January 25, 2010

Getting A Transcript Of Your Tax Information

Here are some things to know if you need copies of your federal tax return information from the IRS.

There are2 options for obtaining free copies of your federal tax return information — tax account transcripts and tax return transcripts.

A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data – including marital status, type of return filed, adjusted gross income and taxable income.

A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions, such as those offering mortgages and student loans.

To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.

To request a tax return transcript through the mail, businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T, Request for Transcript of Tax Return. Individual taxpayers should complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Form 4506T-EZ is only for individuals who filed a Form 1040 series return.

You should receive your tax account transcript within 30 calendar days from the time the IRS receives your request. Allow 10 working days for delivery of a tax return transcript.

If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Allow 60 days for actual copies of your return. Copies are generally available for the current year as well as the past six years.

January 21, 2010

California's Largest Tax Scofflaws

California's Franchise Tax Board publishes an annual list of the state's largest tax debtors. Some of those on the list are people who habitually flout or violate the law. The amount of income tax due from taxpayers ranges from $9,940,513 to $100,000. Federal individual income taxes are probably unpaid as well - but the IRS does not publish the names of delinquent taxpayers. The FTB's list is here.

If you owe California or the IRS over $25,000 in unpaid tax, call an experienced tax attorney for help resolving your tax problem. Call Mitchell A. Port at (310) 559-5259.

January 14, 2010

IRS Audits Used To Collect Employment Tax Data

Next month, the Internal Revenue Service will begin its Employment Tax National Research Project (“ET NRP”). The last one was performed 25 years ago. The study is needed because business practices regarding employment tax issues may have changed significantly since the last IRS employment tax study.

Examinations comprising the study will be conducted to collect data that will allow the IRS to understand the compliance characteristics of employment tax filers.

The IRS will randomly select 2,000 taxpayers each year for the next three years. The examinations will be comprehensive in scope. Taxpayers will receive notices describing the ET NRP process.

When completed, this information will help the IRS select and audit future employment tax returns with the greatest compliance risk. The results will allow the IRS to gauge more accurately the extent to which businesses properly comply with employment tax law and related reporting requirements.

There are two main goals for the ET NRP:

To determine compliance characteristics so IRS can focus on the most noncompliant employment tax areas, and

To secure statistically valid information for computing the Employment Tax Gap.

Records pertaining to employment tax returns and issues will be subject to review during these examinations. Employers should have all of their records available to expedite these examinations.

January 12, 2010

Federal Tax Lien Filed In Error

There is any number of different ways by which the IRS mistakenly files a federal tax lien against you for your unpaid taxes. In California (and throughout the U.S.), federal tax lies are filed in the county in which you live: say, Los Angeles, Orange, Santa Barbara or Ventura county. If the IRS erroneously files a tax lien, you should file Form 12277: Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. This application is based on Internal Revenue Code section 6323(j).

Erroneously Filed Notice of Federal Tax Lien

Treasury Regulation Section 301.6326-1 defines an erroneously filed Notice of Federal Tax Lien (NFTL) as one which is filed during the presence of one of the following conditions:

1. The tax liability was assessed in violation of a bankruptcy stay.

2. The statute of limitations for collection expired prior to the filing of the NFTL.

3. The tax liability was satisfied prior to the NFTL filing.

4. The tax liability was assessed in violation of deficiency procedures in Internal Revenue Code Section 6213.

Within 14 days of when an erroneous NFTL is identified, a Form 668Z, Certificate of Release of Federal Tax Lien, and Letter 544, Letter of Apology - Improvident/Erroneous Filing of Notice of Federal Tax Lien, must be issued by Advisory.

At your written request, a copy of the release and letter of apology may be furnished to creditors or credit bureaus. You may be instructed to provide names, mailing addresses, and permission to disclose the information.

Filing and release fees will be abated on erroneously filed NFTLs.

Improvident or Inadvertent Lien Filing

If an improvidently or inadvertently filed NFTL has been released, no consideration will be given to a request that the NFTL also be withdrawn.

When a NFTL is improvidently or inadvertently filed and then subsequently released, the Internal Revenue Service will provide you with a Letter 544.

