|
Archive for April, 2009
Wednesday, April 22nd, 2009
Use of Reverse Audit
In our law practice we are often asked about the reverse audit strategy and whether it might be good to do in a certain case. The answer is Yes, quite often it is a good thing to undertake when there is the suspicion that sales and use taxes may have been overpaid. The sales and use tax reverse audit undertaken by a tax lawyer or CPA mirrors the kind of approach taken by the state’s sales and use tax auditors. The whole point of the reverse audit is to of course help the taxpayer be in compliance with state tax laws.
Goals of a Sales and Use Tax Reverse Audit
Like the federal income tax, the state sales tax procedure is set up to be self-assessing, meaning the taxpayer audits his own records and pays what his records and the law says he owes. This is true for when the tax is paid in the first place. A reverse audit is accomplished by going back over how this was done, what records were sampled, and the extent of sampling, which might have been error-prone.
The sales and use tax reverse audit conducted by tax lawyers and CPAs mirrors the sales and use tax examinations conducted by state tax auditors, except the lawyer or CPA is seeking to identify and seek refund of overpayments of such sales and use taxes.
Objective of a Sales and Use Tax Reverse Audit
The goal of recovering overpayments of sales and use tax can is often realized by our tax lawyer or CPA auditing a company’s payments of use tax and sales and use tax paid to a company’s suppliers for purchases that might qualify for certain tax exemptions.
Over the past several years we have seen an upswing in state tax auditors denying tax exemptions and charging taxes on items that are normally exempt. If your company is under-utilizing a first class sales and use tax audit system then you may be allowing tax to be wrongly paid on purchases and as sales tax billed to customers on sales. It is most often the purchaser who has the responsibility of claiming the exemption. If your accounts payable group is not properly directed, sales and use tax may be erroneously paid to suppliers.
Please remember we can help with this kind of audit, the reverse audit, and that we can probably and will save you and your company money by implementing proper internal audit procedures and guidance for your own employees when dealing with these issues.
Posted in Sales & Use Tax | Comments Off
Monday, April 20th, 2009
As a business owner it is imperative that you retain thorough records of all transactions that pertain to your business. If the state sends you a sales tax audit you will need more than your cash register tapes in order to deal with the audit. You can choose to hire an attorney to represent you and appear on your behalf at the audit, or you can opt to deal with the state taxing authority on your own. An attorney can provide you with expert representation and will be familiar with all of the laws that pertain to sales tax legislation within your specific state.
Many business owners are under the wrong impression about sales tax audits. They do not realize that the government may request that the business owner produce documentation concerning a number of financial information sources. These documents may include any information from your business’s bookkeeping, any information about tax exempt sales, and any records that document your business operations.
In order to guarantee that your business will never have to worry about not being prepared for a sales tax audit, you must diligently keep records of all your business transactions. Keep every document that supports your bookkeeping records or computerized records. You should keep hard copies of all sales invoices, purchase invoices, purchase orders, and bank statements. If you deal with customers that purchase items on a tax exempt basis you need to keep copies of resale certificates and exemption certificates. Finally, keep any other type of papers that support your business records. These would include sales journals, income statements, and all state and federal income tax returns. Even though you may have detailed records regarding the information that is on any of these documents, you will need to furnish the government the original documents in order to prove your case. Set up some file cabinets and develop a storage system in order to keep track of all of this information.
Obviously, comprehensive and organized bookkeeping will be your best defense against a sales tax audit. By keeping all of your records and organizing them in a way that makes them easily accessible, you will be prepared to face an audit. But if the audit happens, an experienced tax attorney can significantly increase your chances of the audit going in your favor. Hire an experienced and professional attorney that is familiar with the state laws regarding sales tax so that you can defend your business.
Tags: audit irs, sales tax audit, tax audit help
Posted in Sales & Use Tax | Comments Off
Friday, April 17th, 2009
Many Americans live in fear that the dreaded IRS man will come knocking with in-home income tax audits. The truth of the matter is that the auditing process usually begins with a letter or a phone call that you must respond to. Many times the IRS is looking for correspondence audits in which they expect you to send them information back confirming a deduction or some other type of information. Once you furnish them the information and they are satisfied with it, there will be no further correspondence.
