California-Taxpayers-Impacted-By-Wildfires-Receive-More-Time-to-File-And-Pay

California Taxpayers Impacted By Wildfires Receive More Time to File And Pay

/0 Comments/in /by

With so many people whose lives were disrupted by the California wildfires, it is welcome relief that the Federal and State Tax Agencies are providing extra time to taxpayers to meet their tax obligations.

Internal Revenue Service (“IRS”)

The IRS announced that victims of wildfires ravaging parts of California now have until January 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayers with valid extensions that run out Monday, October 16, 2017.

Currently, the IRS is providing relief to seven California counties: Butte, Lake, Mendocino, Napa, Nevada, Sonoma and Yuba. Individuals and businesses in these localities, as well as firefighters and relief workers who live elsewhere, qualify for the extension. The agency will continue to closely monitor this disaster and may provide other relief to these and other affected localities.

The tax relief postpones various tax filing and payment deadlines that occurred starting on October 8, 2017. As a result, affected individuals and businesses will have until January 31, 2018, to file returns and pay any taxes originally due during this period.

This includes the January 16, 2018 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until October 16, 2017. However, any payment that was due with the extension filed on April 18, 2017 but not paid until later will still be subject to a late-payment penalty.

A variety of business tax deadlines are also affected, including the October 31, 2017 deadline for quarterly payroll and excise tax returns. Calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017 also qualify for the extra time.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due after October 8, 2017 and before October 23, 2017, if the deposits are made by October 23, 2017.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, it would be necessary to contact the IRS to have the penalty abated.

The IRS will also work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. An example would be where the taxpayer’s representative is located in an affected area and is unable to help the taxpayer-client meet a tax deadline.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year) or the return for the prior year (2016). See Publication 547 for details.

For a complete list of all disasters besides the recent California wildfires, see the IRS disaster relief webpage.

Franchise Tax Board (“FTB”)

The FTB announced that affected taxpayers are granted an extension to file 2016 California tax returns and make payments until January 31, 2018.

Taxpayers may deduct a disaster loss for any loss sustained in California that is proclaimed by the Governor to be in a state of emergency. For a complete list of all disasters, see the “Qualified Disasters” chart on FTB’s Disaster Loss webpage. This disaster page also has information on extended deadlines, filing instructions, and obtaining free copies of state returns.

In addition, the FTB automatically follows federal postponement periods for any presidentially declared disasters, the most recent being Hurricanes Harvey, Irma and Maria. So a taxpayer who earns income in California can show that Hurricane Harvey impacted him or her, that taxpayer has extra time to file a California tax return. 

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business activities.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The Law Offices Of Jeffrey B. Kahn, P.C. has helped many people minimize or avoid adjustments from IRS audits. Working with a tax attorney is the best bet for minimizing adjustments that would create liability to the IRS.

IRS collection

How to Stop IRS Collection Efforts

/0 Comments/in /by

The IRS is the world’s largest and most powerful collection agency (and the staggering fact that Congress has allowed them to start outsourcing debt collection to private third parties doesn’t change this).

Therefore, if you owe the IRS money, there is nowhere to run and no place to hide. It is only a matter of time before matters are brought to a head — either with or without your participation. As such, it’s absolutely in your best interest to make dealing with this your top priority. Procrastinating, or waiting and seeing to ensure that the IRS really, really wants you to pay up are both very bad ideas. In fact, don’t even consider them. Read more

innocent spouse relief

What is Innocent Spouse Relief and How Can You Claim It?

/0 Comments/in /by

Although more couples these days are choosing to customize and personalize their wedding vows and break with the traditional “to honor and obey” language, it’s a safe bet that not even IRS agents who tie the knot promise not to burden their betrothed with an unfair tax liability.

However, that is indeed the financial problem — and sometimes nightmare — that many spouses find themselves struggling with, which is why the IRS offers “innocent spouse relief.” Read more

IRS offer in compromise

Warning: Don’t Get Trapped by These 4 Myths About the IRS Offer in Compromise Program

/0 Comments/in /by

The adage “a little knowledge is a dangerous thing” is vividly — and sometimes catastrophically — illustrated when it comes to anything and everything to do with the IRS.

Indeed, the amount of so-called good advice available on the web and across social media that is partially or wholly incorrect is staggering, and many taxpayers (individuals and businesses) that believe they are sailing towards safe shores are, in fact, heading straight into a costly audit that could turn into criminal prosecution. Read more

What’s the Difference Between Tax Fraud and Tax Negligence?