If the criteria for release of a lien that has been improvidently or inadvertently filed are not present, the Internal Revenue Service will consider withdrawal of the NFTL.

Remember, a lien is not a levy. These two things are different from each other. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt. A levy is a legal seizure of your property to satisfy a tax debt.

For additional tax help, call Mitchell A. Port, a tax attorney in Los Angeles, for guidance. Call (310) 559-5259.

January 6, 2010

Tax Liens And Tax Levies

What is the difference between an IRS tax lien and an IRS tax levy?

A tax lien is a document filed in a public place such as a California County Recorder’s Office telling the world that you owe taxes. A tax lien lists the years for which taxes are owed the type of tax and the amount of the taxes owed. Credit reporting agencies will find the tax lien and report it on your credit report. If you want to sell any real property you own, the IRS or Franchise Tax Board of California will be paid out of the equity in your property by the escrow company. No money will be taken out of your bank account by the tax lien.

If the IRS or California FTB serves a tax levy on your bank then the bank is required to send all of your money to the IRS or FTB that is on deposit the day the levy is served. If the IRS or FTB sends a wage levy for delinquent taxes to your employer then your employer is required to send almost all of your earnings to the IRS or FTB less a small amount which is exempt.

Call a California tax attorney to discuss the help you need to fix your tax problem. Call Mitchell A. Port at (310) 559-5259.

January 4, 2010

IRS Warns Individuals and Businesses To Avoid Questionable Employment Tax Schemes

California business owners are subject to a variety of taxes by the State and also by the cities (including Los Angeles, Santa Barbara, Orange and Ventura). Some of those California businesses might have cash flow problems as a result. Some may be involved in one or more of the eight schemes where federal employment taxes are not properly withheld or paid by employers from their employees’ paychecks recently described by an IRS alert to taxpayers and business owners.

Regardless of the reason, federal law requires employment tax withholding and payment by employers. Nevertheless, there are many reasons employers don’t withhold or pay employment taxes. One reason may be because of a situation where an employer collects the taxes and elects to keep it during a period of financial difficulty rather than pay it to the Internal Revenue Service. Another reason may arise from an effort to use the government as a bank to 'borrow the money for a short time' with intentions to pay it back later. For a few tax protestors, it involves philosophical differences with the tax law of the United States that courts consistently reject.

Employment taxes consist of Social Security along with federal income tax withholding, Medicare taxes and unemployment taxes. Also, many states have withholding requirements for various employment related taxes.

The IRS takes a variety of steps to minimize employment tax non-compliance. These efforts have led to some criminal convictions resulting in jail-time and fines. The agency has a number of civil actions it can take like audits and filing tax liens against property the taxpayer owns.

Tax Prison

During the past three years, 117 individuals have been sentenced to confinement in a federal prison, a halfway house or home detention for criminal violations related to employment taxes. Approximately 77 percent of the persons sentenced for evading employment taxes served an average of 17 months confinement and were ordered to make restitution to the government for the taxes evaded, plus interest and penalties.

The eight most common types of employment tax non-compliance include:

1. Paying Employees in Cash. Paying employees in whole or partially in cash is a common method of evading income and employment taxes. There is nothing wrong with compensating an employee in cash, but employment taxes are owed regardless of how the employees are paid. And the IRS will build its case using all available information even if there are no payroll records or checks.

2. Misclassifying worker status. Sometimes employers incorrectly treat employees as independent contractors to avoid paying employment taxes. Generally if the payer has the right to control what work will be done and how it will be done, the worker is an employee. Employers who misclassify employees as independent contractors (and are not eligible for relief under Section 530 of the Revenue Act of 1978) will be liable for the employment taxes on wages paid to the misclassified worker and subject to penalties.

3. Pyramiding. "Pyramiding" of employment taxes is a fraudulent practice where a business withholds taxes from its employees but intentionally fails to remit them to the IRS. An often cause is a lack of profit or capital for operating costs, so the business owner uses the trust funds to pay other liabilities. The quarterly employment tax liabilities accumulate (or “pyramid”) until the employer has little hope of catching up. Businesses involved in pyramiding frequently shut down or file for bankruptcy and then start a new business under a different name starting the cycle over.

