IRS Using Inflation Reduction Act to Launch Further Initiatives and Penalties to go after High-Income Taxpayers

More than $482 million recovered from 1,600 millionaires who have not paid tax debts and even more taxpayers will be subject to further scrutiny.

Under the Inflation Reduction Act the IRS is receiving $80 billion in new funding over nine years. The $80 billion price tag is more than six times the current annual IRS budget of $12.6 billion. The money will be distributed to IRS over nine years and comes with few strings attached. Before the Inflation Reduction Act, the IRS had limited budgets and staffing resources to be able to carry out this task. With new funding available due to the Inflation Reduction Act, the IRS now has the capability to launch a large compliance effort.

IRS Claims Of Collection Enforcement And Examinations

The IRS previously announced continued progress to expand enforcement efforts and increase scrutiny related to high-income individuals, large corporations, complex partnerships who do not pay overdue tax bills as a result of the additional funding it is receiving under the Inflation Reduction Act.

In its enforcement efforts and increasing scrutiny, the IRS is focusing on people using partnerships to avoid paying self-employment taxes. The IRS is also continuing to pursue millionaires that have not paid hundreds of millions of dollars in tax debt, with an additional $360 million collected on top of the $122 million reported in late October 2023. The IRS has now collected $482 million in ongoing efforts to recoup taxes owed by 1,600 millionaires with work continuing in this area.

The various and specific ways the IRS is pursuing higher scrutiny and expanding their enforcement efforts include, prioritization of high-income collection cases, pursuing multi-million-dollar partnership balance sheet discrepancies, ramp of audits of 76 largest partnerships leveraging artificial intelligence, compliance alerts for large foreign-owned corporations who use transfer pricing rules year after year to report losses and avoid reporting an appropriate amount of U.S. profits, expansion of large corporate compliance program, and IRS has been increasing compliance to ensure that Self-Employment Contributions Act (SECA) taxes are being properly reported and paid by wealthy individual partners who provide services and have inappropriately claimed to qualify as “limited partners” in state law limited partnerships (such as investment partnerships) not subject to SECA tax.

IRS Commissioner Danny Werfel noted Inflation Reduction Act resources allows the IRS “to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act. We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law. At the same time, we are focused on improving our taxpayer service for hard-working taxpayers, offering them more in-person and online resources as part of our effort to deliver another successful tax season in 2024. The additional resources the IRS has received is making a difference for taxpayers, and we plan to build on these improvements in the months ahead.]

IRS begins new compliance efforts and penalties on high-income taxpayers who failed to file tax returns

Following its commitment to enhancing tax compliance enforcement activity, on February 29, 2024, the IRS announced that IRS compliance notices CP59 are going to be mailed out to more than 125,000 taxpayers where tax returns haven’t been filed since 2017. The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021. In these cases, the IRS has received third-party information—such as W-2s and 1099s—indicating these people received income in these ranges but failed to file a tax return. The IRS is sending out CP59 notices starting with the highest-income taxpayers, with thousands of additional notices to be followed weekly.

Under this new compliance effort, if a taxpayer does not file there is a  failure-to-file penalty, which is an additional 5% of the amount owed every month – up to 25% of the tax bill.  If a person continually fails to file, the IRS may create a substitute tax return for the taxpayer. This substitute tax return is calculated based on wages and other income reported to the IRS by employers, financial institutions, and others. These substitute tax return factors in the tax, penalty and interest owed by the taxpayer. Furthermore, if a taxpayer does not file their taxes they could possibly miss out on a refund, a right to claim specific tax credits, or if a taxpayer is self-employed, they will not receive credit towards Social Security retirement or disability benefits.

What the IRS does if you do not file a tax return …

People who don’t respond to the non-filer letter will receive additional notices and other enforcement actions. Ultimately, this can lead to a variety of IRS compliance activity, including collection and audit action as well as potential criminal prosecution. As part of this, the IRS can also take steps to file what’s known as a Substitute for Return (“SFR”).

If a person repeatedly fails to respond and does not file, the IRS may create a substitute tax return for the taxpayer. The IRS calculates this substitute tax return based on wages and other income reported to the agency by employers, financial institutions and others. The return factors in the tax, penalty and interest owed by the taxpayer.

When the IRS creates a SFR, almost always that liability on the SFR is higher than if an actual return is filed by the taxpayer.  That is because an SFR does not take into account deductions and basis that you would otherwise be entitled to report.

In this scenario, the IRS will send a Notice Of Deficiency (Form CP3219N or sometimes referred to as a “90-day letter”) proposing a tax assessment. The taxpayer will have 90 days to file the past due tax return or file a petition in Tax Court. If the person does neither, the IRS will proceed with the proposed assessment.

