Jonathan Kamens <jik[at]kamens.brookline.ma.us> wrote:

- quote -

I think you are trying to paint this one into too tight of a
corner. I'm not sure anyone is saying that a failure to
follow the W-4 is a per se "violation of law." What most of
us are saying, I believe, is that the W-4 is the ONLY method
that the IRS has SPECIFICALLY sanctioned. Therefore, if you
choose to deviate from that, you're sailing into somewhat
uncharted waters. If you feel comfortable with that, great.

I think most tax professionals view this issue from a "no
harm, no foul" perspective, meaning that so long as the tax
is fully and timely paid, there likely "won't" be an issue.
However, a KNOWLEDGEABLE professional should recognize that
there is a bit of risk and uncertainty associated with
following a practice that doesn't appear to have
"authoritative support."

MTW

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jik[at]kamens.brookline.ma.us (Jonathan Kamens) wrote:
- quote -

Probably the latter. Similar to the ones who tell you not
to bother filing an amended return just because you forgot
to include an 8606 for non-deductible IRA contributions.

Who should know better than tax professionals which laws are
so rarely enforced so as to be irrelevant?

--
Barry Margolin, barmar[at]alum.mit.edu
Level(3) Communications, Woburn, MA

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Jonathan Kamens wrote:

- quote -

They would have to answer for themselves on that one. But
the fact that a) it's likely you "could" show the client is
entitled to the exemptions if you worked it hard enough
through the official circles and b) that the IRS simply will
not prosecute because the only tool they have is far too
blunt an instrument (a perjury charge is a bit much <grin> )
largely drives it.

Also, I wouldn't be surprised if many practitioners out
there simply have never actually *looked* at the IRC
sections and regulations in question. There is very little
formal training required in tax research in most accounting
education programs (and even graduate ones that aren't aimed
at tax specifically), so most CPAs picked up the issue of
"you must start with the Code" as a quick one liner one
afternoon in their single required tax class. And just as
quickly forgot it when they started doing tax work with the
push to "get the work out" and doing compliance work.

For EAs, there is no real requirement of training in tax
research. Exams by their very nature tend to be rule
oriented, and mulitple choice ones (as makes up the CPA and
EA exams almost exclusively on tax matters) are even more
rule driven rather than analysis driven.

Given the fact that among the two largest groups of
preparers there is either extremely minimal required
training in tax research principles or none whatsoever, I
would be willing to be that most had never actually read the
provision <grin> .

In fact, I've had more than a few CPAs and EAs over time act
when I cite Code as if that had absolutely nothing to do
with the tax law, looking instead back in a "quick answer"
guide to challenge a Code provision citation (normally
through attempting to interpret *that* editorial material as
if it were the Code and stretch it to apply to a situation
the author never intended). Note that those that post here
tend *not* to be in that group--but, then again, this is a
self-selected group that feels a lot more sure talking about
tax matters in a manner where someone can "point to the
record" about what they said <grin> .

Attorneys are a different breed--in law school the
principles of legal research are a key issue, and "start
with the Code" is a mantra most attorneys know well (or at
least knew well back when <grin> --they also sometimes fall
into the "what does the Master Tax Guide say about that?"
method of tax research).

--
Ed Zollars, CPA
Phoenix, Arizona

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"Ed Zollars, CPA" <ezollar[at]mindspring.com> writes:

- quote -

OK, you've convinced me. But then what I find puzzling is
why there are CPA's in this newsgroup advocating the
practice. Are they saying they disagree with you about the
clarity of the law, or are they saying it's OK to violate
the law because there's no harm done (i.e., the taxpayer
doesn't actually under-withhold) and the IRS isn't going to
prosecute?

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Jonathan Kamens wrote:

- quote -

The problem is that the document does not limit the
definition to an internal one, which is the presumption you
are working under. Rather Title 26 of the United States
Code provides a rather strict definition of what are allowed
exemptions. The IRS provides you with a worksheet to help
you comply with that provision, but the language in Title 26
controls the actual definition should it differ from the IRS
worksheets.

