by James Maguire

We’re all guilty. We don’t enjoy pondering many of the negative aspects of our lives. Having taxes prepared has been compared to going to the dentist more times than I’d care to remember.

Ronald Regan said, “The Taxpayer – that’s someone who works for the federal government but doesn’t have to take the civil service examination”. Most clients I speak to understand the nature of the tax system and are comfortable with paying their fair share. The issues arise over their interpretation of what a fair share is versus the governments’. Here’s my question – when has ignoring an issue made it better?

December for individual tax planning is similar to packing a sea bag for what could be a six month hitch. When I would sail, there were certain things I made sure to take along. They’re all common sense items – foot powder, toothpaste, email contacts, account info, specific clothing, etc… I know it’s a lot easier to get supplies in my hometown vs. Djibouti, Africa. And once she’s underway, you can’t turn around and go to Wal-Mart.

December 31 is the day before your voyage begins for tax purposes. Once we’ve gone into the new year it’s pretty much too late. Luckily, there’s a month left. Let’s look at some common sense tax planning items that could save you thousands before departure.

1. Have you maxed out retirement?

This is such an easy addition to any tax plan. The higher your income, the more beneficial retirement contributions can be. You’re excluding taxable income at your marginal tax rate (MTR). This is the rate that your next dollar will be taxed at. $10,000 contributed to a 401(k) plan by someone in a 25% bracket saves $2,500 in taxes (plus the state, if applicable). The savings can exceed your MTR in some cases.

If you’re getting hit with alternative minimum tax (which can effectively eliminate your employee business deductions), these contributions will reduce alternative minimum taxable income (AMTI). If you’ve lost child tax credits, these contributions may help put them back on your return. It’s all about adjusted gross income (AGI). It’s one of the most important lines on your 1040. If it’s too high, many benefits you may have qualified for will be lost. 401(k) contributions are excluded from gross income and reduce your AGI. Other retirement contributions (IRA’s SEP’s etc…) are deducted in calculating your AGI.

2. Does your employer offer other tax deferred benefits?

Even in the industry, companies are beginning to catch up with the Jones’. Also, if you’re married and your spouse works, perhaps they have benefits you should be taking advantage of. Perhaps you have a FLEX account. Many employers utilize these accounts that give employees the ability to put away tax deferred dollars for various expenses. Take daycare, it’s a necessary expense for some families. Many companies allow contributions from your salary for daycare that are excluded from taxable income. This would reduce your taxable income and that all important AGI as well.

3. Have you maxed out your deductions?

A lot of people don’t understand that you EITHER itemize or take the standard deduction. For example, if you assume your standard deduction is $5,300 and you had itemized deductions totaling $5,299, you effectively lost those itemized deductions. You only take your itemized deductions when they EXCEED the standard. Someone with an itemized deduction of $7,300 has a $2,000 advantage over the standard deduction. So where am I going? It’s the same as asking someone on a date – timing is essential.

Realizing that there is no monetary advantage in reaching the standard deduction, it’s fair to say that only the amounts above the standard deduction count. Here’s an example -

John Taxpayer Deductions Standard or Itemized Deduction utilized

Year – 1 – $4,600 Standard $5,300
Year – 2 – $5,500 Itemized $5,500 ($200) benefit
Year – 3 – $4,900 Standard $5,300

Let’s say that John is new to the Union. From his annual expenses – In year 1 he paid $2,000 towards his initiation fee. In year 3 he paid $1,000 to an attorney for financial work, and waited until he filed his taxes to pay his $2,000 state tax due.

Let’s change the timing. John pays the $2,000 towards his initiation fee, pays the lawyer $1,000 and makes estimated payments to the state totaling $2,000 all in year 2.

John Taxpayer Deductions Standard or Itemized Deduction utilized

Year – 1 – $2,600 Standard $5,300
Year – 2 – $10,500 Itemized $10,500 ($5,200) benefit
Year – 3 – $2,900 Standard $5,300

John had the same expenses. Timing afforded him an additional $5,000 in deductions. (that’s an additional $1,200 in his pocket!) By properly timing, we can maximize itemized deductions and utilize the standard deduction.

