Archive for the ‘Tax Examinations and Collections’ Category

The IRS “Offer in Compromise”

July 30, 2010

When taxpayers cannot satisfy their tax debts, the Internal Revenue Code (“IRC”) provides a method to satisfy those debts for less than the amount owed, called an Offer in Compromise.  IRC Section 7122 permits to the IRS to accept less than the amount owed if there is a doubt as to collectability or liability.  However, there are many misconceptions  out there about the Offer in Compromise rules, many of which are fueled by radio commercials promising to negotiate a settlement for “pennies on the dollar”.

An Offer in Compromise can be a great way to get a clean start with the IRS when there is a legitimate situation where the taxpayer will not be able to repay the debt, and the IRC has fairly clearly defined those circumstances.

This article from the Tax Advisor gives a nice summary of the rules, when the IRS will even consider an offer, and their criteria for acceptance or rejection of the offer.

Of course, we would be happy to assist should you desire to pursue an Offer in Compromise.


Study Shows IRS Stepping Up Small Business Audits

July 20, 2010

A study from Syracuse University’s Transactional Records Access Clearinghouse reveals that in the last five years, the number of hours the IRS spends auditing small businesses has increased by 30%.  Small businesses are defined in the study as those businesses with assets of $10 million or less.  In the same time period, the study shows that the IRS has dropped audits of businesses with assets of $250 million or more, by 33%.

The report points out: “The decline in audits of large corporations is surprising because (1) the highest levels of misreported tax dollars per auditor hour are found among the biggest business organizations and (2) since FY 2005, Congress has provided the IRS with the funds it needs to hire an increasing number of revenue agents trained to handle these very complex returns.”

A full copy of the report can be found here.

Court Rules that Exempt Organization Late-Filing Penalties are Mandatory

March 22, 2010

Via the Journal of Accountancy

The Ninth Circuit Court of Appeals held that late-filing penalties imposed on tax-exempt organizations under IRC § 6652(c)(1)(A) are mandatory, and cannot be reduced by the courts or the IRS.  The ruling overturned an earlier district court decision (Service Employees Int’l Union, docket no. 07-17256 (9th Cir. 3/17/10)).

Although ruling that the Service Employees Int’l Union (SEIU) lacked reasonable cause for failure to file timely returns for 1999, the district court held that the IRS “as a matter of discretion” should have reduced the penalty amount of $50,000 which was imposed for filing 20 months late. 

Upon appeal by the IRS, the Ninth Circuit found that the Internal Revenue Code “uses mandatory language in all respects, leaving the IRS no discretion in deciding how much penalty to impose.”

IRS Releases 2010 List of “Dirty Dozen” Tax Scams

March 18, 2010

The IRS has released its annual list of 2010 tax scams that taxpayers should be aware of.  The list can be found here and includes items such as Return Preparer Fraud, Abuse of Charitable Organizations and Deductions, and Abusive Retirement Plans.

Learn All About the New IRS Whistleblower Program

March 5, 2010

Via The Tax Advisor

Many people are not aware of Internal Revenue Code section 7623 which allows the IRS to pay people who “blow the whistle” on persons who fail to pay the tax they owe.  The "whistleblower” can receive up to 30 percent of the additional tax, penalty and other amounts the IRS collects.

The program actually dates back to 1867, but was standardized through provisions of the Tax Relief and Health Care Act of 2006.

The IRS has a site here that provides a lot of information about the program, and its history.  Additionally, the Tax Advisor has a detailed article here with everything you may want to know about this program.

Congress Urges IRS to Ease Up on Audits of Small Businesses

April 3, 2009

Via Webcpa

A recent study found that in 2007, small businesses were 41% more likely to be audited than in 2005, ,while companies with $250 million in assets or more were audited 40% less often.  In a recent hearing, law makers pressed the IRS to ease up on audits of small businesses.

Read the full story here:

We Are Seeing the California BOE Stepping Up Collection Efforts

February 11, 2009

In what seems to be a response to the current California state budget crisis, I have seen signs that the California Board of Equalization is stepping up efforts to try to generate tax revenue. We have certainly heard that this is coming so it should not be much of a surprise, but the first reports of it hitting our clients are rolling in.

In one instance, a client of ours has had a sales tax auditor show up at their office unannounced, doing door to door examinations. This client is in a service industry, and yet the BOE felt there may be some opportunity for collection.

In what seems to be a more wide spread effort, the BOE is sending out letters requesting voluntary compliance with use tax reporting, on purchases made from out of state vendors who do not collect sales tax. If an out of state vendor is not considered to be doing business in California, they are not required to collect sales ax, but the California taxpayer IS required to report and pay use tax on those purchases. Internet sales seem to be the most prevalent example.

This is a copy of a letter received by a client of ours requesting they self-report past purchases subject to use tax.

Additionally, the BOE is apparently sending out notices to CPA’s in the state requesting that they help their clients voluntarily comply with use tax reporting. Ths is a copy of a letter we received.

Use tax reporting is required and we certainly advise all of our clients to make sure they are in compliance with the sales and use tax reporting requirements. If you have any questions about this, please do not hesitate to contact us.