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February 2013 Archives

Keep clean records to potentially avoid an IRS audit

Being audited may well top the list of taxpayers' worst nightmares. This process can easily consume a person's time, energy and money as it can be extremely frustrating to deal with the IRS for months on end. Fortunately, there are a few steps that one can take to potentially avoid an audit. For individuals who own a business, it is important that they keep all business and personal expenses separate. If an action was taken for both personal and business purposes, such as taking a trip or having lunch with a friend who is also a client, it is probably best to keep these expenses listed as personal ones. It is also important that one does not list a hobby as a business. Keeping well-organized records is also vital toward avoiding an audit. Before making any deduction, one should ensure that he or she has the receipt or other evidence to support it. Keep all of these documents together with each year's tax return.

Somerville woman convicted of tax crimes

A Somerville woman who owned a tax preparation business for about six years was sentenced on Jan. 29 to 61 months in prison. She has been convicted of identity theft and tax fraud following a string of tax crimes. According to the District of Massachusetts United States Attorney's office, the woman prepared false tax returns on her behalf and the behalf of the clients of her Somerville business. In some instances, she used clients' identities without their consent or knowledge. She pleaded guilty to 32 counts, including charges for aggravated identity theft, filing false returns with the Internal Revenue Service and forging United States Treasury check endorsements.

IRS may gain greater access to tax documents

Recent court rulings may allow the IRS to have access to Massachusetts consumers' tax documents that were previously privileged. While the old rules allowed the IRS to access information from accountants regarding their clients, information given to attorneys was typically considered part of the attorney-client privilege. Accountants did have a loophole for keeping information confidential and out of the possession of the IRS when a tax lawyer hired an accountant, thus making this information part of the attorney-client umbrella. However, the IRS has filed several lawsuits that are changing the rules regarding these privileges. In a Ninth Circuit case, the court ruled that an appraisal could not be kept from the IRS by the taxpayer, lawyer and accountant. In another case, the court required a lawyer and accountant to disclose their discussions.

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