June, 2006

Message from Nelson & Company, P.S., CPAs

To Our Clients:

We are in the midst of the 2005 tax season, my 27th as an independent CPA.

I say "mid" because our tax season doesn't end with the April 15th deadline set by the IRS. We receive many phone calls from clients with the same questions: Whereís my return? Didnít I have to sign by the 15th? Will I have to pay for an extension?

To clear up some of the confusion, Iíll answer these questions as well as provide some insight as to how our business, as well as other CPA firms, have changed over the years.

The IRS is shifting towards total e-file submission. Surveys show that, with IRS personnel inputting data, many additional input errors result from paper filed returns. We will e-file all returns and we strongly urge our clients to direct deposit any refunds. E-filed returns do not have to be signed. We will provide you a copy of the return for your records after the IRS has accepted your return.

As returns and IRS regulations get more complicated, our clients expect us to stay informed and apply this knowledge to benefit their returns, whether individual, corporate, estates, or trusts.

As we are a full service accounting firm, we feel we can offer our clientís the expertise needed to maximize their tax return filings. We are also available for financial advice needed year round. This service has increased greatly with the more complex financial transactions our clients are involved in throughout the year.

As the owner and CPA of this firm, I review each and every tax return, before it is e-filed and all correspondence before it is signed and mailed. It would be a disservice to not give each and every return the same careful scrutiny before submission. To offer this service, we find we must use extensions.

We will have your tax returns filed on a timely basis but not necessarily by the IRS date of April 15th. Extensions this year have an automatic date of October 15, 2006. If your information is in our office by March 31, 2006, we will not charge for extensions.

With an extension no penalty will be charged by the IRS for late filing. A late paying penalty and subsequent interest can be due for money owing that is not paid by the April 15th deadline. We do our best to provide our clients with tax return drafts, if requested, vouchers and estimated payment vouchers to prevent under-payment.

I look forward to be able to offer continued service to you as your year round tax advisor, financial consultant and tax preparer.

Thank you for your business and patience.

David S. Nelson, CPA


Q & A ---Audits and Extensions

  Q:  I had to file an extension because I didn't get a Partnership K-1 until April 15, 2006. Everyone tells me that I will get audited. Is this true?
Absolutely not! Filing an extension will not cause an IRS audit. This is one of the great urban legends. About 8,000,000 extensions were filed this year. In 2005, IRS Examiners audited about 1,000,000 returns face-to-face. What is most important is the ratio of income to expenses. This determines whether you will have a score high enough to warrant an audit. If you have the records to back up your figures, don't fear an audit. It's what is on the return that counts, not when it is filed!

Certified Public Accountants

JUNE, 2006

Inside This Issue....

'Survivor' Winner Sentenced to 51 Months in Prison
Idaho Bingo Operators Indicted on Tax Charges
Ohio Woman Gets 30 Months for Making False Refund Claims
IRS Question Corner


Vanessa Carter, of Aurora, Ohio, was sentenced to 30 months in prison, to be followed by three years of supervised release, for making 20 false claims for income tax refunds in the names of 11 people.

The sentence was imposed by U.S. District Judge Patricia A. Gaughan, who also ordered Carter to make restitution of $19,504 to the Internal Revenue Service.

Carter pleaded guilty to the charge on Feb. 15. According to a statement of facts, Carter prepared and electronically filed 20 income tax returns for the years 2000, 2001 and 2002, containing false, fictitious, and fraudulent claims for tax refunds totaling $75,295.

Carter submitted the returns using a software package through which she arranged for the Santa Barbara Bank & Trust to issue Refund Anticipation Loans in the names of the taxpayers. Carter caused five of the refund loans to be direct-deposited into the taxpayers' accounts; for the other 15 returns she caused or directed the bank to deposit the funds to an account of hers or accounts of certain friends and relatives, thereby enabling her to receive and control the loan proceeds.

The IRS issued 13 refunds totaling approximately $50,833 but detected the fraud in time to prevent other payments.

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IRS Times & Inquirer
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'Survivor' Winner Sentenced to 51 Months in Prison

The winner of the first season of CBS's popular show Survivor now has a new challenge - survive 51 months in the hoosegow.

A federal judge sentenced Richard Hatch, of Newport, R.I., to 51 months in prison for evading income taxes. In January, a jury found him guilty of tax evasion for not reporting to the IRS about $1.4 million that he earned from Survivor and other sources.

"In addition to punishing this defendant, this sentence should serve as a warning to others who might think of dodging their tax obligations," U.S. Attorney Robert Clark Corrente said in a prepared statement. "Paying taxes is an ordeal, but it is every citizen's obligation to pay them honestly and fully."

"Our nation's federal tax system is not a reality show to be outwitted - it is a reality, period," said Eileen J. O'Connor, Assistant Attorney General of the Justice Department's Tax Division.

Idaho Bingo Operators Indicted on Tax Charges

Robert J. Ford and William J. Tway, the operators of Big Bucks Bingo in Garden City, Idaho, have been charged with tax fraud and conspiracy for allegedly overstating the percentage of bingo revenues that went to charity.

Ford and Tway have run Big Bucks Bingo since 1996 under a provision in the state constitution that permits bingo and raffle games operated by qualified charitable organizations.

A related state law requires that at least 20 percent of the annual gross revenues of the games must be given to charitable or nonprofit organizations to be used for charitable purposes.

For the year 1999, the indictment alleges, Ford and Tway reported charitable contributions of $159,988; for 2000, the amount reported was 57,000. In both cases, the grand jury charged, the amount actually given to charity was substantially less.

The two men face up to three years in prison on the tax-fraud charges and up to five years in prison on the conspiracy charge.


Question:     Tell me about the Offer in Compromise program: Who qualifies for it and how do I know if it's right for me? I owe a substantial amount in back taxes.

Answer:    While I would need to know much more about your situation to tell you for certain whether you qualify for the Offer in Compromise program, I'm more than happy to tell you about how the program works in general.

After too many long years of chasing down deadbeat taxpayers, the IRS realized that cooperation can often be the best tool for collections. Taxpayers who feel their debt is absolutely insurmountable are unlikely to pay up, the IRS discovered.

Enter the Offer in Compromise program. Through this program, a taxpayer can negotiate a settlement amount with the IRS that often amounts to pennies on the dollar. With the help of a qualified tax professional, you can sit down with the IRS and negotiate a settlement amount that you realistically can pay. This negotiated settlement amount will take care of your IRS debt once and for all.

It's that simple. If for whatever reason you owe back taxes that you cannot afford to pay, the Offer in Compromise program might be for you. First, consult a qualified tax professional who will analyze your previous returns and figure out whether the Offer in Compromise program is right for you.

Now, keep in mind that the IRS will perform due diligence: If you live an extravagant lifestyle and just want to weasel out of tax debt, the IRS won't fall for it. But if you legitimately have incurred huge tax debts that you cannot pay, the program is right for you. And you literally can reduce that debt by pennies on the dollar.

If you're losing sleep because of tax debt, it's time to make changes.

I deal with cases such as yours every day, I'm an IRS Problem Solver.

For a free, no-risk consultation, call my office at 253-752-9522 or send me an E-mail at Firm@DNelsonCPAs.com Do it today!

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Nelson & Company, P.S., CPAs Since 1979

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