Government Financial Compliance
Government agencies’ role regarding small business reporting and compliance:
The latest statistics show that there are 32.5 million small businesses in the US, which account for 99.9 percent of all US businesses (SBA, 2021). The Small Business Administration (SBA) defines a small business as a firm that has fewer than 500 employees. Here is a cheat sheet of what each agency looks for.
The IRS mission: Provide America’s taxpayers with top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all. This mission statement describes the IRS’s role and the public’s expectations about how the IRS should perform that role.
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The IRS just increased their budget allowing them to hire 87,000 criminal and civil agents. What this means for you: Many small business owners are at risk for an audit as the government focuses on identifying and collecting tax from companies’ underreported income. Because our tax system is a voluntary-reporting system, the government accountability office (GAO) concluded that small businesses were more likely to under report income due to the lack of reporting requirements.
TIP: Before filing your business tax return each year, verify the total deposits into your business bank accounts (that you identified as income) matches the amount your report as income on your tax return.
The U.S. Small Business Administration (SBA) helps Americans start, grow, and build resilient businesses. SBA was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns; preserve free competitive enterprise; and maintain and strengthen the overall economy of our nation.
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The SBA is still hearing cases to appeal Paycheck Protection Program loan forgiveness denial appeals. Our experience with SBA attorneys in the appeal process confirms SBA desires to help borrowers obtain forgiveness if the facts satisfy SBA’s rules and regulations. We have found SBA sometimes overlooks critical facts that justify forgiveness, i.e.: one case justified a higher forgiveness amount by using 2020 payroll amounts instead of 2019 amounts. SBA’s internal administrative court, Office of Hearings and Appeals (OHA), has extremely strict rules.
TIP: If your SBA PPP Loan forgiveness was granted by your bank and subsequently denied by the SBA, do not delay in responding to your loan forgiveness denial letter. You have 30 days before you must appeal to a Federal Court in order to have your appeal heard. Have a professional review all of your payroll records again to see if additional “payroll costs” were inadvertently left out.
Our Department enhances California’s economic growth by delivering valuable and innovative services to help employers, workers, and job seekers. Our Core Values guide us as we conduct ourselves and serve Californians and their communities.
- Integrity and Accountability: We lead with the highest standards of professionalism, ethics, and personal responsibility.
- Care and Respect: We treat everyone with courtesy and dignity regardless of position or personal characteristics, and foster an inclusive environment free of bias.
- Teamwork and Service: We work together as a team to provide efficient and responsive service to our customers.
- Communication and Trust: We strive to exchange honest and accurate information with each other and our customers.
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The California Employment Development Department is tasked with enforcing payroll tax laws in the state. As such, the EDD targets companies that hire independent contractors where the company has few W-2 employees. When AB-5 passed in January 2020 the rules around who must be classified as a W-2 employee vs who is permitted to be classified as a 1099 Contractor changed, if your business hires 1099 Contractors, be very sure you know these regulations.
TIP: When hiring, check that your workers pass the 3-part A-B-C test before classifying them as 1099s. Here are 3 things you can do to improve your chances of winning an EDD audit. (this is not guarantee you will win the audit):
Ensure your independent contractors have an EIN, Fictitious Business Name, a website promoting their business (a Yelp Business Page can qualify), And a tax certificate (business license) for the city they are operating in. For workers who are required to have a professional license such as attorneys or construction contractors, these workers must have a valid and non-suspended license to be classified as legitimate independent contractors. Read more here: Your Ultimate Guide to AB-5
The mission of the CDTFA is to make life better for Californians by fairly and efficiently collecting the revenue that supports our essential public services. The California Department of Tax and Fee Administration (CDTFA) administers California’s sales and use, fuel, tobacco, alcohol, and cannabis taxes, as well as a variety of other taxes and fees that fund specific state programs. CDTFA administered programs collect over $70 billion annually which in turn supports local essential services such as transportation, public safety and health, libraries, schools, social services, and natural resource management programs through the distribution of tax dollars going directly to local communities.
Tax programs administered by the CDTFA are concentrated in two general areas – sales and use, and special taxes and fees. To best serve our customers, the CDTFA has offices throughout the state along with offices located in New York, Chicago, and Houston. While the CDTFA team is spread out geographically, we are united in working together to serve taxpayers and feepayers.
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California Department of Tax and Fee Administration is primarily focused on sales tax audits. These audits are complex and can be lengthy. If your business collects sales tax and ships products outside of the State of California, it is essential to keep all shipping records to prove the product was not sold in California.
TIP: Keep detailed records of all transactions especially returns, chargebacks, out-of-state purchases, and e-commerce transactions in case of an audit. These records should be kept for 5 years.
FTB: Our mission is to help taxpayers file tax returns timely, accurately, and pay the correct amount to fund services important to Californians.
Our Foundational Principles Protect the privacy and security of data entrusted to us. Carry out our fiduciary responsibilities to taxpayers by managing their accounts with accuracy and financial integrity. Operate with transparency to maintain public trust and confidence. Conduct our business in accordance with the Statement of Principles of Tax Administration, Taxpayers’ Bill of Rights, and our organizational values.
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The California Franchise Tax Board collects state taxes, while the IRS collects federal taxes. Had an audit that resulted in the IRS owing YOU money? It happens. However, the CA FTB may not have the information from your IRS audit. However, you may have a second bite at the apple by requiring FTB to audit all of the same issues that IRS examined. If IRS disallowed certain expenses now is your chance to gather additional information and source records to convince FTB to allow these expenses reported on your tax return. You are not always stuck with the same results from your IRS audit.
