Investigating tax returns

[BHoffman]

Immigration attorney fees

oops. Posted to this thread that popped up when I tried to search for something.

...back to the scheduled programming...

[gkaiseril]

Interesting thread.

Actually Black Bart hit the nail on the head with his citation. The ruling said for self-employment tax purposes all Schedule C deductions must be claimed.

We all know the similar rule for EIC.

Interesting the citation did NOT say for income tax purposes.

So presumably, it is not fraud to report income on Schedule C and not claim all deductions, IF you reduce SE taxable income by the amount you should have claimed for a deduction, and you are not trying to claim EIC.

Might make a messy return, but I know of no rule for income tax purposes that requires you to claim all deductions. That is why IRS allows you to claim itemized deductions even if the standard deduction is higher. It doesn't affect EIC and it doesn't affect SE tax. It simply increases your income tax, presumably so that you can reduce your state income tax.

There is at least one business activity for which the tax law explicatly states the no business expenses can be taken for. But if the CPA, attorney understood this part of the IRS code, their approach would be much different. Apparently INS does not understand this section of the IRS code since it would flag this individual as an undesirable drug dealer.

[Bees Knees]

Why, if EIC is not being increased and the hobby loss rules are not in play, would the IRS object to someone increasing both their regular and SE taxes? The charge that someone fraudulently overpaid their tax seems a bit strange. I have to be missing something. Please explain.

Black Bart provided the following citation:

Rev. Rul. 56-407, 2 C.B. 564, held that under I.R.C. 1402(a), taxpayers, with the exception of certain farm taxpayers, must claim all allowable deductions in computing net income from self-employment for self-employment tax purposes.

HOLDING:

In cases where the taxpayer reports net earnings from self-employment without claiming the applicable business expenses, the net earnings from self-employment must be adjusted by those expenses...

It mentions there is an exception for farmers. That is referring to the optional method where farmers get to pretend they have SE taxable income and then pay SE tax accordingly.

Why?

Because farmers typically can show a loss. You need so many Social Security credits before qualifying for Social Security benefits. So in some cases, it may be to your advantage to claim SE taxable income so that you earn enough credits to qualify for Social Security benefits.

Someone might also want to over inflate their earnings to qualify for higher benefits, since benefits are based on the level of earnings.

[Donald Rihn, EA]

Trying to have your cake and eat it too!

Why, if EIC is not being increased and the hobby loss rules are not in play, would the IRS object to someone increasing both their regular and SE taxes? The charge that someone fraudulently overpaid their tax seems a bit strange. I have to be missing something. Please explain.

I think the original post was that the taxpayer needed the higher income for immigration. Now, he is trying to show lower income for child support purposes.

He can't have it both ways.

I have the same thing with clients trying not to pay taxes in their corporation, but needing good financials for banking purposes. Kind of hard sometimes.

[erchess]

Bees

Why, if EIC is not being increased and the hobby loss rules are not in play, would the IRS object to someone increasing both their regular and SE taxes? The charge that someone fraudulently overpaid their tax seems a bit strange. I have to be missing something. Please explain.

[Kong]

Black Bart

I am staying away from this argument, everybody seems extremly upset. Take a deep beathe and chill. These dubious characters will be apprehanded and made an example of for the rest of us. Everyone have a nice day.

[JG EA]

Also sometimes helps to itemize even if standard is higher for AMT if high contributions, etc.

[Bees Knees]

Bees,
For us simple minds, how does increasing your federal tax reduce your state income tax. Keep in mind that I am in Arkansas where the return does not start with a figure from the federal return.

LT

There are some states where under certain circumstances, claiming itemized deductions rather than a higher standard deduction on the federal return reduces state income tax, and the state tax savings exceeds the increased federal tax as a result of not claiming the standard deduction.

That is why the line 30 instructions for Schedule A say:

If you elect to itemize for state tax or other
purposes, even though your itemized deduc-
tions are less than your standard deduction,
check the box on line 30.

[Bees Knees]

There is tax fraud, and other types of fraud. The fraudulent (or incorrect) tax return was prepared with the intent to defraud the INS. That's clearly fraud, not necessarily tax fraud. If the preparer knowlingly participates he is also engaging in fraud. Engaging in fraud is a violation of CPA ethics.