If the IRS files a substitute return, it is still in the person’s best interest to file their own tax return to take advantage of any exemptions, credits and deductions they are entitled to receive. The IRS will generally adjust the account to reflect the correct figures.

The tax return the IRS prepares for these taxpayers will likely lead to a tax bill, which, if unpaid, will trigger the collection process. This can include such actions as a levy on wages or a bank account or the filing of a notice of federal tax lien. If a taxpayer repeatedly does not file, they could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution.

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.  People receiving CP59 notices should take immediate action to avoid additional follow-up notices, higher penalties, and potentially stronger enforcement measures. If you are selected for an audit, or CP59 notice 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.

Did You Receive Funds From The Employee Retention Credit Program That You Were Not Eligible To Receive?

Did You Receive Funds From The Employee Retention Credit Program That You Were Not Eligible To Receive?

Time is running out to participate in the Employee Retention Credit Voluntary Disclosure Program, which ends on March 22, 2024.

If you claimed and received funds from the Employee Retention Credit (“ERC”) Program and now realize that you were not entitled to receive those funds, you should consider entering into the Employee Retention Credit Voluntary Disclosure Program (“ERC-VDP”). The IRS believes that there are taxpayers who were lured by promoters to apply to the IRS to get funds from the ERC Program even though the promoters knew that the taxpayer did not qualify to get funds from the ERC Program.  If such a taxpayer is selected for examination by the IRS and the IRS determines that the ERC claim is erroneous, such taxpayer will be required to repay the ERC funds with penalties and interest.  Criminal prosecution is also possible where egregious circumstances and willful intent are present.

Criminal exposure and a reduced amount of payback is available by entering into ERC-VDP.  The ERC-VDP allows filers of erroneous ERC claims to voluntarily disclose ERC claims made in error and pay only 80% of the amount received without any worry of criminal exposure.  But the deadline to apply for ERC-VDP is quickly approaching – you only have through March 22, 2024 to apply.

Details Of ERC-VDP.

The program requires you to:

  • Voluntarily pay back the ERC funds received, minus 20%,
  • Cooperate with any requests from the IRS for more information, and
  • Sign a closing agreement.

Benefits Of ERC-VDP.

There are several benefits to using the ERC-VDP if you received the ERC funds but were not entitled to them.

  • You need to repay only 80% of the ERC funds you received as a credit on your return or as a refund.
  • You do not need to repay any interest you received on your ERC refund.
  • You do not have to amend income tax returns to reduce wage expense.
  • The 20% retention of ERC funds is not taxable as income.
  • The IRS will not charge penalties or interest on the claimed ERC amount if you pay it in full (claimed ERC minus 20%) by the time you return your signed closing agreement to IRS.
  • The IRS will not examine ERC on your employment tax return for tax period(s) resolved within the terms of ERC-VDP.

Who can apply to the ERC-VDP.

Businesses, tax-exempt organizations, and government entities are eligible to apply for the ERC-VDP for each tax period that meets all the following requirements:

  • Your ERC claimed on an employment tax return has been processed and paid as a refund, which you have cashed or deposited, or paid in the form of a credit applied to the tax period or another tax period.
  • You now think that you were entitled to $0 ERC.
  • You are not under employment tax examination (audit) by the IRS.
  • You are not under criminal investigation by the IRS.
  • The IRS has not reversed or notified you of intent to reverse your ERC to $0. For example, you received a letter or notice from the IRS disallowing your ERC.

If you used a third-party payer to file your employment tax returns or claim your ERC, you cannot apply to the ERC-VDP yourself. You must contact the third-party payer to apply.  Also, if you have applied for ERC and have yet to receive the ERC funds, you cannot participate in ERC-VDP.  Instead you would need to pursue the ERC claim withdrawal process.

How to apply to ERC Voluntary Disclosure Program.

The submission of Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, will start the process which must be filed no later than March 22, 2024.  Additionally, if your application includes tax periods ending in 2020, you must include ERC-VDP Form SS-10. By utilizing qualified tax counsel, you should have the greatest likelihood of meeting the ERC-VDP requirements and thus securing all the program’s benefits.

What Should You Do?

We encourage taxpayers who are concerned about their ERC funding awards to come in voluntarily before the IRS commences any examination or investigation.  By then, it will be too late to avoid the risk of returning all ERC funds awarded plus interest and penalties.

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 can help you with your ERC-VDP application, give advice about this process, or advice on the ERC. 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. Tax problems are usually a serious matter and must be handled appropriately so it is important to that you have hired the best lawyer for your situation. We are experts 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.

IRS Using Inflation Reduction Act Funding To Ramp Up Audits Of Corporate Aircraft Usage

IRS Using Inflation Reduction Act Funding To Ramp Up Audits Of Corporate Aircraft Usage

More than $482 million recovered from 1,600 millionaires who have not paid tax debts.

