MSDTaxLaw.com

PRACTICE AREAS

FEDERAL TAX

page-images-federal-2

IRS Collection Representation

The IRS has a variety of tools at its disposal to collect on tax debts owed by taxpayers, whether individual or business. The tools most commonly used are wage garnishments, bank and asset levies, filing of a federal tax lien, and levying a business’s receivables. However, Congress has passed laws that afford taxpayer certain rights and limit the actions taken by the IRS in order to respect the fundamental right to due process, to ease the burden on taxpayers who have fallen on hard times or are experiencing a hardship, among other political, social, financial and legal reasons.

What is a wage garnishment?  

In short, a wage garnishment is when the IRS contacts your employer directly and directs them to withhold a percentage of your net wages and remit those amounts to the IRS. The IRS will apply those funds in the best way possible for the government’s benefit. If you are facing a possible wage garnishment or are already experiencing a wage garnishment there may be options available to stop the garnishment and enter into a collection alternative solution.

What is a bank account and asset levies?

A bank levy tends to be the most common and powerful tool used by the IRS. If the IRS can freeze your bank account and after a certain amount of days, they can withdraw the amount that was accessible on the day it was frozen. If the IRS has frozen your account and you need help resolving your tax debt, then contact Moffa, Sutton, & Donnini tax law offices.

Payroll Tax & Trust Fund Recovery Penalty

A business that employs individuals must take on certain responsibilities for the collection, payment, and reporting of Employment Tax also referred to as Payroll Tax. It is important to understand that the withholding and reporting of Payroll Tax encompasses Federal Income Tax, Social Security Tax, Medicare Tax, and Additional Medicare Tax (a tax only applicable to employees whose compensation exceeds a certain threshold amount) and is the responsibility of the employer to withhold from employees’ wages and remit to the IRS.

An employer is also responsible for paying and reporting tax amounts that match the withholdings attributed to its employees’ portion of Social Security and Medicare tax. The IRS keeps track of this complex situation through the requirement of filing tax forms.  An employer is required to report all wages paid to employees, separately state each of the types of taxes withheld from employees’ wages, and the amounts paid and due to the government in part and in total. All this information is reported quarterly on a filed Form 941, Employer’s Quarterly Federal Tax Return. Therefore, a lot of responsibility is required and automatically accepted by any business which decides to hire an employee.  

The lack of compliance, mistakes, ignorance, or many other situations will likely lead to some costly situations and possible personal liability to not only an owner of the company, but also to what the IRS labels a Responsible Person. It is important to point out that most small businesses that experience Payroll Tax liability issues with the IRS can attribute the start of the debt to a timely cash flow problem or decrease in revenues without a reduction of costs.

A Payroll Tax liability usually begins with the employer’s use of the funds withheld from an employee’s paychecks. These taxes are the obligation of the employee, but the employer must withhold and pay the obligation on behalf of the employee. Therefore, the employer has access to government money and often ends up using this money as a “temporary bridge loan” to meet cash flow deficits in the business. The problem with this “temporary fix” is that the cash flow issues experienced by an employer are usually due to a larger overall issue with the business. So, the employer is unable to “catch up” with the past due Payroll Tax liability as it accrues with substantial penalties and interest.  

The IRS is not in the business of lending and they make it clear with the percentage of penalties and interest applicable to Payroll Tax liabilities and the collection methods employed by IRS Revenue Officers. Many businesses that begin this unfortunate process end up increasing the Payroll Tax liability quarter by quarter as the business tries to resolve its cash flow needs. This process can exacerbate quickly and it is best to seek the assistance and guidance of a tax professional to resolve your tax debt.

The IRS can impute personal liability against what would be defined as a responsible person. A responsible person is not always an owner of the company and an owner is not always considered a responsible person. However, in most small businesses the responsible person tends to usually be the owner, but it can be other officers or managers in the company. The trust fund recovery penalty allows the IRS to seek partial recovery of unpaid Payroll Taxes at the personal level. The Trust Fund potion of taxes are all the Payroll Taxes withheld by the employer and not remitted to the IRS. Therefore, those amounts can include the income tax withheld from each employee paycheck, as well as, the employee portion of Social Security and Medicare Taxes.  

