IRS opens investigation into Google tax practices | ZDNet

IRS opens investigation into Google tax practices

By Matt Weinberger | October 17, 2011, 2:47pm

PDTSummary:

Google may have dodged $3.1 billion in federal income taxes over 3 years by funneling profits through subsidiaries in Ireland, the Netherlands and Bermuda.The United States Internal Revenue Service IRS has opened an investigation into Google’s practice of saving about $1 billion a year in federal income tax by funneling profits from its US and European business units into countries with lower tax rates, Bloomberg is reporting.The techniques Google used, referred to as the “Double Irish” and the “Dutch Sandwich,” involved moving profts through Ireland, the Netherlands and Bermuda in order to get the most favorable tax rates possible. In fact, in the second quarter of 2011, Google paid an effective tax rate of 18.8 percent, about half of the average combined US and state statutory rate of 39.2 percent.A large part of the issue, according to Bloomberg’s unnamed source, is Google’s valuation of software and intellectual property that was licensed abroad. In other words, Google may be attributing acquisitions like the $1.65 billion YouTube purchase to its foreign subsidiaries and paying less in taxes for having done so. It’s estimated that Google may have saved $3.1 billion over three years by following this method.We’re short on official details: the IRS hasn’t made the audit official and doesn’t comment on individual taxpayers regardless, and the French tax authorities have launched their own investigation but are following that same rule of silence.The Guardian, which has put together its own timeline of Google’s international money trail, got the following statement from a company spokesperson:“We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate. We make a very substantial contribution to local and national taxation and provide employment for over a thousand people in the UK. We also generate significant revenues for other companies, and last year gave more than $6bn to our AdSense publisher partners, including newspapers and broadcasters across the world.”Or in simpler terms, Google is saying that you can argue all you want about the ethics of this kind of tax strategy, what it’s doing is perfectly legal and ultimately beneficial. And if the brass at the IRS doesn’t like it, it’s up to them to prove Google wrong. But what’s one more legal battlefront to Google?

via IRS opens investigation into Google tax practices | ZDNet.

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10 Tips to Avoid Nanny Tax Problems | NannyPro.com

10 Tips to Avoid Nanny Tax Problems

2011 DECEMBER 7

by Ken

Unless you’re a CPA, chances are you don’t relish the prospect of additional work at tax time. So you’ll want to take some steps to avoid nanny tax problems before they arise. We’ve put together a list of ten tips you can use to avoid problems with you nanny’s taxes.

Stay Above the Table – For starters, forget about any benefits you may think you would both gain from cash payments, and skirting the tax issue entirely. The risk is hardly worth the savings, and the penalties are far greater.

Taxpayer  Benefits – If your nanny prefers a particular take-home pay, or net salary, you will want to determine which taxes that amount will exclude. In other words, decide up front if the net salary you agree to will be before or after you pay her Social Security and Medicare, etc.

Know the Laws – You don’t need to be a lawyer, but it’s wise to understand the tax laws with regard to your obligations as an employer. In most cases if you hire a nanny, you are going to be responsible for collecting her Social Security and Medicare taxes. That is, deducting them from her paycheck each pay period, and issuing her a W-2 form for filing her income taxes.

Discuss Taxes With Nanny – Make sure that both you and your nanny are on the same page regarding what taxes need to be deducted and why, and estimate the amounts in order to avoid surprises later.

Know Her Legal Status – You should already have determined whether she is legally authorized to work during the hiring process. Only citizens, permanent residents or non-immigrants who possess a work visa may be legally hired for work. In any case, you will still be liable for her taxes. The difference is that she would have to file a form W-7, request for an Individual Taxpayer Identification Number (ITIN).

Know What Forms to File – Aside from the aforementioned W-2, you must also file an SS-4 application for an Employee Identification Number (EIN); and, if you pay her cash in excess of $1,600, a Schedule H form.

Know Your Deductions – Be certain about which expenses you incur by having a live-in nanny are tax-deductible. For instance, food and lodging that are provided to a live-in nanny at the convenience of the employer, are eligible for tax-exemption.

