TaxBlog

THE actor Paul Hogan has broken years of silence to mock reports that he is caught up in a probe into serious tax fraud.

The Crocodile Dundee star is under investigation over allegations that tens of millions of dollars of film royalties were passed through offshore tax havens.

He is thought to have recently moved his family from Byron Bay’s hinterlands to the US.

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The tax department is again investigating developer Dave Henderson, who this week officially opens his $2 billion “whole new town� near Queenstown.

Henderson’s previous battle with the IRD – which left him bankrupt but triumphant -is being made into a movie by Whale Rider producer John Barnett.

Henderson said the movie, which will tell how he fought the IRD for four years, eventually winning a $65,000 refund after it claimed he owed it $1 million, would start filming in January for an October release.

Henderson’s good mate and Act leader Rodney Hide, who helped him write a book about his experiences, will on Saturday turn the first dirt on the Five Mile development. Described in its publicity blurb as a “whole new town�, Five Mile stretches across 33ha near Queenstown airport.

Henderson, who was discharged from bankruptcy in 1999, said the IRD this year began back-auditing five years of his dealings. He said the IRD wouldn’t let go and their officials’ “children’s children� would be investigating him. “I’ve just learnt to live with it … I’m up for whatever they throw at me.�

A spokeswoman for the IRD declined to say why the department was again investigating Henderson, saying it was unable to detail specific taxpayer affairs.

Follow up: Article in NZ Herald 

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The IRD has updated the audit section of their website.

This is interesting:

We may choose to audit you for any one of these reasons:

* to analyse your business accounts or tax returns
* to check someone else’s records (such as your employer, or a bank that pays you interest) and matching them to your records
* information received in another audit, which suggests that your records should be checked
* your compliance record (whether you have kept to the tax laws in the past)
* your payment record (whether you have paid your taxes on time in the past)
* selecting a particular industry
* examining a particular issue or problem that affects a group of taxpayers
* where you live, or run your business (if we are auditing a particular area)
* local knowledge, perhaps arising from media reports or unexplained wealth
* information we get from other people about you, or
* we may choose you randomly.

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The ATO has launched a shake up on the Australian sex industry.

During discussions with owners, investigators have said they believe the amount of tax being avoided is enough to build a new public hospital each year – up to $200 million.

Earlier this year, tax officials met with dozens of brothel owners at the Masonic Centre in the city.

The aim has been to get owners to pay tax, in particular GST, and keep better records.

Now, the ATO is moving to make the sex workers themselves “tax compliant”.

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The IRS is stepping up its enforcement efforts in the hope to catch more tax cheats.

IRS Commissioner Mark Everson says as the number of audits went down, the number of cheats went up.

The IRS says honest taxpayers should be grateful that audits are on the rise — because they pay more when others cheat.

Don’t you love the spin that tax authorities try to put on how great tax audits are. Even if you ask the most honest taxpayers whether they would like an audit they wouldn’t say yes. In fact from stories I’ve heard it is usually the honest taxpayers who get caught at tax audit time because they’ll review their returns and come up front with the mistakes they’ve made straight off the bat.

Other taxpayers may try to sweep their mistakes under the rug, sometimes they get caught, sometimes they don’t, but the penalties are much larger if they do.

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United Future MP Gordon Copeland has obtained figures showing the IRD is in tax disputes with ANZ-National, ASB, BNZ, and Westpac banks to the tune of $1.935 billion, including tax and interest.

Mr. Copeland said that the banks should settle the disputes before New Zealanders lose faith in them.

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The IRD is paying special attention to the auction site trademe.co.nz.

It would be interesting to see whether this is the carrot or the stick… Publicity like this is often used before conducting mass audits on categories of people. Then the people audited have no excuse for not complying with their tax obligations.

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Former tennis star Pat Rafter denies audit claims

This is a fascinating article. Apparantly 170 Australian sports stars facing criminal charges for tax fraud. The article says:

“Most of the athletes have not lodged tax returns for three years, while others have not paid tax for five years.

The blitz covers professionals from rugby league, the AFL, soccer’s A-League, cricket, basketball and netball.�

The article continues:

Rafter said he shared the views of the late Kerry Packer, who famously described anyone who did not minimise their tax as an idiot.

It will be interesting to follow this story as it progresses. It sounds similar to the high net worth project being undertaken by the New Zealand IRD.

Just goes to show that no one is immune from tax audits…

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US: IRS announce “Dirty Dozen�

The IRS recently released its annual listing of famliar tax scams.

