IRS tax forms - Government Shutdown

Despite Continued Government Shutdown, Some IRS Employees Are Being Called Back To Work

Despite Continued Government Shutdown, Some IRS Employees Are Being Called Back To Work

Temporary funding for the IRS for fiscal year 2019 expired at midnight on December 21, 2018. We previously reported how the government shutdown is impacting IRS operations – click here. That initial contingency plan contemplated that the shutdown would last no more than 5 days and involved furlough of 88% of the IRS workforce (totals approximately 87,000) leaving only 9,946 that are allowed to continue working.

Under an updated contingency plan covering the upcoming filing season, the IRS will recall 57% of its workforce to handle tax season duties increasing the number of IRS employees to 46,052 that are now allowed to work. The new plan will allow the IRS to process paper and electronic returns and issue refunds to taxpayers and adhere to its commitment that tax season will start on January 28, 2019 despite an ongoing government shutdown.

The date when funding will be restored by Congress has not been established but under plans established by each Federal agency, as the lapse in funding continues more Federal government functions will be shutdown.

The Anti-Deficiency Act.

Overriding each Federal agency’s plan is the Anti-Deficiency Act, 31 U.S.C. §1341, which provides that in the absence of appropriated funds no obligation can be incurred except for the protection of life and property, the orderly suspension of operations, or as otherwise authorized by law. This means that absent an appropriation, many Federal employees are prohibited from working, even on a volunteer basis, “except for emergencies involving the safety of human life or the protection of property”. 31 U.S.C. §1342. Accordingly, each Federal agency must designate those employees whose work is necessary to sustain legal operations essential to the safety of human life and the protection of property.

Department Of Justice’s Contingency Plan.

The Department of Justice has issued guidance, which gives priority to continuing work on criminal cases. Consequently, no employees in the Tax Division of the Department Of Justice will be authorized to work on CIVIL MATTERS during a lapse in appropriations.

Updated Contingency Plan Of The IRS.

The following activities of IRS that will continue which are necessary for safety of human life or protection of government property that continue to be operational at IRS are:

  • Continuing to complete and test upcoming filing year programs
  • Processing electronic returns, up to the point of refund
  • Processing paper tax returns through “batching”
  • Processing remittances; and
  • Maintaining criminal law enforcement operations.

The IRS will also be opening its call sites and responding to taxpayer questions; however, all IRS audit and examination functions and nonautomated collections will continue to be put on hold during the shutdown.

When funds are appropriated to the IRS, furloughed employees will return to work (they are expected to return within four hours after the reactivation is announced if it occurs on a scheduled work day).

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because the IRS is not fully operational. Instead you should be utilizing this valuable time to get yourself prepared so that when IRS re-opens for business, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS. Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2019, taxpayers who expect to owe for 2018 should have their 2018 income tax returns done now so that the 2018 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2019.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

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), Metropolitan Los Angeles (Long Beach and Ontario) 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 attorneys can do for you.

1099 filing deadline 199A IRS tax deduction

January 31 Deadline Looms for Forms W-2 and 1099-MISC

January 31 Deadline Looms for Forms W-2 and 1099-MISC

The possibility that the government shutdown will continue into next month resulting in many IRS employees not working to process Forms W-2 and Forms 1099-MISC has no impact on the January 31 deadline for filing these forms.

Filing Deadlines for Forms W-2 and Forms 1099-MISC

The 2018 Forms W-2 must be filed with the Social Security Administration (SSA) by January 31, 2019. Form 1099-MISC must be filed with the IRS by January 31st if non-employee compensation (NEC) is being reported on the form. If a Form 1099-MISC is not reporting NEC and is filed on paper, the filing deadline is February 28, 2019. If the Form 1099-MISC is not reporting NEC and is filed electronically, the deadline is March 31, 2019.

Regardless of the deadlines above, all of these forms must be given to taxpayers no later than January 31st. This filing deadline was made uniform under The Protecting Americans from Tax Hikes (PATH) Act. Prior law required that only W-2’s had to be provided to employees no later than January 31st with all other reporting forms (including the copies to IRS) due by the end of February. Failure to file these forms correctly and timely may result in penalties to the employer or payor.

Extensions of time to file Form W-2 may be requested. One 30-day extension to file Form W-2 may be requested by submitting a complete application on Form 8809, Application for Extension of Time to File Information Returns. Form 8809 must include a detailed explanation of why the additional time is needed and be signed under penalties of perjury. The IRS states that extensions are granted only in extraordinary circumstances or catastrophe.

Penalties for Failing to File Correct and Timely Forms 1099s

Information reporting penalties apply if a payer fails to timely file an information return, fails to include all information required to be shown on the return, or includes incorrect information on the return. The penalties apply to all variations of Form 1099. The amount of the penalty is based on when the correct information return is filed.

