“Where’s my refund”! Is a common cry from NY State residents these days, and according to the state for good reason. After using Bank Of America to process refunds for the last 18 years, BOA decided to get out of the tax business all together and did not renew their contract. So what was Albany to do? Outsource the job of course! These subcontractors and not-for-profit groups are backlogged with refund requests which is what is causing the delay for so many New Yorkers.
It has been nearly 3 months since the end of the tax season and all refunds should have been processed by now. Luckily, some NY taxpayers may be entitled to receive interest:
By law, interest is paid on refunds that are issued after May 30 for timely filed returns. Interest is paid only on that part of the refund resulting from over-withholding. To prioritize delivery of the delayed paper refunds, the tax department is assisting the contractor in both speeding up the processing and providing quality assurance. Recovery of the department’s costs associated with this effort—including staff overtime and interest payments—is provided for in the contract, and will not come at additional taxpayer expense, the tax department noted.
“In New York State, you’re required to pay interest 45 days after the filing due date of April 15, so beginning May 31 we’re paying interest on refunds,” said [NY State Department of Finance spokesmen Geoff] Gloak. “The interest goes back to April 15, so interest payments over time are provided for in the contract and won’t come at taxpayer expense.”
The majority of these delays are for taxpayers that filed a paper tax return as opposed to those who filed electronically, but there are still taxpayers out there that did file electronically waiting on their refunds. No surprisingly, residents are mad including Fred Slater; CPA at the NYC firm MS1040 LLC; particularly that private taxpayer data is being handed over to a third party:
“I have all kinds of questions about how much information they were given to process [tax returns]. In other words, you’re giving your private information to a third party. What were they given? The state is doing everything in its power to push people to efile, and they repeatedly contradict themselves on this, and force things. Not all of the returns are efile-able to start with, by their own system restrictions, and then they go through this process of pushing you to efile, but their system is not up to snuff.”
Much has been debated about how long it will take for taxpayers to feel the affects of going over the Fiscal Cliff. Yes, income tax rates could go up or down or popular deductions and credits limited or eliminated all together. While these scenarios could take months or years to feel, the average worker is most likely going see less in their weekly paycheck as soon as the calendar flips to 2013.
The IRS has just delayed releasing the income tax withholding tables for 2013.
No matter what Congress does to address the year-end “fiscal cliff,” it’s already too late for employers to accurately withhold income taxes from January paychecks.
Social Security payroll taxes are set to increase on Jan. 1, so workers should immediately feel the squeeze of a 2 percent pay cut.
But as talks drag on over how to address other year-end tax increases, the Internal Revenue Service has delayed releasing income tax withholding tables for 2013.
As a result, the American Payroll Association says employers are planning to withhold income taxes at the 2012 rates, at least for the first one or two paychecks of the year.
So while employee’s tax with holding may remain the same at least for the first couple of week, that doesn’t mean they will stay the same after that. Bottom line is there are still a lot of moving pieces that must be settled on and deciphered before we can accurately predict what the consequences will be. However, paychecks will be less due to the Social Security Payroll tax increase almost immediately unless congress can do in 5 days what they couldn’t do in 2 years (don’t count on that Christmas Miracle). And the tax withholding charts will also tell us if we are taking even less home in our paychecks and/or less home in our income tax refunds. Stay tuned…
The New York State Department of Taxation recently issued a ruling that Yoga is to be considered more spiritual, and less exercise. Therefore Yoga studios and businesses won’t have to collect or pay taxes. However, these rules will not apply if a Yoga class takes place inside a gym or other conventional exercise facility.
New York News | New York Breaking News | NYC Headlines
In these tough times for state and municipal governments, the Department of Taxation and Finance wants to make sure it’s not losing a single dime. To that end, it’s focusing on multiple techniques, including public spiritedness and humiliation.
The department has created a page to help taxpayers report people and businesses who, allegedly, are not taxpayers. Via phone, fax, mail or online form, those who suspect misbehavior can make an “information referral” against an individual, business or a tax preparer/practitioner. The state promises to keep all information confidential. Infractions may include the following, according to the department:
Failing to report income
Failing to file a return
Failing to remit monies collected
Selling untaxed liquor, motor fuel or cigarettes
Meanwhile, the department has created an electronic public square for those who are already in trouble. It is publicly listing the top 250 warrants—in both business and personal categories—that were filed in the last 12 months, ranked by amount of tax owed.
Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When you sell a capital asset, the difference between the amount you paid for the asset and its sales price is a capital gain or capital loss.
Here are 10 facts from the IRS about how gains and losses can affect your federal income tax return.
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
You must report all capital gains.
You may only deduct capital losses on investment property, not on personal-use property.
Capital gains and losses are classified as long-term or short-term. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.
If you have long-term gains in excess of your long-term losses, the difference is normally a net capital gain. Subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.
The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2011, the maximum capital gains rate for most people is15 percent. For lower-income individuals, the rate may be 0 percent on some or all of the net capital gain. Rates of 25 or 28 percent may apply to special types of net capital gain.
If your capital losses exceed your capital gains, you can deduct the excess on your tax return to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
This year, a new form, Form 8949, Sales and Other Dispositions of Capital Assets, will be used to calculate capital gains and losses. Use Form 8949 to list all capital gain and loss transactions. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated.
Did I calculate my return correctly? Did I take all the deductions I’m entitled to? Do I qualify for a credit and should I take it? These are all samples of the many questions that cross many a taxpayer’s mind before they submit their returns to the Government. However, one thought–or rather plea–that’s almost always on the mind is: Please, just don’t Audit me.
