As we all have to file tax returns, pay taxes and be subject to enforcement of the tax laws, now is the time to prepare and seize opportunities to save.

Reductions In IRS Workforce

Since January 2025, there have been several executive orders to reduce the size of the federal workforce.

According to a report issued by the Treasury Inspector General For Tax Administration issued May 5, 2025, in February 2025, the IRS had approximately 103,000 employees. Since then, more than 11,400 IRS employees either received termination notices as probationary employees or voluntarily resigned, representing an 11% reduction to the agency’s workforce.

Specifically:

• 7,315 probationary employees received termination notices.
• 4,128 employees were approved to accept the Deferred Resignation Program (an additional 522 employees are pending approval).

Source: Treasury Inspector General For Tax Administration Report issued May 5, 2025.

Advantages To Filing A 2024 Tax Return – Getting Money Due To You

Most people must file a federal tax return. Some people with a lower income are not required to file. However, these individuals should still consider filing for a refund of federal income tax withheld and especially if they are also eligible for certain tax credits, like the earned income tax credit.

A 2024 Federal individual income tax return is normally due April 15, 2025, unless you timely file an extension; however, if you are located in a declared Federal disaster area, you could have additional time without the need to file an extension.  A timely filed extension extends the filing deadline to October 15, 2025.  Keep in mind though that this is only an extension to file and not an extension to pay.

Remember, until a tax return gets filed, the IRS cannot work on processing your claim for a refund of any overpayment and for this tax season you should do what you can to accelerate the filing of your 2024 tax return to avoid potential processing delays.

The soonest delay could come from layoffs and resignations of IRS personnel that have already occurred or are anticipated.  Another potential delay is that if Congress does not take action by March 14, 2025 to keep the government running, we could be facing a government shutdown.

Here are four things to consider when determining whether to file a 2024 tax return:

1. Tax withheld or paid–

• Did your employer withhold federal income tax from your pay in 2024?
• Did you make estimated tax payments?
• Did you get a refund last year, and have it applied to your 2024 tax?

If you answered “yes” to any of these questions, you may be owed a refund. To receive the refund, you must file a 2024 tax return.

2. Earned income tax credit– This is a tax credit for low- to moderate-income wage earners. It is a refundable tax credit, and the amount depends on the taxpayer’s income and number of children. The credit doesn’t just reduce the amount of tax owed but could also result in a refund. However, once again, to claim the EITC, you must file a return.
3. Child tax credit– Taxpayers can claim this credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,700 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax. Taxpayers may qualify for the full amount for each child if they earn $200,000 as an individual filer or $400,000 for joint filers. The credit phases out completely for incomes above that threshold.
4.  American opportunity or lifetime earning credits – Two credits can help taxpayers paying higher education costs for themselves, a spouse or dependent. Even if the taxpayer doesn’t owe any taxes, they may still qualify. You need to complete Form 8863, Education Credits and file it with the tax return.

If you do not qualify for the either of these credits, you may benefit from taking the Tuition and Fees Deduction on your tax return.

Getting Late Filing Penalties Abated

Filing timely is very important because the late-filing and late-payment penalties and interest on unpaid taxes add up quickly. However, in some cases, a taxpayer filing after the deadline may qualify for penalty relief. For those charged a penalty, they may contact the IRS by calling the number on their notice and explain why they couldn’t file and pay on time.

Taxpayers who have a history of filing and paying on time often qualify for administrative penalty relief. A taxpayer usually qualifies if they have filed and paid timely for the past three years and meet other requirements.

An Opportunity For Taxpayers Who Owe The IRS

For people who owe the IRS, keep in mind that generally the IRS has 10 years to collect.  This period of time is referred to as the Statue Of Limitations For Collections.  The running of this Statute is not paused during a government shutdown.  Additionally, with a reduced workforce at IRS or a workface that is overwhelmed with catch-up after coming back from a government shut-down, there is a chance that older liabilities could be written off due to an expired Statue Of Limitations For Collections.

Also, do not think that if you owe the IRS your tax problem will disappear because of the efficiency measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2025, taxpayers who expect to owe for 2024 should have their 2024 income tax returns done now so that the 2024 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2025.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

The take away from this – use the present uncertain circumstances to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

While President Trump’s nominee, former U.S. Representative Billy Long of Missouri, to head the IRS is waiting for approval by the Senate, President Trump is reportedly planning to promote Gary Shapley as the new acting IRS Commissioner replacing Melanie Krause, who resigned from her role as acting IRS commissioner over a deal to share immigrants’ tax data with Immigration and Customs Enforcement to identify and deport people illegally in the U.S. It should be noted that “acting” personnel positions do not require approval by the Senate as such appointments are temporary and the permanent position is to be filled by someone else who is subject to approval by the Senate. If Billing Long is confirmed as the IRS Commissioner, he will be the 51th person to hold that title.

Who Is Gary Shapley?

