January 30, 2012

Late Filing Tax Penalties

For 2012, no late filing penalties apply when missing the April 15 tax filing deadline. That's because for this year, the federal tax filing deadline is April 17. Since April 15 falls on a Sunday, the deadline is moved to the following Monday; but because Monday is Emancipation Day in Washington, D.C., the filing deadline is moved to the following Tuesday, April 17. Here's an explanation from the IRS in one of it's "tax tips".

Help from a tax litigation attorney is at hand. Call Mitchell A. Port at (310) 559-5259.

January 27, 2012

New Guidelines For Innocent Spouse Relief

Right after the New Year, the Internal Revenue Service released new proposed guidelines designed to provide relief to more innocent spouses requesting equitable relief from income tax liability. In an earlier blog post, other rule changes were discussed.

A Notice proposing a new revenue procedure revises the threshold requirements for requesting equitable relief and revises the factors used by the IRS in evaluating these requests. The factors have been revised to ensure that requests for innocent spouse relief are granted under section 6015(f) when the facts and circumstances warrant and that, when appropriate, requests are granted in the initial stage of the administrative process. The new guidelines are available immediately and will remain available until the finalized revenue procedure is published. The IRS will immediately begin using these new guidelines when evaluating equitable relief requests.

"The IRS is significantly changing the way we determine innocent spouse relief," said IRS Commissioner Doug Shulman. "These improvements should dramatically enhance our process to make it fairer for victimized taxpayers facing difficult situations.”

This is the second major change made to the innocent spouse program. In July, the IRS extended help to more innocent spouses by eliminating the two-year time limit that previously applied to requests seeking equitable relief.

Need help? Call a qualified tax litigation attorney at (310) 559-5259.

January 18, 2012

Pennies On The Dollar - NOT!

JK Harris & Co. - "the nation's largest tax representation firm" - is in bankruptcy. It may stop trying to restructure its business to liquidating its business instead.

This case shows how hard it can be to settle tax disputes for “pennies on the dollar”. JK Harris advertised that it could resolve people's tax debts for "pennies on the dollar." It appears that it had its own problems: the cost of large settlements related to multiple claims that it misled consumers. In many cases, attorneys general complained that the company told consumers it could resolve their tax problems, and took their payments, when no such relief was possible for those particular clients.

Its own employees have now become creditors for unpaid wages. No doubt it has payroll tax problems with the Internal Revenue Service because if it didn’t pay wages, it probably didn’t pay payroll taxes. It probably won’t qualify for a settlement involving pennies on the dollar.

Company founder and Chief Executive Officer John K. Harris will likely be assessed by the IRS for all the unpaid trust fund taxes owed to the government if any are due and he's found to be both willful and responsible for nonpayment. His personal assets will probably be subject to tax claims made by the Internal Revenue Service.

Work with a reliable attorney to resolve your tax problems. Call Mitchell A. Port at (310) 559-5259.

January 13, 2012

Offshore Voluntary Disclosure Program Reopens

As of this past Monday, the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.

January 9, 2012

Two New Types of Corporations In California

California became the seventh state to adopt two new subtypes of stock corporations — a “flexible purpose corporation” and a “benefit corporation" as of January 1, 2012. Now, investors and entrepreneurs can pursue both social and economic objectives allowed by the new corporation subtypes. These two types of new entities may sound like marketing hype but they help shield them against lawsuits brought by shareholders who say that company do-gooding has diluted the value of their stock.

The new stock corporation subtypes differ from traditional for profit corporations that are organized to pursue profit and nonprofit corporations that must be used solely to promote social benefits.

Entrepreneurs who wanted to incorporate social causes or green initiatives often had to become non-profits which limited their ability to raise venture capital.

Approval from 2/3 of a company’s outstanding shareholders is needed to become a benefit corporation. A similar vote is needed to return to the traditional type of corporation.

The Articles of Incorporation for a benefit corporation must include the following additional statement: “This corporation is a benefit corporation.” The Articles of Incorporation for a benefit corporation may identify one or more specific public benefits that shall be the purpose or purposes of the benefit corporation. For complete legal authority, look at California Corporations Code sections 14600-14631.

For a flexible purpose corporation, the Articles of Incorporation must include one of the purpose statements required by California Corporations Code section 2602(b)(1), as well as a statement that a purpose of the flexible purpose corporation is to engage in one or more of the specific purposes provided in California Corporation Code section 2602(b)(2). For complete legal authority, look at California Corporations Code sections 2500-3503.

To help form one of these two new corporations, call business attorney Mitchell A. Port at (310) 559-5259.

January 5, 2012

Collection Financial Standards: Guidelines For Repayment Of Delinquent Taxes

You may be familiar with the so-called "national standards" used by the Internal Revenue Service in calculating repayment of delinquent taxes. As of October 3, 2011, new "standards" were issued. Those standards are used so that all taxpayers located in a particular locale are treated the same as every other taxpayer in the same locale; no longer does the Service retain the same degree of discretion it used to have when evaluating one's ability to pay those taxes.

For instance, for Los Angeles County, the national standards for a family of 5 or more for housing and utilities is $2958 per month.

The maximum allowed for food, clothing and miscellaneous for a family of 5 is $1639 per month.

The maximum amount for vehicle ownership costs for 2 cars is $992 per month while the maximum operating costs for 2 cars is $590.

Separate from health insurance costs, the maximum allowed for out of pocket health care costs for those over age 65 is $144 per month and for those under age 65 is $60 per month.

To the extent the information on the form 433-A "Collection Information Statement" exceeds the maximum national standards for a category of expenditure, the Internal Revenue Service often simply treats the excess expenditure as if it was not incurred and thus the excess amount is counted as "available" to pay delinquent taxes. For example, $2958 is the maximum allowed for housing and utilities but you may actually spend $8389. The extra $5431 will likely be counted as "available" to pay taxes.

When the amount claimed on the form 433-A is more than the total allowed by the national standards, you must provide documentation to substantiate those expenses are necessary living expenses. The IRS won't simply allow a large mortgage obligation to be sufficient to demonstrate that the expense is "necessary" since that might allow an unlimited amount to be spent on a mortgage and leave nothing left with which to pay delinquent taxes. The IRS will not subsidize your standard of living by allowing a large mortgage while taxes remain unpaid.

I hope this casts the proper light on what lies ahead when negotiating an installment agreement.

For tax help, call a qualified tax attorney. Call Mitchell A. Port at (310) 559-5259.