Tax News

We subscribe to numerous tax newsletters distributed on the Internet. Most are produced by the IRS, but others are produced by nonprofit organizations that represent taxpayers or those who prepare taxes. We often use these newsletters as source material for our articles in order to keep you up to date with the latest developments in the dynamic world of taxes.

The following most common tax preparation errors, taken from the IRS website (through Feb. 2, 2001), should be helpful to you.

For some obscure reason, the IRS presented two lists, one for Form 1040A and one for Form 1040. The information that follows combines those two lists and doesn't apply to electronically filed returns.

Form 1040A and Form 1040

1. Taxpayer identification numbers or names for dependents did not match IRS or SSA records. The IRS did not allow the exemptions.

2. Dependent's last name had to be corrected.

3. Taxpayer identification numbers or names for dependents did not match IRS or SSA records. All or part of the child tax credit was not allowed.

4. Did not include nontaxable earned income from W-2s. The earned income credit was changed.

5. Name on line 1 was illegible or did not match IRS records. The IRS corrected it.

6. SSN for the children who qualify the taxpayer for the earned income credit did not match SSA records. The earned income credit was changed.

7. Earned income credit was figured or entered incorrectly.

8. Primary SSN was incorrect or illegible. The IRS corrected it.

9. On Schedule EIC, the qualifying child's last name had to be corrected.

10. Spouse's SSN was either missing or did not match SSA records. The spouse's personal exemption wasn't allowed.

11. Child(ren)'s age exceeds the limit. The child tax credit was reduced or removed.

12. Based on information reported, the IRS refigured the tax using the filing status for a single person.

13. Spouse's SSN was incorrect or illegible. The IRS corrected it.

The reason for presenting this list is to inform you of the common mistakes that are made in preparing a tax return, so that you may avoid them. Remember, if you have a third party prepare your return, you cannot claim that it was not your fault that errors were made since the party preparing the return made the mistakes. Blaming that party does not get you off the hook, but merely adds him to the hook. Directly above the line on which you sign your return is the following statement: "Under penalties of perjury, I declare that I have examined this return and the accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." Using another party who prepares and signs your return does not affect your liability in any manner.

IRS expands authority for Taxpayer Advocate Service. The Taxpayer Advocate Service has been delegated new authority that will provide taxpayers more efficient service on customer service cases. The IRS also has clarified the guidelines for issuing Taxpayer Assistance Orders. Internal Revenue Service Commissioner Charles O. Rossotti has approved the recommendations of a cross-functional task force to expand the authority of the Taxpayer Advocate Service and improve service to taxpayers. The task force was convened last year in response to a request for more delegated authority by the National Taxpayer Advocate. The increased authority will permit the Taxpayer Advocate Service to fully resolve a large number of taxpayer cases without having to refer the cases to other parts of the IRS. This new authority supplements the authority provided to the National Taxpayer Advocate by statute. "This is a step forward not only for the Taxpayer Advocate Service, but the IRS as a whole," Rossotti said. "This action will provide better service for taxpayers and increase the agency's ability to fix problems."

"I am pleased that we will be able to better serve taxpayers who need our help. I also appreciate the unified support received for this expansion by the four operating divisions, the office of appeals, and the office of chief counsel," said Acting National Taxpayer Advocate Henry Lamar. "This was a collaborative effort that will result in quicker resolution of taxpayers' problems." The additional authority will generally permit employees of the Taxpayer Advocate Service to take the same actions as IRS customer service representatives in cases that qualify to be in the Taxpayer Advocate Service. This includes adjustments and other account-related interactions that the IRS has with taxpayers. "Taxpayer Advocate Service personnel will be able to resolve these issues themselves, eliminating the time-consuming step of referring such matters to other functions in the IRS," Lamar said.

The Taxpayer Advocate Service in the past has not been a real "advocate" for the taxpayer, in our humble opinion. This is the third such proclamation from the IRS since the Restructuring Act of 1998. We hope that it is not just more political smoke.

Do not be misled by tax protestors. Two Northern California people have been convicted of assisting clients evade $13.8 million in federal income taxes. They have been sentenced to 11 years and 6.5 years in prison, respectively. They put together trusts and told their clients the IRS would not be able to touch the money. They claimed that under Section 861 of the Internal Revenue Code, most Americans are excluded from paying income tax. They kept 5 percent of the money as their payment.u

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