Tax Deadline Help

Last-Minute Filers: Avoid Common Errors

IRS YouTube Video: Tax Return Errors English | Spanish | ASL

Podcast: Tax Return Errors English | Spanish

WASHINGTON — The Internal Revenue Service today reminded taxpayers to review their tax returns for common errors that could delay the processing of their returns. Here are some ways to avoid common mistakes.

File electronically. Filing electronically, whether through e-file or IRS Free File, vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. And best of all, there is a free option for everyone.

Mail a paper return to the right address. Paper filers should check the appropriate address where to file in IRS.gov or their form instructions to avoid processing delays.

Take a close look at the tax tables. When figuring tax using the tax tables, taxpayers should be sure to use the correct column for the filing status claimed.

Fill in all requested information clearly. When entering information on the tax return, including Social Security numbers, take the time to be sure it is correct and easy to read. Also, check only one filing status and the appropriate exemption boxes.

Review all figures. While software catches and prevents many errors on e-file returns, math errors remain common on paper returns.

Get the right routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows the taxpayer access to his or her money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.

Sign and date the return. If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Attach all required forms. Paper filers need to attach W-2s and other forms that reflect tax withholding, to the front of their returns. If requesting a payment agreement with the IRS, also attach Form 9465 or Form 9465-FS to the front of the return. Attach all other necessary schedules and forms in sequence number order shown in the upper right-hand corner.

Keep a copy of the return. Once ready to be filed, taxpayers should make a copy of their signed return and all schedules for their records.

Request a Filing Extension. For taxpayers who cannot meet the April 17 deadline, requesting a filing extension is easy and will prevent late filing penalties. Either use Free File or Form 4868. But keep in mind that while an extension grants additional time to file, tax payments are still due April 17.

Owe tax? If so, a number of e-payment options are available. Or send a check or money order payable to the “United States Treasury.”

I'm Already Planning Ahead for Next Year's Taxes

Another tax season has passed, and my wife and I have submitted our return. We received our refundquickly and put it to good use - paying off some of our medical bills. Each year as the tax season passes and the remainder of the year commences, we discuss what led us to the refund or the extra tax owed. We then adjust our W-4 forms and financial activity to suit our plans for the next year's return.

Payroll deductions

We both teach school full-time, so we make modest salaries. We range in the 12-15% tax bracketdepending on the tax laws of the year. We are not wealthy, but we have learned over time how make things work with our moderate income. We have the normal payroll deductions that most people would have: taxes, social security, Medicare, health insurance, and dental insurance. Florida has nostate income tax. We elect other payroll deductions as well, and many of ours qualify for pre-tax deductions.

Part-time employee vs. Freelance writing

· Part-time employee

I cannot understand this law. In the early part of 2011, I worked as an online adjunct for a college. I made approximately $2350 gross pay for four months of work. I had approximately $343 (15%) deducted as taxes, which is fine with me. After 19 years I grew accustomed to the job's tax rate. However, I stopped working the job after April.

· Freelance writer

I spent the last four and a half months of 2011 writing freelance and made approximately $2600 with no Federal withholding. I expected to pay 15% ($390) in taxes. When I entered this information into my return, I discovered that I had to pay $900 (35%) in taxes. That is a difference of $557 more in tax as a freelance contractor rather than an employee. I have no idea why the rules are so different for the same range of income, but they apparently are. At least I now know what to expect for next year and can prepare for it.

Deductible donations

We keep track of every transaction into and out of our credit union accounts on checkbook software. We give to our church all year long, and we make other various money and merchandise donations at times throughout the year. We keep all receipts from all donations in our tax folder so we can know at any time our total for the year to date. These donations reduce our taxable income, so we can calculate how much more refund we will receive or how much less extra tax we will owe depending on the year.

Adjusting our W-4 forms

We must consider our W-4 forms carefully from one tax season to the next. We must decide if we want more taxes deducted and have less net pay or have less tax deducted but more net pay. A large refund looks great, but it means we had too much tax deducted from our salaries. We deduct for our joint marital status with one dependent (our son) on our W-4 forms. That way, we have a little more in our paychecks each payday and still have a nice little something to look forward to each spring.