This is a baseline example, but it’s the beginning of the planning process.

4. Don’t trigger income if you don’t have to.

What am I talking about? Vacation. If you’ve made it this far without pulling 4 months of vacation pay, hold off until January. That way, you don’t report it until the following tax year.

If you have a high income year “sailed an unusual amount”, hold off on the vacation checks if possible. You’re probably in a higher bracket with the additional income. If you can wait, it will probably be taxed at a lower rate. Regardless, it’s almost always preferable to defer recognizing income until a later date.

5. Have Stock? Got Kids?

This will probably be the last year for this loophole. If you have stock that appreciated, selling it will trigger capital gains rates of 15% in most cases. It will also raise your AGI (which causes all that other stuff we’ve mentioned). If your kids are in college, under 24 and not working (or barely), you could gift stock to them (say $5,000), they could sell it and only pay 5% capital gains. You can gift up to $12,000 to most individuals without triggering a gift tax.
Saving 10% on $5,000 is still $500.

6. Take losses.

Sold an income property and going to recognize $50,000? Unload those loser stocks that have been haunting your portfolio. Capital losses offset capital gains. You can generally only deduct a capital loss of $3,000, meaning if you aren’t offsetting gains, a large loss keeps carrying over from year to year on your taxes until it’s exhausted. Remember, even though capital gains are taxed at 15%, they’re still going to increase your AGI and possibly push you into a higher bracket.

7. Donate

You can still make donations towards your charity of choice. With all the options out there, just make sure that your contribution is going to be tax deductible. Uncle Sam is cracking down on charitable contributions. Make sure your records adequately justify your contribution.

Also, you can donate items (vehicles, clothing, homes, boats) to the charity of your choice. Remember that the rules for vehicle donations have changed. In order to deduct more than $500 on a vehicle donation, the vehicle needs to have sold for that amount at auction and you need a record of this. The type of charity not subject to this restriction is one that gives the vehicle to underprivileged individuals. With these charities, you may be able to deduct the fair market value of the vehicle you donated.

8. Go Green

Energy credits are becoming increasingly popular. Certain insulation systems, exterior windows, exterior doors, and metal roofs are qualified for the credit. Advanced circulating fans and boilers are also included. The credit cannot exceed $500. That’s $500 more than you would have had a few years ago.

If you’re going super green and investing in solar power for heating, you may be eligible for a credit of 30% or up to $2,000. The system cannot be used to heat your pool or hot tub.

Hybrids are on the rise. Aside from it being really cool to drive a car without having to start the engine first they are helping us save the environment. The initial credit on a qualified hybrid is $3,400. As manufacturers’ sales pass 60,000 units the credit is phased out. Make sure your vehicle is eligible and what the credit will be if you’re purchasing a hybrid vehicle.

9. Change Your Status

Having children and getting married will change your tax galaxy. Children under 17 are eligible for a $1,000 child tax credit. Kids also warrant a $3,300 exemption (essentially a deduction) when claimed as dependants. Day care expenses can also qualify for additional credits.

Parents – two things to remember…

First, the year your kids turn 17, you lose the child tax credit. This is sometimes a shocker. Normally there is a “gap” of one year between kids reaching 17 and going to college. Once they’re back in school you can look into the Hope and Lifetime credits or a tuition deduction. Just remember, when they turn 17, there’s a $1,000 change in Uncle Sam’s favor.

Second, when the kids go off to school and take a part time job at Starbucks earning $3,100 make sure they say you’re claiming them as a dependant when they file their taxes. Every year, usually a boyfriend (accounting major), prepares a clients’ daughters’ taxes and says no one can claim her. This gets the daughter an extra $20 in refund money and I have to amend the return as mom and dad would lose $3,000. If a child says no one can claim her and you do, there will most certainly be issues. Uncle Sam is very good at cross checking social security numbers and will figure this one out with haste.

