General Questions- IRS Facts You Need to Know


Tax Return Preparers and Tax Returns


Do I have to file tax returns for past years if I have no income or expense records?

Answer: Yes, you must still file all required returns.

Your requirement to file past years’ returns continues regardless of the availability of your records. Similarly, your requirement does not change based upon the quality of your records. Further, on those tax returns you file, your signature is an affirmation of the accuracy of the information within the document.

However, there are numerous resources and methods available to help you calculate your prior years’ income and expenses. IRS records search could provide some history of third-party reported income and expenditures. Items such as banking records, electronic card payments, vehicle mileage logs, payroll records history, etc. may also be useful resources. Your IRS tax attorney, Certified Public Accountant, or qualified representative is able to assist with reconstructing your income and expenses, in order to prepare and file accurate tax returns.

How far back do I have to file tax returns?

Answer: IRS tax code sec. 6012 requires you to file returns for every year that you qualify.

Generally, the factors that determine whether you must file a federal income tax return depends on your gross income, your filing status, your age, whether you are someone else’s dependent, and whether you are a U.S. citizen or resident alien. IRS Publication 501 summarizes and explains those filing requirements.

Also, anyone who is required to file a return but fails to do so, whether or not intentionally, may have to pay a penalty. Anyone who willfully fails to file a return, under the U.S. Tax Code, may be subject to criminal prosecution, possibly either as a felony or a misdemeanor.

Does IRS expect me to file all past years’ tax returns?

Answer: IRS expects you to file all returns for which you are required to file.

One of the primary factors IRS uses to determine delinquent returns is income reported by third parties (Forms W-2 from employment, Forms 1099 from contracted services, etc). This income information could be available within IRS records for over 20 years prior.

However, in some circumstances, IRS may actually only seek unfiled returns for only the six most recent years. Under the IRS Policy Statement 5-133, Delinquent Returns – Enforcement of Filing Requirements, the general rule is that taxpayers must file six years of back tax returns to be in good standing with the IRS.

Additionally, however, under some circumstances IRS managers have the discretion to require tax returns from even further back than six years.

Do I only have to file 6 years of back tax returns?

Answer: Sometimes. Certain situations may require look-back further than six years.

Generally, under IRS Policy Statement 5-133, Delinquent Returns – Enforcement of Filing Requirements, you must file six years of back tax returns to be in good standing with the IRS. However, in certain circumstances you may be required to file returns for further than six years back. These circumstances may include the:

  • Degree of any flagrant disregard of the law;
  • Non-filing history prior to the last six years;
  • Effect of current filings on your future compliance.
  • Possibility or actual existence of income from illegal sources;
  • Amount of tax due, particularly if only minimal, if any;
  • Government’s financial cost-to-benefit of acquiring the tax return.

When must I file my employees’ W-2 forms?

Answer: January 31 of the following year is the deadline for filing these information returns.

January 31st is the deadline to file W-2s using IRS’s Business Services Online. If you instead file paper Form W-2 documents, and this January 31 deadline falls on a Saturday, Sunday, or legal holiday, the legal deadline will be the next business day. Failure to timely file these returns can result is a significant penalty under 26 U.S.C §6721.

Remember that this filing deadline also includes submission of the Form W-3 transmittal. Note that this same January 31 date is the deadline to distribute your company’s Forms W-2 to all employees.

How can I avoid being overcharged for tax preparation fees?

Answer: Prices vary, and everyone sets their own. Second fee quotes help.

For most basic returns, the fee might range between $150 to $325 per return. The tax return’s details matter, and the complexity of income and expenses, assets and liabilities, credits and other attributes will always increase the price.

Oddly enough, returns for low-income earners with dependent children often carry fees far greater than some more difficult tax returns. This is because the lower-income earners often qualify for refundable credits, and (generally) their tax refunds are greater. Many preparers will base return prep fees on the amount of refund expected. In many cases, a $400-500 fee for this type of return may be considered excessive by some.

Can I file a complaint with the IRS if a tax return preparer calculates my taxes wrong?

Answer: If a preparer makes a mistake, do not file a complaint.

