax, or that it doesn't apply to you, or that it has never been ratified, or that it's unconstitutional.

The moral of the story: Although you can and should try to minimize your tax liability, you should not break the law, unless you don't mind the serious risk of losing all your assets and maybe even going to jail.

Tax lawyer owes $441,000

Included in California's recently published list of the top 250 tax debtors is tax attorney James P. Kleier. According to his firm website, Mr Kleier specializes in "tax litigation and administrative resolution of tax controversies, with particular emphasis on California state tax cases." We'll see how well he manages his own personal "tax controversy." More information on the tax evading tax lawyer can be found on Legal Pad and the Tax Professor's Blog.

Managing stricter loan covenants

As many businesses seek new sources of credit, they may face tighter loan covenants. The Journal of Accountancy recommends borrowers consider the following before talking to a lender:

1. Negotiate and monitor ratios.
2. Prepare for a financial statement audit.
3. Watch out for a positive cash flow covenant.
4. Get ready for new rate structures.
5. Be prepared for more stringent “personal guarantees.”
6. Know what’s typical.

Some businesses may be eligible for help from the Small Business Administration, which is implementing new programs with funding from the economic stimulus package. You can read more about the SBA programs in our previous posts here, here, here, and here.

California to start 5,000+ infrastructure projects

Governor Schwarzenegger announced Wednesday that the state would restart more than 5,000 infrastructure projects, which had been on hold since December 2008. The state has begun the process of selling $6.85 billion in bonds, of which $5.2 billion are backed by the federal government as part of the economic recovery act passed in February. California is the first state to issue these federally-backed Build America Bonds.

According to the governor's website, the funding will be allocated as follows:

• $1.7 billion for the state’s taxable general obligation bonds to fund stem cell research and stem cell related projects, various housing programs, and additional needs for High Speed Rail.
• $5.2 billion on projects for California State University, the University of California, California Community Colleges, Caltrans and the Department of Water Resources, school construction projects, environmental and park projects, grant programs to support clean air (engine retrofits and clean port projects), wastewater treatments projects, improvements to drinking water infrastructure, children’s hospitals, public safety grants and local library grant projects.

(If you're a math wiz, you probably noticed this adds up to $.05 billion more than the total bond proceeds of $6.85 billion. Did they think we wouldn't notice an extra $50 million in spending?)

The press relates announced that a complete list of the more than 5,000 projects will be available shortly at http://www.dof.ca.gov/.

Unfortunately, we cannot provide you an exact definition for what the state considers "available shortly."

New construction increases 5% in March

New construction increased 5% in the month of March, primarily due to increase in public works construction, according to McGraw-Hill Construction. The changes by category:

• Nonbuilding construction increased 27%
• Nonresidential building decreased 3%
• Residential building decreased 8%

California's Most Wanted

The California Franchise Tax Board published its list of the 250 taxpayers owing the most in back taxes. Included in this list of California's Most Wanted are a few celebrities. These famous folks and the amount they owe are as follows:

Name	Balance Due	Lien Filed
Sinbad	$2,522,424.10	2001
Dionne Warwick	$2,185,901.08	1999
Burt Reynolds	$225,008.64	1996

We'll see if the shame gets them to pay up.

Tax reform on the horizon?

President Obama made a promise last week to simplify the "monstrous tax code." The Wall Street Journal reports that one proposal under consideration would exempt up to 40% of Americans from having to file a tax return. We posted last month about the President's new Economic Recovery and Advisory Board, which has been assigned to simplify the tax law. The board reports back to the President by December 4. Perhaps there is hope yet.

AFRs for May

The IRS released the Applicable Federal Rates (AFRs) for the month of May:

	Annual	Semiannual	Quarterly	Monthly
Short-term (≤ 3 years)	0.76%	0.76%	0.76%	0.76%
Mid-term (> 3 years but ≤ 9 years)	2.05%	2.04%	2.03%	2.03%
Long-term (> 9 years)	3.58%	3.55%	3.53%	3.52%

California receives federal funds

California had some good news last Friday, when "U.S. Secretary of Education Arne Duncan announced that nearly $4 billion is now available for California under the American Recovery and Reinvestment Act (ARRA) of 2009." California is the first state to be approved for the first round of state stabilization funding. The full story is available at the U.S. Department of Education website. For more information on California's road to economic recovery, you can visit the governor's new California Economic Recovery Website. The site is similar to the federal economic recovery site established by the President - Recovery.gov.

California income tax increase

The California budget passed in February of this year included an increase in the personal income tax rate. The state hoped to receive enough in federal stimulus funds to prevent the tax increase, but that unfortunately is not the case. The highest individual tax rate is now .25% higher for 2009. For employers: The EDD has just released new payroll withholding tables to reflect the increased tax rate. For individuals: The Sacramento Bee has an online calculator to calculate how much your taxes will increase under the new budget.

7 Questions to Ask When Picking a Financial Adviser

Recent world events may have even the most daring of investors feeling cautious. So whom can you trust? A Wall Street Journal article this week recommends 7 questions to ask when choosing a financial adviser: 1. What's in the adviser's background? 2. What do the adviser's clients say? 3. How does the adviser get paid? 4. Where are the adviser's checks and balances? 5. What's the adviser's track record? 6. Can the adviser put it in writing? 7. What do other pros think?

