California Tax Attorney Blog

In an article this California tax lawyer thinks is worth reading, Marjorie E. Kornhauser (Arizona State) has published A Tax Morale Approach to Compliance: Recommendations for the IRS, 8 Fla. Tax Rev. 599 (2007).

Here is the introduction:

If people hate taxes so much why do they pay them? The common, seemingly obvious, answer—fear of being caught cheating—is only a partial answer. In fact, this “obvious” answer—based on the rational cost/benefit analysis of traditional economic theory— explains so little of tax compliance that the puzzle of tax compliance is why people pay taxes instead of evading them. The key to this puzzle is “tax morale,” the collective name for all the non-rational factors and motivations—such as social norms, personal values and various cognitive processes—that strongly affect an individual’s voluntary compliance with laws. Higher tax morale correlates with higher tax compliance. Although the exact components of tax morale are not yet fully delineated, Congress and the IRS should begin now to shape and administer income tax laws in accordance with tax morale findings. Delay can only increase the chance that voluntary compliance will deteriorate given the interaction of an individual’s tax morale with elements of the external environment, such as other people and institutions. The tax gap, for example, is more than a problem of lost revenue; it is a visible sign of non-compliance that can create a downward spiral. Non-compliance among other taxpayers can decrease an individual’s own tax morale and compliance. Once tax morale dips, it is hard to restore it to prior levels. Ironically, then, the more the tax gap is publicized, the greater this danger becomes. Consequently, Congress and the IRS should act now to narrow the tax gap and to foster compliance generally. This Report offers the IRS several concrete suggestions for improving individual taxpayer compliance based on the tax morale literature.

Part II discusses methodology and the limitations of empirical research.

Part III briefly describes the tax morale literature, focusing on the main findings regarding: 1) cognitive and affective processes; 2) personal and social values/norms, especially procedural justice, legitimacy, reciprocity, and trust; 3) external activation and suppression of tax morale; 4) demographic factors; and 5) a new tax morale model for tax administration.

Part IV contains recommendations for the IRS. It presents three major recommendations and several more specific suggestions for the IRS to improve individual taxpayers’ voluntary compliance. First, the IRS should establish a department devoted solely to exploring tax morale issues and implementing the findings. Second, the IRS should adopt a tax morale approach to tax compliance that incorporates the findings of the research and responds to—and strengthens—taxpayers’ internal motivations to comply. Third, using tax morale research, the IRS should implement ongoing educational (long - and short term) programs and media campaigns. Although sticks as well as carrots are needed to ensure compliance, this Report examines only the carrots.

Part V provides a short conclusion.

Solutions to tax problems and California tax help from a qualified tax attorney is available by calling Mitchell A. Port at (310) 559-5259.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

Want to dissolve, surrender or cancel your California-based business whether you operate as a domestic corporation, foreign corporation, limited liability company or partnership? The California Franchise Tax Board has a helpful brochure to tell you how. Click here.

Winding-down your Los Angeles County, Orange County, Ventura County or Santa Barbara County business can be done with the help of a qualified attorney. Call Mitchell A. Port at (310) 559-5259 if you would like assistance.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

The California legislature is considering a bill that would allow the Franchise Tax Board (the FTB) to suspend occupational and professional licenses because of unpaid income tax liabilities and notify the applicable licensing agency of the suspension.

The bill would allow the FTB to suspend an individual’s occupational or professional license because of unpaid income tax liabilities. The FTB would suspend a license only after the following have been provided to the debtor:

Notice of State Income Tax Due,

Final Notice Before Levy,

Order To Withhold (OTW) is issued (if debtor’s bank information is available to the FTB),

Notice of State Tax Lien (issued when a state tax lien is recorded),

60-day preliminary suspension notice.

The FTB would be allowed The FTB to disclose to the licensing boards the reason for the suspension – unpaid taxes.

The FTB staff would provide a hearing, upon request, for license holders who would experience a financial hardship as a result of the suspension.

This bill would define the following:

“Hardship” means financial hardship, as determined by the FTB, where the licensee is financially unable to pay any part of their taxes including penalties, interest, and applicable fees and is unable to qualify for an installment payment arrangement pursuant to Section 19008 of the Revenue and Taxation Code.

“License” includes certificate, registration, or any other authorization to engage in a business or profession issued by a state governmental licensing entity.

“Licensee” means any individual authorized by a license, certificate, registration, or other authorization to engage in a business or profession issued by a state governmental licensing entity.

