FAQs

 

How do I estimate my taxes with an extension?

There are many factors involved with estimating tax liabilities with respect to federal and/or state income taxes. The Long Law Group can assist you in making this calculation for purposes of estimating your tax liabilities, either to permit a quarterly tax payment or a payment with a tax extension. In order to do so, we would need to see a copy of the prior year’s tax return (if we did not prepare it), along with any income or expense items for the year in question. Please contact our office to set an appointment to discuss an extension of your tax liabilities so you can avoid any additional tax penalties for the failure to accurately estimate your current year tax liability.

 

How is my tax bill calculated as I need to know if I will owe or get a refund?

The calculation of taxes can often be very complex, but the basic rule is that you will need to estimate two separate items:  (1) the total taxes you will owe for the year (based upon your 2013 overall income and tax bracket); less (2) the total payments/tax credits for 2013.  Thus, depending upon how much income was earned and how much was paid to the IRS via wage withholdings and other tax payments, it is very possible for someone who paid $1,000 in taxes in 2013 to get a refund while a person who paid in $50,000 could still owe more.  Each taxpayer and tax situation is unique.

2013 tax rates

Tax rate

Single filers Married filing jointly or qualifying widow/widower Married filing separately

Head of household

10%

Up to $8,925

Up to $17,850

Up to $8,925

Up to $12,750

15%

$8,926 – $36,250

$17,851 – $72,500 $8,926- $36,250

$12,751 – $48,600

25%

$36,251 – $87,850

$72,501 – $146,400

$36,251 – $73,200 $48,601 – $125,450
28% $87,851 – $183,250

$146,401 – $223,050

$73,201 – $111,525

$125,451 – $203,150

33% $183,251 – $398,350

$223,051 – $398,350

$111,526 – $199,175

$203,151 – $398,350

35% $398,351 – $400,000 $398,351 – $450,000

$199,176 – $225,000

$398,351 – $425,000

39.6% $400,001 or more $450,001 or more $225,001 or more

$425,001 or more

 

IRS CONTROVERSY  

 

I have not filed my tax returns in several years, what do I do?

If you have a filing requirement, then you should file your tax returns as soon as possible.  However, not everyone is legally required to file a tax return.  If you do not file a tax return and are required to do so, the IRS is permitted to file a tax return for you.  These returns, known as a Substitute for Return (“SFR”), are not surprisingly very unfavorable to you.  The IRS will use income information they have on your account based upon what was reported under your social security number (such as W-2 and 1099 information) and file the tax return for you. Of course, when they do this, you do not get credit for any tax credits or deductions that are applicable. Therefore, filing tax returns will result in less taxes being ultimately owed.  Please contact us and we can help you determine if you have a filing requirement.  If so, we can help to prepare the tax returns for you and help to end any IRS involvement in your life.
I received a notice from the IRS. What should I do?

The IRS sends tax notices for many different reasons. They may be requesting information concerning a past-due account balance or may be initiating a brand new tax audit.  We have listed some of the more common IRS notices below, but all IRS notices should be taken seriously.  No matter how minor the notice may appear to be, it should not be ignored. If you need any assistance, please contact us and we can advise you as to the proper course of action in dealing with the IRS.

IRS NOTICES:

