Tax Relief During COVID-19: How taxpayers struggling with tax debts can benefit.

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Tax Relief During COVID-19: How taxpayers struggling with tax debts can benefit.

If you are struggling financially because of the pandemic you should tap into the IRS’ newest program – the “Taxpayer Relief Initiative” – with its expanded taxpayer options for making payments and alternatives to resolve balances owed.

On November 2, 2020 The Internal Revenue Service announced a number of changes designed to help struggling taxpayers impacted by COVID-19 more easily settle their tax debts with the IRS by establishing a new program called the “Taxpayer Relief Initiative”.  This program follows what was previously established by the IRS earlier in 2020, specifically the “People First Initiative”.

Taxpayers who owe always had options to seek help through payment plans and other tools from the IRS, but the new IRS Taxpayer Relief Initiative is expanding on those existing tools even more.

The revised COVID-related collection procedures will be helpful to taxpayers, especially those who have a record of filing their returns and paying their taxes on time.

Among the highlights of the Taxpayer Relief Initiative:

  • Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
  • The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
  • The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
  • To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient.
  • Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
  • Additionally, qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Additional details on the Taxpayer Relief Initiative

The IRS offers options for short-term and long-term payment plans, including Installment Agreements via the Online Payment Agreement (OPA) system. In general, this service is available to individuals who owe $50,000 or less in combined income tax, penalties and interest or businesses that owe $25,000 or less combined that have filed all tax returns. The short-term payment plans are now able to be extended from 120 to 180 days for certain taxpayers.

Installment Agreement options are available for taxpayers who cannot full pay their balance but can pay their balance over time. The IRS expanded Installment Agreement options to remove the requirement for financial statements and substantiation in more circumstances for balances owed up to $250,000 if the monthly payment proposal is sufficient. The IRS also modified Installment Agreement procedures to further limit requirements for Federal Tax Lien determinations for some taxpayers who only owe for tax year 2019.

In addition to payment plans and Installment Agreements, other solutions for taxpayers who owe taxes include Temporarily Delaying Collection Actions, applying for an Offer in Compromise and Relief from Penalties through penalty abatement.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now at the end of 2020, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done as early as possible in 2021 so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will start for 2021.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

If you are having a tax issue, don’t go silent. Don’t ignore the notice arriving in your mailbox. Tax problems don’t get better with time.

Click here for the KahnTaxLaw Coronavirus Resource Center for more information on COVID-19 tax relief.

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), San Diego County (Carlsbad) 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.

Recovery Rebate Credit: What you need to know before filing your 2020 income tax returns

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Recovery Rebate Credit: What you need to know before filing your 2020 income tax returns

The Recovery Rebate Credit is authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act. It is a tax credit against your 2020 income tax. Generally, this credit will increase the amount of your tax refund or decrease the amount of the tax you owe.

The Recovery Rebate Credit was eligible to be paid in two rounds of advance payments during 2020 and early 2021. These advanced payments of the Recovery Rebate Credit are referred to as the first and second Economic Impact Payments.

Individuals who received the full amounts of both Economic Impact Payments do not need to complete any information about the Recovery Rebate Credit on their 2020 tax returns. They already received the full amount of the Recovery Rebate Credit as Economic Impact Payments. You received the full amounts of both Economic Impact Payments if:

  • Your first Economic Impact Payment was $1,200 ($2,400 if married filing jointly for 2020) plus $500 for each qualifying child you had in 2020; and.
  • Your second Economic Impact Payment was $600 ($1,200 if married filing jointly for 2020) plus $600 for each qualifying child you had in 2020.

Who can claim the Recovery Rebate Credit?

Eligible individuals who did not receive the full amounts of both Economic Impact Payments may claim the Recovery Rebate Credit on their 2020 Form 1040 or 1040-SR. To determine whether you are an eligible individual or the amount of your Recovery Rebate Credit, complete the Recovery Rebate Credit Worksheet in the Instructions for Form 1040 and Form 1040-SR.

Generally, you are eligible to claim the Recovery Rebate Credit if you were a U.S. citizen or U.S. resident alien in 2020, cannot be claimed as a dependent of another taxpayer for tax year 2020, and have a Social Security number valid for employment that is issued before the due date of your 2020 tax return (including extensions).

