Posted on October 26, 2020 in Tax Audits

The Internal Revenue Service is always on the lookout for taxpayers who fail to comply with tax laws, and it maintains a number of Large Business and International (LB&I) campaigns to address tax avoidance through unreported income or undisclosed assets. Foreign investments are an area that the IRS commonly examines, and one issue that has been highlighted is the holding of assets in trusts outside the United States. Failing to file the proper forms or making errors when reporting assets in foreign trusts can lead to tax audits and significant penalties.

Penalties for Errors in Form 3520 and 3520-A

There are a variety of reporting requirements that apply for U.S. citizens and companies or estates in the United States that are owners or beneficiaries of foreign trusts. The term “foreign trust” is broadly interpreted to include any trust that is not considered a domestic trust. Domestic trusts are trusts that are primarily controlled by people or entities in the United States and are supervised by a U.S. court. There is a lack of clarity concerning some financial accounts that may be treated by the IRS as a trust.

Continue Reading ››

 Posted on October 19, 2020 in Taxation Law

U.S. citizens and residents are required to meet a variety of tax obligations, and in some cases, they may continue to owe taxes even if they no longer live in the United States. For those who have not met their requirements, the Internal Revenue Service (IRS) may be looking to collect expatriation taxes that are owed, and it may perform audits on individuals who are not in compliance with their tax obligations.

What Is the Expatriation Tax?

When moving to another country, adult citizens of the United States can relinquish their citizenship, and non-citizens may terminate their resident status in the United States. For those who expatriated after June 17, 2008, an expatriation tax will apply if they meet one of the following criteria:

Continue Reading ››

 Posted on October 01, 2020 in Employment Taxes

The employment laws in California have gone through a number of major changes over the past year. Assembly Bill 5 (AB5), which went into effect on January 1, 2020, put in place new rules for worker classification, specifying when a person may be considered an employee or an independent contractor. However, there has been some confusion about whether certain workers are exempt from these rules. A new bill, AB2257, was approved by California Governor Gavin Newsom on September 4, 2020, superseding, amending, and adding further complexity to the worker classification issue.

Exemptions Under AB2257

AB5 specified, with certain exceptions, that a three-part test, known as the “ABC test,” should be used to determine whether a worker should be classified as an employee or as an independent contractor. This test states that for a person to be considered an independent contractor, he or she must 1) be free from the control and direction of the company that hired him or her when performing his or her duties, 2) perform work that is not in the usual course of the hiring company’s business, and 3) regularly be engaged in a trade or occupation that has been established independently.

Continue Reading ››

 Posted on September 29, 2020 in Small Business Taxes

Employers and employees throughout the United States have been affected by the COVID-19 pandemic. Many businesses have been forced to close, reduce hours in operation, or lay off employees. While some programs have been implemented to provide relief to both businesses and individual taxpayers, many people and businesses continue to struggle financially. In response to these concerns, a recent presidential order has been issued that will allow employers to defer certain payroll taxes.

Payroll Tax Deferral Available from September through December of 2020

On August 8, 2020, President Trump issued a Presidential Memorandum, “Relief with Respect to Employment Tax Deadlines Applicable to Employers Affected by the Ongoing Coronavirus (COVID-19) Disease 2019 Pandemic.” This order allows employers to defer the withholding of employees’ share of Social Security (FICA) taxes on wages paid between September 1, 2020, and December 31, 2020. Deferrals are available for any employee who earns less than $4,000 on a biweekly basis before taxes are withheld.

Continue Reading ››

 Posted on September 18, 2020 in Small Business Taxes

Over the past few years, California’s employment laws have been in flux due to court decisions and legislation that have affected how workers are classified. Specifically, Assembly Bill 5 (AB5) has required some companies to classify their workers as employees rather than independent contractors, which will allow workers to receive a minimum wage and benefits. However, companies such as Uber and Lyft have fought against these requirements, and voters will be able to decide whether to implement a measure in the upcoming election to determine whether certain types of workers will receive an exemption from the requirements put in place by AB5.

NOTE: AB5 has very recently been renumbered as AB2257 and clarifies current definitions of employee versus independent contractor and enumerates a number of exemptions for certain industries. Prop 22 was placed on the ballot prior to this change in numbering and therefore refers to the old AB5. 