Moffa, Sutton, & Donnini are highly skilled and qualified tax lawyers who can represent your best interests when the IRS comes knocking down your door. We have professionals who are both attorneys and certified public accountants and are able to bridge the gap between what is reported on a tax return, the surrounding facts and circumstances, and the applicable tax laws and regulations.

Collection Alternative Solutions

The IRS requires a taxpayer be current with all required tax return filings to enter into an extended payment arrangement or an Offer in Compromise. See Unfiled or Delinquent Tax Returns.

Installment Agreement

Taxpayers who are unable to pay the total tax amount due may enter into an installment agreement with the IRS to pay the tax liability over a period. An installment agreement is a written agreement between the IRS and a taxpayer that provides for monthly payments for up to seventy-two months. An installment agreement allows a taxpayer to prevent IRS collection actions, such as, bank levies and wage garnishments. However, the IRS is not in the business of loaning tax dollars and continue to accrue/charge penalties and interest. Therefore, an installment agreement is not always the answer for every taxpayer who cannot afford to pay the IRS in full.

There are multiple variations to the installment agreement. One type of agreement known as a Guaranteed installment agreement. If the tax you owe is less than $10,000, during the past five years you and/or spouse has not requested an installment agreement and filed all returns timely, you must agreement to pay the full amount owed within three years and comply with all tax laws while the agreement is in effect, and you are unable to financially pay the liability in full.  This is an option for some taxpayers, however most taxpayers seeking guidance of a tax lawyer or professional do not usually have this option available to them for the strict criteria needed and the appeal of a Streamlined installment agreement.

Another option available to taxpayers is a Streamlined installment agreement. A taxpayer may request a Streamlined installment agreement when the tax liability is below $50,000. Here, the taxpayer is subject to all the same rules for an installment agreement, except the taxpayer does not have to provide a Collection Information Statement and supporting documentation. There are several variations to the Collection Information Statement, however you will notice the numbers 433 in any of those variations (e.g. F433-F; F433-B; F433-A (OIC)). This may be appealing to many taxpayers who qualify because taxpayers do not have to provide personal financial information to the IRS and the professional fees are usually less.

The preparation of a Collection Information Statement is a combination of art and science. The IRS has national and local standards that are not always reasonable in certain geographical locations. However, it is a difficult process to get the IRS to agree that conditional expenses are necessary expenses. In most situations where a taxpayer owes a substantial tax debt, we will prepare a financial analysis akin to the Collection Information Statement to determine a taxpayer’s available options to resolve the debt with the IRS.

Offer in Compromise

An offer in compromise is an option for a limited number of taxpayers to settle a tax debt for less than the total tax liability. It requires strict criteria and is usually an option for taxpayers in extreme financial hardship. Every taxpayer’s situation is unique and the IRS is aware and appreciates that fact. However, the primary items to consider when submitting an offer in compromise to the IRS is your income, expenses, equity in assets, and the overall ability to pay.

An offer in compromise requires the completion of a collection information statement with supporting documentation along with the IRS Form 656. There is an application fee of $186 the IRS charges each applicant and must be submitted with the initial application, Form 656.

The initial offer payment is contingent on whether you choose the lump sum or periodic payment method. A lump sum payment requires a 20% payment of the total settlement offer amount with your initial application. If the offer is accepted, then the remaining settlement offer balance is paid in 5 or fewer payments. However, if the offer is rejected the initial non-refundable payments will be applied to the tax year and liability you chose, if timely and properly designated. 

A periodic payment requires your initial payment of the settlement offer with your initial application and requires you to continue to pay the remaining offer balance in monthly payments while the IRS reviews your settlement offer. If the offer is accepted, then the taxpayer continues to remit the monthly payments until the total settlement offer is paid.  However, if the offer is rejected the non-refundable payments will be applied to the tax year and liability you chose, if timely and properly designated.  