President & V.P. 2008 Tax Returns

The President and Vice President made public their 2008 tax returns on Wednesday. Here are the key stats:

	President	Vice President
Adjusted gross income	$2,656,902	$269,256
Donations	$172,050	$1,885
Federal Tax Paid	$855,323	$46,952
State Tax Paid	$77,883	$11,164

Most of the President's income, approx. $2.5 million, was from his book sales. The press release states that the Bidens' donations per the tax return of $1,885 don't represent their actual donations. (Perhaps they didn't claim all their donations because because anything deducted on your tax return must be substantiated by documentation, and they did not have receipts. Just a thought.) I noticed the President's return was signed on 4/12, and the Vice President's dated 4/15. Pretty close to the deadline, but I'm guessing their tax preparers didn't tell these clients they were too busy.

What happens after I file?

The IRS provides information in an attempt to answer the question: What happens after I file? Included in this IRS page is information on the following:

• Refund information
• What records should I keep?
• Change of address
• What if I made a mistake?

Last minute filing info

If you're planning to mail your tax return today, be sure to check the office hours of your local post office at the USPS website. Don't have all of your information? Consider filing an extension, which automatically gives you an extra 6 months to file your return. But remember: an extension to file the return is not an extension to pay any tax due. For information about tax penalties for late payment, you can visit the FAQ section of our website.

If you are concerned about being able to pay tax due, consider these recommendations about payment, or a discussion of payment options from the IRS.

Double-check your return for these 9 common filing errors.

Breathe a sigh of relief when Tax Day 2009 is over!

Too good to be true?

If it sounds too good to be true, it probably is. Yesterday, the IRS issued a list of tax scams, including bogus schemes to avoid paying taxes altogether. The IRS urges taxpayers to avoid these common schemes, which it refers to a the 2009 "Dirty Dozen" tax scams: 1. Phishing 2. Hiding Income Offshore 3. Filing False or Misleading Forms 4. Abuse of Charitable Organizations and Deductions 5. Return Preparer Fraud 6. Frivolous Arguments 7. False Claims for Refund and Requests for Abatement 8. Abusive Retirement Plans 9. Disguised Corporate Ownership 10. Zero Wages 11. Misuse of Trusts 12. Fuel Tax Credit Scams

10 facts about tax refunds

The IRS published "10 Things You Need to Know About Tax Refunds":

1. Refund Options. You have two options for receiving your individual federal income tax refund: a paper check or a direct deposit.
2. 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.
3. 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.
4. Returns Filed Electronically. If you filed electronically, your refund will normally be issued within three weeks after the acknowledgment date.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.

Reminders for last-minute filing

As the tax deadline nears, the IRS published reminders for taxpayers who have not yet filed, including:

• File and pay on time. (An additional note: even if you can't pay, file a return or extension by April 15, as the penalties for late filing are significatly higher than those for late payment, as we discussed in a recent post. More information on penalties is also available on our website.)
• File Electronically
• Use IRS Free File
• Choose Direct Deposit
• Make Sure Your Paper Return is Error-Free
• Pay Electronically
• Request an Extension of Time to File
• Apply for an Installment Agreement
• Avoid Scams

The full article is available at the IRS website.

10 facts about making federal tax payments

The IRS published the "Top Ten Things You Need to Know About Making Federal Tax Payments":

1. Never send cash!
2. If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.
3. You can pay by phone or online using a credit or debit card whether you file a paper return or electronically.
4. Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.
5. If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.
6. Enclose your payment with your return, but do not staple it to the form.
7. If you pay by check or money order, make sure it is payable to the "United States Treasury."
8. Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order.
9. Complete and include Form 1040-V, Payment Voucher, when sending your payment and tax return to the IRS. This will help the IRS process your payment accurately and efficiently.
10. For more information, call 800-829-4477 for TeleTax Topic 158, "Ensuring Proper Credit of Payments." You can also find out more in Publication 17, Your Federal Income Tax and Form 1040-V, both available at IRS.gov.

Delay in penalties for mandatory e-pay

Under the new California budget that passed last fall, certain higher-income taxpayers are required to make tax payments electronically. (We posted about this in November and January.) The California Franchise Tax Board has just announced that, during 2009, it will not impose penalties for taxpayers who fail to comply with this new law. Taxpayers who meet the requirements for e-pay will first be subject to penalties starting January 1, 2010. "FTB realizes that some taxpayers and practitioners may need additional time to implement practices and procedures to comply with the requirement. Therefore, during the 2009 calendar year, taxpayers subject to the mandate who remit their payment by check instead of electronically will not be assessed an 'e-pay penalty' (1% of the amount paid)."

Update on California tax credit for new homes

Here's a quick update to our post on March 3 about the California tax credit for purchases of new homes: As of April 1, the Franchise Tax Board had received applications claiming $25.6 million of the credit. Once $100 million has been claimed and allocated, no one else will be eligible for the credit. For more information on the credit, you can visit our website's archive of email newsletters.

"Making Home Affordable"

The federal government has created a website for homeowners to get help with refinancing, loan modification, and other home ownership issues. The site includes self-assessment tools to find out if you are eligible for help. If you think it may apply to you, we encourage you to visit at: www.makinghomeaffordable.gov.

Going green?

A helpful article about the energy tax incentives of the recent tax stimulus bill is available on the AICPA Corporate Taxation Insider website. You can also visit our previous blog posts on cutting energy costs, energy tax incentives , and credits for hybrid autos.

7 Facts About Penalties

When facing a big tax bill, a mass of penalties can add insult to injury. It's important to know what the penalties are, and how to avoid them whenever possible. For a summary of penalties and how to avoid them, you can visit the FAQ on our website on how to avoid federal tax penalties. The IRS recently posted 7 Important Points About Penalties, the first of which may be the most important:

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

New California Sales Tax Rates

Sales taxes increased 1% today throughout California. The State Board of Equalization (BOE) has published updated guidance related to the tax increase, including guidance on:

• District Taxes and Delivered Sales
• California City and County Sales and Use Tax Rates
• FAQs on the Sales Tax Increase