Former Missouri Congressman and Auctioneer – Billy Long: Trump’s nominee to lead IRS. What Could This Mean To The Future Of IRS Tax Enforcement?

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Danny Werfel who was sworn in as the 50th IRS Commissioner on April 4, 2023 announced his resignation effective January 20, 2025 even though his current 4-year term does not expire until 2027.  Donald Trump who will be inaugurated as President on January 20, 2025 has named his nominee, former U.S. Representative Billy Long of Missouri, to head the IRS.

Difference In Backgrounds

Danny Werfel, previously served as acting IRS commissioner before his current term appointment and held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are 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

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

Cannabis Rescheduling Hearing Indefinitely Stayed

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The prime benefits of reclassifying cannabis from a Schedule 1 substance to a Schedule 3 substance is that the Federal government would recognize medical benefits of cannabis, make Section 280E inapplicable to licensed cannabis operators, and open up financial and banking markets.

On August 26, 2024 the Drug Enforcement Administration (“DEA”) released its notice scheduling a hearing for December 2, 2024 on its proposal to lower the classification of marijuana to the less-dangerous level of Schedule 3.  DEA Administrator Anne Milgram said she would determine who will participate in the hearing and name a presiding officer to run the meeting.  If approved, the agency can then publish the final rule in the Federal Register.

John Mulrooney has been appointed as the Administrative Law Judge (ALJ).  On December 2, 2024 the DEA convened the initial hearing in the rescheduling process. The hearing was supposed to officially commence on January 21, 2025 and conclude during the first week of March; but on January 13, 2025 Mulrooney issued a ruling that included the cancellation of a hearing starting January 21st pending the outcome of a yet-to-be-filed “interlocutory appeal” to the agency’s eventual successor administrator which will be appointed by President-elect Donald Trump after he takes the oath of office.

How We Got Here …

The Associated Press reported on April 30, 2024 that the Drug Enforcement Administration (“DEA”) will propose a rule to reschedule cannabis to Schedule III under the Controlled Substance Act. The proposed rule has since been reviewed by the Department Of Justice and on May 16, 2024 has been published in the Federal Register. This publication then opened the period of time to July 22, 2024 for the DEA to take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. The proposed rule moves cannabis to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. More than 40,000 people submitted comment with a vast majority indicating favor of the proposed rule reclassifying cannabis.  But when two pro-rescheduling “designated participants” [those two being Village Farms International, a Florida-based agricultural firm that produces cannabis in Canada under a federal license there, and Texas-based Hemp for Victory] were denied to participate in the hearing filed an appeal, Mulrooney ordered a stop on the upcoming hearing with no new date set.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states and Washington DC, and soon to be 39 states with the passage of medical marijuana in Nebraska in the 2024 election

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Nebraska will soon be the 39th state to legalize it with the recent passage of the medical marijuana measure in the 2024 election. Currently, the 38 states with medical marijuana legal include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 23 states and Washington DC

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Proponents Of The New Rule Argue That If Approved, Will Put Federal Law More In Line With State Laws.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

Proponents Of The New Rule Argue That If Approved, Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

However, Even If The New Rule Is Approved, DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

So with all these potential benefits, what forces are present to block this proposed rule?

  1. Administrative Judge Mulrooney rules against rescheduling or as he ended up doing, put an indefinite stay on the hearing proceedings. His replacement has the same authority.
  2. Chevron Doctrine repealed by U.S. Supreme Court. The regulatory state has been in full force since, ironically, 1984, with the institution of the Chevron Doctrine. The Chevron Doctrine has required courts to defer to the expertise of administrative agencies when the legislative intent of an underlying law is ambiguous, which made it a cornerstone of how regulators and businesses interact. But on June 28, 2024, the Supreme Court’s Republican-appointed majority demolished the doctrine in its rulings in the Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo appeals, overturning the broad authority of the administrative state and raising fresh questions about how cannabis will be regulated moving forward. Keep in mind that rescheduling has been moving forward as a regulatory, rather than a legislative, change, and now, regulations do not hold the same force of law as they did since 1984. But even if the Chevron Doctrine was not repealed, the normal rule making process still faces certain congressional and judicial challenges explained further below.
  3. Congressional Challenges. Under the Small Business Regulatory Enforcement Fairness Act (also known as the Congressional Review Act), new final rules must be sent to Congress and the Government Accountability Office for review before they can take effect. “Major rules” (ones that are economically significant and require OIRA review) must be made effective at least 60 days after the date of publication in the Federal Register, allowing time for Congressional review. In emergency situations, a major rule can be made effective before 60 days. If the House and Senate pass a resolution of disapproval and the President signs it (or if both houses override a presidential veto), the rule becomes void and cannot be republished by an agency in the same form without Congressional approval. Since 1996, when this process started, Congress has disapproved only one rule. Congress may also exercise its oversight in other ways, by holding hearings and posing questions to agency heads, by enacting new legislation, or by imposing funding restrictions.
  4. Judicial Challenges. Individuals and corporate entities may go into the courts to make a claim that they have been, or will be, damaged or adversely affected in some manner by a regulation. The reviewing court can consider whether a rule: is unconstitutional; goes beyond the agency’s legal authority; was made without following the notice-and-comment process required by the Administrative Procedure Act or other law; or was arbitrary, capricious, or an abuse of discretion. An agency head can also be sued for failing to act in a timely manner in certain cases. If a court sets aside (vacates) all or part of a rule, it usually sends the rule back to the agency to correct the deficiencies. The agency may have to reopen the comment period, publish a new statement of basis and purpose in the Federal Register to explain and justify its decisions, or re­start the rulemaking process from the beginning by issuing a new proposed rule.

The most certain way that cannabis can be legalized and thus be treated like any other lawful business is by Congress enacting legislation. 

Top Democratic senators, including Senate Majority Leader Chuck Schumer (D-NY), continue to push the DEA to ‘promptly finalize” the rule to reschedule marijuana.  On August 2, 2024 Sen. Schumer, Sen. Cory Booker (D-NJ), Sen. Ron Wyden (D-OR) and others sent a letter to Attorney General Merrick Garland and DEA Administrator Anne Milgram imploring the administration to follow through on a proposal to move cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA), as the Justice Department formally proposed in May.  What is so surprising is that these legislators have the power to enact legislation completely bypassing the DEA’s rule-making authority and potential judicial challenges and send a bill to the President rescheduling cannabis or even excluding cannabis from the application of IRC Sec. 280E.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government so it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

California Wildfire Victims Qualify For IRS Tax Relief

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On January 10, 2025 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses in southern California affected by wildfires and straight-line winds that began on January 7, 2025. These taxpayers now have until October 15, 2025, to file various federal individual and business tax returns and make tax payments.

