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Tax Problem Attorney Blog

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You filed your taxes like you were supposed to and you should be able to spend the rest of the year free from worries about taxes. But, then one day it appears. The envelope is fairly nondescript except for the name and address of the Internal Revenue Service emblazoned upon it. Maybe you tear it open immediately or maybe you wait until you are feeling a little braver, but in either case your mind starts racing and you can’t quite shake the feeling that you’ll soon be facing major tax problems.

However, not every notice from the IRS represents a major issue or concern. But, if you do receive a notice that alleges that serious tax mistakes or tax crimes have occurred, the Brager Tax Law Group may be able to help you resolve your issues with the IRS.

Above all else, do not panic if your see a notice from the Internal Revenue Service
When one sees a letter from the IRS it can be difficult to keep one’s mind from wandering to the parade of potential horribles that could be lurking inside the envelope. While many may fear the dreaded IRS audit, an audit only represents one potential possibility – good, bad or neutral – that can come out of a letter sent by the IRS. Now, despite out first assumption usually being the worst, take account of the fact that there are, at least, three potential classes of outcomes here. A positive outcome is possible if the notice had been sent to advise you of an error in your favor or a larger than expected return. The notice can also be neutral in that it may simply state that the IRS has received and has processed or is processing your documents. However, there is the chance that the letter will not bring good news. It may notify the taxpayer of an underpayment of tax, offshore account issues, or that the IRS has identified other problems with the return. If you are unsure or confused by the notice you receive, it is always prudent to bring it to a tax professional so that it can be reviewed and your mind can be put at ease.

If you need more time, simply ask the IRS
Recommending that taxpayer seek professional tax help often elicits the response of, “But what if I don’t have time to see a tax lawyer –or accountant?” This is an understandable objection because people live extremely busy lives. There are, no doubt, a multitude of interests and obligations that compete for our time and attention. But, “I didn’t have enough time,” is almost never an acceptable excuse for failing to consult with a tax professional when criminal or civil tax consequences are possible.

This is because, if they are legally able to do so, the IRS is typically willing to grant a brief when the taxpayer asks for it. Therefore, if the agent asks you a question that you do not think you can answer honestly or without admitting to a tax violation or tax crime, you can often request additional time. The IRS agent is aware of the seriousness of the situation and the fact that you need to ensure that any statements you make to the IRS are accurate. Therefore, if the taxpayer asks for more time to review and prepare their records, the IRS is typically willing to grant it. You can use this time to gather evidence that supports your claims and to contact a tax attorney.

However, you must be sure that you request an extension within any applicable time limits or statutes of limitations. For instance, if you receive a deficiency notice you only have 90 days to respond in writing to dispute the allegations by filing a Petition with the United States Tax Court. This particular date cannot be extended. However, most other IRS notices are less strict in their timing. A tax lawyer can explain the amount of time you have to respond to the particular notice you have received.

Review your records ensuring that they are accurate and complete
If the notice you received states that you made a mistake in your arithmetic or inputting data from the W-2, 1099 or other tax form be sure that the mistake is yours and not the IRS’. While it is rare, there have been instances of a form mismatch involving 1099s. Therefore, it is essential that you review not only the name and address that appears on the 1099 or other tax form, but also the employer and employee identification numbers, the amount of income reported on the form, and any other information that has been reported in your tax filing.

If you have verified this information, the mistake appears to be on your end, and the amount in controversy is large, it is often prudent to seek the advice and guidance of an experienced tax professional. The Brager Tax Law Group can help you arrange an offer-in-compromise or, depending on the situation, apply for other forms of tax relief. To schedule a confidential consultation, call 800-380-TAX-LITIGATOR today or contact us online.

Innocent Spouse

Many married couples find it advantageous to file a joint tax return rather than filing separately. This comes as no surprise as the federal government has built a number of tax advantages for married couples filing jointly into the tax code. These benefits include:

  • Depending income distribution, a lower rate of taxation than they would face filing separately.
  • Increased limits for charitable deductions
  • IRA and retirement account benefits
  • Estate protection
  • Reduced tax administration expenses

However there are also drawbacks to filing jointly with your spouse – especially so if the relationship hits a rough patch or ends in divorce. This is because by filing jointly, you subject yourself to joint and individual liability for everything that appears on the tax return. In other words, absent an exception or relief both members of the couple are liable for everything that appears on the tax form regardless of who prepared it. If your spouse or former spouse made mistakes on the jointly filed taxes or took overly aggressive positions you could find yourself liable for underpayments, fines and penalties.