The bill would allow the Contractors State License Board and the FTB to have concurrent authority to suspend a contractor’s license.

This bill requires licensing boards to provide the FTB information at a time requested by the FTB.

This bill would allow a limited hearing for license holders with outstanding tax liabilities as of the date of enactment to substantiate that the license holder has paid the tax liability reflected in the notice of state tax lien.

ECONOMIC IMPACT

The revenue impact of this bill would depend on the number of delinquent taxpayers that possess an occupational or professional license. This estimate was calculated using the actual account balances of the department’s accounts receivables for the affected taxpayers, excluding accounts in bankruptcy and installment agreements. Taxpayers subject to this proposal are those with an outstanding liability of $1,000 or more and have owed that debt for one year or more.

It is estimated that 17,200 taxpayers with occupational and professional licenses will enter the collection process annually. Of the 17,200 taxpayers, it is estimated 38%, or 6,600, are expected to pay their delinquent debts upon notice from the FTB. Current departmental data indicates the average payment amount for compliant taxpayers would be approximately $2,000, resulting in an annual revenue increase of approximately $13 million (6,600 x $2,000 = $13.2 million). The average payment amount was calculated by the amount of payments made in response to filing enforcement notices.

Current departmental data also indicates unresolved cases of approximately 25,000 delinquent taxpayers with occupational and professional licenses in the collection process. Based on the 25,000 taxpayers, it is estimated that nearly 9,500 taxpayers would comply upon notice from the FTB resulting in a revenue increase of $19 million in the first year ($2,000 x 9,500 = $19 million). The revenue for fiscal year ending 2009-10 is estimated to total $32 million ($19 million + $13 million).

It is assumed that 50 percent of the $32 million would be collected in fiscal year 2009-2010, reducing revenue to $16 million. The remaining $16 million from fiscal year 2009-10 would be collected in 2010-11, in addition to the $13 million that is assessed annually, for a revenue impact of $29 million ($16 million + $13 million = $29 million) in 2010-11. Thereafter, the annual fiscal impact of $13 million would be collected. Because the revenue from this bill would be from tax liabilities from prior years, the estimates in the table are all accrued back one year.

If you are having an income tax collection problem with the FTB, call a tax attorney: call Mitchell A. Port at (310) 559-5259 for help.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

Like the IRS, California's Franchise Tax Board has its own taxpayer advocate. (See my earlier posting on August 27, 2007 entitled "What Has The IRS' Taxpayer Advocate Done Lately?"). It claims that "The Taxpayer Advocate's office is available to provide an independent review of your unresolved tax problems."

Your rights as a California taxpayer are described on the Franchise Tax Board's Advocate's website in English, Spanish, Chinese, Korean and Vietnamese.

There is also a comparison of California law with federal law concerning the taxpayers' bill of rights.

Common California Advocate Responsibilities Include:

Resolve problems when normal channels don’t work

Protect taxpayers’ rights

Determine whether to suspend collections while case is in review

Ensure courteous treatment of the public

Maintain independent status

Identify inequities

Provide independent review

Adhere to agency tax laws

Identify trends and issues

Encourage public suggestions

Propose changes

Promote understandable and simple:

Tax laws

Regulations

Policies

Procedures

Publications

Finally, there is a link to a list of taxpayer advocates in the California Board of Equalization (BOE), Employment Development Department (EDD), Franchise Tax Board (FTB) and the Internal Revenue Service (IRS).

If you continue to have tax problems even when dealing with the taxpayer advocate, call tax attorney Mitchell A. Port for tax help at 310.559.5259.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

Attention California business owners: here is a list of some useful sites and links to provide you with solutions to some of your questions about operating your business in the California counties of Los Angeles, Santa Barbara, Orange and Ventura.

U.S. Customs and Border Protection
U.S. Customs and Border Protection is the unified border agency within the Department of Homeland Security.

Environmental Protection Agency
The mission of the U.S. Environmental Protection Agency is to protect human health and to safeguard the natural environment--air, water and land--upon which life depends.

U.S. Tax Court
Congress created the Tax Court to provide a judicial forum in which affected persons could dispute tax deficiencies determined by the commissioner of Internal Revenue prior to payment of the disputed amounts.

Small Business Administration
The mission of the SBA is to maintain and to strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.

Business.gov
Business.gov guides you through the maze of government rules and regulations and provides access to services and resources to help you start, grow, and succeed in business.