Notice Number Description
CP05 We’re reviewing your tax return.
CP05A We are examining your return and we need documentation.
CP14I You owe taxes and penalties because you didn’t take out the minimum amount you had to from your traditional individual retirement arrangement (IRA). Or, you put into a tax-sheltered account more than you can legally.
CP16 We sent you this notice to tell you about changes we made to your return that affect your refund. We made these changes because we believe there was a miscalculation. Our records show you owe other tax debts and we applied all or part of your refund to them.
CP19 We have increased the amount of tax you owe because we believe you incorrectly claimed one or more deductions or credits.
CP20 We believe you incorrectly claimed one or more deductions or credits. As a result, your refund is less than you expected.
CP30 We charged you a penalty for not pre-paying enough of your tax either by having taxes withheld from your income, or by making timely estimated tax payments.
CP30A We reduced or removed the penalty for underpayment of estimated tax reported on your tax return.
CP297C We levied you for unpaid taxes. You have the right to a Collection Due Process hearing.
CP501 You have a balance due (money you owe the IRS) on one of your tax accounts.
CP503 We have not heard from you and you still have an unpaid balance on one of your tax accounts.
CP504 You have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS will seize (levy) your state income tax refund and apply it to pay the amount you owe.
CP504B You have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS will seize (levy) certain property or rights to property and apply it to pay the amount you owe.
CP515I This is a reminder notice that we still have no record that you filed your prior tax return or returns.
CP515B You received this reminder notice because our records indicate you didn’t file a business tax return.
CP516 This is a reminder notice that we still have no record that you filed your prior tax return or returns.
CP518I This is a final reminder notice that we still have no record that you filed your prior tax return(s).
CP518B This is a final reminder notice that our records still indicate you haven’t filed a business tax return.
CP521 This notice is to remind you that you have an installment agreement payment due. Please send your payment immediately.
CP523 This notice informs you of our intent to terminate your installment agreement and seize (levy) your assets. You have defaulted on your agreement.
CP2000 The income and/or payment information we have on file doesn’t match the information you reported on your tax return. This could affect your tax return; it may cause an increase or decrease in your tax, or may not change it at all.
CP2005 We accepted the information you sent us. We’re not going to change your tax return. We’ve closed our review of it.
CP2006 We received your information. We’ll look at it and let you know what we’re going to do.
CP2030 We are proposing changes in income, credits, and deductions reported on your U.S. Corporation Income Tax Return. We compared your information with items reported to us by banks, businesses and other payers.
CP2057 You need to file an amended return. We’ve received information not reported on your tax return.
CP2501 You need to contact us. We’ve received information not reported on your tax return.
CP2531 Your Tax Return does not match the information we have on file.
CP2566 We didn’t receive your tax return. We have calculated your tax, penalty and interest based on wages and other income reported to us by employers, financial institutions and others.
CP2566R We previously sent you a CP63 notice informing you we are holding your refund until we receive one or more unfiled tax returns. Because we received no reply to our previous notice, we have calculated your tax, penalty and interest based on wages and other income reported to us by employers, financial institutions and others.
CP3219A We’ve received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax. The notice explains how the amount was calculated and how you can challenge it in U.S. Tax Court.
CP3219B This Statutory Notice of Deficiency notifies you of the IRS’s intent to assess a tax deficiency and informs you of your right to petition the United States Tax Court to dispute the proposed adjustments. .
CP3219N We didn’t receive your tax return. We have calculated your tax, penalty and interest based on wages and other income reported to us by employers, financial institutions and others.


Other Notices and Letters

Notice or Letter Number Title
CP 57 Notice of Insufficient Funds
CP 90/CP 297 Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing
CP 297A Notice of Levy and Notice of Your Right to a Hearing
CP 91/CP 298 Final Notice Before Levy on Social Security Benefits
CP 161 Request for Payment or Notice of Unpaid Balance, Balance Due
Letter 0484C Collection Information Statement Requested (Form 433F/433D); Inability to Pay/Transfer
Letter 0549C Balance Due on Account is Paid
Letter 668D(LP 68) We released the taxpayer’s levy.
Letter 0681C Proposal to Pay Accepted
Letter 0757C Installment Privilege Terminated
Letter 1058 (LT 11) Final Notice prior to levy; your right to a hearing
Letter 1615 (LT 18) Mail us your overdue tax returns.
Letter 1731 (LP 64) Please help us locate a taxpayer.
Letter 1737 (LT 27) Please complete and site Form 433F, Collection Information Statement.
Letter 1961C Installment Agreement for Direct Debit 433-G
Letter 1962C Installment Agreement Reply to Taxpayer
Letter 2050 (LT 16) Please call us about your overdue taxes or tax return.
Letter 2257C Balance Due Total to Taxpayer
Letter 2271C Installment Agreement for Direct Debit Revisions
Letter 2272C Installment Agreement Cannot be Considered
Letter 2273C Installment Agreement Accepted: Terms Explained
Letter 2318C Installment Agreement: Payroll Deduction (F2159) Incomplete
Letter 2357C Abatement of Penalties and Interest
Letter 2603C Installment Agreement Accepted – Notice of Federal Tax Lien Will be Filed
Letter 3030C Balance Due Explained:Tax/Interest Not Paid
Letter 3127C Revision to Installment Agreement
Letter 3217C Installment Agreement Accepted: Terms Explained
Letter 3228 (LT 39) Reminder notice.
Letter 4903 (LT 26) We have no record of receiving your tax returns.
Letter LP 47 Address Information Request
Letter LP 59 Please contact us about the taxpayer levy.

