GIFT TAX AUDITS
A new IRS gift tax compliance initiative responds to suspicions of widespread failure to file gift tax returns. According to Josephine Bonaffini, the Federal/State Coordinator for the IRS Estate and Gift Tax Program, between sixty percent and ninety percent of taxpayers fail to file a gift tax return despite having engaged in a transaction requiring a return.
Although gift tax audits are historically rare, the IRS has examined hundreds of taxpayers in the last two years whom the IRS suspects made large gifts, yet failed to file the appropriate returns. Borrowing from techniques long employed to identify noncompliant taxpayers in the income tax context, the IRS is using records obtained from third parties—namely, land records maintained in state and county offices—to root out intra-family land transfers for little or no consideration.
Land records maintained at local state offices are publicly available. However, the suspect transfers make up a small percentage of these voluminous and decentralized records. Thus, the IRS has asked state and county agencies that compile the relevant records to provide the IRS with those records. For instance, the California constitution contains cap on property tax increases following certain intra-family transfers, which inadvertently results in the California Board of Equalization (“BOE”) segregating the records of interest to the IRS—those on intra-family transfers—from the mass of irrelevant property records.
State or county agencies in fifteen states, including New York and Texas, have voluntarily agreed to provide records similar to those maintained by the California BOE. There is no reason to believe that the IRS has not made similar requests to agencies within many more, if not all, states, and more voluntary compliance from individual states may be forthcoming.
New Employer W-2 Requirements
Starting in tax year 2011, the Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. To allow employers more time to update their payroll systems, Notice 2010-69, issued last fall, made this requirement optional for all employers in 2011. IRS Notice 2011-28 provided further relief by making this requirement optional for smaller employers in calendar-year 2012. Notice 2011-28 also provides guidance for employers that are subject to this requirement for the 2012 Forms W-2 and those that choose to voluntarily comply with it for either 2011 or 2012.
As part of the City Business Tax Program, more than 115 cities, including San Luis Obispo share information with the Franchise Tax Board. The program helps the FTB identify self-employed individuals who are not filing required individual and business entity income tax returns. The FTB will begin matching that data with their records, and will send notices to taxpayers with business licenses who didn't report business income to the FTB.
How are the IRS and FTB raising money ?
Penalties and Fees. There's penalties for all sorts of things and they are being increased greatly. Why raise taxes when they can collect income from penalties.
Here are the penalties for late filing of Partnerships and S Corp:
Fed = $195 per month X each shareholder / partner. CA = $18 per month X each shareholder / partner
1099 Penalties: $100 per return for failure to file, missing information, or incorrect information
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