The California Department Of Tax And Fee Administration (“CDTFA”) has yet to announce whether they will provide any relief.  However, the California Employment Development Department (“EDD”) announced on January 10, 2025 that employers in Los Angeles and Ventura Counties directly impacted by the fires can request up to a two-month extension to file state payroll reports or deposit payroll taxes without penalties or interest by sending a written request for the extension within two months of your original payment or return due date.  Also, the California Franchise Tax Board (“FTB”) announced on January 13, 2025 that individuals and businesses with their principal residence or principal place of business in Los Angeles County during the Los Angeles County fires that began on January 7, 2025, qualify for a postponement to file and pay taxes until October 15, 2025.

The IRS tax relief postpones various tax filing and payment deadlines that occurred from January 7, 2025, through October 15, 2025 (postponement period). As a result, affected individuals and businesses will have until October 15, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the October 15, 2025, deadline will now apply to:

  • Individual income tax returns and payments normally due on April 15, 2025.
  • 2024 contributions to IRAs and health savings accounts for eligible taxpayers.
  • 2024 quarterly estimated income tax payments normally due on January 15, 2025, and estimated tax payments normally due on April 15, 2025, June 16, 2025, and September 15, 2025.
  • Quarterly payroll and excise tax returns normally due on January 31, 2025, April 30, 2025, and July 31, 2025.
  • Calendar-year partnership and S corporation returns normally due on March 17, 2025.
  • Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025.
  • Calendar-year tax-exempt organization returns normally due on May 15, 2025.

In addition, penalties for failing to make payroll and excise tax deposits due on or after January 7, 2025, and before January 22, 2025, will be abated as long as the deposits are made by January 22, 2025.

President Biden Signs Into Law Expanded Federal Disaster Tax Relief

On December 12, 2024 President Joe Biden signed H.R. 5863, the “Federal Disaster Tax Relief Act of 2023” which will designate a series of presidentially declared disasters as qualified disaster events.  What this means – if you were impacted by recent hurricanes, you can now claim disaster-related losses more easily—whether you itemize your taxes or not. Settlements for disaster victims are now tax-free, and the burdensome 10% AGI threshold has been eliminated.

The legislation designates that Hurricane Ian and other hurricanes including Hurricanes Idalia, Nicole, Fiona, Debby, Helene, and Milton should be treated as qualified disaster events for purposes of determining the tax treatment of certain disaster-related personal casualty losses. It also includes Fire Victim Trust claimants in Northern California and elsewhere (encompasses a disaster declared after 2014 as a result of a forest or range fire) and those affected by the train derailment in East Palestine, Ohio that occurred on February 3, 2023.

The legislation will also cover any potential major disasters occurring up to 6 months after the President’s signature; thus covering victims in southern California.

Other Areas Having Extended Deadlines:

The IRS announced (Kentucky) announced (West Virginia) on May 31, 2024 tax relief for individuals and businesses affected by severe storms, straight-line winds, tornadoes, flooding, landslides and mudslides that began on April 2, 2024 in Kentucky and West Virginia now have until November 1, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 12, 2024 tax relief for individuals and businesses in 25 Minnesota counties affected by severe storms and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 9, 2024 tax relief for individuals and businesses in four states (South Carolina, Florida, North Carolina and Georgia) and on August 13, 2024 the IRS announced tax relief for individuals and businesses in the state of Vermont affected by Hurricane Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in Puerto Rico affected by Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in South Dakota affected severe storms, straight-line winds and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 28, 2024 tax relief for individuals and businesses in the U.S. Virgin Islands affected Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 10, 2024 tax relief for individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2024 tax relief for individuals and businesses in Louisiana affected by Tropical Storm Francine that began on September 10, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 18, 2024 tax relief for individuals and businesses in Pennsylvania affected by Tropical Storm Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses in parts of Illinois affected by severe storms, tornadoes, straight-line winds and flooding that began on July 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 3, 2024 tax relief for individuals and businesses affected by wildfires that began on June 22, 2024 to the Confederated Tribes and Bands of the Yakama Nation in Washington state now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by wildfires that began on July 10, 2024 to the San Carlos Apache Tribe in the State of Arizona now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by Hurricane Milton, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For California – Individuals and households that reside or have a business in Los Angeles County.

For Alaska – Individuals and households that reside or have a business in the Juneau area.

For Arizona – Individuals and households that reside or have a business in the San Carlos Apache Tribe.

For Alabama, Georgia, North Carolina and South Carolina – Individuals and households that reside or have a business in the state.

For Florida – Individuals and households that reside or have a business in the state.

For Tennessee – Individuals and households that reside or have a business in the following 8 counties: Carter, Cocke, Greene, Hamblen, Hawkins, Johnson, Unicoi and Washington counties.

For Virginia – Individuals and households that reside or have a business in the following 6 counties:  Grayson, Smyth, Tazewell, Washington, Wise and Wythe counties; and the City of Galax.

For Washington State – Individuals and households that reside or have a business in Confederated Tribes and Bands of the Yakama Nation.

For Illinois – Individuals and households that reside or have a business in Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties

For Pennsylvania – Individuals and households that reside or have a business in Lycoming, Potter, Tioga and Union counties.

For Louisiana – Individuals and households that reside or have a business in the entire state.

For Connecticut – Individuals and households that reside or have a business in Fairfield, Litchfield, and New Haven counties.

For New York – Individuals and households that reside or have a business in Suffolk County.

For the U.S. Virgin Islands – Individuals and households that reside or have a business in any of the U.S. Virgin Islands’ four islands.

For South Dakota – Individuals and households that reside or have a business in Aurora, Bennett, Bon Homme, Brule, Buffalo, Charles Mix, Clay, Davison, Douglas, Gregory, Hand, Hanson, Hutchinson, Jackson, Lake, Lincoln, McCook, Miner, Minnehaha, Moody, Sanborn, Tripp, Turner, Union and Yankton counties

For Puerto Rico – Individuals and households that reside or have a business in any of Puerto Rico’s 78 municipalities.

For Minnesota – Individuals and households that reside or have a business in Blue Earth, Carver, Cass, Cook, Cottonwood, Faribault, Fillmore, Freeborn, Goodhue, Itasca, Jackson, Lake, Le Sueur, Mower, Murray, Nicollet, Nobles, Pipestone, Rice, Rock, St. Louis, Steele, Wabasha, Waseca and Watonwan counties.