Working Agreement – For many reasons it’s strongly advised that you write up a working agreement between you and your nanny at the time of hire. One of the benefits of doing so is that it will include the details of her salary, overtime and other factors that will affect her income, as well as what taxes each party will be responsible for paying.

Disclosure – Remember that you are required to disclose on your own personal income tax return the amount of wages you paid your nanny.

Keep Accurate Records – maintain a log of your nanny’s work schedule. Document the hours she works, including overtime, overnight work and any duties outside her normal responsibilities as well as whatever compensation you paid her for it.

via 10 Tips to Avoid Nanny Tax Problems | NannyPro.com.

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State Income Tax Avoided By 68 Large Profitable U.S. Companies In Recent Years: Study

State Income Tax Avoided By 68 Large Profitable U.S. Companies In Recent Years: Study

The Huffington Post   Bonnie Kavoussi

First Posted: 12/ 7/11 12:16 PM ET Updated: 12/ 7/11 12:16 PM ET

Large U.S. corporations are not only figuring out ways to avoid federal income taxes, but taxes at the state level too.

Of the country’s most consistently profitable large companies, a full fourth of them — 68 companies in total — paid no state income tax at least once over the past three years, according to a study released on Wednesday by the left-leaning Citizens for Tax Justice. Moreover, twenty large consistently profitable U.S. companies paid an average state income tax of zero or less between 2008 and 2010, according to the study.

News of the tax-dodging comes at a time when states are imposing layoffs and slashing services to combat widening budget deficits. Overall, state-level revenue from corporate taxes has been plummeting for the past 20 years as tax-avoidance schemes have become more sophisticated, according to an interview with Gardner by Bloomberg News. Today, only six states do not levy income taxes, according to Bloomberg News.

“They’re so busy avoiding taxes, it’s no wonder they’re not creating any new jobs,” Matthew Gardner, executive director of the Institute on Taxation and Economic Policy and a co-author of the study, said in a statement. He added that large corporations “devote their money and legal firepower to coming up with tax avoidance schemes.”

Companies that avoided paying state income taxes at least once in the past three years include Boeing, Goldman Sachs, Wells Fargo, General Electric, Yahoo, J.C. Penney, Hewlett-Packard, American Express, Merck, and Verizon, according to the study. And on average, the 265 companies surveyed paid taxes at roughly half of the official rate, costing states $42.7 billion in revenue over the past three years, the study found.

Many large U.S. corporations also have shifted their profits overseas in order to avoid federal taxes.

A study by Citizens for Tax Justice released in June found that 12 large U.S. corporations — including General Electric and DuPont — paid far less in federal corporate taxes than the official rate. A separate report by the Citizens for Tax Justice found thirty large U.S.-based multinational companies paid negative federal income taxes over the past three years, with Wells Fargo taking home the most in tax subsidies.

via State Income Tax Avoided By 68 Large Profitable U.S. Companies In Recent Years: Study.

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The Examination (Audit) Process

The Examination (Audit) Process

FS-2006-10, January 2006

The IRS examines (audits) tax returns to verify that the tax reported is correct.

Selecting a return for examination does not always suggest that the taxpayer has either made an error or been dishonest. In fact, some examinations result in a refund to the taxpayer or acceptance of the return without change.

The overwhelming majority of taxpayers files returns and make payments timely and accurately. Taxpayers have a right to expect fair and efficient tax administration from the IRS, including verification that taxes are correctly reported and paid with enforcement actions against those who fail to comply voluntarily.

Taxpayer Rights

The IRS trains its employees to explain and protect taxpayers’ rights throughout their contacts with taxpayers. These rights include:

A right to professional and courteous treatment by IRS employees.

A right to privacy and confidentiality about tax matters.

A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.

A right to representation, by oneself or an authorized representative.

A right to appeal disagreements, both within the IRS and before the courts.

How Returns Are Selected for Examination

The IRS selects returns using a variety of methods, including:

Potential participants in abusive tax avoidance transactions — Some returns are selected based on information obtained by the IRS through efforts to identify promoters and participants of abusive tax avoidance transactions. Examples include information received from “John Doe” summonses issued to credit card companies and businesses and participant lists from promoters ordered by the courts to be turned over to the IRS.