Mistakes happen, and they are not always the preparer’s fault. Instead of challenging that licensee’s livelihood, have a direct discussion with the preparer. Possibly, the professional may be willing to correct the error. Another possible remedy is to request a refund of fees paid. Licensed professionals like CPA’s are concerned for their reputation, and may seek to settle with you than risk a dissatisfied customer. However, there is no commonly known statute that punishes a return preparer for mistakes.

On the other hand, if the error causes you substantial harm, you should also inquire about the firm’s professional liability insurance coverage.

If a return preparer makes a serious mistake that costs me, can I make them pay the tax, interest and penalty?

Answer: Generally speaking, no.

Most commonly, a return preparer’s liability is limited to the fee paid for that service. Unless that tax accountant agrees to provide more, customers should not expect more. Ultimately, all returns are the responsibility of the Taxpayer – that is, the customer.

Tax return preparation, and even IRS tax resolution are not perfect industries. The work can be extremely difficult. Mistakes can be made, and often are made. A miscommunicated fact or unspoken detail about one’s primary residence could greatly affect the accuracy of, say a Form 1040 return with “forgiveness of indebtedness” income. Sometimes those errors can overstate a refund, cause additional tax, or affect other additions like interest or penalties.

Further, it is also difficult to sue someone for a recovery of fees paid. A small claims court could certainly hear the matter. However, court fees and the time imposition may not be worth the effort. Further, finding an attorney willing to take on a smaller, trivial matter would prove to be challenging.

Can I report a tax preparer that committed a fraud against me? How?

Answer: Yes, there is a recourse against a dishonest tax professional.

The Internal Revenue Service has an Office of Professional Responsibility (OPR). This organization is responsible for handling all “tax practitioner” misconduct matters. OPR reviews complaints, and takes measures when it determines action is appropriate.

The IRS Form 14157, Complaint: Tax Return Preparer is used to report a tax return preparer for committing potentially fraudulent tax preparation practices. One would complete this form, and attach all supporting documentation. The form and attachments should be sent directly to the IRS, either by mail or fax. The instructions provide the address and fax information. Be careful not to make duplicate submissions.

Collection Matters


Can I get an IRS payment plan if I owe more than $50K?

Answer: Yes, but IRS has far greater requirements than for a simple installment plan.

For an installment agreement, IRS will consider your ability to pay the liability, based upon your series of Form 433, Statement of Financial Position. When reviewing your financial disclosures, the government will determine, according to its procedures and standards, what is your reasonable, minimum payment. IRS also requires your full “compliance” with all past required tax return fillings. Finally, there must be adequate payment of any current year’s tax obligation, in order to be granted an installment agreement.

Do I need a lawyer if I owe the IRS?

Answer: Depending on your situation, history or amount owed, you may need the benefit of a licensed attorney.

IRS has created online resources to assist most people to manage their own tax liabilities. However, many Taxpayers may need professional assistance, such as business owners, high income earners, those challenging the amount of tax, and those protesting IRS penalties. For example: IRS’s “do-it-yourself” tools offer no opportunity to recognize the particular cash flow needs of business owners struggling to meet their biweekly payroll expense, while still attempting to resolve old tax debt. However, those free resources are designed to favor the government, not the Taxpayer.

An experienced tax attorney or IRS representative is commonly necessary when the Taxpayer must utilize the complex system of IRS’s tax procedures. There is no effective online tool to navigate those more-complex tax collection matters.

What if I can’t pay the IRS by the date shown on their letter?

Answer: You may need a “payment alternative” to avoid IRS collection enforcement.

In many circumstances, IRS can allow a “Taxpayer” an extension of time by which to pay. As well, there are multiple options that can be arranged as alternatives to full payment. These “payment alternatives” allow for a monthly installment agreement, a deferral of payments (for a year or so), or even a settlement of the liability for some lower amount.

While one of these options are being created for a Taxpayer, the IRS tax attorney can extend the full payment due date by weeks or even months.

Will the IRS garnish my paycheck after an audit?

