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When In Doubt Regarding the IRS, Don’t Sign

July 13, 2014 in Tax News

I’ve recently had three different clients ask me for a second opinion on an IRS situation because they had doubts about their tax position. Turned out in all cases their doubts were well founded. In two of the cases, the clients signed with the IRS first, then consulted me. In the third, the client consulted first. Check out how much better the third client fared:

Client 1 had been audited by the IRS. The agent proposed a tax increase of several hundred thousand dollars. Under pressure from a tax return preparer he had hired to assist him in the audit, the client signed off on the changes made by the agent. Did he give up his rights completely? No. He could still seek a refund. But he would have to pay the tax first, which he has not been able to do. Until he can, the IRS can exercise its enforcement power to collect the tax, even though a large portion of it likely isn’t owed. Had he not signed off on the audit, he could be fighting the issue in Tax Court, before having to pay the tax.

Client 2 signed her tax return, as prepared by her return preparer, and filed, even though she was not comfortable with the tax liability reflected. When she mentioned this to me at a meeting on an entirely different matter, I ultimately concluded that she’d failed to claim a substantial loss. She amended her tax return to claim the loss. But amended returns are scrutinized more closely than original returns. Her amended return was audited. Although the IRS allowed the loss, it made unfavorable changes to other items on the return.

Client 3 thought her tax return wasn’t quite correct. Before filing, she asked me to take a look. I found a mistake in the treatment of the foreclosure on her house. The return was corrected, with a substantial tax savings.

The bottom line: If you are in doubt regarding an IRS matter, get your questions answered before you sign.

Tax Planning Never Was the Main Reason to Plan Your Estate

July 11, 2014 in Estate Planning

Most people know by now that unless they are members of the elite group of Americans with a net worth of over $5.3 Million ($10.6 Million for married couples), they likely won’t need an estate planner to manage the potential tax on their estates.

So, far fewer people are planning their estates these days.

That’s unfortunate. You see, tax saving never was the primary reason to engage in estate planning. Consider the benefits that flow from estate planning that have nothing to do with taxation:
First, a carefully planned estate can provide legal protection for your loved ones’ inheritances which they could never achieve themselves after your death. In the absence of this planning, there is an unnecessarily increased risk the inheritance you pass could land in the hands of a claimant or a divorcing spouse of a child, or the future stepchildren of a spouse who survives you.

Second, you have the ability through an estate plan to nominate the individuals you want to act for you should you become incapacitated and, if you have minor children, the individuals who will act as their guardian should you die before they reach adulthood.

Third, without an estate plan, your estate likely will require a probate upon your death and could require a conservatorship should you become incapacitated.
The bottom line? Estate planning still makes sense, even though it may not save you a dime in taxes.