You must file Form 1040 or Form 1040-SR to claim the Recovery Rebate Credit even if you are normally not required to file a tax return.

Form 1040 and 1040-SR Instructions – Recovery Rebate Credit Worksheet

If eligible, you can claim the Recovery Rebate Credit when you file your 2020 tax return (Form 1040 or Form 1040-SR) electronically using tax software or on paper. The 2020 tax return instructions include a recovery rebate credit worksheet you can use to figure the amount of any Recovery Rebate Credit for which you are eligible. The recovery rebate credit worksheet requires you to know the amounts of your Economic Impact Payments.

Your Recovery Rebate Credit amount will be phased out if your adjusted gross income for 2020 exceeds:

$150,000 if you are married filing a joint return or filing as a qualifying widow or widower,

$112,500 if you are using the head of household filing status, or

$75,000 if you are using any other filing status.

How do I find the amounts of my Economic Impact Payments?

You should have received IRS Notice 1444 for the first Economic Impact Payment, and you should receive Notice 1444-B for the second Economic Impact Payment.  Refer to them when completing your 2020 tax return. If eligible for the Recovery Rebate Credit, you will use the information from these letters to determine the amounts to include on the recovery rebate credit worksheet or in your tax preparation software to help you calculate your credit amount.

What If I Received More Than What I Was Entitled To?

If you received more than you were entitled to, the IRS does not require you to pay the money back nor is any such ineligible amount added on to your 2020 taxes.  Taxpayers whose incomes increased in 2019 or 2020 compared with their earlier tax returns which the IRS relied on to determine whether they qualified for the payments, may be in this situation.

Will I owe taxes on the stimulus checks?

No, because the stimulus checks are not considered income by the IRS but instead are prepaid tax credits for your 2020 tax return, authorized by the (CARES) Act and the COVID-related Tax Relief Act.

My income changed since I last filed my taxes. What should I do?

Taxpayers who might not have qualified for the full stimulus checks if their earnings were above the income cutoff based on their 2018 or 2019 tax returns, should complete the recovery rebate credit worksheet to calculate how much they are owed and claim that amount on Line 30 on their 2020 tax return. They will receive the stimulus payments in their refund check.

How will the stimulus checks impact my tax refund – and when will I get it?

If you are owed more money from the two rounds of stimulus payments, the IRS will provide the additional payments with your refund check. Because the stimulus payments aren’t considered income by the IRS, it will not impact your refund by increasing your adjusted gross income or putting you in a higher tax bracket.

Beware Of New IRS Scam!

You get a call from someone claiming to be working for the IRS claiming:

 “We need your personal information in order for you to claim the coronavirus stimulus money.”

This appears to be an identity theft scheme to obtain recipients’ personal and financial information so the scammers can provide the IRS with their banking information to get your economic impact payment deposited into their account.  In reality, the IRS WILL NOT CALL YOU! Federal aid will either be deposited via account information the IRS already has from your tax filings or they will send you a check.

Where can I get more information?

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and as information becomes available, the IRS will be updating this special page on its website.  You can also check out the KahnTaxLaw Coronavirus Resource Center.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now at the end of 2020, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done as early as possible in 2021 so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will start for 2021.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

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 (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what 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.

How Is The IRS Jumping On Board The Age Of Improving Customer Experience?

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How Is The IRS Jumping On Board The Age Of Improving Customer Experience?

Earlier in January 2021, the IRS delivered to Congress the Taxpayer First Act Report as a response to legislation passed in July 2019.  The report includes recommendations to improve IRS operations.

As part of a larger effort related to the Taxpayer First Act Report, the IRS announced on January 26, 2021 the creation of a new Chief Taxpayer Experience Officer position to help unify and expand efforts across the IRS to serve taxpayers. Ken Corbin, currently the IRS Wage and Investment commissioner, will take on this new role while also continuing to serve in his position overseeing the Service’s largest operating division.

