Internal Revenue Services (IRS)
An IRS audit can be stressful, time consuming and expensive. Audits can take time and energy away from your current business. It is essential to have an experienced tax attorney as soon as you receive an IRS notice to help navigate you through your options. The first question a client asks when they receive an IRS audit notice is “Why me?” The IRS has a number of ways to select a tax return for audit:
- IRS computer score: each item on your return is used to provide information to the IRS to score your return. Your zip code, your occupations, the amount of revenue, and medical expenses are all essential items that can tip the IRS off that there was a substantial change in your return or that you are not within in the industry norm. The IRS is overworked and underpaid. They try to select returns that they believe will have the best chances for a tax adjustment.
- A Schedule C with low revenue or high expenses. Schedule C is a form on your individual return where the business income and expenses are reported. However, as a business grows, most CPAs and attorneys will recommend that a sole proprietor form a separate entity to run their business. Taxpayers who continue to use a schedule C, when their revenue and expenses have exceeded $100,000 have a higher likelihood of an audit.
- Amended returns: some taxpayers are quick to amended a prior year tax return. However, amended returns have a very high likelihood of being audited. It is important to review your return with a trusted tax attorney prior to making an adjustment.
- In addition, there are local IRS campaign, such as payroll initiatives, tips from ex-employees or other state agency audits.
The best divisions of the IRS is the IRS Appeals Department. They are knowledgeable and seasoned professionals. After completing an audit, you always have the right to appeal the decision. There are multiple avenues and strategies to appealing a decision by the IRS. Please contact us to explain your options.
There are many options when a taxpayer owes money to the IRS including currently not collectible, partial pay installment agreements, streamline installment agreements, offer in compromise and bankruptcy. Taxpayers are often confused by the Assessment and the Collections side of the IRS. The Assessment side handles your account when you file a tax return or if your return is audited.
You will be working with an agent to provide substantiation to support your filed return (or substitute return). In some cases, you will return to the assessment side or auditor when you want to attempt to reduce the assessed amount. The Collection side is only about collecting the money that is due on your account based upon the assessed amount. It is only based upon your current ability to pay the assessment. The Collections department does not care why you were audited. They only want to collect the amount owed. Please contact an experienced tax attorney so they can assist you with your options.
IRS Levies & Liens
The IRS has enhanced tools to collect income taxes from delinquent taxpayers. Some of the most common are IRS levies, IRS liens and Wage Garnishments.
- IRS Levy: An IRS bank account levy occurs when the IRS seizes funds directly from your bank account to cover back taxes you owe. This is one of the IRS’ most aggressive collection enforcement actions and is used only after trying to contact you several times, with no response. After receiving a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing,” you have a small window to respond to the IRS and remedy your situation before your funds are frozen.
- RS Liens: A Tax lien is the government’s legal claim to property that is held in your name. A tax lien attaches to all of your property including property that you may acquire in the future.
- Wage Garnishments: If your employer tells you they’ve received a Notice of Wage Garnishment, things can quickly go from bad to worse. A wage levy takes effect immediately upon receipt and the taxpayer’s employer must pay over to the IRS the proper IRS levy amount on each payday that the levy remains in effect. Please contact an experienced tax attorney so they can explain your collection options.
IRS International Compliance Issues
Many taxpayers fail to realize that both the IRS and the Department of Treasury have requirements for properly reporting foreign accounts and assets. These are separate reports and require the use of specific forms to comply with the law.
Even if you have complied with one side of the reporting requirements, failure to properly report the other piece can result in serious penalties. If you have a foreign bank account or a business with international operations or own property or investments outside of the U.S., seek the advice of an experienced lawyer who is well-versed in the nuanced requirements of tax laws.
Innocent Spouse Relief
Payroll Tax Issues
Trust Fund Recovery Penalty Issues
Franchise Tax Board (FTB)
The State of California FTB performs income tax audits of individuals and business similar to the IRS. Generally, the FTB audits have narrow issues and recently focusing on California “residency” audits. A person’s “residence” under California law is the key to understanding their state income tax liability. For this reason, the California Franchise Tax Board (FTB) conducts residency audits that will determine a person’s residency. The residence calculation can be detail-oriented and confusing, and one should consult an experienced attorney that can help in tackling tax issues such as these.
As with the IRS, the FTB has a thorough appeals process. it’s important to contact an experienced tax attorney as soon as you receive your FTB determination so you do not miss any of your appeal rights.
The state of California is known to collect on notices dating back 20 years, while the IRS generally only acts on the past seven years of debt. If you are a taxpayer experiencing difficulties, this creates the need for a strong advocate representing your position. California tax authorities are becoming increasingly aggressive in their collection tactics. To avoid consequences such as tax liens, levies and garnishments, it’s important to contact an experienced tax attorney as soon as you learn you have a problem.
