Archives for August 2021

Psst! Do You Want to Buy a Rolex Watch Real Cheap? And It’s Not Hot!

August 31, 2021 by Frank

Would you like to purchase a home, an automobile, or a Rolex watch and name the price you are willing to pay?

U.S. Department of Treasury Has Inventory for Sale

The U.S. Treasury Department division that taxpayers are most familiar with is the Internal Revenue Service. The IRS is charged with collecting the tax liability of taxpayers. When taxpayers do not pay their taxes, the IRS will often levy the taxpayers’ assets. Another word for “levy” is “seize”. Did you ever wonder what happens to those seized assets?

IRS Auctions Off Seized Assets Taken from Taxpayers

The IRS does not to want to hold onto the assets it seizes nor does it wish to play a custodian role. It simply wants to liquidate those assets into cash ASAP. When seizing assets, the IRS prefers high-end assets as they are the easiest to dispose of and will generate the most revenues for the U.S. Treasury.

Taxpayers who are looking for a potential good deal for a home, vehicle, Coach handbag, Rolex watch, or other valuable high-end property can perhaps find it by visiting the U.S. Treasury Department website for auctions.

If you would like to discuss your business or personal tax planning, tax preparation, IRS tax debt problems or other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Why Did the IRS Select Me for an Audit Exam? [Part 1]

August 25, 2021 by Frank

The receipt of an IRS notice informing the taxpayer that s/he was selected for an audit examination naturally creates anxiety. Let’s look at why a return is selected for an audit exam by the IRS.

What Is the Purpose of an IRS Audit?

An IRS audit reviews and examines an individual’s (or business) tax return to ensure it’s reported correctly according to tax laws and to verify that the reported amount of tax is correct.

What Is the Problem Identified With My Return?

Taxpayers need to realize that their selection for an audit doesn’t necessarily mean that there’s a problem. The IRS uses different methods to identify returns to audit. These include:

Returns selected solely by a statistical formula. It compares your tax return against norms for similar returns. If your return differs from the norm, the IRS wants to know why that is the case.
Related examinations — Your return may be selected if involved with those of business partners or investors whose returns were selected for audit. For example, the IRS has identified that tax returns that include information from a certain K-1 was handled improperly, and thus it identifies other taxpayers who reported the same K-1 income.
Taxpayers who engage a disreputable tax preparer who files false tax returns – possible guilt by association.

Types of IRS Audits

CP 2000 Audits – IRS computers match information reported by the taxpayer against third party information providers, e.g., W-2s, 1099s, K-1s, etc. If there is a mismatch, the IRS sends the taxpayer a CP 2000 notice showing the discrepancy by reflecting both the amounts received by the third parties and the taxpayer and requests that the taxpayer respond.
Correspondence Audits — The IRS mails the taxpayer a notice showing a possible discrepancy and requests that the taxpayer respond by mail by providing the requested documentation.
Office Audits – The IRS invites the taxpayer to visit with it at an IRS service center and to bring along the information and documentation being requested by the IRS.
Field Audits – The IRS notifies the taxpayer that an IRS agent (usually an experienced Revenue Officer) wishes to visit with the taxpayer at their primary residence or place of business.

How Will the IRS Notify Me that I am being Audited?

If your account is selected for an audit, the IRS will notify you by mail — the audit won’t be initiated by phone or email. The IRS manages audits by mail or through an in-person interview to review your records. The interview may be at an IRS office or conducted at your home or place of business or your tax professional’s office.

The audit letter will request information about certain items on the tax return — income, expenses and itemized deductions. If you can’t respond by mail — too many books or records to mail — you can request a face-to-face audit.

The IRS will provide you with a written request for specific documents. These requests are called IDRs – Information Document Requests. The law requires you to keep all records for at least three years from the date the tax return was filed.

Tax Tip #1

If you have been selected for an IRS or state audit examination, immediately contact the tax professional who prepared your tax return and send them the IRS notice you received. The tax professional will likely have in his files the support documentation that you had provided to him when he prepared your return and received your tax organizer. Thus, the documentation requested will hopefully be readily available.

