We have a new addition to the Lothamer family in our office, Emma Schut. Emma is currently attending Olivet College in her third year pursuing a Bachelor’s degree in Accounting. Her future academic plans are to earn a Master’s degree in Accounting and continue to become a Certified Public Accountant (CPA). In addition to her education, for the past couple years Emma has given her time to aid the Volunteer Income Tax Assistance. Outside of work, Emma enjoys playing the French horn and mellophone for the Olivet College Marching Band and Wind Ensemble, and Women’s bowling team.
Would you like a direct source for IRS tips or updates?
The IRS has taken advantage of the many opportunities that social media has to offer us. Truth be told, the IRS does not want anyone to get in trouble, and they wish to educate the public to help them gain understanding their tax responsibilities and changes tax payers may not be aware of. Their latest addition to their different social media accounts is an Instagram page which is a great platform for them to target young adults.
What are all their accounts?
The IRS currently has active accounts on Instagram, YouTube (English, Spanish, and ASL), Twitter (English or Spanish), LinkedIn, and Facebook. In addition to all these resources, IRS works with IRS2Go which is a free mobile app to check your refund status, watch videos, sign up for IRS tax tips through email, or pay your taxes (English and Spanish).
Don’t fall victim to IRS issues due to lack of knowledge and use these many great resources! Links are posted in the description.
How does it start?
If the IRS suspects fraudulent activity from information given by a revenue agent, revenue officer, ongoing investigations by law enforcement agencies, attorney offices, or even tips from the general public. This information is given to a ‘special agent’ for them to go over then decide if this is a criminal offence, this is
known as the ‘primary investigation.’ If there is substantial evidence and the supervisor of the agent has also reviewed the information and deems it to be something of interest, it begins action to initiate a “subject criminal investigation.”
What steps happen next: The special agent will continue to gather more evidence using interviews, surveillance, warrants, bank records, and financial data. This special agent will also work with IRS Criminal Tax Attorneys to ensure that every legal aspect is covered. At this point when all possible evidence is gathered, the agent and their supervisor decide whether the case continues or it is closed. If it is continued then the agent writes a ‘special agent report’ which is looked over by a supervisory special agent, Centralized Case Review, assistant special agent in charge, and finally the special agent in charge.
At this point in the process, and the Criminal Investigation department determines it should be prosecuted, the recommendation is sent to the Department of Justice, Tax division, or the United States Attorney. If the investigation is accepted for prosecution, the investigation is handed off to the prosecutors.
“The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction – either by a guilty verdict or plea. Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.” – IRS.gov
The new IRS proposed regulations confirm that the S corporation treats as wages the reasonable compensation that it pays to its shareholder-employees.
That’s good, and it opens planning opportunities. Even better!
There had been some commentators who claimed that wages of an S corporation did not count for the Section 199A wage calculation or that it was necessary for the IRS to clarify in its regulations whether such wages were wages for the 199A calculation.
Now the tax code and the regulations are aligned with clarity as to the wages paid to the shareholder-employees.
And in the new proposed regulations, the IRS has issued a warning: fail to pay a reasonable wage and the IRS will deduct what it thinks is the reasonable wage from your Section 199A qualified business income—and, of course, that would create big trouble on the wages not paid.
Drive Time Increases Odds of Deducting Rental Property Losses
Your rental properties provide tax shelter when you can deduct your losses against your other income. One step to deducting the losses is to pass the tax code’s 750-hour test. And one step to finding the hours you need to pass the time test may be your drive times.
Mariam Trzeciak owned, managed, and rented 14 single-family homes in and near Columbus, Ohio. She and her husband, Marc, on their joint tax returns claimed rental property losses of $126,376 and $151,884 in the two years that were subject to this IRS audit.
The IRS revenue agent assigned to examine the Trzeciaks’ returns disallowed the losses as passive losses, claiming that Mariam did not qualify as a real estate professional because she could not count her drive time from her home near Dayton to Columbus, where the properties were.
It took Mariam’s CPA, who prepared her returns and assisted with the audit, and then her lawyers almost three years to surface the home-office deduction as the savior. Once it surfaced, the IRS allowed the drive time, and that allowed Mariam to deduct her rental property losses of $126,376 for year 1 and $151,884 for year 2.
In Leland, Clarence McDonald Leland traveled 13 to 16 hours from Mississippi to Texas and back several times each year to perform necessary work on his 1,276-acre farm in Turkey, Texas.
The court noted that the IRS did not object to the inclusion of the travel time in determining Clarence’s participation in the farm. And the court went on to say: “The facts of this case establish that petitioner’s [Clarence’s] travel time was integral to the operation of the farming activity rather than incidental.”
The Leyh case involved Richard Leyh and Ellen O’Neill. Ellen owned 12 rental properties in Austin, Texas, about 26 to 30 miles from her home at a ranch in Dipping Springs, Texas.
Ellen and Richard deducted a $69,531 loss from their rental operations. The IRS said no because Ellen, without inclusion of her drive time, failed the 750-hour test to establish herself as a real estate professional.
The sole question that the court had to address was whether Ellen could include her drive time from her home to the rentals as rental property time. Interestingly, she failed to include her travel time in her well-kept log of time and had to reconstruct that travel time for the court.
The court ruled that her reconstruction of the travel time to and from the properties was adequate and ruled that she and Richard could deduct her $69,531 in rental losses on their joint tax return.
Lothamer aims to be the best tax resolution office in Michigan, and in order to do that we need to be able to assist as many people as possible. We are currently operating out of 9 offices throughout the state of Michigan and plan to open more offices and expand our reach to better service you. This month our featured office will be our Kalamazoo site, which is located at:
5985 W. Main St. Suite 804, Kalamazoo, MI 49008
We can meet you at this location via appointment, call us at 517-484-1040 to set up a time with us!
