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Reconstructing Tax Records
After a Natural Disaster or Casualty Loss
Reconstructing records after a disaster may be essential for tax purposes, getting federal assistance or insurance reimbursement. After a disaster, taxpayers might need certain records to prove their loss. The more accurately the loss is estimated, the more loan and grant money there may be available. For taxpayers who have lost some or all of their records during a disaster, there are some simple steps to take that can help. The following information includes steps to take after a disaster so taxpayers can reconstruct their records and prove loss of personal-use and business property.
Reconstructing Tax Records
Residence and Real Property
Real property, also called real estate, is land as well as generally anything built on, growing on, or attached to land.
There are several resources that can help determine the current fair market value of most cars on the road. These resources are all available online and at most libraries:
Additionally, call the dealer where the car was purchased and ask for a copy of the contract. If this is not available, give the dealer all the facts and details, and ask for a comparable price figure. If making payments on the car, check with the lien holder.
It can be difficult to reconstruct records showing the fair market value of some types of personal property. Here are some things to consider when cataloguing lost items and their values:
If there are no photos or videos of the property, a simple method to help remember what items were lost is to sketch pictures of each room that was impacted:
Casualty and Disaster Tax Losses
A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. If damage is to personal, income‐producing or business property, taxpayers may be able to claim a casualty loss deduction on their tax return.
Taxpayers generally must deduct a casualty loss in the year it occurred. However, if the property was damaged as a result of a federally-declared disaster, taxpayers can choose to deduct that loss on their return for the tax year immediately preceding the year in which the disaster happened. A federally-declared disaster is a disaster that took place in an area declared by the President to be eligible for federal assistance. Taxpayers can amend a tax return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Taxpayers may need to reconstruct their records to prove a loss and the amount of the loss. To compute loss, determine the following figures:
Taxpayers may deduct the smaller of these two amounts, minus insurance or other reimbursement. Additionally, certain deduction limits apply. See Publication 547, Casualties, Disasters and Thefts, for details on these limits and Publication 551, Basis of Assets, for additional information on basis.
If the casualty loss deduction causes a taxpayer’s deductions for the year to be more than their income for the year, there may be a net operating loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts.
Determining the Decrease in Fair Market Value
Fair market value (FMV) is generally the price for which the property could be sold to a willing buyer. The decrease in FMV used to figure the amount of a casualty loss is the difference between the property's fair market value immediately before and after the casualty. FMV is generally determined through a competent appraisal. Without a competent appraisal, the cost of cleaning up or making certain repairs is acceptable under certain conditions as evidence of the decrease in fair market value.
Generally, the cost of cleaning up or making repairs if the repairs are:
For more information on losses, see these IRS publications:
The Internal Revenue $ervice (IRS) Whistleblower Office rewards whistleblowers who provide information about entities that have failed to pay taxes owed. A whistleblower may receive as much as 30% of the additional tax, penalty, and other amounts collected if the IRS uses the whistleblower’s information to pursue an action and subject to certain additional conditions. For additional information click on the links below:
This video is why we support Public Adjusters
Don't let the Insurance Company push you around (Part III)
7 Things to Do (when you have an insurance claim)
1.) Notify your insurance company, viz. put them on Notice.
2.) Keep good records, e.g. the day, date and whom you spoke with; your claim number, and the name of the insurance company’s adjuster.
3.) Ask for a “Certified Copy” of your insurance policy.
4.) Mitigate your losses, e.g. turn off water, secure doors and windows, etc.
5.) Take photos of the damage and photos of all items that you had to throw away.
6.) Keep a detailed record of all expenses and save your receipts.
7.) Contact a qualified Public Adjuster.
Don’t Let the Insurance Company Push You Around!
An editorial by David Selig, Federal Tax Practitioner
When your home or business suffers a covered loss, the Insurance Company will try to settle for “pennies on the dollar”. The Insurance Company knows that it’s nearly impossible to be objective when your property was just destroyed. It’s a traumatic experience for you and your family – but it’s business as usual for the Insurance Company. Houses catch fire, ships sink and water damages valuable inventory every day of the week. Insurance Companies are in business to make money, and every dollar they save is quite literally, a dollar earned. Accordingly, the Insurance Company employs an army of Adjusters, Accountants and Attorneys. And each one of these coldblooded professionals is specially trained to skin you alive. You’ve got to protect yourself, says David Selig. In the rough and tumble world of claim settlements, fair exchange is no robbery! You need an aggressive advocate in these difficult times, says Selig. In most cases, a Public Adjuster and Attorney will negotiate a bigger cash settlement than a policyholder ever could. For more information about settling insurance claims, contact Attorney Bradley Dorin at Selig & Associates.
