Tax Attorney Pasadena: Paying Household Employees
For those you that have domestic help or household employees, be aware of Uncle Sam filing requirements. Domestic help may include a housekeeper, nanny, maid, pool man, dog walker, driver, personal attendant, cook etc. As a tax attorney and CPA I recommend that if you pay them over $1,000 in a calendar year, that you put them on the payroll. Payroll includes filing with the IRS and making Federal and State deposits.
Many of you will say, don’t worry, I paid them cash. Don’t fool yourself. That domestic that you let go can file for unemployment benefits, which can come back to haunt you.
The IRS is interested in the millions of unreported dollars paid to these people. Even if the employee doesn’t have enough income to file tax returns, that domestic could still eligible for state unemployment insurance. From the IRS standpoint, the best part is the penalties and interest they will get from you, the employer.
Here are the rules:
• If you have a household employee, you may need to withhold and pay social security and Medicare taxes, pay federal unemployment tax, or both.
• You do not need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can.
Do You Need To Pay Employment Taxes?
IF you … THEN you need to …
A– Pay cash wages of $1,700 or more in 2009 to any one household employee. Withhold and pay social security and Medicare taxes.
• The taxes are 15.3% of cash wages.
• Your employee’s share is 7.65%.
(You can choose to pay it yourself and not withhold it.)
• Your share is a matching 7.65%.
Do not count wages you pay to—
• Your spouse,
• Your child under the age of 21,
• Your parent (see page 4 for an exception), or
• Any employee under the age of 18 at any time in 2009
B– Pay total cash wages of $1,000 or more in any calendar quarter of 2009 to household employees. Pay federal unemployment tax.
• The tax is usually 0.8% of cash wages.
• Wages over $7,000 a year per employee are not taxed.
• You also may owe state unemployment tax.
Do not count wages you pay to—
• Your spouse,
• Your child under the age of 21, or
• Your parent.
State employment taxes. You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. You should also determine if you need to pay or collect other state employment taxes or carry workers’ compensation insurance.
Household employers must file Schedule H of Form 1040 to pay FICA (The Federal Insurance Contributions Act (FICA) tax is a federal payroll tax), FUTA (Federal Unemployment Tax Act) and any withheld federal income tax. Household employment taxes must be included in estimated tax payments.
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, have the proven knowledge to effectively deal with the IRS and the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
Tax Tips: Do You Need A Tax Attorney Or A CPA To Solve Tax Problems?
Taxpayers have several options when confronted with a tax situation such as an official notice, overdue tax returns, tax liens, wage garnishment or appeals. The matter could be as simple as a tax return preparation or as severe as an investigation for tax evasion by the CID (criminal investigation division of the IRS). Under the Taxpayers’ Bill of Rights, a taxpayer can have a professional deal with any IRS issue.
Selecting the right tax professional can be your best option to effectively solve tax issues. This could be different for different circumstances. Tax professionals have considerable experience dealing with IRS tax situations and thus can offer valuable tax tips and can effectively represent the best interests of the taxpayer.
The purpose of the IRS is to assess and collect taxes which to some is a mandate to harass and intimidate a taxpayer. That tactic won’t work when a tax professional is there to act as a buffer between the taxpayer and the IRS or Franchise Tax Board. In addition, the tax professional often knows as much or more about tax law than the IRS agent.
There are three categories of tax professionals:
1. Enrolled agents – a tax preparer and tax advisor licensed to practice before the IRS.
2. Certified Public Accountants (CPA) – state licensed professionals with considerable expertise in taxation, accounting and auditing.
3. Tax attorney – represent clients with more complex areas of tax law such as appeals, court appearances, tax planning or tax evasion.
Only a tax attorney can provide attorney-client privilege—the right of an attorney to refuse to divulge confidential client information. It is an important legal concept that keeps communication between an attorney and a client private. This allows the taxpayer to be more candid with the attorney. These privileged communications cannot be used as evidence in a trial. On the other hand, all communications between a client and a CPA or enrolled agent is not protected and thus can be used in IRS investigations or trial.
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, have the proven knowledge and experience to effectively deal with IRS tax liens or Franchise Tax Board tax issues. Please call 626-440-9518 for a complimentary initial consultation.
