7 Tax Audit Red Flags

By Andrea Coombes | MarketWatch – Mon, Apr 2, 2012 3:24 PM EDT
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An unexpected letter from the Internal Revenue Service can make your stomach drop, but you can take steps to reduce your audit risk.
Taxpayers overall face a low audit risk: The IRS audited 1.1% of all individual tax returns filed in 2010, or 1.6 million returns of 141 million filed.
The vast majority of those audits — 1.2 million — were done by mail. Just 392,000 involved an in-person meeting with the IRS. That’s not necessarily good news. Taxpayers often are confused by IRS correspondence and with such audits don’t have the benefit of working with one single agent, the National Taxpayer Advocate says.

[Related: Best Ways to Cut Your Tax Bill]
But the risk of an audit skyrockets for some. Fully 12.5% of taxpayers whose income topped $1 million faced an audit. And self-employed people who filed a Schedule C with gross receipts of $100,000 or more faced an audit rate of about 4% — four times higher than average taxpayers.
Here are seven red flags:
1. Schedule C
Sole proprietors filing a Schedule C can reduce their audit risk by sticking to the facts — or at least making sure their expenses and income are not dramatically different from similar businesses.
For example, one Chicago-based hot-dog-stand owner said his cost of goods sold was 50% of gross receipts, said Robert McKenzie, a partner in the law firm Arnstein & Lehr. “I know Chicago hot dogs are great, but he had a high cost.”
The IRS found the hot-dog salesman was reporting his expenses but only part of his revenue. He faced “a lot of tax and penalty,” McKenzie said.
Check out BizStats.com for an idea of whether your numbers are out of line; McKenzie said the IRS tells its agents to review that site for average business costs.
2. Rental losses
If you show income from your job or business and claim rental-property losses, be wary. The IRS rules limit deducting those losses in the current year, unless you prove you’re actively involved in managing the property.
“It’s a real hot item right now: Audit people who make significant income from their jobs and also claim rental losses,” McKenzie said.
In one case, the wife of a real-estate attorney — a stay-at-home mom with three young kids — managed the family’s rental properties, but the IRS said the couple couldn’t deduct rental losses in the current year. On appeal they won their case, McKenzie said.
“We were able to prove yes, he couldn’t have devoted 50% of his time [to the rentals] and made $600,000 a year, but she could,” he said.

[Related: Money Mistakes That Nearly Everyone Makes]
3. Over-the-top deductions
Taxpayers who claim large deductions attract attention. “Anything that is significantly above what persons in your income bracket might deduct is likely to be looked at,” McKenzie said.
For example, claiming $30,000 in mortgage interest on a $60,000 salary. “Is it because I’ve had a bad year in income, or is it because I really manage my money well and I live modestly except for my very nice house, or could it be I’m earning more money than I’m reporting?” he said.
Got records to back up your claim? By all means take the deduction. “The mantra I preach to my clients is keep good records,” said Audrey L. Griffin, an enrolled agent in Centerville, Ga. “You’re going to get the best possible, honest, legal result and you have nothing to fear.”
CCH Inc., a Wolters Kluwer business, publishes average amounts for some popular deductions. See the CCH page.
4. Business or hobby?
The IRS may decide your business is a hobby — especially if you have other income sources. For example, McKenzie said, the IRS disagreed with an executive who, in addition to his annual salary of $500,000, deducted expenses for his yacht, claiming it was a business charter operation.
In another case, a young man with annual trust-fund income of $300,000 decided to become a race-car driver. He wrote off his costs, including the car, maintenance and the like.
In both cases, the taxpayers settled with the IRS for a partial write-off, McKenzie said. “The bottom line is, the IRS originally challenged these guys making a lot of money but also showing losses on Schedule Cs.”

