October 29, 2007

Organization Of The IRS

Do you have a tax problem with the IRS but can't easily navigate through the government bureaucracy? Are you considering using a California tax attorney to negotiate around the tax maze? Do you want a glimpse of what the IRS structure is so as get answers to your tax controversy? Well, please keep reading....

In 1998 Congress enacted the IRS Restructuring and Reform Act prompting a comprehensive reorganization and modernization of the IRS. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs.

The IRS is divided into three commissioner-level organizations to support its structure and ensure accountability:

Commissioner

Specialized IRS units report directly to the Commissioner’s office. The IRS Chief Counsel also reports to the Treasury General Counsel on certain matters.

Commissioner, Internal Revenue — Kevin M. Brown, Acting
IRS Chief Counsel — Donald L. Korb
Appeals — Sarah Hall Ingram, Chief
Taxpayer Advocate Service — Nina E. Olson, National Taxpayer Advocate
Equal Employment Opportunity and Diversity — Diane Crothers, Chief
Research, Analysis, and Statistics — Mark Mazur, Director
Communications and Liaison — Frank Keith, Chief

Deputy Commissioner for Operations Support

The Deputy Commissioner reports directly to the Commissioner and oversees the integrated IRS support functions, facilitating economy of scale efficiencies and better business practices:

Deputy Commissioner for Operations Support — Linda Stiff
Modernization and Information Technology Services — Richard A. Spires, Chief Information Officer
Agency-Wide Shared Services — James P. Falcone, Chief
Mission Assurance and Security Services — Daniel Galik, Chief
Human Capital Officer — Robert Buggs, Chief
Chief Financial Officer — Janice J. Lambert, Chief

Deputy Commissioner for Services and Enforcement

The Deputy Commissioner reports directly to the Commissioner and oversees the four primary operating divisions and other service and enforcement functions:

Deputy Commissioner for Services and Enforcement — Kevin M. Brown
Wage and Investment Division — Richard J. Morgante, Commissioner
Large and Mid-Size Business Division — Deborah M. Nolan, Commissioner
Small Business/Self Employed Division — Kathy Petronchak, Commissioner
Tax Exempt and Government Entities Division — Steven T. Miller, Commissioner
Criminal Investigation — Eileen C. Mayer
Office of Professional Responsibility — Stephen Whitlock, Acting Director

See the basic structure of today's IRS in this picture of the IRS Organizational Chart.

Call Mitchell A. Port for tax help at 310.559.5259.

October 26, 2007

SPOTLIGHT #3: Useful California Business Law And Tax Links

What Government Assistance Is Available to California Employers and California Businesses?

Here's a collection of links to California State government web sites with useful information for businesses in Los Angeles County, Santa Barbara County, Orange County and Ventura County. There is something here for you whether you are already conducting business in California, just starting in Los Angeles, Beverly Hills or Culver City, or expanding to a new state.

Visit the California State web sites here and find helpful information on doing business in California, links for California employers, California taxation and more.

California State Web Site

Doing Business in the State

Business
Permits and Licenses
Secretary of State
California Department of Corporations

Taxation

Board of Equalization
Franchise Tax Board

Employer Links

Department of Industrial Relations
Employment Development Department
New Hire Registry

General

State Agency Index
California Code of Regulations
Department of General Services
Small Business Assistance Center
Small Business and DVBE Services
County Web sites
City Web sites

For doing business and related tax matters in all the other States, the IRS website has terrific information. Go to State Links.

Do you have California business law questions or IRS or California State tax problems? Please call Mitchell A. Port at (310) 559-5259.

October 24, 2007

Trust Fund Tax Payments

When you pay your employees, you do not pay them all the money they earned. As an employer, you have the obligation of withholding taxes from their paychecks. Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits. That is why they are called trust fund taxes. The income tax and employees' share of FICA (social security and Medicare) that you withhold from your employees' paychecks are part of their wages you pay to the federal government instead of to your employees.

Through this withholding, your employees pay their contributions toward retirement benefits (social security and Medicare) for current retirees and the income taxes that are owed and reported on their tax returns. Your matching share of FICA along with your employees' trust fund taxes, are paid to the government through the Federal Tax Deposit System. The withheld part of these taxes is your employees' money, and the matching portion is their retirement benefit. Refer to Employment Taxes and the Trust Fund Recovery Penalty (TFRP) for more information.