For returns required to be filed for the 2018 tax year, the penalty is:

  • $50 per information return for returns filed correctly within 30 days after the due date, with a maximum penalty of $545,500 a year ($191,000 for certain small businesses);
  •  $100 per information return for returns filed more than 30 days after the due date but by August 1, with a maximum penalty of $1,637,500 a year ($545,500 for certain small businesses); and
  • $270 per information return for returns filed after August 1st or not filed at all, with a maximum penalty of $3,275,500 a year for most businesses, but $1,091,500 for certain small businesses.

For purposes of the lower penalty, a business is a small business for any calendar year if its average annual gross receipts for the three most recent tax years (or for the period it was in existence, if shorter) ending before the calendar year do not exceed $5 million.

Persons who are required to file information returns electronically but who fail to do so (without an approved waiver) are treated as having failed to file the return unless the person shows reasonable cause for the failure. However, they can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.

The penalty also applies if a person reports an incorrect taxpayer identification number (TIN) or fails to report a TIN, or fails to file paper forms that are machine readable.

The penalty for failure to include the correct information on a return does not apply to a de minimis number of information returns with such failures if the failures are corrected by August 1st of the calendar year in which the due date occurs. The number of returns to which this exception applies cannot be more than the greater of 10 returns or 0.5 percent of the total number of information returns required to be filed for the year.

If a failure to file a correct information return is due to an intentional disregard of one of the requirements (i.e., it is a knowing or willing failure), the penalty is the greater of $530 per return or the statutory percentage of the aggregate dollar amount of the items required to be reported (the statutory percentage depends on the type of information return at issue). In addition, in the case of intentional disregard of the requirements, the $5 million limitation does not apply.

Under IRS Notice 2017-9, a safe harbor from penalties has been established for failure to file correct information returns and failure to furnish correct payee statements for certain de minimis errors. Under the safe harbor, an error on an information return or payee statement is not required to be corrected, and no penalty is imposed, if the error relates to an incorrect dollar amount and the error differs from the correct amount by no more than $100 ($25 in the case of an error with respect to an amount of tax withheld).

Automated Substitute For Return Program

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

The Stakes Are High!

A recent U.S. Government Accountability Office study showed that the IRS spends $267 million on underreporter matching programs, compared with the $4.2 billion it spends on audits. But automated information-matching programs return almost six times more revenue than audits. You can see why with fewer IRS agents and reduced budgets, the IRS will increasingly rely on technology-driven matching programs to bring in more tax dollars.

What Should You Do?

So if you receive one of these audit notices or the IRS is looking to assert penalties on late or incomplete 1099 filings, it is important that you don’t ignore it. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California defend you from the IRS. If you are involved in cannabis, check out what our cannabis tax attorneys can do for you.

How The Federal Government’s Shutdown Is Creating Opportunity For Taxpayers With IRS Debt.

How The Federal Government’s Shutdown Is Creating Opportunity For Taxpayers With IRS Debt.

At midnight on December 21, 2018, funding for Federal government agencies lapsed triggering a partial shutdown of the federal government. The date when funding will be restored by Congress has not been established but under plans established by each Federal agency, as the lapse in funding continues more Federal government functions will be shutdown.

The Anti-Deficiency Act.

Overriding each Federal agency’s plan is the Anti-Deficiency Act, 31 U.S.C. §1341, which provides that in the absence of appropriated funds no obligation can be incurred except for the protection of life and property, the orderly suspension of operations, or as otherwise authorized by law. This means that absent an appropriation, many Federal employees are prohibited from working, even on a volunteer basis, “except for emergencies involving the safety of human life or the protection of property”. 31 U.S.C. §1342. Accordingly, each Federal agency must designate those employees whose work is necessary to sustain legal operations essential to the safety of human life and the protection of property.

Department Of Justice’s Contingency Plan.

The Department of Justice has issued guidance, which gives priority to continuing work on criminal cases. Consequently, no employees in the Tax Division of the Department Of Justice will be authorized to work on CIVIL MATTERS during a lapse in appropriations.

Internal Revenue Service’s Contingency Plan.

The IRS being an agency under the Department Of Treasury in late November issued a fiscal year 2019 “Lapsed Appropriations Contingency Plan that governs what will happen at the IRS during a government shutdown — but only through December 31. With the government shutdown now continuing into 2019, a new plan will have to be formulated.

The initial plan covered only a five-day shutdown. Now that the shutdown is lasting longer than five business days and as of the writing of this blog no quick resolution appears in sight, the IRS will have to reassess ongoing activities and identify necessary adjustments of excepted positions and personnel.

The initial plan anticipated that preparation for the 2019 filing season will not be affected by the shutdown.

The initial plan also identified 9,946 IRS employees as “excepted/exempt” employees who would not be furloughed. The rest of the IRS’s 79,868 employees (as of November 10, 2018) would be furloughed, meaning they will be put on leave of absence without pay, under 5 C.F.R. Section 752.402.

