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August 2007

Internal revenue is targeting the following:

• Sole Proprietors (low-balling gross income and inflating write-offs)
• Itemized Deductions (medical costs, charity, employee job-related expenses)
• Gamblers (under reporting winnings, casual gamblers netting losses against winnings)
• Earned Income Tax Credits (mostly a scam by revolving door tax prep firms serving walk-in traffic)
• Misclassifying employees as sub-contractors
  • When caught the penalty can be 1.5% federal withholding + 1.53% FICA + other items (if 1099's were filed)
• Collaborate with the States to halt the shifting workers from one employer to another to gain lower State jobless payroll tax rates
  • Questionable Employment Tax Practice (QETP) Initiative
  • IRS and state employment officials will share the results of employment tax audits, exchange audit plans, plan and conduct audits jointly, and cooperate on education and outreach efforts to employers
  • business.gov - 10 steps to hiring your first employee
• S-Corp owners taking dividends rather than taking a reasonable salary
• Inflated employee reimbursements (tool reimbursements, cell phone usage)
• Real estate developers (delaying income recognition until all work is completed)
• Real estate "professional" classification (minimum 750 hours materially involved in the work)

13,000  2006 tax returns were pulled for this project.







(main source: Kiplinger's Tax Letter)

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