Under the Inflation Reduction Act the IRS is receiving $80 billion in new funding over nine years. The $80 billion price tag is more than six times the current annual IRS budget of $12.6 billion. The money will be distributed to IRS over nine years and comes with few strings attached.

IRS Claims Of Collection Enforcement And Examinations

On January 12, 2024 the IRS announced continued progress to expand enforcement efforts and increase scrutiny related to high-income individuals, large corporations, complex partnerships who do not pay overdue tax bills as a result of the additional funding it is receiving under the Inflation Reduction Act.

In its enforcement efforts and increasing scrutiny, the IRS is focusing on people using partnerships to avoid paying self-employment taxes. The IRS is also continuing to pursue millionaires that have not paid hundreds of millions of dollars in tax debt, with an additional $360 million collected on top of the $122 million reported in late October 2023. The IRS has now collected $482 million in ongoing efforts to recoup taxes owed by 1,600 millionaires with work continuing in this area.

The various and specific ways the IRS is pursuing higher scrutiny and expanding their enforcement efforts include, prioritization of high-income collection cases, pursuing multi-million-dollar partnership balance sheet discrepancies, ramp of audits of 76 largest partnerships leveraging artificial intelligence, compliance alerts for large foreign-owned corporations who use transfer pricing rules year after year to report losses and avoid reporting an appropriate amount of U.S. profits, expansion of large corporate compliance program, and IRS has been increasing compliance to ensure that Self-Employment Contributions Act (SECA) taxes are being properly reported and paid by wealthy individual partners who provide services and have inappropriately claimed to qualify as “limited partners” in state law limited partnerships (such as investment partnerships) not subject to SECA tax.

IRS Commissioner Danny Werfel noted Inflation Reduction Act resources allows the IRS “to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act. We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law. At the same time, we are focused on improving our taxpayer service for hard-working taxpayers, offering them more in-person and online resources as part of our effort to deliver another successful tax season in 2024. The additional resources the IRS has received is making a difference for taxpayers, and we plan to build on these improvements in the months ahead.”

IRS begins audits of corporate aircraft usage to increase scrutiny related to high-income individuals and improve tax compliance  

On February 21, 2024 the IRS announced that more audits will focus on aircraft usage by large corporations, large partnerships and high-income taxpayers and whether for tax purposes the use of aircrafts is being properly allocated between business and personal reasons.

Business aircraft are often used for both business and personal reasons by officers, executives, other employees, shareholders and partners. In general, the tax code passed by Congress allows a business deduction for expenses of maintaining an asset, such as a corporate jet, if that asset is utilized for a business purpose. However, the use of a company aircraft must be allocated between business use and personal use.  Since personal use cannot be a business deduction, there must be an allocation between aircraft usage for business and personal reasons. This can make record-keeping challenging.

For someone such as an executive using the company jet for personal travel, the amount of personal usage impacts eligibility for certain business deductions. Use of the company jet for personal travel typically results in income inclusion by the individual using the jet for personal travel and could also impact the business’s eligibility to deduct costs related to the personal travel.

The examination of corporate jet usage is part of the IRS Large Business and International division’s “campaign” program. The IRS designated campaigns apply different compliance streams to help address areas that the IRS believes there is a high risk of non-compliance.  Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to shelter or manipulate their income to avoid taxes. Using the additional funding from the Inflation Reduction Act, the IRS says it is now taking swift and aggressive action to close this gap.

New examples of cases closed since the Inflation Reduction Act passed

  • In January 2024, two individuals were sentenced to 25 years and 23 years respectively in prison for conspiracy to commit wire fraud, aiding and assisting the filing of false tax returns and money laundering for their role in promoting a fraudulent tax shelter scheme involving syndicated conservation easements.
  • In December 2023, a Swiss Bank entered into a Deferred Prosecution Agreement (DPA) and agreed to pay approximately $122.9 million to the U.S. Treasury for their role in assisting U.S. taxpayer-clients with evading their U.S. taxes by opening and maintaining undeclared accounts. The bank also maintained accounts of certain U.S. taxpayer-clients in a manner that allowed them to further conceal their undeclared accounts from the IRS. In total, from 2008 through 2014, the bank held 1,637 U.S. Penalty Accounts, with aggregate maximum assets under management of approximately $5.6 billion in January 2008, on behalf of clients who collectively evaded approximately $50.6 million in U.S. taxes.
  • In December 2023, an individual was sentenced to 10 years and 10 months and ordered to pay more than $130,000 in restitution, another was sentenced to 102 months in prison and ordered to pay more than $2.5M in restitution and a third individual was sentenced to four years in prison and ordered to pay more than $2.5M in restitution for their involvement in a RICO Conspiracy for cyber intrusion and tax fraud. These individuals used the dark web to purchase server credentials for the computer servers of Certified Public Accounting and tax preparation firms across the country.
  • In December 2023, an individual was sentenced to 28 months in federal prison and ordered to pay over $470,000 in restitution to the IRS for filing a false tax return while working as a money mule for romance scams. The individual opened and maintained bank accounts to collect proceeds from the schemes and to send the money to himself and others overseas.
  • An individual was sentenced to 57 months in prison for their failure to pay more than $1.35 million of taxes arising from their operation of several restaurants in the Washington, D.C. area. The individual evaded taxes by concealing assets and obscuring the large sums of money they took from the businesses by purchasing property in the name of a nominee entity and causing false entries in the businesses’ books and records to hide personal purchases using business bank accounts.