It is unlikely, but if the IRS does not make a determination within two years of the date the IRS receives your offer, then the offer is automatically accepted.  It is very important to be aware that your settlement with the IRS does not end with the final payment. Part of any offer in compromise agreement is the requirements to remain compliant with all tax filings and payments for the following 5 years.  Failure to do so, will be a breach of the settlement with the IRS and that means the IRS can once again pursue a taxpayer for the unpaid taxes that were previously compromised. Just like any other agreement there is a comprehensive list of the offer terms and agreement within Form 656 that should be reviewed prior to signing the form.  

A key benefit during the application process is that the IRS will suspend collection activities related to the tax and tax years addressed in the offer in compromise.  Therefore, you will not experience any wage garnishments or bank levies during the application process. However, the statute of limitations period is extended, including the legal assessment and collection period.  Once, the offer terms are all met, then the IRS will release any federal tax liens associated with the tax and tax years that were compromised.  If the IRS rejects an application for an offer in compromise a taxpayer may appeal the rejection within 30 days.  

Moffa, Sutton, & Donnini are highly skilled and qualified tax lawyers who can represent your best interests when the IRS comes knocking down your door. We have professionals who are both attorneys and certified public accountants and are able to properly represent a taxpayer’s best interests with the surrounding facts and circumstances, and the applicable tax laws and regulations.

Currently Not Collectible Status

There are times when a taxpayer is unable to pay the IRS because the taxpayer does not have any assets or excess income. For these taxpayers, a possible solution may be to request that the IRS place their account in Currently Not Collectible status or CNC status.  The criteria for meeting CNC status is strict. Most people find it hard to believe how low the IRS standards for household expenses can be, however the IRS expects taxpayers to cut any unnecessary expenses from their budget when owed back taxes.  Yet, there are still several taxpayers who meet these criteria and the IRS will suspend any collection activity against a taxpayer placed into CNC status.   Sometimes, a taxpayer may meet the criteria for CNC status, but the IRS disagrees. For those taxpayer, it may be helpful to seek the assistance of a tax professional. At Moffa, Sutton, & Donnini our tax law offices focus on representing taxpayers seeking a collection alternative solution.  Sometimes, our financial analysis of a taxpayer’s situation supports seeking CNC status for a taxpayer with no excess income, no assets or no equity in assets, or a possible undue hardship would result from any collection action. This is not a solution available to most of our clients, but it is sometimes the only solution. If your seeking a resolution of your IRS tax problem, contact Moffa, Sutton, & Donnini to represent you from unforeseen IRS collection activity.

Requesting Innocent Spouse Relief

A married couple who file an individual tax return jointly are responsible for the tax liability arising from that tax return jointly and severally. Joint and several liability means that the IRS can pursue either or both spouses for the entire liability. So, if one spouse creates a substantial tax liability by not paying taxes or properly reporting income the IRS may still collect from the other spouse for the entire tax liability. Therefore, the concept of innocent spouse relief is a legal defense to separating a tax liability owed by spouses for a tax year or years if certain factors are applicable.  

There are three types of relief from joint and several liability for the various circumstances Congress has deemed appropriate. The options for electing innocent spouse relief are labeled according to its Internal Revenue Code section, IRC § 6015(b), IRC § 6015(c), and IRC § 6015(f).

Innocent spouse relief under IRC § 6015(b) is available to a married taxpayer who filed a joint tax return, the innocent spouse who signed the return did not know or have any reason to know at the time of the signing that the tax return contained an unreported or understatement of income, and the innocent spouse requests relief within two years from the date of the first collection activity.  Additionally, the understatement or deficiency of tax attributable to erroneous items of the non-requesting spouse and taking into account all of the facts and circumstances, it is inequitable to hold the requesting spouse liable for the deficiency attributable to the understatement.  For this relief to be available to the requesting spouse requires the satisfaction of each requirement and this relief is only available when the IRS takes a position of an understatement of income tax and/or self-employment taxes. However, an unpaid balance on a filed income tax return or other types of taxes are not available for innocent spouse relief under IRC § 6015(b). 