For North Carolina – Individuals and businesses and the following 66 counties: Alamance, Anson, Beaufort, Bertie, Bladen , Brunswick, Camden, Carteret, Caswell, Chatham, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Davie, Davidson, Duplin, Durham, Edgecombe, Forsyth, Franklin, Gates, Granville, Greene, Guilford, Halifax, Harnett, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person, Pitt, Randolph, Richmond, Robeson, Rockingham, Sampson, Scotland, Stokes, Surry, Tyrrell, Vance, Wake, Warren, Washington, Wayne, Wilson and Yadkin.

For South Carolina – Individuals and businesses in all 46 counties.

For Georgia – Individuals and businesses in the following 55 counties: Appling, Atkinson, Bacon, Ben Hill, Berrien, Brantley, Brooks, Bryan, Bulloch, Burke, Camden, Candler, Charlton, Chatham, Clinch, Coffee, Colquitt, Cook, Crisp, Decatur, Dodge, Echols, Effingham, Emanuel, Evans, Glynn, Grady, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Lanier, Laurens, Liberty, Long, Lowndes, McIntosh, Mitchell, Montgomery, Pierce, Richmond, Screven, Tattnall, Telfair, Thomas, Tift, Toombs, Treutlen, Turner, Ware, Wayne, Wheeler, Wilcox and Worth.

For Vermont – Individuals and businesses in all 14 counties.

For Kentucky – Currently, relief is available to affected taxpayers who live or have a business in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley counties.

For West Virginia – Currently, relief is available to affected taxpayers who live or have a business in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.  The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area 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 2025 return normally filed next year), or the return for the current year (2024).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “4782-DR“ for Kentucky or “4783-DR” for West Virginia or “3605-EM” for Florida or “3606-EM” for South Carolina or “3607-EM” for Georgia or “3608-EM” for North Carolina or “3609-EM” for Vermont or “4797-DR” for Minnesota or “3610-EM” for Puerto Rico or “4807-DR” for South Dakota or “3611-EM” for the U.S. Virgin Islands or “3612-EM” for Connecticut or “3613-EM” for New York or “3614-EM” for Louisiana or “4815-DR” for Pennsylvania or “4819-DR” for Illinois or “3615-EM” for Hurricane Helene victims or “4823-DR” for Washington State or “3622-EM” for Hurricane Milton victims or “4833-DR” for Arizona or “4836-DR” for Alaska or “4856-DR” for California.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

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

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.  Tax return transcripts show line-by-line the entries made on your Federal income tax returns.  The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

  • To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
  • Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
  • For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
  • When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
  • Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

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 tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

Court Authorizes IRS to Issue John Doe Summonses for Records Relating to U.S. Taxpayers with Offshore Bank Accounts With Trident Trust Group

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A number of U.S. taxpayers with beneficial ownership and control over funds held in accounts at Trident Trust Group and its affiliates (collectively, “Trident”), have admitted failing to report income earned from their offshore accounts on their federal tax returns.  The IRS has reason to believe that other U.S. taxpayers who held or presently hold similar accounts at Trident have done the same in violation of federal tax law.

On December 23, 2024, a U.S. District Judge in the Southern District of New York entered an order authorizing the IRS to issue summonses requiring FedEx Corporation; DHL Express (USA), Inc.; United Parcel Service, Inc.; the Federal Reserve Bank of New York; The Clearing House Payments Company LLC; HSBC Bank USA, National Association; The Bank of New York Mellon Corporation; Wells Fargo Bank, National Association; Citibank, National Association; UBS AG; Bank of America, National Association; Deutsche Bank Trust Company Americas; and Nevis Services Limited, to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at Trident.

The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown.  The John Doe summonses direct the institutions named above to produce records identifying U.S. taxpayers with accounts at Trident.

The information that these institutions are required to turn over to the IRS will provide information about individuals using foreign financial institutions that include Switzerland, Caribbean countries, Hong Kong and beyond to avoid their U.S. tax obligations.  As the U.S. government is continuing its commitment to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes, U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it is too late.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Program (OVDP).  Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

What Should You Do?

Protect yourself from excessive fines and possible jail time. Federal and State Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.  Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

When Is Sales Tax Due On Vehicles Sold In California?

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California under its Sales And Use Tax Law, imposes sales tax on vehicles purchased and delivered in the State. This applies to new and used vehicles. The sales tax is based on the sales price of the vehicle without any reduction for trade-in value of a vehicle owned by the buyer. The California Department Of Tax And Fee Administration (CDTFA) is responsible for enforcing this law.

Sale Of Vehicle In California But Delivered Out Of State

Where a vehicle is purchased in California, but delivery is made out of state to the buyer. There are certain requirements that must be met in order for no California sales tax to be charged. Whether you are a buyer or a seller of a vehicle located in California it is very important that you follow these rules and retain the appropriate documentation. For sellers who failed to meet these requirements or fail to retain the required documentation, the seller will become liable to pay the sales tax along with penalties and interest.

Motor vehicle dealers (dealers) making vehicle sales to non-resident buyers for use outside the state must keep proper shipping and delivery documents when claiming the vehicles are exempt sales in interstate commerce. If you are a dealer making these types of sales, you may be responsible for the sales tax if you do not keep proper documentation. Even if you maintain such documentation, if the vehicle is actually delivered in California, you will be liable for sales tax on the transaction.

What If The Buyer Is An Out-of-state Limited Liability Company Or Other Legal Entity?

Even if the out-of-state LLC or other legal entity has members or entity-owners who are California residents, the sales tax exemption will still apply but the entity may still be responsible for the use tax if they bring the vehicle into California within 12 months of the purchase date.

Documenting the delivery of a vehicle to an out-of-state location

If you are a seller, you must keep records, such as delivery receipts, expense vouchers supporting delivery outside California, bills of lading, and transportation plans from the carrier making the delivery, to support that the vehicle was delivered outside California. When using a delivery service hired by you or your buyer, you can check the Federal Motor Carrier Safety Administration’s website to verify if the transport company is licensed for interstate transportation. If they are not licensed for interstate transportation, the CDTFA may consider the vehicle not delivered outside of California, and the transaction may be subject to sales tax.

If you are a buyer, you must retain documentation supporting continued use outside of California for at least the first 12 months from the purchase date.

When making vehicle sales for use outside California, sellers and buyers will generally complete CDTFA-447, Statement Pursuant to Section 6247 of the California Sales and Use Tax Law, and/or CDTFA-448, Statement of Delivery Outside California, to document the exempt sale. These forms though do not serve as a substitute for the underlying documentation so to avoid liability for tax on the vehicles you must still maintain the proper shipping documentation.