/0 Comments/in , /by

For many reasons — some of which are justified and necessary, and others that frankly do not make sense and obfuscate rather than clarify — the Internal Revenue Code (IRC) is an excessively complex set of volumes, which contain laws enforced by the IRS (published as Title 26 of the United States Code/USC).

Partly due to this inherent complexity — and also because the web is riddled with incomplete, misleading or outright wrong “advice” on tax controversies— there continues to be significant confusion around two fundamentally separate concepts: tax fraud and tax negligence.   Read more

4 Costly Myths Taxpayers Have About the IRS’s Offshore Voluntary Disclosure Program (OVDP)

/0 Comments/in , /by

People who have undisclosed income in offshore accounts can — and frankly, should — take advantage of the IRS’s Offshore Voluntary Disclosure Program (OVDP).

As the term suggests, the program allows taxpayers to voluntarily disclose all foreign accounts and fully clear their tax liability (including taxes owed, interest and penalties), instead of risk getting flagged in the future and paying much steeper price. While the IRS treats each case individually, penalties for failing to report offshore accounts start at 50 percent of the balance. Furthermore, if there is suspected fraud or tax evasion, criminal prosecutions can commence.  

Although the OVDP has been around since 2009, there remains a significant amount of misinformation and misunderstanding regarding how it works — and just as importantly, how it doesn’t work. Here are four costly OVDP myths that persist: Read more

The Consequences Of Violating The Five-year Probationary Term After Getting An Offer In Compromise

/0 Comments/in , /by

The IRS offers a program called an Offer In Compromise (“OIC”). An OIC allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.

With a properly completed application for an Offer In Compromise and required financial disclosures, the IRS will consider your ability to pay, income, expenses and asset equity. Only when it can be shown that the amount offered represents the most the IRS can expect to collect within a reasonable period of time will the IRS approve an OIC.

What people do not realize is that if your OIC is accepted, you are subject to certain terms over the next five years that if any term is violated the IRS reserves the right to revoke your OIC and thus put you back to where you originally started subtracting the payments made under the OIC and adding the accrual of more penalties and interest to the current date.

So it is important that anyone with an accepted OIC be aware of these terms and follow compliance:

1. You must comply with all provisions of the internal revenue laws, including requirements to timely file tax returns and timely pay taxes for the five year period beginning with the date of acceptance of the OIC and ending through the fifth year, including any extensions to file and pay. This is what I refer to as the “Five-year Probationary Period”.

2. Youmust promptly pay any liabilities assessed after acceptance of the OIC for tax years ending prior to acceptance of the OIC that were not otherwise identified in your application for an OIC.

So if your OIC included the Form 1040 liability for 2015 and later after your OIC was accepted you got audited for 2015 and that audit resulted in a liability, you would need to promptly pay that liability or else face a revocation of your OIC.

Likewise, if your OIC covered only individual income taxes and you were later assessed with unpaid employment taxes of a business, the failure to pay those new liabilities could result in a revocation of the OIC.

If the OIC was being submitted for joint tax debt, and one of the taxpayer-applicants does not comply with future obligations, only the non-compliant taxpayer will be in default of the OIC. This situation could occur where husband and wife who filed joint income tax returns and jointly secured an OIC later gets divorced and one party defaults on the OIC terms listed above.

An accepted OIC will not be defaulted solely due to the assessment of an individual shared responsibility payment made against another liable taxpayer. This situation could occur where two business owners have personal liability for unpaid employment taxes of the business and one of the owners defaults on the OIC terms listed above.

Now if you find that you cannot keep up with any of these terms, early intervention by your tax counsel with the IRS may still prevent your OIC from getting revoked. Once you receive a final determination by IRS that your OIC is revoked, any new OIC that may now be submitted will be based on your then current financial situation which if it has since improved would lead to an even higher Offer amount with no credit for what was paid under the prior OIC.

Why You Should Not Let Your Guard Down In An IRS Audit Under The National Research Program

/0 Comments/in /by

Certain tax returns that are selected for audit by the IRS each year are selected as part of the National Research Program (“NRP”).  The goal of this program is to design and implement a successful strategy to collect data that will be used to measure payment, filing and reporting compliance and to deliver the data to the IRS Business Operation Divisions to meet a wide range of needs including support for the development of strategic plans and improvements in workload identification. The IRS will also use the NRP to analyze taxpayer compliance and to assess the effectiveness of compliance programs and treatments in use by the IRS.  Data for analysis will include amounts reported by taxpayers on their tax returns and the corrected amounts that were determined by examiners.