Continue Reading ››

 Posted on August 25, 2020 in Taxation Law

Many Americans have spent years saving money in a retirement account such as a 401(k) or IRA while planning to use this money to support themselves later in life. Retirement accounts can offer certain tax benefits, but they also provide restrictions on when these funds can be withdrawn. In times of economic hardship, account holders may wonder about their options for using these funds. Fortunately, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has given those who have been affected by the COVID-19 crisis the ability to use funds in a retirement account while avoiding some of the penalties for early withdrawal.

Withdrawals and Loans from Retirement Accounts Under the CARES Act

Typically, account holders will face a 10 percent penalty (on top of any taxes that would normally apply) if they withdraw funds from a retirement account before reaching the age of 59 ½. The CARES Act has waived this tax for withdrawals of up to $100,000 made before December 31, 2020, by people who qualify for relief due to being impacted by the coronavirus pandemic. Qualifying accounts and retirement plans include 401(k)s, IRAs, 403(b)s, and profit-sharing plans.

Continue Reading ››

 Posted on August 19, 2020 in Taxation Law

U.S. taxpayers are required to report all of the income they earn and pay applicable taxes, including income earned from foreign investments and offshore accounts. The requirements related to these types of accounts can often be complex. Taxpayers who are not compliant may be audited, and they could face penalties that include civil fines or criminal prosecution. 

Foreign tax compliance has become more difficult since the end of the Offshore Voluntary Disclosure Program (OVDP). This program, which was discontinued in September 2018, allowed taxpayers to avoid penalties by disclosing their foreign assets and paying taxes due. Since the end of the OVDP, some taxpayers who had previously been compliant may be facing additional scrutiny and potential penalties from the IRS. The IRS’s Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP) programs are still available for taxpayers able to make sworn nonwillfulness statements and file the required forms and make the required payment.

Continue Reading ››

 Posted on August 04, 2020 in Employment Taxes

Since the beginning of March, it is an understatement to say that COVID-19 has greatly impacted business owners, employees, and the workplace nationwide. Most businesses have either gone remote, closed temporarily, or shut their doors for the last time. Not only are the businesses themselves leaving many people without work, but those who become infected with COVID-19 or are required to self-quarantine may be unable to work even if they are employed. In order to address the financial impact of coronavirus, the Internal Revenue Service (IRS) has implemented two new employer tax credits to help U.S. employees who have been affected by the global pandemic.

Sick and Family Leave

There are multiple credits tied to requests for medical leave since you may not necessarily be requesting this absence from work for your own self. The following are the employer credits to which you may be entitled:

Continue Reading ››

 Posted on May 13, 2020 in Taxation Law

For the past few months, the coronavirus pandemic has affected states across the country. Some states with larger populations, such as California and New York, have experienced a much larger infected population and have consequently placed restrictions on businesses and individuals in an effort to slow the spread of the virus. Nonessential businesses were ordered to shut down brick-and-mortar operations and work from home, if possible. Even though not all businesses were affected equally by the pandemic, many businesses are still struggling to stay afloat during this time. In response to the struggles that many businesses are feeling, California Governor Gavin Newsom issued an executive order allowing businesses affected by COVID-19 to request an extension to file payroll reports and taxes to the state.

Continue Reading ››

 Posted on April 30, 2020 in Taxation Law

COVID-19 has completely transformed most people’s day-to-day lives. You may be working from home or unable to work until the quarantine period is over. You may have been laid off from your job and now must survive with no income. Even if you are able to continue working, you may be left without childcare or other necessary services. These issues can quickly create serious financial hardship. You may struggle to pay your bills or even to put food on the table. During hard times like these, paying tax debts may simply not be possible. Fortunately, an “offer in compromise” offers many struggling taxpayers the opportunity to settle their tax liability for a reduced amount.

Addressing Outstanding Tax Debt Through an Offer in Compromise

Having an unpaid tax liability can be a very distressing burden to bear. If you currently owe the IRS money, you may be worried that you will be visited by an IRS agent or even face criminal charges for failure to pay. Fortunately, the IRS is much more interested in collecting unpaid taxes than punishing taxpayers who have an unfulfilled tax obligation. The agency offers several options that can help taxpayers who are experiencing financial struggles to fulfill their tax obligations and become compliant with the law.

Continue Reading ››