Tag Archive for: Unpaid Taxes

IRS Fresh Start: a Way Forward for Unpaid Tax Burdens

In 2008, in response to the recession caused by the collapse of the housing market, IRS re-invigorated a program that had been called The Fresh Start Program for many years. The Fresh Start initiative is not a clean slate or a way to avoid paying taxes.  IRS is staunchly unsympathetic to those individuals and business owners who try to avoid paying taxes owed. Fresh Start is, instead, a way to eliminate fees and penalties and find a payment plan that works for your financial situation  to repay back taxes in full.

When back taxes are owed IRS can place leans on properties and lays on accounts.  Under the Fresh Start program a taxpayer can apply to have a lien removed if their tax burden is under $25,000.

If you have a heavy back-tax burden here are some steps you must take to apply for the Fresh Start initiative:

1:  Pay your current year’s taxes! Taxpayers applying for the Fresh Start Program cannot have a tax balance due.  IRS is looking for businesses whose tax burden was due to temporary hardship not for chronically delinquent taxpayers.

2: Check to see if you meet the following criteria:

    • Firstly, self-employed individuals must demonstrate a drop in their net income of 25 percent or greater
    • Secondly, earnings for married couples filing jointly must be under $200,000 per year, and single filers under $100,000 per year
    • Lastly, you must owe less than $50,000 dollars in taxes overall

3: Meet with a tax attorney to determine if you may qualify for an Offer in Compromise. Factors that will affect your eligibility are:

  • Credit worthiness: Having other accounts in collections can negatively impact your credit and ability to purchase a home, car, or apply for credit.
  • Accuracy and record-keeping:  Demonstrate the amount IRS claims that you owe is not correct. Reasons can include: tax preparation error, misunderstandings about .
  • Effective Tax Administration – when the IRS determines that paying the full amount owed would cause undue financial hardship, then they may agree to take less than the full amount owed.

If you have excessive back taxes for your business or family entity, reach out to the dedicated team at MIlikowsky Tax Law.  Our expertise in IRS negotiations can help to offset your tax burden and create options for your future.

W-2

IRS has extended the deadline for personal tax filings from April 15 to July 15. It has also extended the deadline for contributing to your 2019 IRA. So, if you have not contributed, you still have time.

Trying to decide whether or not to contribute to your IRA?

Consider how much of an impact the economic shutdown has already had on your finances.

If you are among those who lost their primary source of income—whether from a job or a business—this may not be the time. Instead, it’s time to focus your energy and your resources on taking care of yourself and your family. You need to bridge the gap until you know how you’ll stabilize your income and start to rebuild.

But if you still have financial stability, from a job or a business, think about maintaining the momentum of regularly contributing to your IRA. It’s a pillar of a secure retirement.

Here are some other steps you can take to make the most of this deadline extension:

  1. If you’re getting a refund, go ahead and file.

Even with the extra time, taxpayers should still be collecting paperwork and preparing to file their returns. Those who are expecting a refund probably should file as soon as possible, as the IRS is still processing returns and issuing checks.

If you are expecting a refund, you’re likely to get it faster if you file your return electronically and opt for direct deposit.

  1. If you expect to owe taxes, don’t put it all off.

For taxpayers who expect to owe, the extra time allows for more time to collect the necessary funds. But try not to put off tax-related things altogether — the best way to pay taxes at any time is in small increments over several months. Talk to your accountant about the possibility of setting up a payment plan to help you budget.

  1. Check when your state return is due, too

Depending on where you live, you might still have to pay taxes owed to your state by April 15, or a different listed date. For example, California has pushed its deadline to July 15. The American Institute of Certified Public Accountants is keeping a list of the deadline changes by state.

  1. Be patient with your tax preparer.

Tax preparers are dealing with the similar stresses many Americans are facing in light of the pandemic. Many are working from home, and now they’re also figuring out how these last-minute changes affect their clients and the mechanics of tax filing.

“Just be cognizant of using secure methods of providing personal documents to your tax pros. Most should have secure methods of receiving documents,” says Matt Keefer, a certified public accountant and director of tax services at accounting firm Gorfine Schiller Gardyn in Owings Mills, Maryland.

For more information about the details of this tax deadline, visit our blog.