If you are going to work a legal analysis, I would suggest
you must first look at the *law* itself which is not what
you appear to be doing. Rather, you seem to be working
solely from the forms.

Again, no question that from a practical perspective the IRS
doesn't really care much about this one except for the tax
protest crowd. But the law really is pretty clear...

--
Ed Zollars, CPA
Phoenix, Arizona

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Jonathan Kamens wrote:

- quote -

There is no way for IRS to see trends in the number of W-4
allowances claimed (under 11), since they are not filed with
the IRS. Even the ones that are over 10 come in minus any
worksheet, and are not entered into any computer for trend
analysis.

Fred F.

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Michael T Wing CPA <mtwingcpa[at]yahoo.com> writes:

- quote -

enjoin Intuit or any other software vendor from making their
software function in a certain way.

What I am saying is that if the IRS saw a substantial
increase in the number of people calculating their W4
allowances using something other than the provided
worksheets, and if they felt this was a problem, I imagine
that they would attempt to determine why the increase
occurred. If they discovered that it was because of widely
used tax software, and if they felt that the software was at
fault, I imagine they would contact the vendor of the
software and suggest that it might be a good idea to modify
its behavior.

It seems clear to me that, given that TurboTax and other tax
preparation packages have been offering this functionality
for a number of years, and given that even some CPAs
consider it completely legitimate (as evidenced, among other
things, by postings by qualified people in this very
newsgroup), the IRS either doesn't consider the practice to
be wrong or doesn't think it's worth trying to put a stop to
it. Surely if they did, they would have issued a
clarification by now telling people that it's not allowed.
Anecdotal references to the claims of individual IRS
employees don't rise to the level of IRS policy.

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Michael T Wing CPA <mtwingcpa[at]yahoo.com> writes:

- quote -

I find this comment puzzling. Someone asserted that a
taxpayer could be prosecuted for perjury for signing a W4
claiming a number of allowances different from what the
worksheets would calculate. Perjury is, after all, a legal
issue, so one must use legal principles when deciding
whether a person has committed it. Legally, one can't be
prosecuted for saying something that one didn't actually
say. And, as I pointed out, the text that one agrees to
when signing the W4 doesn't say that the worksheets were
used to calculate the allowances; all it says is that the
person signing the W4 believes that he is entitled to the
allowances.

If I file a W4 with 12 allowances because I believe that
doing so will cause 100% of my tax for the year to be
withheld from my paycheck, and if I have good reason (i.e.,
as mentioned previously, widely used tax software which
encourages this practice and even some competent CPAs who
believe that it is legitimate, as well as the fact that my
W4s with more than 10 allowances have, in the past, been
submitted to the IRS for review and they've never
complained) to believe that doing so is legal, then I
certainly believe that I am "entitled" to those allowances,
and hence I haven't committed perjury by signing the form.

Even the people who have advocated in this newsgroup the
position that it is not legitimate to calculate one's
allowances in this way have also acknowledged that the IRS
doesn't go after you about it unless you actually end up
having under-withheld at the end of the year.

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A.G. Kalman" <agk202[at]netscape.net> wrote:
- quote -

To clarify: the first sentence should have said: "You can
claim any amount you want that has a reasonable basis."

I've never used the W-4 worksheet. I've always prepared my
own estimate of the annual tax bill and determined the
allowances from that analysis.

Failure to use a reasonable basis and winding up being
underwithheld in violation of the rules (e.g., 90% rule or
$1000 rule) might subject you to a fine of $500. I've never
seen nor heard of the IRS fining a nontax protester who used
excessive withholding allowances.

I have no idea what a reasonable basis means. I assume that
any method would be deemed reasonable as long as it doesn't
come under any of the frivolous tax arguments that the IRS
has posted.

Alan
http://taxtopics.net

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Jonathan Kamens <jik[at]kamens.brookline.ma.us> wrote:

- quote -

I'm not an attorney, but I have always found it dangerous to
"parse" individual words or phases in a statement like that,
or to assume that things NOT specifically mentioned are
therefore allowed.