 

I paid my tax bill late, and the IRS later sent a notice assessing large amounts of penalties and interest. Is there anything I can do about this?

If you need more time to file your tax return, then you can file Form 4868, which will extend the due date of your return for six months (individual returns only). However, the extension for filing your taxes is NOT an extension for paying your taxes. If you owe taxes, you must pay the tax due in full by the due date of the return, or the IRS will assess interest and penalties on the balance.
In certain circumstances, taxpayers can ask that a tax penalty be removed, or “abated.” This is where you ask the IRS for a waiver of the penalties based on what is called “reasonable cause.”  The IRS will waive penalties in some cases, along with the interest associated with any of the penalties they remove.  Some examples of “reasonable cause” include serious illness, death, divorce, natural disasters, war and other unexpected and traumatic events.

We have extensive experience in filing penalty abatement requests. Please contact us to see if we can assist you in getting the burdensome tax penalties removed from your account.

What will hiring your office help me with? Can’t I handle this matter myself?

As tax experts, we have the knowledge and experience to assist you with any tax problem. In many cases, not getting professional help is very costly.  Very few of our clients ever want to deal directly with the IRS, and most of our clients never meet face-to-face with the IRS.  Most people do not want to have to learn complex tax code and the intricacies of working within the IRS bureaucracy.   We also can save you the stress and headaches associated with researching the tax laws that apply to your case. While it may be possible to handle your tax case by yourself, you should consider all costs and risks associated with doing so.  If you are concerned about your result, please give us a call so we can assist.

The IRS has levied my bank account and garnished my wages. What should I do?

An IRS levy is a collection method the IRS uses to seize or take your property to satisfy your outstanding tax bill. The IRS CAN and WILL do this. Before the IRS can seize your property, they must do the following:

  • They must first assess the tax against you. This means that the amounts owing to the IRS are not currently under dispute.
  • They must issue a notice and demand for payment.
  • You must refuse to pay the assessment within 10 days of the notice and demand.
  • The IRS must send you a Notice of Levy.
  • You must refuse to pay the tax liability within 30 days of the Final Notice of Intent to Levy.

Bank levies are a one-time levy where the money in your account will be seized on the day of the levy only. However, the IRS can file subsequent bank account levies.  Wage garnishments, on the other hand, on on-going levies and will stay in place until the total tax bill is paid or the garnishment is otherwise released.  If the IRS has issued a levy, either on your bank, wages or other source of income, you need immediate professional assistance.  It is critical that you understand your rights and options at this point.  Please call us today- do not delay.

The IRS can also file a Notice of Federal Tax Lien against you and your property.  The IRS will normally file a Tax Lien if you owe $25,000 or more. The Tax Lien is not an actual collection method, but a notice to other creditors that the IRS has an interest in property you own. The Tax Lien will negatively affect your credit report and potentially your ability to borrow money. The Lien will not be removed until the tax is paid.