Office income tax audits are much more intimidating. In this case you will be required to meet with an IRS agent in their office to answer their questions and to provide them with any other additional information that they require. These types of audits are much more stressful and it is much more likely that you will end up providing the government with too much information that they can use against you.
The best way to deal with these types of income tax audits is to seek out representation. A tax audit lawyer can attend this meeting with you or on your behalf and will be able to deal with the IRS agent in a straightforward manner. They will provide the pertinent information to the IRS and are much more likely to garner a satisfactory ending to the audit. If you choose to attend the income tax audit yourself, make sure that you are prepared, professional, and organized. If you take on a negative attitude the auditor might think you are acting defensively in order to hide information. By being prepared you can eliminate the need for another meeting and it will show the IRS that you want to settle this case in a timely manner. Finally, by being organized, you are showing the IRS that you were organized in filing your taxes and that your personal accounts are in order. The last thing that you want to do is set off any red flags that would give them reason to want to question you further or reexamine your records.
An income tax audit can be a frightening experience. That is why it is imperative that you keep all of your financial information and anything else that relates to your taxes somewhere safe. Keep your records organized by year and make sure that you have receipts for any deductions that you claim.
Tags: income tax audits, sales tax audit, tax audit help
Posted in IRS Tax Audits | Comments Off
Wednesday, April 15th, 2009
The wise taxpayer will always ask his or her tax lawyer or tax audit representative in cases like tax audit cases first about the statute of limitations in the case. At its simplest, a statute of limitations is just what it says–a limit on the amount of time the IRS has to perform a particular task, like audit taxes or collect taxes. And, it is set by statute, hence “statute of limitations.”
What is the purpose of the statute of limitations? Well, the statute of limitations (SOL) is an absolute bar to IRS action. For this reason IRS agents are trained to carefully watch the SOL in their cases to make sure the time limit on finishing an IRS audit, for example, doesn’t run out.
We’ll be talking in this post about two statutes taxpayers really should know about. The first is the statute of limitations on assessment; the second is the statute of limitations on collection.
Statute of Limitations on Assessment, Internal Revenue Code Sec. 6501.
The SOL on assessment is the time limit on which the IRS can review your file and say, “Aha! You owe this dollar amount in taxes.” Put another way, an assessment is the IRS official act of creating a balance due for a taxpayer. For IRS tax audits this usually happens after the audit + appeal is completed. Also, the assessment begins the collection process, something not all taxpayers realize. The general SOL on assessment is three years from the date the return was actually filed. Here’s the sticking point however: the SOL does not run at all if you have either failed to file a return or if you filed a fraudulent return. This being said, the IRS then can go back three years if you filed the last three years on time and without committing fraud. If there was fraud then the IRS is unlimited in how far back it can go. Now you know about the SOL on assessment.
Statute of Limitations on Collection, Internal Revue Code Sec. 6502
The IRS can collect taxes up to ten years after assessment. “Assessment” see the paragraph above. Today’s law since 1998 says that the IRS can extend this SOL only where there is in place an installment agreement that itself doesn’t pay out until after the ten years has run–then the SOL extends ten years plus the installment agreement payoff date.
Posted in IRS Collections | Comments Off
Wednesday, April 15th, 2009
What If You Don’t File Your Tax Return?
One thing is for sure with the IRS, your non-filing will eventually float to the surface and you’ll be found out. What happens if you don’t file? Tell the truth, most people–and rightly so–are too frightened to find out. Warning: Never mess around with the IRS. Depending on the nature of the actual return, you are either faced with paying interest or even worse, penalties. Any tax audit lawyer can recite countless tales of people who fudged on their expenses and wound up owing more in interest and penalty than the tax itself.
Interest If You Don’t File Your Return
Interest runs. And runs and runs and runs! Interest on underpayments runs from the extended due date of the tax return, which is April 15th of any tax year. The usual interest rate is defined by law, but if you underpay you incur a 1% premium rate. Under the Internal Revenue Code, your interest rate is figured on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. Rule of thumb: You’ll do better borrowing the tax payment from the bank than from the IRS. Usury anyone?
Plus There Are Penalties For Non-Filers
Penalties will be called either failure to file or failure to pay penalties which will automatically be assessed by the IRS.
