The IRS has taken it away and now offers to help give it back!

Over the past week the news wires have been burning up over the IRS’s decision to revoke the tax-exempt status of approximately 275,000 U.S. nonprofits for failing to comply with IRS tax law requirements. IRS attorneys report the agency is now offering its assistance to help nonprofits regain their tax-exempt status. Of course, like most government assistance it won’t be free. Getting back their tax-exempt status will cost nonprofits upwards of $850 each.

IRS tax lawyers say existing nonprofits will now be required to fill out an application and pay a user fee (whether they had to in the past or not). If the nonprofit’s average annual gross receipts exceed, or are projected to exceed $100,000 annually over a four year period, the user fee will be $850. If the annual gross receipts have not exceeded, or are projected not to exceed $100,000 annually over the same time period, the user fee will be reduced to $400. Smaller nonprofits with annual gross receipts of $50,000 or less for 2010 will pay a reduced application fee of $100.

According to IRS attorneys, the filing requirement for nonprofits dates back to a 2006 IRS tax law which mandates most tax-exempt nonprofits to file an annual information return or notice with the IRS. Churches and other religious groups are not included within this filing requirement. Smaller nonprofits were added to the IRS tax law in 2007.

For those donors who made a contribution prior to the nonprofit loosing its tax-exempt status, IRS tax lawyers say donors can still probably claim a tax deduction. However, these IRS attorneys warn that making a financial contribution to a nonprofit after it has lost its tax-exempt status will preclude the donor from claiming a deduction going forward. For potential donors questioning whether a nonprofit has been reinstated as a tax-exempt organization, IRS attorneys suggest you ask to see the IRS’s new determination letter relating to that specific nonprofit organization.

In most instances, the effective date of reinstating a nonprofit’s tax-exempt status will be the date the application is submitted to the IRS. But, IRS tax attorneys add that if the nonprofit so requests, the reinstatement can be made retroactive to the effective date of revocation.

If you have a nonprofit organization which has lost its tax-exempt status, or you made a donation to such an organization and have questions, you are encouraged to seek out advice from a competent tax lawyer to get the answers you need.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS Penalties hard to shed, but not impossible

With all the complexities and confusion associated with IRS tax law, it is common for even the most sophisticated taxpayers to hire an IRS attorney or accountant to wade through difficult tax issues (such as IRS Penalties) and help prepare tax returns. But relying on tax advisers will not guarantee the IRS won’t assess penalties if you take a tax position the agency challenges.

While IRS tax lawyers are quick to point out that interest charges on back taxes typically can’t be waived, claims that you’ve relied on a tax adviser to avoid penalties may be a different story, under the right circumstances. For example, IRS tax attorneys say that if your tax adviser is an employee there is a good chance your reliance on his/her tax advice will not be sufficient to escape IRS penalties (see Seven W. Enterprises, Inc. et al.). If, however, your tax adviser was an independent, outside tax adviser the outcome may be different.

IRS attorneys explain to avoid penalties the government is going to ask whether your adviser was a competent professional with sufficient expertise to justify your reliance. Of course, the government will also want to know if you provided your tax adviser with all the necessary and accurate information needed to provide competent advice. And ultimately, IRS tax lawyers say the government will want to know if you actually relied in good faith on the adviser’s judgment.

Assuming you can prove all of the above, there is a good change you may be able to avoid IRS penalties. That’s particularly important as tax penalties can be very costly. In fact, the accuracy-related penalty is 20% of the back taxes owing, and under certain circumstances IRS attorneys say the penalty may go up as high as 40%. Avoiding penalties can mean saving hundreds, thousands, or even millions of dollars.

In some cases, a tax adviser may be deemed to be a “promoter.” IRS tax attorneys say a promoter refers to a tax adviser who actually participated in structuring the questionable transaction; or who is somehow otherwise connected to the transaction by way of an interest in or profits from the questionable transaction. In the case of Tiger’s Eye Trading, LLC v. Commissioner, a taxpayer’s reliance on a lawyer and accountants who structured the transaction and profited from its implementation was not sufficient reliance in “good faith” to avoid penalties. In a humorous passage contained within the Tax Court’s opinion, IRS attorneys say the Court wrote “promoters take the good-faith out of good faith reliance.”