Answer: If you owe tax, IRS sends a series of notices. You can respond before it levies your pay.

If you agree with the audit result, it is always better to pay the tax, or to arrange some payment alternative. Immediately after the IRS or state audit, you have the advantage of making that arrangement before any collection begins. This includes those garnishments, commonly referred to as levies.

If the government shuts down, do I still have to pay taxes?

Answer: Yes. Your tax obligation continues.

Anyone filing a return with a payment can continue to do so during the shut-down. Also, the IRS call centers will remain open. Expect those phone lines to be busy. Also, it is possible that a shut-down could delay tax refund processing at IRS.

I have an IRS payment plan. What happens if I skip a month?

Answer: Missed or irregular payments could default an IRS installment agreement.

If you expect to miss one month’s payment, you may simple phone IRS collections to advise of the shortfall. Call 800-829-3903. However, if that shortfall repeats, you can be denied, and your installment agreement can quickly default. It may be better to negotiate a more affordable monthly payment.

Can IRS levy my bank for more than what I owe?

Answer: No, the levy amount is limited to the amount owed, as shown on the IRS Notice of Levy.

Money deposited later is not subject to this levy. Neither are funds deposited during the holding period. Another levy must be served for IRS to reach money deposited later, after the notice is received.  Similarly, only the amount levied will be made unavailable by your bank.

What is the 21-day rule for IRS bank levies?

Answer: The bank must pay over levied funds 21 days after the Notice date.

At some point, your bank is required to send the amount in your accounts. However, it cannot send more than the amount shown on the notice of levy. Fortunately, the bank cannot send the funds immediately. The law requires your bank to wait 21 calendar days after a levy is issued before turning over your bank account funds for tax resolution. Usually, the money is sent the business day after the 21 days expire. Your bank can be punished is it fails to send the funds to the IRS as part of this tax resolution process.

Can an IRS bank levy be stopped once the bank receives Notice?

Answer: Yes! The levy can be released within 21 days after the IRS Notice date.

Once an installment Agreement of other arrangement has been approved, IRS routinely issues a Release of Levy to the bank. IRS will not issue a new levy while a requested Installment Agreement is pending. However, there are technical rules within the Internal Revenue Manual that define whether a previously issued levy must be released. In some cases, the IRS Revenue Officer retains some discretion to release the levy.

Where are my bank funds during the IRS levy 21-day period?

Answer: Many banks place a “suspense” or “Hold” on funds during the 21-day period.

Technically, they are still your funds. Most banks will show the funds balance within your account. However, the funds will also show as “not available”.

If I got an IRS levy, will it happen again?

Answer: Yes, it could. The best approach is to arrange some payment option before another levy.

Satisfying IRS is the best protection against future levies. Most people seek an installment agreement, Offer-in-Compromise, even currently-no-collectible, deferral of payment. The IRS will also require that all tax returns are filed, and that current year estimated taxes are paid. Typically, there are other conditions, based upon your specific situation.

Where are federal tax liens filed? Who can see this tax lien against me?

Answer: The lien is publicly filed within your county of residence.

IRS identifies your residential county as that from your last-filed tax return. IRS’s Automated Collection System, or the assigned Revenue Officer will file the lien directly with the County Recorder’s office. Note that some counties make these liens electronically available to the credit reporting bureaus. Again, tax liens are documents made public.

Can I sell my house with a tax lien filed against me?

Answer: Yes, you can sell your house, even with a lien filed. But there are problems.

If you first acquire lien relief, then the sales proceeds may be available to you. However, unless the lien is released, withdrawn, or discharged, then any sales proceeds leftover (usually after the mortgage loans are paid) are prioritized to pay the lien tax balance.

Does an IRS tax lien attach to my home?

Answer: Federal tax liens are “secured” by all assets owned by the person who owes taxes.

According to the IRS website, a lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien. Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit. The lien attaches to all business property and to all rights to business property, including accounts receivable. Finally, if you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

How do I get rid of a Federal Tax Lien?

Answer: You can apply for a Release, Withdrawal, Discharge or Subordination of lien on IRS Form 12277.

