“Business Solutions with Diane Chamness”

On a monthly basis, attorney Barry White and others from the law firm Weiss Berzowski Brady LLP talk with Diane Chamness on her radio program. The show, called "Business Solutions with Diane Chamness" is broadcast on WISN 1130AM from 1:00-2:00 CST.

On Saturday, May 3, 2008, I will be talking with Diane about personal and successor liability for Wisconsin sales taxes. We will also take calls concerning tax audits, appeals and collection matters. We hope you can listen in.

If you are outside of the listening area, you can tune in and listen live by visiting her website at http://www.dianeonbusiness.com/. Diane's show runs on a weekly basis at the same time and addresses various issue relevant to business owners.

Friday's Tax Quote.

"People who complain about taxes can be divided into two classes: men and women."

-Anonymous

Wesley Snipes Will Go To Prison

The Wesley Snipes tax evasion case was certainly the most high profile criminal tax case brought by the government in years. In spite of victories that he had in the trial court (acquittal on all felony charges). Mr. Snipes today learned what his sentence would be on the remaining three misdemeanors (failure to file) on which he was convicted.

A misdemeanor is a crime for which someone can be incarcerated for up to one year (a felony can result in a prison sentence of over one year). Today we learned that Wesley Snipes would serve the maximum sentence for his failure to file tax returns. Three Misdemeanors = Three Years.

That Snipes received the maximum sentence available suggests that while his attorneys were able to cleverly obtain acquittals of the felonies from the jury, the judge didn't agree with the arguments that were made. The judge would likely have handed down a lesser sentence if he had thought that the crime was limited to the misdemeanors. However, Wesley Snipes had avoided/evaded a substantial amount of taxes through teaming up with a group of people that are also facing their own consequences. The judge was certainly aware of how much went unpaid and how it was done. To hand down the maximum sentence, we can assume that he found Mr. Snipes' conduct eggregious.

One must wonder if the judge felt handicapped in handing down his sentence because he could only give three years. For this reason, Mr. Snipes should be very grateful for the acquittals that his lawyers got for him. If they hadn't done so, he could have been sitting for a much longer sentence.

If the $5 million dollar payment that Wesley Snipes has paid constitutes the tax, penalties and interest due, this case leaves two last interesting questions:

1) Will Wesley Snipes be sent to a minimum security prison camp (as is common in criminal tax cases) or will he end up in a more "prison-like" prison?

2) What is going to happen to all of the other people that participated in the same scheme that Snipes did?

It is not likely that each participant in the schemes will face criminal prosecution, rather, these other people can consider themselves to have benefited from Wesley Snipes' celebrity. However, we can safely assume that the government now has a list of names of all those people that participated in the American Rights Litigators and Guiding Light of God Ministries promoted schemes. These people will have to use the established IRS procedures to resolve their debts. Fortunately for them their, consequence will likely be limited to writing large checks made payable to "The United States Treasury."

IRS Summonses

A summons is an administrative tool used by the IRS to collect information concerning a taxpayer. A summons is best described as a forceful request by the IRS for documents or information. To enforce a summons, the IRS must bring an enforcement action in the District Court. When the matter is before the court, a judge will determine if the summons was properly issued, whether there are any valid defenses to the production of the documents and whether the summons must be complied with. Of course, in many circumstances, complying with a summons before court intervention is a good idea. For example, if there is no valid defense to producing the summoned information (attorney-client privileged, right against self-incrimination, etc.), the information should be provided. There is no need, however, to provide more information than is asked for in the summons. If you do receive an IRS summons that asks for your own information, it is likely well past the time for consulting a legal advisor. At this point, the IRS likely feels that you have been ignoring them.

When a summons is issued to a party other than the taxpayer being investigated (a third-party summons) the IRS must notify the target of the investigation of the issuance of the summons. The target has the right to bring a motion to quash the summons if he/she/it believes that some principal (attorney-client privilege, right against self incrimination, etc.) should prevent disclosure of the requested information. The recipient of the third- party summons should also consider whether the information requested by the summons should be disclosed. To make this determination, each request in the summons should be analyzed separately. A third party that receives a summons should make certain that it is required to turn over the information so that it is not violating a duty to the subject of the information.

John McCain's Tax Returns

As is probably clear, this blog is dedicated to discussing tax issues. In addition to talking about income, deductions, audits and tax problems, I will also write about current events. One of the big buzz tax related items recently in the news has been the release of the tax returns of the presidential candidates. In a previous post, I provided links to the tax returns of Hillary Clinton and Barak Obama (click here).

As promised in the prior post, I am now providing a link to John McCain's tax returns as available on his campaign website (click here).

Friday's Tax Quote.