[Related: Use Your Tax Refund Wisely]
5. Business use of a car
Griffin’s clients often insist that 100% of their driving is related to business and thus their costs are 100% deductible, but when she digs deeper she finds they often use that same car for nonbusiness purposes.
“Then it’s not 100%, which is the reason the IRS requires you to keep mileage records — date of trip, purpose of trip and the mileage,” she said.
You can choose to use the IRS’s standard mileage rate or track your own, but either way, keep a mileage log and record your expenses, she said.
6. Home-office deduction
You may be able to claim a deduction for expenses related to your home office, including home-insurance and utilities costs, but be prepared for the IRS’s attention.
“I would not discourage a client from taking that deduction if they qualify. I just try very hard to make sure they know the requirements and keep good records,” Griffin said.
Claiming a section of a room is possible — say a corner of the guest room that’s dedicated office space. If “nobody does anything personal in that corner, then that little bit would qualify,” Griffin said.
But is it worth it? You would claim a deduction for a percentage of the housing expense related to the square feet of office space divided by the home’s total square footage.
“It may be a very small percentage and it may not be worth raising this red flag,” Griffin said.
7. Earned-income tax credit
Among people who claimed the EITC — a refundable credit worth up to $5,751 in 2011 for moderate-income taxpayers — 2.2% of returns filed in 2010 were audited.
There’s a “high level of noncompliance,” McKenzie said, often because fraudsters exploit this benefit to line their own pockets.
For instance, scammers will provide an extra Social Security number so taxpayers can claim an extra dependent — and increase their credit.
It’s a valid tax credit — just mind the scams and stick to the truth.
Andrea Coombes is MarketWatch’s personal finance editor, based in San Francisco.

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Facebook ‘friend’ offer exposes man’s other wife

By MANUEL VALDES | Associated Press – 1 hr 22 mins ago

SEATTLE (AP) — A corrections officer is facing bigamy charges after authorities said a Washington woman using Facebook discovered that she and a potential “friend” were married to him at the same time.
According to charging documents filed Thursday, Alan L. O’Neill married a woman in 2001, moved out in 2009, changed his name and remarried without divorcing her. The first wife first noticed O’Neill had moved on to another woman when Facebook suggested the friendship connection to wife No. 2 under the “People You May Know” feature.
“Wife No. 1 went to wife No. 2′s page and saw a picture of her and her husband with a wedding cake,” Pierce County Prosecutor Mark Lindquist told The Associated Press.
Wife No. 1 then called the defendant’s mother.
“An hour later the defendant arrived at (Wife No. 1′s) apartment, and she asked him several times if they were divorced,” court records show. “The defendant said, ‘No, we are still married.’”
Neither O’Neill nor his first wife had filed for divorce, according to charging documents. The name change came in December, and later that month he married his second wife.
O’Neill allegedly told wife No. 1 not to tell anybody about his dual marriages, that he would fix it, the documents state. But wife No. 1 alerted authorities.
“Facebook is now a place where people discover things about each other they end up reporting to law enforcement,” Lindquist said.
Athima Chansanchai, a freelance journalist who writes about social media, said Facebook over the years has played a role in both creating relationships and destroying them.
“It’s just the latest vessel by which people can stray if they want to,” she said.
O’Neill, 41, was previously known as Alan Fulk. He has worked as a Pierce County corrections officer for five years, sheriff’s spokesman Ed Troyer said.
He was placed on administrative leave after prosecutors charged him Thursday. He could face up to a year in jail if convicted.
O’Neill and his first wife had issues that went back to 2009. In 2010, his first wife was arrested after an altercation with the woman who later became the second wife.
A Facebook message to wife No. 1 was not immediately returned. There was no immediate phone number available for O’Neill and his second wife.
Lindquist said it’s unclear why O’Neill and wife No. 1 didn’t go through the divorce.
“Every few years we see one of these (bigamy) cases,” he added.
O’Neill is free, but due in court later this month, which is standard procedure for non-violent crimes, Lindquist said.
“About the only danger he would pose is marrying a third woman,” he said.

By: TIFFANY HOLLAND | GoDanRiver.com
Published: February 08, 2012
» 11 Comments | Post a Comment
Seven people from the Danville chapter of Virginia Organizing protested predatory lending Wednesday while standing in front of Advance America Payday Loans on Piney Forest Road.

The group held signs — many with shark themes — blasting what they believe are unfair lending practices of payday loan businesses. Organizers said they hope to get the attention of state Sen. Bill Stanley and to get him to vote in favor of anti-predatory loan legislation in the General Assembly.