Employment tax deposits are a current expense. Postponing paying them is not the same as making a late payment on your utility bill. Congress has established penalties for delays in turning over employment taxes to the Treasury. The longer it takes to pay that money, the more it will cost you. Refer to Publication 15, Circular E, Employer's Tax Guide, for more information.

Need answers to questions about your trust fund tax, call Mitchell A. Port at (310) 559-5259.

October 22, 2007

Former IRS District Director Pleads Guilty To $1.3 Million Tax Fraud

No one is above the law – not even an employee of the Internal Revenue Service based in Vista, California. A former Internal Revenue Service (IRS) district director pleaded guilty recently to conspiring to defraud the government through his involvement in a tax fraud scheme promoted by “Renaissance, The Tax People, Inc.” During a hearing before a U.S. District judge, Jesse Ayala Cota admitted defrauding the government of more than $1.3 million and to earning more than $300,000 from his participation in the scheme.

This is an example of someone implying he has “insider information” to help others enrich themselves by buying into his bogus tax avoidance system. However, what he sold was long-term legal and financial problems for those who bought his advice.

Renaissance used Cota’s credentials as a former district director for the IRS to lend the tax fraud scheme legitimacy and to induce people to join and to remain members.

Cota admitted that during his participation in the conspiracy, those involved prepared or had others prepare false federal income tax returns resulting in a tax loss of approximately $1.3 million. Cota also admitted that from 1997 though April 2002, the conspirators, through Renaissance, operated a scheme to defraud the government and individuals by marketing a program to sell illegal tax deductions through false and misleading representations.

Cota also admitted that he and his co-conspirators falsely assured their clients and others that Renaissance’s tax system was legal. Cota acknowledged that a co-conspirator sent an e-mail message to customers falsely asserting that there existed written endorsements from “over 2,000 tax attorneys, enrolled agents and certified public accountants that every strategy contained in the Tax Relief System is absolutely sound, unassailable and proven over the past 40 years.” The e-mail also falsely claimed that “the training offered by Renaissance, the Tax People, through the Tax Relief System . . . was approved for continuing education credit for CPAs in all 50 states.”

Cota faces a potential maximum sentence of five years in prison followed by up to three years of supervised release, a $250,000 fine, and liability for the costs of prosecution. Sentencing is scheduled for January 2008.

For civil tax problems, rather than criminal tax controversies, call Mitchell A. Port at 310.559.5259.

October 19, 2007

SPOTLIGHT #2: The IRS - Income Tax Highlights

Perhaps you’ve had a chance to read the featured article on the history of the Los Angeles Superior Court (probate, civil and criminal) posted on October 15, 2007. Here is another article covering the highlights of the history of the IRS beginning with the enactment of a new income tax in 1862 and its repeal just 10 years later.

1862 - To help pay for Civil War expenses, President Lincoln signed into law a revenue-raising measure. The measure created the nation's first income tax as well as a Commissioner of Internal Revenue. The new law levied a 3% tax on income between $600 and $10,000 and a 5% tax on income of more than $10,000. (Those were the good ol' days.)

1867 - Responding to public opposition to the income tax, Congress cut the tax rate. From 1868 until 1913, 90% of all revenue came from taxes on wine, beer, liquor and tobacco.

1872 - Income tax repealed.

1894....

Continue reading "SPOTLIGHT #2: The IRS - Income Tax Highlights" »

October 17, 2007

New IRS Guidelines For "Allowable Living Expenses"

Just a couple of weeks ago, the Internal Revenue Service issued the 2007 allowable living expense standards. The new standards apply to those of us taxpayers with a tax debt living in California as well as to the rest of the country. Elsewhere in this blog in connection with installment agreements and the Offer In Compromise, I have discussed the so-called “national standards”. These standards enable the Internal Revenue Service to treat all taxpayers in the same region the same way when it comes to paying for allowable living expenses before paying back-taxes.

Allowable living expense standards, also known as collection financial standards, are used to determine the ability of a taxpayer to pay a delinquent tax liability. For purposes of federal tax administration the standards are effective Oct. 1, 2007.

This year the standards have been redesigned to incorporate:

a new category for out of pocket health care expenses;

the elimination of income ranges for national standards for food, clothing and other items;

a nationwide set of tables for national standard expenses, eliminating separate tables for Alaska and Hawaii;

an expanded number of household categories for housing and utilities;

an allowance for cell phone costs in housing and utilities;

equal allowances for first and second vehicles under transportation expenses;

fewer Metropolitan Statistical Areas for vehicle operating costs; and

a separate nationwide public transportation allowance.

