Audit Reconsideration Eliminates $100,000 Tax Balance

Posted on December 2, 2015 by Kursti Nakagawa

When Ms. H contacted our office, she was panicked over how to pay a back tax balance of $101,000. She had recently received an official IRS Letter informing her of a balance due and threatening enforcement action since she had not responded to previous notices. This was followed almost immediately by a Notice of Intent to Audit. It turns out that Ms. H had sold her personal residence in a previous tax year and had forgotten to report the sale of the home on her tax return. Although the IRS had sent various letters informing her of the discrepancy and assessing a tax balance due, she had not received them due to the fact that she had been moving around.

Our office quickly began working on the client’s back tax issues. We filed Powers of Attorney with the IRS and the California Franchise Tax Board and followed up by contacting both tax agencies to ensure that the client’s accounts would not be subjected to any collection activity while our tax professionals the prepared an audit reconsideration packet. Within a few days, we had submitted a complete audit reconsideration request to the IRS and had stopped the CA FTB from assessing Ms. H’s accounts. The final ruling from the IRS was very favorable. Not only did our client not owe a back tax balance, but she received a refund of $8,000 from funds the IRS had withheld from previous tax years!

The tax settlement case of Ms. H illustrates several important points. First and foremost, it shows that a reputable tax settlement firm offers a huge advantage to clients who are trying to resolve on outstanding tax balance. Not only do these professionals know exactly what problems to look for when analyzing a client’s finances, but they have the experience necessary to successfully resolve those problems with the IRS and State Tax Agencies. In addition, this case shows that receiving a Notice of Intent to Audit does not necessarily mean that the recipient will owe a large tax amount. In addition to plain old random sampling, a tax return may be selected for audit for a variety of reasons including a filing error or missing tax information. Such was the case with Ms. H whose return was targeted for closer scrutiny due to her failure to report the proceeds from the sale of a home. Once the error is corrected and an accurate tax situation is presented for examination, the audit may actually result in a reduced tax balance or even a refund as happened in the situation described above.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Security Summit Focuses on Identity Theft

Posted on November 23, 2015 by Kursti Nakagawa

Security Summit Focuses on Identity Theft

In March of this year, all of the major players in the tax industry came together to focus on the problems of identity theft and tax refund fraud. Their aim was to have safeguards in place before the beginning of the 2016 filing season. This convocation, identified as the Security Summit, includes the IRS, state tax authorities, and representatives from the tax software and financial services industries. Tax Commissioner John Koskinen, who has called the Security Summit an “unprecedented effort,” maintains that income tax fraud “is not a battle the IRS can fight alone.” He went on to say that identity theft has “become a serious threat to the nation’s tax system” and one that must be dealt with aggressively.

Tax fraud has become an increasingly serious problem as the percentage of e-filed returns has multiplied. Currently, almost every business and tax professional, as well as a significant number of individual taxpayers, files electronically. With this increase in convenience, comes a whole host of associated problems surrounding the issues of taxpayer identification, the sharing of information and internet security. It is exactly these topics that are the focus of the Security Summit. According to remarks made by Koskinen at an October 20th press conference, the Security Summit “now covers virtually the entire population of taxpayers who e-file their tax returns.”

The Security Summit has made significant progress since their initial meeting in March. To date, they have identified and tested more than 20 security items related to the electronic filing of taxes. These items, which focus on all aspects of tax return and tax refund fraud, will be made available to both the IRS and State Tax Agencies to be used in the prevention of identity theft and are expected to be in place by the time the 2016 filing season opens. They target such things as the time it takes to produce a return and identifying instances where multiple returns are generated automatically. The Summit has announced that implementation of these measures is internal. While they will serve to enhance the security of the transmission process, they will not affect how taxes are filed.

In addition to measure designed to enhance the security of e-filed returns, the Security Summit has made recommendations in several other areas. In particular, the Tax Professional Work Group, which is one of the working committees of the larger effort, is investigating other means by which tax preparers themselves can contribute to the prevention of identity theft. On top of this, the United States Tax Commissioner has asked Congress to pass legislation requiring W-2s, 1099s and other information returns to be sent out earlier, thus allowing more time for the matching of these items with the information submitted on tax returns.

Charitable Contributions Require Documention

Posted on November 4, 2015 by Kursti Nakagawa

Charitable Contributions Require Documentation

Although charitable contributions can amount to a significant tax savings, they can also have the negative affect of flagging a return from audit when they are claimed in excess or not reported according to preset IRS guidelines. A case in point is that of Kunkel versus United States Tax Commissioner. In this 2011 United States Tax Court case, the court disallowed over $37,000 in noncash contributions due to lack of substantiation. While the Kunkels maintained that the value of each donation was less than $250, the court questioned the total amount of the contributions. They pointed out that the total donation amount could have only been achieved by making almost 100 trips to various donation sites. In addition, the Kunkels had no dated receipts from any of the receiving charities giving either a value or description of the property being donated.

In order to avoid a situation such as the one described above, it is important to follow the guidelines set by the Internal Revenue Service for reporting charitable contributions. According to these guidelines, increasingly strict documentation requirements are imposed on charitable donations above or below the following preset thresholds:

 Contributions of less than $250

Contributions of less than $250 require 1) the name and location of the charitable organization to which the donation is being made, 2) the date the donation is made and 3) a description of the property being donated. Although it is advisable to get a receipt from the organization to which the donation is being made, this is not required.

