November 26, 2007

Where's My Tax Refund?

You filed your tax return and you're expecting a refund. You have just one question and you want the answer now - Where's My Refund?

$110 million belongs to you through your tax refund. The IRS is looking for over 115,000 taxpayers who are due refund checks after those checks were returned as undeliverable. The refund checks, averaging about $953, can be claimed as soon as you update your address with the IRS. Some taxpayers have more than one check waiting.

You can ensure the IRS has your correct address by filing Form 8822, Change of Address. If you do not have access to the internet and think you may be missing a refund should first check their records or contact your tax preparer, then call the IRS toll-free assistance line at 1-800-829-1040 to update your address.

The Where’s My Refund? tool on IRS.gov enables you to check the status of your refunds. You must submit your social security number, filing status and amount of refund shown on your 2006 income tax return. The tool will provide the status of your refund and in some cases provide instructions on how to resolve delivery problems.

You can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

Whether you split your refund among several accounts, opted for direct deposit to one account or asked IRS to mail you a check, you can track your refund through this secure Web site. You can get refund information even if you filed just to request the telephone excise tax refund.

To get to your personal refund information, be ready to enter your:

Exact refund amount shown on your return

Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er))

Social Security Number (or IRS Individual Taxpayer Identification Number)

If you don’t receive your refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.

If Where’s My Refund? shows that the IRS was unable to deliver your refund, you can change your address online.

Need tax help or have a California or federal tax problem? Call Mitchell A. Port at 310.559.5259.

November 19, 2007

New Coordinated Effort By The State And Federal Tax Authorities

Earlier this month, the Internal Revenue Service and more than two dozen state workforce agencies - including California's - announced they have entered into agreements to share the results of employment tax examinations.

California, Michigan, New Jersey, New York and North Carolina all are part of the team that developed the strategy, and they were instrumental in helping make sure the agreements meet the needs of the participating states as well as the needs of the IRS.

The agreements, part of the Questionable Employment Tax Practice (QETP) initiative, provide a centralized, uniform means for the IRS and state employment officials to exchange information and data. As a result, they can leverage resources and encourage businesses to comply with federal and state employment tax requirements.

These agreements present a united front for the IRS and its state partners to improve compliance with filing tax returns and paying employment taxes. Combining resources will help IRS and the states uncover employment tax avoidance schemes, reduce fraudulent filings and ensure proper worker classification.

The state agencies, the U.S. Department of Labor, the National Association of State Workforce Agencies, the Federation of Tax Administrators and the IRS worked together on various facets of the exchange agreements.

So far, 29 states have entered into individual information-sharing agreements with the IRS. The states that have signed partnership agreements with the IRS thus far are:

Arizona, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wisconsin.

In addition to coordinating compliance activities, the agreements call for collaborative outreach and education activities designed to help businesses understand their employment and unemployment tax responsibilities.

The exchange agreements are the first result of the QETP initiative. The QETP team will use the results of the project to find new opportunities for collaboration and to work toward improved employment tax compliance.

Do you have federal or California state tax problems? Contact Mitchell A. Port for help at 310.559.5259.

November 9, 2007

Is Your Compensation Reasonable Or A Disguised Dividend?

Are you an employee of your own California corporation? How much are you paying yourself as salary? How much are you paying yourself as a year-end bonus? Are you unwittingly creating a tax problem for yourself?

An employer, including a California employer, is not entitled to deduct certain compensation paid if that compensation was not reasonable in amount. The excess monies paid are a disguised dividend which causes a tax problem for the employer who will have to pay tax on the amount deducted deduction that will be disallowed by the IRS.

Internal Revenue Code Section 162(a)(1) permits a corporation to deduct “a reasonable allowance for salaries or other compensation for personal services actually rendered.” The test for deductibility in the case of compensation payments is whether they are reasonable and are in fact payments purely for services.

A deduction for compensation that is, in fact, reasonable is an amount “as would ordinarily be paid for like services by like enterprises under like circumstances.”

The 9 Factor Test of Reasonableness

The reasonableness inquiry is governed by the nine - factor test based on a case called Owensby & Kritikos, Inc. v. Cmm'r., 819 F.2d 1315, 1323-24 (5th Cir. 1987).

These nine factors are:

1. The employee's qualifications;

2. The nature, extent and scope of the employee's work;

3. The size and complexities of the business;

4. A comparison of salaries paid with gross income and net income;

5. The prevailing general economic conditions;

6. Comparison of salaries with distributions to stockholders;

7. The prevailing rates of compensation for comparable positions in comparable concerns;

8. The salary policy of the taxpayer as to all employees; and

9. Compensation paid in prior years.

Courts will examine and weigh the totality of the facts and circumstances in determining reasonable compensation so that no one factor will be determinative of reasonableness.

The IRS's determination of reasonableness is presumptively correct which shifts the burden to the taxpayer to establish that he is entitled to a deduction larger than that allowed by the Service.

If you have been challenged by the IRS about your compensation deduction and would like to consult with a tax attorney, call Mitchell A. Port at (310) 559.5259.

November 5, 2007

California Businesses: Online EIN Application Processes Requests Very Quickly

California business owners can now request an Employer Identification Number (EIN) - a tax I.D. - through a web-based system that immediately processes requests and generates identification numbers in real time, the Internal Revenue Service recently announced.

Here's how it works. California business owners such as those in Los Angeles County, Orange County, Santa Barbara County and Ventura County, access the internet EIN system through IRS.gov and enter the required information. If the information passes the automatic validity checks, the IRS issues a permanent EIN. If the information does not pass the validity checks, the application is rejected. You then have an opportunity to correct the information and resubmit the application.

The internet EIN application is interactive and asks questions tailored to the type of entity you are establishing.

The system provides "help" screens throughout the application process. This means you will no longer have to print the EIN instructions and separately search for answers while requesting an EIN.

When the EIN application process is complete, you have the option to view, print and save your confirmation notice; you no longer have to wait for the IRS to mail it. Third parties authorized by you can also be provided with the EIN, but the third party cannot view, print or save the confirmation notice. Instead, the confirmation notice is mailed to you.

An EIN assigned through internet submission is immediately recognized by IRS systems. You can begin using the EIN immediately for most business purposes.

For tax help regarding other business activity - creating Subchapter S or C corporations, drafting contracts, liquidating a company - you may call Mitchell A. Port at 310.559.5259.