Tips on tax cheats skyrocket with bigger rewards

The IRS has implemented a law that allows tipsters to report companies and individuals who they believe are cheating their taxes. The law allows the qualified whistleblower to receive between 15 to 30 percent of the amount the IRS collects. The IRS believes that having a cash incentive will cause more people to report tax evaders. The IRS has enacted a similar law in late 2006.

When the law first started in 2006, the law targeted any company that owed at least $2 million in unpaid taxes, interest, and penalties. The law also targeted any individual with an income of at least $200,000. Today, these are the same qualifications for the whistleblowers to receive their reward.

In 2008, the agency reported receiving 1,246 tips on suspected tax dodgers, each owing more than $2 million. That's up from 116 big-money tips in 2007. A recent report has shown that among the tips received in 2008 included 228 accuse suspected tax dodgers of owing more than $10 million and 64 accuse suspected tax dodgers of owing more than $100 million.

The law states that the informants are promised confidentiality, unless they are required to testify in court. Keep in mind that whistleblowers themselves are not immune from prosecution if they take part in tax scams.

Officials however still do not know how well the tips will pan out. Once a tip is given, there is still a long process of audits and appeals. Many lawmakers have shown support of the law but criticize the pace of the program. The IRS claims that rewards will only be paid once all the taxes, penalties, and interest are collected. Whistleblowers may have to wait a long time for any rewards, possibility several years. Today, no one has been paid under this new law.

However, if you decide to submit information and seek an award you can do so by filling out the IRS Form 211.

Are Lenders Discriminating?

The government reported on Wednesday, October 1, 2009, that nearly one out of every three loan applications for a mortgage was denied last year. This is partly due to massive changes in the lending industry as a result of the housing market bust. However, what is interesting is that the denial rates for African Americans and Hispanics were nearly twice as much as the white borrower.

Recent records have shown that blacks and Hispanics are borrowing more from FHA-insured loans. This just illustrates that these race groups cannot borrow from any of the private sectors and must look for other available options. Borrowing from a FHA-insured loan means that these two race groups will likely experience high-priced loans. Last year, about 17 percent of blacks and 15 percent of Hispanics got high-priced loans, compared with about 7 percent of whites.

However, the mortgage industry claims that lenders are not being discriminated by race. The industry insists that it is due to the borrower’s credit scores and the size of their down payments. This may be true but the disappearance of “piggyback” mortgages has played a huge role in the lending problem. The “piggyback” mortgage allows borrowers to use a second mortgage to avoid making a 20 percent down payment. Today, they are non-existent. Only 98,000 were made last year, down from 1.3 million annually in 2006. Without these “piggyback” mortgages and with our unstable economy, every race is finding it more difficult to finance their mortgages. It just so happens that blacks and Hispanics are suffering the worst.

To E-file or not to E-file?

With the growing trend of emails, online banking, and everyone having access to a computer, the Internal Revenue Service (IRS) is encouraging taxpayers to e-file their taxes. Last year over 90 million people used e-file to do their taxes.

From the onset, there seems to be numerous advantages to e-filing. Some of the advantages include:
• a faster refund than using a tradition paper return (as quick as 10 days if you use direct deposit);
• electronic returns have fewer errors than the paper returns;
• you can file your taxes any hour of the day or night; and
• most importantly—you save paper.
As everyone knows or should know, the deadline to e-file a tax return or to e-file a tax extension is April 15. If you e-file a tax extension before April 15, then you are entitled to a tax extension deadline of October 15 for your tax returns. However, after October 15, you can prepare your tax return on efile.com but you must mail in your tax return. Therefore, October 15 is the last day to take advantage of e-file or the “Free File” program.
The “Free File” program is a fast, easy, and free way to prepare and e-file federal taxes online. The “Free File” program provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies.
Two free filing tax preparation and e-filing programs are available to individual taxpayers. “Traditional Free File” is available for taxpayers with adjusted gross incomes of $56,000 or less. On the other hand, “Free File Fillable Forms” can be used by people who earned more than $56,000.

