Pasadena Tax Attorney & CPA – Separation of Tax Liability
The IRS has several methods of granting spousal tax relief
As a family law and tax attorney and CPAs we offer timely and accurate representation before the IRS and family law courts in Pasadena and the greater Los Angeles areas.
Let’s say that you and your spouse have decided to call it quits. During the divorce proceedings, you find out that your spouse has been financially unfaithful to you. He told you that the community business was doing fine and that there was nothing to worry about monetarily.
Come to find out, however, that he hasn’t been paying the employee payroll tax to the government and now you are both on the hook with the IRS and state taxing authorities for trust fund penalties. Maybe your wages have been garnished to pay the debt. Ignorance is not bliss.
The IRS has several methods of granting spousal tax relief: separation of liability and equitable relief. Pre-1998, the injured spouse had to establish that his adjusted income was attributable to a grossly erroneous item of the other spouse. Now I.R.C. §6015, generally makes innocent spouse status easier to obtain.
If the taxpayer is divorced, separated or no long living with the spouse, relief can be requested by separating the liability for an understatement of tax between the parties. If there is no qualification for either innocent spouse relief or relief by separation of liability, the IRS may grant equitable relief, that is, it would be unfair to hold the taxpayer liable for the tax that should be paid only by the other spouse.
When married taxpayers file a joint return and one spouse has not paid child or spousal support or certain federal debts, such as student loans, all or part of the tax overpayment shown on the joint return may be used to satisfy the past-due debt of the delinquent spouse.
However, the non-obligated spouse may be entitled to a refund of their part of the overpayment. To make this claim the injured spouse must write “Injured Spouse” in the upper left corner of form 1040 and attach Form 8379.
We provide tax planning, solutions to tax controversies, including tax obligations and tax audits. Our practice areas also include family law.
Tax Tips: Pasadena Tax Attorney & CPA – Taxation of Property Incident to Divorce
As a tax and family law attorney and CPAs we offer timely and accurate representation before the IRS and family law courts in Pasadena and the greater Los Angeles areas.
As the economy darkens, many people are not able to cooperate with their spouses any longer. This leads to disputes in finances and eventually divorce. Not long ago, spouses had reserves of joint assets to call upon when they split up. Many times the house went to the wife and the pension and business to the husband. The husband paid the support and life went on.
Now that housing prices are down and liabilities are up, the parties must look to their remaining assets to equalize the division of assets. Under Internal Revenue Code section 1041, no gain or loss is recognized on a transfer of property from a spouse to a spouse or from or to a former spouse if the transfer is incident to a divorce.
The exposure to potential tax consequences comes one spouse leaves the family home and the remaining spouse holds it in trust. The “out” spouse keeps an interest in the home until some point in the future when the house is sold or refinanced and that spouse is compensated.
A transfer of property that is made more than six years after the marriage or that is made more than one year after cessation of marriage but not pursuant to a written divorce or separation instrument is presumed to be unrelated to the cessation of marriage. In other words, a taxable event.
The IRS and Franchise Tax Board have their own rules regarding disposition of marital property. Some attorneys are not aware of the special rules regarding the disposition of marital property which could override a Court judgment. When contemplating a divorce, (marital dissolution) be sure to consult a knowledgeable tax professional regarding the tax consequences. You will avoid not only income tax but also the repercussions of a tax audit.
We provide tax planning, solutions to tax controversies, including tax obligations and tax audits. Our practice areas also includes family law.
Tax Tips: Pasadena Tax Attorney & CPA – Tax Return Preparation
Tax Tips: Tax Return Preparation
As the April 15th deadline looms ever closer there is a mad scramble in CPA and tax attorney offices offering tax return preparation services. Here are some tax tips to make the process as pain free as possible.
• File on time. Corporations are due by March 15th for calendar year ends, partnerships by April 15th and individuals by April 15th.
• If you can’t file on time, arrange for an extension. Provide the tax preparer with the needed information to file the appropriate extension forms on your behalf. This will include name, address, social and estimated taxes due.
