New Jersey Where’s My Refund Now Available

New Jersey has added online and phone-based tools to check the status of your NJ tax refund. If you know your refund amount, enter it online along with your Social Security Number to get the status of your mailed or direct deposit tax refund. To check your NJ tax refund status by phone, call 1-800-323-4400 or 609-826-4400.

Another helpful online service can help you track missing NJ tax refund checks. If the check was returned as undeliverable to New Jersey, then you can begin the process of submitting a claim to have your refund check re-issued. This service includes tax refund checks from 2003 and later.

The IRS has a similar online option to check the status of your Federal tax refund, called Where’s My Refund

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$31,185 in Income Tax Refunds for NJ Residents Expiring

The IRS released figures that show that 8,000 New Jersey taxpayers have not claimed $31,185 in Federal tax refunds due on 2008 tax returns. The average refund is $716. The deadline for filing to receive these refunds is April 17, 2012. After that, they are gone forever. If you have not filed and may be due a refund, I can help you gather the necessary info to file, even if you do not have all of your paperwork from that year.


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How an IRS Audit Starts

An IRS Audit is a review of an individual’s or business’ accounts and financial information to ensure they are complying with tax laws and paying the correct amount of taxes. The IRS is focused on collection issues and selects tax returns for audit where they think they will be able to find additional taxes due. With preparation and advice, you can fight an IRS audit.

IRS Letter 566
Most taxpayers who are being audited by the IRS receive a letter. IRS Letter 566 is a notification of a correspondence audit. The letter will indicate what items on your tax return are being audited. Some common tax return items that might be included:

  • Adjustments to Income
  • Schedule A – Itemized Deductions
  • Unreimbursed Employee Expenses
  • Schedule C – Gross Receipts
  • Schedule C – Expenses
  • Tax Credits

The IRS will also include Form 886-A which lists the documentation they are requesting. Since you have 30 days to respond to this IRS request, you should start gathering the paperwork listed on this form. Often, the IRS will ask you to fill out additional forms detailing your expenses or other accounting info.

In a correspondence audit, the response to Form 886-A is your defense of your tax return. An experienced tax resolution specialist can help you present the best and most complete response to the IRS. The IRS will examine these documents carefully to find ways to disallow expenses and credits, while looking for extra income in order to assess additional taxes. Filing your response in the best possible way is a crucial first step in emerging from an audit with the least damage possible.

Many taxpayers are not sure how to substantiate their tax return items or may be missing certain documents. It is prudent to speak to someone who can help you find the best strategy for presenting your case to the IRS based on what they have seen IRS auditors ask for in the past.

IRS Letter 3572 and IRS Letter 2205
Some taxpayers receive IRS Letter 3572 or IRS Letter 2205. The IRS is asking for a field audit. They are asking the taxpayer to bring documents and records to the IRS office for an examination there. Or they may ask to conduct the audit at your business. Be wary of this tactic. Consult with a professional before scheduling an IRS auditor appointment at your own premises. A tax problem specialist is familiar with the IRS audit techniques for your business and can advise you on strategy.

While you may feel that your income tax return is accurate and that you are able to prove this to a trained IRS auditor, i do not recommend attending this meeting yourself. The auditor will ask you many questions and will try to expand the scope of the audit, given the chance. It is difficult to be objective when the IRS is examining your own taxes.

IRS Letter 3572 and IRS Letter 2205 will ask you to call the IRS to schedule an appointment. Once you do, and every time you call the IRS, they will ask you additional questions to gather as much information as they can. Instead, you should call a tax problem specialist. Once you’ve signed a Power of Attorney, they can speak to the IRS on your behalf and meet with them to defend your tax return.

A field audit is more serious than a correspondence audit. Both of these IRS audit letters indicate that an IRS employee has already researched your return. Generally, they provide just 10 days to respond so do not delay.

IRS Audit Telephone Call
The IRS may call you instead of sending a letter for an office audit. Be careful. Instead of scheduling an appointment, you should tell them that you will be contacting a representative to meet with the IRS. Write down the IRS auditor’s contact information and call a tax problem specialist for help. Once you have signed a Power of Attorney, they can call the IRS auditor and begin working on the best defense of your tax return.