I agree. But you will notice my comment was concerning fraud for income tax purposes. I didn't say whether it was fraud against INS. I was merely commenting on the tax fraud issue in general.

For income tax purposes, not claiming all of your deductions is not tax fraud. It may be fraud for Social Security purposes, EIC, INS, or trying to obtain a bank loan, but it is not tax fraud.

[thomtax]

Interesting thread.

It simply increases your income tax, presumably so that you can reduce your state income tax.

Bees,
For us simple minds, how does increasing your federal tax reduce your state income tax. Keep in mind that I am in Arkansas where the return does not start with a figure from the federal return.

LT

[Zee]

Interesting thread.

Actually Black Bart hit the nail on the head with his citation. The ruling said for self-employment tax purposes all Schedule C deductions must be claimed.

We all know the similar rule for EIC.

Interesting the citation did NOT say for income tax purposes.

So presumably, it is not fraud to report income on Schedule C and not claim all deductions, IF you reduce SE taxable income by the amount you should have claimed for a deduction, and you are not trying to claim EIC.

Might make a messy return, but I know of no rule for income tax purposes that requires you to claim all deductions. That is why IRS allows you to claim itemized deductions even if the standard deduction is higher. It doesn't affect EIC and it doesn't affect SE tax. It simply increases your income tax, presumably so that you can reduce your state income tax.

Bees, you know how much I respect your opinion.

But, I'm not sure we're all on the same page. There is tax fraud, and other types of fraud. The fraudulent (or incorrect) tax return was prepared with the intent to defraud the INS. That's clearly fraud, not necessarily tax fraud. If the preparer knowlingly participates he is also engaging in fraud. Engaging in fraud is a violation of CPA ethics.

A taxpayer engaged in a hobby activity might also attempt to avoid the hobby loss rules by not taking deductions , and showing a profit in one year. I don't think that's allowable, and closely approaches fraud. It might reduces taxes in the other four years.

I keep repeating myself...there are many other possible examples. Knowingly submitting a fraudulent (incorrect) tax return with a loan application is only one, another might be submitting a falsely prepared tax return showing less deductions on the sale of a business to a potential buyer, etc.

[Bees Knees]

Interesting thread.

Actually Black Bart hit the nail on the head with his citation. The ruling said for self-employment tax purposes all Schedule C deductions must be claimed.

We all know the similar rule for EIC.

Interesting the citation did NOT say for income tax purposes.

So presumably, it is not fraud to report income on Schedule C and not claim all deductions, IF you reduce SE taxable income by the amount you should have claimed for a deduction, and you are not trying to claim EIC.

Might make a messy return, but I know of no rule for income tax purposes that requires you to claim all deductions. That is why IRS allows you to claim itemized deductions even if the standard deduction is higher. It doesn't affect EIC and it doesn't affect SE tax. It simply increases your income tax, presumably so that you can reduce your state income tax.

[JohnH]

A common bond:
Spammers & amateurs have at least three things in common:
1) They're boring.
2) Their posts belie expose their ignorance to the extent that they're comical.
3) They generally don't have enough judgement to know that pros tend to laugh at their foolishness, much in the same manner as we would laugh at a clown at a child's birthday party.

[Black Bart]

Breaking News!! (Yuk-yuk).

Tax returns are forms filed by the Internal Revenue Service (IRS) or the state tax collection agency. These forms contain information on the calculation of income tax or other taxes. The standard US individual tax return is form 1040. There are several variations of this form such as the 1040EZ and 1040A with different supplement forms.

Yo -- Kong; talk to this guy. I'll bet he will agree with you that aiding and abetting that shyster is the way to go and is perfectly okay.

[pragueproperty]

Re: Investigating tax returns

With deadlines and penalties hanging over our heads, tax return preparation is indeed a scary thought. Professionals in the outsourcing tax return business are quite at ease with tax return preparation. By outsourcing tax returns you shift the burden of filing taxes onto a third-party for a fraction of the regular cost.