In order for your sale to be an exempt sale in interstate commerce, you must deliver the vehicle to your customer outside the state using your own delivery facilities (for example, your delivery truck) or by a carrier, customs broker, or forwarding agent.  Regardless of how the delivery is made, if at any time the vehicle is diverted in transit and not delivered outside California, you will be responsible for the sales tax due on the vehicle.

Example: You sold a vehicle to a Montana-registered LLC. You and your customer completed CDTFA-447, and you obtained a bill of lading from the shipping company, which you have on file. Your customer provided an out-of-state address on the form; however, the shipping company actually delivered the vehicle to your customer in California. You will be responsible for the sales tax on the vehicle as the sale is not an exempt sale in interstate or foreign commerce.

Impact Of Buyer Bringing A Vehicle Delivered Out Of State Back Into California.

When making sales without tax to out-of-state LLCs that have members who are California residents, please inform your customers that they may still be responsible for the use tax if they bring the vehicle into California within 12 months of the purchase date.  They must retain documentation supporting continued use outside of California.

Additionally, if the buyer registers the vehicle outside of California for the purpose of evading the payment of taxes, they will be liable for a penalty of 50% of the tax determined to be due on the purchase price of the vehicle.

Length Of Time To Retain Records And To Be Subject To Audit By The State.

Generally, the CDTFA has up to three years from the quarter that the sale occurred to audit the seller and verify that any transactions claimed exempt from sales tax qualify for such exemption. Since it may be more difficult to get documents from third parties, such as common carriers or freight forwarders years after a sale occurred it would be in your best interest to gather this information at the time the sale is made and keep it with the file documents for the sale. By doing that you can be assured that if later on you are contacted by the state, you have all the necessary documentation at hand to support the exemption.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. Federal and State Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.  Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

In A Major Flip-Flop Of Position, The 5th Circuit Court of Appeals Reinstates The Nationwide Injunction Of Enforcement of the Corporate Transparency Act.

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Requirement For Banks & Financial Institutions To Report Beneficial Ownership Information Of Entity Accountholders Put On Hold By The 5th Circuit Court Of Appeals.

The Federal government in its efforts to crack down on illicit finance and enhance transparency on September 29, 2022 issued a final ruling establishing a beneficial ownership information reporting requirement, pursuant to the Corporate Transparency Act (CTA). This rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners – the persons who ultimately own or control the company – to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  These filings are commonly referred as “BOI reports”.

Law Invalidated Less Than One Month Before Reporting Deadline

On December 3, 2024 Judge Amos L. Mazzant III of the US District Court for the Eastern District of Texas issued the injunction at the request of a family-run firearms and tactical gear retailer, called Texas Top Cop Shop Inc., among other co-plaintiff businesses and the Libertarian Party of Mississippi. Their lawsuit alleged that the CTA falls outside of Congress’s powers to regulate interstate and foreign commerce because it regulates incorporated entities regardless of whether they engage in commercial activity.

In issuing the Court’s Opinion (Texas Top Cop Shop, Inc. v. Garland, E.D. Tex., No. 4:24-cv-00478, 12/03/2024), the Court agreed that the law’s requirements exceed Congress’s commerce authority.  “For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote.

Last week, the government appealed the preliminary injunction granted by the district court that enjoins enforcement of the CTA.  On December 17, 2024, the U.S. District Court for the Eastern District of Texas issued an Order denying the government’s motion to stay the nationwide preliminary injunction.  It is likely that this Order is the last formal decision on the CTA prior to December 31, 2024 that would require filing (at least filing prior to December 31, 2024.

Then on December 23, 2024, the 5th Circuit Court of Appeals issued its Order granting the Government’s motion to stay the preliminary injunction – meaning that the enforcement of the CTA continues despite the pending appeal before said Court, but with all this conflicting activity occurring at year’s end, on December 23, 2024 FinCEN announced a series of short filing extensions to those companies with upcoming due dates:

  • Companies created or registered prior to January 1, 2024, now have until January 13, 2025, to file their initial BOI reports with FinCEN. This is an extension from the original January 1, 2025, deadline.
  • Companies with an original reporting deadline between December 3, 2024, and December 23, 2024, these companies now have until January 13, 2025, to file.
  • Companies created or registered between December 3, 2024, and December 23, 2024, have an additional 21 days from their original filing deadline to submit their reports.

For Companies Created or Registered On or After January 1, 2025: These companies must file their initial BOI reports with FinCEN within 30 days of receiving actual or public notice that their creation or registration is effective.

But Now The 5Th Circuit Court Of Appeals Flip-Flops Its Position Reinstating The Nationwide Injunction Staying Enforcement

In another Order issued on December 26, 2024, the 5th Circuit vacated the portion of its own December 23rd order that granted the Government’s motion to stay the preliminary injunction in order to “preserve the constitutional status quo”.  This means that compliance with the CTA (BOI Reporting) is optional again.

Here is the sequence/timeline and status:

  1. District Court holds CTA is unconstitutional and issues preliminary injunction preventing enforcement of the CTA.
  2. Government immediately files motion to stay the preliminary injunction pending appeal (i.e. enforcement for the CTA continues).
  3. On 12/17/2024, District Court denies Government’s motion to stay the preliminary injunction pending appeal (i.e. no enforcement of the CTA allowed)
  4. On 12/23/2024, 5th Circuit Court of Appeals grants the Government’s motion to stay the preliminary injunction (i.e. enforcement of the CTA continues).
  5. On 12/26/2024, 5th Circuit Court of Appeals vacates the portion of the Order that allowed the Government to enforce the CTA.

No telling yet when the 5th Circuit will issue its final opinion but it is likely that whatever decision is rendered, it will be appealed to the U.S. Supreme Court.

Purpose Of Reporting

Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, FINCEN stated that this ruling will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

Reporting Companies

The CTA broadly defines a “reporting company” as any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe, or formed under the laws of a foreign country and registered to do business in the United States.

Entities Not Required To Be Reported

There are certain entities that are excepted from being reported: (1) entities in certain regulated industries that already are subject to beneficial ownership reporting, (2) publicly traded companies, (3) investment vehicles operated by investment advisors, nonprofits, and government entities, and (4) “qualified exempt entities”.  A “qualified exempt entity” is an entity that (a) employs more than 20 employees; (b) filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales; and (c) has an operating presence at a physical office within the United States.

Beneficial Owners and the Information to Report

The CTA defines a “beneficial owner” of an entity as any individual who, directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. The rule expressly excludes certain individuals from the definition of beneficial ownership, including (1) a minor child (as long as the child’s parent’s or guardian’s information is reported); (2) an individual acting as an intermediary or agent on behalf of another; (3) a person whose control over a reporting company derives solely from their employment; (4) an individual whose only interest in a reporting company is through a right of inheritance; or (5) a creditor of a reporting company (unless they qualify as a “beneficial owner” through substantial control or equity ownership).

