Recent Blog Posts
Is Innocent Spouse Relief Available if a Person Did Not Sign a Joint Tax Return?
There are a variety of situations where taxpayers may need to respond to claims that they owe taxes to the IRS. In some cases, different forms of relief may be available that will absolve a person of their tax debts or allow them to reduce the amount they owe. Some taxpayers may be able to ask for innocent spouse relief, including when the IRS seeks to recover tax debts from a person after their divorce based on an audit of a joint tax return filed while they were married. A person may believe that they will qualify for innocent spouse relief if they had not signed a joint tax return, but they will need to understand how the IRS will address this issue.
The Tacit Consent Doctrine
Married couples will often divide different types of responsibilities, and one spouse may primarily handle matters related to a couple’s finances, including preparing and filing joint tax returns. In these situations, the other spouse may not have a full understanding of the income and assets that have been reported to the IRS, the types of deductions and credits that have been claimed, or other issues that affect the taxes they have paid or the refunds they have received.
What Are the Most Common Issues Addressed in U.S. Tax Courts?
There are a variety of reasons why taxpayers may disagree with decisions made by the IRS. Following a tax audit, the IRS may perform a tax assessment and take steps to collect tax debts. However, if a taxpayer believes that the IRS made errors when determining tax deficiencies, they may file an appeal in the U.S. Tax Court. There are multiple issues that may be addressed during a tax appeal, and understanding the types of cases that are litigated in U.S. Tax Courts can help a taxpayer determine their options for resolving tax-related concerns.
Top U.S. Tax Court Issues in 2021
According to a report submitted to Congress by the Taxpayer Advocate Service, the top issues addressed in U.S. Tax Court litigation in 2021 were:
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Gross income - Section 61 of the Internal Revenue Code (IRC) details the types of income that may be considered when determining a taxpayer’s gross income, including compensation received for performing services, commissions, fringe benefits, interest, dividends, royalties, business income, pensions, and annuities. However, controversies may arise regarding what constitutes gross income and the taxes that should apply to the income a taxpayer receives.
What Businesses Need to Know About California EDD Audits
California’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.
How Has the IRS’s Offer in Compromise Policy Changed?
Taxpayers 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.
Court Ruling May Result in Increased FBAR Penalties
U.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.
What You Need to Know When Preparing to File Tax Returns for 2021
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:
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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.
What Information Will the IRS Review When Auditing a Business?
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:
How Are NFTs Taxed by the IRS?
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.
How Will Deed Rescission Affect Property Tax Assessments in California?
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.
Failing to Report Assets and Pay Expatriation Tax Can Lead to Penalties
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.