Posted on September 29, 2023 in Taxation Law

Because of the complicated nature of the tax laws in the United States, there are many methods taxpayers may use to reduce the amount of taxes they are required to pay. While some of these methods are legitimate, there are others that the IRS has identified as abusive tax schemes that could potentially lead to penalties for tax avoidance. Monetized installment sales are one method that has recently been identified by the IRS as a possible form of tax fraud. 

Taxpayers who engage in these types of transactions could face tax audits or investigations by the IRS. Those who need to respond to IRS queries or determine their requirements for reporting transactions should consider working with an attorney who can provide guidance on the applicable tax laws and regulations.

Continue Reading ››

 Posted on September 20, 2023 in Taxation Law

Taxpayers who own retirement accounts can often take steps to maximize the amount of money they are able to save and ensure that they will have sufficient financial resources later in life. However, the rules regarding retirement account contributions have changed in recent years, and this has led to some confusion about the types of contributions that may be made and the taxes that may apply. To give taxpayers, employers, and retirement plan administrators more time to adjust to these changes, the IRS is providing a longer transition period before changes in the law will be implemented.

The SECURE 2.0 Act and Catch-Up Contributions for Higher Income Earners

The SECURE 2.0 Act, which was passed in 2022, made some changes to how taxes apply to retirement accounts. One provision of the act addressed catch-up contributions to 401(k) plans and other retirement accounts. These contributions may be made by people over the age of 50 beyond the annual deferral limit. In 2023, the employee deferral limit is $22,500, which is the total amount that can be withheld from a person’s income each year and saved in a 401(k) account. People who are at least 50 years old can contribute an additional $7,500, which is known as a catch-up contribution.

Continue Reading ››

 Posted on September 08, 2023 in Taxation Law

There are a variety of tax penalties that may apply when U.S. taxpayers fail to meet their legal requirements for filing tax returns, paying taxes, or reporting information to the IRS. Foreign tax compliance can be an especially tricky issue, since taxpayers who own foreign assets or receive income or gifts from foreign sources may not be aware of their reporting requirements. In some cases, failure to file the proper forms may result in international information return (IIR) penalties.

There is a common conception that IIR penalties are mostly limited to wealthy taxpayers who earn high incomes or own extensive assets. However, this is not the case, and according to the National Taxpayer Advocate, lower- and middle-income individuals and small-to-midsize businesses are more likely to be affected by these types of penalties. 

Continue Reading ››

 Posted on August 25, 2023 in Taxation Law

There are multiple types of financial assets that U.S. taxpayers may own, and certain requirements must be met when reporting assets and income to the Internal Revenue Service (IRS). Many taxpayers may need to address issues related to retirement accounts or pensions, but when these assets are held in foreign accounts or retirement plans, they will also need to ensure they follow the correct procedures for reporting foreign accounts and assets.

Some of the most common foreign retirement accounts held by U.S. taxpayers include Canadian registered retirement savings plans (RRSPs). The IRS has provided guidance on what forms need to be submitted to report RRSP ownership. Taxpayers may want to consider working with an attorney to address these requirements and determine their options for disclosing RRSPs that had not previously been reported.

Continue Reading ››

 Posted on August 08, 2023 in Tax Audits

For most taxpayers, a visit, call, or letter from the IRS can be very concerning. If a taxpayer has failed to pay taxes as required, has not reported information correctly when filing tax returns and other forms, or has otherwise failed to comply with tax laws, they can face significant penalties. When a person is contacted by the IRS, this could be a sign that they will face a tax audit, and they may need to address a variety of complex financial issues as they determine how to address issues related to tax compliance. However, the IRS recently announced a policy change that may limit certain forms of contact between IRS agents and taxpayers. Namely, the IRS will no longer make unannounced visits to taxpayers in most situations.

IRS Policy Addresses Safety Concerns and Other Issues

In the past, IRS agents would occasionally visit homes or businesses without contacting taxpayers in advance. During these visits, they would address concerns about unpaid taxes or failure to file tax returns. However, in recent years, IRS agents have faced safety concerns when making these unannounced visits. Law enforcement officials have also noted the increased prevalence of tax scams in which people pose as IRS agents. Because of these concerns, the IRS has put an end to nearly all unannounced visits, effective immediately.

Continue Reading ››

 Posted on July 28, 2023 in Taxation Law

In California, property taxes can be a significant concern for commercial real estate owners. Depending on the assessed value of a property, these taxes can be very high, and the requirement to pay these taxes may cause financial difficulties for property owners. Due to current trends in California real estate, the value of many properties has plummeted, and some property owners may struggle to meet their obligations. However, this may present an opportunity to reassess the value of a property through changes in ownership. By understanding when the transfer of ownership of a property may affect property taxes, commercial real estate owners may be able to take steps to reduce their tax burden.

