Change You Can Believe In.
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Posted on 12/06/2009 12:48:00 PM PST by Publius
Rachel Porcaro knows she's hardly rich. When you're a single mom making 10 bucks an hour, you don't need government experts to tell you how broke you are.
But that's what happened. The government not only told Porcaro she was poor. They said she was too poor to make it in Seattle.
It all started a year ago, when Porcaro, a 32-year-old mom with two boys, was summoned to the Seattle office of the Internal Revenue Service (IRS). She had been flagged for an audit.
She couldn't believe it. She made $18,992 the previous year cutting hair at Supercuts. A few hundred of that she spent to have her taxes prepared by H&R Block.
"I asked the IRS lady straight upfront — 'I don't have anything, why are you auditing me?' " Porcaro recalled. "I said, 'Why me, when I don't own a home, a business, a car?' "
The answer stunned both Porcaro and the private tax specialist her dad had gotten to help her.
"They showed us a spreadsheet of incomes in the Seattle area," says Dante Driver, an accountant at Seattle's G.A. Michael and Co. "The auditor said, 'You made eighteen thousand, and our data show a family of three needs at least thirty-six thousand to get by in Seattle."
"They thought she must have unreported income. That she was hiding something. Basically they were auditing her for not making enough money."
(Excerpt) Read more at seattletimes.nwsource.com ...
every quarrter the IRS issues the numbers for the bankruptcy court for the maximum allowable living expenses under bankruptcy law. (it happens as a matter of routine but debt counseling sleazes try and scare people by saying the law is changing)
This is a non story because she was flagged by the same programming rule that flags the rich import/export business person who only makes 12 grand per year but lives on the ocean and has two summer homes.
Hint: Leave tipped employees cash on the table but indicate a reportable tip of a few cents on a credit card payment for the meal or service. That way, they can prove their tips were less than the 8% which the IRS assumes.
If she is a hairdresser, she receives tips.
She receives EIC (wealth redistribution), probably over $7000 per year.
She lives with her parents, supposedly pays rent. Also likely she “pays” her mom for child care, and takes a child care tax credit (more wealth redistribution).
I know a single mom in that exact situation and that's what she does.
The subsidization of the “working poor” is quite a racket and I’m not surprised some folks get flagged for audit.
Just last month I received an audit notice. I don’t have any of those freebies but in that tax year I received an award from my factory, and the cost was reported on a 1099. On my return I overstated the amount by $1 (a typo) so there was no matching amount for the 1099 on my return. Bingo, audit.
Since it was an overstatement, in my response I told them if the correction resulted in a refund to me they could keep it.
Who should really be investigated by the IRS is H&R Block for charging a few hundred bucks to fill out a 1040EZ, the bastards.
I submit to you that it's LESS EXPENSIVE for this country than the minimum wage.
Ditto.
That's precisely what EITC is.
And in her stocking will be a fine for the insurance she can’t afford.
“Hmmmmmmmmmmmmmmmmmmmmmmmmmmm..., she must not be a Democrat...”
In fact, the prudence she demonstrates precludes the Democratic mindset....
No it doesn't, but it does say she lives with her parents and pays $400/mo in rent.
If you maintain thorough and complete records, you should be fine. Of course, record-keeping is a daunting challenge without a personal computer, since after all, who wants to go through boxes of receipts and other documents?
IMO, all one needs is:
A personal computer. Est. Cost: $250-$750.
A high-quality scanner, preferably with an ADF (Automatic Document Feeder) if you have to image a significant number of documents on a regular basis. Est. Cost: $100-$400. The Canon DR-1210C on Newegg, for example, has high ratings and includes Adobe Acrobat, which allows you to create and manage PDFs. (You can also use CutePDF Writer, which is freeware, to merely create PDFs.)
Document management software. Neat Works sells a good package with a simple scanner and their software for approx. $199 (and that is accepted by the IRS), but you can also use something like DocsVault, which has a free edition for home use, or PaperPort. Est. Cost: $200 (Neat Works), $0-$800 (DocsVault, depending on edition), $100 approx. (PaperPort).
Reliable backup media, so you can keep backup copies of your data as it's stored. Est. Cost: $100-$300 for external hard drives, $100+ for a NAS appliance or network server.
A couple of organizer trays (use cardboard if you have to) to sort documents on a weekly basis. Est. Cost: $10 ($0 if you use cardboard).
A cross-cut shredder, to shred documents after they are imaged. Est. Cost: $35-$40.
A plastic bin and folders, to organize any documents that must absolutely be kept in original hard-copy. Est. Cost: $15-$20.
A digital camera, card media, and card readers, if one needs to document anything pictorially (e.g., donations). Est. Cost: $115.
Paper mileage logs, to maintain car mileage, incoming and outgoing mail, etc. Est. Cost: $15.
Before Jan. 1, I will be setting up such a system1, although it may be slightly more complicated than what I have described, since we will be imaging records for my entire family, and my sister will still be in college two hundred miles away for the first half of the year, so she most likely will have to send up an envelope full of receipts and documents for imaging once a week.
Obviously, you can throw in Quicken + Home Inventory Manager + Turbo Tax, or QuickBooks, if you so desire, at additional cost. As an aside, using Quicken for financial management may help one to fine-tune his or her insurance needs and even help in filing claims (e.g., using Home Inventory Manager with a digital camera and receipts and other documentation to conduct periodic inventories of one's property may make filing a claim easier when your house is struck by lightning one day and burns down).
1 However, all I will need to get is DocsVault (free), a NeatWorks 4 upgrade from our older NeatReceipts software ($30), and a Canon DR-1210C ($400) later in the year, since our MF4370dn multi-function handles everything right now, though it is a bit slow.
Here they audit this poor woman because she does not make enough money and the IRS’s own employees claimed the housing credit falsely. It is a big joke. The IRS needs to audit the Chicago mob and Obama.
ping
IRS audited him for those three years, and I proved the legitimacy of each dollar of expense, and the fact there was a definite profit motive.
At the conclusion of that 3 hour interview, the IRS auditor allowed everything.
In 20 + years of dealing with IRS agents, I've never had a problem with them. Not saying they're perfect, but the ones I've dealt with are quite professional.
Hairdressers do get tips, but it’s not a majority of their income. This story makes me ill.
I was told years ago that the most audited returns are those that report self-employed income and the earned income tax credit. Makes sense: it's a slam dunk for an agent.
Why? Most of these returns are self prepared, i.e. they can't afford a CPA, and it shows. The IRS swoops in, disallows a few expenses, which also lowers the EITC. For an hour or two of work, the agent recoups a minimum of 2-3 grand in taxes, penalties, and interest.
They don't like to tackle returns prepared by CPAs. We know the exorbitant costs in time and money of an audit, and I personally am not going to put my license on the line for a tax cheat.
Food stamps does this too. They are suspicious if you show too little money coming in.
I'm sure you both chuckled...at least, I hope so. ;^)
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