10. Stay Organized

Next year probably isn’t the best time to make sure you have all your logs in order. Take the time to make sure you have all the records you’ve been keeping. If you lost a ships’ schedule, it’s easier to send an email now versus April 12 of next year. Ask, ask, ask… Don’t wait until the years up. Address questions before the year is over. “If I had only known that” is something we try to eliminate at my firm.

If you’re still unsure, feel free to drop me a line. That’s what we’re here for! – JM

Kappsized Clarification?!

By James MacGuire

In my last article Kappsized or Scuttled?!, I forwarded a client question which was, “Do I HAVE to file these amended returns?” regarding recent amended returns sent to former clients of Martin Kapp. I answered “no” with respect to the question. It has come to my attention that this may have been incorrectly interpreted. Treasury Regulations, specifically §1.451-1(a) state If a taxpayer ascertains that an item should have been included in gross income in a prior taxable year, he should, if within the period of limitation, file an amended return and pay any additional tax due. This is not an obligation (have, must), but a recommendation (should). Please be aware that not filing an amended return could result in the assessment of additional interest and penalties. Filing an amended return does not excuse you from interest and penalties either. Interest and penalties generally keep accruing until you pay the amount due.

Here’s the bottom line. You cannot deduct meals while onboard a vessel if meals are provided for you. If you took these deductions on prior returns, it was in error, either knowingly or unknowingly. The IRS is entitled to the difference between the original and amended tax due.

Making matters worse, I’m fearful of additional acts that could occur in the future. Generally speaking, there is a three year statute of limitations for the audit of income tax returns. Fraud is NOT subject to this statute. Fraud can be audited indefinitely. It has often been stated that for fraud to apply, it needs to be on the part of the taxpayer and not solely the preparer. THIS NO LONGER APPEARS TO BE THE CASE. A recently released tax court memorandum http://www.ustaxcourt.gov/InOpHistoric/vallen.TC.WPD.pdf held a taxpayer liable for fraud committed solely by the preparer with respect to the statute of limitations. The IRS was allowed to audit past the statute when only the preparer committed fraud. This suggests that the IRS could audit Mr. Kapp’s former clients for years past the current three year period. How far? From the point that the fraudulent positions were taken is my guess. This also suggests that the IRS could wait until you are collecting social security to audit those returns.

I hope this doesn’t happen. To my knowledge there haven’t been any public statements of position from the Service on this issue. The only sure thing is that time will tell…..

___________

This article was written for gCaptain.com by James MacGuire, MaguireTaxes.com

Kappsized or Scuttled?!

By James MacGuire

 

My phones have been ringing constantly regarding the amended returns and letters sent to former clients of Mr. Martin A Kapp.

Here are the top questions –

• Was Kapp required to prepare these amended returns by the court order? NO

• Did Kapp furnish a copy of these amended returns to anyone other than the taxpayer? I do not know. He was not required to, but I have not been able to receive a definite answer.

• Do I HAVE to file these amended returns? NO

• Has the IRS made any public statements as to whether they will not assess interest and penalties even if I voluntarily file the amended return and pay the amount due? NO they have not

• When can I be audited until? Tax year 2004 April 15^th or the applicable extension deadline (if you filed an extension)of 2008,Tax Year 2005 April 15^th or the applicable extension deadline of 2009, Tax Year 2006 April 15^th or the applicable extension deadline of 2010