Here is a peek inside our Kalamazoo office:
We have had a lot of success with clients at our Kalamazoo location, here is one of our many 5 star reviews from a previous client:
“Best decision I’ve ever made. Lothamer made a potentially horrible situation go away quickly and easily. Thank you!” – Tim and Alice Galovan
Another indication of how we have been able to help with clients’ finances is on our case number 6145, who we have saved over $60,000.00
Contact us today and make sure Lothamer sets you free! 1-877-829-2455
If you have, or even haven’t received a text, call, letter, or email in relations to the IRS for a variety of reasons we have some information and insights relating to the types of scams currently happening and what to do to be proactive in protecting yourself. The IRS never initiates contact with taxpayers via social media, email, or texts when requesting information and never contact you via phone asking for money only communicating through regular postal service mail. The IRS will also never threaten arrest, or send local police to arrest you.
What types of scams you could potentially receive:
Phone calls –
If the scammer calls, they can even impersonate the caller ID to appear as “IRS” and even have information like the last 4 digits of your social security number. They may potentially make threats in regards to being arrested by the police.
Hostage scams have also been brought to light where some people have reported calls claiming they were holding certain family member’s hostage and would harm them if they didn’t pay up an unpaid tax bill.
Text messages/Social media/Email –
The IRS will never contact you via this channels and it is important to not click on any links or download any of the information.
Requesting payments via iTunes cards and other gift cards –
The IRS will never demand you pay for your taxes via a specific payment method like prepaid debit card, gift card, or wire transfer, or to ask for credit/debit card numbers over the phone.
What you can do:
Some scammers have been getting and using people’s social security numbers and filing false returns; to help protect yourself against tax-refund fraud you can get an Identity Protection PIN (IP PIN) from the IRS. You request the IP PIN service, before you file your taxes you will receive a new PIN each year that has to be used on the tax return to help verify the tax payer. If you qualify, once you begin to use the service of this program, you cannot opt out.
This means that auditors aren’t always familiar with every nuance of the tax code and so occasionally get things wrong.
For example, you may be keeping a 90-day mileage log, but your IRS auditor may disallow all of your auto expenses because you can’t provide a 12-month mileage log. And the IRS auditor would be wrong.
So how do you fight back and prove you’re right and are entitled to your deductions?
We’ll steer you in the right directions when you read my new article titled Q&A: IRS Auditor Doesn’t Know the 90-Day Mileage Log Rule.
Three ways our fact-filled article can help you:
- You’ll learn what to do first. For starters, you can explain to your friendly auditor that you are using the “90-day sample method” as authorized in the tax code. We’ll provide a link to the relevant citation, as well as additional helpful information, when you Read the article.
- We’ll explain the perfectly legal sample-method allowance. The IRS says you may keep an adequate record for part of the tax year and use that part-year record to substantiate your vehicle’s business use for the entire year. In fact, the IRS allows the use of two different sample methods. We’ll tell you which one you should use when Read this article.
- We’ll tell you how to use the 90-day sample method. There are actually four easy-to-understand basics that you should be aware of before you use this strategy. Don’t wait for an audit notice to bone up on the subject. Now is the time to Read this article.
If you use triple-net leases for your rental properties, you may wonder whether you’ll get your Section 199A deduction. We don’t have a clear answer for you, so we are going to go with “maybe.” As you’ll see, we need more information.
A triple-net lease requires the lessee to pay the landlord rent as well as take care of real estate taxes, building insurance, and property maintenance costs. Therefore, in a triple-net lease, the lessee bears all the burdens of ownership, and the landlord usually has little to no involvement in the property management.
A rental property qualifies for the Section 199A deduction if the rental property qualifies as a trade or business under tax code Section 162, or you rent the property to a commonly controlled trade or business.
Assuming you can’t use the commonly controlled route, your rental properties need to rise to the level of a trade or business to get your Section 199A deduction.
To meet that requirement, you’ll generally need to have regular and continuous involvement with your rental activities. And the proposed regulations require you to look at each rental activity separately when determining whether it is a trade or business—aggregation doesn’t help you with this.
Many triple-net lease rental activities likely fail the regular and continuous activity test and won’t qualify for the Section 199A deduction. For example, in Neill, the Board of Tax Appeals (the precursor to the Tax Court) held that a single property leased on a triple-net basis is not a Code Section 162 trade or business.
In the preamble to the Code Section 1411 regulations, the IRS gives you other factors to consider when determining whether your rental activity is a trade or business:
- Type of property (commercial vs. residential vs. personal property)
- Number of properties rented
- Day-to-day involvement of the owner or its agent
Type of lease (net vs. traditional, short-term vs. long-term)
Depending on the particular circumstances of your triple-net lease rental activities, they may rise to the level of a trade or business, even if your involvement with each lease individually is minimal.
You can see why we are in “maybe” land and hoping for more information from the IRS.
We have a new addition to the Lothamer family in our office, Sam Owens, as our “New Client Coordinator.”
Sam is an EA or “Enrolled Agent,” and got his certification in 2015 and worked in the tax industry since that time. An EA is federally-authorized as a tax practitioner empowered by the Department of the Treasury who is able to represent taxpayers for things like examination, collection, and appeals before the IRS.
Sam has graduated with his Bachelor of Business Administration (B.B.A.) in Accounting from Grand Valley State University and has aspirations to return to school to achieve his Masters of Science in Taxation (MST).