Why You Don’t Mess With California Even During A Pandemic – A Primer On California Tax Collection Actions.

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Don’t think that you can avoid California tax enforcement action just because we are in a pandemic.  California is unique in the structure of its tax system. Most States operate under a single tax agency. The Federal government uses a single tax agency called the IRS. But California has three tax agencies! They are the Franchise Tax Board (“FTB”), California Department Of Tax And Fee Administration (“CDTFA”) and the Employment Development Department (“EDD”).

What does FTB cover?

The FTB administers the income tax. This tax applies not only to individuals, but also to sole proprietorships, partnerships, estates, and trusts. In addition, the income “passed through” to individuals by Subchapter S corporations and certain other entities is subject to State Personal Income Taxation. The tax is applied to all sources of income unless specifically excluded, including wages and salaries, interest, dividends, business-related income, and capital gains.

What does CDTFA cover?

The CDTFA administers the Sales and Use Tax. The tax in a specific California location has three parts: the state tax rate, the local tax rate and any district tax rate that may be in effect. Sales and Use Tax is the second largest source of tax revenue in California and is assessed at both the state and local levels.

What does EDD cover?

EDD involves payroll taxes which includes all employer paid taxes, State Income Tax Withholding of employees, State Disability Insurance (“SDI”) Taxes and Unemployment Insurance (“UI”) Taxes.

The California Tax Agencies can go way beyond liens and levies to enforce collection and put pressure on taxpayers.

The FTB publishes Top 500 Delinquent Taxpayers (one list for personal and one for corporate) twice a year in April and October. The FTB is required by law to post this information at least twice annually. California Revenue & Taxation Code § 19195.  Since the list’s inception in October 2007, FTB has collected more than $1 billion from delinquent taxpayers through the program.

The FTB will notify each taxpayer by certified mail 30 days before they post their information.

  • As cases are resolved, those taxpayers are removed from the list, reducing the total number of listings from the original 500.
  • Your occupational and professional licenses, including your driver’s license may be suspended under Business and Professions Code §494.5.
  • State agencies will not enter into contracts for the acquisition of goods and services with you under Public Contract Code §10295.4.

The CDTFA has a similar list of the state’s top sales and use tax debtors, which is updated quarterly.

The CDFTA will revoke your seller’s permit. If your seller’s permit is revoked, you cannot sell your goods. Also, as a corporate director, officer, member, manager, or other person having control or supervision of the filing of returns or payments of taxes, you may become personally liable for any unpaid sales and use taxes, interest, and penalties. Such personal liability for any unpaid taxes and interest and penalties on those taxes is triggered upon termination, dissolution, or abandonment of a corporate business or limited liability company, any officer, member, manager, or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation or limited liability company in complying with any requirement of this part. Section 6829 of the Revenue and Taxation Code.

The IRS has the Trust Fund Recovery Penalty (also known as the 100-percent penalty). The EDD has something similar referred to as “CUIC 1735”. But CUIC goes way beyond the IRS’ version. Not only does the EDD assert a full 100-percent exposure of the employees tax withholdings AND the employer’s share of payroll taxes to targeted responsible individuals but also a 10% nonabatable assessment penalty (it should be noted that the IRS version is limited only to the employee’s share of FICA and withheld federal income taxes, roughly 60% of the corporate employer’s overall liability). The two key elements of CUIC 1735 are responsibility and willfulness. The EDD must have both elements before they can make the 100% assessment stick. Any officer, major stockholder, or other person in charge of the affairs of the business can be held responsible. Before the assessment can become final, the targeted responsible person must be given notice, an opportunity for an administrative hearing, and an appeal. If the targeted individual loses his or her administrative hearing and appeal, and does not pay within 10 days after assessment, her or she will be penalized a further 10% pursuant to CUIC 1135.

 

Don’t Take The Chance And Lose Everything You Have Worked For.

 

Protect yourself. Federal and State 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), 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 our cannabis tax attorney can do for you.  Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.Top of Form

 

5 Moves To Make Before Year End That Can Save You A Lot of Money on Your 2020 Taxes

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On December 22, 2017, President Trump signed into law the 2017 Tax Cuts And Jobs Act. It’s been a good 30 years since the last time the Internal Revenue Code received such a major update.

Major Changes From The New Law Include:

Compressed And Lower Income Tax Rates For Individuals.

Increased Standard Deduction For Individuals

Elimination Of Personal Exemptions

Limitations of Deductibility Of Itemized Deductions including Mortgage Interest and State & Local Taxes.