4. S Corporation Officers Compensation Treated as Corporate Distributions. In an effort to avoid employment taxes, some S Corporations are improperly treating officer compensation as a corporate distribution instead of wages or salary. By law, officers are employees of the corporation for employment tax purposes and compensation they receive for their services is subject to employment taxes.

5. Unreliable Third Party Payers. There are two primary categories of third party payers – Payroll Service Providers and Professional Employer Organizations. Payroll Service Providers typically perform services for employers such as filing employment tax returns and making employment tax payments. Professional Employer Organizations offer employee leasing meaning that they handle administrative, personnel, and payroll accounting functions for employees who have been leased to other companies that use their services. Many of these companies provide outstanding services to employers. Unfortunately, in some instances, companies of both types of services have failed to pay over to the IRS the collected employment taxes. When these employment service companies dissolve, millions in employment taxes can be left unpaid. Employers are urged to exercise due diligence in selecting and monitoring a third party payer. For example, when choosing a third party payer, employers should look for one that is reputable and uses the Electronic Federal Tax Payment System (EFTPS). This allows the business owner to verify payments made on their behalf. Also, an employer should never allow their address of record with the IRS be changed to that of the third party payer.

6. Offshore Employee Leasing. This scheme, which was designated as a Listed Transaction by the Service in 2003, misuses the otherwise legal business practice of employee leasing. Under the typical promotion, an individual taxpayer supposedly resigns from his or her current employer or professional corporation and signs an employment contract with an offshore employee leasing company. The offshore company indirectly leases the individual’s services back to the original employer using a domestic leasing company as an intermediary. The individual performs the same services before and after entering into the leasing arrangement. While the total amount paid for the individual’s services stays the same or increases, most of the funds are sent offshore as “deferred” compensation. The “deferred” compensation is then paid to the individual as a “loan” or ends up in an account under the individual’s control. Promoters of these arrangements improperly claim that neither employment taxes nor income taxes are owed on the “deferred” compensation. Because it is a Listed Transaction those who use the scheme are required to disclose their participation on current tax returns, and will be liable for the unpaid tax and subject to penalties and interest. Civil and criminal actions are being taken against promoters and participants in offshore leasing schemes – one promoter was convicted of defrauding the U.S. and sentenced to 70 months imprisonment, two other promoters have been ordered by the courts to stop marketing the scheme and a San Diego doctor plead guilty to tax evasion and is awaiting sentencing.

7. Frivolous Arguments. Unscrupulous individuals and promoters have used a variety of false or misleading arguments for not paying employment taxes. These schemes are based on an incorrect interpretation of “Section 861” and other parts of the tax law and have been refuted in court. One variation of this scheme involves the improper use of Form 941c, Supporting Statement to Correct Information on Form 941, to attempt to get a refund of previously paid employment taxes. Recent court cases have resulted in criminal convictions of promoters. Employer participants could also be held responsible for back payments of employment taxes, plus penalties and interest.

8. Filing False Payroll Tax Returns or Failing to File Payroll Tax Returns. Preparing false payroll tax returns intentionally understating the amount of wages on which taxes are owed or failing to file employment tax returns are methods commonly used to evade employment taxes.

Tax problems? Need tax help? Call a tax attorney. Call Mitchell A. Port at 310.559.5259.

January 1, 2010

Misplaced Your Employer Or Tax Identification Number?

If you applied for and received a taxpayer identification number for your trust or an employer identification number for your business but have since misplaced it, try the following actions to locate the number:

• If you used your EIN to open a bank account, or apply for any type of state or local license, you should contact the bank or agency to get your EIN.

• Ask the IRS to search for your EIN by calling the Business & Specialty Tax Line at (800) 829-4933. The hours of operation are 7:00 a.m. - 10:00 p.m. local time, Monday through Friday. An assistor will ask you for identifying information and provide the number to you over the telephone, as long as you are a person who is authorized to receive it. Examples of an authorized person include, but are not limited to, a sole proprietor, a partner in a partnership, a corporate officer, a trustee of a trust, or an executor of an estate.

• Find the computer-generated notice that was issued by the IRS when you applied for your EIN. This notice is issued as a confirmation of your application for, and receipt of an EIN.