A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost? _____ cents.

Shane Frederick, an associate professor at Yale University’s School of Management, published this question as part of a three question Cognitive Reflection Test in the Journal of Economic Perspectives-Volume 19, Number 4-Fall 2005, pages 25-42. This test measures your ability to take a more reflective approach in your answers, and not simply trusting your instinctive response. If you are like most people, you intuitively guessed 10 cents as the cost of the ball. Of course, this cannot be correct, but if 10 cents is your answer it is very likely you were confident with your choice. This occurs because of the instant ability of your brain to draw a conclusion about the question, acting on impulse, and subtracting $1.00 as the cost of the bat from the total spent of $1.10. If you reflect further on the question, you will see that the ball cannot be 10 cents as the difference between $1.00 and 10 cents is 90 cents, and not the $1.00 indicated in the question. In reality, this is not that difficult of a question. The cost of the ball is 5 cents and the bat is $1.05. To figure the correct answer, you must fight the tendency we all have to accept our intuition and quickly move forward. In other words, take the time to reflect on the question and the appropriateness of your answer before moving on.

The enrolled agent exam will provide your brain with several opportunities for cognitive missteps. Be careful, you just might see a tricky question like this on the ea exam:

SEE Sample Question:

Jason sold his Stone Cold Corporation stock to his sister Lila for $8,000. Jason’s cost basis in the stock was $15,000. Lila later sold this stock to Millis, an unrelated party, for $15,500. What is Lila’s realized gain?

A. $500

B. $7,000

C. $7,500

D. $0

This question has many factors that you must understand to answer it correctly. While you read the question, your brain is forming opinions about the answer. The first thing you notice is that Jason has a loss on the sale of $7,000, but he sold it to his sister Lila. Reading on, you see that Lila later sold the stock to an unrelated party for a gain of $7,500. Immediately, you recall that Robert cannot recognize a loss because he is related to Lila; therefore, Lila can exclude the amount of the loss Robert was unable to claim from her gain. Your heart flutters with excitement as you mark choice A. $500 as your answer and move on with the comfort that you are one correct answer closer to becoming an enrolled agent. That enrolled agent course you took definitely paid off . . .or did it?

Unfortunately, no amount of ea exam review will help if you rush through the answer. If you do not take the time to review your response and check what the question is asking, you are setting yourself up for this classic mistake. It is correct that Jason cannot report the loss (related party transaction) and Lila can exclude the amount of the loss previously disallowed to him, recognizing only $500 of the gain. Unfortunately, that is not what the question asks. In addition to the related party rules, this question also tests your understanding of the difference between realized and recognized gains. Lila’s realized gain is $7,500.

Amount realized - The amount realized from a sale or trade of property is everything received for the property. This includes the money, the fair market value of any property or services, and debt or other liabilities assumed by the buyer.

Realized gains - The difference between the adjusted basis and the amount realized in a sale is the realized gain (or loss) on the transaction. Lila’s basis is the amount she paid for the stock.

Amount recognized - The amount of income or loss recognized is the amount a taxpayer includes in taxable income for the tax year.

Sometimes we are just too darn smart for our own good. You will do better on this exam if you pace yourself and read the questions carefully before moving on. You have three and one-half hours to take the exam. This amounts to an average time for each question of over two minutes. The test is hard enough without missing questions you would otherwise answer correctly. Don’t let your brain get in the way.

IRS Circular 230 Disclosure - Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Tax2290 offers step by step assistance and guidance through our tax expert team for your e-file of Form 2290. Yet we do understand that there may be instances where you may like to communicate directly with the Internal Revenue Service. In such cases you need not worry. This article provides you ample information regarding different means to contact Internal Revenue Service directly.

1. Contacting IRS for assistance with Form 2290

2. The methods for contacting IRS

Contacting IRS for assistance with Form 2290

Form 2290 call site can be contacted for any immediate assistance related to Heavy highway vehicle use tax return form 2290 filing. This service is open for assistance from Monday through Friday, 8:00 a.m. to 6:00 p.m., Eastern Time. The numbers to be contacted for US and Canada/Mexico are provided below:

The United States 866-699-4096 (toll free)

Canada or Mexico 859-669-5733 (not toll free)

It is required that the assistor should access your Heavy Highway Vehicle Use Tax (HVUT) Form 2290, account details. Always remember to have your Heavy Vehicle Use Tax (HVUT) Form and its related details about your filing at your access so that you can furnish them whenever required during the call.