In the end, it is your responsibility to ensure your tax returns are accurate and that you take appropriate positions under IRS tax law. If you need help, consider hiring an independent, competent, outside tax lawyer. It may save you some money if you wind-up making a mistake.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Tax Lawyer, Roni L. Deutch’s troubles continue

Tax lawyer, Roni Deutch pled not guilty last Friday to contempt of court charges filed
against her in a Sacramento California Superior Court. The contempt charges arise
from an allegation by the California Attorney General’s Office that Ms. Deutch violated
Court orders by shredding documents and failing to pay tax refunds to clients.

In August 2010, the IRS tax attorney was sued for $34 million dollars by the Attorney
General’s Office which alleged the tax lawyer had swindled hundreds of clients who had
gone to her tax resolution service to help resolve such things as their back taxes, IRS
liens, IRS levies, and/or IRS wage garnishments.

IRS attorneys following the case, note that in April 2011 the Court froze Ms. Deutch’s
assets in response to the Attorney General’s request for contempt charges. On
May 12, 2011, the tax lawyer shut down her $25 million dollar a year practice telling
reporters “I’m not the monster the Attorney General made me out to be.”

As some of “The Tax Lady’s” former clients come forward with disturbing allegations of
bogus billing and no work being performed on their cases, many find themselves further
in debt and no closer to a resolution of their tax problems. While such allegations are
unfortunately too common in the tax resolution services industry, many IRS attorneys
say it is extremely rare to have a law firm implicated in such conduct.

Ordinarily, hiring an IRS tax attorney, rather than a tax resolution company which
uses CPA’s, former IRS employees and/or enrolled agents is a safer move for most
taxpayers in trouble with the IRS. Attorneys are held to higher ethical standards and
are monitored by State Bars tasked with protecting the public. Further, communications
with non-attorneys are not privileged and the IRS may call your non-attorney
representative as a witness against you. Additionally, a tax lawyer possess the
necessary skills and training to provide you with more options in resolving your tax
matter and can take your case to Tax Court, U.S. District Court or Claims Court if
necessary.

But with most things in life, deciding which tax professional to hire requires doing your
homework. Information is available about IRS tax attorneys from the Better Business
Bureau, the State Bars where the IRS attorneys are admitted, and even the IRS itself.
Ultimately, however, it is your responsibility to fix your own tax problems and get help if
you need it from the right tax lawyer or other tax professional.

 

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Tax friendly States to Retirees

For seniors wrestling with a troubling economy and limited-fixed incomes, IRS tax lawyers suggest one important consideration to maximize your financial resources is to limit, to the extent legally possible, your tax burden by moving to  tax friendly states. In this regard, IRS attorneys point to a recent article in the Kiplinger’s Personal Finance magazine which identified tax friendly states and not-so-friendly states.

It may come as no surprise, but IRS tax attorneys say Wyoming topped the list of most tax-friendly states for retirees. IRS attorneys say the State of Wyoming has no state income tax, which in these days of government taxing and spending run amok, is a refreshing change of pace for most retirees.

The Magnolia State, Mississippi came in second on the Kiplinger’s list. IRS tax lawyers report that retirees in Ole Miss can look forward to their Social Security benefits being exempt from state taxes. According to IRS attorneys the state also excludes all qualified retirement income from state taxes, a definite added-plus.

Interestingly, Pennsylvania came in third on the list because it reportedly offers state income-tax exclusions on a wide-variety of retirement income. IRS attorneys caution seniors thinking about Pennsylvania to look further into whether their specific sources of retirement income qualify for exclusion under Pennsylvania’s tax laws.

Coming in a close forth was The Bluegrass State, Kentucky. IRS attorneys report Kentucky exempts Social Security benefits from state income taxes, and that it also excludes up to $41,110.00 per person of a wide-variety of retirement income, including public and private pensions and annuities.

Number five on the Kiplinger list is the Yellowhammer State, Alabama. IRS tax attorneys say that Alabama exempts most retirement income from state income tax. Again, retirees thinking about relocating to Alabama to take advantage of favorable state tax treatment of retirement income should do their homework before backing their bags.

