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As tax day draws near we bring you some interesting tax trivia. According to WalletHub, it costs the IRS 35 cents to collect $100 in federal revenue.
Americans spend a total of 6 billion hours on their taxes each year.
The average wait time when calling the IRS in 2016 was 17.8 minutes.
70% of filers get a federal tax refund, which on average is $2,897.
90% of refunds are issued in 3 weeks or less but it takes 5 weeks to get a refund from a paper filed return.
32% of taxpayers fear identity theft, which is almost twice as much as being audited which is 18% of taxpayers.
60% of taxpayers use a tax professional and spend an average of $280 on tax professional services in 2016 which is up from $269 in 2006.
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The IRS recently reported a 16% drop in audits, a 40% drop in levies, and a 9% drop in liens for 2016 compared to 2015.This information was released as part of the IRS’s 2016 Data Book, which reports on the agency’s activities for the twelve months ending on Sept. 30, 2016.
The IRS audited over 1 million 1040 returns in 2016, almost 16% fewer than 2015 and the lowest rate in more than a decade. Although, the IRS’s enforcement budget was reduced by $107 million, the IRS collected a record $1.8 trillion of individual income tax and $3.3 trillion overall and refunded over $426 billion.
Especially important to practitioners, the IRS claims to have improved its live telephone assistance. It claimed it provided live telephone assistance over 25.5 million times, an increase of 40% over last year. To that end, nine tax practitioner organizations, including the AICPA, just presented federal lawmakers recommendations on how to improve the IRS. Services would include centralizing an “executive-level” practitioner unit within the IRS.
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The IRS is famous for announcing celebrity tax settlements during tax season. Celebrities attempting to find a way around the IRS continue to be added to the list.
Wesley Snipes did three years in federal prison for willful failure to file federal income taxes – $7 million to be exact. Nicolas Cage told People Magazine in 2010 he owed the IRS $14 million. At one point Chris Tucker owed $11.5 million to the IRS for 2001, 2002 and 2004-2006.
Other celebrities with tax trouble in the past include rocker Ozzy Osbourne as well as Lindsay Lohan, Christie Brinkley, Pamela Anderson and Lionel Richie. Robert Downey, Jr., Al Pacino, Snoop Dogg and Willie Nelson have also been in hot water with Uncle Sam.
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- Written by: Mark A. Luscombe
How are your March Madness brackets looking? Are you one of the millions of Americans that placed a small wager in your office bracket pool? Even if you did not partake, probably a lot of your clients did. Does it still look like you have a chance to win the pool? If you do win, do you know that the winnings are taxable income? If you do not win, did you know that your wager may not be deductible as a loss? All this is because you generally cannot net gambling income against gambling losses, reporting only the net income. You must report the gambling income, and, separately on the tax return, report the gambling losses, but only if you itemize your deductions and only to the extent of your gambling winnings. Unless you are doing your March Madness wager with a Nevada licensed sports book, your March Madness wager is probably illegal gambling, but that in general would not affect your federal tax treatment. Whether legal or illegal, gambling income is subject to tax and gambling losses may be deductible to the extent of gambling winnings.
Should March Madness wagers be considered gambling? What about skill, you ask? You follow basketball closely and complete your brackets with a great deal of knowledge about each team in the tournament. You are not like some of the other employees in the office filling out brackets randomly or based on emotion for or against a particular team. Gambling can generally be described as wagering something with the possibility of receiving a reward, the receipt of which is based more on chance than skill. Poker is subject to debate as to whether it is more of a game of skill than chance. Daily fantasy sports leagues are subject to a similar debate in various states. Wagering on the outcome of the NCAA Basketball Tournament, however, is generally considered to have an outcome based more on chance than skill and is generally considered gambling.
The following bracket chart provides ten rules applicable to gambling activity and how to properly account for that activity at tax time. The basic rule is that winnings are always taxable, whether from legal gambling, illegal gambling, or a game of skill. How losses are handled can be more difficult. A professional gambler who provides his primary support from gambling could report his or her gambling winnings, losses and related expenses on IRS Form 1040, Schedule C. The more typical amateur gambler would report gambling winnings as other income on the tax return. Gambling losses would be reported on Schedule A only if itemized deductions are claimed and only to the extent of gambling winnings. There are various IRS reporting requirements applicable to gambling payouts; however, even if your winnings were not reported to the IRS, they are still taxable. If you were ever audited for other purposes and the IRS auditors discovered unreported bank deposits from gambling activities, you would face collection activity for unpaid taxes, interest and penalties and perhaps even criminal tax evasion charges. If illegal gambling is involved, the IRS might even report you to state authorities responsible for illegal gambling activities.
And what if you can treat that daily fantasy sports league as a game of skill rather than gambling? Then, the IRS hobby rules apply. The income from the fantasy sports league is still taxable as other income. You may, however, be able to offset the fee for entering the contest in which you won a prize and only report the net amount. Other entry fees for losing contests and other direct expenses related to the hobby may only be deducted to the extent of winnings, may only be deducted if you itemize your deductions, and may also only be deducted to the extent that those hobby expenses and any other miscellaneous itemized deductions to which you may be entitled exceed two percent of your adjusted gross income.
Keeping good records will be very important to protect you in the event of an IRS audit. You will likely have records of any W-2Gs reporting gambling winnings or 1099s reporting other income received, but you will probably have to make an effort to maintain good records of smaller winnings and expenses and losing wagers to support any deductions to which you may be entitled. So remember, with any benefit usually come a few burdens. The benefit of winning your March Madness office pool will come with a few burdens at tax time.
Mark A. Luscombe is the principal federal tax analyst at Wolters Kluwer Tax & Accounting.
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On his Inauguration Day, President Trump issued an Executive Order which caused the IRS to not reject tax returns due to lack of health coverage indication on the 1040.
While the AICPA has no position on this issue, its VP of Taxation Edward Karl uses the AICPA’s tax ethical standards to determine that compliance is still critical. The IRS’ response is very clear “…legislative provisions of the ACA law are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they owe.
Karl suggests you explain the IRS’ response to your clients, but then follow existing law such as minimum essential coverage, an exemption or reporting the payment. Otherwise, you cannot sign the return.
In other news...
Rev. Procedure 2017-25 formally establishes the Small Business/Self Employed Fast Track Settlement program (SB/SE FTS) to provide an expedited format for resolving disputes with SB/SE taxpayers.
When the parties agree that SB/SE FTS is appropriate, the taxpayer and the examiner must jointly complete and sign Form 14017, Application for Fast Track Settlement, and prepare the Application Package, which must include the Form 14017, properly documented work papers supporting the examiner’s position, and the taxpayer’s written response.
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