Computer Scoring — Some returns are selected for examination on the basis of computer scoring.  Computer programs give each return numeric “scores”. The Discriminant Function System (DIF) score rates the potential for change, based on past IRS experience with similar returns. The Unreported Income DIF (UIDIF) score rates the return for the potential of unreported income. IRS personnel screen the highest-scoring returns, selecting some for audit and identifying the items on these returns that are most likely to need review.

Large Corporations — The IRS examines many large corporate returns annually.

Information Matching — Some returns are examined because payer reports, such as Forms W-2 from employers or Form 1099 interest statements from banks, do not match the income reported on the tax return.

Related Examinations — Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for examination.

Other — Area offices may identify returns for examination in connection with local compliance projects. These projects require higher level management approval and deal with areas such as local compliance initiatives, return preparers or specific market segments.

Examination Methods

An examination may be conducted by mail or through an in-person interview and review of the taxpayer’s records. The interview may be at an IRS office (office audit) or at the taxpayer’s home, place of business, or accountant’s office (field audit). Taxpayers may make audio recordings of interviews, provided they give the IRS advance notice. If the time, place, or method that the IRS schedules is not convenient, the taxpayer may request a change, including a change to another IRS office if the taxpayer has moved or business records are there.

The audit notification letter tells which records will be needed. Taxpayers may act on their own behalf or have someone represent or accompany them. If the taxpayer is not present, the representative must have proper written authorization. The auditor will explain the reason for any proposed changes. Most taxpayers agree to the changes and the audits end at that level.

Appeal Rights

Appeal Rights are explained by the examiner at the beginning of each audit. Taxpayers who do not agree with the proposed changes may appeal by having a supervisory conference with the examiner’s manager or appeal their case administratively within the IRS, to the U.S. Tax Court, U.S. Claims Court or the local U.S. District Court. If there is no agreement at the closing conference with the examiner or the examiner’s manager, the taxpayer has 30 days to consider the proposed adjustments and their next course of action. If the taxpayer does not respond within 30 days, the IRS issues a statutory notice of deficiency, which gives the taxpayer 90 days to file a petition to the Tax Court. The Claims Court and District Court generally do not hear tax cases until after the tax is paid and administrative refund claims have been denied by the IRS. The tax does not have to be paid to appeal within the IRS or to the Tax Court. A case may be further appealed to the U.S. Court of Appeals or to the Supreme Court, if those courts accept the case.

via The Examination (Audit) Process.

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IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers; Recommends e-file, Direct Deposit to Avoid Future Delivery Problems

IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers; Recommends e-file, Direct Deposit to Avoid Future Delivery Problems

IR-2011-113, Nov. 30, 2011

WASHINGTON — In an annual reminder to taxpayers, the Internal Revenue Service announced today that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors.

Undelivered refund checks average $1,547 this year.

Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “ Where’s My Refund?” tool on IRS.gov. The tool will provide the status of their refund and, in some cases, instructions on how to resolve delivery problems.

Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

While only a small percentage of checks mailed out by the IRS are returned as undelivered, taxpayers can put an end to lost, stolen or undelivered checks by choosing direct deposit when they file either paper or electronic returns. Last year, more than 78.4 million taxpayers chose to receive their refund through direct deposit. Taxpayers can receive refunds directly into their bank account, split a tax refund into two or three financial accounts or even buy a savings bond.

The IRS also recommends that taxpayers file their tax returns electronically, because e-file eliminates the risk of lost paper returns. E-file also reduces errors on tax returns and speeds up refunds. Nearly 8 out of 10 taxpayers chose e-file last year. E-file combined with direct deposit is the best option for taxpayers to avoid refund problems; it’s easy, fast and safe.

The public should be aware that the IRS does not contact taxpayers by e-mail to alert them of pending refunds and does not ask for personal or financial information through email.  Such messages are common phishing scams.  The agency urges taxpayers receiving such messages not to release any personal information, reply, open any attachments or click on any links to avoid malicious code that can infect their computers.  The best way for an individual to verify if she or he has a pending refund is going directly to IRS.gov and using the “Where’s My Refund?” tool.

via IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers; Recommends e-file, Direct Deposit to Avoid Future Delivery Problems.