USA.gov
The U.S. government's official Web portal.

Department of the Treasury
The mission of the Department of the Treasury is to promote the conditions for prosperity and stability in the United States and encourage prosperity and stability in the rest of the world.

Department of Commerce
The Commerce Department’s mission is to create the conditions for economic growth and opportunity by promoting innovation, entrepreneurship, competitiveness and stewardship.

Social Security Administration
The Social Security Administration is the nation's primary income security agency. It pays retirement, disability and survivors benefits to workers and their families, administers the Supplemental Security Income program, and issues Social Security numbers.

Department of Agriculture - Office of Small and Disadvantaged Business Utilization (OSDBU)
The mission of the OSDBU is to provide maximum opportunities for small businesses to participate in USDA contracting activities by establishing and attaining small disadvantaged business program goals.

Department of Labor: Occupational Safety & Health Administration (OSHA)
OSHA's mission is to assure the safety and health of America's workers by setting and enforcing standards; providing training, outreach, and education; establishing partnerships; and encouraging continual improvement in workplace safety and health.

Court Rulings
This page provides links to various federal, state and private sites that provide legal information for the small business owner.

Department of Education
The Education Department’s mission is to ensure equal access to education and to promote educational excellence throughout the nation.

State Links
A collection of links to State government Web sites with useful information for businesses. Whether you're already in business, just starting or expanding to a new state - there's something here for you!

State and Local Contacts
The State and Local Government on the Net directory provides convenient one-stop access to the Web sites of thousands of state agencies and city and county governments.

U.S. Census Bureau
The Census Bureau serves as the leading source of quality data about the nation’s people and economy.

U.S. Department of Labor
The department administers a variety of federal labor laws including those that guarantee workers’ rights to safe and healthful working conditions, a minimum hourly wage and overtime pay, freedom from employment discrimination, unemployment insurance and other income support.

U.S. Equal Employment Opportunity Commission
The mission of the EEOC is to eradicate employment discrimination at the workplace.

SBTV.com
SBTV.com is a television network on the Web devoted exclusively to providing engaging streaming video content to small businesses. It provides technical information on how to run your business, inspirational stories from entrepreneurs across the country, information about small business conferences and events, and resources to help solve day-to-day business challenges.

GobiernoUSA.gov
El portal oficial en español del Gobierno de los EE. UU (The U.S. government's official Spanish-language Web portal)

For tax and business help for your California based enterprise, call Mitchell A. Port at (310) 559.5259.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Business Transactions

Bookmark: TOP

Has your ex-spouse or former employee turned you in? Are you the victim of a false claim?

The Internal Revenue Service has a Whistleblower Office – it even has a director for it: he is Stephen Whitlock. Recently, the IRS outlined ways informants can report violations of the tax law and possibly claim a reward based on the amount of additional tax, penalties and interest that is owed.

If you earn a reward, you have to pay your own income tax on it. All awards will be subject to normal tax reporting and withholding requirements.

To be eligible for an award under the new procedures, the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed $2 million for any taxable year and, if the taxpayer is an individual, the individual’s gross income must exceed $200,000 for any taxable year in question.

The Whistleblower Office was created about a year ago, December. To make a claim, an informant must file new Form 211, Application for Award for Original Information, which asks informants for an explanation of how the informant obtained the information, to provide an estimate of the tax owed and the facts in the case.

The IRS’ Whistleblower Office will make the final determination about whether an award will be paid and the amount of the award for claims that it processes. Awards will be paid in proportion to the value of information furnished voluntarily with respect to proceeds collected.

Under the new procedures, the amount of award will be at least 15%, but no more than 30%, of the collected proceeds in cases in which the IRS determines that the information submitted by the informant substantially contributed to the collection of tax. The award percentage may be reduced in some circumstances, which are described in IRS guidance.

Has your ex-spouse or former employee turned you in? Are you the victim of a false claim? Call Mitchell A. Port at 310.559.5259 for tax help.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

The Internal Revenue Service has many forms and free publications on a wide variety of topics to help you understand and meet tax obligations, reporting and filing requirements. If you need IRS materials try one of these ways:

Walk-in: During the tax-filing season, many libraries and post offices offer free tax forms. Some libraries also have copies of commonly-requested publications. Braille materials may also be available. Many large grocery stores, copy centers, and office supply stores have forms you can photocopy or print from a CD.

