IRS Identity Theft

You may receive a letter from the IRS indicating that you have been the victim of Identity Theft, specifically that:

  • More than one tax return was filed with your Social Security Number,
  • Where records indicate you did not file a tax return, a balance due, refund offset or collection action has been taken against you
  • IRS records indicate you received W-2 wages or miscellaneous income (1099-Misc) from an employer you have never worked for.

If you receive a notice from the IRS indicating Identity Theft, it is imperative that you respond immediately – and consult an attorney – or the IRS may assume that the information it is relying on is correct.

Tax Tip – If you believe someone may have used your Social Security Number fraudulently, you may file Form 14039, IRS Identity Theft Affidavit.

The IRS will investigate your case, and usually within 180 days, report back to you their findings. The IRS will place a fraud notification on your tax account and issue you a special PIN to file future tax returns.

Dishonest Tax Preparer

A large part of my practice involves amending tax returns for inflated deductions, misrepresentations and errors caused by tax return preparers in an effort to create large refunds for clients and build their customer base.

Dishonest Tax Preparers:

Crooked Tax Preparer AttorneyConsiderable effort should go into choosing your tax preparer, as you – the taxpayer – are ultimately responsible for filing a complete and accurate return.  Because many states have no licensing requirement, I advise to pick a return preparer who is accountable, meaning they are governed by IRS practice standards.  This group of tax professionals most includes CPA’s, attorneys, enrolled agents, registered tax return preparers and can be sanctioned by the IRS’s Office of Professional Responsibility.

Penalties & Reasonable Cause:

Though, the taxpayer is ultimately responsible for paying the correct amount of tax, reliance on a dishonest tax preparer may constitute reasonable cause in evaluating whether penalties should be abated.  If you have been the victim of a dishonest tax preparer, please contact a DC Tax Attorney today to develop a strategy.

 

 

S Corp Reasonable Salary

Wages vs. Distribution

The IRS requires that Distributions to corporate offices must be treated as wages to the extent they are reasonable compensation for services.  Significance payroll taxes

 

Watson Case…IRS can reclassify paid 24,000  IRS determined the FMV.

No longer 50 50 Rule.  IRS S Corp audits are increasing.  Tax Gap. S corp audits up 33%

Factors

Replacement cost…FMV of services and cost to replace. Based on a number of factors and far from an exact science.  Full-time is 2080 hours per year, even if you work 60 hours a week.  Beurue of Labor Statistics

When you form an S Corp, IRS will give you notice…Revenue Ruling 74-44  RC never bigger than distributions.  Don;t have to take a distribution at all.  IRS just has power to reclassify.

Training and Experience

Duties and Resonsibilities

Time and Effort Devoted

What comparable business pay for Similar Services

Use of Formula Methodology to Determine Compensation (documentation)

Relation to Payments of non-shareholder employees

Written Compensation Agreements

Timing and Manor of Paying Bonuses

Dividend History

 

RC REports.

 

 

 

 

Tax Court Petitions – Free Tips

Tax Court Petition:

If you have received an IRS Notice of Deficiency (Letter 3219) proposing a tax assessment, you have 90 days to file your Tax Court Petition.  The address to file the petition to the Tax Court is 400 Second Street, Washington, D.C.  The IRS cannot assess tax until after the 90-day period has passed and the case has been litigated in court.

     Tax Tip – It is presumed you received the notice timely if the IRS can show it was mailed to your last known address, even if you did not actually receive it.   If you move, you should update your address with the IRS on Form 8822.

The Tax Court Petition must include your statement of facts, why you disagree with the IRS in detail and choice of trial location in the U.S.   Make sure to redact your social security number and other sensitive information.  If the amount at issues is less than $50,000, you may elect the less formal small case procedures.   Either way, the filing fee for the Tax Court Petition is $60 payable to U.S. Tax Court.

     Tax Tip – The information provided in the petition to the Tax Court should be given with care, as the IRS can raise a new issue (and thereby seek to collect additional tax) in its response.

Tax Court Petition
Tax Court Petition

After you file your Tax Court Petition, the IRS has either 60 days to file and answer or 45 days to make a motion seeking some form of relief.  A petition to the Tax Court may be amended once before an answer is filed.  The petitioner has 45 days after service of the IRS’s answer to reply to the allegations.  The parties are encouraged to engage in informal discovery and stipulate to issues of fact and law agreed on.

     Tax Tip –  If requested, counsel may send the case to IRS Appeals prior to trial in an attempt to settle the case without litigation.

The case is placed on the trial calendar and the parties are given 90 days notice of the trial date.  The case is heard by a judge without a jury.  The Notice of deficiency is presumed correct and the burden of proof is on the Taxpayer to show otherwise.

     

 

 

Obama pays 18% Tax Rate…You?

President Obama paid the IRS $112,214 in taxes on his Adjusted Gross Income of $608,611 – or 18.4%.  Let’s look at how he did it:

– As a homeowner, he is able to take advantage of the Mortgage Interest Deduction

– He is a charitable man, giving cash donations to increase his itemized deductions

– He contributed $50,000 to himself – in the form of a self-employed Retirement Plan

18%! – and nothing at all to due with the 15% Capital Gains rate utilized by Romney – Not Bad.