When I taught as an adjunct employee, I would claim single with no dependents on that W-4 and have additional taxes withheld from that extra income to reduce our tax burden the next spring. That job has gone away, so I now have to plan and save to cover the tax for my writing, which does not withhold tax.

Careful planning each year

The process resumes each year, and it takes careful planning. We keep track of tax law changes as much as we can. It does not always work the way we want, but we normally get that modest refund to help get us through our summers or pay down some bills. Careful planning and discipline allow us to reach our goals just as with any other major financial goal. Straying from the plan can ruin our goal very easily. Thankfully, we have learned from past mistakes, and we now understand how to manage all of our financial activity much better.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

Get Your Taxes Done Free

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Oct 17th, FINAL deadline

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Write Off Your Job Hunt! It's no secret that millions of Americans are looking for work, from recent graduates to downsized late-career employees who aren't ready to retire. Far fewer are aware of how Uncle Sam's tax code can be used to blunt the cost of a job search-especially one that may go on for longer than in the past. The tax issues affecting job seekers are numerous, with many parts of the code coming into play. The bottom line: Getting tax help is a wise move for job hunters. "Even a little goes a long way, and a quick phone call could save you a lot of money," says Melissa Labant of the American Institute of CPAs. For more on this story, see our MB Tax Blog. ____________________________ MB Tax Office News October 17th is the final day to file 2010 taxes for Individuals and LLC's. If you are on extension and have the items needed to file your 2010 taxes, please get that material to us and we will do our best to process the returns in the order that we receive completed information. The penalty for not filing on time is considerably more than not paying on time, so our best advice is to have your taxes filed on time, even if you have to create a payment plan for your payments. Our office hours through October 17th are Monday-Friday, 10am-5pm. You are welcome to drop off your material through our front door slot if we are not in the office, email scanned information tooffice@mbtaxpro.com, or you may fax us your information to (503) 282-0513. We hope to see you soon!

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Important Dates October 17th - Deadline for Individual Tax Returns

TurboTax still without Oregon update, those affected must amend their returns to get all of their refund.

Updated at 3:30 p.m. Thursday to reflect date of expected update; TaxACT's update. Portland State University junior Maggie Brown is buying books on spring break, so an Oregon tax refund could come in handy right now.

But she's still waiting for her software provider -- Intuit Corp.'s TurboTax -- to update its programs to account for changes Oregon legislators made March 8.

"I’ve used TurboTax the last four, five years," said Brown, who's majoring in child and family studies. "It makes me think I’m probably not going to use them next year after this."

Hundreds of other Oregonians are probably in the same boat. In December, Congress and President Obama extended a variety of tax breaks covering college tuition as well as out-of-pocket educator costs. But Oregon legislators didn't make the same changes in state tax law until March 8, leading to a disconnect and potentially higher state tax bill for early filers. This evening, an Intuit spokeswoman said updates reflecting Oregon’s changes would take effect Saturday morning. “TurboTax Online will be automatically updated and taxpayers using the CD version of TurboTax should make sure they download any updates before completing their return,” Ashley Kirkendall said via email. The deductions mostly impact anyone paying up to $4,000 for college tuition and books, as well as elementary and secondary schoolteachers deducting up to $250 in out-of-pocket expenses. It also would allow parents to keep their children on their health plans until they reach age 26 without being taxed on the benefit.

Before lawmakers acted, Oregon taxpayers filing returns were supposed to add the deductions back to their income on their state returns. At least 15,500 individuals did so, Oregon Revenue Department officials said today. Those taxpayers now must file amended returns to lower their state tax bill, department officials say.

Brown expects the change to turn her $160 state tax bill into a $200 refund. Educators might only save $20 by amending their return or waiting to file, given that most taxpayers pay an effective rate of 8 percent.

Tax-prep software providers led Oregon taxpayers to add those deductions back on any returns filed before the Legislature fixed Oregon law, state officials say.

H&R Block At Home updated its software March 17, spokeswoman Kate O'Neill Rauber said. UPDATE: 2nd Story Software Inc.'s TaxACT made its changes March 15, spokeswoman Leigh Aragon said Thursday.

But TurboTax, the nation’s leading software provider, hadn’t updated its software. In fact, its website still encourages customers to “file by March 25 (Friday) for a lower price” on federal returns, though it’s unclear whether that discount applied to state returns.