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.

IRS ramps up new initiatives using Inflation Reduction Act funding

IRS ramps up new initiatives using Inflation Reduction Act funding

More than $482 million recovered from 1,600 millionaires who have not paid tax debts.

Under the Inflation Reduction Act the IRS is receiving $80 billion in new funding over nine years. The $80 billion price tag is more than six times the current annual IRS budget of $12.6 billion. The money will be distributed to IRS over nine years and comes with few strings attached.

IRS Claims Of Collection Enforcement And Examinations

On January 12, 2024 the IRS announced continued progress to expand enforcement efforts and increase scrutiny related to high-income individuals, large corporations, complex partnerships who do not pay overdue tax bills as a result of the additional funding it is receiving under the Inflation Reduction Act.

In its enforcement efforts and increasing scrutiny, the IRS is focusing on people using partnerships to avoid paying self-employment taxes. The IRS is also continuing to pursue millionaires that have not paid hundreds of millions of dollars in tax debt, with an additional $360 million collected on top of the $122 million reported in late October 2023. The IRS has now collected $482 million in ongoing efforts to recoup taxes owed by 1,600 millionaires with work continuing in this area.

The various and specific ways the IRS is pursuing higher scrutiny and expanding their enforcement efforts include, prioritization of high-income collection cases, pursuing multi-million-dollar partnership balance sheet discrepancies, ramp of audits of 76 largest partnerships leveraging artificial intelligence, compliance alerts for large foreign-owned corporations who use transfer pricing rules year after year to report losses and avoid reporting an appropriate amount of U.S. profits, expansion of large corporate compliance program, and IRS has been increasing compliance to ensure that Self-Employment Contributions Act (SECA) taxes are being properly reported and paid by wealthy individual partners who provide services and have inappropriately claimed to qualify as “limited partners” in state law limited partnerships (such as investment partnerships) not subject to SECA tax.

IRS Commissioner Danny Werfel noted Inflation Reduction Act resources allows the IRS “to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act. We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law. At the same time, we are focused on improving our taxpayer service for hard-working taxpayers, offering them more in-person and online resources as part of our effort to deliver another successful tax season in 2024. The additional resources the IRS has received is making a difference for taxpayers, and we plan to build on these improvements in the months ahead.”

New examples of cases closed since the Inflation Reduction Act passed

  • In January 2024, two individuals were sentenced to 25 years and 23 years respectively in prison for conspiracy to commit wire fraud, aiding and assisting the filing of false tax returns and money laundering for their role in promoting a fraudulent tax shelter scheme involving syndicated conservation easements.
  • In December 2023, a Swiss Bank entered into a Deferred Prosecution Agreement (DPA) and agreed to pay approximately $122.9 million to the U.S. Treasury for their role in assisting U.S. taxpayer-clients with evading their U.S. taxes by opening and maintaining undeclared accounts. The bank also maintained accounts of certain U.S. taxpayer-clients in a manner that allowed them to further conceal their undeclared accounts from the IRS. In total, from 2008 through 2014, the bank held 1,637 U.S. Penalty Accounts, with aggregate maximum assets under management of approximately $5.6 billion in January 2008, on behalf of clients who collectively evaded approximately $50.6 million in U.S. taxes.
  • In December 2023, an individual was sentenced to 10 years and 10 months and ordered to pay more than $130,000 in restitution, another was sentenced to 102 months in prison and ordered to pay more than $2.5M in restitution and a third individual was sentenced to four years in prison and ordered to pay more than $2.5M in restitution for their involvement in a RICO Conspiracy for cyber intrusion and tax fraud. These individuals used the dark web to purchase server credentials for the computer servers of Certified Public Accounting and tax preparation firms across the country.
  • In December 2023, an individual was sentenced to 28 months in federal prison and ordered to pay over $470,000 in restitution to the IRS for filing a false tax return while working as a money mule for romance scams. The individual opened and maintained bank accounts to collect proceeds from the schemes and to send the money to himself and others overseas.
  • An individual was sentenced to 57 months in prison for their failure to pay more than $1.35 million of taxes arising from their operation of several restaurants in the Washington, D.C. area. The individual evaded taxes by concealing assets and obscuring the large sums of money they took from the businesses by purchasing property in the name of a nominee entity and causing false entries in the businesses’ books and records to hide personal purchases using business bank accounts.