Fortunately, relief from both IRS levies and garnishments is available. However, you must act quickly. The bank is required to hold the funds in your account for 21 days. During this time, we can obtain a release of the bank levy so that no money is actually removed from your account. We can also obtain a release of a wage garnishment. A financial statement (IRS Form 433-A) will need to be submitted to our office to obtain relief. This Form can be obtained at www.irs.gov.

I owe the IRS back taxes, and I cannot afford to pay this right now. What are my options?

There are several collection options available, including having the IRS place your account in an uncollectible status.  However, in most cases, a payment plan will be required.  An IRS installment agreement is an agreement to pay taxes over a period of time in monthly installments. An installment agreement will stop other collection activity while you are making your payments on time.  In many cases, we can set up a payment plan for you by making one phone call to the IRS. However, in other cases, usually where your balance is $25,000 or more, we may need to take financial information via Form 433-F before the IRS will agree to a payment plan. You can obtain this form at the IRS website at www.irs.gov.or by clicking HERE

I owe the IRS a lot of money from many years ago.  How long can the IRS go back and try to collect this from me?

Generally, the IRS has 10 years from the date that the tax liability was assessed to collect any back taxes that are owed.  In many cases, the ten-year date starts to run when the tax return was filed or when additional taxes were assessed as the result of an audit.  There are many variations to determining when the ten-year date actually expires.  We can assist with ordering IRS computer account transcripts and analyzing them to determine when the IRS will no longer legally be permitted to collect your tax debts.  In some cases, the IRS collection statute is expiring soon and “doing nothing” may be the most attractive option available.

I owe the IRS payroll taxes from my business.  They are threatening to shut my business down.  What should I do?

The IRS looks at payroll tax liability cases as a major priority.  In fact, these cases rank higher on the IRS scale than do income tax audits, primarily because the IRS views these cases as “theft” cases.  Payroll taxes are considered a trust tax, which means that it is your responsibility as the business owner to withhold some income and employment taxes from your employee’s wages and pay it over to the government.  You will need to get this tax issue handled immediately or the IRS will make good on its threat to shut down your business.  Furthermore, the IRS can go after you personally (and any other responsible parties) for the amount of the trust fund portion of the employment/payroll taxes.  This type of tax issue should not be handled without professional representation.

 

ESTATE PLANNING

 

I just got married and am not sure if I need an estate plan or what one really is.  Can you help?

 In general, estate planning involves putting your personal and business affairs in order so as to maximize the benefits that your assets can provide to you during your life and to those you desire to benefit from them after your death.  During the planning process, we need to make sure that your assets will pass at your death to those persons you designate in a manner which will give them the maximum benefits; that any estate or other taxes are reduced or eliminated; and that the costs to your beneficiaries is reduced to the absolute minimum.  All persons, whether single or married, should consider an estate plan to make sure that all decisions are carried out as you decided.

I already have an estate plan.  Does it need to be reviewed?

An estate plan is not a permanent document and needs to be reviewed and periodically updated or revised.  You may want to have your plan reviewed if it has been more than three years since your last review.  In addition, there are many different life changes that may necessitate a specific review of your overall estate plan.  These events may include any of the following:

  • Birth or death
  • Marriage or divorce
  • Disability of you or a beneficiary
  • A large increase (or decrease) in the net worth of you or a beneficiary
  • A substantial change in the type of your assets
  • The purchase or sale of a business
  • The change of residence to another state/country
  • Changes in tax laws

Do I need a trust with my estate plan?

There are many different types of trusts and most estate plans will include one or more types of trusts.  Trusts can be used for business assets, with minors, with disabled individuals or others with special needs, as a part of your will and estate plan with children, to hold life insurance and for many other reasons.  Depending upon the type of trust and the purpose for which it was drafted and used, there can be many potential benefits, including:

  • Probate avoidance
  • Asset protection
  • Capital gains tax reductions
  • Privacy of family assets and finances
  • Avoidance of conservatorship
  • Resolution of guardianship issues
  • Creditor protection for your beneficiaries
  • Control of distribution of assets during life and after death
  • Control of management of assets during life and after death
  • Estate tax avoidance or reduction

What happens If I die without a will or trust?

