If your tax refund is late, there could be one of two reasons.  Firstly, there has been a computer glitch at some tax-preparation companies including industry leader H&R Block that affects some 600,000 taxpayers claiming for education credit.  The IRS has been working with tax-preparation businesses to deliver the refunds as soon as possible and by now most of the refunds have been sent.  H&R Block has since rectified their computer glitch and all systems are back up and running.  Other major tax preparation companies including Jackson Hewitt Tax Services and Intuit Inc were not affected.  None of their customers experienced delays getting their tax refunds.

The second major reason for refund delays this year is the increased scrutiny the IRS has given to cases claiming the Earned Income Tax Credit (EITC), a tax benefit that has been sorely abused by tax fraudsters.  Due to this IRS employees have been carefully reviewing returns with claims for the EITC.  However, IRS spokesman Terry Lemons told Reuters that ‘fewer than 5% of filings claiming the EITC have been delayed’.  The small percentage of returns that got delayed due to this reason are being processed and the taxpayers concerned will soon be able to track their refund on the IRS website, www.irs.gov by going to the ‘Where’s my refund’ link.

According to the Treasury Inspector General for Tax Administration (TIGTA), more than 13 million Americans claimed the EITC in 2012 at a cost of $38 billion last year.  The EITC is very popular among the lower income group because it is an anti-poverty program started in 1975.  Only those who meet the income, age and employment prerequisites may apply for the EITC.  Many of the claimants are resident aliens holding low-paying jobs.  One of the ways these people abuse the EITC is by submitting a claim for children who do not even reside in the United States.

To deter this fraud, the IRS this year is asking EITC taxpayers working with a preparer to prove a child is living with them by providing a report card or doctor's bill.  But only returns filed with a tax preparer need provide this information.  A taxpayer claiming EITC benefits can obtain an average of $3,452 for three or more children.

The increased incidents of such tax fraud have resulted in some delays in obtaining tax refunds.  To find out the status of your refund, click the ‘Where’s my Refund?’ link at www.irs.gov.

The IRS’ newest program to nab identity thieves in collaboration with law enforcement officers, Law Enforcement Assistance Program, has been extended to all 50 states including District of Columbia. This program overcomes the major hurdle that all law enforcement officers have been unable to surmount – the inaccessibility to personal tax information of victims of identity theft. The reason for this is the law that prohibits the IRS from sharing these personal details to third parties. But now with this program, the IRS is able to divulge personal tax information vital to law enforcement officers for investigation and prosecution of identity thieves.

Seeing that identity theft spikes every tax season, it is no surprise the program is seeing spectacular success. Under this new program, taxpayers who have fallen victim to identity theft can waive their rights to privacy and allow the IRS to share their tax info to law enforcement officers investigating their cases. Since the program began in Florida last year, the IRS has received more than 1,560 waiver requests from more than 100 state and local law enforcement agencies in the nine states participating in the pilot. Due to that, the pilot program was expanded to all 50 states with effect from last Friday, March 29.

According to IRS Acting Commissioner Steven Miller, “The results of the pilot illustrate that this works as an innovative tool for law enforcement to help pursue tough identity theft situation. This program is an effective way for law enforcement to work with the IRS to pursue identity thieves and protect taxpayers. Expanding the program and making it permanent on a nationwide basis makes sense for victims as well as law enforcement and tax administration.” Since the beginning of this year, the IRS has worked with victims to resolve and close more than 200,000 identity theft cases.

Under the new Law Enforcement Assistance Program, state and local law enforcement officers with evidence of identity theft through bogus income tax returns can get permission from the victim by having them complete a special IRS disclosure form that allows the IRS to release the fraudulently filed tax return to law enforcement officers. Furthermore, the IRS will also help the officers locate the taxpayers and obtain their consent.

The Law Enforcement Assistance Program is just one of a slew of initiatives by the IRS to address the issue of tax fraud. Besides the Law Enforcement Assistance Program, there is also the expanded Identity Protection PIN (IP PIN) pilot, an initiative to protect victims with previously confirmed cases of identity theft by creating an additional layer of security on these accounts. The IRS has issued more than 770,000 IP PINs to identity theft victims since the start of this tax filing season.

If you are struggling to fulfill your tax obligations, you should consider the options open to you to settle your debt. If you receive a notification from the IRS that you have not paid the complete amount of taxes you owe, you will be given an opportunity to challenge the finding of the IRS. If despite your challenge, the IRS still feels that the amount is valid, they may file a notice of deficiency. This gives you a limited time to either pay the amount specified, or challenge the matter in Tax Court.

If you cannot afford to pay the amount owed, the first option to consider is negotiating a payment plan with the IRS. If you do not come to any agreement with the IRS on this, the agency would take aggressive steps to recover the tax debt such as wage garnishments and property levies.