Have things been made better by recent events? Was your profession considered a contender for the IRS’ dirty dozen tax schemes 15 years ago? Was your accountant sending out amended returns for you to consider filing because of his issues with the Internal Revenue Service, a United States attorney, and a United States District Court Judge? Do you still believe that there is a better good to be served? That the United States of America has formed a huge conspiracy to prevent mariners from taking deductions that were won by several tax court cases? Even though it seems only one accountant interprets the cases this way? That there is only one accountant out there who is looking out for mariners’ best interests? His own former attorney wrote, “even if we are able to convince the IRS that ‘meals’ were not provided, the mariners did not incur their own meal expenses and thus a deduction at per diem rate would not be appropriate”. I goggled “maritime tax” five minutes ago and the first result was an indictment notice by the Department of Justice. Now we’re looking at thousands of mariners who are affected by this. This suggests that thousands of mariners cheated on their taxes. What statement does this make? How do you think this sits with the IRS?
Reading between the lines –

Citing an unsigned form letter sent from (Martin A. Kapp C.P.A., E.A. An Accounting Corporation.)

“Prior to the Johnson and Westling decisions, no other accountant had ever sought Tax Court guidance:

1. In 85 years on travel deductions for merchant sailors while out to sea
2. On reliance upon IRS Notice 95-50 which stated no receipts are required for incurred travel expenses under $75 per incident”
   

Why is this? How come in 85 years no accountant or attorney stood up for mariners’ rights? Goodness, we’ve only had the Internal Revenue Code for 68 years. Perhaps the reality is that things were better before someone stirred the pot.

My clients know that I am happy to explain ALL of the advantages and pitfalls associated with certain tax positions. To do this, you need to have a basic “big picture” understanding of how this system operates in practice.

Time to put things in perspective –

Here’s your hypothetical. You’re the chief engineer onboard a T-6 tanker that runs jet fuel from Texas City, Texas to Haifa, Israel. While sailing back from Israel through the Med, and upon performing a steering gear check before entering Gibraltar, one of the steering gear motors has failed. You notify the bridge, the Captain calls the company, and the port engineer notifies you that a new motor is on a plane as he speaks. You sit on the hook waiting for the new motor and it arrives on a launch 21 hours later.

The new motor is installed and the vessel has an uneventful trip back to Texas. Upon reaching port, the Officer in Charge of Marine Inspection (OCMI) from the Coast Guard comes on board to inspect the motor installation. Upon inspecting the motor, the OCMI has you execute a change over (going from motor 1 to motor 2) while the steering gear is operating. When the motors are changed over, there is excessive noise and subsequent vibrations indicating a possible problem with the crossover valves. The OCMI tells you he’s going to issue an 835 (deficiency) with a compliance date set forth in the following month.
Sounds pretty simple, right? OCMI notes a deficiency, gives some leeway understanding that the vessel is struggling to meet demand and make money. Now here’s the twist. The Chief Engineer decides to take it upon himself to disagree with the OCMI’s assessment, and inform him that he is incorrect because the CFR’s are vague on this matter. The Chief Engineer informs the OCMI that he will not comply with his instructions and will be appealing this matter to the senior OCMI. The Chief Engineer asserts that when he was in the Coast Guard, their vessels were not required to meet this requirement and therefore this applies to their vessel as well. Phones start ringing after the OCMI informs his commanding officer of the event.
Result-
What would happen in the prior scenario? My first guess would be that when the captain or company was informed of his statements the Chief Engineer would be on a fast train back to his port of engagement. Hopefully he lives in a state with good unemployment rates J This is common sense for us as we have dealt with the Coast Guard. In my experience, the inspectors would always try to work with the company to reach an “equivalent level of safety” and verify that proper steps are being taken. It’s within their power to do more (pull the certificate of inspection for review as an example) but they aren’t out to “get us”. They are in the business of enforcing safety, but they’re going to give you the benefit of the doubt if you work with them.

Collateral Damage -

There are other issues raised. If your company is known to defy Coast Guard instructions, how much leniency are you going to receive on subsequent vessel inspections? Once you’ve made a name for yourself, it’s a difficult bell to un-ring. We’ve all sailed with people who made those “big mistakes” that they have spent the rest of their careers living down. Additionally, the Chief Engineer never thought of what would be involved with addressing the issue and moving on. It was probably a relatively inexpensive repair that could have been taken care of before they left port. THIS SIMPLY SHOULD NOT HAPPEN. Accept the assessment and move on.

