If the IRS appears at your home or place of business, it usually means you either owe them a lot of money or you could be under investigation by the criminal division. REMINDER: Admit nothing but your name and NEVER, never lie to an IRS employee. Get the name and telephone number of the IRS employee by asking for a business card with a title on it. Tell the IRS person you will have your CPA or Attorney call him or her within 24 hours and you do not wish to make any statement. Don't be intimidated if he or she threatens to serve you with a summons if you don't provide him/her with immediate answers. CALL YOUR CPA OR ATTORNEY IMMEDIATELY. With a signed power of attorney, that person can represent you and find out what is going on.

As a self-employed person, you file a Schedule C with your annual Form 1040. Your direct business expenses are deductible against any reportable income. Those expenses include use of your car at 31 cents per business mile; one-half of the cost of meals or entertainment with customers/clients while discussing business either before, during or after the meal or entertainment function, the cost of travel away from home for business, conventions and seminars, advertising literature and promotional costs, office supplies and postage, repairs to business property, and many other related expenses. If you have earned income (that is income from salary, wages and self-employment) and show some taxable income, you may be able to deduct all or some of your contribution to an IRA retirement savings plan (that is, up to $2,000 for you and up to $2,000 for your spouse). While you are self-employed, and have self-employment income, you may establish a self-employed retirement plan and contribute as much as 13.04% of the net self-employment income toward that plan. There are some limitations and restrictions to these deductions. I will discuss them in future messages to you.

While a major battle is brewing over air travel taxes between larger carriers and discount airlines, a little-noticed aspect of the tax is also being addressed. Under one proposed provision, skydivers will no longer be subject to the air travel ticket tax, primarily be cause they fly briefly and don't land with the airplane.

Thanks to Mostad & Christensen, Inc., an accountant product marketing firm.

Could you get excited about saving money on your monthly long-distance bill? Wouldn't it be awesome if you could save up to 50%? Wouldn't it be wonderful if you could continue to enjoy the same high quality of service that you are already accustomed to, yet be able to see savings every month? Can you see the value of not only saving money but having a 90-day satisfaction guarantee? Isn't it easy to see why the company since 1989 has grown to be the 5th largest long-distance carrier? Do you see the benefit in the long-distance savings and discounts that come with our connections incentive package? Isn't it important for anybody to look for savings wherever they can? Do you now use a cellular phone and accept incoming calls?

If you answered YES to any of the above questions, call Discount Buyers Network at 617-963-5800 and find out more about a money savings telephone service that includes calling cards, domestic and international programs, "call-me" (800 or 888) service and a full line of beepers.

The Internal Revenue Service trains auditors well. The Internal Revenue Manual suggests that auditors pause during office audits, encouraging taxpayers to fill in the silences with - they hope - unintended disclosures. Don't fall for this scripted silent treatment. No matter how things look, NEVER, EVER volunteer information to a tax auditor.

Internal Revenue Field Agents are, in fact, tax professionals. These are the people that come to your home or business to do an audit. Many have had extensive experience in private business or industry prior to becoming an Agent. If you are subject to a field audit, be sure to hire your own tax professional to represent you.

The federal government is short of money. Their search for revenue has made the IRS aggressive in the reclassification of independent contractors to employees.

You should carefully review your business relative to independent contractors who perhaps should be treated as employees. It can be very expensive to be caught by the Internal Revenue Service or the Department of Revenue in a mistake. Penalties can range from 20% to almost 100% of compensation paid to the employee. The payroll tax penalties and the additional workers' compensation insurance violations can shut down a business.

We need to discuss these warning signs to avoid IRS and DOR problems for your business. Here is a partial list of important questions you should consider:

• Do you have both employees and independent contractors who do the same time of work for your business?
• Do you pay more than $10,000 per year to any one independent contractor?
• Do you have an independent contractor who only works for your business?
• Do you lack a written working contract between you and your independent contractor?
• Did you forget (or miss) to issue Forms 1099 to all independent contractors?
• Have you changed an employee to independent contractor status?