Innocent spouse relief under IRC § 6015(c) is available to limit liability for taxpayers no longer married or taxpayers legally separated or not living together. This relief is usually sought when taxpayers want to go back and only be held responsible for their liability. The individuals’ liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to the individual pursuant to the allocation of deficiency rules.

Congress enacted a third option for relief labeled equitable relief under IRC § 6015(f). This relief option is only available when the taxpayer seeking relief does not meet the requirements for IRC § 6015(b) or § 6015(c).

There are circumstances when innocent spouse relief is not the answer to resolve a situation. If a married couple does not file a joint tax return, then either spouse will not be eligible for innocent spouse relief because they are not joint and severally liable for the unpaid tax liability.

If it is your intention to seek innocent spouse relief, then you should consider hiring an experienced tax lawyer to represent you through the complicated process. The IRS does not grant relief easily and an experienced tax lawyer should be able to better communicate the complexity of your personal situation to the requirements under the law.  The application process is strictly adhered to by the IRS and an experienced tax lawyer can make the cumbersome process run smoother. An experienced tax lawyer may be able to determine alternative solutions to a taxpayer who finds themselves in a similar situation to a taxpayer requesting innocent spouse relief, but does not meet the requirements for relief.  Moreover, we provide tax advice and consulting to non-requesting spouses.

At Moffa, Sutton & Donnini, we handle innocent spouse relief cases from the initial application to both IRS Appeals and US Tax Court. It is most beneficial to work with an actual law firm who can handle each step in the process from the initial administrative process to litigating cases in US Tax Court or other federal courts when applicable. By being able to properly handle a taxpayer’s case from the beginning to the end removes the possibilities of mistakes, miscommunication, loss of documentation or information, or any number of other issues that can happen when switching or transferring cases between professional service firms.

IRS Audit Representation

An IRS audit is how the IRS will review or examine a taxpayer’s filed tax return. It will usually entail a challenge to certain numbers reported or positions taken on a return or a general review or examination of the entire tax return. The IRS has three primary methods in which it conducts an audit or examination which are through a correspondence audit, office audit, or field audit.  

A correspondence audit is an audit that is conducted exactly as it sounds through correspondence with the IRS office conducting the audit. The correspondence is usually through mail, but sometimes a fax may be used as an alternative means of sending correspondence or documentation. An office audit is an audit conducted in-person at a local IRS office. An office audit tends to be more detailed oriented or specific than a correspondence audit. Finally, a field audit is an audit conducted by an IRS revenue agent at the taxpayer’s business location and includes a review of the taxpayer’s books and records.  A taxpayer represented by tax professional can choose to have the audit meetings conducted at the tax professional’s office. The IRS may still insist on an inspection of the business premises to review the operations of the business, confirm that a business is in fact being operated, a chance to look for supporting and negating facts to positions on the return, identify valuable assets, and other items on a case by case basis.

An IRS audit can be a very intimidating situation. The federal tax laws and regulations are complex and applying specific facts to the law is not always a simple process. Moffa, Sutton, & Donnini are highly skilled and qualified tax lawyers who can represent your best interests when the IRS comes knocking down your door. We have professionals who are both attorneys and certified public accountants and are able to bridge the gap between what is reported on a tax return, the surrounding facts and circumstances, and the applicable tax laws and regulations.

Unfiled or Delinquent Tax Returns

Therefore, it is vital that all taxpayers file their tax returns and pay their tax liabilities. Unfortunately, that is not the case for many people. There are many reasons why taxpayers do not file tax returns, but the most important thing is getting back into compliance. The IRS may take the position that a taxpayer is intentionally not filing tax returns to avoid paying taxes when a taxpayer has not filed for 3 or more years.  This non-compliance can be viewed as a criminal act and may give rise to both civil and criminal legal issues. However, the IRS does look favorably on taxpayers who voluntarily come forward and file past due tax returns. At Moffa, Sutton, and Donnini we handle the entire process.  We work with our clients to gather all relevant tax documents and prepare any and all unfilled tax returns. Then, we assist taxpayers who cannot afford to pay their tax liability in full enter into a Collection Alternative Solution. 