State officials referred software questions to providers. "We don’t control when they make those changes," department spokeswoman Rosemary Hardin said. "We hope it’s sooner rather than later."

Customers say the company’s customer support center had given conflicting information as to when an update might take place.

Posters on a TurboTax "Live Community" chat room expressed frustration with the delay. “We're all still waiting for that update,” a user identified as OrCollegeMom, wrote on Tuesday. “The idea of a manual override is appealing. I'm getting pretty frustrated with Turbo Tax and may not use them for our state return next year. What's taking so long?"

Brown's low income meant she qualified to file a federal return for free. But she said she paid Intuit $30 to file her state return electronically 30 "and they still don’t have an update."

For more on the issue and tips on how to deal with the changes, read It's Only Money's column in this Sunday's Oregonian.

Erin Murphy

David Bixel

MB Tax Pro

www.mbtaxpro.com

Portland, Oregon

97210

6 Unexpected Tax Deductions

Last month, first lady Michelle Obama kicked up a surprising amount of controversy when she suggested that mothers be encouraged to breast-feed their children. The remark probably would have gone unnoticed had it not been for a concurrent addition to the tax code allowing parents to deduct breast pumps as a medical expense.

While it's not clear why anyone would object to the new rule (breast feeding has been around, well, forever), the dust-up did highlight the hundreds of myriad ways that taxpayers can reduce their tax burden by itemizing deductions.

Many of the most common deductions are well-known -- for instance, most people realize that you can deduct the interest paid on your mortgage, donations to charity or even moving costs. But few people realize just how many ways the system can be tweaked to score a deduction.

We pored over the tax code to find some unexpected deductions, and spoke to tax experts to find out how a creative interpretation of the tax code can get you some strange but budget-friendly deductions. Here are a few of our favorites.

Weight Loss (Sometimes)

As with any medical expense, this one can get tricky come tax season. As a general rule, costs associated with a weight-loss program are only deductible if there's a medical justification. To quote the Internal Revenue Service, "You can include in medical expenses amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease)." Lap-band surgery, which is only used in cases of health-threatening obesity, is also deductible.

But there are limits: Your doctor might suggest that you start eating healthier, but that doesn't mean you can start deducting the cost of vegetables, says Jackie Perlman, principal tax research analyst for the Tax Institute at H&R Block.

Visiting a Christian Science Practitioner

In another twist on the deductions you can claim for medical expenses, the tax code evidently takes a fairly broad view of what constitutes treatment. Christian Scientists, who don't believe in conventional medical treatments, may deduct the cost of treatment by a Christian Science Practitioner. Given that these practitioners do all their healing through the power of prayer, it's a bit odd that this would be classified as a medical treatment, but we're not about to begrudge anyone their belief system -- or a tax deduction.

Dog Food

Most dog owners won't be able to deduct the cost of puppy chow, but there are two ways to get a tax deduction on pet-related expenses. The first is to have a seeing-eye dog or other service animal -- it's essentially considered a medical device (albeit a cute, furry and loving one), so all costs for buying, training and feeding the animal are deductible.

The other pet-related deduction offered is for a guard dog for your business, which can be deducted as a business expense. The actual purchase of a dog isn't deductible, but training and feeding it is. "If your business uses that dog for protection, that meets the definition of a business purpose," says Bob Meighan, vice president at TurboTax.

Breast Implants

The IRS says that "unnecessary cosmetic surgery" cannot be deducted from your tax bill, but there are always exceptions. For one, survivors of breast cancer who have had a mastectomy may deduct the cost of breast reconstruction, as it constitutes a medical expense.

Meanwhile, breast augmentation for non-medical purposes can also be deducted if there's a business angle. Rob Seltzer, a certified public accountant who operates a private practice in Beverly Hills, recalls the story of an exotic dancer who was able to claim her breast enlargement as a business expense.

A Pool

Seltzer recalls helping a client who had sustained severe neck and back injuries while playing racquetball. "The doctor said the only way for him to be active was to swim, so we built a lap pool and deducted it," he says.

Of course, you'll need to make sure you have the backing of a physician when you make a medical deduction like this; Meighan notes that if the IRS contests the deduction and you wind up in tax court, your doctor may be called upon to explain why it was medically necessary. In other words, don't think you can get away with conspiring with your doctor to score a tax-deductible pool.

