August 31, 2009

Federal Rules Regarding Treatment Of Workers As Employees Or As Independent Contractors

In previous blog posts, I addressed California’s rules regarding a worker’s status as an independent contractor versus an employee. Click here and here to revisit those posts.

The Internal Revenue Service recently posted tips regarding federal rules that apply to a worker’s status. As an owner of a small business, whether you hire workers as independent contractors or as employees will impact the amount of taxes you withhold from their paychecks and how much taxes you pay. Additionally, it will affect what documents and information they must provide to you, what tax documents you must give to them and how much additional cost your business must bear.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.


August 27, 2009

Did You Receive An IRS Notice?

One of the most unpleasant experiences my clients in Los Angeles, California and across the country have is when they receive a notice from the IRS about unpaid taxes, underpaid taxes or unfiled tax returns.

The IRS published its "Summertime Tax Tips" which provides a short list of eight things you should know about IRS notices in case you get one.

If you owe more than $50,000 in tax, call a qualified tax attorney for help. Call Mitchell A. Port at (310) 559-5259.

August 20, 2009

More On Offers In Compromise From The IRS

The IRS has excellent information on its website easily understood about Offers in Compromise. Those of us in Los Angeles, California and throughout the rest of the country who owe tax ought to consider an OIC.

Here's what the website covers:

What You Must Know Before You File an Offer in Compromise

All Taxpayers Do Not Qualify for an Offer in Compromise

Offer in Compromise Payments are Non-refundable

Federal Tax Liens are Not Released

Payments May be Designated

Refunds

Levies

Statutory Period for Collection Suspended

Five Year Compliance

OIC Payment and Application Fee Exceptions

Appeal

Approved Installment Agreement

Mandatory Acceptance

Work with a qualified tax attorney on your tax problem. Call Mitchell A. Port at (310) 559-5259.

August 17, 2009

Few Pay Pennies On The Dollar - Including Californians

Beware of promoters’ claims that tax debts can be settled through the offer in compromise program for "pennies on the dollar".

The preferred approach to the IRS is through your tax attorney so that your interests are protected from those at the tax agency who try and gather information from you to use it to your disadvantage.

Unless you have special circumstances (and some Californians do), an offer in compromise (OIC) will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

An offer is an agreement between you and the Internal Revenue Service that settles your tax liabilities for less than the full amount owed.

Usually, the IRS will not accept an OIC unless the amount you offer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures your ability to pay and includes the value that can be realized from your assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

Three Types of OICs

The IRS may accept an offer in compromise based on three grounds:

1. Doubt as to Collectibility - Doubt exists that you could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.

Example: You owe $20,000 for unpaid tax liabilities and agree that the tax you owe is correct. Your monthly income does not meet your necessary living expenses. You do not own any real property and do not have the ability to fully pay the liability now or through monthly installment payments.

2. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, you must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

Example: You have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that you will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.

3. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider your evidence or (3) you has new evidence.

Example: You were vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and you were assessed a trust fund recovery penalty as a responsible party of the corporation. You were no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since you resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.

OIC Payment Options

Usually, you must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. You may chose to pay your offer in compromise in one of three payment options:

1. Lump Sum Cash Offer - Payable in non-refundable installments, the offer amount must be paid in five or fewer installments upon written notice of acceptance. A non-refundable payment of 20 percent of the offer amount along with the $150 application fee is due upon filing the Form 656.

If the offer will be paid in 5 or fewer installments in 5 months or less, the offer amount must include the realizable value of assets plus the amount that could be collected over 48 months of payments or the time remaining on the statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 5 months and within 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over 60 months of payments, or the time remaining on the statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over the time remaining on the statute.

2. Short Term Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less.

3. Deferred Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection.

The IRS is not bound by either the offer amount or the terms proposed by you. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise you as to what larger amount or different terms would likely be recommended for acceptance.

Payments and Application Fees

When filing an offer in compromise, two separate remittance documents should be sent, one for the application fee and the other for the required offer payment.

The Form 656-PPV, Offer in Compromise Payment Voucher, included in the Form 656, should be completed and attached to any periodic payment(s) that becomes due. Failure to submit any required periodic payments, after the initial payment has been submitted, will result in the offer being declared withdrawn.

The OIC application fee reduces the assessed tax or other amounts due. The application fee will be returned if the OIC is deemed not to be processable. Unless the offer in compromise has been submitted under doubt as to liability or a completed Form 656-A and Offer in Compromise Application Fee and Payment Worksheet is included with the Form 656, the $150 application fee must be included with the offer or the IRS will return the offer.

August 11, 2009

New IRS Appeals Programs

At the end of last year, the IRS announced a two-year test of two programs: the post-Appeals mediation and arbitration procedures for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP).

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.

For the 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.