The United States Tax Court is a court established by Congress under the Constitution. When the Internal Revenue Service has determined a tax deficiency and has sent the notorious 90-day letter, the so-called Notice of Deficiency, you may dispute the deficiency in the Tax Court before paying any disputed amount.

The Tax Court’s jurisdiction also includes the authority to order abatement of interest, award administrative and litigation costs, review certain collection actions, determine relief from joint and several liability on a joint return, redetermine worker classification, adjust partnership items, redetermine transferee liability, make certain types of declaratory judgments, and review awards to whistleblowers who provide information to the Commissioner of Internal Revenue.

The U.S. president appoints all 19 Tax Court judges. Trials are conducted and other work of the Court is performed by those judges. All of the judges have expertise in the tax laws and apply that expertise in a manner to ensure that you are assessed only what they owe, and no more. The main Court is in Washington, D.C., while the judges travel all over the country to conduct trials in various designated cities such as Los Angeles, San Francisco, San Diego and Fresno (where only small tax cases are heard).

California’s employers as well as employers throughout the U.S. are required to withhold and pay Federal employment taxes (consisting of Federal Insurance Contribution Act –FICA- taxes and Federal Unemployment Tax Act –FUTA- taxes with respect to wages paid to their employees.

The one determined to be the employer under a multi-factor common law test or under specific statutory provisions generally has the obligation for Federal employment taxes. For example, a third party that is not the common law employer can be a statutory employer if the third party has control over the payment of wages.

In addition, certain designated agents who prepare and file employment tax returns using their own name and employer identification number are jointly and severally liable with their principals for employment taxes with respect to wages paid to the principals’ employees.

The Government Proposes To Increase Certainty With Respect To Worker Classification

Current Law

For both tax and nontax purposes, workers must be classified into one of two mutually exclusive categories: employees or self-employed (sometimes referred to as independent contractors).

REVISED OFFER IN COMPROMISE APPLICATION RULES

I would like to pay particular attention to the president’s recent budget proposals submitted to Congress that directly impact my clients who have IRS tax problems and disputes.

One proposal that would be effective for offers-in-compromise submitted after the date of enactment of the budget by Congress would eliminate the requirements that an initial offer-in-compromise include a nonrefundable payment of any portion of the taxpayer’s offer.

Internal Revenue Code Section 7430(a) provides that the prevailing party in any administrative or court proceeding may be awarded a judgment for (1) reasonable administrative costs incurred in connection with such an administrative proceeding within the IRS, and (2) reasonable litigation costs incurred in connection with such a court proceeding.

In addition to being the prevailing party, to receive an award of reasonable litigation costs a taxpayer must have exhausted all administrative remedies, shows that the position of the United States is not “substantially justified,” and must not have unreasonably protracted the court proceeding.

Section 7430(c)(4)(B)(i) makes it clear that the IRS bears the burden of proving that its position was “substantially justified” (i.e., the IRS’s position has a reasonable basis in both fact and law and is justified to a degree that could satisfy a reasonable person). “Reasonable litigation costs” include reasonable court costs, expert witness fees, the cost of any study, analysis or project which is determined by the court to be necessary for the preparation of a taxpayer’s case, and reasonable attorneys’ fees. IRC Section 7430(c)(1). The amount of reasonable attorneys’ fees are limited. For an interesting Tax Court case deciding against the Internal Revenue Service and awarding fees to the taxpayer’s attorney, read Arthur Dalton, Jr. and Beverly Dalton, Petitioners vs. Commissioner Of Internal Revenue, Respondent.

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.

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.”

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.

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.”

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.