Mr. Shapley first came into public light as an IRS whistleblower who testified publicly about investigations into Hunter Biden’s taxes claiming he was retaliated against for cooperating in the investigations. In March 2025, Shapley was promoted to Deputy Chief of IRS Criminal Investigations, and another IRS investigator who testified about Biden’s taxes, Joseph Ziegler, was assigned to the Treasury Secretary’s office as a senior adviser for IRS reform.

Shapley and Joseph Ziegler say they were removed from the Hunter Biden case in December 2022 after they told their bosses that the Justice Department and former Delaware U.S. Attorney David Weiss had engaged in a pattern of “slow-walking investigative steps” and delaying enforcement actions in the months before the 2020 presidential election won by Democrat Joe Biden.

Difference In Backgrounds Between The Former And Potential Next IRS Commissioner

Danny Werfel, who previously served as IRS commissioner until resigning January 20, 2025 held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed to be the next IRS Commissioner, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

• Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
• Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
• Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
• Written letters from charities confirming your monetary donations from the previous year.
• Receipts for business expenses you claimed.
• Mileage Logs for business use of vehicle.
• Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

Danny Werfel who was sworn in as the 50^th IRS Commissioner on April 4, 2023 announced his resignation effective January 20, 2025 even though his current 4-year term does not expire until 2027.  Donald Trump who will be inaugurated as President on January 20, 2025 has named his nominee, former U.S. Representative Billy Long of Missouri, to head the IRS.

Difference In Backgrounds

Danny Werfel, previously served as acting IRS commissioner before his current term appointment and held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But if Long is confirmed, he will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

• Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
• Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
• Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
• Written letters from charities confirming your monetary donations from the previous year.
• Receipts for business expenses you claimed.
• Mileage Logs for business use of vehicle.
• Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

On August 9, 2024 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses in four states affected by Hurricane Debby.  These taxpayers now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The tax relief postpones various tax filing and payment deadlines that occurred beginning on August 1, 2024, in Florida, August 4, 2024, in Georgia and South Carolina, and August 5, 2024, in North Carolina. The relief period continues through February 3, 2025 (postponement period), in all four states. As a result, affected individuals and businesses will have until February 3, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the February 3, 2025, deadline will now apply to:

• Any individual, business or tax-exempt organization that has a valid extension to file their 2023 federal return; however, that payments on these returns are not eligible for the extra time because they were due last spring before the hurricane occurred.
• Quarterly estimated income tax payments normally due on September 16, 2024, and January 15, 2025.
• Quarterly payroll and excise tax returns normally due on October 31, 2024, and January 31, 2025.

In addition, in Florida, penalties for failing to make payroll and excise tax deposits due on or after August 1, 2024, and before August 16, 2024, will be abated, as long as the deposits are made by August 16, 2024. Similarly, in South Carolina and Georgia, penalties for failing to make payroll and excise tax deposits due on or after August 4, 2024, and before August 19, 2024, will be abated, as long as the deposits are made by August 19, 2024. In North Carolina, penalties for failing to make payroll and excise tax deposits due on or after August 5, 2024, and before August 20, 2024, will be abated, as long as the deposits are made by August 20, 2024.

Other Areas Having Extended Deadlines:

The IRS announced on May 16, 2024 that individuals and businesses affected by tornadoes that began on March 14, 2024 in Ohio now have until September 3, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced (Kentucky) announced (West Virginia) on May 31, 2024 tax relief for individuals and businesses affected by severe storms, straight-line winds, tornadoes, flooding, landslides and mudslides that began on April 2, 2024 in Kentucky and West Virginia now have until November 1, 2024, to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For North Carolina – Individuals and businesses and the following 66 counties: Alamance, Anson, Beaufort, Bertie, Bladen , Brunswick, Camden, Carteret, Caswell, Chatham, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Davie, Davidson, Duplin, Durham, Edgecombe, Forsyth, Franklin, Gates, Granville, Greene, Guilford, Halifax, Harnett, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person, Pitt, Randolph, Richmond, Robeson, Rockingham, Sampson, Scotland, Stokes, Surry, Tyrrell, Vance, Wake, Warren, Washington, Wayne, Wilson and Yadkin.

For South Carolina – Individuals and businesses in all 46 counties.

For Georgia – Individuals and businesses in the following 55 counties: Appling, Atkinson, Bacon, Ben Hill, Berrien, Brantley, Brooks, Bryan, Bulloch, Burke, Camden, Candler, Charlton, Chatham, Clinch, Coffee, Colquitt, Cook, Crisp, Decatur, Dodge, Echols, Effingham, Emanuel, Evans, Glynn, Grady, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Lanier, Laurens, Liberty, Long, Lowndes, McIntosh, Mitchell, Montgomery, Pierce, Richmond, Screven, Tattnall, Telfair, Thomas, Tift, Toombs, Treutlen, Turner, Ware, Wayne, Wheeler, Wilcox and Worth.

For Florida – Individuals and businesses in the following 61 counties: Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia, Walton, Wakulla and Washington.

