Obamas Paid $93k in Federal Taxes


(Bloomberg) President Barack Obama and his wife, Michelle, reported adjusted gross income of $477,383 for 2014, down 0.8 percent from last year, according to tax returns released Friday by the White House.

The Obamas paid $93,362 in federal taxes for an effective income tax rate of 19.6 percent. They made most of their income from the president’s salary, plus about $16,000 in interest and $88,000 in book royalties.

In his sixth year in office, Obama’s earnings continued to decline and the couple reported their lowest income since 2004, before he was elected to the U.S. Senate.

“Every year, it looks exactly the same and I think that’s certainly done by design,” said Anthony Nitti, a partner at the accounting firm of Top 100 Firm WithumSmith+Brown in Aspen, Colo. “There’s just no stock market investments whatsoever, same charitable contributions every year.”

Obama’s tax bill includes the cost of some of his own policies, including higher tax rates on wages and investment income for top earners. He also checked a box on the tax return that wouldn’t exist without his Affordable Care Act, verifying that he had health insurance for 2014.

Barack Obama, 53, and Michelle Obama, 51, paid $39,566 in mortgage interest. They have chosen not to refinance or pay off the mortgage on their home in Chicago, even though they could probably save money that way.
Treasury Bonds

Because the Obamas are invested in Treasury bonds, they would do much better by paying off the mortgage instead of getting the limited tax breaks available at their income level, said Steven Bankler, an accountant in San Antonio, Texas.

“Even if you’re not in more lucrative investments, why are you paying the spread?” he said.

The Obamas overpaid their federal taxes throughout 2014. They will get a $20,641 refund and direct another $5,000 to their 2015 taxes.

The Obamas donated $70,712 to charity, almost 15 percent of their adjusted gross income, according to the statement. Their largest donation, $22,012, went to the Fisher House Foundation, a Rockville, Md.-based organization that provides housing to families of military members and veterans receiving medical treatment.

They also donated to the American Red Cross, Mosaic Youth Theatre of Detroit and Sidwell Friends School in Washington, which their daughters attend.

The White House also released a state return showing that the Obama family paid $22,640 in Illinois taxes.

Vice president Joseph Biden and his wife, Jill, reported $388,844 in adjusted gross income and $90,506 in federal taxes for a rate of 23.3 percent.

Posted in Personal Tax | Comments Off

The IRS Has New Favorite People to Audit

APRIL 9, 2015


If you’re scared of an audit by the IRS, there’s less to fear these days. New data show that budget cuts at the IRS mean the agency is investigating fewer wealthy taxpayers.

An average taxpayer’s chance of being audited has tumbled 23 percent in three years, in line with an IRS budget that’s dropped an inflation-adjusted 17 percent since 2010. Only 0.9 percent of individual taxpayers were audited last year, the lowest proportion in seven years.

Even in this era of IRS austerity, wealthier people still face more scrutiny than average. If you make $200,000 to $1 million annually, your chances of an audit are around 2.2 percent, more than double the average. It’s even higher for the extra-wealthy—people who earn more than $1 million are audited at a rate of around 7.5 percent. But those rates are dropping, and precipitously.

The only major group that saw an increase in their chances of an audit last year? Taxpayers living overseas. New laws and regulations on investments held overseas have made their tax filing much more difficult.

While this may help individual taxpayers relax, fewer audits mean less tax revenue, in both the short and long term. Last year IRS audits of individuals uncovered $11.9 billion in unpaid taxes, 15 percent less than the year before. Fewer audits in 2014 could also mean more cheating in future years.

Academic studies show that having gone through an audit causes taxpayers to report more taxable income for years to come; the threat of another audit keeps them honest. IRS Commissioner John Koskinen estimates that budget cuts mean the government is losing at least $2 billion in revenue per year. “It’s a classic example of being penny wise and pound foolish,” he said in a March 31 speech.

For now, though, a growing economy is more than making up for what the IRS is losing from lower audit rates. The IRS still managed to boost its net collections by 8 percent last year, to $2.7 trillion.

