December 29, 2008

Checklist To Close Your California Business

When closing a business in California, there is much to do. Some of the following suggestions may require help from your tax attorney or CPA.

You must file an annual return for the year you go out of business. If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes.

The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.

You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business. Below is a list of typical actions to take when closing a business, depending on your type of business structure:


Make final federal tax deposits
Electronic Federal Tax Paying System (EFTPS)
Form 8109-B

File final quarterly or annual employment tax form
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
Form 941, Employer's Quarterly Federal Tax Return
Form 943, Employer's Annual Tax Return for Agricultural Employees
Form 943-A, Agricultural Employer's Record of Federal Tax Liability

Issue final wage and withholding information to employees
Form W-2, Wage and Tax Statement

Report information from W-2s issued
Form W-3, Transmittal of Income and Tax Statements

File final tip income and allocated tips information return
Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips

Report capital gains or losses
Form 1040, U.S. Individual Income Tax Return
Form 1065, U.S. Partnership Return of Income
Form 1120 (Schedule D), Capital Gains and Losses

Report partner's/shareholder's shares
Form 1065 (Schedule K-1), Partner's Share of Income, Credits, Deductions, etc.
Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits, Deductions, etc.

File final employee pension/benefit plan
Form 5500, Annual Return/Report of Employee Benefit Plan

Issue payment information to sub-contractors
Form 1099-MISC, Miscellaneous Income

Report information from 1099s issued
Form 1096, Annual Summary and Transmittal of U.S. Information Returns

Report corporate dissolution or liquidation
Form 966, Corporate Dissolution or Liquidation

Consider allowing S corporation election to terminate
Form 1120S, Instructions

Report business asset sales
Form 8594, Asset Acquisition Statement

Report the sale or exchange of property used in your trade or business
Form 4797, Sales of Business Property

Contact local and California state agencies.

Speak with a California business attorney about this and your other business questions. Call Mitchell A. Port.

December 15, 2008

Tax Treatment Of Investment Advisory Costs

The IRS provided interim guidance with regard to the application of the 2-percent floor under Internal Revenue Code section 67 to certain investment advisory fees. Specifically, the IRS notice provides that, for taxable years beginning before January 1, 2009, non-grantor trusts and estates will not be required to “unbundled” a fiduciary fee into portions consisting of costs that are fully deductible and costs that are subject to the 2-percent floor.

On January 16, 2008, the Supreme Court of the United States issued its decision in Michael J. Knight, Trustee of William L. Rudkin Testamentary Trust v. Commissioner, 552 U.S. ___, 128 S. Ct. 782 (2008), holding that costs paid to an investment advisor by a nongrantor trust or estate generally are subject to the 2-percent floor for miscellaneous itemized deductions under § 67(a).

The IRS and the Treasury Department expect to issue regulations under § 1.67-4 of the Income Tax Regulations consistent with the Supreme Court’s holding in Knight. The regulations, however, will not be issued in time to be applicable to the 2008 taxable year.

December 4, 2008

Lost Your IRS Appeals Case? Now You Can Mediate And Arbitrate Your Defeat

Two new Appeals programs are available from the IRS:

Applicable in California (and elsewhere) is a two-year test of two programs referred to as the post-Appeals mediation and arbitration procedures for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP).

Beginning Dec. 1, 2008, for a two-year test period, Appeals will offer post-Appeals mediation and arbitration for OIC and TFRP cases for taxpayers whose appeals are considered at the Appeals office in Atlanta, Ga.; Chicago, Ill.; Cincinnati, Ohio; Houston, Texas; Indianapolis, Ind.; Louisville, Ky.; Phoenix, Ariz.; and San Francisco, Calif.

Under these two alternative dispute resolution programs, the taxpayer or Appeals may request nonbinding mediation. The taxpayer may decline Appeals’ request for mediation. Appeals will evaluate a taxpayer’s request for mediation based on the criteria detailed in Revenue Procedure 2002-44 and Announcement 2008-111. A request for binding arbitration must be made jointly by the taxpayer and Appeals. The mediation and arbitration procedures do not create any additional authority for settlement by Appeals.

During the test period, Appeals employees will advise the taxpayer of the availability of these alternative dispute strategies and the deadline for timely requesting such strategies when a rejection of an OIC is sustained or a proposed TFRP assessment is sustained. An OIC submitted during Collection Due Process (CDP) as an alternative to a Collection action is not eligible for these alternative dispute resolution strategies during the test period.

The Post-Appeals mediation process is available for both legal and factual issues. The mediator’s role is to facilitate settlement negotiations so the parties can reach their own agreement. The mediator does not have settlement authority over any issue.

The Arbitration procedure is available for factual issues only. The arbitrator’s role is to hear both sides of a disputed issue and then render a decision on the specific factual issue being arbitrated. This decision is binding on both parties. However, the arbitrator does not have the authority to decide that the offer in compromise itself must be accepted or that a person is/is not liable for the TFRP under § 6672. Neither party may appeal the decision of the arbitrator or contest the decision in any judicial proceeding.

Complete procedures for initiating a request for post-Appeals mediation or arbitration are in Announcement 2008-111. The agency will seek appropriate Offer in Compromise and Trust Fund Recovery Penalty cases for both post-Appeals mediation and arbitration during the two-year test period in order to evaluate the effectiveness of alternative dispute resolution for these cases.

Call a California tax attorney to assist in preserving your rights when it comes to resolving your tax problems. Call Mitchell A. Port at (310) 559-5259.