This article addresses the question of what tax deductions are available to professional gamblers.  On November 3, 2009, the citizens of Ohio passed the casino initiative authorizing legal gambling in four of Ohio's largest cities.  The passage of the Ohio Issue 3, also known as the "Four Casinos Initiative," amends the Constitution of Ohio and authorizes gambling casinos in Cincinnati, Cleveland, Columbus, and Toledo.  These new casinos mean that more and more gamblers here in Columbus, Ohio will need to understand what tax deductions are available to professional gamblers.  The State of Ohio expects to create over 20,000 jobs and increase revenues for state and local governments.The tax lawyers at the Nardone Law Group, LLC expect more disputes between taxpayers claiming to be professional gamblers and the Internal Revenue Service (the " IRS " or the " Service ") on the amount that may be claimed as deductible gambling losses.

Click here to read the full article!

Clients and taxpayers, in general, are surprised as to the amount of information available on the Internal Revenue Service’s website regarding examination statistics.  As an example, the Internal Revenue Service recently issued statistics regarding tax returns examined in Fiscal Year 2010.  Overall there were 187,124,450 returns filed and 1,735,083 returns examined, which represents 0.9% percent of returns covered by examination.  That is less than one percent folks.  But, as always, the devil is in the details.  For example, the Internal Revenue Service examined 4.7% of returns filed where individuals reported gross receipts between $100,000 and $200,000 and filed a schedule C.  On the other hand, the Internal Revenue Service examined 98 percent of certain large corporate taxpayers.  So, it all depends.

The below chart provides a summary of the most common returns and taxpayers:

The question you very well may be asking yourself is, so, how does the IRS select tax returns for audit?  This is a question that we get asked quite a bit at Nardone Law Group.  To answer the question of how returns are selected for an audit, follow this link. 

Did you know that you could turn in your former boss, colleague, business partner, or former spouse to the IRS, and benefit monetarily?  Some say that this could be a blessing, while others simply want to get revenge.  Either way, it is true.  As a tax attorney specializing in representing individuals and businesses in matters with the IRS, I can tell you that it is true and a very realistic opportunity for the right person in the right place with the right information.  So, what is the Whistleblower Program?

In 2006, Congress reformed the IRS Whistleblower Program in the Tax Relief and Health Care Act (" Tax Relief Act").  The Tax Relief Act created a new framework for rewarding whistleblowers for reporting those involved in tax evasion.  Under Internal Revenue Code §7623(b), where taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected to the whistleblower.   If the tax evasion case deals with an individual, his or her annual gross income must be more than $200,000.  A reduced award amount of up to 10 percent may be available in cases based principally on disclosure of specific allegations resulting from judicial or administrative hearings, a governmental report, hearing, audit or investigation, or the news media.   

See Nardone Law Group's discussion on the IRS Whistleblower Program by visiting our Frequently Asked Questions page.

EIGHT FACTS ABOUT PENALTIES FOR FAILURE TO PAY OR FILE FEDERAL TAX RETURNS ON TIME

Hello all. Well, now that most of the 2011 tax deadlines have passed, what issues arise for those that failed to pay or timely file on time? When it comes to filing a tax return - or not filing one - the Internal Revenue Service ( "IRS" ) can assess a penalty if you fail to file, fail to pay, or both. Here are eight important points the IRS wants you to know about the two different penalties you may face if you do not file or pay timely.

1. If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.
2. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and explore other payment options in the meantime. The IRS will work with you.
3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
6. If you timely filed a request for an extension of time to file and you paid at least 90 percent of your actual tax liability by the original due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Thus, if you find yourself in a situation where you have failed to pay or file on time, you need to explore whether reasonable cause exists. Nardone Law Group is available to help you deal with this type of potential tax controversy.

Visit our  tax blog  for the full article.

• Sales tax

• Commercial activity tax

• Personal income tax

• Seller’s use tax (out of state vendors collecting Ohio sales tax)

• Corporation franchise tax

• Employer Withholding

C. Restrictions

The restrictions may vary depending upon the type of tax involved. But, in general, as long as the taxpayer has not been contacted by the ODT prior to disclosure, the taxpayer should qualify for the VDP.

D. Payment Requirements

The payment plans will vary depending on the facts and circumstances. Generally, however, it is recommended that payment be made with the final agreement signed by the taxpayer and the Tax Commissioner.

E. Benefits and Terms

Although the benefits and terms may vary depending on the type of tax, the general benefits and terms include:

• The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.

• The taxpayer waives the right for refund for those three previous years. Refund requests will be honored for the returns due in the current year.

• The Tax Commissioner is precluded from assessing the taxpayer or requiring it to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by the ODT.

• The Tax Commissioner will waive all penalties associated with the years covered by the agreement.

• The Tax Commissioner may audit the tax returns filed by the taxpayer for the years covered by the agreement.

• See this link for information on the ODT website.

2. General Tax Amnesty

A. Period Covered

The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid. The program is open from May 1, 2012 to June 15, 2012.