Internet: You can access forms and publications on the IRS website 24 hours a day, 7 days a week, at IRS.gov.

Mail: Send your order for tax forms and publications to National Distribution Center, P.O. Box 8903, Bloomington, IL 61702-8903. You should receive your products within 10 days after we receive your order.

Phone: Call 800-TAX-FORM (800-829-3676) to order current year forms, instructions and publications and prior year forms and instructions. You should receive your order within 10 days.

Try these links:

Publication 2053A, Quick and Easy Access to IRS Tax Help and Forms (PDF 40K)

Publication 910, Guide to Free Tax Services (PDF 636K)

Need other tax help? Have other tax problems you wish to discuss with a California tax attorney? Call Mitchell A. Port at 310.559.5259.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Probate , Estate Planning , Business Transactions

Bookmark: TOP

LLCs are subject to an $800 annual tax if they are doing business in California or have articles of organization accepted, or a certificate of registration issued by the California Secretary of State. The annual tax is prepaid for the privilege of doing business in California, and is due and payable on or before the 15th day of the 4th month after the beginning of the taxable year. The annual tax must be paid for each taxable year until the appropriate papers are filed.

In addition to the annual $800 tax, every California LLC must pay a fee based on total annual income. The LLC fee is due on or before the 15th day of the 4th month after the close of the LLC’s taxable year. The California Franchise Tax Board has a booklet containing much of what one needs to know about LLCs. For taxable years beginning on or after January 1, 2002, use the following chart to compute the fee:

If total annual income is equal to or over – but not over –

$250,000 to $499,999 the fee is $900
$500,000 to $999,999 the fee is $2,500
$1,000,000 to $4,999,999 the fee is $6,000
$5,000,000 and over the fee is $11,790

If the California Franchise Tax Board (FTB) determines multiple LLCs were formed for the primary purpose of reducing fees, the LLC’s total income from all sources that are reportable to California could include the aggregate total income of all commonly controlled LLC members. “Commonly controlled” means control of more than 50% of the capital interests or profit interests of the taxpayer and any other LLC or partnership by the same persons.

Strategic planning is necessary when working with LLCs. Expert tax advice is essential to accomplish business goals. Call Mitchell A. Port at 310.559.5259 to discuss your ideas.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Business Transactions

Bookmark: TOP

The IRS has a full discussion of offers in compromise on its website. Click here for the full article. Here is what the article says:

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer's tax liabilities for less than the full amount owed. If the liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC. For information concerning installment agreements, refer to Topic 202.

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

The IRS may accept an OIC based on three grounds. First, acceptance is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists that the IRS has correctly determined the amount owed. Second, acceptance is permitted if there is doubt that the amount owed is collectible. This means that doubt exists that the taxpayer could ever pay the full amount owed. Third, acceptance is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the liabilities have been correctly determined and no doubt that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

When submitting an OIC, taxpayers must....

Continue reading "Offer In Compromise" »

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

Is your name on the list? Keep it off!

The California Franchise Tax Board is going after taxpayers who owe about $200,000 up to almost $27 million in back income taxes by listing their names and debts on the agency's website. California Revenue & Taxation Code Section 19195 directs the Franchise Tax Board to publish an annual list of the top 250 taxpayers with liened state income tax delinquencies greater than $100,000.

Of California's roughly 20 million taxpayers, about 250 owe huge debts. Before the FTB publishes the list, each taxpayer who may potentially be on the list gets a letter which provides them an opportunity to voluntarily settle their liability.

The notification letters, titled Notice of Public Disclosure, provide taxpayers 30 days to pay their debts or obtain FTB approval to make installment payments, pay the liability in full, enter into an Offer in Compromise, or substantiate a bankruptcy filing.

The California State Board of Equalization is also required by law to post similar information concerning back sales and use taxes every quarter, removing amounts that are being addressed through bankruptcy, payment arrangement, appeal or litigation.

Get tax help now! Call Mitchell A. Port, a California tax attorney experienced in resolving tax problems.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

While most tax return preparers are professional and honest, you can use the following tips to choose a preparer who will offer the best service for your tax preparation needs.

If you choose to use a paid tax preparer, it is important that you find a qualified tax professional. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else.

The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items. By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts.

Get References. Ask questions and get references from clients who have used the tax professional before. Were they satisfied with the service received?

Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one who will be responsive to your needs.

Ask about service fees. Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee a refund or base fees on a percentage of the amount of the refund.