To discuss this and other tax problems with a former IRS tax attorney, call Mitchell A. Port at 310.559.5259.

October 12, 2007

Techniques To Record Your Business Transactions

For a lot of reasons, including an IRS audit, a good recordkeeping system includes a summary of your business transactions. Business transactions are ordinarily summarized in ledgers and journals.

A ledger is a book that contains the totals from all of your journals. It is organized into different accounts.

A journal is a book where you record each business transaction shown on your supporting documents. You may have to keep separate journals for transactions that occur frequently.

Whether you keep ledgers and ledgers and how you keep them depends on the type of business you are in. For example, a recordkeeping system for a small business might include the following items:

Employee compensation records

Check disbursements journal

Daily summary of cash receipts

Monthly summary of cash receipts

Business checkbook

Depreciation worksheet

The system you use to record business transactions will be more effective as you follow good recordkeeping practices. Generally, it is best to record transactions on a daily basis. For example, record expenses when they occur, and identify the source of recorded receipts.

The responsibility to prove entries, deductions, and statements made on your tax returns is known as the burden of proof. You must be able to prove (substantiate) certain elements of expenses to deduct them. Generally, you can meet your burden of proof by having the information and receipts (where needed) for the expenses. You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. Additional evidence is required for travel, entertainment, gifts, and auto expenses. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses.

For expert representation before the IRS or California Franchise Tax Board, please call Mitchell A. Port at 310.559.5259.

October 10, 2007

Keeping Employment Tax Records

Records for employment taxes should be kept for at least four years. These should be available for IRS review. Records should include:

Dates and amounts of tax deposits you made.

Your employer identification number.

Dates of employment.

Amounts and dates of all wage, annuity, and pension payments.

Copies of returns filed.

The fair market value of in-kind wages paid.

Names, addresses, social security numbers, and occupations of employees and recipients.

Records of fringe benefits provided, including substantiation.

Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.

Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V).

Any employee copies of Form W-2 that were returned to you as undeliverable.

Amounts of tips reported.

Records of allocated tips.

Consider having your power of attorney, your California tax lawyer, represent you when questions arise concerning your taxes. Call Mitchell A. Port at (310) 559-5259.

October 8, 2007

How Long You Should Keep Records

It is fairly well-settled among tax lawyers and tax accountants that the length of time you should keep a document depends on the expense, action, or event the document records. Generally, you must keep your tax records that support deductions on a tax return or an item of income until the period of limitations runs out for that return.

The period of limitations is the period of time that the IRS can assess additional tax or in which you can amend your tax return to claim a credit or refund. Below is information containing the periods of limitations that apply to income tax returns. The years mentioned below refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

It is important to note that you should keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.


1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.

2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.

3. You file a fraudulent return; keep records indefinitely.

4. You do not file a return; keep records indefinitely.

5. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.

7. You file a claim for credit or refund after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.

For a more complete explanation, see my blog posting from August 6, 2007.

As you decide whether to keep a document or throw it away, consider whether the records are connected to assets. In other words, keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure any amortization, depletion deduction, or depreciation and to figure the gain or loss when you sell or otherwise dispose of the property.

Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the bases of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

If you have an existing business confronting a serious IRS tax audit or other examination, a federal or California state tax problem and would like to speak with a California business lawyer and former IRS tax lawyer about serving as your power of attorney, this is an important posting. Call Mitchell A. Port at (310) 559-5259.

October 5, 2007

What Kind Of Records You Should Keep

As a business person operating in California, you may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Generally, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. Your recordkeeping system should also include a summary of your business transactions. This summary is usually made in your ledgers and accounting journals. Your books must show your gross income, as well as your deductions and credits.

Supporting Business Documents
Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents such as invoices and receipts. Supporting documents include canceled checks, paid bills, sales slips, deposit slips, receipts and invoices. These documents contain the information you need to record in your books. It is important for you to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense. For more detailed information refer to Publication 583, Starting a Business and Keeping Records.

The following are some of the types of records you should keep:

Continue reading "What Kind Of Records You Should Keep" »

October 1, 2007

Why You Should Maintain Business Records

California business owners must keep records. Indeed, everyone in business must keep records. Good records will help you do the following:

Monitor the progress of your business

Prepare your tax returns

Support items reported on tax returns

Keep track of deductible expenses

Identify source of receipts

Prepare your financial statements

Continue reading "Why You Should Maintain Business Records" »