For assistance regarding other returns filed, taxes paid call 1-800-829-1040 for Individual Returns. For Business Returns you need to call 1-800-829-4933.

Note: Even Spanish speaking assistors are present to guide you through your queries.

The methods for contacting IRS

For your unresolved tax issues, tax queries, and getting information from the IRS there are several ways available. For quick and easy access to tax assistance you can use one among the following choices based on your requirement:

• CD for small businesses

• CD/DVD for tax products

• Contacting your Taxpayer Advocate

• Free tax services

• Internet

• Low income tax clinics (LITCs)

• Mail

• Phone

• Walk-in

Hope the above information help you a lot in getting immediate assistance directly from IRS whenever you feel a requirement. You can refer to FAQ section of Tax2290 for general queries. Apart from this we have the Contact Us section where our tax experts are always available to help you out with your tax related queries. Our Tax calculator and online tax person help will simplify your e-filing procedure. Do refer to our Support section for any of your complex tax queries Tax2290 wishes you an enjoyable e-filing experience.

A taxpayer with tax trouble has several options at their disposal to settle a disputed tax bill with the IRS. An enrolled agent (EA) admitted to practice before the IRS can assist taxpayers with all matters and appeals before the IRS. Practice before the IRS comprehends all matters connected with a presentation to the IRS relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the IRS. Enrolled agents are instrumental in helping clients stop IRS collection proceedings and negotiating agreements with the IRS regarding tax debts.

If a taxpayer and the IRS still disagree after the appeals conference, the taxpayer may be entitled to take his case to the United States Tax Court, the United States Court of Federal Claims, or the United States District Court. These courts are independent of the IRS. If a taxpayer unreasonably misuses the IRS’ appeals system, or if the intent of the taxpayer in filing the case is primarily to cause a delay or the taxpayer’s position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. The IRS enrolled agent designation does not permit the EA to practice law before the tax court, only a lawyer or individual admitted to practice before the tax court can do that. Therefore, unless duly qualified, enrolled agents may only appear as witnesses in a tax court case. While there are no formal enrolled agent education requirements, in order to become an enrolled agent a tax practitioner must demonstrate tax expertise by passing the IRS enrolled agent exam (EA exam). An enrolled agent course can assist a prospective EA with exam preparation. An attorney may practice before the tax court by registration, while a non-attorney must pass the rigorous US Tax Court exam. The tax court exam is offered every two years for non-attorneys such as CPAs and Enrolled Agents. Approximately half of all test takers pass the enrolled agent exam while only a select few who sit for the tax court exam are able to pass.

United States Tax Court

The U.S. Tax Court has federal jurisdiction and only hears cases related to tax. A taxpayer cannot take a case to the Tax Court before the IRS sends a notice of deficiency (90-Day Letter). The taxpayer can only appeal a case if he files a petition within 90 days from the date the IRS mails the notice (150 days if the mailing address is outside the United States). Generally, the Tax Court hears cases before any tax has been assessed and paid. A taxpayer can take his case to the United States Tax Court if he disagrees with the IRS over:

Income tax,

Estate tax,

Gift tax, or

Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts.

If the amount of the case is $50,000 or less for any one tax year or period, the taxpayer can request that the Tax Court handle the case under the small tax case procedure. If the Tax Court approves, the taxpayer can present his case to the Tax Court for a decision that is final (cannot appeal).

United States District Courts and U.S. Court of Federal Claims

Generally, the District Court and the Court of Federal Claims hear tax cases only after the taxpayer paid the tax and filed a claim for a credit or refund. The taxpayer can file a claim with the IRS for a credit or refund if he believes the tax paid is incorrect or excessive. If the IRS disallows the claim, the taxpayer should receive a notice of claim disallowance. If the IRS does not act on the claim within 6 months from the date filed, the taxpayer can then file suit for a refund. In general, the taxpayer must file suit for a credit or refund no later than 2 years after the IRS informs him that it has rejected his claim. The taxpayer may file a suit for a credit or refund in U.S. District Court or in the U.S. Court of Federal Claims. However, he cannot appeal to the U.S. Court of Federal Claims if the claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else’s return.