Posted in Personal Tax | Comments Off

IRS Criminal Investigators Make Gains against Identity Theft


The Internal Revenue Service is seeing some success in its fight against identity theft and tax fraud despite successive rounds of budget cuts.

The IRS’s Criminal Investigation unit released itsannual report Tuesday, showing the agency has been making progress in areas such as ID theft, international tax fraud, tax return preparer and questionable tax refund fraud, public corruption, Bank Secrecy Act violations, money-laundering investigations and terrorist-financing cases.

“Generally speaking, ID theft continues to be one of our top priorities,” said IRS Criminal Investigation Division chief Richard Weber during a conference call with reporters Wednesday. “Over the past year we’ve spent about 17 to 18 percent of our investigative time just working on ID theft and tax refund fraud investigations. We’re around the same rate of investigative time that we spent in the past year as we did last year.”

He noted that the civil side of the IRS is also doing a better job at stopping fraudulent tax refunds from leaving the front door. “We have additional filters that are in place, and after this filing season, we’ll be in a better position to know specifically how much we were able to stop from leaving the Service, but I do believe that we made tremendous progress on the pre-refund stage,” said Weber. “In terms of the criminal investigations, I think we’ve made tremendous progress as well. We had a lot of significant cases that really highlight the sentences of some of these ID theft criminals. We’ve had sentences ranging from 40 months to over 240 months.”

Some of the criminal activity is now seen as international in scope. “We believe that we’re seeing some trends in terms of some of the street-level cases that we saw a couple of years ago morphing into some larger international type cases that we’re focusing our time on, as well as recently we’re seeing some of the data breach ID theft refund fraud cases,” said Weber. “So although I think we probably worked fewer ID theft cases this year, I think over the next year we’re still going to be involved in this area, and we’re looking closely at some of these larger data breach type cases.”

He defined data breaches as cases in which there has been an attack on a company’s computer infrastructure and criminals are attempting to steal personally identifiable information, such as Social Security numbers and W-2 information. “The reason why that is of great concern to us in CI is because if someone is going to end up stealing real information from either funeral services or software companies, or [other] legitimate businesses, it’s going to be difficult for our filters to catch that type of fraud,” said Weber. “We are trying to work closely with the private industry to get a good handle on this, but our commitment to working on ID theft is as strong as ever.”

While on a national basis, the average is about 18 percent of IRS CI’s investigative time spent on identity theft and tax refund fraud investigations, in areas such as Tampa and Miami, Fla., where identity theft-related tax fraud has been rampant, nearly 50 percent of IRS CI’s time is spent working on ID theft cases.

“We’ve seen a drop over the last year,” said Weber. “I think it was closer to 55 percent for a time last year and the year before. It’s under 50 percent now, but it’s still a significant area that we’re focusing on and will continue to devote resources to.”

The annual report includes case summaries that represent a wide range of CI investigations, including international cases. Two of the highest-profile cases this year, involving Credit Suisse and Bank Leumi, are included in the report. In the largest criminal tax case ever filed, Credit Suisse pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and agreed to pay a total of $2.6 billion.

Following the Credit Suisse investigation, CI led the case against Bank Leumi Group, a major Israeli international bank that admitted to conspiring to aid and assist U.S. taxpayers to prepare and present false tax returns. The agreement marks the first time an Israeli bank has admitted to such criminal conduct. Bank Leumi Group will pay the U.S. a total of $270 million and cease to provide banking and investment services for all accounts held or beneficially owned by U.S. taxpayers.

The report also highlighted how successive rounds of budget cuts have put a dent in criminal investigation activity by the IRS (see IRS Opened 19% Fewer Criminal Cases in 2014, Report Says).

Weber noted that the agency has been facing budget challenges in recent years. In the past five years, CI’s staff has been reduced approximately 11 percent, bringing staffing to levels not seen since the 1970s.