The failure to file or (FTF) penalty is assessed by the IRS at a rate of 5% per month or partial month up to a 25% maximum. The failure to pay (FTP) penalty is assessed by the IRS at a rate of 0.5% per month or partial month up to a 25% maximum. If both the FTF and FTP penalties are assessed, the FTF penalty is reduced by the FTP penalty.
As above, there are also underpayment penalties owing to some fault of the taxpayer. However there are also the following penalties, listed in order of their severity.
- Criminal fraud. Also commonly known as tax evasion. Illegal, of course. If convicted of this crime a taxpayer will be subject to heavy court fines, imprisonment or both.
- Civil fraud: This is essentially taxpayer fraud that does not rise to the level of criminal fraud. If imposed, the penalty is 75% of the portion of tax underpayment attributable to fraud. Talk about hard time!
- Negligence: This penalty is based on the accuracy of the return. The penalty is imposed if any part of the underpayment is due to taxpayer neglect or disregard of the tax rules and regulations without the intent to defraud. The penalty is 20% of the portion of the underpayments attributable to the negligence.
- Frivolous Return: A frivolous return is one that omits certain information necessary to determine the taxpayer’s tax liability, such as Social Security numbers or employment details. These returns are most often filed by people the IRS labels “tax protesters.” This is a terrible label to receive from the IRS; it follows you for life, even if you finally decide to go straight and file accurate and complete returns. The penalty is $500 for each frivolous return filed.
Don’t Forget The Tax Extension
If it’s getting close to the wire and you still don’t have all your tax information together, you still can file a tax extension. What you’re trying to do here is to pay an estimated tax in the event that you owe. If you haven’t paid any tax throughout the year, or underpaid, then the same interest and penalties would apply.
Suffice it to say that your failure to file a tax return and pay your appropriate tax bill can be of serious consequence. There are many high profile cases of individuals who failed to pay their tax bill. If the big names can’t cheat the IRS, why do you think they might cut your some slack? They don’t go easy on anybody else.
Posted in Criminal Tax Problems, IRS Audit Representation | Comments Off
Tuesday, April 14th, 2009
If you want to avoid the experience and the feeling of sheer panic that sets in when you check your mail and receive an envelope from the IRS, there are ways that you can protect yourself. Many people start to go into a state of shock when they open the envelope and see the words income tax audit on the letter. Many of these people have no idea how this could happen, since they had always been honest and forthright in their tax returns and they employed the services of a reputable accountant. An audit is a serious affair that you need to be prepared for if it should ever happen to you.
Although you may be fond of your accountant, you will want to hire a lawyer that specializes in tax cases if you have been audited so that you can be assured that the auditing process will go as smoothly as possible. While you may be fairly confident that your income tax audit will work out in your favor, you need peace of mind so that you can sleep at night. You also need to make sure that there aren’t any accidental discrepancies that your accountant and you have overlooked in your tax preparation. Perhaps you have made an honest mistake and if that is the case you should be fully prepared to rectify any such occurrence. Only the professional guidance of an attorney can eliminate any unnecessary stress.
By finding a tax audit lawyer that is well versed in tax law and that has built a great reputation on the internet you will be well prepared. You should contact one immediately in order to see if he or she can assist you with your income tax audit. An attorney will listen to your concerns over the phone and invite you to fax your information so that the attorney can take a look at your case. They will explain to you that the major burden of proving the facts reported on the income tax returns is your responsibility, but that they can help you meet that responsibility. If you have kept track of your deductions and expenses and are able to furnish the information required by the IRS, you will have nothing to worry about. If not, a good tax attorney can help you reconstruct or retrieve the missing documents and/or create affidavits for this purpose. The attorney can look over your taxes and all of the other paperwork and receipts that you have accumulated and let you know if you are prepared for the audit.
After the initial consultation you will be assured that the income tax audit will go smoothly and that there will not be any complications. When the time comes for you to sit down with an IRS agent, you will be prepared and ready to furnish them backup for any information that they are going to call into question about your return.
Tags: income tax audit, income tax audits, sales tax audit
Posted in IRS Tax Audits | Comments Off
Tuesday, April 7th, 2009
How CID (Criminal Investigation Division) Investigates a Case
When a case is opened, it is assigned to IRS special agents from the Criminal Investigation Division (CID) of the IRS. Usually, there is a joint investigation, utilizing revenue agents (auditors) who might already be familiar with the case as well as CID. Joint investigations usually arise from revenue agent audits that are accepted as fraud referrals by CID. In such cases, the special agent works cooperatively with the revenue agent to develop the tax fraud case.