The Process –

The IRS isn’t in the business of enforcing safety. Their tasks as an executive agent of the government are to enforce the Internal Revenue Code, process taxpayer information, assess deficiencies, collect back taxes etc… Like the Coast Guard, agents are given discretion in determining types of deficiencies and methods of collection.

The IRS examines a return, and if it believes there is a discrepancy, it will probably audit. Audits can be administered in the form of a correspondence type (they send you a letter and you respond), office type (you have to bring all your receipts into one of their offices), or field audit (they come to your home or place of business). It is within the scope of power of the IRS to bypass audits, and immediately assess (freeze assets, tell you of your right to petition the tax court, etc…). It is not common however. Usually there is a reason to bypass – drug dealer might move all their money to another country, etc… The IRS will try to work with you, and if you don’t like the way things turned out, you can usually appeal. Agents at the appeals level have a lot more leeway in settling issues. They don’t want you going to court. It’s expensive for both parties, and the tax courts (and most all courts for that matter) are flooded with petitions already. Even if you went through an audit, and an appeal, they still have ways to settle disagreements. Virtually every issue is resolved by the time it reaches the appeals level.

How do you determine if you are right or wrong with a position? We have a type of hybrid legal system that applies to the IRS as well. Our tax positions are derived from both statutes and common law precedent. Statutes are laws written by the legislature. The Internal Revenue Code is comprised of statutes. Each of these laws were written by the legislature, passed by the house and the senate, and signed into law by the president (unless they overturned a veto). We are all bound to these statutes at varying degrees, IRS and judges included.

Our common law system on the other hand evolves within the courts. A judge hears a case and makes a ruling based on the applicable law. These decisions set precedents that future cases in other courts may be bound to. Of course different decisions are weighed differently by the courts. A U.S. Supreme Court decision holds ultimate authority as opposed to a District Court decision (trial court level) which will not hold much authority, if any. It’s a chain of command, and once a decision is rendered, it molds and shapes the law in a new way. This is how our legal system evolves. The legislature needs time to put a bill into law, but the courts can rule on a legal issue in a timelier manner.
Sometimes, the legislature delegates the power to determine how a particular statute will be interpreted and enforced to another agency (such as the IRS). With the IRS, the legislature will leave decisions to them that they feel the IRS is better equipped to handle. The IRS is given certain powers and is tasked with executing the legislative intent. The IRS can also take positions on matters that have not been addressed by the courts or the legislature. From all of this comes a multitude of sources of information such as treasury regulations, revenue rulings, IRS publications, IRS rulings etc… In short, all of these facets are taken into consideration when forming a tax position.
Result –
Why am I explaining this? To answer the question I originally imposed, “How come in 85 years no accountant or attorney stood up for mariners’ rights?” THEY KNEW TO LEAVE WELL ENOUGH ALONE. BEFORE THESE COURT DECISIONS, MARINERS HAD A REASONABLE EXPECTATION OF SUCCESS IF THEY WERE AUDITED FOR DEDUCTING MEALS AND INCIDENTAL EXPENSES. What does that mean? It means that the Department of Justice could not have prosecuted Mr. Kapp on the same grounds that they just did. The DOJ used Johnson and Westling (his self proclaimed victories) AGAINST him.
The instant the plaintiffs in Johnson and Westling LOST their cases, the system evolved. The Courts made a statement of law which fine tuned issues unaddressed previously by other courts or the legislature. MARINERS NO LONGER HAD A REASONABLE EXPECTATION OF SUCCESS IF THEY WERE AUDITED FOR DEDUCTING MEALS. The tax court refused meal deductions as the Mariners received free meals while onboard ship. Without this reasonable expectation of success, you cannot take that position. If audited before the decision, an appeals agent would most likely have tried to meet you half way. After the decision, you no longer could contend that you were entitled to the full deduction, only the miniscule incidental portion.
Ex: Before the decisions you’re working on a coastal tanker 200 days annually. You could justify (with proper documentation) a SMIE deduction of $7,600. After the decision, you can justify a SMIE deduction of $600. If the first was audited, at the appeals level, you could probably reach an agreement somewhere in the middle. Isn’t half of $7,600 better than $600? And this all goes back to my initial example: in practice things aren’t as cut and dry as in the books.