“Payday loan sharks charge over 300 percent [annual percentage rate], purposefully locate their shops in low-income minority communities, and perpetuates a vicious cycle of debt for hard working Virginians,” said Virginia Organizing’s Julie Blust in a news release.

In his first protest with Virginia Organizing, Danvillian Mike Huggins said he was willing to stand out in the cold and rain with a sign against “loan sharks” because he thinks it is important to send a message to people. And the time had come for him to be active in his opinions.

“I don’t agree with the way a lender will lend in ways they know is predatory,” said Huggins. “I’m pro social justice. When does it come to the point to be a part of the change you want to see?”

According to Advance America’s website, in Virginia a loan for $100 has a fee of $28 and an adjustable percentage rate of 340 percent and a $500 loan has a $120 fee and an APR of 292 percent. The website states these figures assumes a 30-day term and the fee and APR include a loan origination fee of $20 for every $100 borrowed and a verification fee of $5 plus interest at 36 percent assuming a 30-day term and that the fee is financed.

But many people believe that the payday loans help people in Virginia.

Jamie Fulmer, the vice president of public affairs at Advance America, said customers are very well aware of what the rates are when they take out a loan and they have been “overwhelmingly satisfied” with the service.

“I think Virginia Organizing has long been a critic of ours and in spite of their rhetoric, thousands of people in the commonwealth choose to use our services everyday,” said Fulmer. “Our customers use a product they value and they choose because it is an affordable option.”

Fulmer called the event a “publicity stunt” and said it insults the business and “degrades” the customers. Fulmer said he favors more dialogue with customers and legislators as opposed to having a protest.

The main target for the protest — other than driver’s passing by — was Stanley, who is a member of the Commerce and Labor Committee.

Virginia Organizing’s Nik Belanger thanked Stanley for his vote in favor of Senate bill 163 that helps homeowners in fraudulent foreclosures, but criticized him for not supporting bills Virginia Organizing believe protect people from predatory lending services.

The group urged Stanley to support legislation that caps the annual rate for payday loans at 36 percent.

Stanley could not be reached for comment at press time.

Divorce in Virginia

prepared
by the Family Law Section of the
VIRGINIA STATE BAR

Given the increase in marital breakdown in our society, almost everyone has been or could be affected in some way by a separation or divorce. Dissolving a marriage often involves property rights and financial matters and can raise complicated legal problems, especially when children are involved.

The Family Law Section of the Virginia State Bar prepared this pamphlet to provide the public with basic answers to some of the fundamental questions concerning divorce and separation under the laws of the Commonwealth of Virginia. It is our hope that this information will assist individuals in understanding some of the complications that often arise in this area of the law so that potential pitfalls may be prevented, minimized, or solved through a lawyer’s counsel and services.

1. What are the Grounds for Divorce?

Virginia law recognizes two types of divorce: divorce from bed and board (a mensa et thoro) and a divorce from the bond of matrimony (a vinculo matrimonii). A divorce from bed and board is a partial or qualified divorce under which a husband and wife are legally separated from each other but are not permitted to remarry. A divorce from the bond of matrimony is a complete and absolute divorce. Any person granted a divorce from bed and board may ask the court to “merge” the decree into a divorce from the bond of matrimony after at least one year has passed from the date the parties originally separated.

The law requires that “grounds” (valid reasons for divorce prescribed by law) for divorce must exist and be proven to the court even if the husband and wife agree that a marriage should end. These grounds are briefly described below.

Divorce from Bed and Board

a. Willful desertion or abandonment

Desertion or abandonment requires both the breaking off of cohabitation and an intent to desert in the mind of the offender. A mere separation by mutual consent will not be considered desertion by either spouse. Further, if one spouse leaves because the other has committed acts that legally amount to cruelty, then the spouse who leaves is not guilty of desertion. In fact, the spouse who leaves may be awarded a divorce on the ground of cruelty or constructive desertion.