Your Clown Costume

Jackie Perlman says that H&R Block's tax preparers are frequently asked whether clothing purchased for work is tax deductible. And usually the answer is no -- even if you never wear suits outside the office, the suit you had to buy for your corporate job isn't tax deductible because it's not considered a uniform.

"The key word is 'uniform' or 'costume' -- something not normally suited to street wear," says Perlman. So if you work as a clown and the cost of buying and maintaining your clown suit exceeds 2.5% of your adjusted gross income (the standard for business expenses), you can claim a deduction.

Erin Murphy

David Bixel

www.mbtaxpro.com

MB Tax Professionals

Portland, OR 97210

What Are Your Chances of Being Audited By The IRS? (2010 Stats)

reprinted from Kiplinger

Want to know your chances of being audited by the Revenue Service? New IRS statistics give the details on audits of individuals in fiscal 2010. The overall exam rate for individual returns rose to 1.11%, the highest since 1997. Taxpayers with incomes of $1 million or more got the most scrutiny. The Service audited 8.36% of these filers. That’s one out of every 12 returns. Three other classes of taxpayers experienced significant audit heat as well, with audit rates more than twice the average: Filers with incomes of at least $200,000 but less than $1 million. Business returns with gross receipts of $25,000 and up, such as Schedule C filers. And returns where the earned income credit was claimed. We have compiled a list of common audit triggers...a dozen ways your return may draw extra scrutiny.

www.mbtaxpro.com

MB Tax Professionals

Erin Murphy

David Bixel

Portland, OR 97210

IRS Audit Red Flags: The Dirty Dozen

reprinted from Kiplinger

Ever wonder why some tax returns are audited by the IRS while most are ignored? Well, there’s a whole host of reasons to this age-old question. The IRS audits only about 1% of all individual tax returns annually. The agency doesn’t have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that your return will be picked for an audit. And of course, the only reason filers should worry about an audit is if they are cheating on their taxes.

However, the chances of you being audited or otherwise hearing from the IRS can increase depending upon various factors, including whether you omitted income, the types of deductions or losses claimed, certain credits taken, foreign asset holdings and math errors, just to name a few. Although there’s no sure way to avoid an IRS audit, you should be aware of red flags that could increase your chance of drawing some unwanted attention from the IRS. Here are the 12 most important ones:

1. Failure to report all taxable income.
The IRS receives copies of all 1099s and W-2s that you receive during a year, so make sure that you report all required income on your tax return. the IRS computers are pretty good at matching these forms received with the income shown on your return. A mismatch sends up a red flag and causes IRS computers to spit out a bill. If you receive a 1099 for income that isn’t yours or the income listed is incorrect, get the issuer to file a corrected form with the IRS.

2. Returns claiming the home-buyer credit.
First-time homebuyers and longtime homeowners who claimed the homebuyer credit should be prepared for IRS scrutiny. Make sure you submit proper documentation when taking this credit. First-time homebuyers have to attach a copy of their settlement statement to the return, and longtime homeowners should also attach documents showing prior ownership of a home, including records of property tax and insurance coverage. All claims for this credit are being screened. As of May 2010, more than 260,000 returns had been selected for correspondence audits (examinations done by mail rather than face-to-face) because filers did not attach the necessary documents to their tax returns. And those numbers will continue to grow.

Also, the IRS has ways of policing the recapture of the homebuyer credit. Generally, the credit is required to be recaptured if the home is sold within three years for homes brought in 2009 or 2010 and within 15 years for homes bought before 2009. The IRS is checking public real estate databases for sales of homes for which the credit was taken.

3. Claiming large charitable deductions.
This comes up again and again because the IRS has found abuse on audit, especially with those taking larger deductions. We all know that charitable contributions are a great write-off and help you to feel all warm and fuzzy inside. However, if your charitable deductions are disproportionately large compared to your income, it raises a red flag. That’s because the IRS can tell what the average charitable donation is for a person in your tax bracket. Also, if you don’t get an appraisal for donations of valuable property or if you fail to file Form 8283 for donations over $500, the chances of audit increase. Be sure you keep all your supporting documents, including receipts for cash and property contributions made during the year, and abide by the documentation rules. And attach Form 8283 if required.