The Taxpayer Experience Office, led by the Chief Taxpayer Experience Officer, reporting directly to the Commissioner, is one of the new roles envisioned in the multi-year plan.  The position will work with business units and offices across the IRS, including Chief Counsel, the Independent Office of Appeals and the National Taxpayer Advocate. The role is envisioned as working in coordination with the National Taxpayer Advocate, which is an independent organization inside the agency that helps taxpayers with issues that can’t be resolved with the IRS.

An Opportunity For Taxpayers Who Owe The IRS.

Now while this announcement may be the catalyst to promote more efficient operation of the IRS, do not think that a more efficient IRS will make your tax problem disappear.  If anything, future changes will make it easier for the IRS to enforce the tax laws using less manpower and resources.  That is why you should be utilizing this valuable time to get yourself prepared so that when IRS is ready to start or resume action against you, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance.  That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.  Also, if you are required to make estimated tax payments, you must be current in making those payments.  Fortunately, as we are now in 2021, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done now so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2021.

Remember that the tax laws remain the same regardless of whether the IRS makes changes to its operations, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.

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

What Should You Do?

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

Getting Ready For The 2021 Tax Filing Season

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Getting Ready For The 2021 Tax Filing Season

On January 15, 2021, the Internal Revenue Service (IRS) announced that it will process 2020 tax returns beginning February 12, 2021.

Last year the opening date was January 27, 2020; however, for the 2021 tax filing season this had to be extended to allow the IRS time to do additional programming and testing of IRS systems following the December 27, 2020 tax law changes that provided a second round of Economic Impact Payments and other benefits.

April 15th Filing Deadline.

The filing deadline to submit 2020 tax returns is Thursday, April 15, 2021.

Since the IRS will begin processing tax returns on February 12th there is no advantage to filing tax returns on paper in January instead of waiting for the IRS to begin accepting e-filed returns.  Nevertheless, it makes sense to start organizing your information early and so when the IRS filing systems open on February 12th, you are ready to submit your tax return right away.

Refunds in 2021.

Choosing e-file and direct deposit for refunds remains the fastest way to file an accurate income tax return and receive a refund.  The IRS still anticipates issuing at least 90%of tax refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers that could cause delay.  Under the Protecting Americans from Tax Hikes (PATH) Act, the IRS is required to hold refunds for tax returns which include a claim of the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until the first week of March 2021. Also consider that it would still take several days for these refunds to be released and processed through financial institutions, and factoring in weekends, and the President’s Day holiday, taxpayers claiming these credits may not have actual access to their refunds until the first week of March.

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

Time Limits For Keeping Your Tax Records

Even though your 2020 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return,  In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return.  That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years.

What Should You Do?

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

How COVID-19 And Underfunding Impacts IRS Operations And Increases Tax Problems For Taxpayers.

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How COVID-19 And Underfunding Impacts IRS Operations And Increases Tax Problems For Taxpayers.

As required by law, once a year the Taxpayer Advocate’s Office (an independent Federal government department that monitors the Internal Revenue Service) must send a report to Congress describing challenges the IRS is facing, problems experienced by taxpayers in dealing with the IRS and recommendations to resolve these problems.

On January 13, 2021, National Taxpayer Advocate Chief Erin M. Collins released her 2020 Annual Report to Congress focusing on the unprecedented challenges taxpayers faced in filing their tax returns and receiving refunds and stimulus payments during a year consumed by the COVID-19 pandemic. The report also finds that the underfunding of the IRS over the last decade has resulted in the IRS still using antiquated technology and inadequate staffing levels to meet taxpayers’ needs.

Ms. Olson also released the fourth edition of the National Taxpayer Advocate’s “Purple Book” which presents 66 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.

Impact of COVID-19 on tax administration

Ms. Olson cited in her report that: “During 2020, the COVID-19 pandemic affected almost all facets of our lives, and U.S. tax administration was no exception. Taxpayers could not meet in person with their tax return preparers. IRS personnel who open and process tax returns and answer the toll-free telephone lines had to follow social distancing guidelines and stay-at-home orders, limiting their ability to assist taxpayers. And Congress assigned the IRS the task of issuing two rounds of stimulus payments, stretching its resources even further.”