If desertion grounds exist, a suit for a divorce from bed and board may be filed with the court immediately after the separation. If the desertion continues for more than one year from the date the parties originally separated, then the desertion is sufficient to constitute a ground for divorce from the bond of matrimony.

b. Cruelty and reasonable apprehension of bodily harm

Cruelty authorizing divorce requires acts that tend to cause bodily harm and render the spouses’ living together unsafe. Mental cruelty alone is not normally a ground for divorce in Virginia. However, if the conduct is such that it affects and endangers the mental or physical health of the divorce-seeking spouse, it may be sufficient to establish grounds for divorce. Normally, however, rude words alone will not suffice.

Cruelty constitutes the basis for a divorce from bed and board and can be filed immediately after the parties separate. After one year has elapsed from the time the act(s) of cruelty were committed, grounds will exist for a divorce from the bond of matrimony.

Divorce from the Bond of Matrimony

a. Separation divorce — the “No Fault” divorce

While grounds for divorce traditionally implied misconduct by one or the other spouse, modern divorce laws do not require “fault” grounds for a divorce to be granted. A “no fault” divorce from the bond of matrimony may be awarded upon a showing that for more than one year the husband and wife both intended to and have continuously lived separate and apart without any cohabitation. If the husband and wife have entered into a Property Settlement or Separation Agreement and there are no minor children, the time period is reduced from one year to six months.

Although separation provides a “faultless” ground for divorce, fault may still be an issue when spousal support (alimony) is being sought or can be a factor in determining the division of marital property. Further, a judge is free to award a divorce on fault grounds even though “no fault” separation grounds exist, conversely is free to award a “no divorce” even if fault grounds exist.

b. Adultery, sodomy, or buggery

Proving adultery is very fact-specific. The evidence must be strict, satisfactory and conclusive that the other spouse did in fact engage in sexual relations with another person. While there must be some corroboration of the testimony of a spouse to prove adultery, “eyewitness” testimony as to the adulterous acts is not required. In fact, most cases of adultery are proven without eyewitness testimony by using other evidence of the circumstances involved. Sodomy is a sexual act, other than intercourse, such as oral or anal sex. To be grounds for divorce, it must be committed with someone outside the marriage. Buggery is bestiality or a sexual act against nature. The standard of proof for these grounds is the same as that for adultery. Suspicion or speculation is not enough.

The “guilty” spouse has a number of “defenses” to the charge of adultery, sodomy or buggery. If the guilty spouse can successfully establish any one of these defenses, then a divorce will not be awarded on these grounds. These are very fact specific and should be reviewed with an attorney.

c. Conviction of a felony

If the husband or wife has been convicted of a felony, sentenced to confinement for more than one year and is in fact confined, then the other party has grounds for a divorce from the bond of matrimony as long as he or she does not resume cohabitation with the guilty spouse after knowledge of the confinement.

Annulments

Unlike a divorce which dissolves a valid marriage, an annulment is a legal decree that a marriage is void. Annulments are granted only in limited circumstances such as a marriage entered into because of fraud, duress or coercion. An annulment cannot be granted merely because the marriage is of short duration, and annulments are normally not granted for “religious” reasons.

2. What property rights are created by marriage and Divorce?

Virginia statutes now provide for the “equitable” distribution of the marital property between the parties at the conclusion of the divorce. “Marital property” consists of all jointly-titled property as well as all other property, other than separate property, acquired by either or both of the parties from the date of the marriage through the time of the final separation. “Separate property” is property owned by one party prior to the marriage, property acquired after the parties have separated, inherited property and/or gifts to one party from a third person. Where “marital property” and “separate property” are mixed together or where the value of “separate property” is increased through the active efforts of either party during the marriage, then such property may be classified as “marital property” or as “part marital and part separate” property.

In equitably dividing the marital estate, the courts may order monetary awards to one of the parties, divide the property, order the property sold or transfer jointly-titled marital property to one of the parties. Under Virginia’s system of “equitable distribution,” the court is not required to divide the marital property on an equal basis. Instead, the court will consider various factors listed in the Virginia equitable distribution statute, including the relative monetary and non-monetary contributions of each of the parties to the well being of the family and to the acquisition and care of the marital property, when determining how to divide the marital assets. Pensions and retirement plans that were accumulated during the course of the marriage are also subject to division by the Court as part of its equitable distribution award. However, by statute, neither party can receive more than one-half of the amount of the other party’s pension or retirement plan that accumulated during the marriage.