Treasury Identifies 8 Regulations as Burdensome
By Alistair M. Nevius, The Tax Adviser’s editor-in-chief.
After reviewing all 105 final, temporary, and proposed Treasury regulations issued from January 2016 through April 2017, the Treasury Department has identified eight as burdensome, for which it will propose reforms as required by Executive Order 13789 (Notice 2017-38).The regulations identified as burdensome include the regulations under Sec. 385 implementing rules that would recharacterize certain transactions between related parties that are ostensibly debt as equity, curbing the practice of “earnings stripping,” and proposed regulations under Sec. 2704 that would prevent taxpayers from taking certain estate valuation discounts. Executive Order 13789, issued in April, directed Treasury to review significant regulations that were issued in 2016 and 2017 to determine if the regulations cost too much, are too complex, or exceed the IRS’s statutory authority. Treasury determined that 53 of the regulations issued during the review period were “minor or technical in nature” and not significant. It treated the remaining 52 regulations as potentially significant and reviewed them under the terms of the executive order. It determined that eight qualified as significant and met the criteria of the executive order.Those eight regulations are:
1. Proposed regulations under Sec. 103 on the definition of political subdivision (REG-129067-15);
2. Temporary regulations under Sec. 337(d) on certain transfers of property to regulated investment companies (RICs) and real estate investment trusts (REITs) (T.D. 9770);
3. Final regulations under Sec. 7602 on the participation of a person described in Sec. 6103(n) in a summons interview (T.D. 9778);
4. Proposed regulations under Sec. 2704 on restrictions on liquidation of an interest for estate, gift, and generation-skipping transfer taxes (REG-163113-02);
5. Temporary regulations under Sec. 752 on liabilities recognized as recourse partnership liabilities (T.D. 9788);
6. Final and temporary regulations under Sec. 385 on the treatment of certain interests in corporations as stock or indebtedness (T.D. 9790);
7. Final regulations under Sec. 987 on income and currency gain or loss with respect to a Sec. 987 qualified business unit (T.D. 9794);
8. Final regulations under Sec. 367 on the treatment of certain transfers of property to foreign corporations (T.D. 9803).
Under Executive Order 13789, Treasury is directed to submit a final report to the president by Sept. 18, 2017, recommending specific actions to mitigate the burdens imposed by the identified regulations. Treasury is asking the public for comments on whether these eight regulations should be rescinded or modified, and, if modified, how they can be modified to reduce burdens and complexity.
We Reached Maximum Legal Capacity!!!
7 July 2017: Today’s event “Do it Yourself IRS Penalty Abatement Class” is now closed to the public. We apologize for any inconvenience, and look forward to seeing you at our next workshop.
14 Real Examples of Tax Fraud
(1) Underreporting income [or in layman’s parlance, lying about how much you earn]. (2) Pocketing cash to avoid paying tax. (3) Inflating business expenses, e.g. paying household expenses or other bills through the business. (4) Phony baloney business expenses. (5) Using fake social security numbers (6) Cooking the Books, viz. keeping two sets of books. (7) Claiming exemptions for you’re not entitled to, viz. fake wives, children and dependents. (8) Concealing your crimes by destroying computers, books and documents. (9) Doctoring up checks, receipts and records, e.g. overstating expenses, understating or misclassifying income. (10) Hiding financial information from the IRS. (11) Transferring assets away from the IRS. (12) Creating or inflating charitable deductions. (13) Failure to file tax returns. (14) Lying to the IRS, e.g. deliberately making false statements while under oath. If you’d like more information about tax fraud, call Selig & Associates directly.