MTW

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Jonathan Kamens <jik[at]kamens.brookline.ma.us> wrote:

- quote -

I am not aware of ANY circumstance where the IRS has
attempted to punish or enjoin a software publisher based on
the logic contained in the program. Indeed, I would suspect
that such enforcement attempts would run afoul of the first
amendment because there is most certainly no law against
publishing crappy software! <g
My point is, the responsibility for filing a "correct"
return rests with the TAXPAYER. Period. It doesn't matter
how the return is prepared or whether a paid preparer is
used. The taxpayer is ALWAYS ultimately responsible.

Now, it ~might~ be possible for a taxpayer to establish
"reasonable cause" in a penalty situation if the mistake can
be blamed on the software, but even that is likely to be a
big stretch. (Anyone ever heard of applicable cases???)
Although you can sometimes establish reasonable cause based
on the reliance upon advice from a professional (CPA, EA,
attorney), I somehow doubt that reliance upon software quite
rises to that level.

And lastly, please everyone take note: INTUIT DOES NOT WRITE
THE INTERNAL REVENUE CODE !!! Only CONGRESS does that !!!
The programming logic contained in any computer program
simply represents the unauthoritative "opinion" of the
programmers.

MTW

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"Harlan Lunsford" <hlunsfordnoway[at]bellsouth.net> wrote:

- quote -

Of course I remember you, and Prodigy, and The Tax Gang.
:-) Helen is the only one who still references TTG in her
..sig file, but there are still a number of us around,
although I'm sure most of the readers of this group have no
idea what she's referring to. (Or what I'm referring to.)

- quote -

I don't think so. Remember, you can specifically request
ADDITIONAL withholding any time you want. Also, the default
starting position for withholding, if you do nothing, is
either single-0 or single-1 (I don't remember which), so if
you do NOTHING you will likely be claiming fewer than you
are entitled to.

The point is that someone who makes $100,000 this year and
$1,000,000 the next is not entitled to claim enough
allowances so that his withholding on the $1MM is only equal
to 100 or 110% of his current year tax. The purpose of
withholding, and the use of the W-4 is to adjust your
withholding so that it approximates the current year's tax
on your current year's income. They allow you to use some
of last year's income/deduction numbers in doing that, but
that's as far as it goes.

- quote -

We can be, if that's what our client wants, within the
constraints of law and ethics. But, just like Dick just
said he wouldn't ask for drugs in a public forum, I think we
professionals need to be careful what we advocate in a
public forum.

--
Bruce E. Cobern, CPA
mailto:bec[at]pipeline.com

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Jonathan Kamens wrote:

- quote -

Regulations under 31.3402 set out detailed rules for W-4's,
with more detail yet in Pubs 505 and 919. They are not so
loose as you suggest, nor is it necessary that Regs prohibit
anything. This is a basic concept in federal administrative
law, and it can give the effect of law to even publications.
Courts call it "due deference."

I just tried a simple scenario in TurboTax where at 6/30,
there's sufficient withholding for the year based only on
itemized deductions. TurboTax "spit out" a W-4 with 99
allowances, commonly used by protesters to avoid the
restrictions on exempt W4's. IRS has better things to do
than annually beta test commercial software with a million
arcane scenarios that are possible under our tax laws, and
such software should not form a basis for interpreting the
law.

F--

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Harlan Lunsford <hlunsfordnoway[at]bellsouth.net> writes:

- quote -

No, because the W4 instructions explicitly state that it is
permissible to specify fewer allowances than the number to
which you are entitled.

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"Jonathan Kamens" <jik[at]kamens.brookline.ma.us> wrote:

- quote -

You are correct. The worksheet in the W-4 instructions is
for convenience, not a requirement. I have always done my
own calculations in advising clients on how many exemptions
to claim. IRS doesn't monitor withholdings and is only
concerned with the penalties for underpayment assessed on
your tax return.