Much like the fear of spiders & snakes that is deeply ingrained into our reptilian brains, so too is our fear of the IRS. These fears ranges from the absurd–The IRS is going to throw me in jail for not paying my taxes this year–to the plausible–If I’m audited this year, the IRS may look at my prior years. But what exactly is considered an “Audit” by the IRS?
…face-to-face audits of individual taxpayers reporting income over $200,000 increased by 34 percent as compared with FY 2010, from 58,521 to 78,392. Also, the IRS is now auditing about one out of every eight taxpayers who reported over $1 million in income.
Overall, with 140,837,499 individual income tax returns filed in the 2010 calendar year, the IRS conducted and closed a total of 1,564,690 audits in FY 2011, for a “coverage” rate of 1.11 percent. This is about the same coverage rate as in the previous fiscal year, but as noted above, the IRS is increasingly focusing its face-to-face audit resources on more affluent individual taxpayers.
On the surface, this looks like great news to the average taxpayer. It would be logical to think that if just over 1% of the population is getting audited a year, and the bulk of those resources are focused on those taxpayers who make $200,000 or more year, the chances of getting audited are slim to none, right? Well, not so fast.
As reported in the recently released National Taxpayer Advocate’s 2011 Annual Report to Congress, the IRS not only conducted 1.6 million audits of individual taxpayers in FY 2010; it also reached out and touched an additional 13.5 million individual taxpayers during that year in a way that often felt like audits to the taxpayers impacted, even if the IRS doesn’t technically classify all those contacts as “audits.”
These non-audit “touches” focus on a very different group of taxpayers in terms of income level. More importantly, non-audit audits (let’s call them “unreal” audits, as opposed to the ones the IRS considers “real”) do not trigger very important taxpayer protections enacted by Congress over the years to ensure that taxpayers are treated fairly in examinations.
“Unreal” audits last tax year consisted of the following:
3,911,005 Automated Underreporter (AUR) cases, in which the IRS matches income reported by the taxpayer on his or her return with income reported to the IRS by third-party payers;
4,740,909 math error notices, in which the IRS corrects and assesses mathematical or other inconsistent entries on a return before the taxpayer has a chance to contest the change; and
563,927 Automated Substitute for Returns (ASFRs), in which the IRS creates a substitute return for a nonfiler based on third-party payer information.
This equates to 9,215,841 “unreal” audits that the IRS does not designate as actual audits. The graph below compares a taxpayer’s adjusted gross income (AGI) to the type of audit they received. The results a very interesting:
As can easily be seen, the “combined coverage” (which combines the rates of “real” & “unreal” audits) increases the audit rate of certain groups of taxpayers by as much as 1,100%! The bottom line is that while the IRS is reporting an audit rate of 1%, is it actually closer to 7.4%–A seven fold increase!
So why is this important? Firstly, if you look a graph, the vast majority of these “unreal” audits are going to taxpayers that have an AGI of $100,000 or less. Secondly, this masks the amount of work the IRS is actually doing. Thirdly & most importantly:
…the type of contact – whether it’s a “real” or “unreal” audit – makes a difference in the rights afforded taxpayers and also in the halo, or indirect, compliance impact of that contact…
The tax law grants the IRS the authority to examine any books, papers, records, or other data that may be relevant to ascertain the correctness of any return. (See IRC § 7602(a)(1).) The IRS has taken the position that an attempt to resolve a discrepancy between the taxpayer’s return and data available from a third party does not constitute an examination because the IRS is not examining books or records but merely asking the taxpayer to explain the discrepancy. (See Rev. Proc. 2005-32, § 4.03, 2005-1 C.B. 1206.)
When the IRS doesn’t classify these tax adjustments as audits, the IRS doesn’t trigger the taxpayer’s right to avoid unnecessary examinations. (See IRC § 7605(b).) This position enables the IRS to later conduct a “real” audit of a taxpayer who already has been subjected to an “unreal” audit of the same return.
From the IRS’s perspective, it is important to preserve its ability to conduct “real” audits because these “unreal” audits typically focus on limited issues such as an omitted income item. But from the taxpayer’s perspective, being contacted by the IRS more than once about one year’s return can feel like…well…at least one time too many.
This distinction takes on added significance when we consider that the overwhelming majority of taxpayers who are subject to “unreal” audits are low income or middle class, and these taxpayers are least able to afford representation in resolving their disputes. They may not even know when their rights are being violated. (Read our recommendation about creating a Taxpayer Bill of Rights.)
In addition, the IRS is likely to start conducting “unreal” audits of business taxpayers, including self-employed individuals, by matching income reported on tax returns against third-party reports of gross receipts submitted by issuers of credit and debit cards. (See IRC § 6050W.) Any resolution of mismatches will most assuredly require the IRS to review the taxpayer’s books and records. Yet because the IRS doesn’t consider these Automated Underreporter contacts to be “real” audits, the IRS will retain the right to conduct a second review of the taxpayer’s books and records for the same tax year. I cannot believe that Congress, in enacting the protections of IRC § 7605(b), contemplated this result.
Moreover, this report does not consider “unreal” audits by the States; New York in particular has used a “pre-refund” letter (in effect, an “unreal” audit) for at least the last 4 years. NY does this on their own, however, the IRS routinely notifies other States if they make an adjustment to a taxpayers federal return, and the state then sends their notifications of adjustments.
The TAS’s recommendation to treat all audits as equal would go a long way to tighten up the criteria at the IRS if it would limit the amount of times they could review a return. It would also almost certainly reduce the amount of “unreal” audits for those without the means or the time to defend themselves affectively. Thus, R&G Brenner wholeheartedly agrees and supports the TAS’s proposed changes.