J.K. Lasser Daily Tax Tip brought to you by TaxACT
Everyone wants to get as much back in their tax refund as possible, but tax laws are constantly added, changed, or updated. The J.K. Lasser Daily Tax Tip, brought to you by TaxACT, provide some insight into complex tax situations and offers helpful advice and guidance. Now that's something everyone can use!

The Daily Tax Tip content is provided by America's all-time best selling tax guide, J.K. Lasser's™ Your Income Tax Guide 2006 by John Wiley & Sons, Inc. Tax advice provided by The Daily Tax Tip shall not be construed as a substitute for the advice obtained or given by a certified tax professional.

• IRS Failure To Release Lien
  A suit for damages may also be brought in federal district court against the IRS if IRS employees improperly fail to release a lien on your property. Before you sue, you must file an administrative claim for damages. The lawsuit must be filed within two years after your claim arose. You may sue for actual economic damages plus costs of the action; the types of damages that may be recovered are similar to those discussed for suing the IRS for unauthorized collection actions.
• Penalty for Frivolous Action
  If you bring an action in federal district court for unauthorized collection activities that the court considers to be frivolous, it may impose a penalty of up to $10,000.
• Recovering Attorneys' Fees
  Attorneys' fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or IRS.
• Upfront Payment for OIC
  A new law requires taxpayers to make an upfront payment when they submit an offer-in-compromise to the IRS on or after July 16, 2006. For a lump-sum offer, the taxpayer must include 20% of the offer with the application; the same requirement applies for offers to pay in five or fewer installments. For periodic payment offers, the first proposed installment must accompany the offer. The IRS can allow exceptions for low-income taxpayers or for offers based on doubt as to liability. Any upfront payment is in addition to the user fee that generally must accompany the submission, but the fee will be credited toward the outstanding tax liability.
• Penalty for Frivolous Tax Court Action
  If you bring a frivolous case to the Tax Court or unreasonably fail to pursue IRS administrative remedies, the Tax Court may impose a penalty of up to $25,000. Furthermore, if you appeal a Tax Court decision and the federal appeals court finds that the appeal was frivolous, the court may impose a penalty.
• Notice of Deficiency
  If you do not respond to the 30-day letter, or if you later do not reach an agreement with an appeals officer, the IRS will send you a 90-day letter, also called a notice of deficiency. The IRS is required to specify on the notice the 90th day by which you must file your petition with the Tax Court.
• Too Good to Be True
  If you claim a deduction, credit, or exclusion on your return that would seem to a reasonable person to be too good to be true under the circumstances, the IRS is likely to consider you negligent unless you show you made an attempt to verify the correctness of the position.
• Penalties Relating to Reportable Transactions
  Effective for returns and statements due after, and filed after, October 22, 2004, a $10,000 penalty may be imposed on individuals who fail to adequately disclose a reportable transaction on Form 8886; the penalty is $50,000 for taxpayers that are not natural persons. If the reportable transaction is also a listed transaction, the penalty amounts increase to $100,000 and $200,000, respectively. See the Form 8886 instructions for definitions of reportable and listed transactions. These penalties apply whether or not there is an understatement of tax liability due to the transaction. They apply in addition to the other penalties discussed in 48.6.Penalties are also imposed for understating tax liability attributable to reportable transactions with a significant tax avoidance purpose, effective for taxable years ending after October 22, 2004. The penalty is generally 20% of the understatement if the transaction was adequately disclosed on Form 8886. There is an exception for reasonable cause, but to qualify, stringent requirements must be met; see Code Section 6664(d). If the transaction was not adequately disclosed, the penalty increases to 30% of the understatement and there is no reasonable cause exception.
• Waiving Your Right To Appeal
  Before deciding whether to sign the Form 870, consider that, by signing, you are giving up your right of appeal to both the IRS Office of Appeals and the Tax Court. However, you may still file a refund suit in a federal district court or in the Court of Federal Claims unless you have agreed not to do so on the Form 870.
• Audit Scheduling
  Make sure that the examination is scheduled far enough in advance for you to get ready. Do not let the IRS hurry you into an examination until you are prepared. In some localities, particularly rural areas, the IRS may give short notice in scheduling a field audit. An agent may even appear at your home or place of business and try to begin the audit immediately. Resist this pressure and reschedule the meeting at your convenience.
• Authorize Someone To Discuss Return Processing Problems
  Generally, a person authorized to practice before the IRS may discuss your tax return issues with the IRS only if you sign a power of attorney on Form 2848. However, just above the signature section of your 2006 Form 1040, 1040A, or 1040EZ, you may consent to contacts between the IRS and your designee to resolve return processing issues such as mathematical errors, missing return information, or questions about refunds or payments. The designee can be a friend or relative and need not be a tax professional. A power of attorney will still be needed to handle an audit, underreported income issues, appeals within the IRS, and collection notices.
• No Limitation Period for Fraud
  There is no limitation on when tax may be assessed where a false or fraudulent return is filed with intent to evade tax, or where no return is filed.
• Taxpayer Rights Web Page
  For IRS publications outlining taxpayer rights, notices, examinations of tax returns, appeal rights, and collection procedures, go to the Individuals page of the IRS website, www.irs.gov, and click on the link for Taxpayer Rights. From there, you can link to the Taxpayer Advocate page. The Taxpayer Advocate Service may help you resolve a problem that could not be settled through normal IRS channels.
• Audits on the Rise
  The IRS has been ramping up the number of audits, with a focus on high-income taxpayers, Schedule C filers, S corporations, partnerships, abusive tax shelters, and corporations.
• Refund Offset for Overdue State Taxes
  If you owe state income taxes, the state can refer the debt to the Treasury Department's Financial Management Service (FMS). The FMS will offset your federal tax refund by the state tax if your address on the return is within the state seeking the offset. The state must give you written notice that the debt is being referred to the FMS and provide an opportunity for disputing the liability.
• Disability Suspends Limitation
  In filing a refund claim during any period in which a person is unable to manage his or her financial affairs due to a physical or mental impairment that has lasted or is expected to last for at least one year or to result in death, the law suspends the limitation period. The suspension does not apply during a period in which a guardian is authorized to handle the individual's financial affairs.
• Time Limits Must Be Observed
  Failure to file a timely refund claim is fatal, regardless of its merits. Even if you expect that your claim will have to be pursued in court, you must still file a timely refund claim with the IRS. Mailing a refund claim so that it is postmarked by the due date (including extensions) qualifies as a timely filing if you use the U.S. Postal Service. The timely mailing rule also applies to refund claims that are timely deposited with private delivery services that have been designated by the IRS.
• Making a Deposit To Suspend Interest