For Kentucky – Currently, relief is available to affected taxpayers who live or have a business in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley counties.

For West Virginia – Currently, relief is available to affected taxpayers who live or have a business in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel counties.

For Ohio – Currently, relief is available to affected taxpayers who live or have a business in Auglaize, Crawford, Darke, Delaware, Hancock, Licking, Logan, Mercer, Miami, Richland and Union counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.  The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year), or the return for the current year (2023).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “4777-DR” for Ohio or “ 4782-DR“ for Kentucky or “4783-DR” for West Virginia or “3605-EM” for Florida or “3606-EM” for South Carolina or “3607-EM” for Georgia or “3608-EM” for North Carolina.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

• Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
• Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
• Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
• Written letters from charities confirming your monetary donations from the previous year.
• Receipts for business expenses you claimed.
• Mileage Logs for business use of vehicle.
• Entertainment and Travel Logs for business

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.  Tax return transcripts show line-by-line the entries made on your Federal income tax returns.  The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

• To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
• Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
• For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
• When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
• Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

IRS announced it has investigated 1,644 tax and money laundering cases related to COVID fraud potentially totaling $8.9 billion, with well over half that amount coming from cases opened in the last year.

Under the Inflation Reduction Act the IRS is receiving $80 billion in new funding over nine years. The $80 billion price tag is more than six times the current annual IRS budget of $12.6 billion. The money will be distributed to IRS over nine years and comes with few strings attached.

IRS Claims Of Collection Enforcement And Examinations

On March 28, 2024 the IRS announced continued progress to expand enforcement efforts and increase scrutiny related to a wide range of criminal activity, including fraudulently obtained loans, credits and payments meant for American workers, families and small businesses under the Coronavirus Aid, Relief and Economic Security (CARES) Act as a result of the additional funding it is receiving under the Inflation Reduction Act.

As of February 29, 2024, 795 people have been indicted for their alleged COVID-related crimes and 373 individuals have been sentenced to an average of 34 months in federal prison. During the last four years, the IRS Criminal Investigation Division (CI) reports it has obtained a 98.5% conviction rate in prosecuted COVID fraud cases.

IRS Commissioner Danny Werfel noted Inflation Reduction Act resources allows “IRS Criminal Investigation to provide a vital role in protecting against fraud and serves a key part in the agency’s wider efforts to ensure fairness in the nation’s tax system. Protecting taxpayers against fraud in pandemic-era programs is just one example of the important role that CI plays in the law enforcement community. A healthy budget for the IRS helps us get the job done, and the work of CI provides a critical safety net to protect the nation against fraud.”
“In the last year alone, we have opened nearly 700 new COVID fraud investigations that collectively add up to $5 billion in potential fraud,” said CI Chief Guy Ficco. “While COVID may no longer be top of mind to the average American when they wake up, the fraud committed through these different programs is very much top of mind to CI. Our special agents continue to seek out fraudsters who stole money from government loan programs for their personal gain.”

New examples of cases closed since the Inflation Reduction Act passed

• Long Island man sentenced to 10 years in prison for sprawling COVID-19 loan fraud – In March 2024, Rami Saab, also known as “Rami Hasan,” was sentenced to 10 years in prison and required to pay $9.6 million in restitution for his role as the mastermind behind a sprawling conspiracy to fraudulently obtain loans amid the COVID-19 pandemic. Saab and a network of co-conspirators fraudulently applied for more than $32 million in loans from the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDL) on behalf of shell corporations they controlled. Relying on false information and fabricated documentation supplied by Saab and his conspirators, the Small Business Administration (SBA) and private banks administrating the PPP and EIDL programs granted at least 20 such applications, resulting in Saab and his fellow conspirators receiving $9.6 million in emergency-relief funds intended for distressed small businesses. Using a web of more than 50 otherwise dormant bank accounts, Saab and others laundered the proceeds before using the funds for their own self-enrichment.
• Toledo area man sentenced to 94 months in prison for COVID fraud – Terrence L. Pounds was sentenced in March 2024 to 94 months in prison and ordered to pay more than $4.2 million dollars to the SBA after being convicted of conspiracy to commit wire fraud, wire fraud and money laundering. Pounds and his co-defendants devised a scheme to obtain SBA-financed loans from the EIDL Program and the PPP under false pretenses, often claiming the loans were for nonprofit, faith-based organizations with over $1 million in revenue and 15 employees. He successfully obtained millions of dollars in loans and then used the money to purchase several new vehicles, which were later forfeited to the U.S. government.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

• Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
• Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
• Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
• Written letters from charities confirming your monetary donations from the previous year.
• Receipts for business expenses you claimed.
• Mileage Logs for business use of vehicle.
• Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

We encourage taxpayers who are concerned about their COVID funding awards to come in voluntarily before the IRS commences any examination or investigation.  By then, it will be too late to avoid the risk of returning all COVID funds awarded plus interest and penalties as well as facing criminal prosecution.

If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.