Lower Corporation Tax Rates.

The Big Picture:

With many itemized deductions having disappeared by the 2017 Tax Cuts And Jobs Act and the higher standard deduction, less taxpayers will be itemizing deductions in 2020 but there is still significant tax planning you can do.  Under these circumstances the key here is to accelerate deductions in 2020 and defer income into 2021.

Following are five year-end tax moves to make before this New Year’s Day:

  1. Give more to charity in 2020.

In addition to the usual dollar donations to charities, religious institutions and educational institutions, consider clearing your home of those unwanted household goods and clothing to give to charities. Many groups will accept these items even vehicles, with some even making arrangements to pick up them up from your home. You may also consider to donate stock or mutual funds that you’ve held for more than a year but that no longer fit your investment goals. The charity gets the asset to hold or sell, and your portfolio re-balancing nets you a deduction for the asset’s value at the time of gifting. Even better, you do not have to worry about capital gains taxes on the appreciation of your gift. Remember that if you take the standard deduction in 2020, you won’t get any tax savings from your charitable contributions made in 2020.

  1. Make the most of your home – mortgage interest.

Home-ownership provides a variety of tax breaks, some of which you can use by year-end to reduce your current year’s tax bill. Make your January mortgage payment by December 31st and deduct the mortgage interest on your 2020 tax return.

  1. Make the most of your home – property taxes.

Like prepaying mortgage interest, the same tactic will apply for property taxes; however, keep in mind that property taxes along with other state and local taxes will be deductible only up to $10,000.

  1. Pay your self-employed business expenses

If you are self-employed, you should accelerate payment of your business expenses in 2020. Recognizing these expenses in 2020 will provide you with a tax savings for 2020.

  1. Defer your income into 2021.

If you are a small business owner, consider delaying income until January 2021. So if you are chasing up some customers or clients to pay the bill you sent them a while ago, you might want to wait until January to get aggressive on collecting. Consider delaying the delivery of invoices for year-end jobs until January 2021.  Small business owners should make sure they are benefiting from the deduction of 20% of their business income. If you are an employee, ask your boss to hold your bonus until January. Individuals should also consider putting more money into a tax-deferred workplace retirement plan in 2020 and hold off on selling assets that will produce a capital gain until 2021.

What Should You Do?

With not much time left in 2020 you will need to act quickly on those tax moves that are easy to accomplish to reduce your tax bill.

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), 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 our cannabis tax attorney can do for you. Additionally, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

IRS Gearing Up To Resume Home Visits – What High Income Taxpayers Should Know About Filing Late Tax Returns

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Every year, about 9 million taxpayers miss tax deadline or fail to file their tax returns according to data from the Internal Revenue Service.

How To Handle Late Tax Returns?

The Treasury Inspector General for Tax Administration on May 29, 2020 issued a report finding that about 880,000 high-income nonfilers in tax years 2014 through 2016 had an estimated $45.7 billion in unpaid taxes.

The IRS has since announced that as part of a larger effort to ensure compliance and fairness, the IRS will step up efforts to visit high-income taxpayers making at least $100,000 who in prior years have failed to timely file one or more of their tax returns.

Following the recent and ongoing hiring of additional enforcement personnel and in anticipation of a COVID-19 pandemic being more manageable due to mitigation efforts and vaccinations, IRS Revenue Officers across the country will increase face-to-face visits with high-income taxpayers who haven’t filed tax returns in 2019 or previous years.

Failure to File vs. Failure to Pay

The IRS red flags taxpayers as “tax cheats” whether they are stop-filers, non-filers and under-filers.

“Stop Filer” is a term applied to taxpayers that consistently comply with tax filing requirements and then suddenly stop filing their returns. If your employer or client reports your income to the IRS on a 1099 or a W-2, the IRS will flag your information as a non-filer because they have access to tax forms that cannot be matched to tax returns. Understating your income, consciously or unintentionally, could result in a lower tax liability but make you liable for IRS penalties.

Failure to file means not filing the returns within the given time frame while failure to pay means filing the required paperwork but not turning in the full amount of tax obligation by the tax filing deadline. To force compliance with tax laws, the IRS is allowed to prepare a “substitute return” on behalf of those who failed to file, using data that was submitted by employers and applying customary exemptions and deductions. Substitute returns will always show a much higher liability than actual returns you have prepared and filed because substitute returns which are prepared by the IRS will not take into account your business expenses, basis in assets sold, itemized deductions, proper marital status, dependents and many tax credits.