4. Home office deduction.
The IRS is always very interested in this deduction, primarily because it has a pretty high adjustment rate on audit. This is because history has shown that many people who claim a home office don’t meet all the requirements for properly taking the deduction, and others may overstate the benefit. If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance, and other costs that are properly allocated to the home office. That’s a great deal. However, in order to take this write-off, the space must be used exclusively and on a regular basis as your principal place of business. That makes it difficult to claim a guest bedroom or children’s playroom as a home office, even if you also use the space to conduct your work. Exclusive use means a specific area of the home is used only for trade or business, not also where the family watches TV at night. Don’t be afraid to take the home-office deduction if you’re otherwise entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.

5. Business meals, travel and entertainment.
Schedule C is a treasure trove of tax deductions for self-employeds. But it’s also a gold mine for IRS agents, who know from past experience that self-employeds tend to claim excessive deductions. Most under-reporting of income and overstating of deductions are done by those who are self-employed. And the IRS looks at both higher-grossing sole proprietorships as well as smaller ones.

Big deductions for meals, travel and entertainment are always ripe for audit. A large write-off here will set off alarm bells, especially if the amount seems too large for the business. Agents know that many filers slip in personal meals here or fail to satisfy the strict substantiation rules for these expenses. To qualify for meals or entertainment deductions, you must keep detailed records generally documenting the following for each expense: amount, place, persons attending, business purpose and nature of discussion or meeting. Also, receipts are required for expenditures over $75 or any expense for lodging while traveling away from home. Without proper documentation, your deduction is toast.

6. Claiming 100% business use of vehicle
. Another area that is ripe for IRS review is use of a business vehicle. When you depreciate a car, you have to list on Form 4562 what percentage of its use during the year was for business. Claiming 100% business use for an automobile on Schedule C is red meat for IRS agents. They know that it’s extremely rare that an individual actually uses a vehicle 100% of the time for business, especially if no other vehicle is available for personal use. IRS agents are trained to focus on this issue and will closely scrutinize your records. Make sure you keep very detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for the revenue agent to disallow your deduction. As a reminder, even if you use the IRS’ standard mileage rate to deduct your business vehicle costs, ensure that you are not also claiming actual expenses for maintenance, insurance and other out-of-pocket costs. The IRS has found filer noncompliance in this area as well and will look for this.

7. Claiming a loss for a hobby activity.
Your chances of “winning” the audit lottery increase if you have wage income and file a Schedule C with large losses. And, if your Schedule C loss-generating activity sounds like a hobby…horse breeding, car racing, and such…the IRS pays even more attention. It’s issued guidelines to its agents on how to sniff out those who improperly deduct hobby losses. Large Schedule C losses are audit bait, but reporting losses from activities in which it looks like you might be having a good time is just asking for IRS scrutiny.

Tax laws don’t allow you to deduct hobby losses on Schedule C; however, you do have to report any income earned from your hobbies. In order to claim a hobby loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes you’re in business to make a profit, unless the IRS establishes to the contrary. If audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So, make sure you run your activity in a business-like manner and can provide supporting documents for all expenses.

8. Cash businesses.
Small business owners, especially those in cash-intensive businesses…taxi drivers, car washes, bars, hair salons, restaurants and the like…are an easy target for IRS auditors. The agency is well aware that those who primarily receive cash in their business are less likely to accurately report all of their taxable income. the IRS wants to narrow the tax gap, and history has shown that cash-based businesses are a good source of audit adjustments. It has a new guide for agents to use when auditing cash intensive businesses, telling how to interview owners and noting various indicators of unreported income.

9. Failure to report a foreign bank account.
The IRS is intensely interested in people with offshore accounts, especially those in tax havens. U.S. tax authorities have had some recent success in trying to get foreign banks (such as UBS in Switzerland) to disclose information on U.S. account holders. Also, the IRS had a voluntary compliance program where people came in and reported their foreign bank accounts and foreign assets in exchange for lesser penalties than they would have otherwise been subject to. The IRS has learned a lot from these probes.

Failure to report a foreign bank account can lead to severe penalties, and the IRS has made this issue a top priority. Make sure that if you have any such accounts, you properly report them when you file your return. Keep in mind, though, that if you have never previously reported the foreign bank account on your return, and you decide to do so for the first time in 2010, that might also look suspicious to the IRS.