One other option would be an offer in compromise. An offer in compromise is where the IRS agrees to have the tax debt be considered paid in full even though only a portion of the amount is repaid. Obviously there are stringent criteria to meet in order to qualify to submit an offer in compromise. The IRS will review your financial situation, and decide whether or not to grant the offer. Your task is to prove to the IRS that you are unable to pay your taxes in full and thus you have to make an offer to pay less than your full tax obligation. If your offer is accepted, the IRS will impose additional requirements on you, including obligations to remain current on future tax payments.

Another option would be to have your case considered ‘Currently Not Collectible’. This means the IRS will stop their collection efforts temporarily until such time that you can fulfill your tax obligations again. This status of ‘Currently Not Collectible’ will be granted if you can prove to the IRS that paying your taxes would bring about undue hardship to you and deprivation of your basic needs. Upon granting this status the IRS will continue monitoring your financial situation to see when it improves. Once your financial situation improves, the status will be revoked and you will have to pay up all that you owe. In the meantime, the amount of taxes you owe will incur interest charges.

If you are struggling with your tax debt, call us for a free consultation at (813) 229 7100.

If you have inherited property you need to know about the IRS Property Step up rule. This rule can potentially save you thousands of dollars in capital gains tax. Interested? Read on.

The IRS Property Step up rule, officially called the Basis Step Up rule states that the property you inherited will draw capital gains tax (should you sell it) based on the property’s market value at the point of death not the time the property was purchased. This is advantageous to you because it would reduce the amount of gain you make through the sale of the property and thus lower your capital gains tax.

For example, suppose your father bought a property in 1990 for $100,000 and bequeathed it to you upon his death in 2000. And suppose the property had increased in value to $200,000 at the time of death. You keep it for another 10 years and then sold it for $300,000, the market value of the property in 2010. Your gain would be based on the value of the property in 2000 when your father died, not the purchase price your father paid for the property. So you would pay capital gains tax calculated on the gain of $100,000 not $200,000.

If you sold the property in 2000 (the year you inherited it), you would pay zero capital gains tax because according to the Property Step up rule you have not made any gain on its sale since the tax is based on the property value at the time of death. So as you can see, the step up rule makes it possible to save on thousands of dollars in capital gains tax.

Here’s how the property step up rule works in jointly owned properties. Suppose a husband jointly owns a property with his wife which they bought for $100,000. When the husband passes away, the wife will own the property as the surviving joint owner. Now suppose she sells it for $200,000. The property step up rule will apply to half of the property. So her gain would be calculated based on half of the $200,000 (i.e. as though she sold the property for $100,000) and half of the purchase price. This works out to be a gain of $50,000. And her capital gains tax would be based on this amount. Again, this may amount to a huge savings in taxes.

In a recent press conference, the IRS released important guidelines for foreign account tax compliance. So if you have or are working overseas, you need to comply to US tax rules. The United States practices worldwide taxation meaning your income is taxable no matter where you work, so long as you are an American or US resident alien. And by the way, this income is not limited to your wages; it also includes income from foreign trusts, and foreign bank and securities accounts.

The first thing you must do to be in compliance is file Schedule B, Interest and Ordinary Dividends, with your tax returns. In some cases, additional forms may need to be filed, such as Form 8938, Statement of Specified Foreign Financial Assets, Form TD F 90-22.1, the Treasury Department’s Report of Foreign Bank and Financial Accounts (FBAR).

In the process of tax compliance, you should also remember to take advantage of all the tax benefits you are entitled to as a taxpayer with foreign income. For instance, you may qualify for the foreign earned income exclusion. If you are, you will not have to pay taxes on up to $95,100 of your salary and other foreign earned income you received in 2012. For more information on this benefit, see Forms 2555, Foreign Earned Income, or 2555-EZ, Foreign Earned Income Exclusion.

If you are concerned with having to pay taxes in two different countries, fret no more. You can take a credit or a deduction for taxes paid to a foreign country. This benefit will reduce your taxes such that you do not pay taxes to the US and your host country.

If you need more time to gather your documents from overseas, you can apply for an extension to the deadline to submit your tax returns. Once you apply, you will be granted an extension till June 17, 2013. All you have to do is include a letter explaining your reasons why you need the extension.

To save costs, you can prepare and e-file your federal tax return for free by using IRS Free File. If you earn not more than $57,000 a year, you can use Free File’s brand-name software. If you earn more, use Free File Fillable Forms, an electronic version of IRS paper forms. Get access to these forms from the IRS website, www.irs.gov or call 1-800-829-3676.

For further information when you are abroad, you can approach the US Embassy in your host country. Also, refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.