As a tax preparer for 27 years, I have helped thousands of clients on personal and business taxes. Every tax season during the years of 1983 until 1994, I worked for H & R Block. Prior to that, I just prepared taxes for friends and relatives. 

 
 

When I first went to work for H & R Block, everything was done by hand. A customer went in and was greeted by a receptionist who would refer the tax payer to a tax preparer. The tax preparer finished the tax forms, wrote the receipt and told the client to come back, usually within 2 business days. The file was then moved to the District office where they checked for the accuracy of mathematics calculation and tax theory. Then the file was returned to the office and handed to the client. Some years later, everything was computerized. 
 

The year of 2006 is painful for H & R Block. The New York State Attorney General Eliot Spitzer is suing H & R Block for fraud. The AG is seeking to deduct $250 million from the tax-preparation company, accusing it of alleged fraud in leading more than 500,000 clients into a money-bleeding retirement account plan. 

In February 2006, 5.9 million customers went to H & R Block, down 5.1% from the same period last year. Analysts point the reasons to other storefront chains as well as tax software, including Block’s own Tax Cut software, TurboTax as well as others. 
 

To me, taxes are very interesting.  I give you an example.  Mr. A is single. He had a 2005 Form W2 indicating a wage of $12,600 with no federal income tax withholding. Filing the federal income tax in 2006, he has to pay $443 to the Internal Revenue Service (IRS). The same Mr. A, supposed he had the only income was a 2005 Form 1099 indicating a $12,600 wage. Depending on the deductions, his tax situations would be different. If he has no deduction, he must pay $1,778 to the IRS. If deductions are $12,600 are more, he does not have to pay the IRS anything. If he has a $400 net profit (deductions of $12,200), the IRS will send him a $33 check. 
 

Now if Mr. A has two children with a 2005 Form W2 with a $12,600 income, the IRS will send him a $4,640 check. And for that income with one dependent child, the IRS will give him $2,902. 
 

The same Mr. A with a $12,600 income in 2005 on Form 1099 with one child, he will have $989 from the IRS; with two dependent children the IRS shall give him $2,727. 
 

Sounds confusing? It’s the established tax due and refund on the income related to the circumstances. Going around it intentionally by underreported income or not filing at all? You are looking for fines and interests imposed on the tax due. In the extreme cases, violators are sent to prison. 
 

THE IRSRPP (The Internnal Revenue Service Criminal Investigation Return Preparer Program) was implemented in 1996, and established procedures to foster compliance by identifying, investigating and prosecuting abusive return preparers. 
 

The program was developed to enhance compliance in the return – preparer community by engaging in enforcement actions and/ or asserting appropriate civil penalties against unscrupulous or incompetent return preparers. This is a significant problem for both the IRS and our taxpayers. Abusive preparers frequently prepare bad returns for large numbers of taxpayers who are stuck with paying additional taxes and interest and at worse, depending on culpability, are subject to penalties and maybe even criminal prosecution. 
 

The IRS, in its compliance/enforcement, advises:  “Taxpayers should be very careful when choosing a return preparer. You should be as careful as you would in choosing a doctor or a lawyer. While most preparers provide excellent service to their clients, a few unscrupulous return preparers file false and fraudulent tax returns and ultimately defraud their clients. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.” 
 

Recently, the case of US Congressman Randy Cunningham is sensational. He was born on December 8, 1941. According to Oriental astrology, it was the Year of Snake. Cunningham resigned from the House on November 28, 2005 after pleading guilty to federal charges of conspiracy to commit bribery, mail fraud, wire fraud, and tax evasion. 
 

By pleading guilty, he admitted to taking at least $2.4 million in bribes and underreporting his income for 2004. On March 3, 2006, Cunningham was sentenced to eight years and four months in prison and was ordered to pay $1.8 million in restitution. 
 

I would like to invite you to have an overview of the United States taxes. 
 

In the United States, there are many types of taxes levied by the city, county, state and federal government. Taxes are not a modern invention. They actually date back to earliest recorded history.The Egyptian Pharaohs imposed a tax on cooking oil – the cooking oil tax auditors would audit households to insure that appropriate amounts of cooking oil were consumed. When Rome fell, the Saxon kings imposed taxes on land and property similar to Los Angeles County property taxes.
 

Although people work hard to meet their needs and the needs of their families, there are many things they can not purchase themselves. For example, the taxes paid to state and local jurisdictions help pay for police and fire protection, In addition, these taxes also pay for the operation of the local governments, and for local recreation areas such as parks and other public facilities. 
 

On the national level, Federal income taxes help pay for defense for the country. They also pay for capital facilities such as highways and other transportation services. Furthermore, these are also the fund for assistance to those who are poor or ill. Individual citizens can not purchase the mentioned services the way they can buy food, clothing, and other necessities of life. When people live together in a society, all of its citizens must bear the cost of providing such services. Taxes are the means by which the society raises money to cover the public costs.
 

United States Tax History.
 

In 1781 - The Articles of Confederation reflect the American fear of a strong central government. They leave the government of the U.S. with no tax power. For its revenue, it relies primarily on donations from the states. 
 

