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Recent Blog Posts

What Businesses Need to Know About California EDD Audits

 Posted on February 08, 2022 in Tax Audits

san jose tax lawyerCalifornia’s Employment Development Department (EDD) handles state payroll taxes, as well as unemployment benefits. While the EDD has struggled to address the large amount of unemployment insurance claims during the COVID-19 pandemic, it is beginning to return to normalcy, and it has resumed payroll tax audits. Businesses that are facing these types of audits will need to understand their requirements, as well as the post-audit issues that they may encounter.

Issues and Records Addressed in an EDD Audit

Audits performed by EDD will review a company’s records to ensure that wages and other payments made to employees have been reported correctly and that an employer is in compliance with its requirements under the California Unemployment Insurance Code (CUIC). An initial EDD audit will generally cover a period of up to 3 years, and it may review records for the 12 most recent quarters. Worker classification is one of the primary issues addressed in an audit, and it may determine whether workers have been incorrectly classified as independent contractors rather than employees. 

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How Has the IRS’s Offer in Compromise Policy Changed?

 Posted on January 31, 2022 in Taxation Law

b2ap3_thumbnail_shutterstock_1627239289.jpgTaxpayers who owe tax debts to the IRS may have multiple options for addressing these issues. In some cases, a taxpayer may propose an offer in compromise that will allow them to pay less than the total amount owed and resolve their tax liabilities. While certain restrictions have traditionally applied in these cases, some recent policy changes by the IRS may provide benefits for taxpayers who make an offer in compromise. 

Changes to Tax Refund Offsets

In the past, when a taxpayer made an offer in compromise, they would agree that the IRS would be able to offset any tax refund they received for the current year and apply that amount toward their tax debt. For example, if a taxpayer had tax debts from 2017, and they proposed an offer in compromise in 2019, when they filed a tax return for the tax year of 2019, the IRS would be able to offset some or all of the tax refund they were eligible to receive for that year.

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Court Ruling May Result in Increased FBAR Penalties

 Posted on December 22, 2021 in Taxation Law

b2ap3_thumbnail_shutterstock_2087322133.jpgU.S. taxpayers who own foreign investments must meet certain requirements when reporting accounts and other assets to the IRS. A Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, must be filed for each year in which a person has a financial interest in one or more accounts outside of the United States, and the aggregate value of these accounts is at least $10,000. Failure to report applicable accounts on an FBAR can result in significant penalties, and due to a recent court ruling, these penalties may be even higher for taxpayers who fail to report multiple accounts.

Appeals Court Addresses Non-Willful FBAR Penalties

A recent case heard by appellate judges in the Fifth Circuit addressed penalties for non-willful violations of the requirement to file an FBAR. Non-willful violations usually involve cases in which a taxpayer failed to file an FBAR or report one or more accounts because they were not aware of their requirements. The current maximum penalty for a non-willful violation is $12,921, and this amount is adjusted every year based on inflation.

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What You Need to Know When Preparing to File Tax Returns for 2021

 Posted on December 02, 2021 in Taxation Law

san jose tax lawyerThe 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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What Information Will the IRS Review When Auditing a Business?

 Posted on November 23, 2021 in Taxation Law

san jose business lawyerThere 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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How Are NFTs Taxed by the IRS?

 Posted on November 12, 2021 in Taxation Law

san jose tax lawyerIn 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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How Will Deed Rescission Affect Property Tax Assessments in California?

 Posted on November 11, 2021 in Taxation Law

san jose tax lawyerProperty 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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Failing to Report Assets and Pay Expatriation Tax Can Lead to Penalties

 Posted on October 26, 2021 in Taxation Law

san jose tax lawyerOver 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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Using Streamlined Domestic Offshore Procedures to Correct Forms 3520 and 3520-A (Part II)

 Posted on October 22, 2021 in Taxation Law

san jose tax lawyerThere 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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What Are the Penalties for Failing to File Forms 3520 and 3520-A? (Part I)

 Posted on October 13, 2021 in Taxation Law

california tax lawyerThe 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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