I always enjoy F.R. Duplantier’s verses, and have been looking forward to some tax related ones to post here, such as from this week’s update:

  PORK RINOS
The Republicans have been disgraced
By their failure to rein in the waste.
Are they really expected
To get reelected
When they act like the pigs they replaced?

TAXING OUR PATIENCE
The flat tax is best, some contend,
But the sales tax has much to commend.
Taxing income or sales —
These are minor details
‘Til we limit what Congress can spend!

Although I haven’t received any more direct updates from other practitioners on how this problem is playing out around the country, it is still ongoing.  Last week, I came across and responded to this posting from a California CPA on the Kleinrock discussion board.  I’m copying it here because I think you need to be registered to read it directly on the board.

Would appreciate your comments/suggestions on the following situation:

Taxpayer filed 1040X for 2001 in May, 2004 requesting huge refund.
IRS issued notice in Sept 2004 notifying t/p that case will be referred to district office
T/P received notice of exam Dec 29, 2004

Question:
Since refund claim was filed timely, if the exam is conducted past 4/15/05, would the statute of limitations have any effect on the refund?

It might be wishful thinking to delay the case for 3+ months, but I certainly hate to deal with any exam during the tax season. After all, the IRS is taking 8 months to notify the T/P. ( I wish I knew the date that the district office got the case. My understanding is that examination or other audit action must take place within 30 days after the District Office receives the claim from the regional service center.)

Selina Kong, C.P.A.

Reply 1:

Selina…when the taxpayer did the 1040X…he started the wheel again….

Reply 2:

If the refund claim was timely, your client can file suit in District Court
(or Court of Claims) after 6 months from the time the 1040X was filed. The
limitations period for filing the suit is generally 2 years after the
refund claim is denied. See IRC 6532.

Assuming the original return was filed on or before 04/15/2002, the statute
of limitations for assessments expires 04/15/2005. After that date, unless
the statute is extended, the tax shown on the original return cannot be
increased, although the requested refund could be decreased or eliminated
entirely by the IRS audit.

Ralph H. Weintraub, CPA
Los Angeles, CA

My first reply:

Selina:

What state are you in? I have been chronicling the spread of this program by IRS to audit 1040Xs with refunds and violate the statute of limitation in my blog, such as here.

Kerry Kerstetter
Osage, Arkansas

From Selina:

I’m in CA.

I’m just frustrated for the IRS’s delay to notify T/P of the audit (8 months from the date 1040X was filed, not to mention the fact that its the start of tax season now).

May be the amount of refund requested has something to do with it: close to $ 40k. May be it’s the complexity of the issue: I.R.C. Sec. 1202.

You mentioned in your blog that IRS have recently started a policy of running full blown audits of anyone who files amended tax returns requesting a refund. Is this “policy” in writing, & if so, did you get your hands on a copy of same?

Selina Kong, C.P.A.

My Last Post:

Selina:

I haven’t been able to get the auditor or audit manager to give me anything official in writing from DC authorizing this new practice; just their verbal claims that this is the new policy. I think it’s time for me to submit a FOIA request, which may or may not turn up anything in writing.

I have an auditor coming out to my office on Tuesday to go fishing for things that he can disallow in order to offset the $13,000 + that we requested on a 1040X that had been in IRS limbo for several months.

The other similar situation is with a 1040X for about $10,000, where the auditor went fishing around and opened up completely new issues that have cost us a lot of time to defend against his imaginative theories. He is definitely exploiting the burden of proof anomaly by tossing out all kinds of crazy ideas and making us scramble to prove him wrong without his having to prove his theories are anywhere close to accurate.

Good luck with your case. I will be posting my ongoing findings on these matters on my blog.

Kerry

 

Q:

Subject: QB Tips

 

Dear Sir,

Your  QB Tips have been extremely useful.  Thank you!  I do have a question which you haven’t covered directly (I don’t think).

For a business  C-corp, how is business income (say from consulting fees) that is used to pay Stockholder Loans treated?  For example, say the business received $100,000 income and paid  $30,000 of this to Stockholder Loans, how do you show the income reduction, since this is not a taxable event?  I know you record it against the Stockholder Loans account, but since it is not an expense, how does QB let you reduce the $100,000 by the $30,000 on the income/expense reports so that only $70,000 is taxable in this case?

Perhaps  you could cover this in a revision?

Thank you!

A:

Actually, this topic is covered in my tips.  It involves “Loan Activities” and mixing balance sheet entries with income statements.

Basically, payments on loans have no effect on the net income. This is why it’s not a very wise idea to just look at the bank account balance as a reliable indicator of a company’s net income.

There are ways to reduce corporate income by payments to the owners; but those would have to be picked up by the owners as income on their 1040s.

You really should be working with a tax pro to prevent these kinds of misunderstandings that could cause serious problems and work out a strategy to minimize your taxes. 

Good luck.

Kerry Kerstetter

 

Homes Become a Legacy As Kids Get Priced Out – Good look at passing homes between generations.

Revised Schedules K-1 to Reduce Filing Complexity – We’ll see how well the simplification efforts have succeeded.

U.S. gets tough on student loan debts

How the stock gurus come up with their “no-lose” investment plans they sell to suckers.

For the past week, I’ve been working on taxes that are due January 15, including C corporations with their years ended 10/31/04, as well as final 2004 estimated tax payments for some individuals, when I noticed that the due date this year is actually Tuesday, January 18 because the 15th is on Saturday and Monday, the 17th is a Federal holiday.  It always slips my mind when Martin Luther King Day comes around. Anyways, anyone panicking about getting their taxes and payments in by the 15th can relax and use those three extra days. 

Money in its less convenient form, cold hard cash:

Trucker missing; so is cargo of 3.6 million nickels – $180,000 weighing 45,000 pounds.

Fine paid in pennies leads to dropped case – 8,200 pennies that the owner is now trying to sell to some idiot on eBay for $25,000.  I was hoping to link to the actual eBay auction for this, but it didn’t turn up in my various searches.

 

It seems that a lot of people are noticing how the GOP has so shamelessly abandoned its principle of small constitutionally authorized government. That was an easy stand to take when they weren’t in control of the Federal Treasury. Now that they’ve seen how much fun it is to dole out the pork, they’re like crackheads and there doesn’t seem to be any way of stopping them. Bush has been their enabler by not having the balls to use his veto power to at least slow down the spendaholics in Congress.

Bottom line, bigger government leads to higher taxes. There is no way around that.