What Information Gets Reported

In each report to FinCEN, a reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport).

Effective Date Is January 1, 2024.

The rule is effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

The reporting rule is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule. In addition, FinCEN stated it continues to develop the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.

FinCEN Issues Guide to Assist Small Businesses with Beneficial Ownership Reporting: The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a Small Entity Compliance Guide https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf  to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule that became effective on January 1, 2024 under the Corporate Transparency Act.

Penalties for Violating CTA

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine BOI Ownership Information report may be held accountable for that failure. However, the CTA contains a safe harbor from such civil and criminal liability for the submission of inaccurate information if the person who submitted the report voluntarily and promptly corrects the report within 90 days.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. While the law is put on hold for now, you can expect the laws regarding customer due diligence requirements for financial institutions will also be updated to conform to the CTA as the CTA will be providing a new means for a financial institution to verify a customer’s “Know Your Customer” information.  If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. In addition, tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. can complete or update BOI reporting for your business. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

5th Circuit Court of Appeals allowing enforcement of the Corporate Transparency Act … at least for now.

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Requirement For Banks & Financial Institutions To Report Beneficial Ownership Information Of Entity Accountholders Still Remains Despite Challenge At The 5th Circuit Court Of Appeals.

The Federal government in its efforts to crack down on illicit finance and enhance transparency on September 29, 2022 issued a final ruling establishing a beneficial ownership information reporting requirement, pursuant to the Corporate Transparency Act (CTA). This rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners – the persons who ultimately own or control the company – to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  These filings are commonly referred as “BOI reports”.

Law Invalidated Less Than One Month Before Reporting Deadline

On December 3, 2024 Judge Amos L. Mazzant III of the US District Court for the Eastern District of Texas issued the injunction at the request of a family-run firearms and tactical gear retailer, called Texas Top Cop Shop Inc., among other co-plaintiff businesses and the Libertarian Party of Mississippi. Their lawsuit alleged that the CTA falls outside of Congress’s powers to regulate interstate and foreign commerce because it regulates incorporated entities regardless of whether they engage in commercial activity.

In issuing the Court’s Opinion (Texas Top Cop Shop, Inc. v. Garland, E.D. Tex., No. 4:24-cv-00478, 12/03/2024), the Court agreed that the law’s requirements exceed Congress’s commerce authority.  “For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote.

Last week, the government appealed the preliminary injunction granted by the district court that enjoins enforcement of the CTA.  On December 17, 2024, the U.S. District Court for the Eastern District of Texas issued an Order denying the government’s motion to stay the nationwide preliminary injunction.  It is likely that this Order is the last formal decision on the CTA prior to December 31, 2024 that would require filing (at least filing prior to December 31, 2024.

Then on December 23, 2024, the 5th Circuit Court of Appeals issued its Order granting the Government’s motion to stay the preliminary injunction – meaning that the enforcement of the CTA continues despite the pending appeal before said Court, but with all this conflicting activity occurring at year’s end, on December 23, 2024 FinCEN announced a series of short filing extensions to those companies with upcoming due dates:

  • Companies created or registered prior to January 1, 2024, now have until January 13, 2025, to file their initial BOI reports with FinCEN. This is an extension from the original January 1, 2025, deadline.
  • Companies with an original reporting deadline between December 3, 2024, and December 23, 2024, these companies now have until January 13, 2025, to file.
  • Companies created or registered between December 3, 2024, and December 23, 2024, have an additional 21 days from their original filing deadline to submit their reports.

For Companies Created or Registered On or After January 1, 2025: These companies must file their initial BOI reports with FinCEN within 30 days of receiving actual or public notice that their creation or registration is effective.

Purpose Of Reporting

Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, FINCEN stated that this ruling will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

Reporting Companies

The CTA broadly defines a “reporting company” as any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe, or formed under the laws of a foreign country and registered to do business in the United States.

Entities Not Required To Be Reported

There are certain entities that are excepted from being reported: (1) entities in certain regulated industries that already are subject to beneficial ownership reporting, (2) publicly traded companies, (3) investment vehicles operated by investment advisors, nonprofits, and government entities, and (4) “qualified exempt entities”.  A “qualified exempt entity” is an entity that (a) employs more than 20 employees; (b) filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales; and (c) has an operating presence at a physical office within the United States.

Beneficial Owners and the Information to Report

The CTA defines a “beneficial owner” of an entity as any individual who, directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. The rule expressly excludes certain individuals from the definition of beneficial ownership, including (1) a minor child (as long as the child’s parent’s or guardian’s information is reported); (2) an individual acting as an intermediary or agent on behalf of another; (3) a person whose control over a reporting company derives solely from their employment; (4) an individual whose only interest in a reporting company is through a right of inheritance; or (5) a creditor of a reporting company (unless they qualify as a “beneficial owner” through substantial control or equity ownership).

What Information Gets Reported

In each report to FinCEN, a reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport).

Effective Date Is January 1, 2024.

The rule is effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

The reporting rule is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule. In addition, FinCEN stated it continues to develop the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.

FinCEN Issues Guide to Assist Small Businesses with Beneficial Ownership Reporting: The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a Small Entity Compliance Guide https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf  to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule that became effective on January 1, 2024 under the Corporate Transparency Act.

Penalties for Violating CTA

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine BOI Ownership Information report may be held accountable for that failure. However, the CTA contains a safe harbor from such civil and criminal liability for the submission of inaccurate information if the person who submitted the report voluntarily and promptly corrects the report within 90 days.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. While the law is put on hold for now, you can expect the laws regarding customer due diligence requirements for financial institutions will also be updated to conform to the CTA as the CTA will be providing a new means for a financial institution to verify a customer’s “Know Your Customer” information.  If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. In addition, tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. can complete or update BOI reporting for your business. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Nationwide Block On The Corporate Transparency Act Remains In Place

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Nationwide Block On The Corporate Transparency Act Remains In Place

Requirement For Banks & Financial Institutions To Report Beneficial Ownership Information Of Entity Accountholders Put On Hold

The Federal government in its efforts to crack down on illicit finance and enhance transparency on September 29, 2022 issued a final ruling establishing a beneficial ownership information reporting requirement, pursuant to the Corporate Transparency Act (CTA). This rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners – the persons who ultimately own or control the company – to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Law Invalidated Less Than One Month Before Reporting Deadline

On December 3, 2024 Judge Amos L. Mazzant III of the US District Court for the Eastern District of Texas issued the injunction at the request of a family-run firearms and tactical gear retailer, called Texas Top Cop Shop Inc., among other co-plaintiff businesses and the Libertarian Party of Mississippi. Their lawsuit alleged that the CTA falls outside of Congress’s powers to regulate interstate and foreign commerce because it regulates incorporated entities regardless of whether they engage in commercial activity.

