Archives for December 2021

IRS FLEXING ITS MUSCLES

December 28, 2021 by Frank

Build Back America Plan Proposes $80 Billion Increase to IRS Budget Allowing Hiring of 87,000 New Employees

Taxpayers in the News

IRS cases against actors Charlie Sheen and Chris Tucker made recent news headlines. As the 2021 tax filing season is quickly approaching, the IRS is using this form of publicity to warn taxpayers to fulfill their tax obligations.

It has been reported that the IRS alleges that Chris Tucker (the Rush Hour actor) owes it $9.6 million in back taxes, interest and penalties for tax years 2002, 2006, 2008 and 2010 when he reported and paid significantly less than he actually owed. Court docs state that Tucker attempted to pay off his debt three times through monthly installation agreements, but they ultimately fell through for various reasons.

Actor Charlie Sheen is best known for his TV role in Two and a Half Men. He owes the IRS millions, is tired of its collection efforts, and has been trying to negotiate a deal with the agency. Mr. Sheen has unsuccessfully attempted to settle his IRS debt via an installment agreement and via an offer in compromise (OIC).

It has been reported that Sheen owes for tax years 2015, 2017 and 2018. His 2015 tax liability was $5.7 million. He supposedly offered the IRS $1,240,000 as a compromise, but later revised it to $3.1 million to cover all three years. When he made his revised offer, he paid the IRS $626,000 as the required 20% down payment. When an OIC is rejected, the down payment is not returned to the taxpayer, but is applied against the balance due. Mr. Sheen is now suing the IRS claiming it abused its discretion when rejecting his offer, citing his tortured history dealing with the IRS, and that the Los Angeles area director did not give him a fair shake.

Tax Tip #1

You need to understand that installment agreements are easier to get since the IRS isn’t reducing the amount the taxpayer owes, it is merely agreeing to get paid the entire balance due it (in most cases) over time. OICs are much harder to attain because the IRS is agreeing to accept less than the full amount owed. If the IRS’s financial analysis (Form 433A) shows that it can collect the entire balance due before the statute of limitations expires, it will generally not accept the OIC.

Tax Tip #2

There is likely more to Mr. Sheen’s story than is being reported or alleged by him. If the Form 433-A(OIC) financial analysis shows that the taxpayer qualifies for an OIC, the taxpayer’s offer will generally be accepted by the IRS. If Mr. Sheen merely made an arbitrary monetary offer that he thought was a fair offer to the IRS to settle his debt, and the financial analysis did not support that offer amount, the IRS would reject his offer.

When OICs are made, the taxpayer makes an offer for all tax years owed to the IRS and the taxpayer needs to be in compliance (fully paid) for all other tax years. From the facts of Sheen’s case that were reported, that doesn’t seem to be the case which is likely why the IRS would have rejected his offer.

Tax Tip #3

The IRS has announced that if (and when) it gets an increased budget, it plans to hire more agents to audit more taxpayers. If you are not currently in compliance, this may be the time to reevaluate that strategy. The longer a taxpayer is non-compliant, the greater the penalty and interest assessments. These can very significantly add to the total tax debt.

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.

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.

Offers in Compromise (OIC) – The Numbers Behind the Hype

December 21, 2021 by Frank

Every taxpayer who has IRS tax debt wants to be accepted in the IRS’s OIC program. Who wouldn’t? OICs allow taxpayers to settle their tax debt for less than the full amount owed.

Misconceptions About OIC Program

One of the IRS’s 2021 “Dirty Dozen” tax scams are schemes that persuade taxpayers into unscrupulous actions, such as Offer in Compromise mills. Many of these OIC mills advertise that they can settle taxpayer debt for “pennies on the dollar”. Some falsely claim that they have a special relationship with the IRS to get OICs accepted by the IRS. Very often taxpayers spend thousands of dollars to these OIC mills only to find out later that their offer was rejected by the IRS.

The Truth About OIC Program

What does the OIC program mean to the average taxpayer in collection? Absolutely nothing. The cold hard facts are – almost no taxpayer gets an Offer in Compromise as a way to settle their IRS Collection Case.

In 2020, the last year statistics are available, the IRS settled 7.4 million IRS Collection Cases. Of those settled cases, only 14,288 offers were accepted. That’s right – less than 1/4 of 1% are settled with an Offer in Compromise.

Tax Tip #1

If a tax resolution firm says that you are eligible for an OIC and does not perform a financial analysis of your assets and income and expenses . . . run, don’t walk, away from that firm. The only way to determine if a taxpayer is eligible for an OIC is to perform an analysis of the taxpayer’s financial situation . . . looking at the fair market value of assets held, all debt obligations, gross income, and expenses allowed per the IRS tables. The IRS uses Form 433-A(OIC) to compute what an individual taxpayer’s ability to pay is.