Police in India have arrested a man they say was the ringleader of a network of call centers that allegedly swindled thousands of Americans out of millions of dollars. By Zahraa Alkhalisi
Sagar Thakkar, 24, was detained in Mumbai after arriving on a flight from Dubai on Saturday. "He was the mastermind of IRS scam call centers in the state of Maharashtra and one center in Ahmedabad," said Mukund Hatote, assistant commissioner of police in Thane, just north of Mumbai. Hatote said Thakkar stands accused of extortion, cheating, impersonation, criminal conspiracy as well as violating India's communications and tech laws. News of the scam broke last October when Indian police raided nine calls centers -- eight in Thane in Maharashtra -- and arrested more than 70 people on suspicion of posing as IRS agents to steal cash from U.S. citizens. Workers at bogus call centers used American accents to impersonate IRS agents. They told their victims that they owed back taxes and would risk arrest if they hung up or failed to pay up. Thakkar -- also known as "Shaggy" -- was one of 61 defendants mentioned in a U.S. indictment unsealed last October. The bogus call center workers were accused of stealing from 15,000 people by using the IRS scam and other fraud schemes. Related: IRS impersonators accused of stealing millions from the elderly U.S. prosecutors say the defendants also posed as immigration officers and threatened victims with deportation unless they paid a fine immediately. They said in October that 20 people across eight U.S. states had been arrested. Indian police say they have charged more than 390 people in connection with the scheme, and more than 12 remain in jail.
Understanding Federal Criminal Tax Enforcement
The Government helps to preserve the integrity of this Nation's self-assessment tax system through vigorous and uniform criminal enforcement of the internal revenue laws. Criminal prosecutions punish tax law violators and deter other persons who would violate those laws. To achieve maximum deterrence, the Government must pursue broad, balanced, and uniform criminal tax enforcement. Uniformity in tax cases is necessary because tax enforcement potentially affects more individuals than any other area of criminal enforcement. Broad and balanced enforcement is essential to effectively deter persons of varying economic and vocational status, violators in different geographic areas, and different types of tax law violations. To achieve uniform, broad, and balanced criminal tax enforcement, the Attorney General has authorized the Tax Division to oversee all federal criminal tax enforcement and to authorize or decline investigations and prosecutions in tax matters. For more information about tax crimes and resolving your tax problems, call Selig & Associates at (212) 974-3435
A DIY Guide to IRS Penalty Abatements
Be gentle its my first time . . .
According to the IRS, you may qualify for a first-time penalty abatement if certain conditions are met. Specifically, you were not previously required to file a tax return, or alternatively, you had no prior penalties during the past 3 years. *Estimated tax penalties don’t apply.
Additionally, all of your tax returns have to be filed, and you have to have paid your taxes, or alternatively, made arrangements to pay your taxes by entering into a bona fide installment agreement.
Assuming that you meet this criteria, the IRS will probably approve your request for a first time abatement for Failure To File and Failure to Pay penalties.
But what about interest? In a nutshell, the IRS charges interest on tax, penalties, and interest until the balance is paid in full. However, if your request for a first time penalty abatement is approved, your interest payment should be reduced.
FYI the penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. 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.
Eight Fun Facts on Late Filing & Late Payment Penalties
IRS Tax Tip 2013-58
The IRS is Racially Profiling Dominican & Hispanic Tax Return Preparers says Federal Tax Practitioner David Selig, of Selig & Associates. Bronx, Brooklyn and NYC is being unfairly scrutinized!
Compared to the national average, Hispanic neighborhoods receive more Earned Income Tax Credits and have a disproportionate number of Head-of-Household filers. Accordingly, Selig suspects that the IRS has implemented a clandestine computer scoring system that profiles certain demographics e.g. Hispanic single parent families with low incomes, viz. bodegas, restaurants, domestics and other unskilled laborers. According to Selig, this program unfairly targets Hispanics and improperly punishes Hispanic Tax Return Preparers.
EITC Due Diligence Law and Regulation Internal Revenue Code §6695 and related regulations set out the EITC Due Diligence requirements and the penalties for failure to comply with them.
IRC §6695(g) states that any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining eligibility for, or the amount of, the credit allowable by section 32 shall pay a penalty of $500 for each such failure. IRC §6695(h) allows a cost-of-living adjustment. The penalty for taxable years beginning in 2015 is $505.
There are four due diligence requirements. Generally, if you prepare EITC claims, you must ask all the questions required on Form 8867, Paid Preparers' Earned Income Credit Checklist, as well as, ask additional questions when the information your client gives you seems incorrect, inconsistent or incomplete. Complete and submit the Form 8867 for all paper and electronic tax returns and for all other EITC claims. It is required for all EITC claims, the ones with a qualifying child and the ones with no qualifying child. Also, keep a copy of the completed form. Prepare and keep the worksheet showing how you computed the credit. The table below provides more information on your record-keeping requirements.