If you answered yes to any of the above questions, you may have a problem. Please look at your business and give me a call if we need to develop an action plan to deal with a possible audit threat.

Publication 1542, recently updated, gives the maximum per-diem rate employers can use without treating part of the allowance as wages for tax purposes.

Publication 968, Tax Benefits for Adoption explains the new tax benefits available to offset the expenses of adopting a child.

To deduct a gift to a charity that is worth $250 or more, you must obtain a letter from the charity acknowledging the gift containing a statement of value you may have received by making the gift (such as a trip, a ticket to an entertainment function). If your gift of $250 or more is contained in a series of smaller gifts, you do not need the acknowledgment letter. If you make more than one gift of $250 or more, you needn't obtain two letters as one letter covering both gifts is sufficient.

QUESTION: Hi! I am so angry I could scream and I really need some help. Those idiots in congress make me furious. I sold my home in February and the capital gains tax break, to my knowledge, will not help me because they decided May 6 was a good day instead of Jan. 1 where it belongs! It isn't fair to make me pay a tax on a paper only gain. All of the money from the sale of my home went into the new home, but it was less expensive so they say I made money on my home. If you have any advise, I would really appreciate it!
Thanks!
Paula Riedel (via the Internet)

ANSWER: Paula: I truly hate to bring bad news to you, but the law is very specific. Your new home must cost at least the same or more than the selling price of your old home. Otherwise, you have a tax. However, you could spend money fixing up your new home (renovations) during the first two years of ownership as your principal residence and add that to our basis of the new home. If that new basis exceeds the selling price of the old home, you win.

Good luck!!

PS: This will appear in a future edition of Tax Tips and Facts. Thanks for writing.

Although the Internal Revenue Service has agreed NOT to impose penalties on businesses that make timely deposits using paper federal tax deposit forms until December 31,1997, the requirement still exists to make federal tax deposits using the Electronic Federal Tax Payment System (EFTPS).

The IRS says: "Businesses are encouraged to use this additional time to get acquainted with EFTPS. If problems are encountered, they will have time to get help and make adjustments, rather than face a penalty." For information on EFTPS or to get an enrollment form, call this office or EFTPS Customer Service at 800-555-4477 or 800-954-8400.

[Ed note: I know it's not new, but it is cute.]

A helicopter was flying toward Seattle when an electrical malfunction disabled all of the aircraft's navigation and communications equipment. Due to the extreme haze that day, the pilot now had no way of determining the course to the airport. All he could make out was a tall building nearby, so he moved closer to it, quickly wrote out a large sign reading "Where am I?" and held it in the chopper's window.

Responding quickly, the people in the building penned a large sign of their own. It read: "You are in helicopter." The pilot smiled, and within minutes he landed safely at the airport. After they were on the ground, the copilot asked how the sign helped him determine their position.

"I know it had to be the Microsoft building," the pilot replied, "because like any computer company's help staff, they gave me a technically correct but completely useless answer."

There are some 90,000+ refunds being held by the Internal Revenue Service. If your federal refund is still missing, call the IRS automated refund telephone service at 1-800-829-1040. Be prepared to give your social security number, filing status and the exact amount of your refund claim.

Taxpayers no longer have to call the IRS to check the tax-exempt status of their favorite charity. Those with internet access who want make sure their charitable contributions qualify for a deduction on their tax returns can now check the names of nearly 500,000 tax-exempt organizations.

If you like our work, recommend us to a friend. If you are not happy with our work, please call me and let's talk about it. We will both appreciate it.

If you would like to have a FREE spot in TAX TIPS AND FACTS to tell us about your company, its products or services, simply send us a brief story, an overview of your company's products and future plans. We may edit the information and include it in a future edition. Send the information to Roger A. Kahan, CPA via mail, e-mail or FAX it.