  • Unprocessed Returns: As of November 24, 2020, the IRS indicated there were still 7.1 million unprocessed individual returns and 2.3 million unprocessed business returns, and that some unprocessed returns dated back to April 15, 2020.
  • Missing Or Inaccurate Economic Impact Payments (“EIP”): In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the IRS issued more than 160 million EIPs. However, millions of eligible individuals did not receive some or all of the EIPs for which they were eligible despite a statutory directive that the IRS issue the payments “as rapidly as possible.”
  • Late Notices: During 2020, taxpayers were sent more than 20 million notices bearing dates that had passed and, in many cases, response or payment deadlines that also had passed.

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because the IRS is under challenges from COVID-19 or from underfunding.  Instead you should be utilizing this valuable time to get yourself prepared so that when IRS is resuming action against you, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance.  That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.  Also, if you are required to make estimated tax payments, you must be current in making those payments.  Fortunately, as we are now in 2021, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done now so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2021.

Remember that COVID-19 does not terminate the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.

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

What Should You Do?

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

 

IRS Gearing Up To Resume Home Visits – What High Income Taxpayers Should Know About Filing Late Tax Returns

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IRS Gearing Up To Resume Home Visits – What High Income Taxpayers Should Know About Filing Late Tax Returns

Every year, about 9 million taxpayers miss tax deadline or fail to file their tax returns according to data from the Internal Revenue Service.

How To Handle Late Tax Returns?

The Treasury Inspector General for Tax Administration on May 29, 2020 issued a report finding that about 880,000 high-income nonfilers in tax years 2014 through 2016 had an estimated $45.7 billion in unpaid taxes.

The IRS has since announced that as part of a larger effort to ensure compliance and fairness, the IRS will step up efforts to visit high-income taxpayers making at least $100,000 who in prior years have failed to timely file one or more of their tax returns.

Following the recent and ongoing hiring of additional enforcement personnel and in anticipation of a COVID-19 pandemic being more manageable due to mitigation efforts and vaccinations, IRS Revenue Officers across the country will increase face-to-face visits with high-income taxpayers who haven’t filed tax returns in 2019 or previous years.

Failure to File vs. Failure to Pay

The IRS red flags taxpayers as “tax cheats” whether they are stop-filers, non-filers and under-filers.

“Stop Filer” is a term applied to taxpayers that consistently comply with tax filing requirements and then suddenly stop filing their returns. If your employer or client reports your income to the IRS on a 1099 or a W-2, the IRS will flag your information as a non-filer because they have access to tax forms that cannot be matched to tax returns. Understating your income, consciously or unintentionally, could result in a lower tax liability but make you liable for IRS penalties.

Failure to file means not filing the returns within the given time frame while failure to pay means filing the required paperwork but not turning in the full amount of tax obligation by the tax filing deadline. To force compliance with tax laws, the IRS is allowed to prepare a “substitute return” on behalf of those who failed to file, using data that was submitted by employers and applying customary exemptions and deductions. Substitute returns will always show a much higher liability than actual returns you have prepared and filed because substitute returns which are prepared by the IRS will not take into account your business expenses, basis in assets sold, itemized deductions, proper marital status, dependents and many tax credits.

Essentially, filing federal taxes late is better than not filing even if you cannot pay the tax dues at the time of submission. Penalties will still accrue for all unpaid tax obligations effective on the day after it is due until fully paid but by filing your tax return timely you avoid a late-filing penalty.

Why Taxpayers Should File Late Returns Now

There are important reasons why you should file your returns even if it is long past due. For one, penalties will continue to add up on any payments due. Also, if you are owed a refund due to exemptions, deductions and tax withheld, you only have three years from the original due date to claim the refund (and in certain cases this limitation is two years). When this period expires, you forfeit your refund to the IRS. Additionally, you would not be able to claim tax refunds for later years unless returns for the missing years are filed.

Loan applications, lease qualifications, scholarship applications and similar events require submission of tax returns from the previous years. Failure to present these documents that are used as proof of income may disqualify your application from moving forward. For self-employed taxpayers, filing a tax return is the only way that your credits for Social Security benefits can be reported and tracked. If you don’t comply with tax filing requirements, you would not build up enough retirement or disability credits.

