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Watch out for Tax Scams

The IRS cautions taxpayers in Connecticut to watch out for Tax Scams. “During tax season we see an increase in phishing scams using the IRS name and logo,” said Besunder.  “The IRS never initiates contact with taxpayer about their accounts through e-mail, text messages or other social media. Anyone who receives an unsolicited email claiming to come from the IRS should avoid opening any attachments or clicking on any links. People can report suspicious e-mails they receive which claim to come from the IRS to a mailbox set up for this purpose, This e-mail address is being protected from spambots. You need JavaScript enabled to view it .“

If you cannot file your return by the April 17 deadline, make sure to get a six-month automatic filing extension (until October 15) by completing and filing Form 4868, or by e-filing Form 4868 using a personal computer, via a tax professional or you can use either IRS Free File option to file an extension.  Make sure to include a payment for the amount of estimated taxes owed as it is a filing extension not an extension to pay.

Connecticut Supreme Court Upholds Sales Tax on Scholastic Books

Hartford – Overturning the trial court’s ruling and upholding the state’s Department of Revenue Services (DRS), the Connecticut Supreme Court today decided that Missouri-based Scholastic Book Club Inc. has sufficient presence in the state to meet the requirements for collecting and remitting sales tax in Connecticut. The decision marks an important step in holding out-of-state retailers to the same taxation rules as their Connecticut counterparts.

The court’s decision is based on the fact that some 14,000 Connecticut classroom teachers acted as the company’s representatives soliciting, processing, and delivering book sales to students. While not compensated for their services, teachers received book catalogs from the company, distributed the catalogs to students, collected orders and payment from students, forwarded the orders and payment to the out-of-state company, received shipment and distributed the books to the students. New teachers are also asked to contact the company by telephone in order to learn this sales process.

Commenting on the decision, DRS Commissioner Kevin Sullivan said, “Justice Zarella’s careful and thoughtful opinion on behalf of the unanimous court makes clear that the activities of teachers in Connecticut on behalf of this out-of-state bookseller objectively fall well within the scope of acting as sales representatives for purposes of doing taxable business in our state. The decision is also a masterful review of the state of constitutional law under the federal Commerce Clause and the practical circumstances in this case establish sufficient contacts or nexus within Connecticut to uphold taxability. As such, the Connecticut Supreme Court’s decision offers a more level playing field for commercial competition and a common sense understanding that the framers never intended to bar state taxation that is no more or less burdensome on out-of-state sellers doing business here than on Connecticut-based businesses.”

I'm Being Audited - What Should I Do?

I never recommend that a client call the IRS themselves nor attend the audit. They can unwittingly reveal information that is not required and potentially cause more problems. A tax professional licensed to practice before the IRS can deal with the IRS and attend the audit for you.

Even with professional representation, you still must prepare for an audit by gathering information and taking it to your tax representative. As anyone who's gone through an audit can attest, the three top tips for preparing for the experience are good records, good records and more good records. In other words, adequate record keeping year round, not just on April 15, is essential in case of an audit.

More specifically, how should you, a taxpayer, prepare for an audit if it happens? These tips will point you in the right direction.

1. Retain the services of a professional. Enrolled agents, tax attorneys or CPAs may represent you at an audit. They are trained in tax law and can represent you much better than you can represent yourself. To a lay person, reading the tax code is like reading a foreign language. Enrolled agents have been around since the post-Civil War days and go through relatively grueling training in this very area.

2. Keep good records. It's not enough to just pull your records together year by year on April 15. Get in the habit of keeping good primary and secondary tax records year-round and using a personal filing system to keep them with the appropriate tax return. Then, if you're tapped for an audit, you're prepared. It alleviates so much stress when you can put your finger on a document when you need it. Primary records are bills and receipts. Secondary records may be spreadsheets, mileage logs or other summary information you've kept. Warren recommends that you keep all tax returns, but that you keep your backup information for the current year plus three past years.

3. Gather information. What if you haven't kept good records for the tax year in question? Go back to that year and try to recreate records as accurately as possible. If you've claimed expenses in certain areas, like medical expenses, it's possible that your doctor or hospital will still have those medical records on file. Don't hesitate to call them. You can also call your place of employment and ask for duplicate W-2s or 1099 forms; or check with your mortgage company for interest expenses for that year; or with your county for personal property taxes paid. Put everything in a neat format, summarized but with supporting documentation, to take to the audit with you.

4. Do your homework. Research what the audit process is likely to entail. "Check with people in your industry or workplace to see if any of them have gone through the process.  Find out what it was like so you can prepare yourself. You might be able to avoid some of the stresses they endured.  Knowing what questions the IRS examiner might ask can also help lower the fear factor. The agency prepares audit guides for its examiners, with many of them posted on the IRS website. Check them out so you can go into the audit knowing, at least in part, what the auditor is going to ask.

5. Behave professionally. Generally, the IRS will set the time and place for an audit. Comply with their wishes if possible. If you or your tax representative cannot attend the audit at the time they set, negotiate another time with them. Remember that taxpayer presentation is critical. Be polite, prompt and professional, it will get you so much further.  Don't show up at the audit wearing jeans and with your receipts in a shoe box. Be on time, be organized and take the audit seriously.

6. Realize that the IRS auditor is not your friend. You can be sure of two things with an IRS auditor. First, he/she pays taxes. Second, there is an implicit assumption that you may have done something wrong, perhaps unwittingly, or you wouldn't be there in the first place. Be forthcoming with information, but only answer questions that are directed to you. Never volunteer extra information. Don't be surly or impatient, but also, don't be fearful. Be confident that your tax return was correct and that you have records to prove it.

The good news is that all audits do not result in the taxpayer owing extra taxes. There are many audits that prove the IRS actually owes you instead of the other way around.

You can help put yourself in that latter category by taking the steps outlined earlier. And if you have a complex return or if you're unsure about calculating deductions, seriously consider hiring a tax professional to prepare your return. It may pay off in the long run. The best defense, with regard to an IRS audit, is always a good offense.