All taxpayers are entitled to representation and it can make a big difference in the outcome of an audit.

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New Free Online Offer in Compromise Calculator

We’re pleased to announce the release of a free online Offer in Compromise Calculator. While the calculations for an Offer in Compromise can be complex, this online version is a great starting point for taxpayers when deciding on a solution for their tax debt problems.

The IRS has increased audits and other tax enforcement actions, and more taxpayers are finding themselves in a situation where they owe substantial tax debts. Penalties and interest continue accruing and many people find themselves in a difficult situation and needing guidance.

TV commercials from dubious firms promise a magical “pennies on the dollar” solution to troubled taxpayers. Before speaking to a sales rep at one of these firms, they can get instant results about their potential eligibility for an Offer in Compromise.

An Offer in Compromise is made to the IRS when a taxpayer owes more in taxes, penalties, and interest than they will be able to pay. They can offer to pay a portion of the debt and the remaining debt is forgiven. For many people in tax trouble, it is a life-saver.

To see if they might qualify, users enter their assets, income, expenses, and tax debt into the free online Offer in Compromise Calculator. If the results show they would save on their tax debt by submitting an Offer in Compromise, they are encouraged to call me for a more detailed and accurate calculation in a free, no-obligation consultation.

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2012 Small Business Calendar Available

Free IRS Small Business CalendarOrder the IRS Small Business Calendar and keep track of important tax and payroll dates. Did I mention that it’s free? Completely free and very handy to have around the office. I keep a few on hand to give to new small business clients.

12/29/12 UPDATE – The 2012 IRS Calendar is “sold-out.” Here’s a printable PDF copy and a handy online calendar

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Don’t go to your Income Tax Audit!

Really. I don’t recommend it. When it is your tax return and your money at stake, emotions can run high, and it’s easy to make a mistake. The IRS agent will ask you questions that you may not want to answer or that you may wish later that you had answered differently.

Send someone else instead – preferably a tax professional who has dealt with your situation before. With a properly executed Form 2848, an EA, CPA, or attorney can act on your behalf. The IRS agent will still ask me sometimes to bring the client to the examination appointment, but I cite IRC section 7521(c) and they usually let it go because even their internal manual agrees.

Now if you are still planning on going to your own audit, please note that according to the Internal Revenue Code cited above, you can stop the interview at anytime because you wish to consult with an EA, CPA or attorney. A good tax professional can prevent costly mistakes at an audit and might even save you more than going it alone.

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Good News – Business Cell Phone Tax Deduction

We love good news that makes tax record-keeping easier! If  your employees use cell phones for business, the rules for deducting the expense have gotten much easier. Previously, a cell phone was considered by the IRS to be “listed property,” a special category for deductions. Listed property includes items that the IRS considers to have potential for personal use that might be inadvertently deducted. So, for computers, camera equipment, certain autos, and formerly, cell phones, it is required to keep records of both business and personal use. If the business use percentage is more than 50%, then the opportunities for deductions and depreciation increase.

The Small Business Jobs Act of 2010, enacted last year by Congress, removed cell phones from listed property. Recently the IRS issued guidance on how exactly this applies to filing taxes.

The key point is that the cell phone must be used for business purposes. Here’s the IRS explanation –

if there are substantial reasons relating to the employer’s business, other than providing compensation to the employee, for providing the employee with a cell phone.  For example, the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside of the employee’s normal work day are possible substantial noncompensatory business reasons.  A cell phone provided to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes.

Any personal use by the employee is considered a minimal fringe benefit, not included in wages and not necessary to track or report. Yeah!

Let’s see how it applies to employee cell phones:

If the cell phone is provided to the employee for noncompensatory business reasons, then it is an excludible fringe benefit.  The business can deduct the expense and it is not compensation for the employee. It is now not necessary to track the employee’s business and personal use.

If the business reimburses employees for their personal cell phone, note that per the IRS, “the employee must maintain the type of cell phone coverage that is reasonably related to the needs of the employer’s business, and the reimbursement must be reasonably calculated so as not to exceed expenses the employee actually incurred in maintaining the cell phone.”