When is applying for innocent spouse relief appropriate?
The most common instance where issues of innocent spouse relief may come into play is where a couple is headed down the path to a divorce or has already divorced. Often, one of the partners in the marriage was responsible for handling the taxes and the other partner may have only had a limited role in preparing or overseeing the taxes. In the most extreme case, the other spouse may do little more than simply sign off on the return while trusting that his or her partner prepared the taxes thoroughly and accurately.

At some point, the spouse who participated only minimally in the tax preparation process may suspect that his or her spouse may have understated income, overstated deductions or exemptions, or otherwise violated the tax code or committed tax crimes. The innocent taxpayer does not want to remain liable for these outstanding tax debts and penalties because he or she did not create them or cause them. It may be appropriate for a spouse in a spouse in this or a similar position to file for innocent spouse relief.

To apply for innocent spouse relief a taxpayer must file Form 8857 with the IRS. The form must detail and explain why the taxpayer believes that he or she is entitled to such relief. By filing Form 8857 you are asking the IRS to establish a separate tax liability for you that is separate and apart from that of your current or soon-to-be former spouse, or ex-spouse. On the form you must provide information regarding your role in the tax preparation process, whether you were aware of the income, if you had reason to know about the inaccurate statements on the tax form. Depending upon the type of tax relief requested, the filing taxpayer may be required to prove that it would be unfair to hold him or her liable for the tax liability. Whether something is fair or unfair can be highly subjective, but the IRS has provided criteria to help in making this determination. Elements the IRS will examine to determine whether it would be fair to impose the tax against the spouse filing for relief include:

  • The nature of the erroneous item or items on the tax filing
  • The value of the erroneous item or items relative to the remaining items on the tax return
  • The level of participation by the filing taxpayer in the mistake or scheme
  • The filing spouse’s experience in business dealings
  • The filing spouse’s educational history
  • The financial circumstances of each spouse
  • Whether the filing party failed to ask reasonable questions about the return prior to authentication.
  • Is the understatement part of a recurring pattern or an isolated incident?

All of these items will be considered as part of the inquiry as to whether it would be fair to impose the tax liability and decline to provide relief. However other additional requirements apply. For instance, an application for relief must, generally, be filed within two years of the first collection action taken by the IRS, but there are exceptions.

Tax issues after a divorce?
While the standards to be granted innocent spouse status are high, taxpayers are entitled to appeal an IRS determination that is not in their favor to the United States Tax Court. The Brager Tax Law Group can assist you in filing either an initial application for innocent spouse status or in preparing an appeal. By securing this status you may be able to not only resolve the current debt, but will also bring most enforced collection activity to a halt. However, the extent of the relief even if granted can vary based upon the type of relief granted, the terms of the divorce decree, and even the timing of the divorce, and the division of assets. For a confidential tax consultation call our firm at 800-380-TAX-LITIGATOR today or contact us online.

Completion of tax form.

If you are living in the United States it can be difficult to miss the numerous announcements and pronouncements of the impending April 15th tax deadline. And yet, every year thousands of US taxpayers will fail to file and pay taxes.

There are a variety of reasons for this failure. These reasons can include situations where the taxpayer simply doesn’t want to pay tax and is concealing income. In other circumstances the taxpayer may know that he or she would be unable to pay and thought that concealing income by not filing would help their tax situation. In still other circumstances the taxpayer may be a young person who simply did not realize that he or she had a filing obligation or the severity of consequences that can follow a failure to report and pay taxes.

While taxpayers could have filed IRS form 4868 prior to the tax deadline to extend their filing deadline by 6 months to October 15, 2015, those who failed to file or extend by the original filing date no longer have this option. However there may be options to correct the tax problem and to come back into compliance with the tax system.

Who must file taxes every year?
To start with, if you would like to retain the possibility of receiving a tax refund, you must file a tax return. This is because only those who file their taxes are eligible to receive their income tax refund from the IRS. If you have overpaid your fair share of taxes, the only way to recover this money is to file your taxes.