Avoid Unexpected Tax Liabilities by Consulting a Tax Attorney
There are three basic levels to an IRS tax audit examination and its aftermath:
1. The tax audit process itself
2. The appeals process
3. Tax court or district court.
The first level or audit stage is not at all dispositive (settling of the matter) of the taxpayers final overall liability. At the audit stage, when a tax examination is completed by the auditor, the additional tax can be just the tip of the iceberg. For example a $5,000 audit tax does not contain interest and penalties.
Depending upon the nature of the tax and the auditor perceptions, the penalties can sometimes be 100% of the tax. Therefore, a taxpayer may and often does underestimate the “out the door” liability when he or she prematurely agrees to the tax.
Once the Taxpayer signs off on the federal liability, the adjustments are shared with the Taxpayer’s state. A state like California, which has an income tax, will then seek its own income tax based upon the federal audit report.
To add insult to injury, the IRS will audit proceeding or subsequent years from the year just audited, looking for the same adjustment. If the taxpayer has signed off on the liability for the initial year in question, he or she may have waived any argument for preceding or subsequent years for the same type of adjustment. For example, if the taxpayer’s unreimbursed business expenses are not accepted at the audit stage, those same expenses will likely not be accepted in later audits.
A tax attorney or CPA should be consulted before a taxpayer signs off on the tax audit results.
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, have the proven knowledge to effectively deal with the IRS and the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
Tax Tips: Pasadena Tax Attorney & CPA – IRS Tax Liens
An IRS tax lien is a legal claim against assets of a taxpayer who owes back taxes. If the taxpayer doesn’t discharge the tax lien by paying the overdue taxes, then assets can be seized and sold with the proceeds going to the tax debt balance.
Both the IRS and the Franchise Tax Board can place liens on a taxpayer’s assets. They use this as a collection tactic which is very severe. Valuable assets, such as real estate, could be sold at a forced sale (fire sale) resulting in minimal proceeds to apply to the tax debt.
A federal tax lien may be issued with regard to any federal tax including income tax, gift tax and estate tax.
The tax law is very specific granting significant powers to the IRS. Section 6321 LIEN FOR TAXES provides:
“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belong to such person.”
The lien acts like a mortgage on the assets of the taxpayer and remains in force until the full tax liability is discharged or otherwise resolved. For example a building or equipment with a lien could not be sold until the tax liability has been paid and the lien lifted.
There is a statute of limitations—the lien generally becomes unenforceable ten years after the date of assessment.
A taxpayer should take immediate action if they receive any notice regarding unpaid taxes—especially a Notice of Federal Tax Lien (NFTL). There are many options that a tax attorney can counsel a taxpayer on regarding getting the lien removed. An IRS tax lien arising as described here is valid against the taxpayer without any further action by the government. The IRS will firstly look for assets that can be converted to cash as quickly as possible. They are not in the real estate business or the used car resale business. The IRS or Franchise Tax Board will firstly track down your bank accounts and grab as much as they can.
Once the outstanding tax owing has been resolved a Certificate of Release of Federal Tax Lien should be obtained. This is generally issued within 30 days of retirement of the tax debt.
Federal tax liens and administrative levies are similar but not the same. A levy is an administrative action by the IRS without the necessity of going to court. In short, the IRS requires no court permission to issue and enforce a levy. The levy is giving a taxpayer notice that the IRS intends to seize assets.
Whether it is a lien or a levy the end result is the same—the IRS is going to grab the taxpayer’s assets. As soon as a notice is received, a taxpayer is strongly encouraged to retain counsel to avoid asset seizure and forced sale. There are remedies including offer in compromise that can be utilized to resolve the matter.
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, have the proven knowledge and experience to effectively deal with IRS tax liens or the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
The IRS is Now Hiring
As I reported in previous posts and articles, the IRS is now hiring employees when many companies are cutting back. The administration is quietly increasing its staff to generate badly needed revenue and implementing its program of leveling the playing field.
According to BNA Daily Tax Report the Internal Revenue Service will hire more than 3,500 frontline enforcement employees as it embarks on its largest hiring initiative in recent history, Deputy Commissioner for Services and Enforcement Linda E. Stiff said March 30.
This number includes more than 2,000 new revenue agents and revenue officers, Stiff said during a luncheon at the Tax Executives Institute’s 59th Midyear Conference. Several hundred of these new hires will be directed at large corporate compliance, and as many as 700 will be hired to deal with international issues, she said.
