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Planning, Review & Preparation Electing Mark-to-Market Trading through an entity Trader definitions Tax rules & latest news Discussion Board, F.A.Q., Futures, Benefit Plans & other info Search this site add text to search window		Copyright© 2003 & 2005 & 2007 Colin M. Cody, CPA and TraderStatus.com, LLC, All Rights Reserved.
		More and more taxpayers are coming forward to take care of their obligations for past years' taxes not yet filed. One of the big surprises that non-filer traders get is when their tax preparer files their tax return, looking for a refund of estimated taxes paid (form 1040-ES) or taxes paid with the filing of an old extension request (form 4868), is that several months later the IRS writes to tell them that their tax overpayment is being forfeited as a penalty for being a non-filer. IRS calls this their RSED plan for "Normal Refund Statute Extension Date" which takes delinquent filer tax overpayments and turns them over to the Treasury. The legal Authority for this is IRS Code §6511(a), §6511(b) and IRS Regs §301.6511(b). Millions of dollars are forfeited each year by unknowing taxpayers who waited too long to file their old tax returns. The basic rule is that you mustn't file more than 2 years or in some cases 3 years late if you want to protect your tax overpayment. update: Court strengthens IRS ability to force a forfeiture of tax overpayments in Wachovia Bank v. U.S. 7/13/06. In this case the taxpayer filed a tax return and paid taxes when there was no requirement to file or pay the taxes at all. In other words the taxpayer filed an unnecessary tax return. No taxes were due. When the taxpayer got around to filing for a tax refund several years later, the IRS refused citing RSED. Deposit vrs. Payment There is potential relief from this confiscatory penalty if you know a little trick, which we will share with you here. Under IRS Rev Proc 84-58 (as codified and superseded by Rev Proc 2005-18) taxpayers should consider not making their prepayments of tax as 1) estimated tax payments or as 2) payments of tax accompanying their extension request - but rather they may make deposits in the nature of a cash bond. A remittance made that is designated by the taxpayer in writing as a deposit in the nature of a cash bond will be treated as such by the IRS. Such a deposit is not subject to a claim for credit or refund as an overpayment. The taxpayer may request the return of all or part of the deposit at any time before the Service is entitled to assess the tax. Generally, that amount will be returned to the taxpayer, without interest, unless the Service determines that assessment or collection of the tax determined to be due would be in jeopardy, or that the amount should be applied against any other liability. In such a case, the deposit will not be returned, but will be applied against a jeopardy or termination assessment or against the other liability. As if the above RSED program wasn't enough, the IRS also has a SFR program to force your tax returns to be filed, even without your assistance. You wont be happy once you have a SFR! Click here first to discover why you should retain us to represent your interests before the Internal Revenue Service. Click here to see IRS site information for non-filers Click here to see more IRS site information for non-filers Click here to see newspaper story about non-filers Click here to see what happens to those who do not file proper tax returns Click here to see IRS seizures up for auction A new attack against delinquent filers somewhat limits their ability to negotiate the amount of taxes due for offer on compromise or bankruptcy proceedings. The courts have said that only a tax return can be renegotiated. To have filed a tax return a document filed with the IRS must purport to be a tax return be signed under penalty of perjury contain enough information to enable a taxpayer's tax liability to be calculated "evidence an honest and reasonable endeavor to satisfy the law" In Re Payne [431 F.3d 1055 December 2005] and In Re Colsen [No 05-2476 8th Cir, may 4, 2006] have differing views regarding #4 above. #4 cannot be met if the IRS has already filed a SFR (which is almost always the case for delinquent filers) This is because an honest and reasonable endeavor to satisfy the law would include filing timely. So even in bankruptcy, Payne could not get a discharge for the taxes he owed! Mark-to-Market election gives you ordinary loss treatment "Retroactive" mark-to-market elections for non-filers are a definite possibility. See us for the proper way to accomplish this. Recently we have seen some free instructive advice on the internet that over-simplifies and misses the point on what has been briefly mentioned on this page and other pages on the traderstatus.com website for several years. Missing the whole point when using one of these over simplifications can result in a disallowance as a tax motivated sham. We have the experience. These are not "new ideas" to us. Actually, the IRS has consulted with us specifically about these type of daytrader tax motivated shams (prepared elsewhere) discussing their viability and substance (or lack thereof). We will opine on your specific situation and which filing methodology is best for you. Good planning, keeping a low-profile and having support for tax positions taken is imperative. "Making it up as you learn" is the sure way to an audit. VDP - Voluntary Disclosure Practice A taxpayer’s timely, voluntary disclosure of a substantial unreported tax liability has long been an important factor in deciding whether the taxpayer’s case should ultimately be referred for criminal prosecution. It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended. http://www.irs.gov/newsroom/article/0,,id=104361,00.html IRS Tax Seizure Auction website: http://www.treas.gov/auctions/irs/ Why retain us to handle your delinquent IRS (and State) tax returns. IRS controversy issues, tax return audits and even routine IRS and State inquiries are best handled by a professional CPA firm, rather than going it alone and risking "putting your foot in your mouth". Taxpayers signing a special IRS limited Power of Attorney may retain us to represent them with many of these issues. Contact us before you contact the IRS in response to an imposing inquiry. Why use TraderStatus.com for your trader tax advisor? TraderStatus.com is the Web Site presence of Colin M. Cody, CPA, CMA. Colin advises Security Traders and CPAs across the country regarding complex trader status issues. Colin has been advising Security Traders on the Internet since 1991. Colin M. Cody, CPA, CMA has been instrumental in the authorship of the actual and forthcoming securities trader Tax Code by working with the drafters of the IRS Code while interpreting the intent of the US Congress when they pass the law. Audits are handled for taxpayers in any of the U.S. States either by communicating with the IRS examiners via telephone, fax and mail or by transferring your case to Connecticut for face-to-face meetings with the IRS examiners and appeals officers. More often than not Colin finds errors in the preparation of the tax returns under audit. The errors made on self-prepared tax filings are responsible for initiating some audit inquiries. Errors we find on professionally prepared returns are usually only found after a thorough review of your paperwork back in our offices and sometimes these have quite severe misinterpretations of the law. It is not uncommon for us to find that taxpayers have overpaid their taxes in prior years because regular tax rules were used rather than the proper Trader Status allowances. If errors favor the taxpayer and your taxes were overpaid, then we may prepare proforma drafts of amended tax filings to present to the IRS examiner during the audit. If the errors favor the IRS and your taxes were underpaid, then then we prepare for the possibility that the IRS examiner will also find those same mistakes. Click here if you are ready to retain us for your audit representation.

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