Tax Tip #2

CPAs, attorneys and EAs (enrolled agents) are eligible to file OICs on behalf of a taxpayer. However, just because a person is eligible to represent a taxpayer before the IRS, does not mean that they are qualified to do so. The cost to have a professional file an OIC will run in the thousands of dollars, totally dependent upon the number of years of returns not yet filed, the complexity of those returns, whether the taxpayer is self-employed or a W-2 employee, the amount owed to the IRS and the number and types of assets and debt held to name a few considerations. While the IRS informs taxpayers that they can self-file their OICs, which is correct, the IRS does not share the intricacies of filing an OIC that reflects the lowest amount (if any) that a taxpayer can afford to pay.

Hence, the importance of engaging a tax professional who specializes in IRS tax resolution. This specialist may know the IRS’s rules better than the person evaluating your OIC and get you the very best offer available to you.

Tax Tip #3

Far too often, some tax professionals and taxpayers focus solely on the federal taxes owed. If federal taxes are owed, it is likely that state taxes are often due. It often is in the taxpayer’s best interest to resolve the state taxes before seeking relief from the IRS. Payments made to the state, if structured properly, can be an allowed expenses when computing what the taxpayer can afford to pay the IRS.

Tax Tip #4

If a taxpayer does not qualify for an OIC, all is not lost. Other resolution alternatives include installment agreements, currently not collectible (CNC) status, and penalty abatements. A tax professional who specializes in IRS tax resolution will be intimately familiar with these alternative plans and can advise you accordingly.

If you would like to discuss your business or personal tax planning, tax preparation and other financial If you have been using the IRS has a bank to hold your overpayment,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.

Sole Proprietorship or Limited Liability Company (LLC)

December 13, 2021 by Frank

Operating as a sole proprietorship is the least complicated way to run a business. But, is it the best way to run a business?

The Simplicity of a Sole Proprietorship

In the eyes of the IRS and state taxing authorities, a sole proprietor has full responsibility for his or her business. That’s good for owners who want simplicity. Owners can comingle their business assets with their personal assets. All revenues earned by the business and expenses paid by the business can be deposited into or written from the personal checking account.

Generally, no special filings need to be made with the department of state or revenue when a sole proprietorship is used.

Why Would Someone Prefer Operating as an LLC?

To limit personal liability. When one operates as a sole proprietor, the business owner is personally liable, meaning his or her personal assets and savings can be at risk. Incorporating or forming an LLC generally protects the owner against personal liability.

To establish business credit and get funding. Once you form an LLC (or corporation), the business itself begins its own credit profile.

To give your business more credibility. Adding an LLC or Inc. after your company name boosts your credibility in the eyes of some customers and vendors. In fact, a formal business structure is required in some industries to win certain contracts. Some businesses are more comfortable hiring a business than a sole proprietor to do work for them.

Potential tax benefits. Sometimes, corporate tax rates are lower than individual tax rates. Plus, there are additional tax benefits and deductions for corporations that are not available to individuals. By incorporating, you’ll lower what you owe in self-employment taxes.

What Are the Negatives of Creating an LLC?

Negatives of operating as an LLC include, but are not limited to . . .

Registrations with the state department of state and department of revenue are usually required.

A separate set of books and records will be required. The business owner (in most cases) will not be able to comingle business revenues and expenses with the owner’s personal checking account.

If the LLC needs to borrow from a bank, the loan will be treated as a commercial/business loan and not as a personal loan, resulting in an increased loan interest rate being charged.

Tax Tip #1

A business owner can create their own LLC using one of the many Internet resources available. However, before doing so, the business owner should consult with an experienced tax professional AND business tax attorney. Tax professionals do not know all of the nuances of the legal law and regulations, and likewise attorneys generally are not well-versed with the federal and state tax rules and regulations.

LLCs can operate as a sole proprietorship (if only one owner), a partnership (if two or more owners), and as a corporation (regardless of the number of owners). An LLC electing to be taxed as a corporation can be taxed as an S Corporation by timely filing IRS Form 2553, or as a C Corporation. An experienced tax professional working with your historical financial records or your 5-year budget plan (if a newly formed business) can best advise you which type of LLC legal entity best suits your business.

Tax Tip #2

Although sole proprietors can comingle their business revenues and expenses with their personal checking account, that is never a good idea for several reasons. If audited by the IRS or state, the audit will be more simplistic if the LLC’s financial records are kept separate from the personal financial records. If the finances are comingled, the audit of the business will by necessity include that of your personal finances. Also, the auditor will likely want to classify every deposit in your personal checking account as LLC revenues unless you can prove otherwise. Will you be able to recall every deposit in your checking account two or three years later when the auditor shows up, and will you be able to prove the source of that deposit as not being business related? Keeping the books separate eliminates so many potential audit issues.

When it comes tax preparation time, it is important that the business transactions are easily and readily identified to prepare a complete and accurate business tax return.

Should you decide to sell the business, the buyer will want to see the financial records to verify the business activity. Likewise, the seller will not wish for the buyer to see his/her personal finances. Short order – keep the business financial activity separate from the personal checking account.

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.