IRS will remove a tax lien filed in error, or if it becomes unenforceable. Most people desire a full withdrawal. In this case, the federal tax lien is treated as if it was never filed in the first place. A lien release, on the other hand, is another public document, sent to inform the affected county recorder that the lien no longer encumbers your property. Discharges and subordinations are also available, and are much more technical for which to apply.

Is it hard to apply for withdrawal of tax lien?

Answer: Completing IRS Form 12277 is not difficult, but IRS rules for withdrawal are complex.

The requirements are found under Internal Revenue Code Section 6323(j). There are also exceptions to the general rules. The collection of documents, as well as the narrative explanation must satisfy those requirements. However, you are afforded an appeal if your request of not approved. Also see IRS Publication 4235, for the proper address to file Form 12277.

Can I remove a lien from my credit?

Answer: Yes. Once IRS issues a withdrawal or release, you can dispute a tax lien with the credit bureaus.

Equifax, Experian or TransUnion will contact the Counter Recorder’s office, to confirm whether the lien is still valid. It is unclear whether Dun & Bradstreet will extend the same courtesy. It is helpful to provide the bureaus a copy of the relief document issued by IRS or state authority.

My ex-husband co-signed on my mortgage. Now he has a tax lien. Does this affect me?

Answer: That tax lien could be recorded against your home.

However, the lien can be removed from your home. If your ex-spouse no longer has any ownership in your house, the lien could be discharged against your home. That discharge frees your property from any further tie to your ex’s responsibility from that Federal Tax Lien.

Usually, the process of discharging a federal tax lien requires a lawyer. The process is somewhat technical, governed by IRS’s Internal Revenue Manual Section 5.12, Federal Tax Liens and, more specifically, U.S. Treasury Regulation §301.6325-1.

How do I refinance my mortgage to pay off a tax lien?

Answer: Most commonly, the IRS must subordinate its tax lien in order for you to refinance.

Typically, mortgage loans taken to purchase a home take first priority against the real estate’s equity. If (for example) the property is sold, the mortgage will be paid-off before the sale funds are applied to anything else.

When a tax lien is filed, it takes a “next-in-line priority” with the equity proceeds, over any other debts, liens, mortgages, or encumbrances that follow. But because most mortgage lenders require sufficient equity to secure a new loan, they not issue loans where IRS has next-in-line legal claim to that required equity.

Lien subordinations are generalized under IRS’s Internal Revenue Manual Section 5.17.2.8.6. Under this procedural section, the Internal Revenue Service is required to exercise good judgment in considering its decision whether to allow subordination of its lien to a new loan.

Is it possible for me to call the IRS to remove a lien?

Answer: The IRS takes no action on removing liens, except first by formal application.

Generally, IRS Form 12277 is the best document to file with IRS. The instructions spell out the Service’s requirements, which include numerous documents. However, most successful applications require more than attaching documents. Because IRS has much discretion over whether to grant these applications, the better submissions include a comprehensive description of the relevant law, and a narrative of facts that support the legal arguments.

However, after that carefully crafted submission is made, one may call the IRS contact for status of the request to remove the lien.

What’s the cost to remove a lien?

Answer: Legal fees vary for IRS lien removal. Pricing is greatly affected by the surrounding circumstances.

Attorney’s estimated fees are based upon some combination of the following:

  • Degree of technical knowledge or research required, or both;
  • Degree of difficulty the logistics, the facts, or the client, present to the case;
  • Time and other resources expected to gather the surrounding facts;
  • Time and other resources expected to gather, prepare and present the supporting documents and legal argument;
  • Follow-up efforts required until the resolution.

There must first be a legal basis for the government to change a tax lien. The underlying facts, or those surrounding circumstances, must support the legal basis. For any application to release, withdraw, discharge or subordinate a state or federal tax lien, the government will consider and determine whether those facts, as documented, presented, and argued meet the legal requirements sufficient to release the lien.

Can I stop an IRS notice to the US State Department to block my passport?

Answer: Entering an Installment Agreement can resolve that problem.