TIP: Whatever the outcome, if you are audited by IRS, review all of the adjustments made by IRS and locate additional records that IRS requested and either disallowed or never received. If you are audited by FTB first and did not initially have an IRS audit, ensure that you respond to each and every request from the FTB auditor. This ensures all the records you submit to FTB are noted in the audit by the auditor. If you appeal the audit results, you can reference these records and indicate FTB improperly assessed additional taxes despite having the proper proof.
Frequently Asked Tax Law Questions
An Internal Revenue Service (irs) agent told me I do not need an attorney. Is this true?
It is your constitutional right to obtain legal representation. The IRS does not likely have your best interests at heart. We strongly advise you to retain the assistance of a skilled tax lawyer in order to gain a complete understanding of your legal options and make informed decisions. Internal Revenue Code § 7421(b)(2) states that an IRS agent must immediately end an interview if you assert that you would like to speak with a certified public accountant, enrolled agent, or tax lawyer. Take advantage of your rights.
I just received a cp2000 letter saying my payment & reported income don’t match. Why?
The CP2000 is a computer-generated letter that alerts the recipient of a discrepancy between his or her submitted tax return and some third party information regarding his or her income. The IRS computer system may prompt issuance of a CP2000 notice if it finds that you have submitted a tax return that does not match the payment records (employer or bank records). You can fill out a response form and follow the instructions included in the letter to let the IRS know whether you agree or disagree with the findings
What do I do after receiving a notice of deficiency from the IRS?
If you have received a notice of deficiency – sometimes referred to as a 90-day letter – act immediately. This notice means that the IRS intends to assess a tax liability against you because you failed to resolve an issue with the IRS Appeals Division. Due to the fact that you have 90 days to file a claim contesting the assessment in the U.S. Tax Court, it would be wise to secure the representation of our firm immediately. Do not ignore this notice! Act now to receive advice from an experienced tax attorney.
What is the foreign account tax compliance act?
The Foreign Account Tax Compliance Act law was created in March of 2010. It requires U.S. taxpayers to report certain financial accounts in other countries than the United States. If the total value is more than $50,000, you will be required to report these assets on Form 8938. When faced with this obligation, it is imperative that you retain the representation of our firm as some other stipulations apply. We have a complete understanding of the laws concerning this act and will inform you of your legal options. Our guidance will help you make informed decisions and properly complete this form. Note that Form 8938 is separate from the FinCen Form TD F90-22.1, Report of Foreign Bank and Financial Accounts – or the FBAR. You may be required to file both.
Am I eligible for relief as an innocent spouse?
There are some unique cases in which an individual is held jointly responsible for tax fraud. Despite the fact that your spouse holds sole responsibility for the perpetration, due to the fact that your name was included on the tax return, you too can be investigated and held responsible. However, you do have the right to request innocent spouse relief under Internal Revenue Code § 6015. To find out if you are eligible, contact our team of legal professionals. If you are not responsible, we will help you navigate through the complexities of receiving your release form.
How can I remove a tax lien?
It is possible to receive a release from a tax lien by requesting a discharge, negotiating for restructure and repayment of the debt you owe the IRS, or successfully submitting an offer in compromise. Contact our office to learn more about your legal options if you have a tax lien on your record.
How do I know if iI am the subject of a criminal tax investigation?
The Criminal Investigation Division of the IRS is responsible for examining tax fraud. If you receive direct contact from an IRS special agent – or if you are aware that your business partner is under investigation – then you should assume that you are being investigated for criminal tax activity. It is imperative that you take action to secure our legal representation immediately. We can fully educate you about the laws concerning your criminal tax investigation and make you aware of your rights and legal options.
When are individuals liable for taxes owed by a corporation or business?
Individuals could be held liable for certain taxes, like Federal and state payroll taxes. State sales taxes can be assessed against nonowners when you are in a position of financial authority and you pay vendors instead of the IRS or the state of California.
Unfiled Tax Returns
Many of those who fail to file their taxes hope that it’ll be easy for their inaction to go unnoticed, but the IRS has many measures in place to identify who has not filed, swiftly issuing penalties when it is an obvious infraction.
If you are struggling with unfiled tax returns and don’t know where to turn, call our firm to speak with a dedicated San Diego tax lawyer today.
When your business owes significant taxes, the IRS may refer your case to a local revenue officer, who will contact your office to review financial records. If the officer concludes that your company is able to pay its tax liability, the revenue officer can employ tax collection methods. These could include levying the company’s bank accounts, seizing company assets, and filing liens to protect the government’s interest.
At Milikowsky Tax Law, we routinely assist businesses that have locations overseas and in the U.S. Our own legal practice spans from Southern California to an office in Tel Aviv. We are well versed in international tax law, and uniquely equipped to provide counsel. Our skilled team of San Diego international tax lawyers can help you navigate this complex legal field, avoid criminal and civil penalties, and stay in business.
The nuances of tax law can be tricky to navigate and failure to comply with tax law in San Diego can have dire financial and legal consequences. Whether you need assistance during an investigation, want to protect yourself from an IRS or EDD audit, or simply have questions about corporate tax law in San Diego, it’s always best to seek legal advice.
Our compassionate and skilled legal staff at Milikowsky Tax Law have more than a decade of experience in tax law and as former business owners or key executives. That means we can offer the best legal tax audit support, whether that’s helping you navigate a California EDD audit or defending your business in an IRS audit.