If you die without first establishing a will or a trust, your assets will pass according to the laws of the state which has jurisdiction over your assets. This means that the state, and not you, determines who gets what after you pass away.  Even if the state were to distribute your assets according to how you would want, there are often additional problems concerning higher estate taxes, higher legal fees and potential issues with guardians or other fiduciaries in charge of your children and/or assets.  Contact us today so you and your family will not be in this position in the future.

 

TAX PREPARATION

 

How much do you charge to prepare tax returns?

Our rates are based upon the complexity of the tax forms and the number of schedules and forms we will need to file on your behalf.  We suggest that you review our price list under the Tax Organizer tab to get an estimate of the total cost.  Included in all returns is electronic filing at no additional charge.  Our service, professionalism and overall attention to detail are what sets us apart from other tax return preparers.

How long will it take to prepare my tax return?

We never prepare tax returns while you wait.  We believe that there is far too much complexity in the tax laws to prepare your taxes on-the-spot.  Instead, we have a filing schedule located in our Tax Organizer tab so you can see all required deadlines and the timeframes necessary to prepare your unique tax return.

When do I need to pay LONG LAW GROUP, LLC for the tax preparation services?

Payment for tax preparation services is due when the tax returns have been completed.  We accept all major credit cards, along with checks, Money Orders and PayPal.  The return will be electronically filed for you and all paperwork returned to you upon payment to our office.

I have already filed my tax return and just received new tax statements.  What do I do?

In many instances, a change of tax information reported to the IRS will result in the need to file an amended tax return.  ​​​An amended return is a return filed with the IRS and/or state because of an error, mistake or omission on your original return. You should file an amended return if there is a material difference between the original return and your new changes. In general, to claim a refund, your amended return must be filed within 3 years from the date of your original tax return or within 2 years from the date you paid the tax, whichever is later.  Our office is available to consult with the filing of any amended tax returns.

 

REDUCING TAX LIABILITY

 

I have owned my own small business for many years and it seems like I am paying a lot more in taxes now than before.  Is there anything I can do to reduce my tax burdens?

 Most of our clients and small business owners in general, benefit from a periodic tax planning review.  If you have not had one recently (or perhaps have never had any tax professional review your overall plan), you should consider one soon.  There have been numerous tax changes this year alone and many of these changes affect small business owners.  We can help you implement many tax planning techniques to assist you in reducing your tax bill to the bare legal minimum. There are a number of steps you can take, such as implementing additional tax deductions, reviewing your overall entity structure, coordinating business entities to maximize tax and other benefits, implementing retirement planning, etc. Each client will have a unique situation; therefore, please contact us to schedule a tax planning appointment, Your tax professional will generally want to see a copy of your last year’s income tax return(s), year-to-date financial statements, and a listing of assets and liabilities. Please have these items sent to our office before your appointment so we can be best prepared to serve you best.

 

TAX LAWS ARE UNCONSTITUTIONAL

 

I have read many articles online about how the U.S. government lacks the power to collect taxes from me and that paying taxes was voluntary.  Why should I pay taxes if I don’t have to?

Some of our clients have likewise read about what the IRS used to call “tax protestor” scams.  Many of the current tax scams promote that taxes are illegal/avoidable and that you are not required to pay them.  While our office will not assist anyone in illegally escaping taxation through any tax scam, we have helped many people get back on track if they were misled in the past and wanted to get compliant again as far as taxes were concerned.

The following is a listing of the most current list of tax scams the IRS is on the lookout for:

WASHINGTON –– The Internal Revenue Service today issued its annual “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

“Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,” said IRS Commissioner Doug Shulman. “Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.”