Proposition 13 and Property Tax Assessments

Property tax assessments in California are governed by Proposition 13, a law that was passed in 1978. This law set the maximum property tax rate at 1%, and it also limited the amount by which the assessed value of a property can increase from year to year. A property will have a “base year value” that is assessed based on when the property was originally purchased, when construction was last completed, or when the property changed ownership. The assessed value of a property can only increase by 2% per year, regardless of the property’s actual fair market value. 

Continue Reading ››

 Posted on July 20, 2023 in Taxation Law

The popularity of cryptocurrencies such as Bitcoin and Ethereum has continued to grow in recent years, and some companies are now offering these virtual currencies as a form of compensation to their employees. Freelancers and independent contractors may also receive cryptocurrency as payment for their services. This raises an important question: are people who receive cryptocurrency as wages or payments for services required to pay income taxes? By understanding the tax laws related to virtual currency, those who receive income in this form can make sure they are paying taxes as required and avoiding potential penalties.

The IRS and Cryptocurrency

In 2014, the Internal Revenue Service (IRS) issued a notice stating that virtual currency will be treated as property for federal tax purposes. This means that the general tax principles applicable to property transactions will also apply to transactions involving cryptocurrency. When property is received as payment for performing services, it is considered to be taxable income. This income must be reported to the IRS, and it is subject to federal income tax withholding. The fair market value of the cryptocurrency on the date of receipt by the employee is used to determine the amount of income that needs to be reported. When independent contractors receive cryptocurrency as payments, they will be required to pay self-employment taxes based on the fair market value of the virtual currency when it was received.

Continue Reading ››

 Posted on July 18, 2023 in Taxation Law

The tax laws in the United States change regularly, and taxpayers need to be aware of new requirements that may apply to them when filing tax forms, paying taxes to the IRS, or addressing other tax-related issues. One recent change to the tax laws that may affect certain companies involves the Corporate Alternative Minimum Tax (CAMT), which was put in place by the Inflation Reduction Act of 2022. Recently, the IRS issued guidance on the requirements for this tax, and it is also allowing relief from penalties that may apply for companies that have failed to make estimated quarterly tax payments in 2023.

What Is the Corporate Alternative Minimum Tax?

The CAMT is a new tax that must be paid by certain corporations, and this requirement went into effect on January 1, 2023. Corporations that earned an average of $1 billion in annual profits over a 3-year period will be required to pay the CAMT. This tax will also be required for U.S. corporations that are subsidiaries of foreign companies, so long as a U.S. company has at least $100 million in profits and the aggregated foreign group has at least $1 billion in profits. The CAMT will not be required for S-corporations, real estate investment trusts (REITs), or regulated investment companies (RICs). These pass-through entities are not required to pay corporate taxes, and the personal income of owners or investors is taxed instead.

Continue Reading ››

 Posted on June 26, 2023 in Taxation Law

Business owners often rely on tax deductions to address their expenses. Deductions are available for multiple types of business expenses, and they can significantly lower a person's tax burden. However, businesses are expected to be for-profit ventures, and if a person's income-generating activities regularly result in more losses than gains, they may be classified as hobbies. This can limit the types of deductions that may be available. By understanding the IRS's hobby loss rules, taxpayers can make sure they are able to claim deductions when necessary.

When Are Activities Classified as Hobbies Rather Than Businesses?

In general, a taxpayer's activities may be classified as a hobby if they do not earn a profit during 3 of the 5 most recent years. That is, the income earned from an activity must exceed the allowable deductions for that activity in 3 out of 5 years. The applicable time periods are different for activities involving breeding, racing, training, or showing horses. In these cases, a person will only be required to earn a profit in 2 of the last 7 years.

Continue Reading ››

 Posted on June 20, 2023 in Taxation Law

There are numerous different situations where taxpayers may face tax penalties. IRS audits may determine that a taxpayer failed to file tax returns or other required forms or failed to pay taxes as required. In some cases, relief may be available that will allow taxpayers to avoid or reduce penalties, and in some cases, a taxpayer may be able to show that they were unable to comply with their requirements due to "reasonable cause." However, a recent court ruling shows that the standards used by the government to assess reasonable cause can be anything but reasonable.

Operating Engineers Local Union No. 3 v. United States

Operating Engineers Local Union No. 3 is the largest construction union in the United States, and prior to 2018, it had a record of over 100 years of full compliance with federal tax laws. However, in the third and fourth quarters of 2018 and the first quarter of 2019, the union failed to deposit payroll taxes as required. The IRS assessed a penalty of over $580,000, and the union paid this penalty. The union later sought a refund of the penalty, claiming that it had reasonable cause for its failure to meet its obligations.

Continue Reading ››