• Open a file folder each year such as “Taxes 2008″ and file all appropriate documents there as you receive them. Once they are all collected up, bring the whole file to your tax preparer.
• Income Items
- W2 forms for employment
- Social security and pension income
- Any partnership income from the partnership tax return
- Any business income for a corporation
- Any self employed income
- Investment income or losses – stocks, bonds, etc
- Alimony income
- Sale of real estate
- Miscellaneous income such as jury duty, gambling winnings, state income tax refunds, etc.
• Expenses and deductions
- Any self employed expenses relating to the earning of income
- Purchase of assets for the purpose of earning income
- Home mortgage interest
- If your business operates out of your residence, collect up all expenses and determine the percentage used for business only vs personal
- Auto expenses
- Education expenses
- Child care expenses
- Charitable donations and gifts
- Medical expenses
- Changes in dependents such as births or deaths
- Alimony paid
- IRA, Keogh & other retirement plan contributions
- Any miscellaneous expenses that qualify as a deduction
The income side of the ledger is the easiest part to compute. The hard part is to determine which disbursements are legitimate deductions that you can claim. If you are not sure about a deduction, bring the information to your tax preparer.
When you have high income or a complex return you will want to utilize a tax attorney or tax accountant to prepare your return. They are experts at digging out every last deduction that you can legally claim. They can also help you plan for future years to minimize your taxes.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, offer a complimentary initial consultation. Please call 626-440-9518.
Madoff Scandal Highlights the Value of Engaging a Tax Attorney
A Tax Attorney, but not a CPA, can protect your secrets through Attorney-Client Privilege in Tax Controversy, audit and transactions.
CPAs and other tax preparers do not have the same privilege as attorneys when representing clients regarding:
• Protecting Confidentiality in IRS Summonses
• Tax Accrual Work Papers
• FIN 48 Disclosures (explains the accounting for uncertainty regarding income tax computations reported in a business’s or non-profit’s financial statements)
• Litigation
• The argument for the attorney/CPA.
Many courts have concluded that attorney-client privilege applies when attorneys provide tax advice to clients. Congressional support is demonstrated by Internal Revenue Service Code Section 7525.
This is not light stuff — Uncle Sam is very interested in legislating, first a tax liability and then collecting it. This is especially true given the recent public perception that business people are taking advantage of the system.
This belief is demonstrated by the Madoff scandal. Madoff didn’t have a tax attorney preparing his work. Consequently, he can’t rely on attorney/client privilege and save the family assets. Sure, Madoff pleaded guilty, but consider his CPA.
There is no attorney/client privilege with Mr. Madoff’s CPA. His accountant, Mr. Friehling will have to tell all to the authorities. Friedling will have to give up anyone remotely connected with the Madoff scandal to not only the IRS, but the SEC and the state taxing authorities.
You do not need to take on the federal or state tax agencies on your own-you have many rights that an experienced tax attorney can assist you with.
Tax Tips: A Tax Debt Attorney Can Assist With IRS Tax Problems
Tax Tips
If you have unpaid taxes-you are not alone. There are many taxpayers who are unable to settle the tax debt owing to the IRS or the Franchise Tax Board for California income taxes. The balance owing is made up of three parts:
• Income taxes – federal and state
• Penalties – for late filing or failing to make installments on time
• Interest – computed on your outstanding balance
When you receive a notice from the IRS or Franchise Tax Board the worst thing you can do is to ignore it. These government agencies have wide statutory powers to garnishee your wages, lien your bank accounts or seize your assets.
There are a number of tax tips a tax debt attorney can offer you including:
• Negotiated payment plans – called installment agreements. There are special provisions with the IRS if the balance is over $25,000. These plans typically allow the taxpayer to pay the debt over 5 years and keep their current taxes paid.
• Offer in compromise – this provision allows settlement of the tax debt for less than the amount owing. Contrary to TV ads that promise to settle tax debt for pennies on the dollar, it is a complex procedure best handled by a tax professional.
• Penalty abatement – you will need to demonstrate reasonable cause, such as a death in the family, why you can’t pay the full balance owing.