Essentially, filing federal taxes late is better than not filing even if you cannot pay the tax dues at the time of submission. Penalties will still accrue for all unpaid tax obligations effective on the day after it is due until fully paid but by filing your tax return timely you avoid a late-filing penalty.

Why Taxpayers Should File Late Returns Now

There are important reasons why you should file your returns even if it is long past due. For one, penalties will continue to add up on any payments due. Also, if you are owed a refund due to exemptions, deductions and tax withheld, you only have three years from the original due date to claim the refund (and in certain cases this limitation is two years). When this period expires, you forfeit your refund to the IRS. Additionally, you would not be able to claim tax refunds for later years unless returns for the missing years are filed.

Loan applications, lease qualifications, scholarship applications and similar events require submission of tax returns from the previous years. Failure to present these documents that are used as proof of income may disqualify your application from moving forward. For self-employed taxpayers, filing a tax return is the only way that your credits for Social Security benefits can be reported and tracked. If you don’t comply with tax filing requirements, you would not build up enough retirement or disability credits.

Failure to respond and comply with an IRS tax bill will trigger the collection process, which may include tactics such as wage garnishment, an asset freeze or a federal tax lien.

IRS Penalties for Late Filing

The IRS assesses two different penalties for filing federal taxes late. The failure to file penalty is assessed at 5% for each month that the returns are late and is capped at 25%.

Assessments for failure to pay are 0.5% monthly for a maximum of 25%. If both penalties apply, the total amount is capped at 5% per month for a late tax return. If you qualify for a refund during the tax year in question, and you have not forfeited the refund, you may not be charged with penalties for taxes owed on a delinquent tax return.

Extending The Deadline To File

Starting with your 2020 tax return, if you will be unable to prepare your tax returns within the original deadline, file for an extension using the Form 4868, application for automatic extension of time to file U.S. individual income tax return on or before the deadline to file your Form 1040. Where an extension is timely filed, penalties for failure to file will not apply, but penalties will still be assessed on the balance due. With Form 4868, the revised deadline will be extended by six months for taxpayers in the U.S.

Additional IRS Civil Penalties For Non-compliance With Tax Laws

Criminal fraud refers to outright tax evasion. Penalties for tax evaders include hefty fines, imprisonment or both. Civil fraud charges applies to underpayment without intent to completely evade making tax payments. The penalty imposed may be as much as 75% of the portion of the underpayment. Negligence refers to inadvertent underpayment, and the penalty is 20% of the underpayment that is due to negligence. A frivolous return is one that intentionally excludes information that is crucial to processing the returns, and the penalty is $500 for each frivolous return.

What Should You Do?

Filing federal taxes late is a complicated matter. Let 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) protect you from excessive fines and possible jail time. Also, if you are involved in cannabis, check out how a cannabis tax attorney can help you. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Mississippi Tax Preparer Sentenced to Prison for False IRS Returns

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The U.S. Attorney’s Office for the Southern District of Mississippi announced on November 5, 2020 in a press release that Talvesha Glaude who owned and operated a tax return preparation business was sentenced to 22 months in prison for preparing false income tax returns and ordered to serve one year of supervised release and to pay restitution to the IRS in the amount of $183,360.

The Details

Talvesha Glaude of Moss Point, Mississippi owned and operated a tax return preparation business under multiple names, including TMG Tax Service and Regional Tax Service. From 2013 through 2019, Ms. Glaude prepared tax returns for clients seeking from the IRS inflated refunds based on fraudulent dependents, federal income tax withholdings, and education credits. In addition to preparing false returns for her clients, Ms. Glaude also filed false returns for herself for the tax years 2014 through 2018.

The conviction culminated what started from a comprehensive investigation conducted by the IRS Criminal Investigation Division which was then referred to the Tax Division of the U.S. Department Of Justice for prosecution.

Tax Preparer Penalties

Even with the possibility that a tax preparer can be subject to criminal prosecution, tax preparers face substantial civil penalties for failing to meet standards to their clients and what is imposed under the Internal Revenue Code.  Internal Revenue Code § 6694(a) imposes the standards that tax preparers must follow. Prior to the 2007 amendment to this Section, tax return preparer penalties applied to a person who prepared for compensation, a federal income tax return or claim for refund. The penalties did not apply to any other types of returns such as employment or estate tax returns. The former Section also included a $250 penalty for an income tax return preparer who knew or reasonably should have known, of the position that caused the understatement due to a frivolous position or an undisclosed position for which there was not at least a realistic possibility of being sustained on the merits. An income tax preparer engaging in willful or reckless conduct with respect to preparing an income tax return under the former Section was subject to a penalty of $1,000.