“We’re projected at the end of this fiscal year, fiscal year 2015, to have 2,300 special agents,” said Weber. “We’ve lost about 11 percent of our special agent workforce over the last several years. We lose anywhere from 120 to 160 special agents per year due to retirement, and we’re hiring no special agents this current year. Our last special agent class graduated from the academy just a few weeks ago and that gave us 23 special agents. When it comes to our special agent resources, we are significantly down in resources. We’re at the same levels that we were at in the 1970s, but when you look at the cases we’re working and our investigative priorities and our mandate, it’s quite tremendous.”

Posted in Personal Tax | Comments Off

Worst States for IRS Audits


California and Colorado taxpayers had a higher chance of an IRS audit than taxpayers in any other states, according to a new study, while New York and Massachusetts had the highest chance of an audit of their 2013 state tax return.

TaxAudit.com studied 1.4 million U.S. tax returns for the 2013 tax year to do the analysis. It also found that taxpayers in North Dakota were the least likely to be audited by either the IRS or state.

“Even though you might not live in a highly audited state like California or New York, anyone can be audited at any time for any number of reasons,” said TaxAudit.com vice president of customer advocacy Dave Du Val in a statement.

The rankings were based on the percentage of 2013 TaxAudit.com Audit Defense users that were audited in 2014.

States with the Most IRS Audits

1. California
2. Colorado
3. Nevada
4. Vermont
5. Missouri
6. New Mexico
7. Arizona
8. Massachusetts
9. Florida
10. Rhode Island

States with the Most State Audits

1. New York
2. Massachusetts
3. Alabama
4. Delaware
5. Michigan
6. Mississippi
7. Arkansas
8. Oregon
9. Montana
10. Maine

Posted in Personal Tax | Comments Off

IRS Eases Automatic Enrollment in 401(k) Plans


The Internal Revenue Service and the Treasury Department have issued guidance aimed at making it easier for taxpayers to be automatically enrolled in retirement plans such as 401(k) and 403(b) plans by their employers, simplifying the correction methods if errors are made.

The guidance in Revenue Procedure 2015-28, issued Thursday, is designed to facilitate automatic enrollment and contribution increases in 401(k) and similar retirement savings plans. This guidance adds to the current IRS self-correction program, which allows plan sponsors to easily correct administrative errors without risking the plan’s tax qualification and without having to obtain IRS approval.

“Today, Treasury and IRS are taking another step to promote broader participation in 401(k) and similar plans by facilitating automatic enrollment and automatic contribution increases,” said J. Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health Policy. “These simplified, safe harbor correction methods build on previous steps to encourage plan sponsors to adopt “next generation” features and practices that help employees save for retirement.”

The new guidance responds to public comments from 401(k) sponsors and service providers. The guidance simplifies and reduces the cost and burden of the correction process if a 401(k) or 403(b) plan using automatic enrollment or automatic increases fails to implement the correct amount of employee contribution.

The correction safe harbor for plans with automatic contribution features requires the plan sponsor to make all employer matching contributions that should have been made with respect to the missed employee contributions, and to contribute an additional amount to make up for the earnings that should have accrued under the plan on those matching contributions.  In addition, the plan is required to notify participants of errors and corrections, and of their ability to make up for the missed employee contributions by electing larger employee contributions going forward.

The guidance also provides other new safe harbor methods to simplify and reduce the cost and burden of correcting certain errors in 401(k) and similar plans regardless of whether they use automatic enrollment or automatic increases.

The new correction methods are effective immediately.  The new safe harbor for plans using automatic contribution features applies to administrative errors occurring before 2021. The guidance also invites public comment on potential further improvements.

Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, noted that the guidance will facilitate automatic enrollment in and contributions to 401 (k) and similar retirement plans by improving the process for correcting errors to make it easier for businesses to maintain these plans for their workers. Last year, Wyden and several other Democratic members of the Finance Committee sent a letter to the Treasury Department requesting action on this issue.

“These improvements from Treasury and the IRS mark an important step in helping millions of Americans save for a secure retirement,” Wyden said in a statement Thursday. “Automatic enrollment in retirement plans is a promising method to increase retirement saving. The changes made today will make it easier for small businesses to set up a retirement plan with automatic enrollment features and help more middle-class Americans prepare for retirement.”

Posted in Personal Tax | Comments Off