Aside from those who would like to receive their income tax refund, your level of income determines whether you have an obligation to file taxes. While the filing threshold is adjusted annually, in 2014, all U.S. citizens, legal residents and others with sufficient connection to the United States who had $10,150 or more in income are required to file taxes with the IRS. If you are age 65 or older, you face similar tax reporting requirements, but the income threshold is greater. The threshold is also higher for married persons filing jointly, or for single persons filing as “head of household.” Those who are claimed as a dependent on another’s taxes face a lower reporting threshold because, as a dependent, the taxpayer is unable to claim their own exemption. Thus a dependent taxpayer must file if his or her earned income exceeds $6,200. However, if the dependent’s income is from interest, dividends or other unearned sources the reporting threshold is only $1,000. Those with net self-employment income of $400 or more must also file a tax return.

Expatriates living abroad must file and pay taxes or be subject to penalties and a potential “Customs hold”
The United States is one of two nations in the world that taxes on the basis of one’s citizenship. This means that U.S. taxpayers are obligated to report and pay tax on their worldwide income. This includes expatriates who are not currently living or working in the United States. However for many expats who are overseas and who are not immersed in the culture and information found in the U.S., complying with the numerous tax laws and foreign account disclosure requirements can be extremely difficult and burdensome. Nevertheless, expats must comply with their tax reporting, tax paying, FATCA, and FBAR obligations.

A “customs hold” is one tax enforcement procedure that targets expatriates who return to the United States either temporarily or permanently. A 2014 audit of the program by TIGTA revealed that the program is intended to target delinquent taxpayers who are living in foreign nations and jurisdictions. When the IRS says it is targeting delinquent taxpayers, this means that it is targeting taxpayers that the IRS has already assessed and found to be owning unpaid taxes. This may occur through an IRS correction to a taxpayer-filed tax return or through a non-filer return filed by the IRS on the behalf of the taxpayer. The common factor here is that the IRS has already assessed tax against the taxpayer and found unpaid tax to be due and owing.

If you have an unpaid tax obligation, the IRS many request a customs hold to be input into the Treasury Enforcement Communication System (TECS). Upon being added to this system, the taxpayer will be sent a letter indicating that a tax collection officer has advised the Department of Homeland Security regarding the taxpayer’s liability and that if the taxpayer attempts to enter the United States he or she will likely be interviewed by a customs officer. Typically the Customs and Border Agent will ask the taxpayer for the address that they will be staying at while they remain in the United States. An IRS agent will then likely make contact with you at some point during your stay about the tax liability.

Contacted by the IRS about unpaid tax?
Whether you are an expat or living in the U.S. and have been contacted by the IRS, the Brager Tax Law Group can help you resolve the issue and come back into compliance. To schedule a confidential tax consultation call 800-380-TAX-LITIGATOR or contact us online today.

Taxes

Most accountants, CPAs, and certified tax preparers are honest, hardworking people who are dedicated to their profession. Most tax professionals simply want to secure the best possible tax deal for their clients while following all best practices regarding accuracy. However some tax professionals may over emphasize their ability secure favorable tax treatment for their clients and may cross the line into overly aggressive tax minimization strategies. Even more troubling, other tax preparers may be corrupted by greed and act dishonestly by improperly obtaining or using client tax refunds or other client funds.

If you are a tax professional, you already understand the devastating impact allegations of this type can have on your professional reputation and livelihood. Therefore any tax professional potentially facing an investigation or referral to the IRS Office of Professional Responsibility (OPR) should immediately retain tax counsel. However laypeople may not understand that mistakes or other improprieties found in tax filings are ultimately the responsibility of the filer.

#1 Tax Lady Indicted for Tax Fraud
Before proceeding any further, it is important to note that this is merely an indictment meaning that charges have been filed and have been presented to the defendant, but they have not yet been proven. The defendant is still innocent under the laws of the United States until prosecutors can prove otherwise. However, this brings us to another important point; the IRS times its announcements of indictments, convictions, and plea deals to coincide with tax time. This approach is intended to deter both tax professionals and taxpayers from taking overly aggressive positions or engaging in questionable tax acts. Furthermore it has the added benefit of making taxpayers more wary so that they are more likely to ask their tax professional tough questions if things don’t seem quite right.