Collateral Damage –

Remember the Chief Engineer earlier? How do you think the IRS would act if you refused to mediate things and dragged them into the U.S. Tax Court? Cost them time and money. And to keep doing it, cases such as Johnson, Westling, Jewett, Livermore, (all losses). The courts firmly stating that mariners who receive meals onboard ship are NOT entitled to the Meals portion of the SMIE. And then the preparer still takes these meal deductions on clients’ returns. And the CLIENTS did not know the preparer was doing this. What might you do as the IRS? Gee, I don’t know. Perhaps get the Department of Justice to indict the preparer? Go figure…
Conclusions –

My clients and friends say the same thing over and over “I just don’t want to pay more than I have to, AND I don’t want to have any problems with the IRS”. So now what? You pick up and move on. Don’t forget though. There will always be scams and cons that seem too good to be true. Taxes are no exception. If you would like an idea how deep the rabbit hole goes, go to www.pbs.org/wgbh/pages/frontline/shows/tax/view/ and watch “Tax Me If You Can”. Bogus tax scams are everywhere, even in the biggest, most respected accounting firms in the country.

So how do you stay safe? Your first indication of an issue is when one professional takes a position and asserts that they are the only person who knows the secret way to execute it properly. It’s all public information. I have given the “sailor tax” dilemma as a research problem to students in some of my entry level tax classes at Northeastern University. They all came up with the same conclusion, “mariners who receive meals onboard ship may deduct ONLY the incidental expense portion of the SMIE as per the decisions rendered in Johnson and Westling”.
There’s nothing wrong with a firm who specializes in your particular trade (mine does). I encourage clients to question. Ask a second opinion. SMIE deductions are great, but let’s not forget that it is only one part of big picture planning. There are plenty of legal sheltering venues available at your disposal. Form a constructive tax plan that meets your current and future goals.

___________

This article was written for gCaptain.com by James MacGuire, MaguireTaxes.com

U.S. v. Kapp – What Happened?

By James MacGuire

As many are aware at this point, Mr. Kapp was the defendant in an action brought forth by the United States Department of Justice. This action sought a court order for Mr. Kapp to cease in preparing, or assisting in the preparation of U.S. Income Tax returns which assert that mariners are entitled to tax deductions for meals that are provided without cost.This action also sought to require Mr. Kapp to furnish (essentially) a copy of the portion of his client list that contains mariners who took these illegal deductions to the U.S. Attorney.

In these types of clear cut cases, the Department of Justice (DOJ) can request a summary judgment from the Court. Essentially, this is telling the judge that the evidence is so overwhelming that a trial is not necessary. Judge Schiavelli granted summary judgment in this case and found in favor of the government.

I have heard through the pipe that Mr. Kapp is planning on appealing this decision. Neither myself nor my colleages have noted any appeals of this matter on file with the Court.

Who is affected by this decision?

Mr. Kapp and his agent, servants, employees, attorneys, and all persons in active concert or participation with him who receive actual notice of this order. We are in the process of determining whether this order extends to firms that were deemed “approved” by Mr. Kapp.

Speaking from personal experience, I was contacted by Mr. Kapp’s attorneys in 2004, and subsequently 2005 regarding a type of computer program “patent” that was issued to Mr. Kapp in relation to the preparation of mariners’ income tax returns. It was demanded that I furnish the intellectual property that I use to prepare income tax returns to his attorneys so that they could evaluate it. As an alternative, Mr. Kapp’s attorneys (and subsequently Mr. Kapp himself) offered to sell me licensing rights to his patent and advertise my firm as an “approved” preparer. I was unwilling and uninterested. I use congress and the Internal Revenue Code as my primary source for the preparation of all income tax returns.