Research. Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.

Determine if the preparer’s credentials meet your needs. Does your state have licensing or registration requirements for paid preparers? Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney? If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals. Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.

Want a referral to a qualified tax return preparer from a California tax attorney? Call Mitchell A. Port at 310.559.5259.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Estate Planning , Business Transactions

Bookmark: TOP

Did you believe you were an employee at your job rather than an independent contractor? Did your employer mistakenly treat you as an independent contractor perhaps because it was perceived as a way to save Social Security and Medicare Taxes on wages? If you were erroneously treated as an independent contractor, the Internal Revenue Service has developed a new form for employees who have been misclassified as independent contractors by an employer.

Form 8919, Uncollected Social Security and Medicare Tax on Wages, will now be used to figure and report the employee’s share of uncollected social security and Medicare taxes due on their compensation.

By using Form 8919, the worker’s social security and Medicare taxes will be credited to their social security record. To facilitate this process, the IRS will electronically share Form 8919 data with the Social Security Administration.

Generally, a worker who receives a Form 1099 for services provided as an independent contractor must report the income on Schedule C and pay self-employment tax on the net profit, using Schedule SE. However, sometimes the worker is incorrectly treated as an independent contractor when they are actually an employee. When this happens, Form 8919 will be used beginning for tax year 2007 by workers who performed services for an employer but the employer did not withhold the worker’s share of social security and Medicare taxes.

In addition, the worker must meet one of several criteria indicating they were an employee while performing the services. The criteria can be reviewed at this site:

In the past, misclassified workers often used Form 4137 to report their share of social security and Medicare taxes. Misclassified workers should no longer use this form. Instead, Form 4137 should now only be used by tipped employees to report social security and Medicare taxes on allocated tips and tips not reported to their employers.

Whether you are an employee or the employer, tax help is available to be sure you comply with the new rule. Call Mitchell A. Port at 310.559.5259 for tax help.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

The Truth about Frivolous Tax Arguments is the Internal Revenue Service’s response to anyone who contemplates arguing on legal grounds against paying their fair share of taxes. It discusses and rebuts many of the more common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.

This 74-page document is updated at least once a year by the IRS and is designed to help individuals and groups understand their responsibilities and not violate the law.

The document explains many of the common frivolous arguments made in recent years and it describes the legal responses that refute these claims. This document is available on IRS.gov and will help taxpayers avoid wasting their time with frivolous arguments and incurring penalties.

In 2006, Congress increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

A section of this document explains the penalties that the courts may impose on those who pursue tax cases on frivolous grounds. It should be noted that the cases cited as relevant legal authority are illustrative and are not intended to provide an all-inclusive list relating to frivolous tax arguments.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

In November, 2007, the U.S. government sued the owners of a San Diego, California tax preparation firm, asking a federal court to shut them down and permanently bar them from preparing tax returns for others. The civil injunction suit was filed in San Diego, California against Roosevelt Kyle and Rebecca Tyree, both of San Diego, and their businesses—Century One Resorts Ltd., COA Financial Group LLC, and Eagle Financial Services LLC.

According to the government’s complaint, the defendants operate their business in National City, California, and have prepared more than 12,000 federal tax returns since 2000. The suit alleges that Kyle and Tyree understated their customers’ tax liabilities by preparing returns with fabricated business-expense and charitable deductions. The complaint alleges that the Internal Revenue Service estimates that the defendants’ misconduct has caused losses to the U.S. Treasury totaling $18 million.

According to the complaint, the IRS has penalized Kyle three times in the past for understating customers’ tax liabilities. In 2002 a federal jury found Kyle guilty of failing to file his own 1995-1998 tax returns.

Call Mitchell A. Port at 310.559.5259 if you would like a referral to a California tax return preparer who is fair, has integrity, is honest and helpful.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

Employment Tax Evasion Schemes

California employers: be careful! Employment tax evasion schemes can take a variety of forms. Los Angeles County, Santa Barbara County, Orange County and Ventura County employers use a few of the most common techniques. Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns.

Filing False Payroll Tax Returns or Failing to File Payroll Tax Returns

Preparing false payroll tax returns 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.

Employment Leasing

Employee leasing is another legal business practice, which is sometimes subject to abuse. Employee leasing is the practice of contracting with outside businesses to handle all administrative, personnel, and payroll concerns for employees. In some instances, employee-leasing companies fail to pay over to the IRS any portion of the collected employment taxes. These taxes are often spent by the owners on business or personal expenses. Often the company dissolves, leaving millions in employment taxes unpaid.