The initial plan identified the following activities of IRS that will continue which are necessary for safety of human life or protection of government property:

  • Continuing to complete and test upcoming filing year programs
  • Processing electronic returns, up to the point of refund
  • Processing paper tax returns through “batching”
  • Processing remittances; and
  • Maintaining criminal law enforcement operations.

When funds are appropriated to the IRS, furloughed employees will return to work (they are expected to return within four hours after the reactivation is announced if it occurs on a scheduled work day).

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because the IRS is not fully operational. Instead you should be utilizing this valuable time to get yourself prepared so that when IRS re-opens for business, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS. Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2019, taxpayers who expect to owe for 2018 should have their 2018 income tax returns done now so that the 2018 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2019.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

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 our cannabis tax attorneys can do for you.

2019 tax return filing deadline

Getting Ready For The 2019 Tax Filing Season

Getting Ready For The 2019 Tax Filing Season

On January 7, 2019, the Internal Revenue Service (IRS) announced that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled despite the current government shutdown.

While full operation of the IRS cannot resume without appropriation of funds by Congress, Federal law (31 U.S.C. 1324) mandates that all tax refunds still due to taxpayers must be made through a permanent, indefinite appropriation. Thus while a significant number of IRS employees are furloughed and IRS functions severely limited under the current shutdown, taxpayers will still get their refunds.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the 2019 filing season will be included in an updated 2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

April 15th Filing Deadline.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns but for everyone else, the filing deadline remains as Monday, April 15.

Since the IRS will begin processing tax returns on January 28th there is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns.  Nevertheless, it makes sense to start organizing your information early and so when the IRS filing systems open on January 28th, you are ready to submit your tax return right away.

Refunds in 2019.

Choosing e-file and direct deposit for refunds remains the fastest way to file an accurate income tax return and receive a refundThe IRS still anticipates issuing at least 90%of tax refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers that could cause delay.  Under the Protecting Americans from Tax Hikes (PATH) Act which took into effect starting with the 2017 Tax Filing Season, the IRS is required to hold refunds for tax returns which include a claim of the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15, 2019. Also consider that it would still take several days for these refunds to be released and processed through financial institutions, and factoring in weekends, the current government shutdown and the President’s Day holiday, taxpayers claiming these credits may not have actual access to their refunds until the later part of February.

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

Time Limits For Keeping Your Tax Records

Even though your 2018 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return,  In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return.  That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years.

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 our cannabis tax attorneys can do for you.

OVDP Ending September 28, 2018

If you have undisclosed foreign bank accounts and/or unreported foreign income and you are considering to enter into the Offshore Voluntary Disclosure Program (OVDP), beware that time is running out. The IRS announced in March 2018 that it is officially closing this program September 28, 2018.

Since OVDP’s initial launch in 2009, more than 56,000 taxpayers have used the various terms of the program to comply voluntarily with U.S. tax laws. These taxpayers with undisclosed offshore accounts have paid a total of $11.1 billion in back taxes, interest and penalties. The number of taxpayer disclosures under the OVDP peaked in 2011, when about 18,000 people came forward. The number steadily declined through the years, falling to only 600 disclosures in 2017. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

Since the announcement, the IRS has not received any public comments addressing a continued need for the OVDP. The IRS stated that it will still maintain a pathway for taxpayers who may have committed criminal acts to voluntarily disclose their past actions and come into compliance with the tax system. The IRS has yet to issue updated procedures on this.

Separately, the IRS continues to combat offshore tax avoidance and evasion using whistleblower leads, civil examination and criminal prosecution. The implementation of the Foreign Account Tax Compliance Act (FATCA) and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have enhanced the IRS’ ability to identity and charge non-compliant taxpayers undisclosed foreign financial assets. Since 2009, 1,545 taxpayers have been indicted related to international activities through the work of IRS Criminal Investigation.

Penalties for Non-Compliance.

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.

Civil Fraud – If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Criminal Fraud – Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

Additionally, the penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. For non-willful violations, it is $10,000.00 per account per year going back as far as six years. For willful violations, the penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Lastly, failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

Voluntary Disclosure

A separate program, the Streamlined Filing Compliance Procedures, for taxpayers who may have been unaware of their filing obligations, has helped about 65,000 additional taxpayers come into compliance. These streamlined procedures will continue to be available for now, but as with OVDP, the IRS has said it may end this program too at some point.

For taxpayers who were non-willful, we recommend going into the Streamlined Filing Compliance Procedures of OVDP. Under these procedures the penalty rate is 5% and if you are a foreign person, that penalty can be waived. This is a very popular program and we have had much success qualifying taxpayers and demonstrating to the IRS that their non-compliance was not willful.

What Should You Do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5% and 10 times more than the 5% rate offered in the expanded streamlined procedures.

Don’t let another deadline slip by. The IRS will not be keeping these special voluntary disclosure programs open indefinitely and once the IRS contacts you, you cannot get into any of these programs and would be subject to the maximum penalties (civil and criminal) under the tax law. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California help ensure that you are in compliance with federal tax laws.