January 27, 2009

Use The Taxpayer Advocate To Help Fix Your Tax Problem

The Taxpayer Advocate independently represents your interests and concerns within the Internal Revenue Service. The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who believe that an IRS system or procedure is not working as it should, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who are experiencing economic harm. The goals of the Taxpayer Advocate Service are to protect individual and business taxpayer rights and to reduce taxpayer burden. This is accomplished in two ways:

Identifying issues that increase burden or create problems for taxpayers: Bringing those issues to the attention of IRS management and making legislative proposals where necessary;

Ensuring that taxpayer problems which have not been resolved through normal channels, are promptly and fairly handled.

Need further help? Call a qualified California tax attorney - call Mitchell A. Port at (310) 559-5259.

January 23, 2009

Tax Humor?

“The hardest thing in the world to understand is the income tax.” — Albert Einstein, physicist

“I am proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.” — Arthur Godfrey, entertainer

"Like mothers, taxes are often misunderstood, but seldom forgotten.'' — Lord Bramwell, 19th Century English jurist

“Income tax has made more liars out of the American people than golf.” — Will Rogers, humorist

"The power of taxing people and their property is essential to the very existence of government.'' — James Madison, U.S. President

"To tax and to please, no more than to love and to be wise, is not given to men." — Edmund Burke, 18th Century Irish political philosopher and British statesman

"No government can exist without taxation. This money must necessarily be levied on the people; and the grand art consists of levying so as not to oppress.'' — Frederick the Great, 18th Century Prussian king

"The best measure of a man's honesty isn't his income tax return. It's the zero adjust on his bathroom scale.'' — Arthur C. Clarke, author

“People who complain about taxes can be divided into two classes: men and women.”
— Unknown

"Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.” — F. J. Raymond, humorist

A tax loophole is "something that benefits the other guy. If it benefits you, it is tax reform.''
— Russell B. Long, U.S. Senator

"Few of us ever test our powers of deduction, except when filling out an income tax form.''
— Laurence J. Peter, author

“Taxation with representation ain’t so hot either.” — Gerald Barzan, humorist

“Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.” — Plato

"Taxes are what we pay for civilized society.'' — Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice

January 21, 2009

Tax Calculation Of Innocent Spouse's Share Of Income

California is a community property state which means most property acquired during the marriage (except for gifts or inheritances) is owned jointly by both spouses and is divided upon divorce, annulment or death. Joint ownership is automatically presumed by law in the absence of specific evidence that would point to a contrary conclusion for a particular piece of property.

In a recent Fifth Circuit Court of Appeals decision, the taxpayer claimed that in determining her share of the community property interest in order to calculate how much income to pay tax on, the IRS should have made the “separate tax formula allocation . . . upon the basis of the spouse who earned the income and not upon the basis of a community property split.”

The only disputed issue before the court was how the separate tax liability should be calculated—the taxpayer argued that it should be calculated based on the wages she personally earned, and the IRS argued that it should be calculated based on fifty percent of all community income.

The court simply held that the taxpayer's argument is not supported by the IRS's revenue rulings or any other legal authority. The court relied on Revenue Ruling 2004-74 which provides that tax is simply not calculated on the share of community income earned by just one spouse but instead is calculated on the 50% interest attributable to the spouse who live in a community property state (like California).

Do you qualify for innocent spouse relief? Speak with a California tax attorney who understands community property law. Call Mitchell A. Port at 310.559.5259.

January 15, 2009

Substitute For Return

Simply not filing a federal tax return for your California business or for your income earned in California, be it a payroll tax return or a corporate tax return, or an individual income tax return doesn’t mean you or your California based business won’t be assessed a tax.

Internal Revenue Code Section 6020(b) is the authority given to the Commissioner of the Internal Revenue Service to prepare and process tax returns for non-filing business and individual taxpayers. If the tax returns prepared for you by the government are taxable, as they almost certainly will be, then a tax is assessed and collection efforts will be made.

Final regulations were recently issued by the Internal Revenue Service and they affect any person who fails to file a required federal tax return.

The final regulations relate to tax returns prepared or signed by the Commissioner or other Internal Revenue Officers or employees under Section 6020 of the Internal Revenue Code. The final regulations provide guidance for preparing a substitute for return under Section 6020(b).