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

The following is the Dirty Dozen tax scams for 2012:

IDENTITY THEFT

Topping this year’s list Dirty Dozen list is identity theft. In response to growing identity theft concerns, the IRS has embarked on a comprehensive strategy that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

Identity theft cases are among the most complex ones the IRS handles, but the agency is committed to working with taxpayers who have become victims of identity theft.

The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund.

An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized.

The IRS has a robust screening process with measures in place to stop fraudulent returns. While the IRS is continuing to address tax-related identity theft aggressively, the agency is also seeing an increase in identity crimes, including more complex schemes. In 2011, the IRS protected more than $1.4 billion of taxpayer funds from getting into the wrong hands due to identity theft.

In January, the IRS announced the results of a massive, national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.  Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states.

Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit.  For more information, visit the special identity theft page at www.IRS.gov/identitytheft.

PHISHING

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels.

RETURN PREPARER FRAUD

About 60 percent of taxpayers will use tax professionals this year to prepare and file their tax returns. Most return preparers provide honest service to their clients. But as in any other business, there are also some who prey on unsuspecting taxpayers.

Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against many others.

In 2012, every paid preparer needs to have a Preparer Tax Identification Number (PTIN) and enter it on the returns he or she prepares.

Signals to watch for when you are dealing with an unscrupulous return preparer would include that they:

  • Do not sign the return or place a Preparer Tax identification Number on it.
  • Do not give you a copy of your tax return.
  • Promise larger than normal tax refunds.
  • Charge a percentage of the refund amount as preparation fee.
  • Require you to split the refund to pay the preparation fee.
  • Add forms to the return you have never filed before.
  • Encourage you to place false information on your return, such as false income, expenses and/or credits.

HIDING INCOME OFFSHORE

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 30,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to bring their money back into the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of this year, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will be open for an indefinite period until otherwise announced.

The IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

“FREE MONEY” FROM THE IRS & TAX SCAMS INVOLVING SOCIAL SECURITY

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly. They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware. Intentional mistakes of this kind can result in a $5,000 penalty.

FALSE/INFLATED INCOME AND EXPENSES

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions.  This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit when their occupations or income levels make the claims unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

FALSE FORM 1099 REFUND CLAIMS

In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

FRIVOLOUS ARGUMENTS

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

FALSELY CLAIMING ZERO WAGES

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

ABUSE OF CHARITABLE ORGANIZATIONS AND DEDUCTIONS

IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating schemes that involve the donation of non-cash assets –– including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals.

 DISGUISED CORPORATE OWNERSHIP

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

MISUSE OF TRUSTS

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

 

BUSINESS ENTITIES

 

I am now ready to go into business.  Should I form a corporation?

 Many of our clients have their own small business, whether the business is a small, home-based business to one with one or more outside locations.  There are many factors which come into play about how the business should be structured.  For instance, the best business for you is the one that meets your specific, unique needs.  This may mean leaving your business as a sole proprietorship to begin to keep costs low. However, this structure would provide no protection from the unlimited personal liability that the owners would potentially face with respect to any business liabilities.  As such, you may wish to have some legal separation between the business and you (the owner) and consider the use of a corporation or limited liability company to operate your business venture.

What are the benefits of incorporating my business?

There have been entire books written on this subject, but in general you would want to consider a corporation primarily to limit your personal liability for business obligations and debts.  In addition, a corporation may offer additional tax planning possibilities, may make it easier to raise outside capital and may decrease your chances of an IRS tax audit.

What services does your firm provide if I want to set up a business entity?

We handle all aspects of the establishment of a business entity.  First, we provide a telephone or in-office consultation on the options available to you and your business.  Once the type of entity is determined, we will establish this entity with the Secretary of State in the state where the business is located.  We then will obtain an Employer Identification Number (EIN) from the IRS so that you can open any bank or other financial accounts.  You will receive a corporate binder with all notes for initial meetings to get your business off the ground.  In addition, this binder will have all organizing documents and will contain your internal operating agreements/bylaws.  We also will make any tax elections with the IRS with respect to your new business entity, assist with any registered agent issues and make sure that we are available for another consultation after everything is established to make sure all questions have been properly answered.  We also provide tax preparation services for all business entities we establish at an additional cost.