However, according to a press release from the U.S. Department of Justice, this deterrent effect did not prevent a slew of tax crimes from a Kalamazoo, Michigan based business. Federal prosecutors allege that Fontrice Lenee Charles participated in a number of tax schemes while promoting herself as the #1 Tax Lady. The main allegations contained in counts 1 through 25 of the indictment allege that Ms. Charles provided false information to the IRS to ensure that her clients would receive large tax refunds. Prosecutors alleged that Ms. Charles provided false information on 482 tax returns that resulted in excessive deductions of about $2 million. If convicted, Ms. Charles could face up to 5 years in prison, among other consequences, for each of these charges.

Ms. Charles also faces charges for alleged improprieties on her own income tax filings for 2010 and 2011. Prosecutors have alleged that Ms. Charles did not report the income from her tax preparation business in these returns and that she claimed a deceased individual as a dependent. Upon conviction, filing a false return can be punished with a prison sentence of up to 3 years.

Tax filers are also impacted by return preparer fraud

For clients of an accountant, CPA, or other tax professional who is convicted of fraud, providing false information or other improprieties the consequences can be harsh. The taxpayer is responsible for the information he or she provides to the IRS. In fact, when a taxpayer signs or otherwise authenticates their tax return, they are certifying the information contained within the tax filing is true and correct under the penalty of perjury. Even if the taxpayer was legitimately fooled by the representations of the tax preparer, errors will have to be corrected. This may include paying additional tax, interest and penalties to correct an underpayment. If excessive deductions were taken, the money will have to be paid back and additional penalties may also apply. In short, failing to ask difficult questions and make sure what your tax preparer is telling you adds up can lead to significant tax problems that may take years to correct.

Rely on our experience when handling tax issues due to preparer errors
The tax attorneys of the Brager Tax Law Group can provide representation for tax preparers who have been accused of tax fraud, errors or other improprieties. Furthermore we can work with individual tax payers who are simply attempting to return to compliance after discovering a tax problem. To schedule a consultation, 800-380-TAX-LITIGATOR or contact us online.

S-Corp

The 2007 financial crisis and its aftermath fundamentally changed how Americans think about risk and business. Another effect of the financial crisis was creating a renewed urgency regarding balancing the federal government’s finances. While many in Congress focus on reducing expenditures, the IRS has continued its efforts to increase tax revenues through better identification of tax fraud and tax avoidance even with a decreased budget.

As has been seen in the context of offshore accounts, coming forward voluntarily, making a complete disclosure and taking steps to correct tax problems before the IRS identifies you leads to better outcomes in the majority of situations. If you are concerned that you may have taken overly aggressive positions to minimize taxes that passes through an S Corporation, an experienced lawyer can review your situation and provide peace of mind. If he or she does identify a problem, you can begin taking steps to correct it before being faced with an IRS audit or criminal tax investigation.

What are the tax differences between an S Corp and a C Corp?

The IRS believes that one of the areas taxpayers may be exploiting is the S Corporation. The IRS believes abuse may be present because S Corporation status can confer significant tax advantages while the requirements for an S Corp have been loosened over the past 20 years.

Unlike a C Corp, an S Corp is not subject to double-taxation – once at the organization level and once when distributed to shareholders – because it is a pass-through or flow-through entity. In an S Corp the income and losses pass directly to shareholders who pay tax at their individual rate thereby avoiding the corporate tax. Furthermore, whereas in 1996 an S Corp was limited to 35 members, today one can have 100 members and some family members can be counted as a single member.

S Corporations are an enforcement focus

One reason S corporations are an IRS tax enforcement focus is that the corporate structure can be used to avoid payroll taxes. Consider a hypothetical S-Corp where there is a sole owner operator and the company brings in $600,000 in profits. Theoretically, you have two options for how to treat the income:

  • You could take a salary of $0 and allow the entire profit to pass through to your personal tax return; or
  • You could assign a reasonable salary of perhaps $125,000 to yourself and allow the remaining profit to pass through.

These alternatives can lead to significantly different tax treatments. In the first example, the pass through amount would be taxed at the shareholder’s ordinary income tax rate. In the second example the full amount of income would still be taxed at the regular income tax rate, but the salary income would also be subject to additional FICA and Medicare taxes. Additionally because both the corporation and shareholder pay taxes, the cost would essentially be doubled.