Special agents usually perform a great deal of background work even before they make the initial direct contact with the taxpayer. By the time you get the knock on the door and the badges shoved at you, the CID has already done 85% of its work. They anticipate that taxpayers will refuse to cooperate with their investigation. The background work therefore yields information they might not otherwise get and also arms them for interviews with the taxpayer.
Here is what the CID agents have usually done by the time you hear from them: investigation of many sources of information, including IRS records, courthouse records, bankruptcy court records, other public records, government agency records, and any other public source that the agent may know of.
The next step is to make the initial contact with you, the taxpayer. The agent shows up at the taxpayer’s residence (usually, but not always–sometimes they will come to the workplace). The CID agent identifies himself to the taxpayer, states that he is a special agent of the Internal Revenue Service assigned to investigate the taxpayer, and advises the taxpayer of his Miranda rights.
You should know that under Beckwith v. United States, the recitation of these rights is not constitutionally required since the taxpayer is not in custody. However, agents advise taxpayers of these rights as a matter of policy and as the Internal Revenue Manual requires. These are issues you will want to discuss in great detail with your tax crime attorney.
The agent then asks the taxpayer to cooperate and to begin that cooperation by submitting to an interview. If the taxpayer submits to the interview, the agent will ask wide-ranging, open-ended questions intended to elicit as much general and specific information as possible about the taxpayer, his personal and business financial affairs and the like. The agent wants to get you talking. As a tax crime attorney I can tell you that it is surprising how many taxpayers–out of guilt or for other reasons–submit to the full-length questioning by a special agent merely upon presentation of the agent’s credentials. Indeed, the agent times the interview to try to catch the taxpayer when he is most vulnerable, and when he is least likely to call an attorney. At this point you should know better: KEEP QUIET, SAY NOTHING. CALL US.
In many cases, the taxpayer, by submitting to an interview, seals his own fate and, in effect, talks himself into a conviction. Even a false or misleading statement can and will haunt the taxpayer. Material false statements that are made knowingly or willfully are violations of the United States Code so you might get yourself into even deeper trouble if you give false information. There is no safe approach to any question from a special agent. Almost any answer can either impeach or convict at the very least. About the only ways a taxpayer can answer an agent’s questions in a criminal investigation without further damage are: decline to answer. Even telling the truth is unwise; you can convict yourself of a tax crime if in fact you have committed a crime.
In the third phase of the CID agent’s investigation, he solicits information from third parties. This includes banks, customers, clients, friends and relatives, and the like. If the taxpayer cooperates, the agent asks for written consents to examine bank records and other third party records that would otherwise require an exercise of the summons power. The agent also interviews every possible material witness.
The agent also interviews the taxpayer’s return preparer, obtains his workpapers, and reviews the taxpayer’s books and records when they can be found. In many cases the preparer is a key witness against the taxpayer. Prior year returns (both filed and retained copies–fraud may be indicated when the filed returns do not match the drafts or copies of the filed returns) are well within the agent’s scope of inquiry, and these are almost always examined.
As part of the interview process, the agent takes careful notes and reduces these notes to interview forms, sworn if possible, or simply memoranda to the file. If you have helped him generate these writings you are really really hurting your chances of defending yourself.
In the fourth stage, the agent writes up his recommendation for prosecution or nonprosecution, together with a carefully organized assembly of the evidence and the sources of evidence. The agent submits this package (a typical case can run to several dozen exhibits) through the Group Manager and Branch Chief.
Now the CID usually grants the taxpayer a conference at the district level. While not required by law, such a conference gives the taxpayer, in theory, the opportunity to rebut any proposed charges. In practice, CID often uses the conference to obtain more damaging admissions from the taxpayer or his attorney. The manager advises the taxpayer or his attorney of the general outline of the case, including the nature of the charges and some of the facts. Of course, the taxpayer may not obtain the special agent’s report or any other materials CID does not voluntarily disclose. However, further discovery is available during the criminal case.
