Archive for the ‘IRS Audits’ Category
Wednesday, December 28th, 2011
The IRS started a gift tax examination project a while back. In Virginia, they received information of property transfers between non-spouses relatives. Many times parents may transfer real property to childen or other non-spouse relatives without receiving any payment. The IRS considers this transfer a gift and a gift tax must be paid. The gift tax is imposed on the transfer of money or other property by gift. The first $13,000 of gifts of present interests made annually by a donor to each donee is excluded from the donor’s taxable gifts. For a gift meeting the requirements, a donor must file a Form 709 and pay a gift tax. The IRS has gotten information about transfers of real property between non-spouse relatives from Connecticut, Florida, Hawaii, Nebraska and Virginia among other states.
The IRS recently got a court order to get the real property transfers made to non-spouse relatives from the California Board of Equalization. This was a major victory for the IRS. If you transferred real property to a non-spouse for no payments or consideration, you may get a letter from the IRS asking where is your Form 709–gift tax return. Remember to consult a tax professional if you get such a letter.
Monday, May 16th, 2011
The IRS has spoken. It has has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven, despite the big boost in gasoline prices.
Simplified deduction method. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 51¢ per mile for business travel after 2010. (The 2011 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 19¢ per mile, 2.5¢ more per mile than the 16.5¢ for 2010.) ( Rev Proc 2010-51, 2010-51 IRB 883 )
The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance, and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. ( Rev Proc 2010-51 )
The standard mileage rate may not be used for a purchased auto if: it was previously depreciated using a method other than straight-line for its estimated useful life; a Code Sec. 179 expensing deduction was claimed for the auto; the taxpayer has claimed the additional first-year depreciation allowance; or the taxpayer depreciated it using MACRS under Code Sec. 168.
A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight-line depreciation over the auto’s remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. ( Rev Proc 2010-51 )
Additionally, employers may reimburse employees who are required to provide their own cars for business use at a rate that doesn’t exceed the standard mileage rate. A mileage rate that doesn’t exceed the standard mileage rate is treated as made under an accountable plan if the mileage is properly substantiated (time, place, mileage, and business purpose).
I handle IRS problems for my clients. If you get a letter from the IRS, and you are worried or have questions, send me an e-mail or, if urgent, call me.
Friday, April 15th, 2011
The IRS issued a press release advising taxpayers of payment options when you file your income tax return. The release is IR 2011-42. I have placed it in the blog below. The most important thing for you to know is if you owe taxes but you cannot pay the full amount file your tax return and make a payment. Fill out and attach to your return Form 9465 — Installment Agreement Request. The IRS will contact you to work out a payment plan. Read the information below.
Remember, I am a tax attorney having worked in Office of Chief Counsel, IRS. If you have questions or need help with the IRS, just let me know.
IRS reminds taxpayers with a balance due that there are several payment options available [IR 2011-42]: Taxpayers who have a balance due when they file their 2010 federal individual income tax returns have several payment options.
Payments can be made by electronic funds withdrawal, credit or debit card, the Electronic Federal Tax Payment System, or check or money order. According to IRS, some taxpayers who itemize their deductions may be eligible to claim as a miscellaneous itemized deduction the convenience fee charged to pay individual income taxes by credit or debit card.
Along with a check or money order, a taxpayer must include Form 1040-V, Payment Voucher. If a return has already been submitted but additional payment is due, a check or money order should be mailed to IRS with Form 1040-V. “For members of the military and others serving in combat zones, the filing and payment deadline is normally postponed until at least 180 days after the service member leaves the combat zone,” IRS said. “If you are eligible, you get the extra time without having to ask for it,” IRS added.
The agency advises taxpayers with a balance due to pay as much as possible by April 18 to avoid penalties and interest. Those who cannot pay in full have several options to consider. The first is an installment agreement. In most cases, this can be done in several minutes by using the IRS website, the agency said. The second payment option is an Offer in Compromise, which is an agreement between a taxpayer and IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. It is subject to acceptance based on legal requirements. The news release can be viewed on the IRS website.
Wednesday, April 13th, 2011
The IRS just sent out IRS Tax Tip 2011-73. The notice gives you the IRS view of what to do if you receive a letter from the IRS. Read this over and do not panic. If you need assistance with the IRS, please contact me at 703 506 1600. I handle audits, examinations and litigation of IRS matters
Eight Things to Know If You Receive an IRS Notice
the Internal Revenue Service sends millions of letters and notices to taxpayers
Don’t panic. Many of these letters can be dealt with simply and painlessly.
Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry. It’s important that you keep copies of any correspondence with your records.
For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax (For Individuals). Both publications are available at the IRS website, www.irs.gov.
Monday, September 21st, 2009
The IRS will audit 6,000 U.S. companies to determine whether they pay all their required employment taxes to fund Social Security and Medicare benefits. See Bloomberg News
The IRS said the audits will provide data for its first statistical analysis since 1984 of how often companies misclassify workers to duck tax obligations, fail to pay taxes on fringe benefits such as personal use of company cars, and improperly pay taxes for company executives. The audits will begin in February, and the companies will be randomly chosen.
IRS will be looking at employee classificaitons, meaning “Independent Contractor or Employee.” It is simple. Companies owe taxes for an employee–state and federal withholding, FICA, FUTA, Medicare etc. Many companies will carry workers as independent contractors in order to save money and not withhold taxes. Many independent contractors should really be classified as “employees” because they meet the working conditions tests used by IRS to determine a workers status.
If a company is audited and workers are found to be employees instead of independent contractors, past taxes will be owed by the company and the worker.
It is best to get legal counsel as soon as you get notice of an IRS audit.
