Federal Taxes Weekly Alert

IRS has stepped up its scrutiny of income tax returns claiming the first-time homebuyer credit amid signs of a variety of schemes to fraudulently claim the credit. ( IR 2009-69 ) According to the agency, on July 23, a tax preparer in Jacksonville, FL, pled guilty to falsely claiming the credit on a client's federal tax return. The individual faces the possibility of up to three years imprisonment, a maximum fine of $250,000, or both. To date, IRS has executed seven search warrants and currently has 24 open criminal investigations related to potential instances of fraud involving the credit. “The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit,” IRS said. The agency stressed that regardless of who prepares a return, it is the taxpayer who is ultimately responsible for its accuracy. Details regarding the tax credit are available at http://www.irs.gov/newsroom/article/0,,id=204671,00.html.

The Swiss banking powerhouse UBS has reached a settlement with the U.S. in which data regarding approximately 5,000 American clients of the bank would be handed over, according to various press reports in the U.S. and Switzerland. These UBS clients would likely include the largest accounts. The deal was agreed to on July 31. The U.S. has been pressing UBS to release the names of a reported 52,000 wealthy Americans with accounts at the bank. Federal authorities suspect that some U.S. taxpayers may be using accounts at UBS to evade taxes. Final details of the settlement must be agreed to by Aug. 7 in order to head off a trial now scheduled to begin on Aug. 10.

The health insurance surtax on small businesses proposed in a House bill (H.R. 3200) will not result in dire consequences for small business profits, Rep. Charles Rangel (D-NY), chairman of the tax-writing House Ways and Means Committee, said on Aug. 2. Rangel, during an interview, disputed suggestions that two-thirds of small business profits would be hit by the surtax. “Well, under our statistics, 96% of small businesses would not be hurt by this tax,” Rangel said. “It's less than 1% of the wealthiest people in the U.S. that would be taxed, and that's a 1% tax.” He was asked whether he would be willing to drop his proposed surtax in favor of a possible Senate Finance Committee proposal to impose a tax on insurance companies that offer so-called Cadillac policies. “I, for one, am not prepared to reject anything,” Rangel said. “And I don't think either side, Republican or Democrat, should be saying at this point in time what we're going to reject and what is not acceptable.” Meanwhile, mixed signals are coming from the Obama administration regarding the need to increase revenues to achieve deficit reduction. Will the president have to renege on a promise not to tax people earning below $250,000? “We can't make these judgments yet about what exactly it's going to take and we're going to get there,” Treasury Secretary Timothy Geithner said during an interview that health care reform is necessary for deficit reduction “but not sufficient,” he said. “I think what the country needs to do is understand we're going to have to do what it takes. We're going to do what's necessary.” During an interview, director of the National Economic Council, was asked to clarify Geithner” remarks. Was Geithner laying the groundwork for a new round of taxes? “No. Not at all,” Summers said. “He was explaining what has been the president's policy.” Summers sidestepped a question about whether he saw another round of tax increases coming.

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