New Code §6694(a) as amended by the Small Business And Work Opportunity Tax Act of 2007 (the “Act”) extends to all types of federal tax returns, including estate and gift tax returns, employment tax returns, excise tax returns and returns of exempt organizations.

The Act now requires that the preparer have a reasonable belief that the tax treatment of the position is “more likely than not” the proper treatment. The penalty which can be imposed on the preparer is the greater of $1,000.00 or 50% of the income derived (or to be derived) by the preparer. For willful or reckless conduct, the penalty which can be imposed on the preparer is the greater of $5,000.00 or 50% of the income derived (or to be derived) by the preparer.

Other civil penalties that can be imposed against income tax returns preparers include:

  • Failure by an income tax preparer to sign a required return. IRC § 6695(b).
  • Failure by an income tax return preparer to furnish a required taxpayer identification number. IRC § 6695(c).
  • Failure by an income tax return preparer to furnish a copy of the tax return to the taxpayer. IRC § 6695(a).
  • Failure by an income tax return preparer to retain a completed copy of the return or a record of the taxpayer’s name, identification number, taxable year, and type of return prepared. IRC § 6695(d).
  • Failure by an income tax return preparer to comply with the due diligence requirements with respect to determining a taxpayer’s eligibility for, or amount of, the earned income credit. IRC § 6695(g).
  • Aiding and aiding and abetting the understatement of a tax liability. IRC § 6701.
  • Disclosing or using any tax return information other than to prepare or assist in preparing the taxpayer’s return. IRC § 6713(a).

Even without bringing a criminal prosecution the IRS may seek to enjoin an income tax return preparer engaging in specific abusive practices or from acting as an income tax return preparer. IRC § 7407(a). An injunction may be issued if a court determines that the preparer has (1) engaged in conduct subject to a preparer penalty under §6694 or §6695, (2) engaged in conduct subject to a criminal penalty under the Internal Revenue Code, (3) misrepresented his eligibility to practice before the IRS, (4) misrepresented his experience or education as a preparer, (5) guaranteed the payment of any tax refund or the allowance of any tax credit, or (6) engaged in any other fraudulent or deceptive conduct that substantially interferes with the proper administration of the tax law; and that injunctive relief is appropriate to prevent the recurrence of such conduct.

What Should You Do?

If the IRS is considering a penalty against you as a professional you should seek immediate assistance from a qualified tax attorney at this earliest possible time.  The tax attorneys of 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 know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only level the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also, if you are involved in cannabis, check out what our 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.

IRS Provides Tax Relief For Victims Of September 2020 Wildfires In California.

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The IRS announced on October 19, 2020 that victims of the California wildfires that began September 4th may qualify for tax relief.  Individuals who reside or have a business in Fresno, Los Angeles, Madera, Mendocino, San Bernardino, San Diego and Siskiyou counties in California, have until January 15, 2021, to file certain individual and business tax returns and make certain tax payments.  Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov.  This relief is separate from the announcement by the IRS on August 24, 2020 for the California wildfires that began on August 14th.

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. 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. For instance, certain deadlines falling on or after September 7, 2020, are granted additional time to file through January 15, 2021. This includes 2019 individual income tax returns that have a valid extension through October 15, 2020, and the employment and excise tax returns due on November 2, 2020.  It also includes the quarterly estimated individual income tax payment due on September 15, 2020.  It also applies to tax-exempt organizations, operating on a calendar-year basis that had a valid extension due to run out on November 16, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15, 2020.

In addition, penalties on payroll and excise tax deposits due on or after September 4, 2020, and before September 21, 2020, will be abated as long as the deposits were made by September 21, 2020.

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), San Diego County (Carlsbad) 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.  You can also check out the KahnTaxLaw Coronavirus Resource Center.  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.

9 Million Non-filers To Receive Letter From The IRS Urging Them To Claim The Economic Impact Payment

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What To Do If You Have Not Received Your Economic Impact Payment.

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.  One of the most publicized provisions is the immediate cash payments by the Federal government to qualifying taxpayers.

Who is eligible for the economic impact payment?

