Friday's Tax Quote.

“The power to tax the exercise of a privilege is the power to control or suppress its enjoyment.”


- William O. Douglas

IRS Financial Reporting Suffers from Serious Internal Control Issues.

The GAO (Government Accountability Office) has reported, with an obvious sense of irony, that the IRS financial statement process is in need of work. According to the GAO report “serious internal control and financial management systems deficiencies continued to make it necessary for the IRS to rely on resource-intensive compensating processes to prepare its financial statements.” Moreover, the internal controls used by the IRS do not give sufficient assurances that losses, misstatements, and noncompliance with the law would be prevented or detected on a timely basis.

What this means is that the IRS is spending extra manpower, time and taxpayer dollars to make sure that its financial statements are correct. While the GAO noted a number of strides the IRS has made to update the process, the outdated and obsolete systems used “could have serious implications on [the GAO’s] ability to determine whether IRS’s financial statements are fairly stated.”

Friday's Tax Quote.

“Taxation is, in fact, the most difficult function of government and that against which their citizens are most apt to be refractory.”

- Thomas Jefferson

A Trip Through the IRS Audit, Appeals and Court Procedures

When dealing with an IRS audit, my clients often ask: What is the IRS going to do?  What happens next?  What happens if we don't agree with the position that the IRS is taking?

Certainly, some IRS procedures are counter intuitive and can be confusing.  However, the movement of a case from the start of an audit, through appeals and into the court system does not have to be confusing.  At least not if you have the flow chart below.  I have had this flow chart for years.  It was handed down to me by someone who said that it came from an old IRS publication.  Whether it is old doesn't matter, because it is still accurate and clearly explains how a case moves through the audit/appeals/court process.

So, if you are currently going through an audit and what to know what happens next or how far you can challenge the case, look at the flow chart below. 

Veteran's Day

On November 11, 1918, an Armistice was signed bringing an official end to World War I. This Armistice Day concluded an unfortunate chapter in world history with peace. Sadly, the peace did not last. Following World War II, Armistice Day was renamed Veteran’s Day to honor all U.S. Veterans that have served in the Armed Forces.

It is on this day that we honor their service and have the opportunity to say thank you. So…Thank you.

*photo courtesy of Meghan Arnold - accidentalwisconsinite.blogspot.com

Choosing the Right Representative to Help with Your Tax Problems

Choosing the right person to help you sort out the tax problems that you or your business is facing shouldn't be as hard as solving the tax issue itself.  Navigating the sea of tax professionals can, however, be tricky.  To help people sort through some of these issues, I have recently written a guest post for the Tax Guy blog.  The post, aptly titled "Choosing the Right Representative to Help You with Your Federal Tax Problems", is part of a series by the Tax Guy he prepared on choosing tax professionals in a variety of situations from return preparation to tax controversies.  The discussion on the topic can be found by clicking here.

Friday's Tax Quote

“We have long had death and taxes as the two standards of inevitability. But there are those who believe that death is the preferable of the two. ‘At least,’ as one man said, ‘there’s one advantage about death; it doesn’t get worse every time Congress meets.’”

- Erwin N. Griswold

Sales Tax- Challenging Successor Liability

If successor liability is asserted against the successor business, the challenges are similar to those of dealing with an initial tax liability. There will likely be a determination of the amount for which the buyer could be liable. This provides an opportunity to resolve the issue before the Department determines that a successor should be responsible for the tax. The analysis will include a consideration of the amount of the purchase price that was paid, the amount of the tax due by the predecessor and possibly whether statutory requirements for a Sales Tax Clearance Certificate were satisfied. If the opportunity to resolve the matter with the Auditor is unsuccessful or missed, the same or similar issues can be addressed at the Resolution/Appeals Unit of the Department of Revenue.

When dealing with successor liability for Wisconsin sales or use taxes, the best method for resolving an issue is to avoid having it in the first place. Where that is not possible, it is important to respond and react to the Department of Revenue’s actions to provide the broadest variety of resolutions possible. There are, however, several opportunities to try and resolve the debt before it becomes final and it is always a good idea to take advantage of the procedures in place to solve existing or potential problems.

The Next President: Barack Obama

Barack Obama has won the 2008 U.S. Presidential Election. Congratulations are certainly in order. He has certainly accomplished something that few before him have been able to do.

As a tax lawyer, I am most interested in what the Obama administration will bring to the tax laws, tax policy and tax administration. Throughout his campaign he has made promises about certain changes in tax policy that he would like to see in place. With the democrats in control of both the legislative and executive branches, I expect that we’ll see some swift changes (including to the tax laws) in his first 100 days. I am looking forward to seeing how those changes take shape.

Don't Forget To Vote.

Today is an important day for our nation.  It is the day on which we choose those who would lead us for the next four years.  Regardless of your politics and whether you find social, economic or tax policy the driving force in the decision on whom to vote for, it is important that you make your voice heard.

SALES TAX - Successor Liability - Collecting the Unpaid Tax of a Predecessor Business

When the purchaser of a business faces the prospect of successor liability for Wisconsin Sales taxes, he or she (or it) may complain that the business first owing the tax should first be liable for the unpaid debt. This certainly seems like a reasonable complaint that is addressed in the Wisconsin Administrative Code.

The Administrative Code provides that the Department of Revenue should direct its collection efforts against the party that originally owes the tax. Case law has determined, however, that the party that originally owes the tax means the business that charged the sales tax in the first instance. It is this business that is the predecessor. Predecessor does not include any individuals that could have been personally responsible for the payment of the tax under the personal liability provisions of the sales tax statutes. That is, the Department of Revenue does not have to pursue the prior owners, officers or employees of a business that could be or are personally responsible for the predecessor’s taxes. While they must go after the predecessor business before seeking to collect the tax from the successor, the Department is under no obligation to pursue personal liability from the owners of the predecessor before seeking to recover from the successor business.

A practical reality is that the selling business is often no longer in business and therefore has no cash or assets available to pay the tax. Therefore, often the only real resort is ultimately to collect the unpaid sales tax from the successor.