Failure to respond and comply with an IRS tax bill will trigger the collection process, which may include tactics such as wage garnishment, an asset freeze or a federal tax lien.

IRS Penalties for Late Filing

The IRS assesses two different penalties for filing federal taxes late. The failure to file penalty is assessed at 5% for each month that the returns are late and is capped at 25%.

Assessments for failure to pay are 0.5% monthly for a maximum of 25%. If both penalties apply, the total amount is capped at 5% per month for a late tax return. If you qualify for a refund during the tax year in question, and you have not forfeited the refund, you may not be charged with penalties for taxes owed on a delinquent tax return.

Extending The Deadline To File

Starting with your 2020 tax return, if you will be unable to prepare your tax returns within the original deadline, file for an extension using the Form 4868, application for automatic extension of time to file U.S. individual income tax return on or before the deadline to file your Form 1040. Where an extension is timely filed, penalties for failure to file will not apply, but penalties will still be assessed on the balance due. With Form 4868, the revised deadline will be extended by six months for taxpayers in the U.S.

Additional IRS Civil Penalties For Non-compliance With Tax Laws

Criminal fraud refers to outright tax evasion. Penalties for tax evaders include hefty fines, imprisonment or both. Civil fraud charges applies to underpayment without intent to completely evade making tax payments. The penalty imposed may be as much as 75% of the portion of the underpayment. Negligence refers to inadvertent underpayment, and the penalty is 20% of the underpayment that is due to negligence. A frivolous return is one that intentionally excludes information that is crucial to processing the returns, and the penalty is $500 for each frivolous return.

What Should You Do?

Filing federal taxes late is a complicated matter. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) protect you from excessive fines and possible jail time. Also, if you are involved in cannabis, check out how a cannabis tax attorney can help you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Mississippi Tax Preparer Sentenced to Prison for False IRS Returns

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Mississippi Tax Preparer Sentenced to Prison for False IRS Returns

The U.S. Attorney’s Office for the Southern District of Mississippi announced on November 5, 2020 in a press release that Talvesha Glaude who owned and operated a tax return preparation business was sentenced to 22 months in prison for preparing false income tax returns and ordered to serve one year of supervised release and to pay restitution to the IRS in the amount of $183,360.

The Details

Talvesha Glaude of Moss Point, Mississippi owned and operated a tax return preparation business under multiple names, including TMG Tax Service and Regional Tax Service. From 2013 through 2019, Ms. Glaude prepared tax returns for clients seeking from the IRS inflated refunds based on fraudulent dependents, federal income tax withholdings, and education credits. In addition to preparing false returns for her clients, Ms. Glaude also filed false returns for herself for the tax years 2014 through 2018.

The conviction culminated what started from a comprehensive investigation conducted by the IRS Criminal Investigation Division which was then referred to the Tax Division of the U.S. Department Of Justice for prosecution.

Tax Preparer Penalties

Even with the possibility that a tax preparer can be subject to criminal prosecution, tax preparers face substantial civil penalties for failing to meet standards to their clients and what is imposed under the Internal Revenue Code.  Internal Revenue Code § 6694(a) imposes the standards that tax preparers must follow. Prior to the 2007 amendment to this Section, tax return preparer penalties applied to a person who prepared for compensation, a federal income tax return or claim for refund. The penalties did not apply to any other types of returns such as employment or estate tax returns. The former Section also included a $250 penalty for an income tax return preparer who knew or reasonably should have known, of the position that caused the understatement due to a frivolous position or an undisclosed position for which there was not at least a realistic possibility of being sustained on the merits. An income tax preparer engaging in willful or reckless conduct with respect to preparing an income tax return under the former Section was subject to a penalty of $1,000.

New Code §6694(a) as amended by the Small Business And Work Opportunity Tax Act of 2007 (the “Act”) extends to all types of federal tax returns, including estate and gift tax returns, employment tax returns, excise tax returns and returns of exempt organizations.

The Act now requires that the preparer have a reasonable belief that the tax treatment of the position is “more likely than not” the proper treatment. The penalty which can be imposed on the preparer is the greater of $1,000.00 or 50% of the income derived (or to be derived) by the preparer. For willful or reckless conduct, the penalty which can be imposed on the preparer is the greater of $5,000.00 or 50% of the income derived (or to be derived) by the preparer.