To get cash assistance promptly delivered to individual taxpayers, qualifying taxpayers will receive one-time cash payments of $1,200 for individual taxpayers or if married, $2,400 for married couples.  An additional $500 may be paid for each qualifying child.

These amounts are subject to reduction if the individual’s Adjusted Gross Income (AGI) exceeds $75,000 for an individual taxpayer; $112,500 for head of household; or $150,000 for a married couple.

Nonresident alien individuals and a person who is the dependent of another are ineligible to receive the payment.

For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

By accessing taxpayers’ 2018 and 2019 tax returns along with information received from taxpayer’s using the IRS Non-Filers: Enter Payment Info Tool, more than 160 million Americans have already received their Economic Impact Payments.

Non-Filers Can Still Get A Payment But Must Act By October 15th.

The IRS will start mailing letters to roughly 9 million Americans who typically don’t file federal income tax returns who may be eligible for, but have not registered to claim, an Economic Impact Payment.

The letter, officially known as IRS Notice 1444-A, is written in English and Spanish and includes information on eligibility criteria and how eligible recipients can claim an Economic Impact Payment on IRS.gov. The mailing, which will begin around September 24th, will be delivered from an IRS address.

This letter urges eligible individuals to register by October 15th for a payment by using the IRS Non-Filers: Enter Payment Info Tool, available on IRS.gov. More than 7 million people have used the Non-Filers tool so far to register for a payment.

People can also wait until next year and claim it as a credit on their 2020 federal income tax return by filing in 2021; but for anyone that is required to file either a 2018 or 2019 tax return, they should file the outstanding tax return(s) instead of using the Non-Filers tool.

Affected taxpayers can check the status of their economic impact payment by using the Get My Payment Tool, available on IRS.gov.

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because of the 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 2020, taxpayers who expect to owe for 2019 should have their 2019 income tax returns done now so that the 2019 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2020.

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.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

Click here for COVID-19 Tax Relief measures instituted by the IRS in “The IRS People First Initiative” that can benefit you. 

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), Los Angeles (including Long Beach and Ontario) 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. You can also check out the KahnTaxLaw Coronavirus Resource Center.  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.

Were You Affected By Hurricane Laura? IRS Is Providing You With Tax Relief And Extending Upcoming Tax Deadlines.

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The IRS announced on August 31, 2020 that victims of Hurricane Laura starting August 22, 2020 may qualify for tax relief.  Individuals who reside or have a business in Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis and Vernon parishes in Louisiana, have until December 31, 2020, to file certain individual and business tax returns and make certain tax payments.  Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov.

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. 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. For instance, certain deadlines falling on or after August 22, 2020, are granted additional time to file through December 31, 2020. This includes 2019 individual income tax returns that have a valid extension through October 15, 2020, and the employment and excise tax returns due on November 2, 2020.  It also includes the quarterly estimated individual income tax payment due on September 15, 2020.

In addition, penalties on payroll and excise tax deposits due on or after August 22, 2020, and before September 8, 2020, will be abated as long as the deposits were made by September 8, 2020.

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

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), San Diego County (Carlsbad) 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.  You can also check out the KahnTaxLaw Coronavirus Resource Center.  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.

U.S. Successfully Disrupts Three Terror Finance Cyber-Enabled Campaigns

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U.S. Successfully Disrupts Three Terror Finance Cyber-Enabled Campaigns

Using the same tools in the investigations of U.S. taxpayers, this is the largest ever seizure of terrorist organizations’ cryptocurrency accounts.

The Department Of Justice on August 13, 2020 announced the dismantling of three terrorist financing cyber-enabled campaigns, involving the al-Qassam Brigades, Hamas’s military wing, al-Qaeda, and Islamic State of Iraq and the Levant (ISIS).  This coordinated operation is detailed in three forfeiture complaints and a criminal complaint unsealed in the District of Columbia.

The announcement states that these three terror finance campaigns all relied on sophisticated cyber-tools, including the solicitation of cryptocurrency donations from around the world.  The action demonstrates how different terrorist groups have similarly adapted their terror finance activities to the cyber age.  Each group used cryptocurrency and social media to garner attention and raise funds for their terror campaigns.  Pursuant to judicially-authorized warrants, U.S. authorities seized millions of dollars, over 300 cryptocurrency accounts, four websites, and four Facebook pages all related to the criminal enterprise.

“IRS-CI’s ability to trace funds used by terrorist groups to their source and dismantle these radical group’s communication and financial networks directly prevents them from wreaking havoc throughout the world,” said Don Fort, Chief, IRS Criminal Investigation.