Tax Tip #2

If you inadvertently (or intentionally) failed to include a tax document or report an income item when your return was prepared, now is the time to provide it to your tax professional. Sometimes disclosing this information can facilitate the closing of the audit examination, minimize the assessment of interest and penalties, and perhaps keep the audit from being considered a criminal investigation by the IRS.

Tax Tip #3

If you used a tax preparer who included unsubstantiated deductions or omitted income in the return you filed and that was selected for audit, seek the assistance of an IRS tax resolution specialist to represent you during the audit exam. The IRS assesses penalties against taxpayers and tax preparers when deemed appropriate. You don’t want the tax preparer negotiating with the IRS on issues to reduce the tax preparer penalty at the expense of you, the taxpayer.

Tax Tip #4

You need to understand the IRS’s statute of limitations on making changes to a tax return. The IRS can audit returns filed within the past three years, but if there’s a substantial error, it may add additional years. The agency doesn’t go back more than the past six years unless fraud is discovered. There is no statute of limitations if a fraudulent return is filed.

If the audit isn’t resolved within IRS policy timelines, the IRS will request that the statute of limitations be extended. If the taxpayer refuses to extend the statute, the IRS could issue a jeopardy assessment to protect the government’s interests. An experienced tax professional needs to be consulted before extending the statute.

Taxpayer Rights, Appeals, Etc.

We will discuss in Part 2 your audit rights as a taxpayer and how to appeal an audit decision when you do not agree with the IRS’s findings.

If you would like to discuss your business or personal tax planning, tax preparation, or IRS tax debt problems, or other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

IRS Mess Creates Taxpayer Anxiety

August 16, 2021 by Frank

The IRS has a huge backlog on its hands due to its pandemic closing; lack of Congressional funding; increase of IRS responsibilities regarding stimulus payments, unemployment compensation benefits, advanced child tax credit payments; early IRS retirements resulting in a loss of its most experienced agents; and poor U.S.P.S. mail service.

The IRS Crisis in a Nutshell

Currently, several millions of taxpayers are waiting for their refunds and stimulus payments. Millions more are trying to settle issues with past tax returns and are unable to speak with someone at the IRS. Taxpayer anxiety builds with each warning notice received from the IRS assessing additional interest and penalties. The Washington Post quoted that if a taxpayer calls the IRS, he has a 1-in-50 chance of speaking with an agent.

How Big of a Tax Return Backlog?

At the end of the 2020 tax filing season, it was reported that the IRS had a backlog of 35 million unprocessed tax returns. Most of those unprocessed returns are due to the absence of IRS employees when the IRS shut down during the pandemic. Due to recent legislative changes, the IRS had to process a historically high number of returns manually to check for identity theft to ensure that scammers were not receiving refunds not due them. The current backlog is estimated at 15 million unprocessed returns (approximately 1 in 10 taxpayers). At the current IRS pace of addressing back tax returns, it is expected that the IRS will catch up around October 25 of this year.

What Happens if a Taxpayer Calls the IRS?

During the 2021 filing season, the IRS received 167 million telephone calls — over four times the number during the 2019 filing season. At one point, the IRS received calls at the rate of about 1,500 per second. How did the IRS manage to answer that many calls?

The simple answer is that the IRS was not able to handle that many calls. On the 1040 line, the most frequently called toll-free IRS number, only 3 percent of 85 million calls from taxpayers reached a phone assister. The Washington Post reported that Congressional funding only allowed the IRS to provide a 60 percent level of service. Thank you Congress. Michelle Singletary, a columnist for the Washington Post, said to think about that for a second, because that’s all it takes to see the callousness of this choice by Congress. The IRS, if it receives an expected $318 million in funding to increase taxpayer assistance, hopes to answer 75 percent of calls received. That falls short of the IRS goal to answer 80% of the calls it receives. That’s right, the IRS goal is not to answer 100% of the calls it receives due to budgetary restraints.

Nina Olson, the former director of the IRS’s taxpayer advocate office, said that “When the level of service gets so poor and correspondence and problems aren’t being addressed, it just gets cyclical. You call and then you are cut off after you are on hold. Then you write a letter explaining the situation, but no one answers it. And on it goes until sometimes taxpayers just give up and pay a bill that they really don’t owe, just because they are afraid of what might happen to them.” Does this sound familiar to your situation? This capsule explanation by a former IRS employee is a very good reason why using an IRS tax resolution specialist should be considered rather than self-representation.

