Posted on December 02, 2021 in Taxation Law

The first few months of the year are often known as “tax season,” since this is when taxpayers will gather the necessary financial information to file their annual tax returns. While 2021 is not over yet, it is a good idea to begin preparing to address these issues, since filing a tax return as soon as possible after the new year will allow a person to receive a tax refund more quickly. When doing so, taxpayers will want to understand the changes to tax laws and IRS policies that may affect them. Some issues to be aware of include:

• Child Tax Credit - For 2021, the amount of the Child Tax Credit was increased to $3,000 or $3,600 for children 5 years old or younger. However, the amount of the credit is reduced for taxpayers who earn more than $75,000 when filing a single tax return, $112,500 when filing as head of household, and $150,000 for married couples who file jointly. In addition, the IRS began making advance cash payments of the Child Tax Credit to parents between July and December of 2021. Taxpayers can claim any remaining amount of the Child Tax Credit that had not been paid. If a person received payments totaling more than they will be able to claim on their tax return for 2021, they may need to repay some or all of the excess amount.

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 Posted on November 23, 2021 in Taxation Law

There are a variety of reasons why the IRS may choose to perform a tax audit on a business. While some audits may be performed as a matter of routine, others may be triggered by discrepancies on tax returns or the claiming of certain types of deductions or business losses. Business owners will want to understand the procedures followed during an audit and the types of documents and information the IRS will consider. By working with a tax law attorney, a business can determine the best ways to meet the IRS’s requirements and avoid or minimize its potential penalties.

Records and Documents the IRS May Request During an Audit

In many cases, audits of businesses will be conducted by mail, although there are some situations where the IRS will choose to perform a field audit in which an agent will visit a business and review information in-person. During an audit, the IRS will review certain types of records to determine whether there are any discrepancies between the business’s finances and what was reported on a tax return. The IRS may ask a business to provide multiple different types of records, including:

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 Posted on November 12, 2021 in Taxation Law

In today’s digital world, there are a multitude of lucrative opportunities for investors. Recently, many people have been able to make significant gains by investing in non-fungible tokens, or NFTs. These digital tokens use blockchain technology, similar to what is used for cryptocurrency, and they allow a person to maintain or transfer ownership of certain types of intangible assets, such as digital images, videos, or video game characters. As the buying, selling, and trading of NFTs has increased, the IRS has taken notice, and taxes will apply to these transactions. NFT creators and owners will need to be sure to understand what types of taxes they may be required to pay when engaging in these types of transactions.

Taxes on Digital Transactions

While the IRS has not yet issued guidance on how transactions involving NFTs will be taxed, investors will most likely be able to avoid potential penalties by treating these transactions the same as those involving virtual currencies. Since NFTs are often purchased with or traded for cryptocurrency, buyers and sellers may also need to address additional tax-related issues during these transactions. 

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 Posted on November 11, 2021 in Taxation Law

Property owners in the state of California are often subject to high property taxes. Fortunately, while a home or commercial property may increase in value, California laws limit the amount by which property taxes can be increased. Each year, property taxes cannot increase by more than 2 percent, regardless of how the value of the property has changed. However when ownership of property is transferred, this may trigger a reassessment of property taxes based on the property’s current market value, and the new owner may be required to pay higher taxes than the previous owner. In cases where the parties to a transaction did not fully understand the tax consequences of a transfer of ownership, a deed may be rescinded, ensuring that property taxes will revert back to their previous levels.

Requirements for Deed Rescission

A deed rescission will return ownership of property to the previous owner as if the sale or transfer of property had never occurred. To be legally valid, a deed rescission must be mutual, meaning that all parties involved in the transaction must consent to the rescission. A rescission must be performed within a reasonable amount of time. Since each situation is unique, rescissions will be handled on a case-by-case basis, and a County Assessor will determine whether a rescission was completed promptly and within a reasonable time period. An assessor may look at factors such as whether the parties received benefits prior to the rescission, including earning income through ownership of the property.

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 Posted on October 26, 2021 in Taxation Law

Over the past decade, the rates of expatriation, in which a U.S. citizen renounces their citizenship or a long-term resident of the United States ends their legal residence status, have increased significantly for a variety of reasons. Because U.S. citizens and residents are required to pay taxes on all income they earn, including income earned in foreign countries, expatriation may seem like a good option to alleviate a person’s tax burden. However, expatriation has tax consequences, and upon renunciation of U.S. citizenship or termination of residency status, a person may be required to pay taxes based on the assets they own. Failure to do so can result in significant tax penalties. Fortunately, an experienced attorney can help expatriates understand the tax laws that apply to them and ensure they are taking the correct steps to avoid penalties.