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.

Get Ready For Enforcement Of The Corporate Transparency Act

Get Ready For Enforcement Of The Corporate Transparency Act

Starting January 1, 2024, Banks & Financial Institutions To Report Beneficial Ownership Information Of Entity Accountholders

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).

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

FinCEN published a Small Entity Compliance Guide 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 CTA.

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. 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. 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.

Additionally, 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.

IRS Postpones Tax And Payment Deadline For California Taxpayers To November 16th

On October 16, 2023 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by seawater intrusion in parts of Louisiana. These taxpayers now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

Eligible returns and payments that qualify for the November 16, 2023 deadline include:

  • 2022 individual income tax returns and payments normally due on April 18.
  • For eligible taxpayers, 2022 contributions to IRAs and health savings accounts.
  • Quarterly estimated tax payments normally due on April 18, June 15 and September 15.
  • Calendar-year 2022 partnership and S corporation returns normally due on March 15.
  • Calendar-year 2022 corporate and fiduciary income tax returns and payments normally due on April 18.
  • Quarterly payroll and excise tax returns normally due on May 1, July 31 and October 31.
  • Calendar-year 2022 returns filed by tax-exempt organizations normally due on May 15.

Other Areas Having Extended Deadlines:

The IRS announced on January 10, 2023 that California storm victims have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the California Franchise Tax Board (“FTB”) announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.  Then on February 24, 2023 the IRS announced that their extended deadline for eligible California storm victims would now be extended to October 16, 2023 which now under the October 16, 2023 announcement is extended to November 16, 2023.  The FTB on that same day announced that it officially extended its deadline to November 16, 2023 to match IRS.

The IRS announced on August 18, 2023 that Hawaii wildfire victims in Maui and Hawaii counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 30, 2023 that Idalia storm victims in various Florida counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2023 that Idalia storm victims in Georgia have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 25, 2023 that Hurricane Lee anywhere in Maine and Massachusetts have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 29, 2023 that individuals and businesses affected by seawater intrusion in parts of Louisiana have until February 15, 2024, 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 Louisiana – Currently, relief is available to affected taxpayers who live or have a business in Jefferson, Orleans, Plaquemines and St. Bernard parishes.

For Maine and Massachusetts – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maine or Massachusetts.

For Georgia – Currently, relief is available to affected taxpayers who live or have a business anywhere in Appling, Atkinson, Bacon, Berrien, Brantley, Brooks, Bulloch, Camden, Candler, Charlton, Clinch, Coffee, Colquitt, Cook, Echols, Emanuel, Glynn, Jeff Davis, Jenkins, Lanier, Lowndes, Pierce, Screven, Tattnall, Thomas, Tift, Ware and Wayne counties.

For Florida – Currently, relief is available to affected taxpayers who live or have a business anywhere in Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia and Wakulla counties

For Hawaii – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maui and Hawaii counties.

For California – Currently, relief is available to affected taxpayers who live or have a business anywhere in 55 of California’s 58 counties (Lassen, Modoc and Shasta counties are excluded from this relief).

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.

The additional relief postpones until October 16, 2023 (California) or February 16, 2024 (Hawaii), various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns.

FTB Tax Relief Details

On March 10, 2023 the FTB announced that it too would follow IRS allowing taxpayers impacted by 2022-23 winter storms to have an extension to October 16, 2023 to file individual and business tax returns and make certain tax payments.  This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

However, the postponement of time to file and pay does not apply to residents and businesses located in the following 5 counties: Imperial, Kern, Lassen, Plumas, and Sierra. Additionally, if your principal residence or place of business is in Modoc or Shasta counties, income tax filing and payment deadlines that fall between February 21, 2023, and August 15, 2023, are due August 15, 2023.

Residents and businesses located in the above 5 non-qualifying counties must file and pay by the normal established deadlines. This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • PTE elective Tax payments due on March 15, 2023, and June 15, 2023.

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 2023 return normally filed next year), or the return for the current year (2022).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “FEMA-3591-DR” for California or “DR-4724-HI” for Hawaii or “DR-3596-EM” for Florida or “4738-DR” for Georgia or “3598-EM” for Maine or “3599-EM” for Massachusetts or “3600-EM” for Louisiana.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

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.

Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief

Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief

For those whose qualify October 16, 2023 filing deadline and other deadlines postponed to October 7, 2024

On October 13, 2023 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by the terrorist attacks in the State of Israel. These taxpayers now have until October 7, 2024, to file various federal returns, make tax payments and perform other time-sensitive tax-related actions.

The October 7, 2024, deadline will now apply to:

  • Individuals who had a valid extension to file their 2022 return due to run out on October 16, 2023. However, tax payments related to these 2022 returns that were due on April 18, 2023 are not eligible for this relief. Essentially, in these cases individuals just get more time to file.
  • Calendar-year corporations whose 2022 extensions run out on October 16, 2023. Similarly, these corporations have more time to file, but not to pay.
  • 2023 individual and business returns and payments normally due on March 15 and April 15, 2024. So, these individuals and businesses have both more time to file and more time to pay.
  • Quarterly estimated income tax payments normally due on January 16, April 15, June 17 and September 16, 2024.
  • Quarterly payroll and excise tax returns normally due on October 31, 2023, and January 31, April 30 and July 31, 2024.
  • Calendar-year tax-exempt organizations whose extensions run out on November 15, 2023.
  • Retirement plan contributions and rollovers.

In addition, the penalty for failure to make payroll and excise tax deposits due on or after October 7, 2023 and before November 6, 2023, will be abated as long as the deposits are made by November 6, 2023.

Who Qualifies for Relief?

  • Any individual whose principal residence or business entity or sole proprietor whose principal place of business is in Israel, the West Bank or Gaza (the covered area).
  • Any individual, business or sole proprietor, or estate or trust whose books, records or tax preparer is located in the covered area.
  • Anyone killed, injured, or taken hostage due to the terrorist attacks.
  • Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker.

Other Areas Having Extended Deadlines:

The IRS announced on January 10, 2023 that California storm victims have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the California Franchise Tax Board (“FTB”) announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.  Then on February 24, 2023 the IRS announced that their extended deadline for eligible California storm victims would now be extended to October 16, 2023.

The IRS announced on August 18, 2023 that Hawaii wildfire victims in Maui and Hawaii counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 30, 2023 that Idalia storm victims in various Florida counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2023 that Idalia storm victims in Georgia have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 25, 2023 that Hurricane Lee anywhere in Maine and Massachusetts have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 29, 2023 that individuals and businesses affected by seawater intrusion in parts of Louisiana have until February 15, 2024, 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 Louisiana – Currently, relief is available to affected taxpayers who live or have a business in Jefferson, Orleans, Plaquemines and St. Bernard parishes.

For Maine and Massachusetts – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maine or Massachusetts.

For Georgia – Currently, relief is available to affected taxpayers who live or have a business anywhere in Appling, Atkinson, Bacon, Berrien, Brantley, Brooks, Bulloch, Camden, Candler, Charlton, Clinch, Coffee, Colquitt, Cook, Echols, Emanuel, Glynn, Jeff Davis, Jenkins, Lanier, Lowndes, Pierce, Screven, Tattnall, Thomas, Tift, Ware and Wayne counties.

For Florida – Currently, relief is available to affected taxpayers who live or have a business anywhere in Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia and Wakulla counties

For Hawaii – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maui and Hawaii counties.

For California – Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba 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.

The additional relief postpones until October 16, 2023 (California) or February 16, 2024 (Hawaii), various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns.

FTB Tax Relief Details

On March 10, 2023 the FTB announced that it too would follow IRS allowing taxpayers impacted by 2022-23 winter storms to have an extension to October 16, 2023 to file individual and business tax returns and make certain tax payments.  This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

However, the postponement of time to file and pay does not apply to residents and businesses located in the following 5 counties: Imperial, Kern, Lassen, Plumas, and Sierra. Additionally, if your principal residence or place of business is in Modoc or Shasta counties, income tax filing and payment deadlines that fall between February 21, 2023, and August 15, 2023, are due August 15, 2023.

Residents and businesses located in the above 5 non-qualifying counties must file and pay by the normal established deadlines. This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • PTE elective Tax payments due on March 15, 2023, and June 15, 2023.

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 2023 return normally filed next year), or the return for the current year (2022).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “FEMA-3591-DR” for California or “DR-4724-HI” for Hawaii or “DR-3596-EM” for Florida or “4738-DR” for Georgia or “3598-EM” for Maine or “3599-EM” for Massachusetts or “3600-EM” for Louisiana.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

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.