"Because of the income tax, a penny saved is more than a penny earned."

- Jeffery L. Yablon

A Primer on IRS Tax Audits

A letter from the IRS rarely brings good news. Frequently the letter explains that your personal or business tax return has been selected for audit. This post contains information about the audit process that can help reduce anxiety during the IRS’ examination.

An audit will most often be conducted by an IRS Revenue Agent. A Revenue Agent is not concerned with the person’s or business’s ability to pay the tax asserted, rather, their focus is simply on the determination of what they believe is the proper amount of tax due.

Generally, when an audit occurs, it may be categorized as a compliance center audit, office audit or field audit. A “compliance center audit” is conducted by letter and generally concerns a discrepancy in information on the records of the IRS and the information on a tax return. An “office audit” is typically also a correspondence audit and concerns certain specific issues on a specific tax return. A “field audit” will take place at a taxpayer’s place of business or at a representative’s office. Field audits are not limited to specific issues or tax years.

When the IRS conducts an audit, it will request information by several means, including information document requests (“IDR”), summons, third party summons or a taxpayer interview.

In an IDR, the IRS requests documentation and asks questions concerning items on the tax returns. When the IRS issues a summons, it is making a more forceful request for information that can be enforced in a proceeding in the federal district courts. This gives the taxpayer an opportunity to challenge the summons on certain grounds. Similarly, a taxpayer has the chance to challenge summonses issued to third parties. Taxpayer interviews can only be required following the issuance of a summons. Knowing what information the IRS is looking for provides an understanding of the tax issues in which the IRS has interest.

Once an audit is concluded, the Revenue Agent will issue a report of his or her findings. These items in the report may be resolved with the Agent based on the tax laws. The Agent cannot resolve the case based on the chance that the IRS could ultimately lose the issue in court. If a resolution cannot be reached, the Agent will issue either a “30-day” or “90-day” letter which provides the taxpayer another opportunity to settle the case with the Appeals Division of the IRS before having to proceed to court.

Tax Issues in Starting A Business: Doing It The Right Way Can Help Avoid Tax Problems In The Future

Starting a business can be one of the most exciting times in one’s life. However, it can also be one of the most time consuming. Because starting an entrepreneurial venture can require so much time to insure its success, many times the owners of new businesses will overlook certain aspects of starting a business that should be addressed early on. These issues can lead to larger problems in the future. One of the most important aspects of starting a new business is insuring that the business is set up properly. From this perspective, it is immaterial whether the business is organized as a limited liability company, a partnership, a corporation or otherwise. Rather, the important part is to make sure that whatever entity you choose is formed properly. This is particularly true where there is more than one owner of that business. Proper formation is important because later disputes between owners can be very costly to the success of a business if the structure for resolving those disputes is not spelled out in advance. Another costly oversight can be the decision to avoid dealing properly with tax obligations.

When it comes to taxes, most business owners are aware that income, employment, sales and use taxes exist; however, not everyone is aware of their obligations with respect to those taxes. The best way to resolve any future potential tax problem, is to avoid having the problem in the first place. This means that all new businesses should develop a relationship with an accountant that can advise them on the business’s tax obligations and assist them in fulfilling those obligations. The new business owner should also maintain appropriate records of income, expenses, sales, purchases and other items. A skilled accountant can use this information to assist your business in complying with tax laws.

Unfortunately, however, it is a fact that not all businesses do avoid future tax problems by addressing the tax compliance issues at the outset of a venture. It is also possible that a prior interpretation of the tax laws is reinterpreted or interpreted for the first time by the government so that your business now owes tax for something it previously believed did not owe tax on. Regardless, when one of these problems arises, there are procedures in place at both the federal and state levels for resolving tax disputes. While conceptually straight forward, based on the complexity of the business venture, its income, its expenses, its assets and its liabilities, it may be appropriate to hire a professional to assist you in resolving tax problems. These issues may include an inability to pay an income or employment tax liability, the filing of unfiled tax returns (known as non-filers), the personal assessment of employment or sales taxes against an officer of the business, the availability of entering into a deal with the government for less than the total amount of tax due (Offers in Compromise) and so forth.

While procedures exist to resolve tax issues that a new business may face, avoiding these issues in the first place is always the best part of a new business plan.

Legal Podcasts

A regular visitor to this blog will note that I am a big proponent of using legal podcasts as a means to communicate important legal information to clients and the general public. To that end, I direct your attention to an article recently published in the April 7th edition of the Wisconsin Law Journal. The article analyzes the emerging trend of legal podcasts and can be found here.

Friday's Tax Quote.

"The taxpayer - that's someone who works for the federal government but doesn't have to take a civil service examination."