By Department of Treasury procedure, IRS can request to block the issuance or renewal of U.S. Passports for those who owe significant, seriously delinquent tax debt. If the debt remains without payment arrangement, IRS can request a full revocation of a passport. With adequate payment, IRS will re-categorize the debt as “not delinquent”, and will promptly provide information to the U.S. State Department to remove that taxpayer from the list.

Criminal & Penalty Questions


If I have not filed returns for over 5 years, could I go to prison?

Answer: Not usually. You must be convicted of a crime willfully committed.

The imprisonment is typically reserved for those who violate one of the criminal tax statutes under the U.S. Tax Code, sections 7201 and following. Each of these statute sections contain many elements required to meet the conduct level of “criminal”. As well, each group of elements contains exceptions to the conduct generally specified by that law. For example, in nearly all cases, there must be an amount of tax owed on those otherwise unfiled tax returns, in order to be treated as criminal conduct.

These sections of law also nearly all include a common element of “willfulness” of conduct. For example, under Sec.  7203, any person required to prepare a tax return, who willfully fails to prepare and file such information at the time or times required by law, will be guilty of a misdemeanor. If convicted of this crime, that person will be fined up $25,000, or imprisoned up to 1 year, or both.

What is the penalty for filing incorrect tax returns?

Answer: There are many levels of punishment, from monetary fines to imprisonment.

Penalties can vary for someone who filing incorrect tax returns. They may range from civil monetary penalties from 0.5% to 75% of the amount of understated tax. For example, under 26 U.S.C. §6222, there is a 20% “substantial understatement” penalty. Another section includes a 75% fraud civil penalty.

Penalties could also be criminal or administrative. Criminal penalties could be categorized as either misdemeanor or felony. They can apply to the Taxpayer or to other parties that willfully violated his/her responsibility in assisting with filing correct tax returns. Even professional tax return preparers could be fined, administratively sanctioned, or imprisoned.

Can accountants go to prison for preparing false tax returns?

Answer: Federal and state criminal law punishes one who willfully files false returns.

Generally, under 26 U.S.C. 73206(2), a person who willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under with any United States tax matter (ie: arising under the U.S. tax code), that person commits and is guilty of a felony.  It does not matter whether the person authorized or required to present such return, affidavit, claim, or document had knowledge of or gave consent to the falsity or fraud. If that person committing the offense is convicted, he will be fined up to $100,000, or imprisoned up to 3 years, or both, for each offense. The punishment is different if a corporation commits such offence.

Nearly each state has a similar law for this offense. A person may be convicted for preparing both Federal and State tax returns.

Is there a penalty for not filing my employees’ W-2 forms?

Answer: Yes, the penalty is rather steep, at $250 per each unfiled form W-2.

IRS Forms W-2 must be filed no later than January 31 of following the year. Under 26 U.S.C §6721(a), any person’s failure to include all the information required to be shown on a return is penalized $250.00 for each return with which the failure occurs.

However, the penalty can be reduced if the correction is made quickly. For example, if the correction is made within 30 days after 30 days of the due date, the fine decreases to only $50. Even if the correction is made later, but before August 1 of the due date year, the penalty decreases to $100.

What is a §6721(e) IRS penalty for “intentional disregard” of filing W-2 forms?

Answer: The IRS gives a $500 penalty on these non-filer cases.

The $500 penalty is for business owners that knowingly do not file employee Forms W-2, under §6721(e). The $500 penalty is applied to each Form W-2 unfiled.

This penalty stands if the facts and circumstances indicate an intentional disregard of the filing requirement. Intentional disregard means the failure was knowingly and willfully done, according to 26 C.F.R. § 301.6721-1(f)(2).

What are “facts and circumstances” regarding a W-2 filing penalty?

Answer: The IRS considers whether the Taxpayer’s facts show intentional disregard.

Intentional disregard is a standard used to describe blatant, even fraudulent conduct. More egregious acts or conduct justify a greater (basically, doubled) penalty. These facts and circumstances will support whether IRS will charge the normal penalty of $250, or if the greater $500 penalty instead applies.