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Interest Rates Remain the Same for the First Quarter of 2012

Interest Rates Remain the Same for the First Quarter of 2012 IR-2011-112,

Nov. 28, 2011WASHINGTON ― The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2012. The rates will be: three 3 percent for overpayments [two 2 percent in the case of a corporation];three 3 percent for underpayments;five 5 percent for large corporate underpayments; andone-half 0.5 percent for the portion of a corporate overpayment exceeding $10,000.The 3 percent rate also applies to estimated tax underpayments for the first calendar quarter in 2012 and for the first 15 days in April 2012.Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half 0.5 of a percentage point. Further, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year.The interest rates announced today are computed from the federal short-term rate during October 2011 to take effect Nov. 1, 2011, based on daily compounding.Revenue Ruling 2011-32, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2011-52, dated Dec. 27, 2011.

via Interest Rates Remain the Same for the First Quarter of 2012.

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Commonwealth of Virginia Department of Taxation

For Immediate Release

Date: 11/09/2011

Contact: Joel Davison, Public Relations Manager, (804) 786-3507

Tax Department’s New Website Gives Taxpayers What They’ve Asked For

RICHMOND – The Virginia Department of Taxation introduced a brand new website this week designed to give taxpayers a quicker, more intuitive path to the information they need.

Along with a fresh, uncluttered home page and a new look and feel, the new website features a menu-based design that guides users to what they need with a minimum of mouse clicks. The forms have been organized in a more navigable layout with additional information about each one. The search function is much improved, and important announcements and other information are now featured in a large slideshow in the center of the home page.

The major website overhaul was largely in response to comments and suggestions received from taxpayers in surveys on the old site, along with feedback from focus groups and Department employees. The new site better aligns with the needs and expectations of the agency’s stakeholders, who include individuals, businesses, tax professionals and localities.

“Our customers were a little frustrated and I didn’t blame them,” said Tax Commissioner Craig M. Burns. “The site needed upgrading anyway and the taxpayers who took the time to respond to surveys helped us define what the new site should look like. We now have a full-time webmaster to keep the new site current and up to the standards our customers demand.”

More taxpayers than ever, both individuals and businesses, are doing their tax-related transactions online through the Department’s website. Last year the site logged over 9 million electronic transactions, including returns filed, payments made and businesses registered. This was an increase of nearly 10 percent over the previous year.

All of the content on the new site has been reviewed and, in many cases, rewritten to make it easier to understand. The new site is also compatible with most browsers and electronic devices, such as mobile phones and tablets. The address of the new site is the same as the old site: www.tax.virginia.gov.

The Department will continue to update and add new content and features to the site with an eye toward constantly improving the experience for its customers. It will also continue paying close attention to their feedback.

 

via Commonwealth of Virginia Department of Taxation.

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Tax Credits — Commonwealth of Virginia Department of Taxation

Long-Term Care Insurance Credit

Credit for Purchase of Long-Term Care Insurance

Individuals may claim a credit equal to 15% of the amount paid by the individual during the taxable year in long-term care insurance premiums for long-term care insurance coverage for himself, but the total credits for any policy may not exceed 15% of the amount of premiums paid for the first 12 months of coverage. Any unused credit may be carried forward for the next five taxable years. In order to determine the amount that may be used as a basis for this credit, the individual must subtract any amount actually included as a deduction on Schedule A of the individual’s federal income tax return. In addition, the individual may not claim this credit to the extent the premiums have been used to claim the Virginia deduction for long-term health care premiums. It may be possible, however, for an individual to claim this credit and the Virginia deduction in the same year.