You could be penalized for each time you fail to meet all four due diligence requirements for each EITC claim. Among other things, Tax Return Preparers must:
1.) Complete Form 8867, Paid Preparer's Earned Income Credit Checklist, to make sure you consider all EITC eligibility criteria for each claim you prepare.
2.) Complete checklist based on information provided by your client(s).
2.b) For EITC EITC returns or claims for refund filed electronically, submit Form 8867 to the IRS electronically with the return.
2.c) For EITC returns or claims for refund not filed electronically, attach the completed form to any paper return you prepare and send to the IRS.
2.d) For EITC returns or claims for refund you prepare but do not submit directly to the IRS, provide the completed Form 8867 to your client to send with the filed tax return or claim for refund.
3.) Complete the EIC worksheet from the Form 1040 instructions, or Publication 596, Earned Income Credit, or a form with the same information. The worksheet shows what is included in the computation, that is, self-employment income, total earned income, investment income and adjusted gross income. Most professional tax preparation software includes the computation worksheet.
3.b) Not know or have reason to know any information used to determine your client's eligibility for, or the amount of EITC is incorrect, inconsistent or incomplete.
3.c) Make additional inquiries if a reasonable and well-informed tax return preparer would know the information is incomplete, inconsistent or incorrect
4.) Know the law and use your knowledge of the law to ensure you are asking your client the right questions to get all relevant facts.
4.b) Document any additional questions you ask and your client's answer at the time of the interview.
FYI To qualify for Head of Household filing status, taxpayers must be unmarried or considered unmarried at the end of the year, and have paid more than half the cost of keeping up a home for the tax year.
The Earned Income Tax Credit “EITC” is intended to help low-income earners with children. The EITC is a refundable tax credit, and according to several IRS Tax Examiners, it's nothing more than a "redistribution of wealth" scheme.
FYI In addition to targeting Hispanics, the IRS uses a computer scoring system to determine who will be audited, referred to as “DIF” viz. Discriminant Inventory Function System.
A Do it Yourself Guide to NYS Offers in Compromise
According to Publication 220 “The New York State Offer in Compromise Program is designed to help financially distressed taxpayers who face overwhelming tax liabilities”. In fact, that single sentence sounds so good that I’m frequently asked the following two questions: (1) “Am I eligible for an Offer in Compromise?” and (2) “Can I do it myself?” to which I reply “maybe” and “yes” respectively.
So let’s get to it! According to Publication 220 “To be eligible, you must show that you have been discharged in bankruptcy, you are insolvent, or (for individuals only) that collection in full would cause you undue economic hardship. You are considered insolvent if all your liabilities (including your tax debt) exceed the fair market value of your assets. Undue economic hardship generally means that you are unable to pay reasonable basic living expenses, which are those providing for the health, welfare, and production of income for your family.
We use Internal Revenue Service (IRS) standards to help determine allowable living expenses. We also consider other factors, including the taxpayer’s age, employment status, and employment history; any inability to earn income because of long-term illness, medical condition, or disability; and any obligation to dependents”.
Tax Tip: This isn’t an invitation for sob stories and swan songs, but rather, this is your best opportunity to clearly and credibly present your case. The first step is to determine how much you actually owe. I recommend that you contact the State directly and request an account transcript that lists each unpaid tax liability. The second step is to list all of your expenses, including rent or mortgage payments, utilities, insurance, medical coverage and all uncovered medical expenses, childcare, child support and other court ordered payments. For food and incidental expenses, you should attach a copy of the IRS’s 2017 Federal Collection Standards re Food, Clothing and Other Items to your Offer. The third step is to determine how much you should offer (which is easier said than done).
Tax Tip. Remember, this is an adversarial contest. That is to say, the State wants to collect as much as it possibly can. Conversely, you want to pay as little as possible. Accordingly, the State will consider things that you’d probably prefer not to think about, such as anticipated future earnings; potential inheritances; personal injury lawsuits; increased earnings when your children are no longer considered dependents; when does your car come off lease; your ability to borrow, the value of your assets, retirement accounts, etc.
Tax Tip. A successful Offer in Compromise addresses and successfully answers each relevant issue. Remember, in this forum, you are the “Offeror” and the State is the Offeree. This means you have the burden of proof and persuasion, and if that wasn't enough, you must make the offer as attractive as possible. For questions about New York State Offers in Compromise or other tax matters, contact David Selig of Selig & Associates at (212) 974-3435