 

Taxpayers impacted by seawater intrusion in parts of Louisiana qualify for tax relief

Taxpayers impacted by seawater intrusion in parts of Louisiana qualify for tax relief

On September 29, 2023 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by seawater intrusion in parts of Louisiana. These taxpayers now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The February 15, 2024, deadline will now apply to:

  • Individuals who had a valid extension to file their 2022 return due to run out on October 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.
  • Quarterly estimated income tax payments normally due on September 15, 2023, and January 16, 2024.
  • Quarterly payroll and excise tax returns normally due on October 31, 2023, and Jan. 31, 2024.
  • Calendar-year partnerships and S corporations whose 2022 extensions run out on September 15, 2023.
  • Calendar-year corporations whose 2022 extensions run out on October 16, 2023.
  • Calendar-year tax-exempt organizations whose extensions run out on November 15, 2023.

In addition, penalties for the failure to make payroll and excise tax deposits due on or after September 20, 2023, and before October 5, 2023, will be abated as long as the deposits are made by October 5, 2023.

Other Areas Having Extended Deadlines:

The IRS announced on January 10, 2023 that California storm victims have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the California Franchise Tax Board (“FTB”) announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.  Then on February 24, 2023 the IRS announced that their extended deadline for eligible California storm victims would now be extended to October 16, 2023.

The IRS announced on August 18, 2023 that Hawaii wildfire victims in Maui and Hawaii counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 30, 2023 that Idalia storm victims in various Florida counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2023 that Idalia storm victims in Georgia have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 25, 2023 that Hurricane Lee anywhere in Maine and Massachusetts have until February 15, 2024, 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 Louisiana – Currently, relief is available to affected taxpayers who live or have a business in Jefferson, Orleans, Plaquemines and St. Bernard parishes.

For Maine and Massachusetts – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maine or Massachusetts.

For Georgia – Currently, relief is available to affected taxpayers who live or have a business anywhere in Appling, Atkinson, Bacon, Berrien, Brantley, Brooks, Bulloch, Camden, Candler, Charlton, Clinch, Coffee, Colquitt, Cook, Echols, Emanuel, Glynn, Jeff Davis, Jenkins, Lanier, Lowndes, Pierce, Screven, Tattnall, Thomas, Tift, Ware and Wayne counties.

For Florida – Currently, relief is available to affected taxpayers who live or have a business anywhere in Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia and Wakulla counties

For Hawaii – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maui and Hawaii counties.

For California – Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba 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.

The additional relief postpones until October 16, 2023 (California) or February 16, 2024 (Hawaii), various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns.

FTB Tax Relief Details

On March 10, 2023 the FTB announced that it too would follow IRS allowing taxpayers impacted by 2022-23 winter storms to have an extension to October 16, 2023 to file individual and business tax returns and make certain tax payments.  This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

However, the postponement of time to file and pay does not apply to residents and businesses located in the following 5 counties: Imperial, Kern, Lassen, Plumas, and Sierra. Additionally, if your principal residence or place of business is in Modoc or Shasta counties, income tax filing and payment deadlines that fall between February 21, 2023, and August 15, 2023, are due August 15, 2023.

Residents and businesses located in the above 5 non-qualifying counties must file and pay by the normal established deadlines. This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • PTE elective Tax payments due on March 15, 2023, and June 15, 2023.

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 2023 return normally filed next year), or the return for the current year (2022).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “FEMA-3591-DR” for California or “DR-4724-HI” for Hawaii or “DR-3596-EM” for Florida or “4738-DR” for Georgia or “3598-EM” for Maine or “3599-EM” for Massachusetts or “3600-EM” for Louisiana.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

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.

Taxpayers impacted by Hurricane Lee in Maine and Massachusetts qualify for tax relief

Taxpayers impacted by Hurricane Lee in Maine and Massachusetts qualify for tax relief

On September 25, 2023 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by Hurricane Lee anywhere in Maine and Massachusetts. These taxpayers now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The February 15, 2024, deadline will now apply to:

  • Individuals who had a valid extension to file their 2022 return due to run out on October 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.
  • Quarterly estimated income tax payments normally due on September 15, 2023, and January 16, 2024.
  • Quarterly payroll and excise tax returns normally due on October 31, 2023, and Jan. 31, 2024.
  • Calendar-year partnerships and S corporations whose 2022 extensions run out on September 15, 2023.
  • Calendar-year corporations whose 2022 extensions run out on October 16, 2023.
  • Calendar-year tax-exempt organizations whose extensions run out on November 15, 2023.

In addition, penalties for the failure to make payroll and excise tax deposits due on or after August 30, 2023, and before September 14, 2023, will be abated as long as the deposits are made by September 14, 2023.

Other Areas Having Extended Deadlines:

The IRS announced on January 10, 2023 that California storm victims have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the California Franchise Tax Board (“FTB”) announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.  Then on February 24, 2023 the IRS announced that their extended deadline for eligible California storm victims would now be extended to October 16, 2023.

