About Me

Albuquerque, New Mexico, United States
I am a Certified Public Accountant in Albuquerque, New Mexico specializing in representing taxpayers who are unable to pay the taxes they owe or must file delinquent returns or are under audit. I am also a frequent presenter of IRS Small Business Workshops for new businesses and new employers. You can read more articles on my website.

Tuesday, July 23, 2019

How do you distinguish between a business and a hobby?

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is done mainly for recreation or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:
  • Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you change your methods of operation in an attempt to improve profitability.
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
You may find more information on this topic in section 1.183-2 (b) of the Federal Tax Regulations.
Sub-Category

Saturday, May 18, 2019

If you would have difficulty paying for professional representation and your income is less than the amount listed in this brochure, you may qualify for the assistance of the NM Low-Income Taxpayer Clinic. If you are located outside of New Mexico, you here a list of LITCs in other states.

Frivolous tax arguments remain on IRS’ ‘Dirty Dozen’ scams list for 2019

The Internal Revenue Service issued a warning to taxpayers against using frivolous tax arguments to avoid paying taxes. This scheme involving outlandish legal claims is on the agency’s top 12 list of tax scams.

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish legal claims to avoid paying their taxes. The IRS reminds people that time and again, these arguments have been thrown out of court.

The “Dirty Dozen” is compiled annually by the IRS as a consumer alert to warn people about common tax scams. The schemes occur throughout the year, but they frequently spike during tax filing season.

A recurring Dirty Dozen theme throughout the years involves claims peddled by promoters about "secret" schemes to avoid people paying taxes.

“Don’t be fooled by people citing dubious legal schemes to avoid paying taxes,” said IRS Commissioner Chuck Rettig. “Despite what con artists may tell you, there is no secret way to avoid paying what you legally owe. Taxpayers should be on the lookout for these and other common tax scams.”

In “The Truth about Frivolous Tax Arguments,” the IRS outlines some of the more common frivolous arguments, explains why they’re wrong and cites relevant court decisions. Examples of these common myths include:

  • The First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds;
  • The only “employees” subject to federal income tax are those who work for the federal government; 
  • Only foreign-source income is taxable.
Perpetrators of illegal scams, as well as those who make use of them, may face possible criminal prosecution. IRS Criminal Investigation works closely with the Justice Department to shut down scams and prosecute the criminals behind them.

Don’t get talked into using a frivolous argument

Taxpayers have the right to contest their tax liabilities using IRS administrative appeals procedures or in court, but they are still obligated to follow the law. Besides risking criminal prosecution, taxpayers can also face a variety of civil penalties for engaging in these schemes. Key among them is the $5,000 penalty for filing a frivolous tax return. The penalty applies to anyone who submits a frivolous tax return or other specified submissions, such as a request for a collection due process hearing, installment agreement, offer-in-compromise or taxpayer assistance order if any part of these submissions are based on a frivolous position. A list of more than 40 such positions can be found in Notice 2010-33, 2010-17 I.R.B.609. The list is not all inclusive, and the IRS and the courts may add to it at any time.

The IRS reminds taxpayers these schemes also can bring other civil penalties including:

  • Accuracy-related penalty—20 percent of the underpaid tax;
  • Civil fraud penalty—75 percent of the underpayment attributable to fraud;
  • Erroneous refund claim penalty—20 percent of the excessive amount.
Late-filing and late-payment penalties may also apply. The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.

Further details, including a list of the Dirty Dozen and information about other tax scams, can be found on IRS.gov.

IRS YouTube Videos:
Dirty Dozen – English | Spanish | ASL