Thousands of Federal Workers Owe Billions in Back Taxes

Did you enjoy paying your income taxes last year? Looks like thousands of federal employees decided that last year’s April 15 wasn’t for them.

A recent IRS report announced that 279,000 federal workers and retirees owe Uncle Sam more than $3.4 billion in back taxes. It even starts at the top.

Three dozen of President Obama’s staff members owed a combined $834,000 in back taxes from 2010. Congressional staff members are also notorious non-payers, stiffing Uncle Sam to a combined $10.6 million.

Among the various Cabinet departments, the highest delinquency rate belonged to the departments of Education and Housing and Urban Development at almost 4 percent. The Treasury Department, the IRS’ parent department, had a 1 percent delinquent rate.

By law the IRS is required to provide annual reports to Congress about the tax cheats on government payrolls. Just over 98,000 civilian employees have a tax lien against them.

If you’re looking for the group of federal workers who owe the IRS back taxes, look no further than the mail man. The highest amount owed to the IRS, at almost $270 million, belongs to postal workers.

While it may seem unfair that so many federal workers don’t pay their back taxes, at the end of the day Joe and Jane Taxpayer still have to send in their 1040.

But don’t fret just because you’re not a federal employee. By hiring a tax attorney, you can possibly obtain a settlement agreement that works favorably for you

Nearly $450 Billion Unpaid in 2006

Taxpayers stiffed Uncle Sam $450 billion just 6 years ago, and the IRS is aiming to stop it.

The IRS announced that Americans underpaid their taxes by that massive figure in 2006, with the nation’s noncompliance rate for paying taxes at 17%. Under reporting income by people and corporations was the biggest reason. And after the IRS waged its enforcement and collection efforts, the 2006 tax gap ultimately stood at $385 billion.

To reverse this, the IRS announced it will to crack down on shady tax return preparers. At the same time, it wants to see more third party reporting of information. Wages and salaries reported by employers – not employees – had a small rate of erroneous reporting at just 1 percent.

The IRS makes these tax gap reports every five years, and compared to 2001, the compliance rate was essentially unchanged. People are trying to report less of their income, and the IRS is sure to take on new and more aggressive ways to prevent it. Washington politicians typically want to see the IRS collect more money rather than raise taxes or cut spending.

So for those who owe back tax debt to the IRS, chances are the IRS will be giving you a second glance and will try to get you to pay up. But owing back tax debt to the IRS can be resolved fairly if you hire a tax attorney. A tax attorney knows the tax laws and the IRS’ rules and regulations, and can help you avoid a wage garnishment or bank levy.

New Year, New State Tax Rates

It’s a new year, and that means new tax rates in various states. While they don’t have authority over the behemoth agency known as the IRS, state legislators are always sticking their hands in their state’s tax laws.

Here’s a look at how various states in the U.S. are changing their tax laws for 2012:

• Income taxes for Oklahoma residents will drop slightly from 5.5% to 5.25% in 2012.
• Tax day for those in Massachusets will also see a slight drop, with income taxes dropping from 5.3% to 5.25%.
• If you’re wealthy and in Oregon, your tax rate will drop from 11% to 9.9%.
• Middle-class families in New York will see their tax rates reduced by 0.40%.
• The corporate tax rate for large businesses in Connecticut is rising from 8.25% to 9%. West Virginia is another story, where it will drop from 8.5% to 7.75%.
• The gas tax in North Carolina is going up 4 cents in 2012, making the Tar Heel State the 7th in the nation for highest gas taxes.
• Estate tax exemptions are increasing all over the country. In Illinois, the first $3.5 million (up from $2 million) is tax-free. North Carolina’s exemption rises from $5 million to $5.12 million in 2012, too. Rhode Island’s exemption rises from $859,350 to $892,865.
• Unlike other states, Connecticut lowered its estate tax exemption from $3.5 million to $2 million, making more wealth transfers taxable.

While states can change their tax laws annually, the IRS is the same agency year after year and the penalty and interest rates they charge are always through the roof, just like high interest credit cards. If you have back tax debt, hiring a tax attorney is your best bet at reaching a favorable repayment option, or you may be able to negotiate a lower amount than you currently owe.

When Pleasure Becomes Business, Tax Rules Kick In

They say that when you love your job, then it’s not really work. If you’re lucky to have your hobby as your job, then the rat race is something you can look forward to.

But if you take your hobby too far in terms of profit, the IRS may come a’knockin. Rules apply for those who mix business with pleasure, and if your hobby brings you profit, make sure you’re on sound financial footing.

A hobby is considered for profit if it brought you a profit in at least three of the last five tax years. This includes the current year.

Generally, expenses necessary for performing a trade, running a business or producing income are deductible at tax time. But if your hobby is only a hobby, don’t count on being able to make those deductions.

The tax code limits deductions that can be claimed when your hobby isn’t bringing you a profit. It’s called the “hobby loss rule” and it applies to individuals and a host of business entities.

In sum, if your hobby isn’t for profit, your deductions can’t exceed your hobby’s gross receipts. Deductions for hobbies are claimed on IRS Form 1040, Schedule A, and must be taken in the following order:

• Deductions for certain personal expenses like home mortgage interest and taxes. These can be taken in full.
• Deductions that don’t impact a property’s tax value, like advertising, wages and insurance premiums. These can be taken to the extent your hobby’s gross income is more than the deductions from the first category.
• Deductions that reduce a property’s tax value, like depreciation and amortization. These are taken last, but only to the extent that your hobby’s gross income is more than the deductions for the first two categories.

Having your hobby as your job can be a very satisfying experience. So can being free of back tax debt. Instead of focusing on an IRS wage garnishment or bank levy, hire a tax attorney. That way, you can put that time and energy into your own hobby while your tax attorney focuses on their hobby: dueling with IRS agents.

Uncle Sam’s Tax Agents Strike Outside of Halloween Season

If you’re looking for a scary story to tell over a fire this Halloween, look no further than the IRS.

The Internal Revenue Service is constantly vilified by politicians for its unforgiving nature and for waging aggressive tactics against taxpayers. While the IRS’s reputation may have calmed down since the 1970s, there’s no shortage of IRS horror stories that scare honest taxpayers. Some include:

• Framing a prominent politician: A rogue IRS agent attempted to frame former Senate majority leader Howard H. Baker of Tennessee. Trying to advance his career, the agent tried to bust Baker, a Republican, with money-laundering and bribery charges. Baker was out of the Senate when the phony charges were made, and the agent’s managers allegedly tried covering the scheme up once it was discovered. As for the agent, he lost his job several years later after getting arrested for cocaine possession.
• Attacking a small business: In 1994, the Jewish Mother restaurant in Virginia Beach was ravaged by IRS agents armed with guns and fierce dogs. Customers were ordered to leave, and the employees were searched for drugs. Why all the fuss? The IRS believed false statements by the restaurant’s former bookkeeper (fired for embezzling money) that the Jewish Mother was the center of gun running, drug dealing and money laundering. The restaurant’s owner later sued the IRS for $20 million.
• Auditing political opponents: According to a former IRS historian, the agency’s Special Services Staff collected information on roughly 11,000 Americans thought to be enemies of the Nixon Administration in the 1960s and 70s. The SSS investigated political dissidents and protestors and subscribed to radical publications to collect names, only to target them for audits.

If you have back tax debt, you probably have your own IRS horror story to tell. You don’t have to be a former political figure, small business owner or radical protester to be targeted by the IRS. If you don’t want to be in the position of telling your own IRS horror story, like how you have to deal with an IRS wage garnishment or bank levy, make sure to hire a tax attorney.