If you have a disputed tax liability there are several options to resolve this including:
• Negotiated settlements
• Review of IRS audits – as both seasoned tax attorneys and CPAs we can challenge the audit results
• Tax court
• Other courts
You do not need to take on the federal or state tax authorizes on your own. There are many rights of which a taxpayer can avail themselves. As a tax attorney experienced with debt, we have experience assisting clients with IRS tax problems including Interest and Penalty abatement requests, collection due process hearings, offer in compromise, and installment agreement requests. We have an excellent working relationship with IRS and the Franchise Tax Board personnel.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, offer a complimentary initial consultation. Please call 
626-440-9518
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Solve Tax Problems with IRS Tax Help
There is a life saver for small business in the form of loss carry back which could give you a refund of taxes paid in prior years.
If you are one of those small business owners that begged, borrowed and loaned personal money to your business to keep it afloat in 2008 and 2009, there is a ray of financial help from the IRS. Those of you that had profits in 2003 through 2007 can now use IRS tax help by taking the losses from 2008 and carry them back for a refund.
The typical small business owner doesn’t want to cut back her employees in hopes that the economic slide will stop and they will be the business left standing in their chosen field. Lately, this is especially true for construction and manufacturing but later affects the service industry.
Typically when a small business owner sees his or her business starting to slide, he will prop it up with borrowed funds. This can be from personal savings or credit. The borrowed moneys contributed by the owner are spent on overhead creating a net operating loss (NOL) on the business books. We are seeing many small businesses with net operating losses on the profit and loss statements and large loans from owners on the balance sheet.
Taxpayers reporting a loss on their 2008 return can elect a two, three, four or five-year carryback period that maximizes their refund. The goal is to apply losses to years with the highest marginal tax rates, and minimize losses applied to low tax years. This is found money!
First thing to do is to look at your 2008 business return. This could be a corporation, partnership or sole proprietorship. Each entity has different rules, but look at the bottom line or taxable income. If you see brackets, then you have a loss as far as Uncle Sam is concerned. Then contact your tax accountant and find those years (2003 to 2007) in which you had profits. If you choose, scan your 2008 return and email to me at jspurgeon@earthlink.net and I will look at it at no charge. This IRS tax help could solve your tax problems and give you cash back.
Tax Tips: Avoid IRS Tax Problems By Correctly Determining Business Expenses
Tax Tips
Probably one of the most controversial areas of tax law for small business and the self employed is correctly determining what a legitimate business expense is. You can avoid IRS tax problems with a few tax tips from a tax attorney or CPA to sort this out.
There are two general categories of deductible expenses:
• Business expenses – the ones you write off immediately
• Capital expenditures – these are assets that you write off over a period of time. E.g. if you buy a new phone system for $5,000 you will need to write that off over a period of time unless there is a tax credit which will allow you to write it off all in one year.
Business Expenses
Deductible business expenses are those expenses incurred in the normal course of running your business:
• Rent of business premises
• Purchase of goods for resale
• Wages and salaries to employees
• Telephone & internet
• Marketing & PR
• And so on
A business expense to be deductible must be both “ordinary” and “necessary”. An ordinary expense is one that is considered widespread and accepted in your line of work. A necessary expense is one that is helpful and suitable for your organization.
Capital Expenditures
These are assets that have a life of greater than a year and are over a set limit such as $500. You should set a limit so the bookkeeping is kept simple-otherwise you could spend a lot of time on “assets” such as staplers and other office or plant items that are not worth keeping track of. For items under $500 (or whatever limit you set) you write them off as a business expense in one year. Capital expenditures are depreciated over the life of the asset:
• Land is a capital expenditure but is not depreciated
• Buildings
• Equipment
• Computers and software
• Office furniture
The best way to avoid IRS tax problems is to avoid them in the first place by utilizing the services of a tax attorney or CPA.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, offer a complimentary initial consultation. Please call 626-440-9518
Tax Tips: IRS Tax Problems Can Be Resolved By A Skilled Tax Attorney
If there is a filing requirement, taxpayers are required by law to file an income tax return. It has been found that the IRS and Franchise Tax Board for California state income taxes often make errors in computing the tax owing. This can be from a variety of administrative errors to faulty interpretation of the law as compared to the facts of the matter.