The only time, in over 25 years in this business, that I
have seen IRS do anything about claiming excess allowances
involved an individual who earned over $100,000 a year, on 2
W-2s, and had virtually nothing withheld. He was single,
had no deductions, and did not file his returns. He also
used a dummy SSN. His attorney sent him to me to prepare
returns for about 8 years. The last I heard about him, he
was a guest of Uncle Sam in a Federal facility in San Diego.

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Bruce E. Cobern wrote:
- quote -

Well Bruce, I've known you for a long time (remember Prodigy?),
and I guess we will agree to disagree.

If it's not legally correct to many allowances, can the same be
said of using too few?

(and here I thought CPA's were the agressive ones!

Cheer$,
Harlan Lunsford, EA in LA,
the land of no (recent) blackouts

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- quote -

I agree also; that's what professionals are to do, even if
for mere practical reasons. Consider if the return were
never to make it's way to processing, and in the subsequent
delinquency case the IRS tacked on the civil W-4 penalty. I
can envision a discussion with a PO'd client caught in the
lost return trap, over additional matters such as the
soundness of one's advice and who's now gonna pay the 500
bucks.

F--

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- quote -

I don't believe the issue is, is there a penalty. While I
agree that I have not seen any penalty assessed, my practice
is to NOT recommend that my clients sign a document or place
information on a tax return that is not correct.

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"Fred Fillinger" <fillinger[at]ameritech.net> wrote:
- quote -

Fred:

I'm glad at least SOMEONE agrees with me that LEGALLY it is
not proper to use the W-4 to claim whatever number of
allowances a TP wants so that their withholding reaches a
desired figure. They are allowed allowances to compensate
for actual or anticipated expenses and credits, and they are
supposed to subtract allowances based on actual or allowable
untaxed income. If use of those allowances, because of
significant increases in income, for example, result in
withholding in excess of that which is necessary to avoid a
penalty, then so be it. I don't believe the TP actually has
a legal remedy. You are entitled to the allowances to which
you are entitled (although you can certainly claim fewer),
and the withholding result is what it will be.

I agree with you that, absent a number in excess of 10,
which gives the IRS a chance to review your calculations on
the W-4, there is likely NOT to be an enforcement action,
but I still don't believe it is proper for tax professionals
to provide advice advocating using withholding allowances to
manage withholding to the penalty elimination amount, absent
a reasonable basis for those allowances based on deductions,
credits, etc. Especially not in a public forum.

Just one professional's opinion.

--
Bruce E. Cobern, CPA
mailto:bec[at]pipeline.com

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Harlan Lunsford wrote:

- quote -

Theoretically, criminal prosecution (IRC 7205), but provided
sufficient evidence of criminal intent to convince a jury.
As a practical matter, the 3-yr. statute on a 7205 case can
easily preclude prosecution, so a false W-4 is typically
used for what DOJ calls a "Spies charge" in a
failure-to-file case and common with tax protesters.

A generic perjury charge, under 18 USC 1001 with longer
criminal statute, is outside the tax code, and DOJ policy is
to avoid general Title 18 charges in favor of Title 26 tax
code, under the reasoned view (a/k/a litigation hazard) that
such is the intent of Congress, besides the no-brainer jury
appeal problem. Pure Title 18 cases are possible, and in
other situations did at times make it through DOJ in my
gubment career, so clever how them perjury jurats on tax
forms can be self-enforcing.

The civil penalty is $500, under an easy "no reasonable
basis" standard and similarly common in protester cases.
The $500 is not the real enforcer with W-4's submitted to
IRS, but in response to a convoluted treatise on
Constitutional law from the wage-earner, the IRS directs the
employer to withhold on the basis of S-1, with no real
appeal rights for the t/p.

- quote -

Yes they do look at them, but picking which are to be
followed up is simple and quick computer research. Over 10
actual exemptions plus Sch A is, e.g., common in Amish
families. For those W-4's out there which are under 11
allowances, but excessive under the facts and the IRS
worksheet, there is no enforcement program that would be
both practical and cheap in resources. Not to sanction the
practice, but if a wage-earner t/p has no problem with
paying $900 with his/her annual 1040, so no ES penalty --
and timely does so-- the compliance problem is relatively
very minor.

F--

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