On the IRS's Dirty Dozen list of tax scams, phone scams remain one of the usual suspects. The scammers pose as the IRS collecting a past due amount, issuing threats if the taxpayer doesn't comply by providing personal information, credit card information, or immediate payment by a pre-paid debit card. Variations of the scam threaten arrest, lawsuits, deportation, seizing of all assets, and license revocation unless the taxpayer pays the purported debt.
In fact, a Spidell employee recently received this ominous voicemail last week:
"This call is officially a final notice from IRS — Internal Revenue Service. The reason of this call is to inform you that the IRS is filing lawsuit against you. To get more information about this case file, please call immediately on our department number…"
He knew it was a scam, and captured the audio: you can listen to it here.
The IRS is adamant that they will never contact taxpayers about a tax debt in this manner, demanding payment without first mailing a bill. Nor will the IRS ask for credit card numbers over the phone or specify payment in a certain manner, like a pre-paid debit card.
As Commissioner Koskinen says: "We continue to say if you are surprised to be hearing from us, then you're not hearing from us."
A husband and wife claimed that a $25,000 payment to them was a gift rather than income.1 The money was given to them by a doctor who had been having an affair with the wife. When the husband found out about the affair, he lured the doctor to his home and confronted him, threatening to sue him for $150,000. The husband then forced his wife to call the doctor's wife and admit the affair to her.
At this point, the doctor told the husband that while he did not have $150,000, he did have $25,000. They agreed to meet in a parking lot to conduct the transaction, which the husband recorded. The doctor apologized to the husband, and in fact warned him to be careful because the money could be considered income.
Even though they had received $25,000, the husband and one of his daughters contacted the state medical board and reported the doctor for misconduct, and a hearing ensued. The doctor's accountant then sent a Form 1099-MISC for tax year 1999 to the husband and wife; they did not report the income on their 1999 return.
According to the court, "a gift in the statutory sense … proceeds from a 'detached and disinterested generosity' … 'out of affection, respect, admiration, charity or like impulses.'"
The husband and wife claimed that the money should be treated as a gift because it was the doctor's idea to pay it. The court disagreed and held the money to be income, because they believed that the doctor had paid the money as an alternative to being sued and to close the matter. The court also stated, "A payment made because of the constraining force of moral or legal duty is not a gift."
1 Peebles v. Comm., TCS 2006-61
Here's a stumper for you … click below to reveal the answer.
You have just received the Governor's Award for "Most Knowledgeable Tax Professional" in the state. The trophy sits behind bulletproof glass in a display case at the FTB's Butterfield Way location in Sacramento. Millions of tourists who have included the FTB building in their vacation plans will view your name. The trophy, a two-foot solid silver, tastefully designed dollar sign, has a plaque on it on which your name will be engraved. You are only the second person to be so honored; however, you are responsible to pay for the engraving of your name. Is this payment subject to sales tax?
Answer:
The initial engraving on a trophy is taxable. After the trophy has been on exhibit, the engraving of subsequent names is exempt. (See Spidell's Analysis & Explanation of California Taxes® ¶42-510)
When calculating sales tax, the rule of thumb is to tax goods but not services, but there are some tricky exceptions.
Kathryn Zdan, EA, is not only director of the editorial department, she also "rocks the house" as a regular in curling bonspiels around the country.
Diane Fuller is a gourmet cook with a refined taste in all things sweet. From traditional Japanese desserts to the best bacon donut that's ever appeared in our break room, Diane knows how to satisfy her sweet tooth. She also writes children's poetry!
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