April or Not—It’s Always Tax Time

Archive, Taxes

“I am proud to be paying taxes in the United States. The only thing is—I could be just as proud for half the money.” —Arthur Godfrey

Like it or not, income tax is with us every day. Whether you have just paid your income taxes or you’re getting ready to pay them, your daily financial activity is affecting what will be due at the end of your next tax year.

Did you know income tax, as we know it today, has only been with us since 1913? The first Form 1040 had a total of only 19 questions and one page of instructions—much different than the complicated forms and bulky booklets of today.

The concept of income tax was first introduced in America as a way to raise money to help pay for the cost of the Civil War. A law creating a Commissioner of Internal Revenue was signed by President Abraham Lincoln. Wage earners making between $600 and $10,000 paid a 3% tax and those making more than $10,000 paid a 5% tax. After a lot of public complaint about the tax, the rate was reduced in 1867 and repealed completely in 1872. A second attempt was made to collect income taxes in 1894, but the tax was declared unconstitutional just a year later by the Supreme Court.

President Taft suggested an amendment to the Constitution in 1909 that would allow the Federal Government to collect a tax on the income of eachcitizen based on standard rates across the country. He also recommended that taxes be collected from corporations with incomes greater than $5,000. Congress started the wheels turning and in 1913 income tax became law. Tax rates have risen and fallen over the years, affected by Prohibition, the Depression, and most steeply by the World Wars. The Internal Revenue Service was given its official name and changed to an operation conducted by paid, professional employees in the 1950s. Now, the IRS Commissioner and the Chief Counsel are the only IRS offices appointed by the President and confirmed by the Senate.

Finding the Right Tax Preparer

Unfortunately, there is the occasional tax preparer who uses clients’ vulnerability for his or her own financial gain. Be really careful when you pick someone to trust with your income tax returns. If the IRS finds a problem with your return, you’re the one who pays the additional taxes and interest. You may end up paying penalties as well.

In 2005, more than 110 tax preparers were convicted of tax crimes. The IRS provides the following suggestions for choosing your tax preparer:

  • Watch out for preparers who claim they can get you a bigger refund than the others.
  • Don’t use a preparer who charges a percentage of your refund as their fee.
  • Use an established tax preparer or company who will sign your return and give you copies of everything.
  • Think about whether or not the preparer is likely to be around the next few years to answer questions about your return.
  • Read your return carefully and ask your preparer questions about any entry you don’t understand.
  • Never sign your return until it is completely filled out. You are ultimately responsible for all the information on it.
  • Ask to see the preparer’s credentials and find out how current their tax education is.
  • If possible, talk to someone who has used the preparer previously and see if they were happy with the service.
  • Keep in mind that tax evasion is a felony that can cost you five years in prison and as much as $250,000 in fines.

If you suspect that someone is attempting to get away with tax fraud, you can fill out Form 3949-A to report him or her to the IRS. The form asks for specific information about your suspicions and can be filled out anonymously if you prefer. You can have the form mailed to you by calling (800) 829-3676 to request it.

Can Anybody Help Me?

“The hardest thing in the world to understand is the income tax.” —Albert Einstein

The IRS acknowledges that every citizen has the right to be treated fairly and respectfully when it comes to income taxes. You have the right to have your questions answered, and if you feel like the IRS employee on the other end of the telephone has not been courteous or professional, you have the right to report him or her to the employee’s supervisor.

The Taxpayer Advocate Service
Supposing you have tried to get a problem taken care of with the IRS and not been able to, what then? That’s where the Taxpayer Advocate Service comes in. This service is operated independently from the IRS and there is at least one Taxpayer Advocate in every state. The Advocate’s job is to see that you have someone representing your interests when trying to resolve issues with the IRS. The Taxpayer Advocate Service cannot, however, change legal judgments that have been made against you by the IRS. An Advocate is most helpful if you are dealing with:

  • The possibility of significant financial hardship as a result of taxes owed
  • Adverse action being threatened against you
  • Costly fees that will be required if you seek other representation
  • No resolution from the IRS for more than 30 days
  • No resolution from the IRS by a promised date

If you need help, feel free to contact the Taxpayer Advocate Service toll-free at (877) 777-4778. An Advocate will review your case objectively, give you updates on what’s happening, provide his or her contact information, and resolve your problem as quickly as possible in a friendly and courteous manner. A list of Taxpayer Advocates can be found in IRS publication 1546 at www.irs.gov.

Volunteer Income Tax Assistance
If what you need is just help filling out the tax forms and figuring out what deductions you can take, but you can’t afford to pay a professional tax preparer, try one of the many volunteer groups around the country. These volunteers are trained to handle most basic tax forms and are willing to help those with annual incomes of $38,000 or less for free. You’ll usually find a group at your local library. If not, visit www.irs.gov or your state government website for information.

Tax Counseling for the Elderly
These volunteers offer free help with income tax forms to those citizens 60 years of age or older. Many of these trained volunteers are retired people themselves who are affiliated with a nonprofit organization receiving grants from the IRS. Check with your state senior citizen services for information about a group near you.

The AARP also provides help to those over 60 years old and to low-income citizens. For information about their services, call toll-free (888) 227-7669 and ask about AARP Tax-Aide.

Don’t Let Anyone Phish for Your Funds

One of the biggest tax scams to watch out for this next tax year is a technique called “phishing.” A form of identity theft, phishing is carried out by con artists who pose as the IRS and use the Internet to get unsuspecting citizens to give out their financial information.

If you receive an e-mail that appears to be from the IRS, beware! The IRS will never contact you by e-mail about your tax account. The phishing e-mail will typically announce that you have a refund you have not yet claimed and will tell you to click on a link to a website that looks very official. Once at the website, you will be asked for your social security number and a credit card number.

Another version of phishing will say you are under audit by the IRS and if you provide certain personal financial information, the matter may be resolved. Your information will then be used to access your accounts and credit cards or used to apply for loans.

Remember: The IRS will never contact you by e-mail about your tax returns. If you have questions about the authenticity of a contact you receive, call (800) 829-1040 to inquire about it.