Other civil penalties that can be imposed against income tax returns preparers include:

  • Failure by an income tax preparer to sign a required return. IRC § 6695(b).
  • Failure by an income tax return preparer to furnish a required taxpayer identification number. IRC § 6695(c).
  • Failure by an income tax return preparer to furnish a copy of the tax return to the taxpayer. IRC § 6695(a).
  • Failure by an income tax return preparer to retain a completed copy of the return or a record of the taxpayer’s name, identification number, taxable year, and type of return prepared. IRC § 6695(d).
  • Failure by an income tax return preparer to comply with the due diligence requirements with respect to determining a taxpayer’s eligibility for, or amount of, the earned income credit. IRC § 6695(g).
  • Aiding and aiding and abetting the understatement of a tax liability. IRC § 6701.
  • Disclosing or using any tax return information other than to prepare or assist in preparing the taxpayer’s return. IRC § 6713(a).

Even without bringing a criminal prosecution the IRS may seek to enjoin an income tax return preparer engaging in specific abusive practices or from acting as an income tax return preparer. IRC § 7407(a). An injunction may be issued if a court determines that the preparer has (1) engaged in conduct subject to a preparer penalty under §6694 or §6695, (2) engaged in conduct subject to a criminal penalty under the Internal Revenue Code, (3) misrepresented his eligibility to practice before the IRS, (4) misrepresented his experience or education as a preparer, (5) guaranteed the payment of any tax refund or the allowance of any tax credit, or (6) engaged in any other fraudulent or deceptive conduct that substantially interferes with the proper administration of the tax law; and that injunctive relief is appropriate to prevent the recurrence of such conduct.

 

What Should You Do?

If the IRS is considering a penalty against you as a professional you should seek immediate assistance from a qualified tax attorney at this earliest possible time.  The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only level the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also, if you are involved in cannabis, check out what our 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 Provides Tax Relief For Victims Of September 2020 Wildfires In California.

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IRS Provides Tax Relief For Victims Of September 2020 Wildfires In California.

The IRS announced on October 19, 2020 that victims of the California wildfires that began September 4th may qualify for tax relief.  Individuals who reside or have a business in Fresno, Los Angeles, Madera, Mendocino, San Bernardino, San Diego and Siskiyou counties in California, have until January 15, 2021, to file certain individual and business tax returns and make certain tax payments.  Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov.  This relief is separate from the announcement by the IRS on August 24, 2020 for the California wildfires that began on August 14th.

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. 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. For instance, certain deadlines falling on or after September 7, 2020, are granted additional time to file through January 15, 2021. This includes 2019 individual income tax returns that have a valid extension through October 15, 2020, and the employment and excise tax returns due on November 2, 2020.  It also includes the quarterly estimated individual income tax payment due on September 15, 2020.  It also applies to tax-exempt organizations, operating on a calendar-year basis that had a valid extension due to run out on November 16, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15, 2020.

In addition, penalties on payroll and excise tax deposits due on or after September 4, 2020, and before September 21, 2020, will be abated as long as the deposits were made by September 21, 2020.

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), San Diego County (Carlsbad) 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.  You can also check out the KahnTaxLaw Coronavirus Resource Center.  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.

More Guidance From IRS On PPP Loans: Lenders Should Not File Form 1099-C for Forgiven PPP loans

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More Guidance From IRS On PPP Loans: Lenders Should Not File Form 1099-C for Forgiven PPP loans

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.  One of the most publicized provisions is the access of funds through banks to qualifying businesses and self-employed taxpayers to pay for payroll, insurance premiums and mortgage, rent and utility payments.  This is known as the Paycheck Protection Program (“PPP”).

Under this program administered by the U.S. Treasury and the U.S. Small Business Administration (SBA), small businesses with 500 or fewer employees including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs.

Eligible loan recipients are eligible for forgiveness of indebtedness for all or a portion of the stated principal amount of a covered PPP loan if certain conditions are satisfied, and the forgiven amount is excluded from the borrower’s gross income.