The tools and systems used by IRS in nabbing the cryptocurrency accounts of these three terrorist organizations are the same as those being you to nab non-compliant U.S. taxpayers who are not reporting their cryptocurrency transactions.

Investigations Of U.S. Taxpayers

The IRS has one of the most extensive data collections in the world. Traditionally its power to enforce has come through the matching of data. For example, you received a W-2 Form from your employer showing how much you earned. That same form is submitted by your employer to the IRS. Now the IRS can match your return to that form to make sure you are reporting the income. The same thing goes for 1099 forms showing your earnings from miscellaneous income, gambling winnings, interest and dividend income, sales of assets, deductions, and so on.

But with Bitcoin and other crypto-currencies, there is no such third-party reporting.  Digital exchanges are not broker-regulated by the IRS. Exchanges do not issue a 1099 form, nor do they calculate gains or cost basis for the trader. But the IRS is not stopping here…

Chainalysis Reactor Software

Chainalysis is a company that created a cryptocurrency-tracing software dubbed “Reactor” which is being used by at least 10 federal agencies including the IRS.  The IRS Cyber Crimes Unit (CCU), a five-year-old division of its larger Criminal Investigation (CI) wing and the leader in the IRS’ cryptocurrency crimes investigations, uses this software as a tool to help identify taxpayers who could be non-compliant in the tax laws or involved in criminal activity.  The IRS has also engaged another company, Excygent, to further enhance the IRS’ investigative capabilities.

IRS-CI Deputy Chief Jim Lee has signaled that his agents’ crypto-tracing resources and expertise are “in demand” even outside of the IRS and that “U.S. Attorneys want IRS-CI agents in all of their financial crime cases. The fact of the matter is, if a case involves money and it’s a crime that rises to the federal level, IRS-CI almost always has jurisdiction. There is no better example to this than in tracing cryptocurrency transactions.”

IRS-CI Chief Don Fort has been even more explicit of CI agents’ assistance to other federal agencies stating that by utilizing Chainalysis the IRS and the Department of Justice dismantled a sprawling child pornography ring in South Korea.

Virtual currency is an ongoing focus area for IRS Criminal Investigation.

In 2018 the IRS announced a Virtual Currency Compliance Campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

IRS Access To Cryptocurrency Transactions.

A John Doe Summons issued by IRS was ruled enforceable by U.S. Magistrate Judge Jacqueline Scott Corley in November 2017 (United States v. Coinbase, Inc., United States District Court, Northern District Of California, Case No.17-cv-01431).  Coinbase located in San Francisco is the largest cryptocurrency exchange in the United States.  Under the order, Coinbase will be required to turn over the names, addresses and tax identification numbers on 14,355 account holders. The Court has ordered Coinbase to produce the following customer information: (1) taxpayer ID number, (2) name, (3) birth date, (4) address, (5) records of account activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and (6) all periodic statements of account or invoices (or the equivalent).

ON MARCH 16, 2018 COINBASE COMPLIED WITH THIS SUMMONS AND TURNED OVER DATA OF 14,355 ACCOUNT HOLDERS TO IRS.

Now while this net may not pick up taxpayers whose accounts have less than $20,000 in any one transaction type (buy, sell, send, or receive) in any one year from 2013 to 2015, it should be clear that this is the first step for the IRS to crush non-compliance for all taxpayers involved with cryptocurrency just like the IRS was successful in battling taxpayers having undisclosed foreign bank accounts.

10,000 Cryptocurrency Owners Receiving Warning Letters From The IRS

After years of analyzing data from third parties involved in the cryptocurrency exchanges, the IRS announced in a press release on July 26, 2019 that it has started sending letters to cryptocurrency owners advising them to report their cryptocurrency transactions and pay their taxes. More than 10,000 taxpayers have been identified by IRS as being involved in cryptocurrency transactions but who the IRS believes may not have been compliant in reporting these transactions on their tax returns.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

Notices Being Sent To Taxpayers Are The First Step In IRS Enforcement Action

The IRS is using three types of notices to send to more than 10,000 taxpayers by the end of August 2019 – notices 6173, 6174 or 6174-A. All three notices indicate the IRS has information that the taxpayer receiving the notice currently has or has had virtual currency. However, it is Letter 6173 that is most serious as it requires a signature from the recipient under perjury that they are compliant with the U.S. tax code or requiring taxpayers to respond to the IRS and either file delinquent returns for tax years 2013 through 2017 or amend previously filed returns and include the applicable forms or schedules reporting cryptocurrency transactions. If you receive a Letter 6173, it should be a virtual certainty that you will be selected for examination.