1. Zero Wages - In this scam, a taxpayer attaches either a Form 4852 (subsitute Form W-2) or a “corrected� Form 1099 that shows zero or little wages or other income.This probably includes a statement indicating that you are rebutting information that you previously submitted to the IRS. The explanation on Form 4852 may cite “statutory language behind IRC 3401 and 3121″ or may include some reference to your employer refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form 4852 or 1099 is usually attached to a Zero Return. (See number four below.)

2. Form 843 Tax Abatement – Based on faulty interpretation of the Internal Revenue Code, this scam involves the tax filer requesting the cancellation of previously filed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to recall has been assessed by the IRS through the Substitute for Return Program. Form 843 is used to list reasons for the request. Usually, one of the reasons is: “Failed to properly compute and/or calculate IRC Sec 83 – Property Transferred in Connection with Performance of Service.â€?

3. Phishing – This is a technique used by identity thieves to acquire personal financial data in order to gain access to accounts. They generally run up credit card charges or apply for loans in the victim’s name. These criminals usually pose as representatives of a financial company and try and trick consumers through phony e-mails. They could even pose as the IRS itself.

A typical tax fruad e-mail notifies you of an oustanding refund and urges you to click on a link to go to a Web site and input your social security and credit card numbers. Another variation involves warning consumers through e-mail that they are under audit and can fix the situation by divulging certain financial and personal information.

4. Zero Return – If a preparer instructs you to enter all zeros on your federal tax return, report him or her immediately. They will typically have you enter zero for your income, report your withholding and then write “nunc pro tuncâ€?, Latin for “now for thenâ€?, on your return.

5. Trust Misuse – If someone encourages you to transfer your assets into a trust to reduce your amount of income subject to tax, you should be cautious. Oftentimes promoters will tell you that transferring assets into a trust will give you more deductions related to personal expenses as reducing your estate or gift taxes.

6. Frivolous Arguments – If someone cites the 16th ammendment to the constitution, saying that congressional power to impose and collect taxes was never ratified and that wages are not income, beware. This is simply not true, and such claims have been thrown out in court. Income taxes in the United States are not a choice, and those that use this claim to avoid paying taxes will be prosecuted.

7. Return Preparer Fraud – If you suspect your tax preparer is skimming funds off the top of your refund or charging inflated fees for preparing your return, check into it. Ultimately, you are responsible for your tax return. Make sure the company or preparer you are working with is credible. Remember: If it sounds too good to be true, it probably is.

8. Credit Counseling Agencies – Heard that your credit rating can be fixed, that debt payment agreements with high fees will bring you out of debt? Think again. The IRS Tax Exempt and Government Entities Divison has made a commitment to audit tax-exempt credit counseling organizations because some of them are charging people large fees, while providing little or no counseling. One big monthly payment instead of several smaller ones may not be better.

9. Abuse of Charitable Organizations and Deducations – If you move assets or income, and the move results in a tax deduction for you without you actually transferring anything of benefit to a charity, then you could be prosecuted by the IRS. In other words, if you transfer money to a charity but still maintain control over the funds and they are never used for charitable purposes, then the IRS sees this as illegal.

10 .Offshore Transactions – If you’ve ever thought of hiding income in an offshore account, think again. The IRS has been cracking down on this practice in recent years. Putting money in a foreign bank account, brokerage account or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance are strictly prohibited and are considered illegal in the United States.

11. Employment Tax Evasion – Several schemes encourage employers to not withhold federal income tax or other employment taxes from their employees’ paychecks. Not only can employers be held responsible for back payments of employment tax plus penalties and interest, but employees can also be help responsible for payment of their personal taxes. If you believe your employer is not withholding enough tax from your paycheck, start by contacting your human resource department and if necessary, go to the IRS for resolution.

12. “No Gainâ€? Deduction – Similar to the “Claim of Right,â€? this deduction occurs when taxpayers try to eliminate all of their adjusted gross income (AGI) by deducting it on Schedule A under the section labeled “Other Micellaneous Deductions.â€? Typically you’ll be encouraged to attach a statement to the return, which refers to court documents and includes the words “No Gain Realized.â€? If you run into this, don’t be fooled. It won’t pass the muster of the IRS.

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Taxation of rental properties

Mary Holm has a piece on rental properties and tax on stuff.co.nz. The piece offers a simple analysis of how rental properties are taxed, and IRD’s national manager of technical standards, Graham Tubb is quoted as saying that the IRD consider that if a person is negatively geared, chances are higher they purchased the property for resale.

He goes on to say:

“If you are audited, Inland Revenue might look at statements you made to a bank manager or accountant when you bought, or any plans you might have made.”

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