Generally speaking, distributions from IRAs before one reaches age 59-1/2 trigger a penalty for early withdrawal – the Revenooers want you to keep the dough in the account until you are truly long in the tooth and truly need the money to support yourself in retirement.
But for any number of reasons, a bloke may take the money out early without the imposition of the IRS fine. Some of the permissible early withdrawal situations are:
- After the death of the participant (We guess the Revenooers are just being reasonable, here, figuring that you can’t take it with you, so why not allow distributions.)
- Total and permanent disability of the participant.
- To enable the participant to pay for qualified higher education expenses.
- To allow a “qualified first time homebuyer” to get into that new abode (up to $10,000).
- To pay for unreimbursed medical expenses.
- To pay for health insurance premiums while unemployed.
So, be advised, when you receive that 1099 (which also goes to IRS)
reporting your IRA withdrawals last year, if you’re below the magic age.Read More
Or is it the “Dirty Dozen?”
In any case, beware of the IRS’ most worrisome tax scams, the more egregious of which are:
- Phone scams – These are aggressive and threatening phone calls by criminals impersonating IRS agents. The scam artists threaten police arrest, deportation, license revocation and other similar nasty results if you don’t comply with their demands.
- Phishing – These are fake emails or websites designed to attempt to capture your personal information. The real IRS simply doesn’t send you emails about the status of your account(s) with them; only letters which come by snail mail.
- Identity theft – IRS is always on the prowl for criminals who file fraudulent returns using legit taxpayers’ Social Security numbers.
- Inflated refund claims – Be wary of anybody who promises you a hefty refund. (As the saying goes, if it’s too good to be true, it probably is.) Don’t sign a blank return, and watch out for preparers who charge fees based on a percentage of any refund.
- Fake charities – Beware of groups masquerading as charitable organizations to attract donations. Check out www.irs.gov, where IRS will make known to you all of the legit charities. If a group is not listed, don’t deal with them. And in this regard, be wary of charities with names that are similar to familiar or nationally known organizations.
- Abusive tax shelters – Yes, there are some of these still around, touted by unscrupulous promoters.
- Frivolous tax arguments – This is one of our favorites. Promoters of frivolous schemes (Google “Irwin Schiff” if you’re looking for some entertainment in this area.) encourage folks to make unreasonable and outlandish claims to avoid paying Uncle Sam. Big penalties for doing this if IRS catches on.Read More
In her annual report to Congress, National Taxpayer Advocate Nina Olson paints a bleak picture of the IRS, in general, and its interaction with taxpayers. She emphasizes four broad areas of concern:
- The budget environment of the last five years has resulted in a “devastating erosion of taxpayer service.” (No argument from us on that one, for sure!)
- The lack of effective administration and congressional oversight, in conjunction with the failure to pass taxpayer rights legislation, has eroded taxpayer protections enacted more than 16 years ago.
- The combined effect of these trends is reshaping tax administration in ways that are “not positive for future tax compliance or for public trust in the fairness of the tax system.”
- This “downward slide” can be addressed if Congress makes an “investment” in the IRS and holds it accountable.
Some of the “most serious problems” identified by the Advocate include:
- The IRS does not have a rigorous methodology for making the difficult resource allocation decisions required by today’s tight budget environment.
- Notwithstanding the “tremendous progress” made by IRS in dealing with the tax implications of Obamacare, lots needs still to be done, including the whole process of accounting for and reconciling the proper amounts of “Advance Premium Tax Credits” which will become a here and now challenge within the next few weeks.
- The whole penalty situation – the law contained only 14 in 1955, with the number ballooning to today’s more than 170 such provisions! And the Advocate notes that more than 20 years ago, Congress recommended that the IRS ‘develop better information concerning the administration and effects of penalties’ to ensure they promote voluntary compliance. But what have we got now? The Advocate states, “The IRS Office of Service-wide Penalties (OSP) is an office of six analysts buried three levels below the Small Business/Self-Employed Division Commissioner (that) cites insufficient resources, insufficient staffing, employees with the wrong skill sets, and a lack of access to penalty-related data as barriers to conducting penalty research.’ (Sound like the government you’ve come to know and love?)Read More
So saith the Treasury Inspector General for Tax Administration (TIGTA) anyway.
Seems TIGTA recently found in one of its audits that between 2010 and 2013, hundreds of former employees were rehired for whom IRS records show performance and conduct issues associated with their previous IRS employment.Read More