A conference is also made available at the next stage of review, the Office of District Counsel of the IRS. The usual procedure is for District Counsel to approve the recommendation for prosecution after review and refer it to the Department of Justice or the United States Attorney’s office in certain cases. The Tax Division of the Department of Justice has final reviewing authority over all cases, although in some cases this is undertaken at the same time the case is referred to the United States Attorney’s office. Direct referral cases to the U.S. Attorney include cases involving excise tax fraud, withholding tax cases, failure to report more than $10,000 in cash, willfully aiding or assisting in preparing a false return, and false refund claims.
At the Tax Division, the taxpayer is also offered a conference to discuss the potential charges. Also, when the Office of District Counsel refers the case for prosecution to the United States Attorney’s Office, another conference is often granted.
Note well: Despite the stated purpose, these conferences do not afford the taxpayer the opportunity to prove his innocence and thereby avoid prosecution. The true purpose of these conferences, at whatever level, is to give the taxpayer a chance to convict himself or provide additional evidence against himself.
In these conferences, the statements of the taxpayer’s attorney are binding on the taxpayer since the attorney is the taxpayer’s agent. The government has used attorneys’ statements many times at trial, statements that the attorney made during one of these conferences. Admission of these statements usually cannot be objected to on the basis that the statement is part of plea negotiations. These are admissions of the agent of a party.
Now you have seen in a nutshell how the CID investigates and convicts for tax crimes. You have seen how the many opportunities to try to wiggle your way free are really only designed to put you away in prison. The choice should now be clear: Will you talk to the CID or talk to me, John Ellsworth, a tax crimes lawyer and a criminal defense attorney? The choice should be obvious. Give me a call today if you believe you are or may be the subject of a criminal tax investigation.
Posted in Criminal Tax Problems | Comments Off
Monday, April 6th, 2009
It is only fair that you know how IRS-SOLV.com’s attorneys defend your tax returns in the IRS audit you have retained them to defend. What follows is the terms of our agreement with you:
IRS-SOLV.com will defend tax return described on the acceptance email in return for the required attorney fee and compliance with all terms of this TOS. The acceptance email is the email sent to you when IRS-SOLV.com agrees to take you on as a tax defense client.
HERE IS OUR AGREEMENT WHEN YOU HIRE ME
In this agreement, “you” and “your” refer to a single taxpayer, or taxpayer husband and taxpayer wife. “I”, “me” and “IRS-SOLV.com refer to IRS-SOLV.com, in other words the attorney who is providing your tax audit defense. “IRS” refers to the Internal Revenue Service and “State” refers to your state income tax agency.
Audit: Audit includes communications, phone calls, made to you by the IRS or State income tax agency that wishes to examine or verify any item on the IRS income tax forms and State equivalent listed on the membership certificate.
Audit Defense: Audit Defense means that IRS-SOLV.com will defend you in the income tax audit for the tax year return identified on the acceptance email. Audit notification must be dated before the acceptance date listed on the acceptance email, subject to the limitations and exclusions listed in this agreement. Audit Defense also includes:
1. Handle all communications, including letters and/or telephone calls with the IRS or State regarding the audit.
2. Assign the Audit Representative to manage your case.
3. Develop a strategy with you and meet with the IRS or State on your behalf.
4. Negotiate with the IRS or State through Appeals and pre–litigation Appeals review prior to Tax Court.
5. No settlement will be reached with the IRS or State without your final approval and consent.
6. Two hours of collection assistance will be given if your audit results in additional tax due.
Acceptance Date: Acceptance Date is the date IRS-SOLV.com sends you the acceptance email and payment in full is received. Your Acceptance Date appears on the acceptance email.
Statute of Limitations: Statute of Limitations means the time the IRS or State has to audit your tax return. The Statute of Limitations for the IRS is three years from the date of filing or the due date, whichever is later, and is typically four years for States.
Period of Coverage: Period of Coverage is the period commencing with the Acceptance Date and ending with the expiration of the normal statute of limitations period.
Audit Representative: Audit Representative means your assigned case member from IRS-SOLV.com audit representatives who will be assigned to your audit case. These individuals will ordinarily be assigned to you according to their area of expertise, subject only to IRS-SOLV.com’s experience with each representative in actual past audits.