By way of example if you don’t file a tax return the IRS will prepare one for you using a Substitute Filed Return (SFR). The IRS may have all the income information from various filed information returns such as interest earned or 1099 filings (report of income for independent contractors and others).
However they will not have the expenses or deductions you are entitled to. Thus, if you do not file a tax return, the IRS will do it for you and not include all deductions that you are entitled to. Once the tax is assessed it will go to the collections department to collect even though the tax liability is incorrect. The following tax tips offer an example of how this works.
Let’s say a taxpayer was a building contractor but didn’t file his return when due:
• His income for the year was $200,000 (reported by his customers to the IRS on 1099s) and his expenses were $150,000.
• This would be a profit of $50,000 which would form part of his taxable income.
• If requests and demands to file a tax return were ignored, the IRS will prepare a return using the power of the Substitute Filed Return (SFR) provisions.
• As the IRS only knows the income side of the ledger, they will report taxable income of $200,000.
• The tax liability will be enormous as no expenses were taken into account.
In addition, as the tax owing is so large it will attract a lot attention from the collections department. This IRS tax problem will not go away without dealing with the missing tax return. In fact, the IRS will escalate their collections actions including wage garnishment, tax liens, levies and asset seizure.
Not filing a tax return can be very costly due to incorrect taxes, interest and penalties. It could increase your tax bill by more than 25%.
IRS tax help is available from an experienced CPA and/or tax attorney. They have the know-how to respond to every type of IRS or California state notices and the course of action to file a delinquent return. Put a tax professional on your side to save yourself a lot of grief.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, offer a complimentary initial consultation. Please call 626-440-9518.
Avoid IRS Tax Problems With Help From A Skilled Tax Accountant
IRS collections are not just for today, but for every day
For a long time, the government has farmed out many of its traditional duties to subcontractors. Everyone is familiar with Halliburton during the early stages of the Iraq war. Even the IRS uses independent collectors.
No more. Uncle Sam has decided that it is best to keep its collection process in-house. The IRS, with justification, states that there is an inherent risk to taxpayer rights when tax collection is outsourced to private companies. As a result of this change in policy, the IRS is now hiring at a serious rate to fill these government positions. Let’s face it; there are plenty of qualified, well educated people looking for jobs. Even a steady government job looks appealing.
So where is the government going with all of this? We have a very popular president who believes that government has a bigger role to play in our lives. I predict that many of the favorable tax provisions of the previous administration will soon be history. Additionally, Uncle Sam is looking overseas to the tax havens previously thought to be safe. The government needs the money.
Collections are not just for today, but for every day. Small business spends many hours chasing legitimate accounts receivables as a result its goods and services. The IRS does not produce goods and services, but computes tax based upon its legislative right to finance government policy. As a result, Uncle Sam will continue to tax and collect.
For the average, “small business”, which comprises 80% of the country’s employers, the best protection against IRS tax problems such as an audit and the resulting collection process is good record keeping and having a qualified tax accountant or tax attorney on your team.
IRS Tax Problems Are Predicted To Increase
Tax tips from a tax attorney or CPA can help protect you from future tax problems
Governments aren’t a willing partner in negotiating past due taxes. From their standpoint, you owe the money until you prove them wrong. It’s the “proving wrong part” that’s difficult. Audits are skewed towards the government and it takes an experienced tax attorney to unwind the government’s position.
In 2001 Uncle Sam estimated that there were $345 billion in uncollected taxes. Eight years later, given the economic climate, politicians are salivating at the potential tax collection.
The problem is that there is less to seize and less to garnish. So that leaves lower income individuals to collect from. Translation, expect more audits.
When the government is running multi-trillion dollar deficits and has abandoned any pretense of fiscal discipline, the tax gap starts looking like a piggy bank, and there are always tax collectors to do some smashing. Protect your nest egg with sound tax planning, timely tax return preparation and receive other tax tips from a seasoned tax attorney or CPA today.