While many IRS attorneys recognize state income tax can be a factor in helping to dwindle away a retiree’s nest egg, these same IRS tax lawyers remind retirees there are other factors to consider. For example, the differences in cost of living in various states can be significant, and those differences may outweigh the favorable tax benefits. Other factors include such things as proximity of family, the weather, and the availability of suitable medical facilities and treatment options to name of few.

They say growing old ain’t for sissies, but it doesn’t mean you shouldn’t do what you can to make your retirement years as enjoyable and tax free as possible. So in the famous words of Star Trek’s Mr. Spok, “live long and prosper.”

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS publishes interesting statistics

Quarterly the IRS publishes a Statistics of Income (SOI) Bulletin which tracks some
interesting data. According to the recently released information pertaining to the 2008
tax year, IRS attorneys maintain the most recent SOI Bulletin showed more than 4.3
million tax returns had adjusted gross incomes of $200,000 or more. IRS tax lawyers
point out that number represents approximately 3% of all the individual tax returns filed
in 2008.

Other information disclosed by previously published SOI Bulletins revealed that in 2007
approximately 143 million individual tax returns were filed. IRS attorneys indicate of
those, approximately 27 million were filed by taxpayers between the ages of 35 and 44
years old. Significantly, this was the largest group of taxpayers filing individual returns
in 2007.

If you are interested in knowing which State’s taxpayers had the largest adjusted gross
income (AGI) in 2007; IRS attorneys would tell you it was Connecticut. In fact, it was
the only state having an AGI greater than $90,000 in 2007.

Suppose you wanted to know where the majority of foreign recipients of U.S. income
lived in 2008? IRS tax attorneys point out an SOI Bulletin reported that eight (8)
countries had approximately 67% of all the foreign residents receiving U.S. income.
Those countries included the United Kingdom, Cayman Islands, Germany, Japan,
Switzerland, Canada, France and the Netherlands.

Another interesting statistic revolves around the question of gift tax returns. IRS tax
lawyers say that according to an SOI Bulletin, there were almost 235,000 federal gift
tax returns filed in 2008. These returns revealed that approximately 40.2 billion dollars
exchanged hands through reported gifts that year.

If you are interested in purchasing a subscription to the IRS’s SOI Bulletins, IRS
attorneys suggest you may do so through the Superintendent of Documents, U.S.
Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. An annual
subscription is $53.00.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Demographics and government spending; a formula for disaster

With the economy in the tank, America’s population getting older, and government spending, IRS attorneys say the government is facing a huge problem. Beginning in 2010, the “baby boomers” started reaching retirement age. As the country approaches 2015, the percentage of our population getting ready to retire is expected to grow so quickly that the U.S. economy, even operating on all eight cylinders, won’t be able to keep up. This, according to several IRS tax attorneys, means the government will be forced to drastically cut spending, drastically increase taxes, drastically increase the country’s debt ceiling, and/or all of the above immediately following the 2012 Presidential election.

As the U.S. Congress debates increasing the current debt ceiling ($14.26 trillion dollars), because we have already exceeded that amount this past April when the national debt rose to a staggering $14.28 trillion dollars, IRS tax lawyers suggest our nation’s tax-base is shrinking as more and more Americans retire, and more and more manufacturing jobs leave the country. The problem becomes more acute, according to these IRS attorneys, when politicians focused on getting reelected can’t, or perhaps more accurately won’t fix the problem while there is still time to avoid a much larger predicament in 2015 and beyond.

Currently, government spending accounts for approximately 25% of America’s gross domestic product (GDP). Most economists and IRS attorneys will tell you that as government spending becomes a larger percentage of GDP, our economy becomes less stable and less capable of supporting that government spending.

As our population matures, IRS tax attorneys point out programs like Medicaid will require much more funding absent extraordinary reforms. Paul Dietrick, chairman of Foxhall Capital Management, and a former Republican Congressman from Missouri, suggests the country can live with government spending hovering around 20% of GDP. But in order to achieve that percentage, Dietrick argues the country will have to increase the retirement age to 68, and we’ll need to reform the corporate tax system to collect more taxes from big corporations.