CONFIDENTIALITY
As a member of IRS-SOLV.com, your name, address, and any other personal information will not be disclosed or sold to any persons or firms. Only IRS-SOLV.com’s Audit and Technical staff will have access to your tax information.
CLIENT BENEFITS
Tax Audit Defense – IRS-SOLV.com will professionally defend a covered income tax return audit from the time of the first notice to its completion, subject to the Audit Defense Plan Limitations and Exclusions described below. This includes any one additional audit that arises during the period of coverage for the original audit. All scheduling of appointments, telephone calls and correspondence will be handled by the assigned audit representative. I or the assigned audit representative will meet with the auditor on your behalf and will defend you through the highest level of appeals, if necessary.
Assistance with IRS and State Income Tax Notices – IRS-SOLV.com will assist the member to resolve any notice received for the tax return listed on the acceptance email during the period of coverage.
CLIENT OBLIGATIONS
My Responsibility: I am responsible to provide you with the highest caliber audit defense service available.
Your Responsibility: You are responsible to perform or provide the following:
1. Upon receipt of any communication from the IRS or State, promptly call IRS-SOLV.com first! Do not contact the IRS. To ensure effective service regarding your audit, you must use your assigned IRS-SOLV.com Audit Representative as your only contact with the IRS or State. If you do not contact IRS-SOLV.com within 15 days of the date of the first notice, additional charges may apply. If you wait too long you will impede my ability to defend your case.
2. Provide your signature(s) on the required IRS or State Power of Attorney and return to the Audit Representative in a timely manner. This will enable your Audit Representative to communicate with the IRS or State on your behalf.
3. Provide the information and documentation necessary to substantiate the various items of income and expense in question so that your Audit Representative can prepare your defense.
4. We ask that you comply with the audit procedure and strategy actions recommended by IRS-SOLV.com and any of the Audit Representative(s) working on your behalf. If you are unable to maintain this commitment, IRS-SOLV.com cannot be responsible for the outcome of your audit and reserves the right to cease providing service where reasonably warranted.
AUDIT DEFENSE PLAN LIMITATIONS
IRS-SOLV.com is dedicated solely to legitimately protecting the rights and assets of our members in the event of an audit. The following defines our service limitations:
* IRS-SOLV.com provide legal assistance, and for additional attorney fees will represent our members in Federal or State Court, including Tax Court.
* IRS-SOLV.com does not provide legal assistance in defending issues of civil or criminal fraud except where an additional agreed fee has been paid.
* IRS-SOLV.com does not prepare or amend our clients’ Federal, State or Local income tax returns except where an additional agreed fee has been paid.
* IRS-SOLV.com will not reconcile checkbooks, organize records or do record keeping or bookkeeping for our clients except for an additional agreed fee.
* IRS-SOLV.com does not provide assistance for collection notices when I did not defend the audit. If you have a collection notice from the IRS or State it is not considered an audit or notice and is not covered by your IRS-SOLV.com Audit Defense Coverage.
AUDIT DEFENSE PLAN EXCLUSIONS
Certain audits, tax returns, and issues of audit may be excluded from the Audit Defense Plan for any of the following reasons: Pre-existing conditions – If the date on the notice of audit from the IRS or State is after the Acceptance Email, audit defense services for that audit are excluded.
Ownership interest in other tax entities – If you have an ownership interest in a Corporation, Partnership, LLC, LLP, Trust, Estate, or Tax Shelter that has been contacted for an audit and is not a IRS-SOLV.com client, audit defense services are excluded for that tax entity.
Tax protestors – IRS-SOLV.com will exclude anyone protesting the taxing of income on economic, religious, legal or constitutional grounds, or other such claims.
Criminal Investigation (CI) – If you are currently under investigation by CI, you are excluded from audit services except where an additional agreed fee has been paid. For any audit that IRS-SOLV.com is defending in which CI enters the audit, IRS-SOLV.com will cease working that audit and will exclude the client from further audit service until completion of the CI investigation except where an additional agreed fee has been paid. When the CI investigation is completed, IRS-SOLV.com will resume working on the audit.
Other taxes – Your Audit Defense Plan is limited to the type of income tax return listed on the Acceptance Email. Payroll tax, sales tax, estate and gift tax, and compliance audits of pension and profit sharing plans are excluded from the Audit Defense Plan.