Monday, May 18th, 2009
Okay. Get ready. The IRS is gearing up and has announced jobs for hundreds of critical jobs nationwide. Most of these jobs are for internal revenue agent positions (look for series number 0512). At least 30 hours of college-level accounting coursework is required for revenue agent jobs.
What does this mean? IRS will hire revenue agents to conduct audits and examinations. There will be more tax enforcement. It takes about a year for the IRS to hire and train a revenue agent before the agents start with tax audits. The future?
Read it all at Here
Thursday, May 7th, 2009
Here are a couple of the FAQs the IRS published yesterday on its web site regarding offshore accounts:
1. Why did the IRS issue internal guidance regarding offshore activities now?
The IRS has had a voluntary disclosure practice in its Criminal Manual for many years. Once IRS Criminal Investigation has determined preliminary acceptance into the voluntary disclosure program, the case is referred to the civil side of IRS for examination and resolution of taxes and penalties. Recent IRS enforcement efforts in the offshore area have led to an increased number of voluntary disclosures. Additional taxpayers are considering making voluntary disclosures but are reportedly reluctant to come forward because of uncertainty about the amount of their liability for potentially onerous civil penalties. In order to resolve these cases in an organized, coordinated manner and to make exposure to civil penalties more predictable, the IRS has decided to centralize the civil processing of offshore voluntary disclosures and to offer a uniform penalty structure for taxpayers who voluntarily come forward. These steps were taken to ensure thattaxpayers are treated consistently and predictably.
3. Why should I make a voluntary disclosure?
Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.
Remember the IRS deadline for this voluntary disclosure deal is September 23, 2009.
Thursday, May 7th, 2009
Yesterday, May 6, 2009, the IRS posted on its website FAQs on more details of the settlement offer for unreported offshore income. The FAQs discuss the recently announced program for voluntary disclosure to the IRS of offshore bank accounts. The official Voluntary Disclosure can be found Click Here.
Those meeting the terms of the disclosure program will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value, but will avoid criminal prosecution. The FAQs provide examples of what it would cost to take the settlement offer, spell out the potential civil and criminal penalties for those that don’t take the offer, and address the consequences of attempted “quiet disclosure” (i.e., filing amended returns). See FAQs Click Here.
If you have an unreported offshore bank account, it is important to consider the Voluntary Disclosure program. Coming forward and disclosing your information may save you a lot of money in penalties and, more importantly, may avoid criminal prosecution. In my practice, we offer legal expertise in this area along with accounting expertise. A former IRS International Revenue Agent works exclusively for me on my client’s cases. We analyze your entire situation including foreign transactions, amended returns, reporting requirements and meeting and negotiating with the IRS.
As always, my practice is client focused.
No Legal Opinion Here
Wednesday, February 11th, 2009
If someone works for you, are they an employee or independent contractor? For an employee, you must withhold the usual taxes–social security, federal and state withholding, medicare and unemployment. The employee pays part of the withholding and you pay additional amounts. For an independent contractor, you pay a flat amount. No taxes, social security or other amounts are withheld. A small business paying employees pays a salary and also additional social security, medicare and unemployment taxes. It costs the small business more money to have employees working than to have independent contractors working.
So, as a business owner you decide to classify all your workers as independent contractors so that you do not have to withhold taxes, social security, medicare and unemployment taxes. Smart thinking, right? Well, maybe not so smart. The IRS has started an agency wide employment tax program that addresses worker classification and other employment tax issues, meaning you can look for more IRS enforcement in the future relating to worker classification.
The Treasury Inspector General for Tax Administration (TIGTA), TIGTA, recently reported that misclassification of employees as independent contractors affects millions of workers and contributes to ever increasing the tax gap. When an employee is misclassified, tax revenues are not reported or paid and the burden of uncollected taxes shifts to other taxpayers. Read Full Report Here
The IRS’ most recent estimate of the tax gap is approximately $345 billion. The employment tax portion of this figure due to under reporting is estimated to be about $54 billion with an estimated $1.6 billion being attributable to worker misclassification. However, the $1.6 billion estimate is based on Tax Year 1984 data. The IRS conducted a preliminary analysis of Fiscal Year 2006 operational and program data and found that under reporting attributable to misclassified workers is likely to be markedly higher than the $1.6 billion.
All this means is that the IRS sees significant losses in tax collection and will be instituting worker classification programs in the near future.
In my next post, I will tell you how the IRS decides if your worker is an employee or an independent contractor.
This post is not legal advice nor is it tax advice.
Sunday, January 11th, 2009
According to the NYT, the Swiss Bank UBS, the world’s largest wealth manager, is going to return about $18 billion dollars to more than 19,000 account holders most of whom are US citizens. The US citizens holding the accounts, according to the IRS and Justice Department, have evaded at least $300 million a year in taxes, and that does not count penalties and interest.
In its article, “What to Do if UBS is Outing Your Secret Account,” NYT lists possible strategies to take in dealing with the IRS – see also NYT artcle about UBS’ plan to disclose accounts. If you have held such an account, your best choice to try and avoid criminal prosecution is to voluntarily disclosure your situation to the IRS. You may not be prosecuted, the choice is up to the Justice Department and the IRS, but you will have to report all your accounts and income and pay taxes, penalties and interest. Of course, paying money is better than sitting in a prison cell.
When I worked as an attorney in the Office of Chief Counsel, IRS, I specialized in criminal and civil tax matters involving offshore tax havens and hidden money. We had to decide how to investigate cases, get the money back and determine civil or criminal steps to take. We often collected millions of dollars in unpaid taxes, penalties and interest.
If you have the offshore account that has not been reported, do not wait for the IRS to knock on your door.
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