Appellate Courts

Taxpayers may appeal trial court decisions to a court of appeals, dependent upon what court handled the trial. A taxpayer may appeal a case heard in U.S. Tax Court or U.S. District Court to the U.S. Court of Appeals in the circuit where the taxpayer resides at the time of appeal. A taxpayer who brought his case to the U.S. Court of Federal Claims can appeal to the Court of Appeals for the Federal Circuit. In all cases, the non-prevailing party in the appeal may request that the U.S. Supreme Court hear the case. However, it is doubtful a tax case will go before the U.S. Supreme Court, unless it is one of great significance.

Memorizing an entire enrolled agent review course does not always indicate readiness to sit for the exam. There are several things they don’t teach at enrolled agent school (if there were such a thing) that a student should understand before attempting the SEE exam. Even the best enrolled agent software available today is unlikely to educate prospective SEE test takers on how to take the exam.

While memory is a valuable asset for this EA exam, test-taking skills can add critical points to your results. The following fundamentals will help you hone your skills. These characteristics are common to the enrolled agent exam, and any other test for that matter.

Triggers - A trigger is an important detail or fact within a question that a test taker must understand to determine the correct answer. Common triggers include age, income, citizenship, marital status, residency, support, and use. When you recognize a trigger, consider why it is in the question. Is it important? Would changing it change the answer all together? Often there are reasons why this information is in the question. If you do not understand why something is there, take pause, and try to recall if there is a rule. If you cannot remember, choose the best answer, mark the question and return to later for review.

Assumptions - Occasionally you will encounter a question without enough details (i.e. missing a trigger). There are clearly facts that are important that are not stated, but in a perfect world should be. When this occurs, it is best to assume the most likely scenario.

Example Question: Margaret, a widow, sold 100 acres of land she and her husband paid $20,000 for in 1993. He died in 2009. As of the date of his death, the land was valued at $100,000 for estate tax purposes. Margaret sold the land for $200,000 on an installment basis. What is her gross profit percentage?

A. 90%

B. 70%

C. 50%

D. 60%

The question implies joint ownership because they paid for the property together. An important trigger you must assume to answer this question correctly is joint ownership, specifically JTWROS. In a community property state, the answer is entirely different. The trigger (state of residence) is not present. To answer correctly, you must assume they reside in a common law state, as it is more likely.

Example Question: George, a single taxpayer, has W-2 income of $31,000. During the 2009 tax year he contributed $5,500 to his traditional IRA. George has excess contributions of how much?

A. $2,500

B. $2,000

C. $500

D. None of the above.

The answer here is different if George is over age 50. The age trigger is not present, and the catch-up contributions are an extension of the normal rules. To answer correctly you must assume the more common scenario, in this case George is under age 50. If a trigger is not present, you will do better on the exam if you assume it does not apply.

PRO: Increased Revenue

Obviously, the largest benefit of any new taxes would be an increase in federal revenue. Currently, only state and local government agencies charge taxes on purchases, but by instituting a VAT the federal government could benefit from consumer spending as well.

CON: Regressive Tax System

Compared to our current tax system a VAT would be considered significantly regressive, meaning they benefit higher income taxpayers more so than those living closer to the poverty line. As we have all seen from recent headlines 47% of Americans pay little or no federal income tax. However, if the government instituted a VAT many more would pay federal taxes.

PRO: Easier Tax System

The U.S. tax system is very complicated and confusing. More and more Americans pay for professional tax help each year because of how complicated U.S. tax law has become. Proponents of a VAT suggest that it would make taxes more efficient and easier for taxpayers to understand.

CON: Higher Probability of Fraud

Although tax fraud is a serious issue currently facing the Federal government, many experts predict that since a VAT would create a more open system, that would likely lead to increased fraud. Additionally, the change from our current tax system to one with a VAT would be very difficult and time consuming, with lots of opportunities for fraud.

PRO: Lost Online Sales Taxes

Online stores such as Amazon.com, often get out of charging consumers sales taxes because of a 1992 Supreme Court ruling that retailers must have a physical presence in the state to collect excise taxes. However, some experts claim that a VAT could solve this problem of lost online sales taxes by levying taxes on all sales, even online sales.

CON: Less Revenue Than Expected

Unfortunately, it takes government agencies a lot of time and money to enforce VATs. In some countries, the VAT has generated significantly less revenue than expected because of the hefty enforcement costs. As such, it is hard to predict how a VAT would impact federal revenue since there is no way to predict how much the change, and ensuing enforcement would cost.

