Maryland Tax Law Blog

Remember to file form 8300 correctly to protect yourself

Form 8300 is an important tax document. It is required to fill out this form if your business accepts a cash payment over $10,000. This form provides information to the Internal Revenue Service, which helps it fight against money laundering.

Anyone in a trade who accepts $10,000 or more in a cash-based transaction needs to fill out this form. Cash, on the whole, is not easy to trace, so without filing this form, it may be impossible to prove where the money came from or where it went. The form is required if you complete the transaction within the 50 states, Guam, Puerto Rico, the Northern Mariana Islands, the American Samoa or the U.S. Virgin Islands.

What to know about filing gift tax forms

Each year, Maryland residents and others are free to gift up to $15,000 per person to as many people as they would like. If an individual makes gifts in excess of $15,000, he or she is generally required to file Form 709. This is true even if a person owes no tax on the excess amount gifted because of his or her lifetime gift exemption.

The reason for the reporting mandate is so that the IRS can subtract that amount from the remaining exemption balance. In some cases, an individual may need to report gifts that come with restrictions or that were made to trusts. The IRS may be able to search through a person's financial records to determine if a required filing was not made. In the event that a person is caught after he or she passes, a penalty may be levied on that person's estate.

Contributing too much to a 401(k)

For many Maryland workers, a 401(k) retirement account is one of the perks of their jobs. However, the Internal Revenue Service has found that some people have taken advantage of the system and are making contributions that are in excess of what is currently allowed.

At present, the annual contribution limit is $18,500. The Treasury Inspector General for Tax Administration (TIGTA) has issued a report that quite a few employees have been taking advantage of the system and exceeding that threshold. This of course has had the effect of reducing the amount of revenue that the Treasury Department would otherwise get. The Internal Revenue Service has indicated in response to the report that it plans to take a few steps to try and correct the problem. One would be to notify all employers about the issue. More importantly for taxpayers, the IRS has stated that it will make this issue a focal point of audits.

The rules of rollover waivers

Generally speaking, Maryland residents and others have 60 days to rollover funds from a 401k or IRA into a new IRA. Failure to meet this deadline could result in negative tax consequences. However, there is a chance that the IRS could allow a person to avoid financial penalties for failing to complete a rollover in a timely manner. This may be possible if a bank or other financial institution makes an error during the rollover process.

Individuals who are asking for leniency based on financial institution error should have proof that this was the case. Individuals may also be entitled to a waiver if they put money into an account that they mistakenly believed to be an IRA. If a person failed to deposit a distribution check into an IRA at all, this could be evidence that an individual didn't think that a rollover was necessary.

IRS audits continue to decline

While many Maryland taxpayers fear audits, the Internal Revenue Service is actually checking up on fewer people. The shrinking number of tax audits has been highlighted by news coverage of allegations that President Donald Trump and his family members failed to pay hundreds of millions of dollars in taxes. In 2017, only one out of every 160 tax returns were audited, marking 0.6 percent of 245 million returns. For six years, the number of audits has declined annually, and it has now reached its lowest level in 15 years.

In 2017, 934,000 returns were audited, the lowest absolute number since 2003. At the same time, the number of taxpayers has risen. In addition, wealthy Americans are specifically less likely to face audits. Just over 4 percent of households with over $1 million in income were audited in 2017. In 2015, 9.5 percent of those returns were audited. The 2017 number marks the lowest audit rate for people making over $1 million annually since the IRS began tracking that figure in 2004.

Specific reasons grant IRS unlimited time to pursue unpaid taxes

Statutes of limitations generally prevent the Internal Revenue Service from investigating tax returns that are older than six years. For most returns filed by taxpayers in Maryland, the IRS only has three years to audit the reported income. If the agency suspects that income has been substantially underreported by 25 percent or more, the law provides up to six years to initiate an audit and pursue taxes and penalties. Three major exceptions to these limitations, however, remove time constraints and grant the agency's civil division the power to review returns of any age.

The filing of a false tax return represents the first exception. A taxpayer who completely fails to file a return will also remain subject to audits. The willful attempt to break the law to avoid paying taxes provides the third exception. Only one condition out of the three needs to be met for the IRS to take action regardless of the passage of time.

Can you write off a trip for business and vacation?

You travel all over the world for business. You have meetings with clients, you tour factories, you meet with the owners of other companies looking to partner with you. And that's just the tip of the iceberg. For you, work rarely means being in the office and far more often means being at the airport.

You know that you can write off your business trips for tax purposes. They are necessary for your company's success. They're part of your lifestyle, but they're also part of your professional obligation. But what exactly can you write off? Is that trip going to look like a vacation or a business obligation to the IRS? What if it is a bit of both? Below are a few key things to consider.

TIGTA says IRS not using currency reports from banks

The Treasury Inspector General for Tax Administration has released a report indicating that the Internal Revenue Service makes little use of bank currency reports. Many Maryland residents are aware that if they deposit more than $10,000 in cash at any one time, their bank will send a report of the transaction to the IRS. Chances are that the IRS will never look at a particular currency report.

Some people might be tempted to break up deposits so that they don't exceed the $10,000 threshold, but such an action might actually make IRS scrutiny more likely as it is a crime called structuring. Proving a charge of structuring does not require establishing willfulness, but tax evasion does. Structuring is generally easier to prove than tax evasion, and it can open people up to the possibility of civil forfeiture with regard to the structured deposits.

IRS private collections program less successful than expected

A tax collection program that relies on private companies to chase down debts brought in just more than it cost to set up and operate, according to an audit by the Office of the Inspector General. The Internal Revenue Service set up the program based on legislation from 2015 to pursue overdue taxes in Maryland and across the U.S. The expectation of lawmakers was that these companies would net $2.4 billion for the U.S. Treasury by 2025.

In the first two years of the program, though, it has generated only $56.6 million in revenue, according to the IG report. That represents a $1.3 million margin over costs. It is also just more than 1 percent of the $4.1 billion in late accounts that were assigned to private collections companies. There are four collections companies working with the IRS in the program.

If you're flagged for an employment tax audit, be careful

If you're a business owner, receiving a letter from the Internal Revenue Service or Maryland State Department of Assessments and Taxation can be intimidating. It may be tempting to ignore the inquiry in hopes that it's a minor issue that can be addressed later, but that's exactly the wrong approach. The best way to minimize exposure and get back to conducting normal business operations is to immediately find out the exact nature of the inquiry.

Tax audits occur for a variety of reasons. While some are truly random, others are triggered by a perceived irregularity in a previous return. Unfortunately, some types of businesses are subject to greater scrutiny than others. For instance, businesses that employ workers seasonally, primarily from immigrant groups or under a contract basis may be flagged for review. Whatever the reason, once an audit begins, other tax issues may arise, including reviews of past years' returns.

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