In issuing the Court’s Opinion (Texas Top Cop Shop, Inc. v. Garland, E.D. Tex., No. 4:24-cv-00478, 12/03/2024), the Court agreed that the law’s requirements exceed Congress’s commerce authority.  “For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote.

Last week, the government appealed the preliminary injunction granted by the district court that enjoins enforcement of the CTA.  On December 17, 2024, the U.S. District Court for the Eastern District of Texas issued an Order denying the government’s motion to stay the nationwide preliminary injunction.  It is likely that this Order is the last formal decision on the CTA prior to December 31, 2024 that would require filing (at least filing prior to December 31, 2024.

Purpose Of Reporting

Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, FINCEN stated that this ruling will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

Reporting Companies

The CTA broadly defines a “reporting company” as any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe, or formed under the laws of a foreign country and registered to do business in the United States.

Entities Not Required To Be Reported

There are certain entities that are excepted from being reported: (1) entities in certain regulated industries that already are subject to beneficial ownership reporting, (2) publicly traded companies, (3) investment vehicles operated by investment advisors, nonprofits, and government entities, and (4) “qualified exempt entities”.  A “qualified exempt entity” is an entity that (a) employs more than 20 employees; (b) filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales; and (c) has an operating presence at a physical office within the United States.

Beneficial Owners and the Information to Report

The CTA defines a “beneficial owner” of an entity as any individual who, directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. The rule expressly excludes certain individuals from the definition of beneficial ownership, including (1) a minor child (as long as the child’s parent’s or guardian’s information is reported); (2) an individual acting as an intermediary or agent on behalf of another; (3) a person whose control over a reporting company derives solely from their employment; (4) an individual whose only interest in a reporting company is through a right of inheritance; or (5) a creditor of a reporting company (unless they qualify as a “beneficial owner” through substantial control or equity ownership).

What Information Gets Reported

In each report to FinCEN, a reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport).

Effective Date Is January 1, 2024.

The rule is effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

The reporting rule is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule. In addition, FinCEN stated it continues to develop the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.

FinCEN Issues Guide to Assist Small Businesses with Beneficial Ownership Reporting: The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a Small Entity Compliance Guide https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf  to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule that became effective on January 1, 2024 under the Corporate Transparency Act.

Penalties for Violating CTA

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine BOI Ownership Information report may be held accountable for that failure. However, the CTA contains a safe harbor from such civil and criminal liability for the submission of inaccurate information if the person who submitted the report voluntarily and promptly corrects the report within 90 days.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. While the law is put on hold for now, you can expect the laws regarding customer due diligence requirements for financial institutions will also be updated to conform to the CTA as the CTA will be providing a new means for a financial institution to verify a customer’s “Know Your Customer” information.  If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. In addition, tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. can complete or update BOI reporting for your business. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

President Biden Signs Into Law Expanded Federal Disaster Tax Relief

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President Biden Signs Into Law Expanded Federal Disaster Tax Relief

On December 12, 2024 President Joe Biden signed H.R. 5863, the “Federal Disaster Tax Relief Act of 2023” which will designate a series of presidentially declared disasters as qualified disaster events.  What this means – if you were impacted by recent hurricanes, you can now claim disaster-related losses more easily—whether you itemize your taxes or not. Settlements for disaster victims are now tax-free, and the burdensome 10% AGI threshold has been eliminated.

The legislation designates that Hurricane Ian and other hurricanes including Hurricanes Idalia, Nicole, Fiona, Debby, Helene, and Milton should be treated as qualified disaster events for purposes of determining the tax treatment of certain disaster-related personal casualty losses. It also includes Fire Victim Trust claimants in Northern California and elsewhere (encompasses a disaster declared after 2014 as a result of a forest or range fire) and those affected by the train derailment in East Palestine, Ohio that occurred on February 3, 2023.

The legislation will also cover any potential major disasters occurring up to 6 months after the President’s signature.

Extended Filing and Payment Deadlines Announced By IRS Still Remain In Place

The most recent announcement being made by IRS on October 25, 2024 where the IRS announced tax relief for individuals and businesses in the Juneau area of Alaska, affected by flooding that began on August 5, 2024. These taxpayers now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The tax relief postpones various tax filing and payment deadlines that occurred from August 5, 2024, through May 1, 2025 (postponement period). As a result, affected individuals and businesses will have until May 1, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the May 1, 2025, deadline will now apply to:

  • Any individual or business that has a 2024 return normally due during March or April 2025.
  • Any individual, business or tax-exempt organization that has a valid extension to file their 2023 federal return. However, that payments on these returns are not eligible for the extra time because they were due last spring before the flooding occurred.
  • 2024 quarterly estimated income tax payments normally due on September 16, 2024, January 15, 2025, and 2025 estimated tax payments normally due on April 15, 2025.
  • Quarterly payroll and excise tax returns normally due on October 31, 2024, and January 31, 2025 and April 30, 2025.

In addition, penalties for failing to make payroll and excise tax deposits due on or after August 5, 2024, and before August 20, 2024, will be abated, as long as the deposits were made by August 20, 2024.

Other Areas Having Extended Deadlines:

The IRS announced (Kentucky) announced (West Virginia) on May 31, 2024 tax relief for individuals and businesses affected by severe storms, straight-line winds, tornadoes, flooding, landslides and mudslides that began on April 2, 2024 in Kentucky and West Virginia now have until November 1, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 12, 2024 tax relief for individuals and businesses in 25 Minnesota counties affected by severe storms and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 9, 2024 tax relief for individuals and businesses in four states (South Carolina, Florida, North Carolina and Georgia) and on August 13, 2024 the IRS announced tax relief for individuals and businesses in the state of Vermont affected by Hurricane Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in Puerto Rico affected by Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in South Dakota affected severe storms, straight-line winds and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 28, 2024 tax relief for individuals and businesses in the U.S. Virgin Islands affected Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 10, 2024 tax relief for individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2024 tax relief for individuals and businesses in Louisiana affected by Tropical Storm Francine that began on September 10, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 18, 2024 tax relief for individuals and businesses in Pennsylvania affected by Tropical Storm Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses in parts of Illinois affected by severe storms, tornadoes, straight-line winds and flooding that began on July 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 3, 2024 tax relief for individuals and businesses affected by wildfires that began on June 22, 2024 to the Confederated Tribes and Bands of the Yakama Nation in Washington state now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by wildfires that began on July 10, 2024 to the San Carlos Apache Tribe in the State of Arizona now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by Hurricane Milton, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For Alaska – Individuals and households that reside or have a business in the Juneau area.