3. When is Spousal Support Awarded?

Given the increasing changes to both the law and society, this area of divorce law is in the process of great change. Under recent changes in the Virginia law, the fault of a spouse in causing a divorce may no longer be a complete bar to obtaining spousal support. However, the court will consider the cause of separation as a factor in determining whether or not to award spousal support.

Spousal support is not awarded to punish a guilty spouse. Rather, it is provided to lessen the financial impact of divorce on the party who is less financially independent. The amount awarded for support depends upon such factors as the respective ages of the parties, assets and earning potential of the parties and the duration and history of the marriage. The court may award spousal support in periodic payments and/or in a lump. Periodic payments could be awarded for either a set number of years or an indefinite period of time. Spousal support set by the court is subject to modification in the future upon a change in the circumstances of either party.

Spousal support does not have to be awarded when the divorce is granted. Instead, the parties may seek a “reservation” of the right to seek spousal support in the future. This reservation will generally last for one half of the length of the marriage.

4. Who Receives Custody of the Children?

This is the crucial issue in most divorces. In determining the custody of minor (under eighteen) children, the court is guided by one standard<the best interest of the child. The court may award “joint legal custody” where both parents have a role in making decisions for the child, or “sole legal custody” where one parent is ultimately responsible for making decisions in the child’s best interests. Custody will not be given to a parent as a reward or deprived from a parent as a punishment. Rather, custody will be awarded to the parent who is most adaptable to the task of caring for the child, and who is able to control and direct the child. Further, custody may be changed if there is a marital change in circumstances after the date of the divorce.

Factors considered by the court when awarding custody may include the age of the parent and child, the physical and mental condition of each parent and child, the relationship existing between each parent and each child, the needs of the child, the role played by each parent in the upbringing and caring for the child, the home where the child will live and the child’s wishes if the child is of sufficient age, intelligence, and maturity to make such a decision.

Another important factor to the court in establishing most custody arrangements is which parent will be the most likely to see to it that the non-custodial parent remains a strong part of the child or children’s lives. Often the court will fashion living arrangements such that the child, at least during the school year, will reside primarily with one parent. The other parent will receive visitation with the child. Visitation rights will be set by the court if there is a dispute and the parents cannot voluntarily agree upon satisfactory arrangements.

5. What are the Child Support Obligations?

Normally the party receiving visitation will be called upon to contribute to the support of the minor child. This could be an obligation of the mother, the father, or both, if a third person has custody of the child. The court is guided by the needs of the child and the ability of the supporting parent or parents to pay. The use of the state child support guidelines provides an amount of child support that is presumed to be correct, but the court may deviate from these guidelines in appropriate circumstances. The award is subject to change so long as the obligation to support remains. The child support amount may be increased or decreased if a material change occurs in the circumstances of either or both of the

parents or of the child. Non-custodial parents who have their children for more than 90 days per year for visitation have their child support calculated using a different formula that is likely to make the support lower. The court may also require a party to maintain an existing life insurance policy to provide financial security for a child in the event that the parent obligated to pay child support dies.

The court can also apportion tax exemptions for the children between the parties.

6. What is a Property Settlement Agreement?

Rather than having the court rule upon the issues in the case, parties have the option of reaching a voluntary agreement resolving their concerns raised in the divorce. The court will enforce the agreement once it is in writing, signed, sworn to by both parties, and properly notarized. Oral agreements dividing the marital property may also be enforceable, but the terms of oral agreements are very difficult to prove to the court.

A Property Settlement Agreement is a written contract between the parties that sets forth their rights, duties and obligations that arise out of their separation and divorce and may include such things as the division of their property, spousal support, attorney’s fees, custody of their children, and child support. Such agreements are encouraged since they may amicably settle the rights of the husband and wife in the estate and property of the other. An attorney’s skill and experience can be especially helpful in negotiating and drafting a fair, just, and reasonable Property Settlement Agreement for the parties and their children.