Tax fraud
In the eyes of the federal government, there is a vast difference between a criminal tax fraud offense and a civil fraud offense. These differences focus primarily on the different burdens of proofs, penalties, statues of limitations, and defenses available to the taxpayer. 

For several reasons, often the IRS will first pursue a criminal tax fraud suit before pursuing a civil tax fraud suit. According to the IRS’s own Tax Crimes Handbook, a criminal tax fraud conviction “carries the most severe penalty of the criminal tax offenses.”

Civil tax fraud and criminal tax fraud have different burdens of proof. The IRS carries a “clear and convincing” evidentiary standard for civil tax fraud. (This is otherwise known as a “preponderance of the evidence” standard). By contrast, criminal tax evasion requires proof “beyond a reasonable doubt”—which is a higher evidentiary standard. In other words, the government must prove “more” to show criminal tax fraud than civil fraud.

Civil tax fraud and criminal tax fraud also have different associated penalties. There are several categories of civil tax fraud—for example, there is the fraudulent failure to file a return, accuracy-related penalties under IRC, spousal liability under IRC, and the fraudulent tax return for, e.g., failing to report income on your return and failing to pay tax. Each of these has different associated penalties. For instance, the penalty for fraudulently failing to file a tax return is 15% of the net tax due for each month (up to five months), with a maximum penalty of 75% of the unpaid tax. Similarly, the penalty for filing a fraudulent tax return (e.g. failing to report income) is 75% of the underpayment amount.

The penalties for criminal tax evasion are steeper. Under code 7201, a taxpayer found guilty of willfully attempting to evade tax (or its payment) could face a fine of $100,000 ($500,000 for a corporation) plus five years of imprisonment. Similarly, if a taxpayer is found to have willfully failed to pay tax, file a return, keep sufficient records, etc. he or she may face a penalty of $25,000 ($100,000 for a corporation) plus one year in prison.

Moreover, civil tax fraud and criminal tax fraud have different statute of limitations. For civil tax fraud, there is no statute of limitations, and the tax may be assessed at any time. By contrast, there is a criminal statute of limitations, but it applies only to the prosecution of the crime—the actual tax evasion—not the assessment of the tax owed. Typically, the statute is three years after the taxpayer commits the offense. But there are certain, specified carved out offenses for which a six-year statute of limitations applies.

Finally, different defenses are available for civil tax fraud and criminal tax fraud. When a civil suit for tax fraud follows a criminal proceeding for tax fraud, the doctrine of “collateral estoppel” may apply. Under this legal theory, provided certain technical requirements are met, once an issue is decided in one proceeding, it may not be retried again in a second proceeding.

This doctrine may be helpful to either the government or the taxpayer, depending upon the order of the civil/criminal proceeding and the outcome of the first case.

Consider first a criminal proceeding followed by a civil proceeding. If the government wins the criminal tax evasion suit, the taxpayer generally is “collaterally estopped” in the second (civil) proceeding from contesting that he committed fraud. Why? Because the government already proved fraud “beyond a reasonable doubt” and for the civil suit it needs even less evidence than that (requiring only “clear and convincing” evidence).

Alternatively, suppose the taxpayer is acquitted of criminal tax evasion in the first suit. Does collateral estoppel help the taxpayer? Unfortunately for the taxpayer, no, it does not. The first suit showed conviction was not provable “beyond reasonable doubt.” It remains to be seen in the civil suit whether it can be established using the lower evidentiary standard of “clear and convincing evidence.”

Now consider the reverse order of the proceedings, with the government first bringing a civil suit and losing—and then tries to bring a criminal suit for tax fraud. Does collateral estoppel help the taxpayer? It may; the taxpayer may attempt to collaterally estop the government in the second (criminal) proceeding from asserting the existence of fraud. In other words, under this scenario the doctrine of collateral estoppel helps the taxpayer.

In sum, the differences between a criminal and a civil suit are huge. It is best to speak with a qualified tax attorney, like one of the partners at Milikowsky Tax Law, to help you walk through these important nuances before the situation gets out of hand. 

 

Woman doing paperworks

Small businesses are likely to find that they owe the IRS money at the end of the fiscal year. If your focus is on continual business growth, you have likely pushed more of your cash into developing your business than saving for tax season — and you may be left with a bill you cannot pay

Money owed to IRS or to the state of California should not be taken lightly. The repercussions of not paying the bills delivered by the California Franchise Tax Board can be significant and could include the closure of your company. Here are three actions the state of California can take if you fail to pay what you owe.

