Approximately 1.45 million taxpayers who qualified for relief from tax penalties totaling close to $181 million never heard from the Internal Revenue Service that they were entitled to it and never received it, according to a new government report.

After over 30 years in the tax business, we continue to find that solid accounting and good communication with your CPA is the key to lowering taxes.

As a general rule, a tax return is deemed filed on-time if it was mailed and postmarked on or before the due date of the return. (In this day of electronic filing this is less of an issue). It is also a general rule that a taxpayer has three years (including extensions) after the date they filed the original return to file an amended return.

A few weeks ago in (TTW #154) we first talked about identity theft and the growing tax fraud problem. This week we want to share with you a statement from the IRS’s Chief Legal Counsel on this issue that appeared in the Journal of Accountancy.

The taxpayer was a former assistant U.S. attorney who suffered from various health ailments, including cardiac disorders, depression, and memory loss. He retired in 2000 because of disability. For 2007, the year at issue, he prepared his own tax return. He claimed that distributions from an IRA were a return of investments made through nondeductible contributions, and that the gains on those investments should be taxed as capital gains rather than ordinary income. The taxpayer produced no evidence to support his claim that the IRA contributions were made with after-tax funds. Nor could he cite any law to support his claim that the gain on his non-deductible contributions should be taxed as capital gains rather than ordinary income. The Court ruled all of the IRA distributions were taxable as ordinary income.

Previously, the IRS abided by the rules of Revenue Procedure 94-22. Under these rules, the IRS was allowed to assist individuals, companies, plan administrators and others involved with the Department of Labor’s Abandoned Plan Program. After a written request to the IRS, they could use the letter-forwarding program to locate missing plan participants. Interested parties could also use the letter-forwarding services of the IRS if the action was for humane purposes and there was no other way to relay the information to the taxpayer.