AUDIT DEFENSE PLAN EXCLUSIONS
Both you and IRS-SOLV.com and its attorneys and representatives agree to be bound by the terms stated herein once you have received your Acceptance Email.
Posted in IRS Tax Audits | Comments Off
Monday, April 6th, 2009
Here at IRS-SOLV.com we can usually settle most cases. However, for every 10 times we settle there will be 1 time that we do not. Reason? The IRS is being unreasonable; usually this is in the form of demanding too many documents so quickly that the taxpayer cannot respond in time, or the agent will insist on multiple interviews and we don’t agree to that. In these and other similar cases tax audit appeal of IRS examiner’s findings becomes necessary.
The Appeals Branch of the IRS is where most difficult cases finally settle. (But not always. Sometimes it’s absolutely necessary that we take a case to Tax Court.) As a practical matter the Appeals Branch usually carries about 3000 employees, give or take. So it’s not a huge office. Small as it may be in size, though, it is huge in the opportunities it offers you the taxpayer and me your tax audit attorney.
Most people cringe when the hear the word “Appeals.” Probably this is because the word sounds so official and full of pomp and circumstance. In fact, however, the appeal itself is quite informal and is usually conformed to the case as required. Today all settlement authority resides in the IRS Appeals Branch, which is the highest level of appeal within the IRS itself. You might also have heard of Appeals in Tax Court; please try not to confuse the two. One–the one we’re discussing here–resides inside the IRS itself, while the other resides in the Tax Court mechanism–an altogether different kind of cat.
There are some key advantages to taking an unresolved case before appeals, such as:
- 1. Rules of evidence don’t apply in appeals, so hearsay statements can be considered
- 2. No briefs are required to be filed by your lawyer, although thoughtful attorneys will oftentimes file a brief as an aid to understanding the applicable law
- 3. You, the taxpayer, do not have to appear at the appeals conference
- 4. The entire focus of the appeal is settlement
- 5. The entire process and setting is informal, compared to how courts work inside a shield of formality
- 6. Most people are glad to learn there is no publicity
- 7. Your tax audit representative’s imagination is the only limit to how settlements may be structured
- 8. Appeals officers are experienced, usually bringing 15-20 years experience to the job
However, there are also disadvantages to IRS Appeals:
- 1. IRS may request extension of Statute of Limitations, giving them longer to collect
- 2. The process is often length and delay is more the rule than the exception
- 3. Appeals officers can raise new issues that the revenue agent missed
- 4. Related tax audits may be assigned to the same Appeals Officer.
Let’s say your tax audit has gone against you. You will usually receive a letter along with the IRS audit results telling you that you have a certain number of days to file an appeal. The Appeals Branch is what the letter is referring to.
Please call us without delay if you have received a tax audit examination report that you need to appeal. We can help you only if you do not delay. Or, if your case is already on appeal and it’s not going like you hoped, call us in this situation as well. We will take over tax audit appeals already pending and fight to obtain the result you deserve.
Posted in Audit Appeal, Tax Audit Appeals | Comments Off
Sunday, April 5th, 2009
business structures 101
What exactly is an LLP? What’s the difference between an LLC and a corporation? What about S-corps and C-corps? Sorting through the legal jargon and tax codes defining these business structures can be daunting for entrepreneurs – but picking the right structure for your company brings vital tax benefits and legal flexibility and you should always discuss these choices with competent tax attorneys. LLC or corporation?
There’s virtually no reason why a small business should file as a corporation, unless the owners plan to take the business public in the near future. Instead, filing as an LLC, or limited liability company, is usually the best choice.
The major differences between an LLC and a corporation include decision-making flexibility and the type of taxation the business faces. A corporation has to have a board of directors to make decisions according to a formal process. The “board” could technically be one person, but it still needs to exist. An LLC, on the other hand, can set up an operating agreement at the time the business is created, and make decisions more informally.
Common provisions in operating agreements include:
• Who can make decisions on behalf of the LLC? Will all owners manage the company, or will there be one primary manager?
• What are the owners’ responsibilities to contribute money to the company?
• When and how will the company income be shared?
• What procedure is required to transfer membership interests in the company?
