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 I 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.
IS THERE A PRCOESS TO ASSESS BUSINESS TAXES AGAINST AN OFFICER OR A LOWER LEVEL EMPLOYEE?
Yes, there is a procedure to assess business taxes against an individual who is an officer or a lower level employee. The IRS and the state of California are required to provide notice and give you time to oppose the assessment. Normally, after IRS has begun interviewing company employees, they will send out letters proposing an assessment on individuals who have requisite authority in the company. Individuals who receive a letter will have 60 days to respond to the IRS letter. In recent years, IRS letters have proposed a trust fund tax penalty on officers regardless of their job function. Our staff can aggressively challenge facts that do not support the position of the IRS in the proposed assessments. In cases where the individual was responsible (i.e. the person was the only one managing the day-to-day business operations), there are various options to resolve the expected tax liability. Secure the assistance of our legal professionals immediately in order to make informed decisions throughout the tax process.
WHAT NEW TAX RELATED DEVELOPMENTS HAVE BEEN MADE UNDER CALIFORNIA LAW?
California is focused on the "underground economy." This term refers to businesses who are negligently or intentionally avoiding paying taxes. For instance, there has been an epidemic of workers who have been misclassified as independent contractors when they are truly employees. Business owners, officers and directors involved in the payroll process and accounts receivable for misclassified workers may be held responsible and receive devastating consequences. On January 1, 2012, California passed a new law that imposes a $5k minimum penalty for anyone who incorrectly advises a company to incorrectly characterize a worker as an independent contractor. The penalty can apply to lower level employees and even outside consultants such as bookkeepers and CPAs.
Currently, California's government agencies are forming a task force to share information across agencies including between the Board of Equalization and DMV, or the BOE and FTB in order to identify underreported income taxes.
I OWE A LOT OF MONEY TO THE IRS. HOW CAN I STAY IN BUSINESS OR PROTECT MY ASSETS?
The IRS cares about two things: your compliance in filing your returns and paying your taxes. They are more concerned about a taxpayer's failure to file a return than a failure to pay because a taxpayer has not filed a return and is in a sense, off the grid. Though failure to pay is important, our legal team can work with the IRS to set up an installment plan on your behalf.
WHAT FACTS MAKE A PERSON OR COMPANY MORE LIKELY TO BE AUDITED?
The IRS has developed an algorithm called a Discriminant Inventory Function System (or "DIF") that is used to score a tax return and determine which return to pull for an audit. The chances of being audited increase with various factors, including but not limited to the following:
- Income level (higher income earners have an increased chance of being audited; the average audit rate is about 1.03%; individuals earning over $200k have an audit rate of 3.70%)
- If you omitted income (your income from a partnership reported on your K-1 doesn't match your reported income on your return)
- The types and amount of deductions or losses claimed
- The business you are engaged in
- If you own foreign assets (unreported foreign bank accounts or foreign income)
I OWE THE IRS MONEY. WILL I BE ALLOWED TO TRAVEL IN AND OUT OF THE COUNTRY?
The IRS and Department of Homeland Security share a database. If the IRS has filed a lien against the balance that you owe, you may be flagged by TSA when going through airport security. If you are not a citizen of the United Sates, it is important to understand that the United States Supreme Court holds failure to report foreign bank accounts and income as a deportable offense.
WHAT ARE SOME FACTS MOST PEOPLE DO NOT KNOW ABOUT THE IRS?
- The IRS can run a credit report for taxpayers who owe the government money.
- The IRS can summons bank records (bank statements, checks written, checks deposited) without a court order.
- The IRS requires taxpayers to report income from illegal activities.
- There is no time limit for the IRS to audit a fraudulent return or failure to file a return.
- The IRS has a department called Taxpayer Advocate Service to help taxpayers resolve disputes with the IRS where the taxpayer is not being treated fairly. This is not a substitute for legal representation; it is to resolve an internal issue with the IRS.
- Fraud penalties and payroll taxes are not dischargeable in a bankruptcy.
WHAT OPTIONS DOES A PERSON OR BUSINESS HAVE TO RESOLVE A TAX BALANCE?
A business or individual may request an offer in compromise. Essentially, this is a settlement offer requesting the IRS to accept a lower amount than what is owed to them. This application is very extensive and should be prepared by an experienced attorney at Milikowsky Tax Law. Do not take action until you have secured the assistance of our firm. Other options include an installment agreement. For the state of California, an offer in compromise is not available unless the business is closed and dissolved.
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