It could stand to reason under the order that the people who did pay to be licensed and approved by Mr. Kapp could be notified of the order, and subsequently be held to the ruling. Mr. Kapp however is the only individual required to furnish client information as previously mentioned.

Am I affected by this decision?

This is a tricky question. What the DOJ does with the list of clients remains to be seen. Simply as a mariner, you are not directly bound to this court order. Could the DOJ forward this list to the IRS? Yes.

What will the IRS do with this list if they get it?

I am unable to comment on what they will do, but I can on what they could. The service can send a notice of deficiency for tax years that took illegal deductions. The service could assess an additional tax due, plus interest, plus penalties. It remains to be seen what the Service will do. The Service is in the business of assessing and collecting taxes. If you had a list of names of people who took illegal tax deductions in which you could recover millions, what would you do?

I was Mr. Kapp’s client for 10 years, can the IRS assess for all of those years?

In most circumstances, no. In most cases, the IRS can audit the prior three years returns (ex. Until April 15, 2008, the Service can assess tax years 2004, 2005, 2006. If you filed an extension in 2004, it would be the extension due date rather than April 15).

Do I have to amend my taxes?

You fulfilled your legal obligation in filing a timely income tax return. However, interest and penalties are assessed from the time the additional tax was due.

How many of Mr. Kapp’s clients does this apply to?

I do not know. Mr. Kapp has been ordered to furnish this information to the DOJ. I have only examined returns of my clients who were former clients of Mr. Kapp. Of those returns I examined, all of them took the illegal meal deductions outlined in this order.

How do I tell if I took these deductions?

Look at your return, specifically “Schedule A Line 20 – Supplemental Sailor Travel Schedule” which is usually attached after your state return “if applicable”. You need to crosscheck the rates listed on various ports of call with the published rates https://secureapp2.hqda.pentagon.mil/perdiem/perdiemrates.html . This website is pretty user friendly. If the rates indicated include the meal rate, you may have taken the deduction illegally.

My return is taking the meal deductions, now what?

It gets a little tricky. As stated, you aren’t required to amend. Additionally, these deductions quite often don’t produce a tax benefit. Consider the Alternative Minimum Tax (Alt Min). As income increases, taxpayers quite often don’t fully benefit from these employee business deductions. A $1,000 business deduction may produce a $250 reduction in tax. However Alt Min applies a tax that negates the $250 benefit. You may well want to have someone experienced look your return over if you want to know the tax effect. If you are in such an Alt Min situation, the Service would not be able to recover additional taxes, interest, and penalties upon audit.

Let’s say I receive a notice, and I owe money to the IRS. Who’s going to pay?

You are responsible for your income taxes. Penalties can sometimes be lifted because you relied upon the advice of a professional. Interest is pretty non-negotiable.

You would owe the IRS personally. However, you may have a legal action against the preparer (even if you aren’t audited).

Can you look over my returns, I’m just curious where I stand with respect to the ruling?

I’ve thought this one over. Current clients have or can have prior returns examined at no charge. I’ve already received many phone calls from non-clients asking to have the returns examined. The flood of returns I could possibly receive could halt business for several weeks. I don’t want you to have to pay to have them looked over. It’s enough that you have spent thousands in preparation fees. So, here’s my compromise. Current clients, if they want an opinion on their returns can have this done free of charge. All others, I will provide an opinion on your returns free of charge if you prepay for 2007 preparation. I think this is a fair trade off. Basically, by becoming a client, the examination is free of charge. My rates are competitive (pricing usually ranges from $225-$450) and the clients’ best interests come first.

Please feel free to e-mail me with any questions jkm@maguiretaxes.com and visit my website. I intend to provide additional tax planning guidelines in the near future. It’s my hope to work with fellow mariners to implement proper, legal, tax planning and credit sheltering.