IRS Notice
IRS Notice 2011-72
IRS Memo SBSE-04-0911-083




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Has the IRS Contacted Your Business Associates?

Has the IRS has contacted your business associates or other third parties? Normally, if you are subject to an audit, the IRS must contact you to let you know that they will be doing checking with others about you.  They must give you a list of who they contacted. See below for the IRS info about them contacting your bank, employers, employees, etc…

The IRS must give you reasonable notice before contacting other persons about your tax matters. You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request.   

However, and this is a big one, they will not tell you about these third-party contacts if you are being investigated criminally. That would be really bad. You need the services of a good tax professional and an attorney. As an EA, I would work under the auspices of attorney-client privilege. Essentially, the attorney hires me to perform my services and this enables attorney-client privilege for my services.

Hopefully, this is not the case for you. Another reason that the IRS would not notify you about third-party contacts is if they thought you would take actions that would make it difficult for them to collect any monies owed.  The IRS can also avoid notifying you if they have reason to believe that you would take action against anyone who provided information about you.

Finally you can authorize the IRS to contact certain parties, but I would not do this without the advice of a tax professional. See the IRS language about these clauses from Pub 556

This provision does not apply:

  • To any pending criminal investigation,
  • When providing notice would jeopardize collection of any tax liability,
  • Where providing notice may result in reprisal against any person, or
  • When you authorized the contact.

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Why Am I Being Audited?

Wondering how you got chosen to be audited by the IRS? There are several avenues that may lead to the dreaded IRS examination. If you omit income that was reported to the IRS, their computers will pop-up and send you a notice to correct the error. This may get your return pulled for a closer look. Be sure to include all 1099s, w-2s, etc. If the income listed on the form does not belong to you, contact a tax professional for help.

Another way that computers help the IRS find potential audit targets is your DIF score. What’s that? It is a Discriminant
Inventory Function System score. We don’t know how it is calculated but the IRS does! Tax returns are scored automatically and those that have a high score might be audited.

The formula for a DIF score is a closely-guarded IRS secret but we can speculate that very high deductions for your income or similar anomalies could trigger an audit. However, if you have good records for unusual deductions — by all means, take the deductions. Most likely, the DIF score formula is a combination of several factors; we just don’t know.

In order to calculate DIF scores, the IRS seems to do research. You may be selected for a personal or business income tax audit to help the IRS fine-tune its audit-selecting prowess.  Many audits under the National Research Program are very, very thorough. I sincerely hope this does not happen to you.

Instead, may you be fortunate enough to win a big prize, like the first season of Survivor. The IRS might check on newsworthy winners to be sure they’ve paid taxes on their bounty.

Finally, I truly hope that no one dislikes you enough to tattle to the IRS on you. If they report your alleged tax indiscretion on Form 211, the source can get a piece of any money recovered by the IRS from you. Depending on your tax bracket, this could be a powerful incentive, so choose your friends and associates wisely!

Well, forewarned is forearmed. I hope these insights into the IRS audit factory are helpful or scary, or both! With good representation, many audits can be resolved with the least possible hassle. An excellent place to start if you are being audited is Pub 556 and the phone number of a good tax professional. As I always say – whatever you do, do not ignore an IRS notice!

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Beware the IRS Mistake in Your Favor

According to the National Association of Tax Preparers newsletter, the IRS is issuing refund checks to certain taxpayers …. by mistake! I wouldn’t cash that check you receive (without checking with me or another tax preparer) if the letter that came with it says, “We changed the amount of self-employment tax on Line 56 of your Form 1040 because there was an error on Schedule SE, Self-Employment Tax.”

The IRS seems to have been making an incorrect calculation in tax returns filed like these:

  • Multiple Schedule C filed
  • Schedule C and an S-Corp K-1
  • S-Corp K-1 with health insurance premiums paid by the S-Corp

There may be other situations that are triggering this mistaken refund check even though the IRS says they have fixed the error. Keep an eye out and this time, do look a gift horse in the mouth!

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