Example

This credit is based on the amount paid during the taxable year, even if the months covered by the policy extend into the following taxable year. For example, if an individual purchased a policy on July 1 and paid for 12 months, he would base his credit on the entire payment, even though only six months of the coverage period would fall in the taxable year in which he claimed the credit. If however, the individual made payments on a monthly basis, he would claim a credit in the current taxable year for 6 months of premiums and a credit in the second year for the next six months of premiums in order to reach the allowed total of 12 months. In that case, the individual could also claim a deduction in the second year for the 6 months of premiums that were not used as a basis for the credit.

via Tax Credits — Commonwealth of Virginia Department of Taxation.

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Hiring Household Employees

Hiring Household Employees:

You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.Household work is work done in or around your home by the following people.

Babysitters

Caretakers

Cleaning people

Domestic workers

Drivers

Health aides

Housekeepers

MaidsNannies

Private nurses

Yard workers

Workers who are not your employees

If only the worker can control how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.A worker who performs child care services for you in his or her home generally is not your employee.If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example

You made an agreement with John Peters to care for your lawn. John runs a lawn care business and offers his services to the general public. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither John nor his helpers are your household employees.

via Hiring Household Employees.

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IRS Begins PTIN Renewals for 2012 Filing Season

IRS Begins PTIN Renewals for 2012 Filing Season IR-2011-105, Oct. 20, 2011WASHINGTON:

The Internal Revenue Service today announced that the nation’s 738,000 tax return preparers who have Preparer Tax Identification Numbers PTINs can now renew their PTINs for the 2012 filing season.Preparers are required to renew their PTINs on an annual basis and need to do so before the next year begins. For example, a preparer’s PTIN for 2012 must be renewed by Dec. 31, 2011.Anyone who for compensation prepares, or helps prepare, all or substantially all of tax returns or claims for refunds must have a PTIN. Paid return preparers must have valid, current PTINs to prepare tax returns in 2012.The PTIN renewal fee for 2012 is $63. The initial application fee for a PTIN remains at $64.25. Return preparers who obtained their PTINs by creating an online account should renew their PTINs at www.irs.gov/ptin.Preparers who used paper applications to receive their 2011 PTINs will receive an activation code in the mail from the IRS which they can use to create an online account and convert to an electronic renewal for 2012. Individuals can also renew using a paper Form W-12, IRS Paid Preparer Tax Identification Number Application, but renewing electronically avoids a four to six week wait for processing the renewal request.Return preparers who are applying for a PTIN for the first time must go through a strict authentication procedure and should follow directions carefully. Return preparers who prepared, or helped prepare, returns for compensation in 2011 without PTINs must obtain 2011 PTINs and then renew their PTINs for 2012, paying fees for each year if they intend to practice next year. Penalties may apply for paid tax return preparers who prepared, or helped prepare returns in 2011 without valid PTINs.Some changes to the PTIN application and renewal process include:Return preparers must self-identify if they are supervised preparers or non-1040 preparers.Supervised preparers will need to provide a supervisor’s PTIN when applying for or renewing their PTINs.Credentialed preparers Certified Public Accountants, attorneys and Enrolled Agents must provide the expiration date for their licenses when they apply for or renew their PTINs.Supervised preparers are individuals who don’t sign the returns they prepare or help prepare; work at a firm at least 80 percent owned by a Certified Public Accountant, an attorney or an Enrolled Agent; and prepare returns that are signed by a supervisor who is a CPA, attorney or Enrolled Agent.Non-1040 preparers are people who do not prepare any individual income tax returns for compensation. For this purpose, preparers of Form 1040-PR and Form 1040-SS are considered non-1040 preparers.Supervised preparers and non-1040 preparers must identify themselves when they apply for or renew their PTINs to be exempted from testing and continuing education requirements; Certified Public Accountants, attorneys and Enrolled Agents are also exempt from testing and continuing education requirements.Taxpayers who use a paid return preparer are urged to choose a return preparer with a valid PTIN. Return preparers should also sign the returns they prepare for taxpayers and enter their PTINs on the returns.  For more information on choosing a return preparer, go to Tips for Choosing a Tax Preparer.For more information on the PTIN requirements or on becoming a Registered Tax Return Preparer, go to www.irs.gov/taxpros.

via IRS Begins PTIN Renewals for 2012 Filing Season.

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