If you receive Letter 6173, you should consult with a tax attorney as the submission of a statement signed under penalties of perjury that is false can result in serious consequences including criminal prosecution.

2019 Form 1040 Makes It Harder For U.S. Taxpayers To Avoid Non-compliance Or Claim Ignorance.

The 2019 Form 1040, Schedule1, Additional Income and Adjustments to Income, now includes the following checkbox question:

At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?   ◊ Yes            ◊ No

Taxpayers who file Schedule 1 to report income or adjustments to income that can’t be entered directly on Form 1040 will now be required to check the appropriate box to answer the virtual currency question. Taxpayers do not need to file Schedule 1 if their answer to this question is NO and they do not have to file Schedule 1 for any other purpose. This requirement is similar to how the IRS includes questions on Schedule B inquiring whether a taxpayer has foreign bank accounts.

Taxpayers who answer “no” and for who the IRS later determines should have answered “yes” could face civil or criminal penalties and it could affect their success in having penalties abated for reasonable cause.

Penalties For Filing A False Income Tax Return Or Under-reporting Income

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.

Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS! And this is why the IRS is first sending Letter 6173 requiring a signature from the recipient under perjury that the taxpayer is compliant with the U.S. tax code BEFORE the IRS then decides to audit the taxpayer.

Voluntary Disclosure – The Way To Avoid Criminal Fines & Punishment

The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.

What Should You Do?

With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.  And now that like-exchange treatment is prohibited on transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties.  Don’t delay because once the IRS has targeted you for investigation – even it’s is a routine random audit – it will be too late voluntarily come forward.

Take control of this risk and engage a bitcoin tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including Walnut Creek and San Jose) and other California locations.  We can come up with solutions and strategies to these risks and protect you and your business to mitigate criminal prosecution, seek abatement of penalties, and minimize your tax liability.  Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.

“J5” Global Tax Chiefs Mark Two Years Of Cooperation To Tackle International Tax Evasion

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“J5” Global Tax Chiefs Mark Two Years Of Cooperation To Tackle International Tax Evasion

Leaders from five international tax organizations are marking the two-year anniversary of the formation of the Joint Chiefs of Global Tax Enforcement (J5). The J5 was formed in 2018 after a call to arms from the OECD Taskforce on Tax Crime and has been working together to gather information, share intelligence and conduct coordinated operations, making significant progress in each country’s fight against transnational tax crime.

The J5 includes the Australian Taxation Office (ATO, the Canadian Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue and Customs (HMRC) from the UK and the Internal Revenue Service Criminal Investigation Division (IRS-CI) from the US.

Taking advantage of each country’s strengths, the J5’s initial focus was on enablers of tax crime, virtual currency and platforms that enable each country to share information in a more efficient manner.  Within the framework of each country’s laws, J5 countries shared information and were able to open new cases, more completely develop existing cases, and find efficiencies to reduce the time it takes to work cases. Operational results have always been the goal of the organization and the J5 states that these results have started to materialize.

“While operational results matter, I’ve been most excited at the other benefits that this group’s existence has provided,” said Don Fort, Chief, IRS Criminal Investigation. “In speaking with law enforcement partners domestically and abroad as well as stakeholders in various public and private tax organizations, there is real support for this organization and tangible results we have all seen due to the cooperation and global leadership of the J5.”

“Big Data” Goes Global With The J5

It is reported that during the two years since the J5’s inception, hundreds of data exchanges between J5 partner agencies have occurred with more data being exchanged in the past year than the previous 10 years combined. The concept is that each J5 country brings different strengths and skillsets to the J5 and leveraging those skills and capabilities enhance the effectiveness and success of the J5.

Since the inception of the organization, two J5 countries have hosted events known as “Challenges” aimed at developing operational collaboration. FIOD hosted the first J5 “Challenge” in Utrecht in 2018 and brought together leading data scientists, technology experts and investigators from all J5 countries in a coordinated push to track down those who make a living out of facilitating and enabling international tax crime.  The event identified, developed, and tested tools, platforms, techniques, and methods that contribute to the mission of the J5 focusing on identifying professional enablers facilitating offshore tax fraud. The following year, the U.S. hosted a second “Challenge” in Los Angeles and brought together investigators, cryptocurrency experts and data scientists in a coordinated push to track down individuals perpetrating tax crimes around the world.  With the rise in crypto currency, the J5 has created a platform called “FCInet” which is a decentralized virtual computer network that enables tax agencies to compare, analyze and exchange data anonymously. It helps tax agencies to obtain the right information in real-time and enables agencies from different jurisdictions to work together while respecting each other’s local autonomy.  Organizations can jointly connect information, without needing to surrender data or control to a central database. FCInet doesn’t collect data, rather it connects data.