B. Eligible Taxes include

• Sales tax

• Commercial activity tax

• Personal income tax

• Seller’s use tax (out of state vendors collecting Ohio sales tax)

• School district income tax

• Corporation franchise tax

• Estate tax

C. Restrictions

Although certain taxes are eligible, the General Assembly has placed restrictions on eligibility. As an example, the General Tax Amnesty is not available if:

• A notice of assessment has been issued.

• A notice of audit has been issued.

• A tax bill has been issued.

• An audit has been conducted.

• An audit is currently being conducted.

D. Payment Requirements

The participant must pay the full amount of the delinquent tax and one half of the interest between May 1, 2012 and June 15, 2012.

E. Benefits and Terms

The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:

• The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.

• Any penalties on delinquent taxes paid under this program are fully abated.

• Participants cannot be criminally prosecuted.

• No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty program.

Nardone Law Group Comment:  This is a very taxpayer friendly provision.  It allows taxpayers to come in from the cold that were intentionally not paying their taxes, as well as those taxpayers that simply did not realized the taxes were owed.  But, not all taxpayer's should run in  and attempt to avail themselves of this program.  It is important to consider all facts and circumstances and the potential unintended consequences.

3. Consumer Use Tax Amnesty

A. Definition of Use Tax
Many taxpayers—both individuals and businesses—struggle with the concept of use tax.  The ODT explains it as follows:
Consumer’s use tax must be paid on all taxable purchases of tangible personal property or services used, stored, or otherwise consumed in Ohio unless Ohio sales tax has been paid to a vendor or the tax has been properly paid to another state. In general, if you have paid Ohio sales tax on the purchase of tangible personal property or a taxable service, you do not owe consumer’s use tax on that transaction. Examples of tangible personal property subject to use tax are computer equipment, printers, fax machines, office supplies (paper, envelopes, folders, pens, paper clips, etc.), furniture and cleaning supplies (mops, brooms, cleaners, paper towels, etc.). Consumer’s use tax is also due on the use of taxable services in Ohio. Examples of taxable services include, but are not limited to, installation, repair, employment services (temporary labor), automatic data processing, janitorial and maintenance services, storage services and maintenance contracts.

B. Period Covered
The Use Tax Amnesty applies to use tax due for periods from January 1, 2009 through May 1, 2011.  The program is open from October 1, 2011 to May 1, 2013.

C. Eligible Taxes

Use Tax only.

D. Restrictions

A taxpayer against which the Tax Commissioner has issued an assessment on or before the effective date of the Use Tax Amnesty section is not eligible to participate in the use tax amnesty program established under this section.  Further, see below for those that are already registered for use tax compliance.

E. Payment Requirements
The participant must pay the full amount of consumer use tax for which the participant has outstanding liability sometime between October 1, 2011 and May 1, 2013. If the participant makes an application, ODT may enter into an interest free payment plan for the delinquent use tax. The payment plan may be up to seven years. If the participant fails to comply with the terms of the payment plan, then interest will be due on the unpaid amounts.

F. Benefits and Terms
The Consumer Use Tax Amnesty program categorizes potential participants into two groups: (i) those participants that were registered with ODT to pay consumer use tax as of June 1, 2011, and (ii) those that were not registered with ODT to pay consumer use tax as of June 1, 2011.

(i) For those consumers that were registered with ODT for consumer use tax as of June 1, 2011:

• Consumer use tax due for periods from January 1, 2009 through May 1, 2011 must be paid by the participant.
• No tax, penalty, or interest for periods prior to January 1, 2009 will be assessed.
• The participant is responsible for interest and penalty—if any—on the delinquent consumer use tax paid under this amnesty program (i.e., for January 1, 2009 and forward).
• No criminal prosecution for those who participate.

(ii) For those consumers that were not registered with ODT for consumer use tax as of June 1, 2011:

• Consumer use tax due for periods from January 1, 2009 through May 1, 2011 must be paid by the participant.
• No tax, penalty, or interest for periods prior to January 1, 2009 will be assessed.
• Penalty and interest will be fully abated for the consumer use tax paid under this program. This is a great benefit for this program.
• No criminal prosecution for those who participate.

Nardone Law Group Comment:  As part of determining whether or not to disclose and participate in one of the programs discussed above, it should be noted that the Budget Bill also enacted a limitation on ODT’s ability to assess outstanding consumer use tax. Under the new limitation, ODT may not assess consumer use tax for any period prior to January 1, 2008.

In sum, the various programs detailed above provide many benefits to taxpayers that want to come out from the cold and into compliance.  Yet, one must review all of the facts and circumstances, including the timing, to determine what the intended and potential unintended consequences maybe.  This includes running the actual calculations as to the dollar amounts owed, and determining whether this disclosure impacts any financial, tax, or accounting provisions related to your business or individual reporting requirements to various institutions, including the SEC, IRS, and lending institutions, or as part of your businesses' audited financial statements.