Social security is an entitlement program designed to help Americans during their golden years. The question for many is whether the benefits they receive from the program are taxable as part of the income tax process? The answer as is so often the case with tax issues is ‘maybe.’

Social security is often touted as a program that contributes to the national debt of the United States. This is fundamentally untrue. The program has actually brought in trillions more in tax revenues then it has every paid out. The problem is the politicians in Washington passed a law requiring the social security administration to buy US treasuries with the excess money. As a result, social security now owns trillions in US treasuries and needs to start cashing them as the baby boom generation retires and starts drawing on the program. Predictably, the government has already spent the money on other programs.

Social security is not broke yet. It will pay out for the foreseeable future and that means people will continue to get their benefits. So, are these benefits taxable? The answer depends on your overall financial situation in the year in question. Come on, you had to know it wasn’t going to be easy. The rules get a bit technical, but you can do a quick calculation to figure out the answer.

Calculate the total social security benefits you get paid for the year. Now divide that number by two. Next, total up all the other income you receive regardless of whether it is taxable or not. Now add the two numbers together. If the numbers are greater than your base, then taxes must be paid.

You are probably asking yourself what a ‘base’ is. It is an arbitrary figure that the IRS comes up with. The figure was $32,000 for couples filing jointly in 2009. It was $25,000 for single and head of household filers. Oddly, the base amount for married a couple who lived together, but filed separately, is $0. These numbers change slightly every year.

Put the Funds into a Traditional IRA

When you file your tax return you have the option to have your refund split between up to three different accounts. You can even have funds electronically transferred to a tax friendly traditional IRA. You can use these contributions to lower your adjusted gross income for the year.

Purchase Inflation-Adjusted Savings Bonds

In addition to transferring funds to a retirement account, the IRS has recently began allowing taxpayers to use a portion of their refund to buy inflated adjusted saving bonds, commonly referred to as I Bonds. The government makes this process easy, all you have to do is fill out IRS Form 8888 and designate how much of your refund you want to invest in I Bonds. They are exempt from state and local taxes, and federal taxes are deferred until you redeem the bond.

Use the Money for a Down Payment on a House

We all know there are multiple tax advantages of homeownership. You can write off mortgage interest, deduct property taxes, and many homebuyers qualify for IRS credits of up to $8,000. If your refund is large enough, you could use it as a down payment on a house. If you do qualify for a new homebuyer credit then you can even use the funds to help cover your closing costs.

Make Energy Efficient Upgrades to your Home

If you already own your home then you might want to consider making energy efficient upgrades to your house. In addition to increasing the value of your property, many upgrades qualify for tax incentives. To find out the exact amounts, check out EnergyStar.gov.

Make a Donation to a Qualified Charity

You can easily donate a portion of your tax refund to a qualified charity to directly reduce your adjusted gross income. Even if you cannot afford to make a large monetary contribution all miles driven to, from and during volunteer work are deductible expenses, as well as any goods or supplies you purchased while volunteering.

Invest in Yourself

Instead of investing your money into a retirement account you could invest in yourself and take a class at a local university. Depending on your income level the American Opportunity Tax Credit could cover the cost of up to the first $2,500 in qualifying tuition and related expenses.

Buy a Qualifying Hybrid

Although popular cars such as the Toyota Prius no longer qualify for the Alternative Motor Vehicle Credit, there are plenty of vehicles that do-Including the Ford Fusion Hybrid, which qualifies for a $3,400 credit.

Open a 529 College Savings Fund

Contributing to a 529 College Savings Plan is another smart use for your IRS refund. Similarly to a Roth IRA, you do not have to pay taxes on the interest that accumulates in the account.

Buy New Office Computers or Equipment

If you are self-employed or own a small business then you can use your refund to purchase new office computers, furniture, equipment, or just about anything else that qualifies as a business expense. Just be sure to save all of your receipts!

The IRS is often touted as a fire breathing dragon that would rather light its own feet on fire than give a taxpayer a break. This is not entirely the case. The IRS is actually pretty flexible in many areas so long as the taxpayer seems to be making an effort to resolve things. One area, however, where the nasty reputation of the IRS is definitely warranted is with payroll taxes. Simply put, you do not want to mess up in this area.