While the information gathered from these audits gets fed into IRS’ Big Data Analytics, taxpayers should keep in mind that these are still real audits that will likely result in changes the taxpayer’s account that once assessed by IRS will result in additional liability by the taxpayer for which the IRS will pursue collection.  Since these audits will follow the same audit guidelines for any individual income tax return, it is important to note the general procedures that will apply.

Types of IRS Examinations

  1. Campus Examinations are the simplest form of an examination. They are correspondence exams addressing simple problems like substantiation that can be resolved easily by correspondence and/or telephone. An examination under NRP would not be conducted in this fashion as not enough information would be collected in this type of audit.
  2. Area Office Examinations may be conducted for slightly more complicated issues such as small business returns and more complex non-business returns. Area Office Examinations may be conducted by correspondence, office interview or even by a field examination, depending on type and complexity of the return. In all cases, the taxpayer is asked to provide supporting documentation of questionable items. Business returns will always examined an office or field interview rather than a correspondence examination. It is in this type of an environment that an audit under the NRP would occur.
  3. Field Examinations are the most complex civil examination. The examining agent will be a revenue agent, as opposed to an officer auditor. He or she will be better trained and will have more experience. A Field Examination consists of examination of a taxpayer’s books and records at the taxpayer’s place of business or where the books, records or source documents are maintained. The agent will review the taxpayer’s entire return and all documentation related to that return. The agent may be assisted by a technical specialist such as a “technical advisor” if the return presents a special issue such as valuation. Unlike, office auditors, revenue agents spend considerable time preparing for the examination. Prior to the examination, the revenue agent will review any prior examination reports from the same taxpayer. This may lead to scrutiny of recurring issues or inclusion of other years’ returns in the examination. Of course, the revenue agent will also look at the return for unusual or questionable items.  . It is in this type of an environment that an audit under the NRP would occur.

What Should You Do?

An audit under the NRP is no different than any other type of IRS audit.  A poorly conducted audit can result in large additional tax adjustments and penalties and interest up to as much as 100% of the adjustment. Most local tax preparers are not equipped to represent you in an audit before the IRS. Using a tax attorney to help with an audit can significantly increase your chances of getting a better outcome. Many times individuals don’t realize that audits can go both ways, you may actually end up being owed money after an audit. A tax attorney can analyze your situation and find the best approach to take in order to get the best outcome. The IRS actually prefers working with professional tax representatives because it makes their job easier and helps the process move along more efficiently, which can actually result in a more favorable decision. Also, because your representative would deal directly with the agent, usually the audit can be completed without the need for the taxpayer to appear before the agent.

Why Contacting Your Congressman Will Usually Never Help You Resolve Your Tax Problems

/0 Comments/in /by

Although being a constituent of your elected Congressman gives you reason to voice your concerns about agenda under your Congressman’s consideration, don’t think that just because you have personal tax problems that your Congressman will come to the rescue or be able to cut any bureaucratic tape.

It is true that every elected official has employees who do what is known as constituent service, helping people with thorny problems that may involve a federal agency. Most often, the problems they hear involve Social Security benefits, federal disability filings, veterans’ benefits and mortgage issues. Immigration requests involving small-business employees and newly married couples are common, too.  But when it comes to the Internal Revenue Service, your Congressman’s office will typically hand off you compliant or problem to the Office Of The Taxpayer Advocate for further processing and stay out of the loop.

Taxpayer Advocate Service

Congress created the Taxpayer Advocate Service in 1996 so for at least one thing that Congressman would not need to deal with their constituents’ tax problems directly.  You do not need to go through your Congressman to get to the Taxpayer Advocate Service but there are some important things and limitations you should be aware if you choose to contact the Taxpayer Advocate Service directly.Each state has at least one Local Taxpayer Advocate who is independent of the local IRS office and reports directly to the National Taxpayer Advocate. In California the offices at located in Fresno, Laguna Nigel, Los Angeles, Oakland, Sacramento, San Diego and San Jose.

Twice a year the National Taxpayer Advocate will independently submit reports to Congress.The first report, due by June 30, contains the objectives of the Taxpayer Advocate for the coming fiscal year (starting October 1). The second one, due by December 31, reports on activities of the Taxpayer Advocate during the fiscal year, including his or her initiatives to improve taxpayer services and IRS responsiveness, and a summary of at least 20 of the Most Serious Problems facing taxpayers.The National Taxpayer Advocate delivers these reports to the Senate Committee on Finance and the House Committee on Ways and Means with no prior review or comment from the Commissioner, the IRS Oversight Board, the Secretary of the Treasury, any other Treasury officer or employee, or the Office of Management and Budget.