1. Fees, Penalties and Loss of Benefits

Initial repercussions you may face if you fail to pay your taxes include fees, penalties, and even the cancellation of benefits you rely upon. IRS can levy penalties on any business that fails to pay their full amount due. Even individuals who fail to file their taxes on time can be liable to pay up to 25% more on their taxes as a result. That is why it is so important to work with a CPA to file your taxes on time.

Along with penalties and fees, IRS can withdraw benefits from people who are unable to pay their taxes on time. If you are behind on your taxes, IRS has the right to seize your Social Security earnings, making it difficult for you to prepare for retirement. 

2. Properties Seizure and Liens

A tax lien has the potential to harm both your personal and business finances, as well as damage your credit. If you are at risk of failing to pay promptly, contact a professional tax attorney as soon as possible.

A lien is recorded in California after a demand for payment goes unanswered. The government will issue a notice of collection to you 30 days before the lien is issued, which gives you one final month to deliver on your debt. If you fail to pay in that time, the lien will give the government the first legal claim to your property. That means they can effectively seize anything you own to pay off your tax debt. If you have an LLC or incorporated business, the government will only be able to file a lien on your business property. However, a lien can prevent you from getting a business loan, refinancing your house, and selling business assets. 

3. License Suspension

Another method IRS can use to penalize you for failing to resolve your tax debt with the state of California is to suspend your essential licenses. For instance, if you owe more than $100,000 in taxes, interest or penalties, and you have not set up a collection strategy, your driver’s license is susceptible to suspension. You will have 60 days to enter a collection strategy with the state before the state notifies the DMV of your status to suspend your license.

Your professional and occupational licenses can also be suspended. Realtors, dentists, attorneys, chiropractors, barbers, architects, and other professionals may not be able to have their professional licenses renewed in the state of California, meaning that they cannot continue to do business or make an income in their fields. 

Protecting Yourself and Your Business

The failure to pay taxes or file a tax return on time in California is a crime. The good news is that most of the time, IRS would prefer to work with a business to settle before seeking criminal charges or delivering severe penalties. This is why IRS frequently sends out notices before revoking licenses or recording liens. 

If you think that you might not be able to pay your taxes on time, it is essential to seek help from a tax attorney familiar with California tax law. At Milikowsky Tax Law, we can help you to determine whether you may be eligible for monthly installment plans under financial hardship conditions, or whether you can make an offer in compromise. Reach out to us today to get the help you need. 

The information contained on our website and in blogs is provided for information purposes only and does not constitute legal advice.

Woman talking to a lawyer

Al Capone | Leona Helmsley (AKA the Queen of Mean) | Spiro Agnew | Wesley Snipes (He thought he was Blade)

The list of deplorable characters brought down for tax fraud may get another famous name… Uber.  The notoriously culture-challenged ride-sharing service is being investigated by IRS for tax evasion in the years 2013 and 2014. 

While Uber can’t and won’t comment on the case, here’s what we know… and why it’s important to have a tax attorney on your side when IRS calls.

Uber recently went public on the NYStock exchange and, as a publicly traded company, had to disclose that “the IRS is examining the tax years for 2013 and 2014. …and that its tax benefits are to be cut due to the company’s transfer pricing positions.”  Transfer pricing is a way to shift money to lower tax areas.

Big or small, IRS does not stand for companies who deliberately engage in tax evasion.  While we don’t know the details of the case against Uber it does highlight that businesses should set aside money to cover tax discrepancies and review all filings thoroughly before submitting to IRS.

If you think you may have mis-filed taxes it is always better to talk to a tax attorney, go over the questionable year(s) and formulate a plan should IRS open an investigation into that time period. 

Unlike a CPA, tax attorneys have the protection of attorney-client privilege so businesses can lay all questions, transactions, and concerns on the table without fear that their advisor might be subpoenaed by IRS in an investigation.

At Milikowsky Tax law we are dedicated to reducing your tax liability while keeping your business compliant with current tax laws.  Our proprietary system of review will uncover any red flags and allow us to address any tax mis-steps proactively.

If you think your company may have mis-filed a tax return in years past, please reach out to one of our experienced tax attorneys today to schedule a free consultation.

