July 23, 2009

IRS Collection and Audit Letters

Whether you live in Los Angeles, California, anywhere else in California or across the U.S., if you get a letter from the IRS you must respond appropriately and timely. Here's a sampling of some of the letters commonly used:

Collection Letters

Letter 11 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing

Letter 1058 – Final Notice Reply Within 30 Days

Letter 1085 – 30-Day Letter Proposed 6020(b) Assessment

Letter 3172 – Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320

Examination Letters

Letter 525 – General 30 Day Letter

Letter 531 – Notice of Deficiency

Letter 692 – Request for Consideration of Additional Findings

Letter 1153 – Trust Funds Recovery Penalty Letter

Letter 1389 – 30 Day Letter, Tax Shelter Activity

Letter 3016 – IRC Section 6015 Preliminary Determination Letter (30 Day)

Letter 3391 – 30-Day Nonfiler Letter

Letter 3727 – 30-Day Letter Notifying Taxpayer No Change to Original Report Disallowing EIC Based on Failure to Meet Residency Test for Children Claimed

Letter 3728 – 30-Day Letter Notifying Taxpayer No Change to Original Report Partially Disallowing EIC Based on Failure to Meet Residency Test for 1 Child

Notices

CP 90 – Final Notice of Intent to Levy

CP 92 – Notice of Levy upon Your State Tax Refund

CP 242 – Notice of Levy upon Your State Tax Refund

CP 523 – IMF Installment Agreement Default Notice

CP 2000 - You receive this letter when the IRS receives income, deduction or credit information that does not match your return.

July 17, 2009

New Types Of Business Entities

Attention California business owners: A Restricted LLC (limited liability company) and a Restricted LP (limited partnership) are special entities that will be allowed under Nevada law starting October 1, 2009. Nevada is the first and only state to allow these types of entities.

With a restricted LLC, the new statute imposes restrictions and limitations on the LLC's ability to make distributions. The statute provides, in part, that unless otherwise provided in the articles of organization, a restricted LLC shall not make any distributions to its members with respect to their membership interests until ten years after the date of formation of the LLC (or amendment of the articles of an existing LLC to become a restricted LLC), so long as the LLC has remained a restricted LLC.

Why set up an LLC which by its charter may not make any distributions to members for up to ten years? The reason is Internal Revenue Code Section 2704(b), which provides that when valuing an interest in an entity for gift tax purposes, the liquidation restrictions contained within the LLC operating agreement have to be disregarded by the appraiser if the LLC is owned by family members both before and after the transfer. Code Section 2704(b)(3)(B) provides however that a restriction that is imposed by state law cannot be ignored.

With these new entities, some appraisers provide a range of an additional 10% to 35% for the additional valuation discount. So, for example, if the valuation discount would have been 35% for a regular LLC, after adding the additional valuation discount, the valuation discount would instead be between 45% and 70%.

Remember that the new Nevada Restricted LLC and LP statutes only create a new ceiling on valuation discounts that no other state allows. This doesn't mean that you must lock the underlying assets in for ten years. Maybe five years is more appropriate. Maybe three years.

The Bill can be read online. The Restricted LLC language can be read in Sections 26 and 27 of the Bill. The Restricted LP language can be read in Sections 38, 39 and 49.2 of the Bill.

July 13, 2009

Tips To Start A New Business

Starting a new business? Be aware of your federal tax responsibilities. Here are the top six things the IRS wants you to know if you plan on opening a new business this year. Also be sure and look at the IRS website for more information.

1. Decide the type of business entity you are going to establish either in California or some other state (such as Nevada or Delaware). The most common types of business are the sole proprietorship, partnership, corporation and S corporation.

2. The type of business you operate in California determines which tax form you have to file, what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Generally, businesses need an EIN. An Employer Identification Number is used to identify a business entity. You can also apply for an EIN online at IRS.gov.

4. Good records are necessary. Which recordkeeping system is suited to your business is up to you so long as it shows your income and expenses. Except in a few cases, 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.

5. As a business taxpayer, you must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. You must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

Want to incorporate? Create an LLC? Call a business attorney. Call Mitchell A. Port at (310) 559-5259.

July 9, 2009

California IOUs: Use It To Pay Taxes

On July 7, 2009, the Franchise Tax Board (FTB) announced payment of current and past due personal and corporate taxes with California registered warrants (IOUs) is acceptable

By law, FTB cannot deposit the IOU until it is payable, but FTB will credit your account on the date the IOU is received to stop the accrual of interest. If the IOU is not sufficient to pay the outstanding balance, you should send an additional payment for the difference.

July 7, 2009

California S Corporations

As of June 30, 2009, the IRS has updated the information it makes available concerning subchapter S corporations. Much of what you may need to know about California and federal subchapter S corporations can be found by clicking here.

If you want more information or help forming your California corporation, call Mitchell A. Port at (310) 559-5259.