Every business with employees must pay payroll taxes. The business is charged with collecting taxes from employee earnings and then sharing in the cost of paying them. The taxes are deposited each pay period and reported on either form 940 or 941 depending on the circumstances. This is one area of the law where the IRS is absolutely militant about collections and it is better to have died a small child than to not pay payroll taxes.

If you are found to have willfully not paid payroll taxes, the IRS will hit you with a 100 percent penalty. Yes, you read that right. 100 percent. This means if you haven’t paid in $20,000 in payroll taxes, you will suddenly owe $40,000. On top of this, the people responsible for the payment will also be held personally liable for the debt. It matters not a bit that the business is a corporation, LLC or whatever. Getting nervous yet?

The IRS views the failure to pay payroll taxes as a form of theft in most cases. Why? Well, the business collected the monies due from the employees paychecks. It was not the employer’s money! If the business then absconds with the money and uses it for some other purpose, well, that is pretty much a classic definition of theft.

So, what will happen? Well, the IRS will come in and freeze everything. The agency will often actually raid the offices of the business and take everything - computers, files, books, etc. When combined with the penalties that are issued, most businesses don’t have a chance of surviving and end up closing down. Even though they close, the people responsible for the payment remain personally liable for the payroll tax debt.

As you can see, the failure to deposit payroll taxes can lead to an absolute nightmare situation. Whatever you do, pay this tax and do it on time!

The first thing it is important to mention in response to this is that the when government spending exceeds tax revenue, it leads to a budget deficit. This has been commonplace in the UK for decades but has recently become a ‘hot topic’ for politicians who claim they would reduce the budget deficit.

There are many reasons that governments spend money. Firstly, the government has a responsibility to provide public and merit goods which would otherwise be under-supplied in a free-market. Everything from street lamps to a police force need to be provided by the government because they wouldn’t be supplied efficiently or distributed fairly in a free market.

Secondly, government spending has a huge impact on the inflation of a country because of its major influence on AD. The government has a target inflation rate of 2% so if a government needed to increase the rate of inflation it might increase spending.

Another effect of government spending, related to inflation, is the impact on unemployment. This can simple be caused by an increase in money circulation in an economy, leading to greater investment and job opportunities. In another way, government spending can be focussed on creating job opportunities through measures such as subsidising recruitment, re-training and job-seeking schemes, etc.

The imposition of taxes can, indeed, be to finance government spending as previously mentioned. However taxation can also be used for other purposes.

Taxation is often used in the UK to discourage consumers from buying demerit goods such as alcohol, petrol and cigarettes. There is some debate as to whether these taxes are purely to finance the incurred costs of demerit goods to services like the NHS or whether they are a ’stealthy’ way to tax people whilst imposing unnecessary constrains on consumers.

Taxation is of course necessary to finance the aforementioned public spending: the cost of public services should, in theory, be wholly paid for by tax-payers. There are ways governments try to reduce taxes whilst maintaining public services: investing tax-payers money in high-return investments can increase the government’s budget whilst keeping taxes low. However, like has been seen recently, government investments don’t always pay off and have a detrimental effect to the government’s budget.

This is just a brief overview of how the government spends money and taxes the economy but it covers a number of the key reasons.

When one assesses successful individuals against ordinary individuals there is often more than luck to be thanked for their success. Generally a successful person has a plan and sets both financial and personal goals for themselves. Hiring a personal tax consultant or financial planner might be the best decision you can make for yourself and your family.

Your personal financial planning must be structured in a way that takes external factors into account whilst maximising on what you can do to better your situation. Taking advantage of tax incentives, Investment planning and detailed budgeting can be important elements in maximising wealth and ensuring long-term financial stability.

A top tax consultant in Ireland recently stated that personal financial arrangements could be much better managed if you paralleled the functions to that of a country planning its economic activities. Managing your personal economy as a ’small nation’ can be narrowed into 5 main themes namely:

1. Capital Spending (’Weekly Expenditure’ for individuals)

2. Foreign Borrowings (’Financing & Debt Control’ for individuals)

3. Taxation (’tax planning’ for individuals)

4. Savings Incentives (’Retirement planning’ for individuals)

5. Government Bond Issue (’investment decisions’ for individuals)

Managing only one aspect of the above would not result in great personal economy. For example: hiring a tax consultant that only focuses on legal compliance. The route to successful financial planning encompasses all of the above items and requires realistic but intuitive goal setting strategies.

Ideally you would want to manage all the above at one service provider for an integrated approach. Don’t be scared to ask for references either