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. Businesses involved in pyramiding frequently file for bankruptcy to discharge the liabilities accrued and then start a new business under a different name and begin a new scheme.

Paying Employees in Cash

Paying employees, whole or partially, in cash is a common method of evading income and employment taxes resulting in lost tax revenue to the government and the loss or reduction of future social security or Medicare benefits for the employee.

Other schemes include:

Unreliable Third Party Payers.

Frivolous Arguments.

Offshore Employee Leasing.

Misclassifying worker status.

Filing False Payroll Tax Returns or Failing to File Payroll Tax Returns.

S Corporation Officers Compensation Treated as Corporate Distributions.

For further reading, look at IR-2004-47, titled "IRS Warns Businesses, Individuals to Watch for Questionable Employment Tax Practices."

To resolve and fix these and other tax problems, call Mitchell A. Port at 310. 559.5259.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: TOP

It’s important for you to find qualified tax professionals if they need help preparing and filing you income tax returns. You are legally responsible for what’s on your own individual income tax returns even if prepared by someone else. It is important to choose carefully when hiring an individual or firm to prepare personal income tax returns. If you pay someone to prepare your tax return, choose that preparer wisely. Here are some points to keep in mind when someone else prepares your return:

Never sign a blank tax return, and do not sign in pencil.

Review and ensure you understand the entries and are comfortable with the accuracy of the return before you sign.

A Paid Preparer is required by law to sign the return and fill in the preparer areas of the form. The preparer should also include their appropriate identifying number on the return. Although the Preparer signs the return, you are responsible for the accuracy of every item on your return. In addition, the preparer must give you a copy of the return.

Review the completed return to ensure all tax information, your name, address and Social Security number(s) are correct. Make sure that none of these spaces is left blank.

A Third Party Authorization Check Box on Form 1040 allows you to designate your Paid Preparer to speak to the IRS concerning how your return was prepared, payment and refund issues and mathematical errors.

If you have provided specific authorization in a power of attorney filed with the IRS, you may have copies of notices or refund checks mailed to your preparer or representative; but only you can sign and cash your refund check.

Unqualified tax preparers may overlook legitimate deductions or credits that could cause you to pay more tax than you should. Unqualified preparers may also make costly mistakes causing their clients to incur assessed deficiencies, penalties, and interest. Here are some suggestions to consider when hiring a tax professional:

Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.

Understand that the most reputable preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.

A paid preparer must sign the return as required by law.

Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.

Choose a preparer you will be able to contact and one who will be responsive to your needs. Ask who will actually prepare the return before engaging services. Avoid firms where your work may be delegated down to someone with less training or some unknown worker. You should know exactly who works with your tax matters at all times and how to contact him or her; after all, you are paying for it. Determine if the preparer is exporting your return to a foreign country for preparation. Foreign countries do not have the same security and privacy laws as the United States nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.

Beware of a preparer who guarantees results or who bases fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.

Investigate whether the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents or the oversight agency in states that license or register tax preparers.

Determine if the preparer’s credentials meet your needs or if your state mandates licensing or registration requirements for paid preparers. Is he or she an Enrolled Agent, Certified Public Accountant (CPA) or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return that they signed as a preparer.

Check IRS.gov for information regarding abusive shelters and other tax schemes and scams.

The IRS can help you prepare your own returns without the assistance of a paid preparer. Before seeking a paid preparer, you might consider how much information is available directly from the IRS through the IRS Web site. Check these links:

Free Tax Return Preparation For You by Volunteers

e-file for Individual Taxpayers

Free File

Tax evasion is both risky and a crime, punishable by up to five years imprisonment and a $250,000 fine. Remember, no matter who prepares a tax return, you are legally responsible for all of the information on that tax return.

Unfortunately, unscrupulous tax return preparers do exist and can cause financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false paper or electronic income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.

Report suspected tax fraud and abusive return preparers by completing Form 3949-A and mailing it or a letter with similar information to:

Internal Revenue Service
Fresno, CA 93888

Call Mitchell A. Port, a California tax attorney at 310.559.5259, for a referral to a tax professional who will work together with you this tax season and going-forward on your tax planning needs.

Posted by Mitchell A. Port | Permalink | Email This Post

Posted In: Tax Controversy , Business Transactions

Bookmark: