Certified Public Accountants
Tacoma Mall Office Building
4301 South Pine Street, Suite #241
Tacoma, Washington 98409-7205
David S. Nelson, CPA
PHONE: 253-752-9522
FAX: 253-276-0144
Edition 0504-1
May, 2004

A Message From Nelson & Company, P.S., CPAs

Q: If I file an extension, will I get audited or penalized by the IRS?
A: The answer is No and No. Tax returns are selected for audit based on the ratio of income to deductions. Filing an extension has nothing to do with a return being selected for audit.

The IRS will not penalize you if you are late and due a refund. There is an economic penalty by not having use of your money.

Most high-income taxpayers with complex returns file extensions. Currently the IRS estimates that 8.5 million taxpayers have requested extensions for their 2003 return.
Clean Fuel Tax Deduction for Hybrid Vehicles

If you are the original owner of a qualifying hybrid vehicle, one that combines an electric motor with a gasoline-powered engine, you may be eligible to claim a one-time tax deduction on your federal income tax return, says the IRS.

Certain Toyota and Honda models qualify for the deduction:
  • Toyota Primus - Model years 2001-2004
  • Honda Insight - Model years 2000-2004

The deduction amount is $2,000 for cars first put into use before 2004. Under current law, the clean-burning fuel deduction will be reduced by $500 each year, starting in 2004, until it expires. No deduction will be allowed for vehicles placed in service after December 31, 2006.

The deduction was set after Toyota and Honda documented for the IRS the incremental costs of buying their hybrid vehicles. The deduction must be taken for the year in which the vehicle was first used. For a car first used before 2003 but for which the deduction was not yet taken, a taxpayer may claim the deduction on an amended tax return using Form 1040X.

This benefit is taken as an adjustment to income. You do not have to itemize deductions on your tax return to claim it, but you do have to use Form 1040.

Certified Public Accountants
MAY, 2004

Inside This Issue....


Elton A. Wilborn, a 56-year-old who formerly lived in Bellevue, WA., was sentenced to one year and a day in prison for filing false income tax returns.

On April 15, 2000, Wilborn filed his income tax return jointly with his wife for the calendar year 1999. The return understated his and his wife's income and exaggerated itemized deductions by substantial amounts, court records show. In fact, Wilborn understated their total income by about $384,000. Additionally, Wilborn admitted that he filed false returns for the years 1997, 1998 and 2000.

For those four tax years, Wilborn understated his and his wife's income by $388,658 and exaggerated deductions during that time by approximately $423,239.

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IRS Times & Inquirer
253-752-9522 | 1-800-669-0137

IRS Agent Pleads Guilty to Evasion

The Internal Revenue Service doesn't offer special favors to its own agents. Ask Sandra Jean Valencia.

The former revenue officer and supervisory tax examiner with the Internal Revenue Service pleaded guilty to fraud and tax evasion after the tax-collecting agency discovered that she had diverted more than $500,000 from her grandmother's estate.

Valencia, of Goodsprings, NV., had been appointed by her grandmother to be the trustee of the estate. Using her power of attorney, Valencia transferred a vast majority of her grandmother's assets into her name and subsequently did not claim the money as income.

From 1997 to 2000, Valencia emptied her grandmother's bank account, collected $41,000 of life insurance proceeds and sold 41 acres of farmland. The former revenue officer admitted in court that she willfully evaded taxes during those years. Valencia faces up to five years in prison and a $250,000 fine for each of the 15 counts.

CA Woman Gets 46 Months for Tax Scheme

Elvia Ruiz, a 37-year-old woman from Terra Bella, CA., used “sophisticated means” to defraud the Internal Revenue Service, said U.S. District Judge Anthony Ishii. It will cost her the next 46 months of her life.

Ruiz admitted that she used post office boxes in her name as well as the names of family members to collect false refund checks from the IRS. She also used the addresses of coworkers. In pleading guilty, Ruiz admitted that she knew the refund checks were issued to people who had never worked in the United States and were not eligible for refunds.

The refund scheme was one of several that operated in the Central Valley, CA., area, said federal prosecutors. Prosecution of such schemes will continue. “These cases represent a significant priority for the IRS,” said IRS Agent Victor Song. “We are committed to working with the U.S. Attorney's Office to combat false tax return schemes such as this.”


Question:     I have some major tax debt. I own my own business and thanks to a variety of reasons, including having to pay Ivy League tuitions for my children, I owe the federal government about $185,000 in back taxes from the past six years. They haven't contacted me. I still find that shocking and in a sense, it scares me. What can I do? I've heard about "Offers in Compromise". Could that work for me?

Answer:     Although it is unusual that the Internal Revenue Service hasn't contacted you about such a large tax debt, it is not necessarily unheard of. It does happen; but now is the time to act. The IRS treats taxpayers who come forward much more favorably than those it must hunt down.

An Offer in Compromise works for many taxpayers in your situation and can often reduce tax debt to pennies on the dollar. While your eligibility will depend largely on your current assets and future earning potential, an Offer in Compromise can be the best way out of tax debt. Here's how it works: A qualified tax professional will analyze your previous six returns making sure you are not claiming to owe the IRS any more than you actually do. At that point, with the exact figure of your debt, you and your tax professional will approach the IRS and offer a substantially lower amount in an effort to square away your debt once and for all. Oftentimes an Offer in Compromise can result in your having to pay only a few pennies for every dollar you owe.

If you do not qualify for an Offer in Compromise, you may be eligible to enter into an installment agreement with the IRS. This program is intended to help taxpayers with the ability to pay off their tax liability over time. Instead of hitting you with a $185,000 bill, the government will allow you to make small monthly payments that will eventually satisfy the debt but will not drastically reduce your lifestyle and quality of living.

I see clients with problems such as yours every day. Having a tax debt over your head can be like looking up at the blade of a guillotine. It's scary, but tax problems can be solved. That's what I do: I'm an IRS Problem Solver. I encourage you to call our office at 253-752-9522 or send me an E-mail at for a free, no-risk consultation. There IS a solution for your IRS problem. Call us today!

David S. Nelson, C.P.A.
Certified Public Accountants

Tacoma Mall Office Building
4301 South Pine Street, Suite #241
Tacoma, Washington 98409-7205
Phone: 253-752-9522
FAX: 253-276-0144