 Contributions in excess of $250

In addition to the documentation required for contributions of less than $250, those in excess of $250 must have a written receipt from the charitable organization to which the contribution is made. In addition to a description of the donated property, the receipt must include a good faith estimate of the property’s value as well as a statement indicating whether any goods or services were given in exchange for the contribution.

 Contributions in excess of $500

Charitable donations in excess of $500 require 1) a specific description of the property being donated, 2) the date the property was acquired, 3) the cost basis of the property, 4) the fair market value of the property at the time the donation is made and 5) a statement of the method used to calculate fair market value.

 Contributions in excess of $5000

In addition to all of the documentation required for donations in excess of $500, charitable contributions in excess of $5000 require a qualified appraisal.

With the end of the calendar year fast aproaching, now is as good a time as any to review the IRS guidelines for documenting charitable contributions. Although the IRS sometimes allows charitable deductions even when the reporting taxpayer lacks the required documentation, there is no good reason to take a chance on this being the case. It is better to be safe than sorry! Charitable contributions can amount to a significant savings of tax dollars but proper reporting is essential.

Jeopardy Assessments Allow IRS to Freeze Assets

Posted on September 29, 2015 by Kursti Nakagawa

Jeopardy Assessments Allow IRS to Freeze Assets

The recent tax troubles of Barcelona soccer star Neymar da Silva Santos serve to point out the very powerful nature of tax collection agencies. Earlier this month, a Brazilian judge froze almost $50 million in assets to prevent to Neymar from hiding funds that might be needed to cover a tax debt with the Brazilian government. The total amount of the freeze was apparently equal to 150% of the soccer star’s estimated tax debt and included, not only his personal assets, but also those of family members. Although this particular jeopardy assessment was initiated by the Brazilian counterpart of the IRS, we are reminded that our own tax collection agency is equally as powerful. When collection of an outstanding tax liability is in question, the IRS has the authority to freeze whatever assets are necessary in order to cover the debt, even without following normal assessment and collection procedures.

The IRS is given the authority to initiate a jeopardy assessment such as the one recently imposed by the Brazilian government if they determine that following normal collection procedures will place collection of the tax debt in jeopardy. In such a case, the IRS is allowed to immediately levy assets to cover payment of the tax liability without waiting the normal 30-day grace period after a Notice of Intent to Levy is issued. Once an assessment such as this is handed down, the back tax balance, together with any penalties and interest that have accumulated, become immediately due and payable. In the case of income taxes, such jeopardy assessments can even include termination of the current tax year or imposing an immediate deadline on collection of taxes from the previous year.

As would be expected, the issue of jeopardy assessments violating a taxpayer’s right to due process has been challenged in court numerous times. Although the courts normally back the IRS, a 2010 Supreme Court Ruling in the case of Unites States v. Clarke upheld the taxpayer’s right to challenge the authority of the IRS. In this case, Michael Clarke disputed an IRS summons for information, saying that it had been issued as a result of his refusal to cooperate with an IRS audit. The courts agreed that he had a right to question the agent since he had been able to show some evidence of an improper motive. While the ruling did not open the floodgates for the questioning of any IRS summons, neither did it provide the IRS with the blanket protection it had hoped for. In another case, Joe Francis, creator of the pornographic entertainment company, Girls Gone Wild, said that the IRS had violated his taxpayer rights when they issued a jeopardy assessment freezing assets in his Morgan Stanley and UBS accounts. In this case, the courts upheld the actions of the IRS, saying that they were well within their rights in using extreme measures to secure payment of the $23 million back tax balance owed by Francis at that time.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt https://professionaltaxresolution.com/services/back-taxes-delinquent-returns/, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Tax Debt Reduced by Filing Past Due Returns

Posted on September 8, 2015 by Kursti Nakagawa

Tax Debt Reduced Through Filing of Past Due Tax Returns

Sometimes resolving a back tax balance is as simple as filing past due tax returns. The case of Mr. P involved just that! When he contacted our office, he had not filed either his corporate tax returns or his personal income tax returns for the last 10 or 11 years. Unsure of how to proceed and fearful of the potential consequences of his negligence, he contacted the tax settlement specialists at Professional Tax Resolutions for advice and help. Our team informed Mr. P that it would be necessary to contact the government immediately in order to collect the specific details necessary to come up with an appropriate plan of action. Among other things, we needed to know exactly which tax returns had not been filed as well as what back tax balances were showing for each year. In addition, it was imperative that we obtain a list of the official tax documents that the government had on file for each year that tax returns had not been submitted.

Anxious to put his tax problems behind him, Mr. P was eager to get started on his case. Within a few days, our tax professionals had contacted the government, received the requested information and were ready with a plan of action. Once our client had compiled the accounting records for his corporation, we compared them to those we had already received from the IRS and began to prepare the corporate income tax returns. Concurrently, we prepared M. P’s personal income tax returns for all years where one had not been filed. After all was said and done, the corporation was set up on a payment plan with the IRS and the FTB balance was lowered to the amount of the franchise fee plus accumulated penalties and interest. In addition, the client’s personal back tax balance was reduced by 80% with both the federal and state tax agencies.

As is evident from reviewing the case of Mr. P, it is important to select a tax professional who has a thorough understanding of the specific back tax issues one is facing. In particular, when a business entity is involved, it is important to choose a tax specialist who understands business accounting and entity taxation as well as the effect business income has on the individual’s personal tax balances. The tax team at Professional Tax Resolution is well equipped to resolve both personal and business tax issues. When a business is involved, they understand the interconnectedness of personal and business taxes and realize that it is important to consider both in order to come up with the best possible plan of action.