For Arizona – Individuals and households that reside or have a business in the San Carlos Apache Tribe.

For Alabama, Georgia, North Carolina and South Carolina – Individuals and households that reside or have a business in the state.

For Florida – Individuals and households that reside or have a business in the state.

For Tennessee – Individuals and households that reside or have a business in the following 8 counties: Carter, Cocke, Greene, Hamblen, Hawkins, Johnson, Unicoi and Washington counties.

For Virginia – Individuals and households that reside or have a business in the following 6 counties:  Grayson, Smyth, Tazewell, Washington, Wise and Wythe counties; and the City of Galax.

For Washington State – Individuals and households that reside or have a business in Confederated Tribes and Bands of the Yakama Nation.

For Illinois – Individuals and households that reside or have a business in Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties

For Pennsylvania – Individuals and households that reside or have a business in Lycoming, Potter, Tioga and Union counties.

For Louisiana – Individuals and households that reside or have a business in the entire state.

For Connecticut – Individuals and households that reside or have a business in Fairfield, Litchfield, and New Haven counties.

For New York – Individuals and households that reside or have a business in Suffolk County.

For the U.S. Virgin Islands – Individuals and households that reside or have a business in any of the U.S. Virgin Islands’ four islands.

For South Dakota – Individuals and households that reside or have a business in Aurora, Bennett, Bon Homme, Brule, Buffalo, Charles Mix, Clay, Davison, Douglas, Gregory, Hand, Hanson, Hutchinson, Jackson, Lake, Lincoln, McCook, Miner, Minnehaha, Moody, Sanborn, Tripp, Turner, Union and Yankton counties

For Puerto Rico – Individuals and households that reside or have a business in any of Puerto Rico’s 78 municipalities.

For Minnesota – Individuals and households that reside or have a business in Blue Earth, Carver, Cass, Cook, Cottonwood, Faribault, Fillmore, Freeborn, Goodhue, Itasca, Jackson, Lake, Le Sueur, Mower, Murray, Nicollet, Nobles, Pipestone, Rice, Rock, St. Louis, Steele, Wabasha, Waseca and Watonwan counties.

For North Carolina – Individuals and businesses and the following 66 counties: Alamance, Anson, Beaufort, Bertie, Bladen , Brunswick, Camden, Carteret, Caswell, Chatham, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Davie, Davidson, Duplin, Durham, Edgecombe, Forsyth, Franklin, Gates, Granville, Greene, Guilford, Halifax, Harnett, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person, Pitt, Randolph, Richmond, Robeson, Rockingham, Sampson, Scotland, Stokes, Surry, Tyrrell, Vance, Wake, Warren, Washington, Wayne, Wilson and Yadkin.

For South Carolina – Individuals and businesses in all 46 counties.

For Georgia – Individuals and businesses in the following 55 counties: Appling, Atkinson, Bacon, Ben Hill, Berrien, Brantley, Brooks, Bryan, Bulloch, Burke, Camden, Candler, Charlton, Chatham, Clinch, Coffee, Colquitt, Cook, Crisp, Decatur, Dodge, Echols, Effingham, Emanuel, Evans, Glynn, Grady, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Lanier, Laurens, Liberty, Long, Lowndes, McIntosh, Mitchell, Montgomery, Pierce, Richmond, Screven, Tattnall, Telfair, Thomas, Tift, Toombs, Treutlen, Turner, Ware, Wayne, Wheeler, Wilcox and Worth.

For Vermont – Individuals and businesses in all 14 counties.

For Kentucky – Currently, relief is available to affected taxpayers who live or have a business in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley counties.

For West Virginia – Currently, relief is available to affected taxpayers who live or have a business in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.  The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area 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 2024 return normally filed next year), or the return for the current year (2023).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “4782-DR“ for Kentucky or “4783-DR” for West Virginia or “3605-EM” for Florida or “3606-EM” for South Carolina or “3607-EM” for Georgia or “3608-EM” for North Carolina or “3609-EM” for Vermont or “4797-DR” for Minnesota or “3610-EM” for Puerto Rico or “4807-DR” for South Dakota or “3611-EM” for the U.S. Virgin Islands or “3612-EM” for Connecticut or “3613-EM” for New York or “3614-EM” for Louisiana or “4815-DR” for Pennsylvania or “4819-DR” for Illinois or “3615-EM” for Hurricane Helene victims or “4823-DR” for Washington State or “3622-EM” for Hurricane Milton victims or “4833-DR” for Arizona or “4836-DR” for Alaska.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

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

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.  Tax return transcripts show line-by-line the entries made on your Federal income tax returns.  The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

  • To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
  • Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
  • For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
  • When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
  • Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

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 tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

New Rights For California Freelancers – What You Need To Know About The Freelance Worker Protection Act

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New Rights For California Freelancers – What You Need To Know About The Freelance Worker Protection Act

On September 28, 2024 California Governor Gavin Newsom signed Senate Bill 988, the Freelance Worker Protection Act. Senate Bill (SB) 988 provides basic labor protections for freelance workers, such as the right to be paid on time and in full.

Most freelancers lack basic worker protections, most notably, the right to be paid for their work on time. According to the Freelancers Union, 71% of workers experienced late or non-payment. 59% report living paycheck to paycheck. Most do not have written contracts, as only 25% reported that they consistently have written contracts.

What Is In The Freelance Worker Protection Act?

  • Mandatory contracts: Any freelancer performing over $250.00 of work for a hiring entity over a four month period is entitled to a contract outlining the scope of the work expected, the rate of pay, and the method of payment.
  • 30-day payment terms: Clients must pay their freelancers within 30 days of completion of work unless otherwise specified in the contract.
  • Payment agreement protections: Clients cannot require that freelancers accept less than the contract stipulates in exchange for faster payment.
  • Anti-retaliation: Clients cannot retaliate against freelancers for pursuing payment.
  • Double Damages: Freelancers who are the victim of non-payment are entitled to damages equal to double the payment originally specified in their contract, plus costs and attorney’s fees.

How Is A “Freelancer” Different From An “Independent Contractor”?

Freelancers and Independent Contractors are independent workers who control when, where, and how they work. They are considered self-employed. Both can work remotely unless the job requires the independent contractor to be on-site to perform their services. While they are classified the same for tax purposes, the types of projects and contracts freelancers and independent contractors work on are different.