What are my choices as far as entities are concerned?

Here is a chart of the most common business entity forms:

ENTITY PERSONAL LIABILITY/AUDIT RISK TAXATION CONTROL FORMALITY OF SETUP
SOLE PROPRIETORSHIP Unlimited HIGH Audit risk Flows through to owner; pays self-employment taxes on net income Sole owner controls Easiest
GENERAL PARTNERSHIP Unlimited LOW Audit risk Flows through to owners; pays self-employment taxes on net income Mainly in equal shares for each partner Easy, but filing with state is usually recommended
LIMITED PARTNERSHIP Unlimited for general partner, and limited for limited partner LOW Audit risk Flows through to owners General partner controls, regardless of percentage ownership Must file with state; need complex formal partnership agreement
C CORPORATION Limited LOW Audit risk Double taxation if dividends are declared; tax planning potential with fringe benefits and corporate tax rates/group life insurance Majority of shareholders control Many specific requirements/must file with state of incorporation
S CORPORATION Limited LOW Audit risk Flows through to owner(s); may be able to lower employment taxes Majority of shareholders control Same as C Corp, plus organization must meet additional requirements to be able to elect S Corp status
LIMITED LIABILITY CORPORATION Limited LOW Audit risk, unless taxed as a Schedule C/ disregarded entity, then HIGH Audit risk Flows through to owner(s) unless elected otherwise; can elect type of taxation (flexible); may have self-employment tax issues Manager-members control, regardless of percentage ownership Similar to C and S corporations depending upon how LLC is structured

 

REAL ESTATE

CAN I JUST USE A LEASE I FOUND ONLINE?

Of course you may, but it’s not a good idea. A lease is a legally operative document that courts will interpret to decide who should win in a dispute between a landlord and a tenant. Hiring a professional to assist in drafting a customized lease will help you to protect your rights, your investment, and ensure that a court will interpret the agreement in the best possible light.

ARE THERE OTHER DOCUMENTS IN ADDITION TO A LEASE THAT I SHOULD BE GIVING MY TENANTS?

Yes, and depending on the circumstances some may be required by law. For instance, if your rental property was built before 1978 federal law requires that you give your tenant a lead-based paint disclosure. A brochure is available from the EPA’s website, or call us today and we can provide you with an example.

MY TENANT STOPPED PAYING RENT. NOW WHAT?

You should consult with an attorney. An attorney may serve as a neutral third party in attempting to collect the rent and can often assist with reaching an amicable resolution. Or, you may evict the tenant.  If you’re thinking of eviction, there are many legal formalities that must first be observed (including serving adequate notice to the tenant and filing a complaint with the court).  If these strict formalities are not met, a court could dismiss your eviction. An attorney can assist you in ensuring that your eviction proceeds as smoothly as possible.

MY LANDLORD KEPT MY SECURITY DEPOSIT FOR NO GOOD REASON, WHAT CAN I DO?

Colorado statutes concerning security deposits lean more toward the tenant, imposing very specific and strict requirements on landlords to keep a residential security deposit. If a landlord is unlawfully holding a security deposit, a tenant may institute legal proceedings to recover it (plus damages and attorney fees). As with any legal proceeding, however, strict legal formalities must be observed (including notice to the Landlord and drafting and serving a complaint). Because attorney’s fees may be awarded to the tenant, it is best to consult with an attorney before attempting any sort of resolution alone.

I DISAGREE WITH THE TAX ASSESS ON MY PROPERTY. CAN YOU HELP?

Property owners may appeal the assessor’s valuation of their property, and can even apply for a refund of property tax paid. We can assist you by double-checking the method used for the valuation, checking for errors in the existing assessment, comparing the assessment to comparable properties, and ultimately request a formal appeal to ensure that you don’t pay a single cent more than you should.