These considerations include (but are not limited to): (1) a pattern of conduct where the filer repeatedly fails to provide information, (2) whether correction was promptly made upon discovery, (3) whether the correction was made within 30 days of a written request from the IRS to correct, or (4) whether the penalty is less than the cost of complying with the rule.

What does “intentional disregard” mean, regarding a Form W-2 filing penalty?

Answer: Intentional disregard describes knowing, willful conduct.

In this regard, that term “intentional disregard” relates to someone’s failure to timely file tax or information returns, or failure to include correct information on those returns.

This standard of conduct is used to identify blatant, even fraudulent, sometimes even criminal acts. The more egregious acts or conduct that fit this description will justify greater penalties. In this case, the W-2 filing penalty is increased, from the normal penalty of $250 per return, to the greater penalty of $500 each.

Gains, Investments & Inheritance Questions


I lost my house in divorce. Do I have to pay capital gains tax?

Answer: Capital gains tax is not excluded solely due to divorce.

This is a common situation, where one spouse who surrendered all rights to asset in divorce, but the other spouse will not (or cannot) refinance to remove the surrendering spouse’s name off mortgage. Upon the sale, the receiving spouse plans on selling the real estate. However, the surrendering spouse receives no proceeds from the sale. Later, after the sale, the full amount of proceeds is reported to IRS.

In a separation of marital assets, you should pay extra close attention to the value of assets negotiated. Remember that while some assets may have greater financial value, they may also harbor hidden liabilities, such as the capital gains tax inherent in greatly appreciated assets. You should keep track of those potential liabilities, as well as what you exchanged in the process.

If I inherit money from my parent’s 401(k), do I have to pay tax?

Answer: Generally, yes, you are taxed on distributions from a 401(k).

If taking a distribution, the proceeds received from a 401(k) will be subject to income tax, both federal and state. However, the heir to those funds is not required to take an immediate distribution. That person can either:

  • Leave the money in that same 401(k) account
  • Have a roll-over to his/ her own job-related plan, if allowed by that permits; or
  • Have a roll-over into his/ her own or even inherited IRA

Normally, when the original account holder withdrew from the account before the age of 59 ½, then he/ she would be subject to a 10% “early withdrawal tax”. If the heir decided to take a distribution, however, he/she would not be subject to pay the 10% early withdrawal tax. This special rule applies no matter the age of the decedent or the heir.

I inherited my dad’s home. If I sell, am I taxed on the gain?

Answer: Maybe not, but it really depends on when you sell the property.

The capital gain may be based on the home’s value when you inherited it.

Capital gains tax is calculated on the positive difference between the sale price of that home and your “basis” in the asset. Sometimes that “basis” is original purchase price, but other transactions can increase or decrease the basis.

In cases of inheritance, upon the previous owner’s death, the heir will receive a “stepped-up basis”. This means that those transactions previously affecting the asset’s basis are disregarded. Instead, the new basis becomes “stepped-up” to the fair market value at the time of that death – that is, if the asset has appreciated.

If you hold the property after inheritance, and it appreciates in value before you sell it, then yes, you could be subject to tax on the capital gain.

If I sell the property to pay the IRS, will I have capital gains tax? Is it exempt?

Answer: Property sold to pay prior taxes is still subject to tax.

Capital gains tax is calculated on the difference between the sale price of that home and your “basis” in the asset. For the tax to be imposed, that difference must be positive, not negative. However, a negative difference could result in a capital loss.

Capital gains can be reduced by deducting the capital losses. Whenever certain assets are sold for less than their basis (often the original purchase price), that results in capital losses. The combined total of capital gains less capital losses is called the “net capital gain.”

Long-term capital gains (or LTCG) tax is imposed on profitable asset sales, if the assets were held for more than a year. The various rates, whether 0%, 15%, or 20%, depend on your tax bracket. Short-term capital gains tax (or STCG) is similarly imposed on profitable asset sales, for those assets held for only a year or less. Short term capital gains are only taxed as ordinary income.

I received an IRS tax notice, from 1099 income I never got. What do I do?

Answer: First, try asking the company to issue a corrected 1099.