With the country rapidly getting to the point where 30% of its population will be retired, it doesn’t take a rocket scientist to understand the problem will get much worse within the next few years. IRS tax lawyers are concerned that with people living longer (the average life expectancy is now in the 80’s versus when Social Security first started folks were expected to live to age 68) and the baby boomers quickly reaching retirement age
in large numbers, the government’s options are getting more limited by the day.

It’s time the government stops playing politics, focuses on real tax reform and living within its means. Most IRS attorneys will tell you that we can no longer afford politicians who push off uncomfortable decisions until the next election cycle, and who are unwilling to jeopardize their own political careers to fix the country’s financial problems.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

More audits and better electronic systems encourage fixing mistakes

According to IRS attorneys, earlier this year the IRS reported its audits of 18.4% of
2010 tax returns filed by taxpayers with adjusted gross incomes (AGIs) in excess of
$10 million dollars. IRS tax lawyers say that is an increase of 10.6% over 2009. For
taxpayers with AGIs between $5 and $10 million dollars in 2010, the number of audits
increased by 55% over 2009.

IRS attorneys point to the Agency’s aggressive offshore bank account investigations
and its newly formed Global High Wealth Industry group as part of the reason for the
increased number of audits. During a meeting of the New York State Bar Association’s
Taxation Section, IRS Commissioner Doug Shulman told the IRS tax attorneys in
attendance “We’re looking for and finding points of leverage, also called ‘nodes’ of
activity, where multiple people not paying taxes can be detected. Financial institutions
are one such potential node of activity. Promoters of evasion schemes are another.”

With a centralized and focused IRS compliance expertise involving high net worth
individuals the Agency’s Global High Wealth Industry group is just one of several IRS
initiatives prompting more audits, say many IRS attorneys. Another factor prompting
more audits according to several IRS tax lawyers is improvement of electronic systems
and upgrades designed to capture more mistakes and collect more back taxes.

The IRS tells taxpayers that it may correct math errors and accept returns with certain
forms or schedules left out, so don’t file an amended return if you make a math error
which doesn’t change the amount you owe. But, IRS tax attorneys suggest, and the
IRS agrees that if your original return had mistakes regarding your filing status, income,
deductions or credits you should file an amended return to correct the errors.

If you end-up making a mistake which affects the amount you owe, and are hoping it will
go unnoticed, IRS attorneys say the chances are you will be caught and the penalties
and interest will likely be substantial. What’s more, IRS tax lawyers warn that if you owe
back taxes and are unable to pay, new electronic systems employed by the IRS will
make its collection efforts much more efficient. In addition to IRS liens, you may also
be subject to IRS wage garnishments and IRS levies.

So don’t stick your head in the ground hoping your tax troubles will all go away on their
own. With increasing audits, more electronic efficiencies the IRS is particularly focused
on getting any back taxes owed sooner, rather than later.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Poor Data Plagues IRS Enforcement Efforts

IRS attorneys who have now reviewed a May 12, 2011 Government Accountability Office (GAO) report, which was recently released to the public on June 13, 2011, say the report is critical of the IRS enforcement efforts. Specifically, these IRS attorneys indicate the GAO’s report (11-493) concludes the IRS isn’t adequately investigating abusive tax avoidance transactions (ATATs) due to poor data.

While the IRS is evidently aware of the problem, IRS tax lawyers say such transactions are often complicated schemes involving highly technical tax shelters making them difficult for the Agency to uncover. These same IRS tax attorneys indicate the GAO’s report also cites a lack of metrics, to adequately track enforcement efforts, makes it impossible for the IRS to say whether their investigative efforts have been successful to reduce the number of ATATs, or whether the number of ATATs is growing.

According to Stephen T. Miller, IRS Deputy Commissioner for Services, “The IRS agrees that better data may lead to better decisions about focusing resource allocations and improve our enforcement efforts for Abusive Tax Avoidance Transactions.” But, IRS tax lawyers are quick to note that while better data might help the IRS be more effective, the challenge will be for the Agency to do more with less given Congress’ recent cuts to the IRS’s budget.

The GAO recommended stronger penalties against non-material adviser promoters submitting investor lists late. According to the GAO’s reasoning, IRS attorneys point out that as ATAT trends are constantly changing, getting pertinent information on time could help indicate which types of investigations the IRS might initiate.