Guideline Change for Condo Owners and Developers

There will be changes coming October 1, 2009 for developers of condo projects and existing condo owners who want to get Federal Housing Administration (FHA) approval for financing. The United States Department of Housing and Urban Development (HUD) has announced changes to their Condo Approval Process and elimination of "spot" approvals.

In the past, you only needed to satisfy one of the following two criteria to finance a condo unit using FHA financing. Either (1) the Condo Project has a FHA warranty, which would require the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD; or (2) the unit must pass a questionnaire called a “Spot Check” done on an ad hoc basis.
However, the HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals. Therefore, you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).

WHAT THIS MEANS TO YOU IF YOU’RE A CONDO BUYER

Whether you’re looking to buy a condo using FHA financing or not, this should still affect your buying decision. Keep in mind that you do not want to buy a property that will be more difficult to sell down the road. However, if you find a condo that does not have a FHA warranty and you really want to buy it, know that October 1st is the date the new guidelines go in affect. Also, many lenders have already adopted this policy prior to the date mentioned, so be sure to check your lender before applying. If you do buy using the “Spot Check” approval now, I would recommend you speak to the homeowners association about making the property FHA warrantable immediately after you close on your purchase.

WHAT THIS MEANS TO YOU IF YOU’RE ALREADY A CONDO OWNER

First, check immediately to see if your condo has a FHA warranty. If it has a FHA warranty, then you are good to go. If it is not a FHA warrantable condo, speak to the Homeowners Association immediately about getting the condo FHA warrantable. The key is to get your condo a FHA warranty prior to the October 1st date. Keep in mind that the turnaround time to get a warranty will be based on the amount of submissions the HUD receives. Everybody will likely flood the process after they realize how important this is.

Today, FHA loans now represent about 25% of all home purchases. Therefore, if you are selling a condo in a complex that does not have a FHA warranty; you are eliminating at least 25% of your potential buyers. Evidence of our current real estate market has shown that when the ability to obtain financing for a property becomes more difficult, the values of the property usually drop. Therefore, this will have a great impact on the condo markets, especially in Austin, since it will be more difficult to obtain loans for your condos.

IRS VOLUNTARY DISCLOSURE PROGRAM

If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, then most other incomes you may be required to report the account yearly to the Internal Revenue Service (IRS). The IRS has drawn a clear line between those individual taxpayers with offshore accounts who voluntarily come forward to get right with the government and those who continue to fail to meet their tax obligations. People who come in voluntarily will get a fair settlement. The IRS has set up a penalty framework that is believed to help those that voluntarily come forward. However, those that volunteer need to pay back any taxes and interest during the tax periods for years 2003 to 2008. Those that volunteer must also pay either an accuracy or delinquency penalty during the mentioned six year period. On top of those taxes, they will also pay a penalty of 20 percent of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. Just to be clear, this is 20 percent of the highest asset value of an account anytime in the past six years. By incorporating the penalty framework, it gives the voluntary taxpayers a certainty and consistency in how their case will be handled by the IRS. However, if the taxpayer is currently under examination by the IRS, then the voluntary disclosure program would not apply.

Some of the advantages of voluntarily disclosing with the IRS are that you can avoid substantial civil liability and eliminate the risk of criminal prosecution. However, on the other hand, some of the disadvantages of not reporting your offshore accounts to the IRS include the risk of detection by the IRS through an audit; imposition of substantial penalties; fraud penalties; foreign information return penalties; and the possible risk of criminal prosecution.

If after making a voluntary disclosure, the taxpayer disagrees with the 20 percent offshore penalty, the taxpayer’s case will follow a standard audit process. Then the taxpayer’s case will be subjected to a complete examination. Once the examination is complete, any penalties that apply would be imposed. These penalties could be substantially greater than the 20 percent penalty. However, if the case is still disagreed, then the taxpayer will then have recourse to Appeals.