Tax Tip #1

Nobody enjoys opening an envelope showing the sender as the IRS. Yes, bad news may be contained in the IRS notice, but it is most important that the IRS letter be opened immediately upon receipt as there are usually deadlines stated in which to reply to the IRS or to appeal a proposed tax assessment. Not opening an IRS letter does not make the problem go away. Often, by not timely responding, the taxpayer has simply compounded the problem. Taxpayers have certain rights, but those rights must be acted upon within certain time deadlines.

Tax Tip #2

Regardless of how simple you believe the response can be handled by yourself, send a copy of your draft IRS response letter to your tax advisor and ask them for their thoughts. If you make a misstatement of fact or your proposed response can be misinterpreted, you need to realize that your response becomes part of your tax record and can be difficult to correct. You could inadvertently have made your situation worse.

Tax Tip #3

Never send original tax documents to the IRS. Always send photocopies in case the IRS misplaces your response (sadly, this happens far too often) and those documents need to be resent.

Tax Tip #4

Always make photocopies of what you send to the IRS. If you are unable to resolve your IRS issue at the lower administrative level and you need to appeal the IRS’s decision, your tax professional will need to see what you have shared with the IRS.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Individual Was Personally Liable for Unpaid TFRP

August 12, 2021 by Frank

Treasurer of corporation failed to remit payroll withholding taxes and sole shareholder found personally liable for the taxes not paid.

The Facts of the Case

The taxpayer was the president and sole shareholder of his company. The taxpayer retained the services of a treasurer and accountant who prepared and signed the company’s quarterly tax returns and paid over any taxes that were due to the government. However, the company failed to pay over the taxes it withheld from its employees’ wages in trust for the government.

Is Taxpayer Liable for Misdeeds of Treasurer?

A district court granted summary judgment to the government on its complaint to recover outstanding Trust Fund Recovery Penalty (TFRP) that the IRS assessed against the taxpayer. The district court found that the taxpayer was personally liable under Code Sec. 6672 because he had a duty to pay over the taxes but willfully failed to do so.

Taxpayer Argues That His Failure to Pay Payroll Taxes Was Not Willful

The taxpayer appealed to the Eleventh Court of Appeals and argued that while he was responsible for paying the taxes, he did not act “willfully”. The Court of Appeals affirmed the district court’s judgment that an individual was personally liable for trust fund recovery penalties (TFRP) under Code Sec. 6672.

At trial, the taxpayer explained that he did not know about the unpaid taxes until an IRS agent pointed it out to him, following which he corrected the problem.

Why the Taxpayer’s Conduct Was Found Willful

The court stated that even if the taxpayer reasonably relied on the accountant to prepare the company’s trust-fund taxes, he became aware of the unpaid taxes during the last tax period when an IRS agent had alerted him towards it. From that point forward, the taxpayer had a duty to use all unencumbered funds available to the company, including acquired funds, to pay those back taxes. However, the taxpayer used those acquired funds to continue running the company which required him to pay employee wages, rent for office space, utility bills, loan repayments and suppliers for materials. By paying these other creditors before paying the unpaid trust-fund taxes, with knowledge of the tax liability, the taxpayer acted “wilfully”.

Tax Tip #1

Whether a company is using an outside service provider or an internal employee to timely remit payroll tax withholdings, the IRS provides taxpayers with online access to verify that the tax withholding payments are being made. While a taxpayer can delegate others to remit the payroll tax withholdings, they cannot delegate the responsibility to others. Use the IRS services and confirm that the remittances are being made. Depending upon the dollar amount of the payroll tax withholdings, this verification should be made per payroll period, monthly or annually. The frequency of the verification is directly related to the dollar amount of the tax withholdings.

Tax Tip #2

Once a responsible person becomes aware that payroll taxes were or are not being timely deposited, immediate priority of all payments made by the company need to be made to the IRS to pay the unpaid taxes. Once those funds are diverted for any other purpose, the IRS (and the courts) deem that behavior as being willful failure to pay payroll taxes and the responsible person becomes personally liable for those taxes.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.