The IRS announced on August 18, 2023 that Hawaii wildfire victims in Maui and Hawaii counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 30, 2023 that Idalia storm victims in various Florida counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2023 that Idalia storm victims in Georgia have until February 15, 2024, 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 Maine and Massachusetts – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maine or Massachusetts.

For Georgia – Currently, relief is available to affected taxpayers who live or have a business anywhere in Appling, Atkinson, Bacon, Berrien, Brantley, Brooks, Bulloch, Camden, Candler, Charlton, Clinch, Coffee, Colquitt, Cook, Echols, Emanuel, Glynn, Jeff Davis, Jenkins, Lanier, Lowndes, Pierce, Screven, Tattnall, Thomas, Tift, Ware and Wayne counties.

For Florida – Currently, relief is available to affected taxpayers who live or have a business anywhere in Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia and Wakulla counties

For Hawaii – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maui and Hawaii counties.

For California – Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba 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.

The additional relief postpones until October 16, 2023 (California) or February 16, 2024 (Hawaii), various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns.

FTB Tax Relief Details

On March 10, 2023 the FTB announced that it too would follow IRS allowing taxpayers impacted by 2022-23 winter storms to have an extension to October 16, 2023 to file individual and business tax returns and make certain tax payments.  This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

However, the postponement of time to file and pay does not apply to residents and businesses located in the following 5 counties: Imperial, Kern, Lassen, Plumas, and Sierra. Additionally, if your principal residence or place of business is in Modoc or Shasta counties, income tax filing and payment deadlines that fall between February 21, 2023, and August 15, 2023, are due August 15, 2023.

Residents and businesses located in the above 5 non-qualifying counties must file and pay by the normal established deadlines. This includes:

  • Individuals whose tax returns and payments are due on April 18, 2023.
  • Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
  • Business entities whose tax returns are normally due on March 15 and April 18.
  • PTE elective Tax payments due on March 15, 2023, and June 15, 2023.

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 2023 return normally filed next year), or the return for the current year (2022).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “FEMA-3591-DR” for California or “DR-4724-HI” for Hawaii or “DR-3596-EM” for Florida or “4738-DR” for Georgia or “3598-EM” for Maine or “3599-EM” for Massachusetts.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

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.

IRS using Artificial Intelligence to crack down on millionaires to collect millions in back taxes

IRS using Artificial Intelligence to crack down on millionaires to collect millions in back taxes

The IRS announced on September 8, 2023 that under the Inflation Reduction Act where the IRS is receiving $80 billion in new funding, the IRS is shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws while using Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes.

As part of the effort, the IRS will also ensure audit rates do not increase for those earning less than $400,000 a year as well as adding new fairness safeguards for those claiming the Earned Income Tax Credit (EITC). The EITC was designed to help workers with modest incomes. The IRS reports that audit rates of those receiving the EITC remain at high levels in recent years while rates dropped precipitously for those with higher income, partnerships and others with more complex tax situations. The IRS will also be working to ensure unscrupulous tax preparers do not exploit people claiming these important tax credits.

How IRS Is Using Artificial Intelligence To Expand Its High-income/high wealth And Partnership Compliance Work –

Prioritization of high-income cases. In the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS is intensifying work on taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt. The IRS announced it will have more Revenue Officers focusing on these high-end collection cases.

Expansion of pilot focused on largest partnerships leveraging Artificial Intelligence (AI). In 2021, the IRS launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS is now expanding the LPC program to additional large partnerships. With the help of AI, the selection of these returns by IRS is the result of its collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. By the end of September 2023, the IRS expects to open examinations of 75 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries.

Expanded work on digital assets. The IRS continues to expand efforts involving digital assets, including work through the John Doe summons effort and the August 2023 release of proposed regulations of broker reporting. The IRS Virtual Currency Compliance Campaign will continue after an initial review by IRS showed the potential for a 75% non-compliance rate among taxpayers identified through record production from digital currency exchanges.

More scrutiny on FBAR violations. The IRS believes that there are high-income taxpayers utilizing Foreign Bank accounts to avoid disclosure and related taxes. A U.S. person with a financial interest over a foreign financial account is required to file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of all foreign financial accounts is more than $10,000 at any time. The IRS announced that its analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million.

Labor brokers. The IRS has reported that it has seen instances where construction contractors are making Form 1099-MISC/1099-NEC payments to an apparent subcontractor, but the subcontractor is a “shell” company that has no legitimate business relationship with the contractor. Monies paid to shell companies are exchanged at Money Service Businesses or flowed through accounts in the name of the shell company and returned to the original contractor. Based on the foregoing the IRS will be looking to expand attention in this area with both civil audits and criminal investigations. The scheme has already been seen in Texas and Florida.

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), 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 crypto-currency, check out what a Bitcoin tax attorney can do for you.