Recent Case Demonstrates the Consequences of Misreporting Income and Assets

In a recent case prosecuted by the Justice Department, the founder of a Russian bank pled guilty to committing tax fraud when he expatriated from the UnitedStates. After the bank became a publicly traded company that was worth billions of dollars, the founder renounced his citizenship. When doing so, he falsely reported that his net worth was only $300,000, and on his tax return for that year, he falsely reported an income of around $200,000. In actuality, the court found his net worth was over $1.1 billion.

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 Posted on October 22, 2021 in Taxation Law

There are many different issues that can lead to tax penalties, including failing to file the correct forms and report certain information to the IRS. In a recent blog, we looked at the potential penalties that may apply if a taxpayer fails to file Forms 3520 and/or 3520-A. These forms are used to report transactions involving foreign trusts, and in some cases, a taxpayer may be required to pay a penalty of 35% of the amount that was transferred to or distributed from a trust. For those who have not filed these forms as required, it may be possible to mitigate this issue by using the Streamlined Domestic Offshore Procedures, which is commonly known as streamlined compliance.

What Are the Streamlined Procedures?

Individual taxpayers who meet the standards of being “U.S. persons” may use the Streamlined Domestic Offshore Procedures to fulfill all of their reporting requirements and correct any errors that may have led to an underpayment of the taxes owed. While these taxpayers will be required to pay a penalty, it will often be lower than the penalties that would apply otherwise.

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 Posted on October 13, 2021 in Taxation Law

The U.S. Tax Code is complicated, and it is easy for taxpayers to make mistakes when filing tax forms or reporting their income and assets to the IRS. This is especially true for taxpayers with foreign assets or income. These taxpayers will need to meet multiple types of reporting requirements, and failure to do so can result in large penalties. A taxpayer who is the owner or beneficiary of a foreign trust will need to be sure to file Forms 3520 and/or 3520-A at the appropriate times, and if they fail to do so, they may face significant penalties.

A person may hold assets in a trust that is outside the jurisdiction of the United States. Since these types of trusts may sometimes be used in tax avoidance schemes, taxpayers are required to report certain types of transactions to ensure that income taxes and any other applicable taxes will be applied correctly. These requirements may apply to the owner or grantor of a foreign trust, a beneficiary who receives distributions from a foreign trust, and a trust itself.

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 Posted on September 28, 2021 in Taxation Law

Business owners may need to address a variety of tax matters, and one important issue involves the classification of workers as either employees or independent contractors. Employers who classify workers incorrectly could face penalties, or they may be required to pay certain types of employment taxes at the federal and state levels. By understanding the rules for classifying workers, business owners can be sure they are in compliance with all applicable tax laws.

Federal Worker Classification Rules

Employers will need to withhold and pay certain types of federal taxes on behalf of employees, including income taxes, Social Security taxes, and unemployment taxes. However these taxes do not need to be withheld for independent contractors. The IRS looks at three issues to determine whether a worker should be classified as an employee or independent contractor:

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 Posted on September 15, 2021 in Taxation Law

When a couple gets divorced, they will need to address a wide variety of financial issues, and they should be sure to understand how the decisions they make will affect the taxes they will be required to pay and the deductions and credits they can claim. One divorce-related tax issue that may affect people in 2021 is the Advance Child Tax Credit. Parents will need to be sure to understand how this credit will be handled during the divorce process and after their divorce has been completed.

Claiming Child Tax Credits and Receiving Advance Payments

When a parent can claim a child as a dependent, they will be able to receive a child tax credit when filing their annual tax return. In 2021, Congress passed a law that provides parents with advance payments for this tax credit. Between July and December of 2021, a parent who will claim the child tax credit for this year can receive monthly payments. The monthly payment for children under the age of 6 is $300, and the monthly payment for children under the age of 18 is $250. To qualify for these payments, children must meet the applicable age requirements on December 31, 2021. 

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 Posted on September 09, 2021 in Taxation Law

The IRS may assess multiple types of tax penalties against a taxpayer. While the most common penalties involve the failure to file a tax return or pay taxes that are owed, taxpayers may also face penalties for failing to report certain types of transactions. To prevent potential penalties, a taxpayer will need to understand their reporting requirements, and those who are facing penalties may want to engage an attorney to determine options for relief.

Transaction Reporting Requirements

Certain types of transactions must be reported to the IRS by filing Form 8886. Taxpayers involved in such transactions, including individuals, corporations, partnerships, trusts, or estates, must file this form for each reportable transaction. Reportable transactions include the following:

• Listed transactions and transactions of interest - The IRS maintains a list of types of transactions that must be reported because they are commonly used for tax avoidance. These include basket option contracts, distressed asset trust (DAT) transactions, and syndicated conservation easement transactions. Other reportable transactions are considered transactions of interest because they have the potential to be used for tax avoidance.

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