Make your request in writing. Honest mistakes could be easily corrected. Ask for a correction prior to the deadline in the IRS letter. However, if no correction is issued before then, there is another solution. You can file an IRS fraud “Information Referral” on Form 3949-A. The IRS will investigate, and possibly recommend civil or criminal penalties against that employer. But also, an IRS analyst will contact you, to help correct the reporting problem at IRS account. Pay attention to the IRS deadline on that notice. You may be required to file Petition in US tax court. In this case, you will need a lawyer.

Self Employment and Gambling


Can gambling winnings be exempt from IRS tax?

Answer: Winnings are not tax-exempt. But only net winnings- wins minus losses, should be taxed.

Here is the general rule: Gambling winnings are taxable income. They are not exempt, not even at a function promoted by a tax-exempt organization.

However, generally speaking, gambling losses are tax deductible only to the extent of gambling winnings. However, the deduction for those losses must be included with “itemized” deductions. Losses are reported on the Schedule A (Form 1040), Itemized Deductions. But if you don’t itemize, you cannot deduct those losses.

Meanwhile, you still must report all of your winnings as taxable income.

Does the itemized rule for gamblers favor the IRS?

Answer: Yes, players tend to lose some of the tax break on the costs of earning gambling wins.

This is because not all gamblers itemize their deductions. Those who don’t receive no tax break for their net losses. But also, deductions for any year’s losses cannot be greater than the year’s winnings. From year-to-year, most regular gamblers have net losses, not wins.

gambler should actually want to keep track of every dollar won, and lost. Without proof, you risk overstating your income (and therefore tax). You also run the risk of understating your taxable income, which becomes a big problem in the case of IRS tax audits.

Substantially understated income can subject a person to expensive IRS penalties, under U.S. Tax Code Section §6662. Intentionally understated income can subject a person to a Civil Fraud Penalty of 75% of the tax, under IRC §6663. Imprisonment is also possible, under Section §7206 of this Tax Code.

What’s the BEST way to track my gambling winnings and losses?

Answer: For tax purposes, consistently documenting all transactions is key!

The IRS “suggests” keeping a diary or similar record of your gambling activities. At a minimum, your records should include the dates and types of specific wagers or gambling activities. Best practices also suggest writing down your winnings, and even your ATM withdrawals. IRS wants players’ journals to include location and name of your venue.

IRS auditors even ask who were the people gambling or entertaining with you. They suggest documenting that information also. However, this is not necessary to do.

What’s an EASY way to track my gambling, for tax purposes?

Answer: If you cannot journal your gambling transactions, use third-party documents.

Casinos offer “loyalty reward” cards and memberships. Use those cards to track all buy-ins, as well as winnings. These loyalty programs offer statements of your activity, when recorded under that account.  Your casino may even provide other services, also to help you better keep up with your experience.

Whenever possible, use plastic cards, not cash. Your bank and card carriers will track your cash-out and expenses. By themselves, they prove some expense. But paired with the activity statements, these are powerful additional support documents.

Gaming venues will issue a Form W-2G, whenever taxes are withheld. Generally, if you win more than $5,000 on a wager, and the payout is 300 times or more the bet, the casino or gaming venue must withhold 24% of your winnings for income taxes.

 

IRS Tax Liens & Requesting CDP Hearings


Why do I have an IRS Tax Lien?

Answer: When the IRS believes that someone’s liability will not be paid in the near future, IRS files Form 668(Y)(c).

This form is a Notice of Federal Tax Lien, filed against that person. This is a required step in IRS procedure, especially when there is tax liability exceeding $50,000.

The lien is filed against “Taxpayer” in order to protect the government’s ability to collect. By its language, the tax lien secures IRS’s debt against Taxpayer’s assets, for collection after events such as:

  • He tries to dispose of or borrow against an asset
  • He defaults an IRS installment agreement
  • He files for bankruptcy

Does a Notice of Federal Tax Lien mean that I am going to be levied by the IRS?

Answer: This lien does not suddenly impose any new threat of IRS levy.