FTB State Voluntary Disclosure Programs
he Voluntary Disclosure Program allows qualified entities, qualified shareholders, qualified members, qualified beneficiaries, or qualified partners that may have incurred an unpaid California tax liability and an unfulfilled filing requirement to disclose their liability voluntarily. Please contact an experience tax attorney to explore your options.
Employment Development Department (EDD)
Most EDD auditors will review 3 years of records. A majority of EDD audits focus on reclassifying independent contractors as employees. They will want to review documentation regarding your employees and independent contractors.
The consequence of an EDD audit can be far reaching. if an individual worker is reclassified during an audit as an employee, the business owner, corporate officer or responsible person may be personally liable for the EDD assessment.
As part of the audit, the auditor will arrange for an exit interview, either in person or by phone, to review the audit findings, identify any other information that should be considered, and attempt to resolve disputed issues, if any. If you do not reach an agreement with the auditor, you may request a pre-assessment conference with the supervisor of the auditor. The audit will result in one of the following outcomes:
- A no change audit, where no differences are found.
- An overpayment, where a credit or refund will be issued.
- An underpayment, where the differences will be assessed.
If you disagree with your EDD assessment, you can file a petition with the Appeals Board. You generally have 30 days from the date of the Notice to file a petition. It is important to contact a tax attorney to ensure that you do not miss the filing date. During the appeals process, the EDD will not take any collection actions. However, interest will still continue to accrue on the unpaid proposed assessment.
There is a settlement option with the EDD, similar to the CDTFA. Settlement is a pit stop on the way to the formal appeals process. The EDD encourages a taxpayer to take advance of the Settlement option to avoid a formal hearing before an administrative law judge.
The EDD has similar options to pay off a tax liability. The two most common are a payment plan and an Offers in Compromise. A payment plan is based upon your current ability to pay. The EDD agent is concerned about why the taxpayer was audited or why they have this tax liability. The Agent is only focusing on their current financial situation and how quickly they can collect..
Tax agents are overworked with a large amount of cases. If you are working with a Collections Agent, your account should not be levied and involuntary collections will not occur if you are current on your filings, making good faith payments, and you meet the agreed upon timelines. Recently, the state agencies have been assessing taxpayers when they do not respond to an assessment or audit notice.
Sometimes taxpayer’s overlook the notices and unfortunately the state agency automatically assesses the client. The assessment is then sent to the Collections department. Depending on the state agency, a notice may be sent and if the taxpayer does not respond in a specified period of time, the taxpayers bank accounts may be levied.
EDD Settlements and OICs
EDD employer classification issues
Whether a worker is classified as an employee or an independent contractor has serious tax consequences. A mistaken classification can leave a business scrambling to pay payroll taxes that should not be owed.
California Department of Tax and Fee Administration (CDTFA) formerly known as the State Board of Equalization (SBOE)
In the state of California, Sales Taxes used to be collected by the State Board of Equalization, which was also known as the “SBE” or “BOE”. However, beginning in July of 2017, the Sales Tax functions of the SBE were transferred to a brand-new agency known as the California Department of Tax and Fee Administration (CDTFA). Sale tx is imposed on retailers for the selling items at retail. The sales tax is calculated based on the gross receipts from the retail sales.
Sales tax audits are unlike any other audit. The CDTFA uses a variety of test and techniques based upon the type of business. The first test the CDTFA performs is the comparison of sales recorded in the taxpayer’s records to the sales reported on the taxpayer’s sales tax return.
The Board used to hear the appeals of Sales and Use tax audit, however now appeals are heard by the Office of Tax Appeals (OTA).
If agreement in Sales Tax Audit cannot be reached, at this point the CDTFA will issue a Notice of Determination. You should contact an attorney to advise you and can help you file a petition on your behalf, but there is a 30 day deadline to file.
Sales tax, similar to payroll tax, can be personally assessed against an individual. If a corporate taxpayer cannot pay the Sales Tax it owes, the CDTFA may issue a so-called “dual determination” in which it assesses the unpaid Sales Tax against the persons in control of, or supervising the filing or payment of the corporate Sales Taxes.
This can include officers and shareholders of the corporate taxpayer. There is no requirement that an individual be a shareholder for a dual determination to be made. Thus, non-owners, including controllers or CFOs, can be held personally liable for corporate Sales Taxes. This is one more reason why it is important to dispute a Sales Tax Audit if the CDTFA has made errors in its determination.
California tax authorities are becoming increasingly aggressive in their collection tactics. To avoid consequences such as tax liens, levies and garnishments, it’s important to contact an experienced tax attorney as soon as you learn you have a problem.
If a petition is not filed, then the Notice of Determination will become final, and you will be required to pay the full amount of the claimed liability before you can file a claim for refund, and have an opportunity to have your case heard by the Office of Tax Appeals.
CDTFA Settlements and OICs
Once the petition is filed with the CDTFA, there is an opportunity to settle the case with the CDTFA’s settlement division. Many Sales Tax problems are resolved with the CDTFA settlement division. An informal hearing with a CDTFA hearing officer may also result in a resolution of a California Sales Tax Audit.