Freelancers work project-to-project for clients, often balancing multiple contracts and clients at once. The engagement can be a longer-term hourly contract or a “one-off” project. Freelancing may offer less stability but gives talent more flexibility and control of their work. Freelancers are experts who fill skills gaps on a team, working on specific projects rather than a wide scope of work.

Independent contractors are more position-based. They work with clients on fixed-term contracts that could be full or part time.  Duration is usually longer – sometimes for years. Contract roles offer reliable pay for the duration of the contract and could even become full time once the contract ends. Independent contractors typically have a broader skill set than freelancers.

California law updated in 2020 to expand independent contractor status

California Assembly Bill (“AB”) 5 codified the California Supreme Court holding in Dynamex Operations West, Inc. v. Superior Court and adopted the “ABC” test to determine whether independent contractors should be treated as employees with various exceptions.  Effective January 1, 2020 under the “ABC” test, workers are presumed to be employees unless they satisfy three conditions:

  1. The worker is free from the employer’s control and direction in connection with the work performed, both under the contract and in fact;
  2. The work performed is outside the usual course of the employer’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Under AB 5, certain occupations were excluded from the ABC test, including doctors, lawyers, dentists, licensed insurance agents, accountants, architects and engineers, private investigators, real estate agents, and hairstylists.

Since the enactment of AB 5, the California Legislature introduced subsequent legislation (AB 257) to allow more workers to be treated as independent contractors by increasing the availability of exemptions to the ABC test as follows:

  • Translators, appraisers, home inspectors and registered foresters.
  • For the entertainment industry to include recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers, musicians, vocalists, music album photographers, independent radio promoters, and certain publicists.
  • For referral agencies to include consulting, youth sports coaching, caddying, wedding and event planning, and interpreting services.

Lastly, in November 2020, California voters passed Proposition 22 which allows workers in the gig economy that serve as app-based drivers to be treated as independent contractors.

IRS implementation of $600 reporting threshold for third-party payment platforms’ Forms 1099-K

If you are using payment apps like PayPal, Venmo, Square, and other third-party electronic payment networks to for clients paying for your services, payment app providers will have to start reporting to the IRS a user’s business transactions if, in aggregate, they total $600 or more for the year. The reporting form to use is a Form 1099-K.  A business transaction is defined as payment for a good or service.

Prior to 2024, app providers only had to send the IRS a Form 1099-K if an individual account had at least 200 business transactions in a year and if those transactions combined resulted in gross payments of at least $20,000.  Form 1099-K is used to report certain payments that you received for selling goods or providing services, not making purchases.

The expansion of the reporting rule is the result of a provision in the American Rescue Plan, which was signed into law in 2021 but the implementation by IRS has been delayed to calendar year 2024. The IRS is looking to use this information to uncover unreported income and recover lost tax revenues.

Four tips you should know about how the gig economy might affect your taxes:

  1. The activity is taxable.

If you receive income from a sharing economy activity, it’s generally taxable even if you don’t receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement. This is true even if you do it as a side job or just as a part time business and even if you are paid in cash and to minimize how much you need to pay in taxes, it is imperative that you keep track of your business expenses.

  1. Some expenses are deductible.

The tax code allows you to deduct certain costs of doing business from gross income. For example, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 57.5 cents per mile for the first 6 months of 2022 and 62.5 cents for the last 6 months of 2022. Generally, you cannot deduct personal, living or family expenses. You can deduct the business part only, such as supplies, cell phones, auto expenses, food and drinks for passengers, car washes, parking fees, tolls, roadside assistance plans, taxes, and incentives associated with certain electric and hybrid vehicles.

Example: You used your car only for personal purposes during the first 6 months of the year. During the last 6 months of the year, you drove the car a total of 15,000 miles of which 12,000 miles were driven to provide transportation services through a company that provides such services through requests to its app. This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Your business use for the year is 40% (80% × 6/12).

Example: You use your car both for personal purposes and to provide transportation arranged through a company that provides transportation service through its app. You must divide your personal and business expenses based on actual mileage. You can deduct the business part of these actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Depending on the facts and circumstances, you may be providing the services either in a self-employed capacity or as an employee. If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate.

  1. You Could Be Subject To Self Employment Tax

The net income from your service-related activity with the sharing economy facilitator is subject to Self-Employment taxes, (Social Security and Medicare), at a 15.3% rate.  Now you will get to deduct one-half of these Self Employment taxes on your Form 1040 but if you consider that you still have income taxes to pay as well, the effective tax rate can easily exceed 30% and you will also have your state’s income tax on top of that.

So whether you are using your personal car for business or part of your residence as a home office, you will need to have good personal records of your expenses. In a situation where you are using your personal car for business you typically can deduct either “actual” costs for the percentage of business use, (though cell phone and food probably are not pertinent) or you can deduct mileage at a standard rate for business use. If you go the “simple” route and deduct mileage instead of “actual” expenses your Schedule C would consist of exactly 2 lines so it’s not very hard – but you will lose out on a lot of deductions and pay a lot more in taxes.

  1. Beware Of Requirement To Make Estimated Tax Payments.

Remember you are not an “employee” of the sharing economy facilitators; you are an “independent contractor”.  As such, there is no withholding of any taxes from your checks; you are responsible for all taxes – Self Employment taxes and income taxes – on your net earnings.  The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year. These payments for the 2023 tax year are due on April 18, 2023, June 15, 2023, September 15, 2023 and January 15, 2024. Taxpayers use Form 1040-ES to figure these payments.

Why The IRS Likes The Gig Economy.

Unlike traditional transactions where two parties directly deal with each other and nothing is reported to the IRS, gig economy facilitators who connect the two parties, collect the money from the paying party and transmit the revenue to the service provider will report the sale to IRS using Form 1099. The IRS now has a tool by which they can match up the amount of income you report on your tax return and if the Form 1099 amount is greater, you can be sure that the IRS will catch this and send you a tax bill.

What Should You Do?

If you are a freelancer and the payor of your services is not complying with the Freelance Worker Protection Act, you should contact legal counsel to protect your rights and insure payment.  Also, keep in mind that as the gig economy continues to grow, so do the associated tax problems. The IRS obviously is interested in freelancers and independent contractors who earn money from their services no matter where they are located. That is why it’s important to keep good records. Choose a recordkeeping system suited to your business that clearly shows your income and expenses. The business you’re in affects the type of records you need to keep for federal tax purposes. Your recordkeeping system should include a summary of your business transactions. Your records must also show your gross income, as well as your deductions and credits. Federal law sets statutes of limitations that can affect how long you need to keep tax records.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you need help filing the 1099-K form, taxes, or are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling legal and tax matters for freelancers and independent contractors and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Additionally, if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.