- Ronald Regan

Legal Podcast - Tips and Techniques to Avoid the Wisconsin Real Estate Transfer Fee

Attorney Jim Swiderski has recorded another podcast. The topic of his real estate legal podcast is Tips and Techniques to Avoid the Wisconsin Real Estate Transfer Fee.

In the podcast Jim introduces the listener to various techniques which may be utilized by the seller of real estate to avoid payment of the Wisconsin real estate transfer fee. The discussion includes such techniques as, (1) selling the business entity which holds the real estate instead of selling the underlying real estate and (2) employing the use of multi-step transfers of the property utilizing statutory fee exemptions.

Presidential Candidate's Tax Returns

For a while now there has been a lot of discussion about Barack Obama's and Hillary Clinton's tax returns. As this website is dedicated to addressing tax issues, it is only appropriate that I try to make access to this information a little easier. So, here they are:

Barack Obama's Tax Returns (the taxprof blog provides links to the Obama returns)

Hillary Clinton's Tax Returns (scroll down to the bottom of that page to find links to the returns)

As for John McCain's tax returns, I will make sure to include a post that links to his returns when they become available. According to the story Now What About McCain's Tax Returns? found on the MSNBC website, the John McCain camp has said that they will release his returns after April 15th.

Friday's Tax Quote.

“We shall now embark on a voyage through the various sections of the Income Tax Regulations which are enough to boggle the mind of an English speaking U.S. Citizen.”

-William A. Goffe

Wisconsin Just Became a Little Less Taxing

On April 1, the Wisconsin Department of Revenue sent out a reminder that, as of January 1, 2008, Social Security benefits would no longer be subject to the Wisconsin Income Tax. While not effective until the beginning of this year, the law making this change was actually the 2005 Wisconsin Act 25.

Prior to 2008, Social Security benefits were taxable in Wisconsin for single taxpayers that received more than $25,000 in income in a given year or for joint filers whose income exceeded $32,000. Persons exceeding these thresholds would have 50% of their Social Security benefits taxed as income.

The recent Wisconsin Department of Revenue notice served as a reminder of the 2005 Act's provisions and stated:

"Effective for taxable years beginning in 2008, social security benefits will no longer be taxable for Wisconsin income tax purposes. This will be reflected on the 2008 Wisconsin income tax forms.

For federal income tax purposes, up to 85 percent of social security benefits may be taxable. Prior to 2008, if social security benefits were taxable on an individual’s federal income tax return, the social security benefits were also taxable on the individual’s Wisconsin income tax return. However, Wisconsin did not tax more than 50 percent of the benefits.

Individuals who previously had taxable social security benefits and make Wisconsin estimated tax payments may want to adjust their 2008 estimated tax payments to account for the fact that their social security benefits will not be taxed. Form 1-ES is used to make estimated tax payments. A worksheet is included in the 2008 Form 1-ES instructions for estimating 2008 taxable income. The Form 1-ES and instructions are available from the department’s website at http://www.revenue.wi.gov/html/08forms.html.

Note: Even though social security benefits will not be taxable for income tax purposes, they must still be included in household income for homestead credit. "

This change will only impact a certain segment of the Wisconsin taxpayers so its overall impact on the Wisconsin population at large, is limited. Yet, this is still good news for those receiving Social Security benefits.

The Offer In Compromise Is Not The Only Option.

Often, the first question asked by people and business owners that have tax problems is “What about an Offer in Compromise?” As I have recently posted on this blog, the percentage of accepted Offers in Compromise is not exactly staggeringly high. In fact, many people and businesses simply will not qualify for an Offer in Compromise.

When facing tax problems, the Offer in Compromise is not the only option. I am not suggesting that the possibility of a compromise should be ignored. Rather, I strongly suggest that a compromise financial analysis be conducted. That said, where a compromise is not an option, other possibilities exist for resolving a tax debt and preventing a tax levy on a bank account and wages.

Principal among these options is the installment arrangement. Where an individual’s tax debt is less than $10,000 the IRS will automatically accept an installment agreement. As the liability climbs above that threshold, the IRS will require a more in depth analysis of a financial statement prepared by the taxpayer. Under the American Jobs Creation Act of 2004, the IRS is even allowed to accept an installment arrangement that would pay less that the full amount of tax, penalties and interest due.

If an installment agreement is not right for you, there may be additional options based on

 the nature of your tax debt (income vs. employment taxes),
 the responsibilities you have concerning the payment of business employment taxes,
 the structure of your business (sole proprietorship, LLC, corporation),
 what you own or how you own it,
 and more.

The point is, you should not limit the resolution of your tax debts to an Offer in Compromise or even an installment arrangement. Your particular circumstances may allow for a much broader range of solutions.