IRS Appeals & Tax Court Representation

Whether you are a taxpayer dealing with an IRS collection issue or defending against an IRS audit you have something called due process. This means that you can administratively appeal a decision made at the initial levels of the IRS. The Appeals office is a completely separate from the Collection and Audit divisions of the IRS. The Appeals office is a taxpayer’s second opportunity to resolve their matters with the IRS. Unfortunately, taxpayers are not always able to resolve matters at the Appeal level and may file a petition in US Tax Court. Now, the Appeals process may only be requested within certain time periods. If an Appeal is not request timely, then the IRS may allow what is called an Equivalent Hearing. The difference between a timely requested Appeal and an Equivalent Hearing is the right to petition the Appeal’s office decision in US Tax Court. A timely filed Appeal maintains the procedural due process rights to have your day in court. Usually, taxpayers will petition the IRS position in US Tax Court because it is the only court that does not require you to pay the amount in dispute into the court registry. A second benefit of US Tax Court is the knowledge a Tax Court Judge has of tax law that you will not likely find in any other court room. However, there are other federal courts that are sometimes more suitable for a particular situation.

The benefits of beginning your tax representation at Moffa, Sutton, & Donnini is that you will end your representation at Moffa, Sutton, & Donnini.  As experienced tax attorneys we are able to represent our clients in all stages of tax procedure including litigation. It is rare for taxpayers to end up in litigation, but it is still a possibility. The IRS knows when a taxpayer is not represented by a practicing lawyer and that limitation can have an impact on the positions they take. Yet, some of the best resolutions are made with IRS tax counsel and IRS tax counsel only gets involved once a petition is filed. No one ever complains about bringing too much muscle to a fight. Call now to speak with a tax attorney 

At Moffa, Sutton & Donnini, we handle tax cases at all stages from the initial application to both IRS Appeals and US Tax Court. It is most beneficial to work with an actual law firm who can handle each step in the process from the initial administrative process to litigating cases in US Tax Court or other federal courts when applicable. By being able to properly handle a taxpayer’s case from the beginning to the end removes the possibilities of mistakes, miscommunication, loss of documentation or information, or any number of other issues that can happen when switching or transferring cases between professional service firms

Tax Consulting & Planning

The federal tax laws are vast and complex.  Most business transactions have a tax component or tax implications that should be addressed. MSD tax consulting practice focuses on working with other business professionals and attorneys to minimize a business’s tax exposure.

Most taxpayers are familiar with the tax compliance requirements of the IRS. Tax compliance simply stated is the actual reporting and paying of tax information required under the federal tax laws. Tax compliance services are usually provided by certified public accountants on a periodic basis. However, tax planning and consulting should be done prior to any tax compliance requirements. The idea being that a business has certain objectives in mind that range from entering into new business ventures, mergers and acquisitions, restructuring due to changes in the law or business industry, seeking guidance on interpretation of tax compliance requirements or taxability of a transaction, or any other implications that may have some type of tax effect. The more complex a society becomes the likelihood the more complex the tax laws need to be for the federal government to get its taxes.

Moffa, Sutton, & Donnini is a tax law firm. We do our best to serve our clients in various industries with their tax law needs. Therefore, it is very common for us to work with our business attorneys and professionals in planning and advising on complex transactions. We also provide consulting to dispute resolution lawyers to comprehend the complex structure of a business in litigation or a spouse going through a divorce. If you feel as though you may need tax consulting or planning from an experienced tax attorney call us.

CONTACT US TO DISCUSS YOUR CASE

This form is currently undergoing maintenance. Please try again later.
footer-logo-001
footer-logo-002
footer-logo-003
footer-logo-004
footer-logo-005