March 18, 2009

Madoff And Ponzi - How To Report Your Tax Obligation

Deductibility of Theft Losses:

The Internal Revenue Service and Treasury Department are aware of investment arrangements that have been discovered to be fraudulent, resulting in significant losses to taxpayers. These arrangements often take the form of so-called "Ponzi" schemes, in which the party perpetrating the fraud receives cash or property from investors, purports to earn income for the investors, and reports to the investors income amounts that are wholly or partially fictitious.

The Internal Revenue Service and Treasury Department recognize that whether and when investors meet the requirements for claiming a theft loss for an investment in a Ponzi scheme are highly factual determinations that often cannot be made by taxpayers with certainty in the year the loss is discovered.

Payments, if any, of purported income or principal to investors are made from cash or property that other investors invested in the fraudulent arrangement. The party perpetrating the fraud criminally appropriates some or all of the investors' cash or property.

Revenue Ruling 2009-9, 2009 I.R.B (March 2, 2009), describes the proper income tax treatment for losses resulting from these Ponzi schemes.

In view of the number of investment arrangements recently discovered to be fraudulent and the extent of the potential losses, this revenue procedure provides an optional safe harbor under which qualified investors (as defined in the revenue procedure) may treat a loss as a theft loss deduction when certain conditions are met.

This treatment provides qualified investors with a uniform manner for determining their theft losses. In addition, this treatment avoids potentially difficult problems of proof in determining how much income reported in prior years was fictitious or a return of capital, and alleviates compliance and administrative burdens on both taxpayers and the Service.

Under Revenue Procedure 2009-20, the IRS issued guidance on the examination of returns and claims for refund, credit or abatement. This revenue procedure provides an optional safe harbor treatment for taxpayers that experienced losses in certain investment arrangements discovered to be criminally fraudulent. This revenue procedure also describes how the Internal Revenue Service will treat a return that claims a deduction for such a loss and does not use the safe harbor treatment described in this revenue procedure.

March 16, 2009

Fix Your Tax Problem Fast

If you owe over $100,000 in unpaid income tax to the Internal Revenue Service or a large amount to the California Franchise Tax Board, you can quickly resolve your tax problem by having the following information available when contacting the Internal Revenue Service:

• Valid Power of Attorney (Form 2848) covering all tax periods
• Completed Form 433- A, B or F
• Explain in detail why the taxpayer is not able to full pay or borrow to full pay
• Copies of delinquent tax returns
• Rental income
• Three months of current bank statements (all accounts)
• Three months of current pay stubs for both yourself and your spouse
• Investment income
• Pension income and/or Social Security income
• Value of 401K or Retirement account
• Value of all property and/or available equity
• Employer’s information including work number
• Number of individual’s living in the household
• Secured loan(s) - amount of loan and remaining balance(s)
• Life insurance policies, (whole or term), any borrowing ability? And/or value of policy
• Profit and Loss statements for self-employed taxpayers
• Commission statement
• Year make of vehicles, value, equity, balance owed, and monthly payments
• Out-of-pocket medical expenses
• Substantiation of payments being made
• Substantiation of Court ordered payments
• Spouse’s income and source with name/address/phone number

Additional information and /or documentation may be needed to determine disposition of the account.

Call a qualified Los Angeles tax attorney for the right tax help. Call Mitchell A. Port at (310) 559-5259.

March 6, 2009

California’s Multi Tax Agency Form for Offer in Compromise

California's Franchise Tax Board, Employment Development Department and the State Board of Equalization now allow taxpayers behind in their tax payments to use one form when applying to more than one tax agency for an Offer in Compromise.

Are you an OIC candidate for taxes owed to California's tax agencies?

The Offer in Compromise (OIC) program is for taxpayers that do not have, and will not have in the foreseeable future, the income, assets, or means to pay the tax liability. It allows you to offer a lesser amount for payment of a nondisputed final tax liability. Although each case is evaluated based on its own unique set of facts and circumstances, California gives the following factors strong consideration in the evaluation:

The offer is in the best interest of California.

Your present and future expenses.

The amount of equity in your assets.

Your present and future income.

Your ability to pay.

The potential for changed circumstances.

California’s tax agencies will not recommend approval of offers if there are assets or income available to pay more than the amount offered.

Can California’s tax agencies process your application?

Your offers will be evaluated independently by each agency. The BOE, FTB, and EDD have different criteria for participation in their OIC programs.

For all agencies, you must agree that you owe the amount of the liability. If you dispute the liability, you should appeal through the appropriate agency’s appeal process.

For FTB, your application will be processed if all of the required FTB income tax returns have been filed. If you have no filing requirement, note it on your application.

For both BOE and EDD, you must be out of business and must not have a controlling interest or an association with the business or a successor to the business that incurred the liability. This includes operating a business of the same nature.

For EDD, you cannot have access to income to pay more than the accumulating interest and 6.7 percent of the outstanding liability on an annual basis.

For EDD, an offer will not be considered for liabilities assessed for fraud or where the employer has been convicted of a violation under the California Unemployment Insurance Code.

For BOE, an offer for a liability with a fraud assessment will not be considered if there is a criminal conviction of fraud. For other fraud assessments, an offer will be considered if a minimum of the tax plus the fraud penalty is offered.

Are collections suspended?

Submitting an offer does not automatically suspend collection activity. Wage garnishments already in place at the time of the offer will continue and will not be considered as partial payment of the offered amount. However, in many cases, collection action will be suspended until the OIC evaluation is completed. If delaying collection activity jeopardizes California’s ability to collect, collection efforts may continue. Interest will continue to accrue as prescribed by law.

Will California’s tax agencies require you to continue payments on an Installment Agreement?

All the agencies require that you continue making periodic payments as called for in any existing installment agreement while your offer is being considered.

Call Mitchell A. Port, a California tax attorney, for help with your tax problems. Call (310) 559-5259.

March 2, 2009

California Income Taxes: Get Some Relief

The California Franchise Tax Board explains that if you meet certain legal requirements, you may qualify for relief of payment on all or part of your unpaid income tax balance. California's Franchise Tax Board will work with you to determine if you meet the requirements for relief. One approach is to complete and submit a "Request for Innocent Joint Filer Relief".

Speak to a licensed California tax attorney to discuss fixing your tax problems. Call Mitchell A. Port at (310) 559-5259.