As IRS tax law becomes increasingly more complex, in part through legislative initiatives seeking to achieve political agendas, ATATs are likely to continue growing. IRS tax lawyers suggest that eliminating much of the complexity associated with current IRS tax law might actually reduce the number of ATATs.

In the end, the IRS is really a victim of the government’s own design. With more politically driven deductions, tax credits, and loopholes for big companies, ATATs are presumably growing as well. Of course, given the GAO report, we are left to our assumptions because we now know the IRS can’t tell if ATATs are growing or not.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

IRS criticized for not scrutinizing auto buying deductions

IRS tax lawyers say a Treasury Inspector General for Tax Administration report is critical of the IRS’s handling of auto buying deductions. According to IRS attorneys, the report reveals the agency did not require proof from people claiming deductions for new vehicle purchases permitted under the 2009 Economic Stimulus Act.

These same IRS attorneys indicate the report also claims the IRS failed to identify and stop what could possibly be erroneous refunds for 4, 257 taxpayers who asserted $151.1 million dollars in deductions in excess of what the agency considers allowable. IRS tax attorneys privy to the report mention the Inspector General’s report also said, there 473 individuals who were erroneously given approximately $1 million dollars in deductions. Of the 473 identified, the report claims 439 were in prison, and 18 were underage, and 16 were deceased.

While the IRS predictably claims no amount of fraud is acceptable, it has attempted to mitigate the criticisms by reminding the public these incidents represent a very small percentage of the amount of information, deductions, credits, and refunds it oversees. IRS attorneys agree the agency is overwhelmed with out-dated technology and staffing issues which adversely impact its enforcement efforts.

While the IRS is still wading through the auto buying deductions, and seeking to address the items listed in the Inspector General’s report, IRS tax lawyers warn taxpayers should seize the opportunity and be proactive in correcting their reporting mistakes.

Taxpayers who erroneously sought auto buying deductions may be at risk for such claims and should to seek advice from a competent IRS attorney to get the answers needed to fix the problem before the agency catches the mistakes. Failure to do so may result in the IRS initiating collection activities to collect the back taxes owing through such means as wage garnishment, IRS levies and/or IRS liens.

Further, IRS attorneys advise that if a taxpayer does owe back taxes for an improperly asserted deduction, the sooner that back taxes may be paid, the sooner the taxpayer can reduce further penalties and interest.

 

Segal, Cohen & Landis
9100 Wilshire Blvd., Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

Patenting tax-strategies; A mistake which has been costly

According to IRS tax lawyers at the end of May 2011, there were over 140 patented tax-strategies and more than 160 more pending applications relating to patenting tax-strategies. These IRS attorneys note that for years, consumer and tax groups have lobbied to have such patents banned.

The issue, say some IRS tax attorneys, is that by patenting tax-strategies, advisors speaking with clients run the risk of infringing upon a patent. Linda Sherry, a spokeswoman for Consumer Action, maintains that this has led to a situation where “some taxpayers have to pay more to make sure they are following the law without stepping on anyone’s toes.”

David Kappos, Director at the U.S. Patent Office, claims that patenting tax-strategies has been become problematic. After all, Mr. Kappos claims “The problem you get into when you start getting into patenting compliance with laws is that it’s a matter of public policy.” And, Representative Bob Goodlatte (R., VA) says “It is a major abuse of our patent law….The thought that someone could come up with an idea for how to reduce your taxes, and then patent that, and then license it to someone else who wants to use it is outrageous.”

But relief may be on the horizon. IRS attorneys monitoring Congressional lawmakers report that the U.S. House of Representatives is expected to vote later this week on a bill which promises sweeping reforms to the patent system, and specifically prohibits the patenting of tax-strategies. A similar bill has already passed the Senate in a 95 to 5 vote.

However, as with most proposed legislation in Washington these days, IRS attorneys say there is a wrinkle in getting passage of the bill through the House. Specifically, House Republicans are lobbying for the Patent Office to keep its own fees.

In the end, if the proposed legislation becomes law, IRS tax lawyers, accountants, consumer groups and lawmakers all appear to agree that tax-strategies should not be the subject of a patent, and by prohibiting such practices it will eliminate much anxiety amongst tax advisors.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999