June 26, 2012

Extension Of Time For Payment Of Estate Tax Where Estate Consists Largely Of Interest In Closely Held Business

Using a common estate planning device in California, Anna Smith created a pourover will which provided that all her property not already in her living trust would be transferred to her living trust to be distributed under the terms of her trust. Anna died in 1991 and the trust provided that after all expenses and taxes of the trust were paid, a residual distribution to certain named beneficiaries would occur. A significant asset of the estate was shares of stock in a corporation. Anna’s fiduciaries elected to defer a portion of her estate taxes under Internal Revenue Code §6166.

In 1992, the trustees of the trust distributed assets of the trust to the beneficiaries. Because of the deferral under §6166, the estate taxes were not yet paid in full and the beneficiaries agreed to be responsible for the unpaid estate taxes.

In 2002, the corporation went bankrupt. The beneficiaries received nothing on their shares beyond some minimal amounts received. The next year, after having paid only $5 million of the $6.871 million in taxes due, the estate defaulted on its unpaid estate taxes . The IRS then sought to collect the unpaid taxes from the personal representatives of Anna’s estate (who were also trustees of the Trust), and from the beneficiaries.

There is a lesson here for fiduciaries undertaking a Code §6166 election to defer payment of taxes. The lesson is that with the extension, the estate or trust with the subject assets should retain those assets until after full and eventual payment of the tax liability. Distributing early, unless there are other assets in the estate or trust to fully cover the tax liability, will expose the fiduciaries to personal liability such as that imposed in the Johnson case.

Perhaps if the fiduciaries can adequately secure the beneficiary obligations under the contribution agreement with a pledge and/or mortgage of assets that are unlikely to lose material value, the risk can be minimized.

For tax planning to avoid this type of problem and others like it, call tax lawyer Mitchell A. Port at (310) 559-5259.

June 18, 2012

How To Stop The IRS

I know that there is a lot of mediocre advice in California about how to stop the IRS collection process. So that’s why I am here. To provide real-world information based upon my years of experience.

How to stop the IRS from filing a tax lien

If you are looking for information on stopping or removing a tax lien, perhaps one of these links will be helpful:

Release of Lien Or Discharge Of Property

Withdrawal Of Notice Of Federal Tax Lien

Federal Tax Liens Are A Serious Problem

How to Stop the IRS from taking your home

It’s true: the IRS does not want to take your home. It doesn’t like the publicity and seizing a house is a lot of paperwork for them. But unfortunately many taxpayers who are avoiding the IRS are giving it no other option. So if you’re avoiding the IRS — I get it. You’re concerned.

Here are some worthwhile articles on the subject of seizures:

What The IRS Won't Seize Or Sell

Tax Collection Of Unpaid Taxes By The IRS

How to stop the IRS from levying your assets

The IRS will levy bank accounts, even IRAs that have your social security number listed. Think about this: If you have a joint account with anyone (even a dependent child), the IRS is free to levy that bank account completely if you have ignored them. If you are a co-owner of any account, the IRS will assume you have total access to all of the funds. Because your money is their money (or so they think) they will take it all. A bank levy is an emotional event. So if you are levied, do not delay. You will probably want to contact me immediately so I have an opportunity to get your (or someone else’s) money back.

Here is more information on levies:

My Bank Account Was Levied; The IRS Just Levied My Wages

How to stop the IRS with debt collection statutes

Did you know that the IRS only has a limited time to collect on a tax debt? There are ways to use this law to your advantage. Here's more information:

New Proposed Federal Budget Impacts IRS

How to stop the IRS from seizing property

The IRS doesn’t really want to seize property. It wants to work out a deal. But it is much more likely to seize personal property like cars, boats, investment property than take your primary residence. So what should you do? You don’t want to give up all your stuff, but you don’t want to be a pauper either. The solution to this dilemma is two fold. On one hand, you have to be realistic. Possessions can not buy piece of mind. But on the other hand, there are advantageous ways to structure your affairs to improve your negotiating position. Take a look at some posts:

Seizure and Sale

Conducting the Seizure

It may be time to call a tax professional. Mitchell A. Port is a tax attorney in Los Angeles and can be reached at (310) 559-5259.

June 12, 2012

Circular 230 To Promote Ethical Practice By Los Angeles Tax Professionals

The IRS has an Office of Professional Responsibility (OPR) said "To be the standard-bearer for integrity in tax practice" and whose mission is to “Interpret and apply the standards of practice for tax professionals in a fair and equitable manner”. Its strategic goals and objectives are to support effective tax administration by ensuring all tax practitioners, tax preparers, and other third parties in the tax system adhere to professional standards and follow the law.

To improve ethical standards for tax professionals and to curb abusive tax avoidance transactions, the Internal Revenue Service and Treasury Department issued regulations amending Treasury Department Circular 230.

Circular 230 is applicable to attorneys, accountants and other tax professionals who practice before the IRS. The August, 2011 revisions to Circular 230 provide standards of practice for written advice that reflect current best practices and are intended to restore and maintain public confidence in tax professionals. These revisions ensure that tax professionals do not provide inadequate advice, and increase transparency by requiring tax professionals to make disclosures if the advice is incomplete.

Overseeing enforcement of Circular 230 is the Office of Professional Responsibility. OPR is committed to:

Developing procedures that ensure timely case resolution.

Independent, fair and equitable treatment of all tax practitioners consistent with the principles of due process.

Strengthening partnerships with other parts of the IRS and with external practitioner organizations.

Educating/maintaining tax professionals’ knowledge of relevant Circular 230 provisions.

Developing and implementing proactive strategies for identifying violations of Circular 230

Providing guidance and feedback to field/agency sources regarding essential referral criteria for each relevant Circular 230 provision.

Developing policies and regulations that ensure fair and equitable disposition of Circular 230 cases.

Rendering fair and independent determinations regarding alleged misconduct in violation of Circular 230, Regulations Governing Practice before the Internal Revenue Service.

OPR investigates allegations of misconduct by tax practitioners and enforces the standards of practice in Circular 230.

Tax problems? Tax liens and levies? Wages garnished? Answers to these and other questions - including Circular 230 and OPR - call Mitchell A. Port at (310) 559-5259.

June 6, 2012

Record Keeping For Individuals

Now that tax season is over, what should you do? You would have lots of paper documents – bank and credit card statements, cancelled checks, check stub, invoices, receipts, dividend and bonus statements, payment slips, tax forms, mileage records etc – you would have used or referred to for your income tax filing.

The IRS provides answers to this question in one of its publications at this link. This publication does not discuss the records you should keep when operating a business. For information on business records, see Publication 583, Starting a Business and Keeping Records.

Some of the topics covered in the IRS's publication are about the following:

Why Keep Records?

Identify sources of income.
Keep track of expenses.
Keep track of the basis of property
Prepare tax returns
Support items reported on tax returns

Kinds of Records To Keep

Electronic records.
Copies of tax returns.

Basic Records

Proof of Payment

Specific Records
Business Use of Your Home
Casualty and Theft Losses
Child Care Credit
Credit for the Elderly of the Disabled
Education Expenses
Employee Business Expenses
Energy Incentives
Gambling Winnings and Losses
Health Savings Account (HAS) and Medical Savings Account (MSA)
Medical and Dental Expenses
Mortgage Interest
Moving Expenses
Pensions and Annuities
Sales Tax on Vehicles

How Long To Keep Records

For tax help and problem solving, call tax attorney Mitchell A. Port at 310.559.5259.