In 1789 - The Constitution gives the federal government the authority to tax stating that Congress has the power to “lay and collect taxes, duties, imposts, and excises, pay the debts and provide for the common defense and general welfare of the United States.” To pay for the debts of the Revolutionary War and to operate the government, Congress imposed tariffs (import taxes) and excise taxes on goods such as whiskey, rum, tobacco, snuff and refined sugar. 
 

In 1794 – The Whiskey Rebellion relates to the excise tax on whiskey and the disagreement between those who thought it was right and those who thought it was unfair. The farmers in Pennsylvania, Maryland and Virginia were hurt most by the tax, as their most valuable crop was corn, which was made into whiskey. Others believed the taxes were a necessary source of revenue for a strong government to run the country, no matter what was being taxed. 
 

In 1798 – Congress levied its first direct tax. It was in the amount of $2 million and was apportioned among the states on the basis of the current census. The purpose of the tax was to extinguish part of the debt incurred by the Revolutionary War. 
 

In 1862 – President Lincoln signed The Tax Act of 1862 – Established the office of the Commissioner of Internal Revenue Service. The Commissioner was given the power to assess, levy, and collect taxes, and the right to enforce the tax laws through seizure of property and income. The powers and authority remain very much the same today. 
 

The rates were 3% on income above $600 and 5% on income above $10,000 to support the Civil War. The rent or rental value of your home could be deducted. 
 

While the people “cheerfully accepted the tax,” compliance was not high. In 1870 only 276,661 people actually filed tax returns when the population was approximately 38 million. The Tax Act of 1864 changed the rate to a flat 5% with an exemption of $1,000. From 1870 to 1872 the rate was a flat 2.5% and exemption was raised to $2,000. 
 

In 1872 the income tax was abolished. (Hooray!) 
 

In 1894 – A federal law creates a personal income tax in 1894 with a flat rate of 2%. 
 

In 1895 - The U.S. Supreme Court decided that the income tax was unconstitutional because it was not apportioned to the population of each state. 
 

In 1913 – The 16^th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. 

 
 

In 1918 - Fiscal year – Annual internal revenue collections for the first time passed the billion-dollar mark rising to $5.4 billion by 1920. 

 

In 1932 – The nation is in the greatest depression. The Act raises the tax rates and lowers exemption levels.
 

In 1936 – Revenue Act reduces taxes as too much money was being collected. 
 

In 1939 – The revenue statues are codified. One out of 32 citizens pays 4% rate. 
 

In 1943 – The withholding tax on wage is introduced. Taxpayers increase to 60 million and tax collection by 1945 is $43 billion. 
 

In 1981 – Congress enacts the largest tax cut in U.S. history, approximately $750 billion over six years. In an effort to raise $265 billion, the reduction is partially offset by two tax acts in 1982 and 1984.
 

In 1986 – President Reagan signed into law the Tax Reform Act. It establishes two basic rates of 15% and 28% replacing 14 different rates ranging from 11% - 50%. Tax preferences are eliminated to make up most of the revenue. In order to remain revenue neutral, the Act called for a $120 billion increase in business taxation and decrease in individual taxation over a five-year period. 
 

In 1990 – The Revenue Reconciliation Act is signed into law. Congress establishes a third income rate of 31%. The emphasis of the 1990 Act is increased taxes on the wealthy. 
 

In 1993 – President Clinton signed the Revenue Reconciliation Act of 1993 into law. The purpose was to reduce by approximately $496 billion the federal deficit that would otherwise accumulate in fiscal years 1994 through 1998. 
 

In 1997 – Taxpayer Relief Act brings more than 800 changes including the child tax credit, Roth IRAs, capital gains reduction, and breaks for higher education. Congress added rates of 36% and 39.6%. 
 

President George W. Bush signed tax cuts into law in 2001, 2002, 2003, and 2004. The largest was the Economic Growth and Tax Relief Reconciliation Act of 2001. It has 441 changes including lowering income tax rates. 
 

The Bush tax cut created a new lowest rate, 10% for the first several thousand dollars earned. In addition, the top four tax rates were cut down (28% to 25%; 31% to 28%; 36% to 33%; and 39.6% to 35%). It was estimated to save taxpayers $1.3 trillion over ten years. 
 

On September 16, 2003, the IRS and 40 states announced an agreement to share investigative leads on promoters of fraudulent tax schemes and to coordinate efforts to shut them down, prosecute them in some cases and warn the public. The IRS and the states have, historically, shared information, but usually after audits and enforcement were completed, not at the early stages when tip come in about tax invasion. It has meant some tax frauds have gone unpunished at either state or the federal level because the statute of limitations for prosecution expired by the time information was exchanged. 
 

The City of Los Angeles now audits reported incomes of businesses. They sent letters to people asking them to bring in 3 recent years of tax filing to see if the incomes reported to the City match reported incomes on Schedule C (Profits or Loss from Business). However, if total incomes in Los Angeles below $50,000 in 2005, you do not have to pay any City of Los Angeles business taxes.