Our Tax Dollars at Work

[tilt]

This is unreal. http://tinyurl.com/yc8j4sq

[rfassett]

I fail to see what is so unreal about it. Our tax system is an honor system and the government uses audits to frighten the masses into being honorable - or at least more honorable. She (and Block) left the door wide open to become an example and the IRS bit. There is very little doubt of the abuse of the earned income tax credit and "sale" of dependent deductions. If the IRS could wrap their arms around this area of fraud and others like it, those that abuse the system will start paying their share and the rest of us should be able to pay less tax.

What? What? What was that? Oh - I must have been in la la land there for abit.

[taxtrio]

It's sad that it seems the IRS considered her "guilty" until proved innocent. There are many of us grandparents that have a child and grandchild living with us because

they cannot make it on there own. Now with the changes in the definition of a qualified child it looks like our extended families will take another hit.

Taxtrio

[Catherine]

At the tax update school I attended last week one person from the IRS said they were going to be doing more of these audits. He used a particular term I can't recall at the moment -- basically, folks who aren't reporting enough income to be living at a decent level in the area where they are located.

And as is too often the case, they went at it in a totally ham-handed way. Rather than backing off when they found a family that -had- found a way to survive on low money (by living with family), they tried to crush those poor folks. Because of that poor decision, probably several folks who -are- hiding income have gotten off scott-free, because the IRS refused to say, "OK, you're managing on low funds, good luck to you and goodbye."

[Pacun]

Let me put this on the table to see if there is another legal way out. Let's say that FMV of rent for this taxpayer was $1,400 per month, for which she only paid $400. The $12,000 was a yearly gift to her from her father. That's a because she didn't pay FMV for rent. Mother gifted her $5,000 in cash or food during the whole year (As a matter of fact, they don't even have to break the gifts between parents). All of this money is gifted to her and not taxable. With those gifts, she will not be living below the poverty level in Seatle. Maybe parents need to start documenting the gifts to her.

[cathyan]

FMV for rent wouldn't have to be even close to $1400/mo. On Craigslist you can find rooms to share, utilities covered, use of house for around $400/mo. Double that for 2 bedrooms (2 boys share, or if 1 of each, girl shares with Mom) That leaves her $9000 for the rest of the year. A lot of people shop for clothes at thrift shops.

I think it could hasve easily been shown that a single mom with 2 kids could make it on $18000.

Not everybody has to have the newest and most expensive. And not everybody has health insurance. No car, no insurance. NO ride? Carpooling.

[kcjenkins]

The really bad part is not that they audited her, because EIC fraud is a real issue. The horrible thing is how they reacted to her explanations, but going after the entire family. Most all of us want them to crub EIC fraud, but we also remember that this girl is an example of why we started the EIC in the first place. And it is horrible that she had to incur huge costs just to get a fair hearing in the end.

[Pacun]

On this topic, I would like some input. This mother lived with her children and these children could be the qualifying children for the grandparents, correct? Now, since support is not considered for qualifying children as long as they lived (and are related) with the TP, how could the IRS denied EIC? Let's say that the children were the qualifying children for the granparents, the mother could win the tie breaker, correct? My only conclusion is that the mother was the qualifying child of her parents and therefore could not get EIC. Or the IRS felt that she was not reporting the tips she got as hair stylist. Can someone elaborate, please? I do understand that we don't have all the information about this case on the newspaper article.

[jainen]

>>we don't have all the information about this case on the newspaper article<<

Hey, that is NOT a news article. It is a columnist's rant, and by now we should recognize the difference because it affects how we think about everything from the price of food to the war. The author starts by saying "IRS pounces" so it's pretty obvious he is going for the emotional angle instead of straight reporting. He even admits he is not giving you all the facts. He gets away with blatantly slanting the news because he is a "columnist" instead of a reporter.

So of course we don't have the information we need. All we have is the self-serving excuses of someone who apparently got caught cheating. She blames the agent who caught her. Listen, she was flagged for the extremely common reason of claiming just enough SE income to reach the upper range of EIC. Well, I suppose you can call that "trolling for the working poor" if you enjoy colorful language. Still, the IRS accepted her explanation of low rent, so it is misleading to write, "They said she was too poor to make it in Seattle." (By the way, "lifestyle audit" is always an element in IRS examination, but in spite of the author's selective facts it doesn't seem to have played much of a role in either generating or resolving this particular audit.)

The author then says the parents were also audited. Apparently they are well-known to the IRS who has reason "now and then" to question their business reporting. Perhaps this time the IRS was interested in that rental income, but again, they accepted everything just fine.

So what was the issue? Well, it sure wasn't that "Rachel's kids now are in tax limbo." That's more rhetorical nonsense. The personal exemption for two dependents in 2006 totaled $6600, but her tax adjustment was only $1438. Probably the difference is standard deduction and tax rates for losing Head of Household status.

Now let me ask the forum, what do you all think about an accountant charging $10,000 for a Head of Household audit? Note that the client could have got the same result for free from her own tax preparer.

[kcjenkins]

I think the accountant charged based on the time it took, and that is fair, in my humble opinion. He did not do the original return, but we all know getting H&R to help their clients is usually a waste of time. And that is who did the original return. Block only defends on 'errors' that they may have made, not on factual issues like dependency. And usually, if they do go to an audit, they do little, except explain that they took the information from the client, period. [At least, that is what I've been told, numerous times, by new clients who used them in the past.] That is not going to help much.

How that bill was calculated we don't know. It may have included both the parents and the daughter's audits, we don't know. I don't understand why you see the fact that the parents have been audited before is significant, since they were, as I understood it, no-change audits. We all do know that the IRS prefers to pick on the smaller business owners, as easier targets than the big guys who have high-powered firms defending them. It's simple logic, they get more $$$$ from those who they bill for $3 or $4 K, who don't think they owe it, but know that it will cost them that much to fight it.