The second major difference is that an LLC benefits from “pass-through taxation.” Pass-through taxation means the company pays no tax on its profits: It’s like the company doesn’t even exist for federal tax purposes. In fact, if the LLC is a sole proprietorship, the company does not have to file any tax returns. LLCs with more than one member must file a federal tax return, although the LLC itself is not subject to a tax. Earnings pass through to the owners, who then report the income on their own tax returns and pay the tax on their income.
A corporation, on the other hand, must pay federal taxes as an entity; its shareholders are then taxed on any dividends or distributions they receive from the company, in effect allowing some of the company’s profits to be taxed twice.
There is an exception to this rule, however, for companies that file under subchapter S of the Internal Revenue Code. Such companies are commonly referred to as “S-corp” entities.
S-corp or C-corp?
The terms “S-corp” and “C-corp” are merely shorthand references for a company’s tax status – they’re not distinct business entities.
The major tax difference between the two is that an S-corp receives pass-through tax treatment similar to a partnership or LLC, whereas a C-corp (taxed under subchapter C) is required to pay tax on its income as a business entity.
An S-corp’s pass-through tax treatment does not come without some limits, however. An S-corp can have only 100 shareholders, each of whom must be an individual. (Certain types of trusts are also eligible.) Other businesses can’t be an S-corp shareholder.
“For tax purposes, a small-business owner will probably want to choose either an LLC or an S-corp to obtain pass through tax treatment and to avoid the double taxation of a C-corp,” Patton says.
The shareholders of a corporation can obtain subchapter S treatment by filing www.irs.gov/instructions/i2553/ch01.html, Form 2553 with the IRS within 75 days of starting operations. If this form is not filed, the corporation is taxed under subchapter C by default.
So then, what’s the difference between an LLC and S-corp?
The members of an LLC can agree to share a company’s income and absorb its losses disproportionately, whereas S-corp shareholders must share in the company’s income in direct proportion to the number of shares they hold.
Even if an S-corp is small and private, it’s still subject to corporate formalities. The company will need to hold an annual meeting and file formal reports to its shareholders documenting its decision-making processes on significant corporate matters. An LLC does not need such documentation.
Between an LLC and an S-corp, the LLC is again the more flexible of the two and can accommodate most business arrangements.
I recommend that small-business owners consult their advisors to determine whether there are additional tax benefits of an S-corp in their specific situation that might justify incurring the structure’s limitations.
Okay, now what about partnerships?
In addition to an LLC or a corporation, there are two types of partnerships a small business may want to consider: a general partnership and a limited partnership.
The first requirement of any partnership is obvious: there must be more than one owner, or “partners” (hence the name). If you’re a sole proprietor, opt for an LLC instead.
Partnerships are typically formed by professionals such as lawyers, architects, accountants and doctors. In some states, such firms are precluded from operating as LLCs; in others, where general partnerships and longstanding law firms predated LLC laws, many organizations opt to retain their existing status.
General partnership and LLPs
In a general partnership, all owners have equal rights to manage the company, regardless of their ownership shares in the company. On the downside, they can also all be equally liable for any mishaps the company runs into, like debt or lawsuits. This is where an LLP, or limited liability partnership, comes into play.
An LLP is merely a certificate a general partnership can obtain to create a liability shield protecting the individual partners. Take, for example, a law firm that has offices in New York and Los Angeles. If a partner in Los Angeles commits malpractice, the partner in New York will not be considered individually liable. Without an LLP certificate, however, the New York partner would not be protected.
Limited partnership and LLLP
A limited partnership structure varies from a general partnership in that not all partners are entitled to participate in managing the business. The general partner or partners actively manage the business, while the limited partners (usually passive investors) do not participate in the day-to-day operations. This type of business structure usually suits real-estate investments.
When it comes to liability in a limited partnership, responsibility follows the management chain: in most actions, the limited partner is not liable, but the general partner is.
In many states, however, a limited partnership can obtain an LLLP certificate, for a limited liability limited partnership. This certificate works in the same manner as the LLP certificate by protecting the general partners with a liability shield.
An entrepreneur’s best choice
In the end, an LLC business structure is the best bet for most small businesses. It’s the structure that gives the owners the greatest flexibility. Plus, it automatically includes a liability shield protecting all owners.
Tags: Beating The Tax Man
Posted in LLC, S Corp, C Corp | Comments Off
|
|
|