The U.S Justice Department announced that in early July 2020, a Romanian man was arrested in Germany and admitted to conspiring to engage in wire fraud and offering and selling unregistered securities in connection with his role in the BitClub Network, a cryptocurrency mining scheme worth at least $722 million. This plea was the first for a case under the J5 umbrella and stemmed from collaboration with the Netherlands during the “Challenge” in Los Angeles in 2019.

Penalties for Non-Compliance

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.

Civil Fraud – If your failure to file is due to fraud, the penalty is 15% for each month or part of a month that your return is late, up to a maximum of 75%.

Criminal Fraud – Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

Additionally, the penalties for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. For non-willful violations, it is $10,000 per account per year going back as far as six years. For willful violations, the penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Lastly, failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.

Voluntary Disclosure

Since September 28, 2018, the IRS discontinued the Offshore Voluntary Disclosure Program (OVDP); however, on November 20, 2018 the IRS issued guidelines by which taxpayers with undisclosed foreign bank account and unreported foreign income can still come forward with a voluntary disclosure.   The voluntary disclosure program is specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets or foreign in income or any unreported income whether it be domestic or foreign. In general, voluntary disclosures will include a six-year disclosure period. The disclosure period will require examinations of the most recent six tax years so taxpayers must submit all required returns and reports for the disclosure period. Click here for more information on available Voluntary Disclosure Programs.

What Should You Do?

Recent closure and liquidation of foreign accounts will not remove your exposure for non-disclosure as the IRS will be securing bank information for the last eight years. Additionally, as a result of the account closure and distribution of funds being reported in normal banking channels, this will elevate your chances of being selected for investigation by the IRS. For those taxpayers who have submitted delinquent FBAR’s and amended tax returns without applying for amnesty (referred to as a “quiet disclosure”), the IRS has blocked the processing of these returns and flagged these taxpayers for further investigation. You should also expect that the IRS will use such conduct to show willfulness by the taxpayer to justify the maximum punishment.

We encourage taxpayers who are concerned about their undisclosed offshore accounts or who have unreported crypto currency transactions to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid criminal prosecution or programs with reduced civil penalties. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of 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 help ensure that you are in compliance with federal tax laws. Additionally, 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.

 

Advantages To Filing A 2019 Tax Return – Getting Money Due To You

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On March 25, 2020 the IRS issued a press release  announcing a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions in what it calls “The IRS People First Initiative”.

These changes included postponing the 2019 tax filing deadline from April 15, 2020 to Wednesday, July 15, 2020.

Here are five things to consider when determining whether to file a 2019 tax return, including possibly being eligible for an Economic Impact Payment:

Tax withheld or paid –

  • Did your employer withhold federal income tax from your pay in 2019?
  • Did you make estimated tax payments?
  • Did you get a refund last year, and have it applied to your 2019 tax?

If you answered “yes” to any of these questions, you may be owed a refund. To receive the refund, you must file a 2019 tax return.

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.

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 $1,400 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 with dependents who don’t qualify for the child tax credit may be able to claim the credit for other dependents. The maximum credit amount is $500 for each dependent who meets certain conditions.

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.

Economic Impact Payment – Individuals who aren’t required to file a tax return may still be eligible for an Economic Impact Payment of $1,200 (single) or $2,400 (married filing jointly). People who meet the EIP eligibility requirements, have a filing requirement or can claim a refund should file a 2019 tax return. If you have not yet filed a 2019 and 2018 tax return, the IRS will use your information from the 2019 tax return after it is filed by you to calculate their Economic Impact Payment. Those who don’t have to file should use the Non-Filers: Enter Payment Info Here tool by October 15, 2020 to provide simple information so to get their payment.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS your tax problem will disappear because of the 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 2020, taxpayers who expect to owe for 2019 should have their 2019 income tax returns done now so that the 2019 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2020.

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.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

The take away from this – use the Federal government’s downtime and continued uncertainty with COVID-19 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.