“Many of these changes are due to adjustments made in federal tax law,” said Stephanie McFarland, director of public relations for the Department of Revenue.

The state’s most widely used form, the IT-40, has undergone a major revision, including an expansion from three schedules to seven that taxpayers may possibly need to complete, “depending on the individual taxpayer’s situation,” said McFarland. “It’s very different than it has looked over the past decade.”

The Department of Revenue recommends that taxpayers use I-File, the Indiana’s free online filing program to help avoid any confusion the new multi-schedule driven form might present. “We’ve actually made the form easier to read, so we could accommodate space for the new ‘add-backs’ required due to the federal adjustments,” said McFarland. “But that also meant we had to move some information off of the two-page form and onto separate schedules to be completed, and that might feel cumbersome for some people. But I-File will make filing their taxes an easy process.”

Tax change to affect unemployed, Earned Income Credit increased
A new add-back also will impact the unemployed in filing their state taxes this year. New federal tax law allows those who drew unemployment in 2009 to deduct the first $2,400 from their total income reported to the federal government. But unemployed Hoosiers will have to add that amount back into the income they report to the state this year. “However, the state does offer an unemployment tax deduction to those who qualify,” said McFarland. Taxpayers who drew unemployment in 2009 can determine if they are eligible for this deduction by completing the Unemployment Deduction Worksheet found on page 18 of the IT-40 booklet at www.in.gov/dor/4167.htm

The Indiana General Assembly did increase the Earned Income Credit to nine percent for income earned in 2009, compared to six percent in previous years. The Earned Income Credit is available to those Hoosier taxpayers who qualify for the same credit on their federal tax return. More information on the federal Earned Income Credit may be found at the Internal Revenue Service’s Web site at www.irs.gov/pub/irs-pdf/i1040.pdf

As for those who drew unemployment benefits in 2009, the Indiana revenue agency is strongly encouraging these taxpayers to file their state taxes as early as possible. “If they find they owe, they can call us and we can work to set them up on a payment plan,” said McFarland. “And if they are due a refund, we can get that back to them as quickly as possible. In fact, if they are due a refund and use I-File, and have their refund set up to be automatically deposited into their bank account, they could see their refund in seven to ten days.”

Refunds from returns filed by paper can take 6 to 12 weeks to be processed and mailed.

New military-related deduction
The federal Military Spouse Residency Relief Act of 2009 allows that the non-resident military spouse’s earned income may be exempt from state tax if a spouse and a service member are residents of the same state and the spouse is living with the service member. Information about this new deduction can be found on the Department of Revenue’s Web site at www.in.gov/dor/files/09-in0258sp.pdf

Electronic filing best option for dealing with new state tax changes
The Indiana Department of Revenue recommends all Hoosiers file electronically this year to make their tax filing as easy and accurate as possible. “Some may chose to use the Internal Revenue Service’s e-File program that allows them to file state and federal together,” said McFarland. “Or they can use I-File, which is completely free, and more than 93 percent of Hoosiers who have used it in the past say they would recommend it to a friend or family member.”

Programs like I-File are updated to be in line with all the changes in Indiana tax laws, and electronic filing is 99 percent accurate. “Whereas up to 20 percent of paper-filed returns have errors,” McFarland said.

To file using I-File, Hoosiers should visit www.ifile.in.gov

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“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

1. Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

2. Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

3. Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

4. Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

5. Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

6. Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. More information is available on IRS.gov.

7. False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement. Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is “Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service.”

8. Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

9. Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

10. Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

11. Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

12. Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

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The students have been trained and certified under the IRS Volunteer Income Tax Assistance (VITA) program. The program offers free assistance to filers with household incomes under $42,000 who cannot prepare their own tax returns. Volunteer students will also help filers with any special credits such as Earned Income Tax Credit, Child Tax Credit, and Credit for the Elderly.

Returns will be electronically submitted to the IRS at no cost. To electronically file a joint tax return, both spouses must be present to sign the required forms. Tax filers can expect to receive any tax refunds within 7 to 14 days in most cases.

Taxpayers should bring a government-issued photo identification, Social Security cards and birth dates for all persons listed on the tax return, income and tax forms (W-2, 1099, pension, Social Security), information on property taxes or any rent paid, any IRS notices, a copy of last year’s tax return, amount paid for child care and child care provider’s tax ID number, any college tuition statement or college bookstore receipts, and a blank or cancelled check if direct deposit is desired.

The IRS provides the computer software used to prepare the tax returns. Volunteers complete an IRS training and certification course in basic income tax return preparation. Training includes how to set up a tax preparation office, interact with clients, and prepare individual returns. Special training is provided to help older Americans with the proper method of reporting pension and Social Security income. Students are also enrolled in an independent study accounting course and receive college credits.

Each return is reviewed. Students must complete a verification checklist before submitting the return electronically. At the end of the program, the students will evaluate their efforts and make recommendations for future programs.

Ivy Tech Community College is the state’s largest public post-secondary institution and the nation’s largest singly-accredited statewide community college system with more than 120,000 students enrolled annually. Ivy Tech has campuses throughout Indiana. It serves as the state’s engine of workforce development, offering affordable degree programs and training that are aligned with the needs of its community along with courses and programs that transfer to other colleges and universities in Indiana. It is accredited by the Higher Learning Commission and a member of the North Central Association.

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Ivy Tech students provide free tax filing assistance