Here are three things every taxpayer should know about the Taxpayer Advocate Service:

  1. Although the Taxpayer Advocate Service is an independent organization within the IRS, it is no substitute for independent legal and tax representation.
  2. While the Taxpayer Advocate Service attempts to help taxpayers whose problems are causing financial difficulty, this office has no power on its own to remedy your problems and must still deal with the appropriate department of the IRS.
  3. The Taxpayer Advocate Service will not get involved where you have not tried to resolve your tax problem through normal IRS channels.

You should also keep in mind that every taxpayer when interacting with the IRS enjoys the following rights referred to as the “Taxpayer Bill Of Rights”:

    • The Right to Be Informed.
    • The Right to Quality Service.
    • The Right to Pay No More than the Correct Amount of Tax.
    • The Right to Challenge the IRS’s Position and Be Heard.
    • The Right to Appeal an IRS Decision in an Independent Forum.
    • The Right to Finality.
    • The Right to Privacy.
    • The Right to Confidentiality.
    • The Right to Retain Representation.
    • The Right to a Fair and Just Tax System.

What Should You Do?

Now don’t get me wrong.  The Office Of The Taxpayer Advocate can be helpful in introducing change and improvements to how the IRS operates and they report directly to Congress with their suggestions.  But when you need independent and aggressive representation where all options are considered and you need an approach that “thinks outside the box”, your interests would likely be best served by exercising your right to retain the representation of your own tax counsel.

Where’s My Refund? Filed your tax return and still have not received your refund check from the IRS?

Getting Ready For The 2017 Tax Filing Season

/0 Comments/in /by

IRS Giving Taxpayers To April 18, 2017 To File 2016 Individual Income Tax Returns.

The Internal Revenue Service announced that it can start accepting 2016 income tax returns onMonday, January 23, 2017.  Returns filed before that date (by paper or electronically) will be held in suspense by the IRS. Since the IRS will begin processing tax returns on January 23rd there is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns.  Nevertheless, it makes sense to start organizing your information early and so when the IRS filing systems open on January 23rd, you are ready to submit your tax return right away.

The IRS expects that more than 153 million individual tax returns will be filed in 2017 and that at least 80% of the tax returns will be prepared electronically using tax return preparation software.

April 18thFiling Deadline

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15thdate.  The reason why is that in 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday – April 17. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation. Be careful though with regards to the filing deadlines for 2016 State Individual Income Tax Returns as not all States may follow Federal law when it comes to the filing deadline and for those who do not, the filing deadline would be Monday, April 17, 2017.

Refunds in 2017

Choosing e-file and direct deposit for refunds remains the fastest way to file an accurate income tax return and receive a refund.The IRS still anticipates issuing at least 90%of tax refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers that could cause delay.Under the Protecting Americans from Tax Hikes (PATH) Actwhich takes into effect this 2017 Tax Filing Season, the IRS is required to hold refunds for tax returns which include a claim of the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15, 2017. Also consider that it would still take several days for these refunds to be released and processed through financial institutions, and factoring in weekends and the President’s Day holiday, taxpayers claiming these credits may not have actual access to their refunds until the week of Feb. 27th.

The status of your tax refund can be checked directly with IRS by using the Where’s My Refund? ‎on IRS.gov and the IRS2Go phone app.

Renewal Reminder for Individual Taxpayer Identification Numbers (ITINS) ITINs are used by people who have tax-filing or payment obligations under U.S. law but are not eligible for a Social Security number. Under a recent change in law, any ITIN not used on a tax return at least once in the past three years will expire on January 1, 2017. In addition, any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN) will also expire on that date.

This means that anyone with an expiring ITIN and a need to file a tax return in the upcoming filing season should file a renewal application in the next few weeks to avoid lengthy refund and processing delays. Failure to renew early could result in refund delays and denial of some tax benefits until the ITIN is renewed.

An ITIN renewal application filed now will be processed before one submitted at the height of tax season from mid-January to February. Currently, a complete and accurate renewal application can be processed in as little as seven weeks. But this timeframe is expected to expand to as much as 11 weeks during tax season, which runs from mid-January through April.

Time Limits For Keeping Your Tax Records

Even though your 2016 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return,  In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return.  That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years. And if you do get selected for audit, it would be best for you to exercise your right to hire tax counsel to represent you in the audit to minimize your contact with the IRS and to assure that you are entitled to claim all benefits that you are eligible under the tax law for your situation.