Victor Roberts <xxx[at]lighting-research.com> wrote:
- quote -

No that is not what I meant. Actually, I like the way you
explained it in your other post. That says what I wanted to
say and much more clearly.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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L K Williams <lanny[at]loxinfo.co.th> wrote:
- quote -

I must be reading this incorrectly. I know that state
income tax refunds are not taxable income if you did not
itemize for the year when the overpayment was made, and the
OP does not have to be concerned about an audit for
correctly excluding a state income tax refund that is not
taxable income.

However, the rest of your statement sounds like you are
suggesting that taxpayers can incorrectly report income
because the IRS is too busy to check every return. You
really didn't mean this, right?

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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"davesvideo[at]aol.com" <davesvideo[at]aol.com> wrote:
- quote -

As has been stated by others, state income tax refunds are
often not taxable Federal income because the standard
deduction was used in the previous year. The IRS requires
only that the taxable portion of the refund be reported. The
IRS provides a worksheet in the instructions for Form 1040
for determining the taxable portion that is to be reported
on Form 1040. There is therefore no "failure" to report
this refund if it is not taxable and this alone will not
trigger an audit.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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davesvideo[at]aol.com wrote:
- quote -

Why? I see nothing certain or even highly probable about an
audit.

Of course, that doesn't mean you won't be audited, just that
I'll be surprised if you are.

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"davesvideo[at]aol.com" <davesvideo[at]aol.com> wrote:
- quote -

Leaving this off your return is not an invitation to IRS to
take a look at your return. For one thing, they don't have
the manpower to look at every return like this. Thousands
of taxpayers don't itemize but still ger state tax refunds.
If IRS had to look at all of these, they wouldn't have time
to check anything else.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Herb Smith wrote:

- quote -

That's what we decided to do, but since the state of MD has reported
this as arefund to the IRS, I figure that an audit is a certainty. We
were hoping to avoid that.

Dave

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davesvideo[at]aol.com wrote:

- quote -

Yes, a more simple way to handle it is to not report any
state tax refund income on your 2005 return (except for any
refunded amount you actually deducted in '04). Show a zero
on the appropriate block of Form 1040 and write "Tax Benefit
Rule" in the space to the left of the amount block.

Good luck.

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davesvideo[at]aol.com wrote:

- quote -

As long as the $16K was not used on your 2004 return to gain
a tax benefit, receipt of the refund is not taxable income.
Ignore it.

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In 2004 while no longer MD residents, what had been our
primary residence was sold and should have been exempt from
Capital Gains. However, due to some new regulations that the
settlement attorneys did not understand, an amount of about
$16K was taken from the sale. After many calls to MD tax
offices, we were advised that the best course was to file a
MD nonresident return for 2004: MD income = 0, Tax withheld
= 16K, Refund due = 16K, and the money was finally refunded.

The problem is, this refund has been reported to the IRS as
2005 income. It appears that one way to deal with this would
be to file an amended Federal form for 2004 and claim an
additional $16K deduction to balance out the added income on
the 2005 tax. Hopefully, the refund from 2004 would more or
less equal the additional 2005 tax. But, is there any more
simple way to handle this. We were just getting back
wrongfully withheld funds and never thought of including it
on the 2004 Federal forms.

Dave

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