Tax Calculation

Millions of dollars in penalties are doled out by the Internal Revenue Service (IRS) each year. With the majority of which are attributed to businesses that failed to file taxes or pay payroll taxes. It’s important to understand compliance to ensure your company steers clear of costly violations. 

There are unforeseen circumstances that could trigger an IRS penalty to your business, as well as instances like borrowing against payroll taxes owed to make up a payroll or service debt and missed deadlines.

Not paying business taxes will cause serious consequences for your business. Read on to learn about the many penalties that could happen to you and your business if you don’t pay your business taxes.

IRS Notices

If you don’t pay your business taxes on time, the IRS will send a notice in the mail with an outline of a due date (typically 30 to 60 days) for you to respond to the notice. Ignoring these warnings could result in additional penalties, fees, or even a knock on your door from an IRS agent.

Do these steps if you receive a letter from IRS  

  • Read the letter in its entirety for details and specific instructions. 
  • Retain a copy of your letter or notice in the event the documentation needs to be referenced later.
  • If you can, and if the amount due is correct, pay the IRS. If you are unable to pay the balance in full, IRS may offer options to apply for an online payment agreement or a compromise.
  • If you disagree with the notice or want to dispute the claim, contact a tax professional who can give you expert advice.

Do NOT do the following: 

  • Do not ignore or discard the notice
  • Do not miss an IRS deadline
  • Do not send IRS records they did not request (you may inadvertently expand the scope of your audit).
  • Do not hire a litigation or other attorney other than a qualified tax attorney (government audits are complex and highly specialized)

Late Penalties and Fees

If your company does not file taxes or does not pay the full amount, then you may be subject to a 10-15% penalty, which applies to every month the payment is delinquent, up to a maximum of 25%. An additional penalty of $135 and interest equal to the federal short-term rate plus an additional 3% may apply. Even paying late by one business week or less could result in your business incurring a 2% penalty.

Errors on tax returns found by IRS can result in an accuracy related penalty of 20% of the amount owed in total. They are charged post audit conclusion if you or your business were found guilty of failing to report income or proving small business tax deductions. You must pay interest on the penalty until it is paid in full. 

Federal Levies, Seizures and Tax Liens

The Federal Payment Levy Program enforces the right to suspend certain benefits from business owners, including Medicare provider and supplier payments, military retirement benefits, select federal salaries and certain individual earnings from Social Security.

One of the more impactful actions of the IRS is property seizure. In the case of unpaid business taxes, the IRS is permitted to levy the assets of businesses. If you fail to pay on time or pay in full, the IRS may seize company equipment, cars, and even your business property itself.

If you neglect your tax bill, the federal government may choose to place a tax lien or levy against your business. This means that the IRS is superior over your debtors in the event that you become insolvent. If you try to sell your assets, the IRS will collect the funds before you can receive them.

Criminal Charges

If the IRS determines that your business attempted to evade payment through fraudulent means, including filing false tax returns or falsifying deductions on those returns, not reporting cash receipts accurately, creating fraudulent invoices, and hiding income you may have criminal exposure. These actions are considered intentional acts, and should not be confused with unintentional neglect.

Willfully failing to pay taxes, considered tax evasion or tax fraud, is a considered a felony charge that is punishable by a fine of $10,000, five years in prison, or both. IRS created The Tax Crimes Handbook explaining details, fines and jail time associated with various tax crimes. These charges are often reserved for egregious cases where the business owner diverted money for personal use instead of taxes.

Some IRS, EDD or CSLB audits start with misclassification audits, payroll tax audits or Income tax audits and expand to criminal charges either because some insurance fraud comes to light in the form of worker’s compensation insurance fraud or other criminal fraud charge.  Having a qualified attorney communicate with the auditing agency is always the best choice as that attorney has attorney-client privilege and cannot have their records summonsed (unlike a CPA). 

Avoid These Penalties to Keep Your Business Safe

It is best practice to pay your business taxes on time to prevent any penalties or legal action from the IRS. If you do not have money to pay the entire amount, paying at least a part of the deposit could reduce the amount of penalties owed. Here are some resources to get started.

There are benefits to hiring a professional tax attorney. They can explain to you the options you have in greater detail, like installment plans and extensions. Talk to our professionals at Milikowsky Tax Law about how to manage your unpaid business taxes.