7. What are the Court Procedures?

Controversies over custody, child support and spousal support are usually heard before a judge of a Circuit Court. In some cases, such as where no grounds for divorce yet exist, such matters may be heard in a Juvenile and Domestic Relations District Court, independent of the suit for divorce. Depending upon the practices in a given locality, evidence in a divorce case may be taken in the office of an attorney representing one of the parties, in the office of a commissioner appointed by the court to take the evidence, or in a courtroom before a judge.

8. Are Attorneys Necessary? Who Pays the Fees?

Although an attorney is technically not required in a divorce proceeding, each spouse should obtain separate legal counsel if there are issues in the divorce that may be contested, property rights need to be determined, or the custody of the children is in dispute. The same attorney cannot represent both sides in a divorce case because there will be a conflict of interest.

A husband or wife who employs an attorney should discuss with the attorney his or her fees and make satisfactory arrangements to pay them. Quite often, a lawyer will require an initial payment made prior to the attorney starting work, called a retainer.

Depending on the circumstances, one spouse may be called upon to pay or contribute to the attorney fees and court costs incurred by the other. Whether either party has to pay all or a portion of the other party’s attorneys fees are matters left to the discretion of the court.

Conclusion

Emotional tensions in an unhappy marriage can make it difficult, if not impossible, for the average couple to deal coolly or objectively with divorce and separation. An attorney, equipped with a specialized knowledge of the law in divorce, custody, and related issues, can help a client be fully aware of his or her own rights and obligations in this complex field of law.

updated 10/2011

Virginia State Bar
Eighth and Main Building
707 E. Main Street, Suite 1500 • Richmond, VA 23219-2800
(804) 775-0500 • www.vsb.org

For assistance in finding a lawyer, contact the
VIRGINIA LAWYER REFERRAL SERVICE
1 (800) 552-7977 (Statewide)
or (804) 775-0808 (Richmond)
Voice/Telecommunications Device
for the Deaf: (804) 775-0502

A security researcher has posted a video detailing hidden software installed on smart phones that logs numerous details about users’ activities.

In a 17-minute video posted Monday on YouTube, Trevor Eckhart shows how the software – known as Carrier IQ – logs every text message, Google search and phone number typed on a wide variety of smart phones – including HTC, Blackberry, Nokia* and others – and reports them to the mobile phone carrier.

The application, which is labeled on Eckhart’s HTC smartphone as “HTC IQ Agent,” also logs the URL of websites searched on the phone, even if the user intends to encrypt that data using a URL that begins with “HTTPS,” Eckhart said.

The software always runs when Android operating system is running and users are unable to stop it, Eckhart said in the video.

“Why is this not opt-in and why is it so hard to fully remove?” Eckhart wrote at the end of the video.

In a post about Carrier IQ on his website, Eckhart called the software a “rootkit,” a security term for software that runs in the background without a user’s knowledge and is commonly used in malicious software.

Eckhart’s video is the latest in a series of attacks between him and the company. Earlier this month, Carrier IQ sent a cease and desist letter to Eckhart claiming he violated copyright law by publishing Carrier IQ training manuals online. But after the Electronic Frontier Foundation, a digital rights group, came to Eckhart’s defense, the company backed off its legal threats.

The Electronic Frontier Foundation said the software that Eckhart has publicized “raises substantial privacy concerns” about software that “many consumers don’t know about.”

Carrier IQ could not immediately be reached for comment. But the company told Wired.com that its software is used for “gathering information off the handset to understand the mobile-user experience, where phone calls are dropped, where signal quality is poor, why applications crash and battery life.”

On its website, Carrier IQ, founded in 2005, describes itself as “the world’s leading provider of Mobile Service Intelligence solutions.”

Watch video of Eckhart explaining his findings:

*Update: A Nokia spokeswoman said CarrierIQ does not ship products for any Nokia devices

Update: Grant Paul, a well-known iPhone hacker who goes by the screenname “chpwn”,wrote on his blog that Apple has included Carrier IQ on the iPhone, but the software’s default is disabled.

Judge cuts record verdict, sanctions lawyer

September 5th, 2011 · No Comments · Discipline, sanctions, verdicts and settlements

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