However, more enforcement could still occur, such as an IRS wage levy or bank levy. IRS will also send Notices of Intent to Levy. But a timely response to the lien gives Taxpayer some serious protection against the threat of levy. That protection comes from filing an IRS Form 12153.

Do I need to request a Collection Due Process Hearing?

Answer: This is typically done to contest an IRS lien, levy, or even threat of levy.

In addition to contesting a lien or IRS levy, a timely-filed Request for CDP Hearing will also stop any reasonable expectation of levy, even if not threatened. Tax resolution firms will routinely file this request on IRS Form 12153.

When do I have to file Form 12153 for a CDP hearing?

Answer: Typically, a person has 30 days from the date of the lien notice to file this form.

The IRS Notice of Tax Lien provides opportunity to file a Request for a Collection Due Process Hearing. While the true deadline is shown on the Notice of Lien, anyone should request this hearing as soon as possible, before a levy is also initiated.

Is there a guarantee we won’t get a levy?

Answer: Generally, the IRS is restricted from issuing a levy if IRS Form 12153 is timely-filed.

This protection only applies for the liability specified in the IRS Notice of lien or Intent to Levy. This rule is found in IRS’s rulebook, the Internal Revenue Manual (IRM), in Section 5.1.9.3.5.1. Although there are some exceptions, Section 5.1.9.3.5.1 states:

If the taxpayer files a timely request for a CDP hearing during the IRC § 6330 notice period, levy actions on the assessments that are the subject of the CDP notice must be suspended during the appeal period and while any court proceedings are pending ….

Itemized Deductions


Can full time employees write-off mileage, if they mainly work from home?

Answer: Maybe, but deducting auto expenses as employees is limited.

As an employee, those expenses are called “Job-Related Expenses”, or “Employee Business Expenses”. These job-related costs are considered “Itemized Deductions”, and are subject to certain limitations. Because of those limitations, those costs might not be fully deductible from income. These costs might include a calculated allowance for work-related usage of a person’s personal vehicle. The rate for 2019 year taxes is 58 cents per mile for work-related miles driven.

Claim this expense on IRS Schedule A, Itemized Deductions. Refer to IRS Publication 535 for more detail.

Can I write-off my job expenses?

Answer: Business owners get full deduction of expenses used to earn income. Employees are treated differently.

Business owners’ related expenses are appropriately called “Business Expenses”, and are fully deductible from income.

However, if you are not self-employed, you may get less tax benefit from those expenses. As an employee, those same expenses are called “Employee Business Expenses”. These job-related costs are considered “Itemized Deductions”, and are subject to various limitations on Schedule A. Because of those limitations, those costs might not be fully deductible from income.

Explain “Itemized Deductions” vs “Standard Deductions”

Answer: Both represent an amount you can subtract from income on a Form 1040 tax return.

Here’s the deal, in short. Assume a person here is single. She can take the $12,200 “Standard Deduction” on her 2019 Form 1040 tax return. This reduces the income for which she will eventually be taxed. Or she could write-off potentially even more with her “Itemized Deductions”, if the total of those items exceed $12,200. Her job-related mileage might be one of those itemized deductions. If she has other itemized deductions, whose combined total exceeds $12,200, then she would deduct that greater amount on her income tax return.

Not everyone has to (or gets to) claim a tax deduction for these specifically listed expenses (also called “Itemized Deductions”). Why not? Because the tax law may allow an equal or better tax write-off. Again, this possibly better option is called the “Standard Deduction”.

What Can Be Considered “Itemized Deductions”?

Answer: As your guide, use IRS Schedule A, Itemized Deductions. These items might include:

  • Medical expenses,
  • State income tax and sales tax,
  • Real estate tax,
  • Mortgage interest,
  • Moving expenses,
  • Gifts to charity,
  • Casualty losses,
  • Gambling winnings, and
  • Job related expenses (such as auto mileage expenses).

It’s a big list. Hint: For most people, the bulk of their itemized deductions include withheld state income tax and home mortgage interest.

Here’s the deal, in short. Assume a person here is single. She can take the $12,200 “Standard Deduction” on her 2019 Form 1040 tax return.