If a taxpayer is unable to make full payments of all taxes and interest for all years covered, and the Voluntary Disclosure penalty, as well as all other unpaid, previously assessed liabilities, then the taxpayer must also submit a request that includes another payment arrangement that is acceptable to the IRS. The burden will be on the taxpayer to prove his/her inability to pay.

The taxpayer must be truthfully, timely, and completely honest in their voluntary disclosure or they could be subject to greater penalties or even possible criminal prosecution. Keep in mind that there is no guarantee that there will be an extension of the September 23 deadline and there is a possibility that a new program will be initiated with more severe penalties.

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Is the IRS going after the big fish?

The Internal Revenue Service (IRS) has recently offered a program that will allow tax evaders in offshore accounts to come forward to disclose these accounts for a lesser penalty. The IRS has set October 15, 2009 as their deadline to voluntarily disclose any of their offshore accounts. However, most taxpayers with offshore accounts have been waiting until the last minute to see what happens. The IRS reports that an estimated $14.8 billion dollars of taxes goes underreported due to offshore accounts each year. The UBS estimates that approximately 52,000 foreign accounts go unreported each year. Recently, the UBS has disclosed over 4,500 accounts to the IRS. That means that approximately one out of every ten accounts will be disclosed. This has most taxpayers with offshore accounts worried because if they are within one of those reported accounts, the taxpayer could pay penalties that could amount to more than double what the taxpayer has in their accounts and possible criminal prosecution. Do you have the 10% chance of being discovered? Naturally, people think that the IRS only goes after the “big fishes” or taxpayers with bigger accounts. However, recent reports have indicated that the IRS is going after anyone in order to get their delinquent taxes back.

Recently, a Los Angeles man plead guilty for failing to file a FBAR pursuant to the Bank Secrecy Act 31 USC 5314. The amount of unpaid taxes he owed was between $200,000 and $400,000 over a 5 year period. Assuming he was in a 33% tax bracket rate, the Los Angeles man’s unreported income would have equaled about $120,000 per year. This man eventually agreed to a civil FBAR penalty equal to 50% of his highest year balance and in addition a 75% civil tax fraud penalty. This goes to show that the IRS is targeting anyone, not just the bigger fish. In the end, it’s best to be honest with the IRS and disclose any information necessary. Otherwise, it can catch up to you and become disastrous.

Looking for a Home? Now is the Time to Buy

According to the IRS, more than 1.4 million Americans have recently claimed the new tax credit for first-time home buyers. The credit allows home buyers to either save up to 10% of the price of the home or the maximum of $8,000. The credit is only available to anyone who has not owned a home for three consecutive years before the purchase and the individual must make less than $75,000. For couples that maximum amount is doubled to $150,000. The best thing about the tax credit is that you receive an automatic $8,000 check by the IRS even if you still owe taxes or not.

In order to claim the tax credit, the home buyer must close on the house by Dec. 1, 2009. However, most people still fear that housing market will turn down again after the credit program expires. They believe the credit program is just a quick stimulus like the recent “cash for clunkers” deal. Recent reports show that Californians have taken advantage of the credit program the most. Florida and Texas rounding out the top three respectively.

The IRS estimates that over 1.8 million people will take advantage of the tax credit and there has been a push to continue the stimulus plan. Currently, there are six bills in Congress to extend the program. Some of the proposals ask for an extension up until the following year December 2010.

However, the White House has shown no signs of supporting any of the bills and the program has already cost $14 billion dollars to fund. Extending the program would cost more, which would be difficult to fund.

However, the National Association of Realtors (NAR) agrees that extending the credit would be costly; however, generating home sales would continue to strengthen the economy because when people buy homes they put a lot of cash into circulation. When people buy homes they usually buy furniture, appliances, or remodel the homes.

As of now, we will just have to wait and see if the government decides to extend the deadline. In the meantime, if you have the funds and are looking for a house, I would strongly suggest you take advantage of the tax credit and buy a home before the December 1 deadline.