Taking the first road can lead to a 20% accuracy related penalty, and possibly other penalties for failure to make federal tax deposits, file employment tax returns, etc. In short, claiming a $0 salary to defeat the Medicare and FICA taxes may have initial appeal, but the long-term consequences of such an approach make this a strategy that should be avoided. Working with an experienced tax professional can help you identify specious tax strategies and avoid them in favor of sound long-term strategies.

Serious tax problems?
The Brager Tax Law Group is committed to providing sound tax advice and mitigating the potential civil and criminal consequences of tax problems. To schedule a confidential tax consultation call 800-380-TAX-LITIGATOR or contact us online today.

Taxes

The Wisconsin owner of several self-help and life development companies received a rather jarring wake-up call when he was convicted on tax crimes and sentenced to a year in federal prison. Eric T. Plantenberg had failed to file taxes for ten years from 2000 to 2010 after he began subscribing to the views of the Church of Compassionate Service. According to court documents the Church of Compassionate Service is a group that advances frivolous tax arguments, chiefly to individuals who are receptive to an anti-tax or anti-government message. Arguments related to and reminiscent of the group’s anti-tax position have been determined to be clearly frivolous by the courts since at least the early 1980s.

What did the tax scam consist of?
It is not uncommon for those promoting tax scams or frivolous tax arguments to associate their argument with a fundamental right and legitimate tax structures. Such an approach can give the frivolous tax argument an air of legitimacy by association and the strength of the fundamental right can cause a layperson to have questions about the extent of rights such as the freedom of speech or religion. In the case of the Church of Compassionate Service, their argument was that a taxpayer could take a religious oath of poverty and become “minister” in their organization. The minister’s income would then flow into the church, operating as a “corporation sole”, thereby relieving the “ministers” of any income, and thus, the obligation to pay or file taxes. The church would then return the money to the “ministers”. The church did not hold religious service or otherwise have any members beyond the “ministers”.

Can I stop filing taxes and paying taxes on religious grounds?
While an attorney or tax professional cannot offer tax advice regarding your specific circumstances without first scrutinizing your tax and financial records, the vast majority of people will not be able to successfully rely on a tax minimization argument like the one above. In fact, for nearly all taxpayers advancing an argument of this type would be considered frivolous. Advancing a frivolous tax argument can potentially be punished by a fine of $5,000, any other accuracy-based civil or criminal tax consequences, a penalty for an erroneous refund, and a civil fraud penalty.

There are extremely limited circumstances where a “corporation sole” argument could withstand scrutiny – chiefly when a bona fide religious leader holds property in the entity for the benefit of the religious organization. But, consider that as early as 1980, the courts had already announced that this type of tax scheme would not be applicable for the majority of filers. In United States v. Peister, the argument that a taxpayer was not liable to file or pay tax after taking an oath of poverty and becoming minister of a church of his own founding was rejected by the courts. In separate 1985 and 1986 cases criminal tax convictions were upheld against defendants who utilized religious entities to avoid tax obligations. In the 1987 case Svedahl v. Commissioner, a $5,000 penalty under § 6673 – Frivolous Tax Arguments – was imposed after defendants argued that purported church entities shielded their income from taxation. In the 2013 Berryman case it was noted that, “[c]ourts have repeatedly rejected similar [corporation sole] arguments as frivolous, imposed penalties for making such arguments, and upheld criminal tax evasion convictions against those making or promoting the use of such arguments.”

What violations and crimes are associated with the failure to file taxes?
Even without advancing a frivolous tax argument, failing to file taxes can constitute a crime or violation.. If this occurs you could be guilty of violating a number of provisions of the tax code including:

  • IRC 6651: It is a violation of the tax code to fail to file or pay taxes. Section (a)(1) discusses the failure to file which can be punished by a penalty of 5 percent, if the failure is for less than a month, or an additional 5 percent per a month thereafter – up to a 25 percent penalty in the aggregate.
  • IRC 6031: this section of the tax code makes it mandatory to file a partnership return. Failures to file these returns is addressed by IRC 6031.
  • IRC 6699: Addresses the failure to file for an S Corporation.

Failing to file taxes by itself, can lead to tax problems including fines and penalties. When those filing failures are further exacerbated by frivolous tax arguments and attempts to conceal the unfiled and unpaid taxes, facing criminal tax charges become increasingly likely. If you have failed to file taxes or are otherwise looking to correct past problems while minimizing the costs of coming back into compliance contact us online or call 800-380-TAX-LITIGATOR today.