How To Report Forgiven PPP Loans?

IRC §6050P generally requires a lender that discharges at least $600 of a borrower’s indebtedness to file a Form 1099-C, Cancellation of Debt, with the IRS and to furnish a payee statement to the borrower.  Concerned that the filing of such information returns could result in the issuance of under-reporter notices (IRS Letter CP2000) to eligible recipients, on September 22, 2020, the IRS announced that lenders in the PPP should not file cancellation-of-debt information returns or furnish payee statements under IRC §6050P to report the amount of qualifying forgiveness with respect to covered loans made under PPP.

Recent Guidance Issued By The U.S. Treasury

On April 6, 2020, the U.S. Treasury and the SBA released FAQs on the PPP. The FAQs clarify certain aspects of the program which hopefully will expediate the process of the PPP funds being released to businesses.  The FAQs cover:

  • Using the gross payroll approach for both loan application and forgiveness and that the employer’s share of Federal Insurance Contributions Act taxesshould not be included.
  • The $100,000 salarylimitation does not include health care, retirement benefits, and state and local taxes.
  • Applicants that use Professional Employer Organizations (PEOs) can provide payroll reports since they cannot produce individual entity payroll tax documents.
  • The time period for calculating payroll costs for the maximum loan amount.

What can PPP funds be used to pay?

PPP funds can be used to pay payroll costs including benefits (with salaries being under $100,000 per employee), interest on mortgages, rent payments, and utility bills; however, no more than 40% of the funds can be used for non-payroll costs.

What counts as payroll costs?

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basisfor each employee);
  • Employeebenefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxesassessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basisfor each employee.

What counts as non-payroll costs?

  • Intereston mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

Under what circumstances do I have to repay these PPP funds received?

The loan of the PPP funds will be forgiven if you maintain your pre-existing employees at their pre-existing salary levels.  Also, that you do not pay out more than 40% of the PPP funds for non-payroll costs specifically limited to: interest on mortgages, rent, and utilities.

How large can my loan be?

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How many loans can I take out under PPP?

Only one.

Are there any charges or requirements for collateral or personal guarantees?

No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

What if I do not spend all the funds or make non-qualifying expenditures?

The amount of loan forgiveness will be reduced including if full-time headcount declines or if salaries and wages decrease.  Also, if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 24 weeks after getting the loan.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan by completing the SBA application. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What is my interest rate?

1% fixed rate.

When do I need to start paying interest on my loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?

Loans issued prior to June 5, 2020 have a maturity of 2 years. Loans issued after June 5, 2020 have a maturity of 5 years.

Can I pay my loan earlier?

Yes. There are no prepayment penalties or fees.

What Should You Do?

Now with the 24-week certification period expiring on many PPP Loans, let the attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California assist you achieve full PPP loan forgiveness.  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.

Were You Affected By Hurricane Sally? IRS Is Providing You With Tax Relief And Extending Upcoming Tax Deadlines.

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Were You Affected By Hurricane Sally? IRS Is Providing You With Tax Relief And Extending Upcoming Tax Deadlines.

The IRS announced on September 24, 2020 that victims of Hurricane Sally that began on September 14, 2020 may qualify for tax relief.  This follows the August 31, 2020 announcement by IRS granting tax relief for victims of Hurricane Laura that started August 22, 2020.  Individuals who reside or have a business in Baldwin, Escambia and Mobile counties in Alabama, have until January 15, 2021, to file certain individual and business tax returns and make certain tax payments.  Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov.

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. 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. For instance, certain deadlines falling on or after September 14, 2020, are granted additional time to file through January 15, 2021. This includes 2019 individual income tax returns that have a valid extension through October 15, 2020, and the employment and excise tax returns due on November 2, 2020.  It also includes the quarterly estimated individual income tax payment due on September 15, 2020.

In addition, penalties on payroll and excise tax deposits due on or after September 14, 2020, and before September 29, 2020, will be abated as long as the deposits were made by September 29, 2020.

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), Northern California (Sacramento, Walnut Creek, San Francisco and San Jose) 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.  You can also check out the KahnTaxLaw Coronavirus Resource Center.  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.