10. Engaging in currency transactions.
The IRS gets many reports of cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses, plus suspicious activity reports from banks and disclosures of foreign accounts. A recent report by Treasury inspectors concluded that these currency transaction reports are a valuable source of audit leads for sniffing out unreported income. The IRS agrees and it will make greater use of these forms in its audit process. So if you are a person who makes large cash purchases or deposits, be prepared for IRS scrutiny. Also, beware that banks and other institutions file reports on suspicious activities that appear to avoid the currency transaction rules (such as persons depositing $9,500 cash one day and an additional $9,500 cash two days later).

11. Math errors.
One of the biggest reasons that people receive a letter from the IRS is because of mathematical mistakes they make on their tax returns. If you make an error in your favor, you are going to hear from the tax man, and there is a greater risk of the IRS pulling the whole return for audit. So take time to ensure all your calculations are correct. Even though math errors may not lead to a full-blown audit, it’s always best to remain under the radar of IRS computers.

12. Taking higher-than-average deductions.
If deductions on your return are disproportionately large compared to your income, the IRS audit formulas take this into account when selecting returns for examination. Screeners then pull the most questionable returns for review. But if you’ve got the proper documentation for your deduction, don’t be scared to claim it. There’s no reason to ever pay the IRS more tax than you actually owe.

www.mbtaxpro.com
Erin Murphy
David Bixel
MB Tax Professionals
MB Tax Pro
Portland, OR 97210

IRS Pushes For Six Years To Audit

Yes, this headline is meant to sound frightening. The good news is that most of the time, the IRS has only three years after you file your tax return to audit you and that rule is not changing. With your tax return due April 15, the statute of limitations should normally run three years later. If you file early, the statute runs exactly three years after the due date. If you file late and do not have an extension, the statute runs three years following your actual (late) filing date. It’s good to monitor when the statute expires so you can determine when a particular tax year is in the clear. This is especially true if you’ve taken controversial or aggressive tax positions. You may want to maintain a cash reserve to handle a tax controversy or pay additional taxes if the IRS comes along.

Six Year Risk

But sometimes the IRS can take up to six years to audit. The circumstances in which the IRS gets this double time have become controversial. The IRS gets six years if your return includes a “substantial understatement of income.” Generally this means you’ve omitted 25% or more of your gross income, but exactly what that means is

currently the subject of litigation. The IRS argues that anything that has the effect of a 25% understatement of

gross income triggers the extra three years. The IRS has pushed especially hard for six years to go after basis

over-statements. Example: Suppose you sell a piece of property for $3 million, claiming that your basis (what you’ve invested in the property) was $1.5 million. In fact, your basis was only $500,000. The effect of your basis overstatement was that you paid tax on $1.5 million of gain when you should have paid tax on $2.5 million. Your basis overstatement probably means a six-year statute applies. There have been several court cases on just this point. In fact, the IRS just earned a major victory in the Seventh Circuit Court of Appeals. In Beard v. Commissioner, the appellate court reversed the Tax Court and said the IRS was correct that it had six years.

But despite the big IRS victory in the Seventh Circuit, the IRS is losing elsewhere. In Home Concrete & Supply LLC v. United States, the Fourth Circuit sided with the Ninth Circuit’s decision in Bakersfield Energy Partners LP v. Commissioner, and the Federal Circuit in Salman Ranch Ltd. v. United States. Finally, the Fifth Circuit weighed in, also holding for the taxpayer in Burks v. United States. All four of these appellate courts said no to the IRS attempt to apply the six-year statute of limitations to omissions of more than 25% of gross income caused by an overstatement of basis.

Amended Tax Returns, Too

If you want to amend a tax return, you must do it within three years of the original filing date. How does amending your tax return affect the statute of limitations? Most people assume that once you amend, the three year clock starts ticking anew. Nope. If your amended return shows an increase in tax, and you submit the amended return within 60 days before the three-year statute runs, the IRS has 60 days after it receives the amended return to make an assessment. This narrow window can present planning opportunities. An amended return that does not report a net increase in tax does not trigger an extension of the statute.

www.mbtaxpro.com

Erin Murphy

David Bixel

MB Tax Professionals

Portland, OR 97210