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What is a Tax Compliance Campaign?

Posted on in Taxation Law

S corporation, San Jose tax attorney, tax credits, Tax Compliance Campaign, collecting taxesFor anyone who earns an income, operates a business, or makes a financial transaction in the United States and the state of California, taxes are an unfortunate reality. Nobody likes paying taxes, but they are a necessary part of modern life and allow our government to continue operating.

Collecting taxes is a complicated matter, especially when it involves large companies and organizations with complex financial assets. In recent years, the governmental departments that collect taxes have begun working to operate more efficiently by focusing their efforts on identifying and addressing specific tax issues. These tax compliance campaigns have been conducted by the Internal Revenue Service (IRS), the California Board of Equalization, and the California Employment Development Department.

IRS Federal Tax Compliance Campaigns

The IRS’s Large Business and International division (LBI) has identified a number of common tax compliance issues. Through its tax compliance campaigns, the LBI will begin taking a more focused approach to examinations, looking specifically for these issues. It will also be publishing guidelines and creating new forms to assist with tax calculations. Moreover, certain campaigns may use “soft letters” to contact taxpayers, asking them to clarify certain information or voluntarily correct any issues or oversights. Response to these letters is not mandatory, but non-response may result in an IRS exam.

The LBI’s tax compliance campaigns include:

  • Internal Revenue Code 48C Energy Credits - Taxpayers cannot claim tax credits for advanced energy projects unless these credits have been approved by the Department of Energy.
  • Related Party Transactions - The IRS will be examining transactions that shift income from C corporations to stockholders or pass through entities.
  • Basket Transactions - The IRS will look to identify transactions in which taxpayers attempt to treat short-term capital gains and other income as long-term capital gains.
  • S Corporation Losses Claimed in Excess of Basis - When an S corporation reports losses, its shareholders can deduct these losses to offset their other taxable income, but they cannot deduct losses that are greater than their basis in the stock or debt of the corporation.
  • Repatriation - This campaign will look to identify income that taxpayers receive from overseas and ensure that it is properly reported.
  • Economic Development Incentives - Businesses may receive certain incentives, such as refundable or nonrefundable tax credits or grants, but they cannot exclude these incentives from their income while also claiming deductions for related expenses.

California State Tax Compliance Campaigns

In addition to federal tax compliance campaigns, businesses in California should be aware of the campaigns operated by the state’s tax departments. The Employment Development Department (EDD) is the state’s largest tax collection agency, responsible for collecting payroll taxes. The EDD encourages voluntary compliance, but it has the authority to collect taxes through methods such as liens, levies, offsets, and Earnings Withholding Orders for Taxes (EWOTs).

The California Board of Equalization (BOE) administers sales and use taxes. It encourages compliance through its Statewide Compliance and Outreach Program (SCOP), which works to educate businesses about their tax reporting requirements and ensure that they have valid seller’s permits. SCOP teams regularly make door-to-door visits to businesses throughout the state, ensuring that licenses and permits are up to date and that sales and use taxes are being properly reported.

Contact a San Jose, CA Tax Compliance Attorney

If you have any questions about tax compliance, John D. Teter Law Offices can work with you to ensure that you are meeting your legal requirements and address any issues that may result in an examination by the IRS, BOE, or EDD. Contact a San Jose tax attorney today at 408-866-1810.

Sources:

http://www.boe.ca.gov/sutax/SCOP_Overview.htm

https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns-0

https://www.irs.gov/businesses/large-business-and-international-launches-compliance-campaigns

http://www.edd.ca.gov/pdf_pub_ctr/de83.pdf

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