IRC 6020(b) provides a way to prepare returns and secure assessments from non-filing taxpayers who:

Have an open filing requirement

Do not file a return as required

Speaking with the formality of final tax regulations, here’s what they say: “If any person required by the Internal Revenue Code or by the regulations to make a tax return, fails to make such return at the time prescribed for it, or makes, willfully or otherwise, a false, fraudulent or frivolous return, the Commissioner or other authorized Internal Revenue Officer or employee shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise. The Commissioner or other authorized Internal Revenue Officer or employee may make the tax return by gathering information and making computations through electronic, automated or other means to make a determination of the taxpayer’s tax liability.”

File your unfiled tax returns for your California business or for you personally. Negotiate with a tax attorney’s help how you can pay the tax and how much of it must be paid. Call Mitchell A. Port, an attorney formerly with the IRS, at (310) 559-5259.

January 13, 2009

Tax Calendar For California Businesses

Attention California small business owners: The 2009 IRS Tax Calendar for Small Businesses and the Self-Employed (Publication 1518) is now available in English and Spanish. The Tax Calendar is a handy resource to help small business owners meet their tax obligations. The twelve month wall calendar is packed with useful information on retirement plans, common tax filing dates, general business taxes, electronic filing and paying options, business publications and forms and a lot more.

Each page highlights different tax issues and tips that may be relevant to small-business owners.

Tax problems may nevertheless still come up in California and elsewhere. Call a tax attorney for help. Call Mitchell A. Port at (310) 559-5259.

January 9, 2009

Compliance With IRS Employment Tax Filings Gets Easier For Some Of California's Employers

To reduce burden on small employers many of whom do business in Los Angeles County, Ventura County, Santa Barbara County and Orange County California, the IRS has simplified the rules for filing employment tax returns to report social security, Medicare, and withheld federal income taxes. Certain employers must file Form 944, Employer’s ANNUAL Federal Tax Return, instead of Form 941, Employer’s QUARTERLY Federal Tax Return.

For taxable years beginning on or after January 1, 2009, employers who estimate that their annual employment tax liability will be $1,000 or less can contact the IRS to request filing Form 944 instead of Forms 941 for a taxable year. Instructions for filing Form 944 are here. Only upon request will the IRS send a notification letter to qualified employers confirming that they may file Form 944 for that taxable year. Once employers receive this notice they must file Form 944 and cannot file Forms 941 instead for a taxable year until they contact the IRS to change their filing requirement to Form 941 for that taxable year and receive confirmation that their filing requirement has been changed.

The IRS will issue guidance published in the Internal Revenue Bulletin informing employers how they can contact the IRS to participate in the Form 944 Program and how they can elect out if they later decide that they want to file Forms 941 instead of Form 944. Under the 2006 regulations, employers were only eligible to opt out if they estimated that their employment tax liability would exceed the $1,000 threshold or if they wanted to e-file Forms 941 quarterly instead. Because the program is being made voluntary, beginning in tax year 2010, employers will be able to opt out for any reason if they follow procedures to be provided in future guidance.

For payroll tax issues, call tax attorney Mitchell A. Port for further information and help.

January 7, 2009

Californians Get Tax Lien Relief

Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property - many filed in California. The IRS issues more than 600,000 federal tax lien notices annually. Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property. The federal tax lien will make it difficult to address financial problems you may be having about your home.

In a recent announcement, the IRS said:

"An expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.

Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.

To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.

The IRS also urges people to contact the agency’s Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.

January 5, 2009

California Passes Mandatory Electronic Payment Law

New Section 19011.5 of the California Revenue & Taxation Code requires some taxpayers to make their tax payments using an electronic method which California calls “mandatory e-pay”.
There is a one percent penalty of the amount paid unless the failure to pay electronically was for reasonable cause and not willful neglect.

As a California tax attorney, I don’t know and the law remains unclear whether the penalty applies to those who are employees and who make regular tax payments by having employee withholding done by their employer.

In California, beginning January 1, 2009, personal income taxpayers whose tax liability is greater than $80,000 or who make an estimated tax or extension payment that exceeds $20,000 for taxable years beginning on or after January 1, 2009, must send the payment electronically. Once either of these conditions is met, all payments regardless of type, amount, or tax year must be remitted electronically by credit card, Electronic Funds Withdrawal (EFW), or web pay.

Taxpayers whose tax thresholds fall below the mandatory e-pay amounts may request to discontinue making electronic payments. In March 2009, the California Franchise Tax Board will provide a waiver form for taxpayers to file.

On December 1, the California Franchise Tax Board sent courtesy letters to taxpayers who made a payment in 2008 that could qualify them for mandatory e-pay. The letter informed these taxpayers of the law change, and that they may meet the mandatory e-pay threshold in 2009.