In future posts I will discuss the standards and techniques used by examiners during the course of their income tax audits.
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, have the proven knowledge to effectively deal with the IRS and the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
Tax Tips: Pasadena Tax Attorney & CPA – How To Solve Tax Problems
Who can you trust regarding solving your IRS income tax problems? One would think that the IRS with its massive resources and budget would get it right. However, that is not the case. Despite their publicized assistance programs, the facts are that they are unlikely to solve tax problems for you. They have been known to give out incorrect information with alarming frequency.
Millions of Americans will have tax problems with the IRS every year. While this might not make you feel any better, what you really need to know is that the IRS makes mistakes. If you get a notice or letter from the IRS—you then need to take action. If no action is taken, the IRS will pursue collection against you. If you are unable to deal with this, you may want to consult a tax attorney or CPA.
The IRS requires that you file a tax return and compute the taxes due for the year. What you owe is the difference between what you computed as owing less tax deductions at source from your pay check plus any installments that you made.
The IRS will make their own calculations. Here are some examples of the type of errors that the IRS can make:
• Banks and other financial institutions file 1099 forms with the IRS detailing interest and dividends that were paid to you. If the amounts on the 1099 don’t match up with your tax return you are likely to get a letter from the IRS.
• Math errors – the IRS could have typed in a wrong amount thus triggering a difference between your return and the taxes computed by the IRS.
• They might have given you incorrect information, then you compute your taxes owing based on the bad advice.
• Self employed income incorrectly reported.
• The IRS believes that you under reported your income.
• Business or investment losses not taken into account.
If you believe that you have received a notice from the IRS and it doesn’t make sense to you, it is likely an error. You must take action to avoid the heavy hand of their collections staff. Compile the facts and send it to the IRS by certified mail. If the IRS disputes your proof, you have appeal rights but you must act within specified time limits. If you don’t feel comfortable dealing with this yourself, then you should consider hiring a tax profession – 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, have the proven knowledge to effectively deal with the IRS and the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
When You Really Need a Tax Attorney
Taxpayers should be aware that there are serious penalties for tax fraud. These may include failure to file, under reporting or not reporting income, money laundering and other economic crimes. An investigation can result from cash transactions reported to banks.
Where there is smoke, there is often fire and, where there is cash, there is often illegal activity, or at least that is the rationale adopted by Congress.
Grand Jury
The government routinely relies on the use of grand juries to investigate alleged criminal tax matters. The Grand jury is both an investigative and accusatory tool used by the government to indict Taxpayers for criminal acts. If the Taxpayer is not indicted by the Grand Jury for criminal matters, the government can still file a civil matter against the Taxpayer.
For the ordinary citizen, being subpoenaed to appear before a grand jury is a harrowing experience. An initial distinction between the Internal Revenue summons and grand jury subpoena is that, unlike the IRS, the grand jury does not give a definite period of notice prior to the return date on the subpoena.
The witness appearing before a grand jury should have both a Fifth and Sixth Amendment right to have counsel present with him or her while they are testifying. As both a tax attorney and a CPA, I strongly recommend to clients to have representation.
CID (Criminal Investigation Division)
The law enforcement arm of the IRS is its Criminal Investigation Division. CID investigators will often serve grand jury subpoenas and conduct informal interviews of the witnesses before the witness engages an attorney. This is especially frightening because a witness can be charged with lying to a federal officer, when the witness believed that he or she was cooperating and perhaps deflecting the investigation away from them.
CID resources are focused into three “strategies”:
• the Compliance Strategy,
• the Money Laundering Strategy, and
• the International Strategy.
CID has an astonishingly broad array of sources from which it can obtain information about a taxpayer’s finances. Such sources include the Financial Crimes Enforcement Network (FinCEN), an organization established by the US Treasury Department, to support domestic and international anti-money laundering efforts.
CID even has access to financial and earnings statements from parents of students applying for federal financial aid for college, to loan application submitted to the Small Business Administration, and to information from banks, insurance companies, and credit card agencies.
The Internal Revenue stresses how important it is for a special agent to be well prepared for an interview “since there may only be one opportunity to interview the subject or witness.” Special agents will try to schedule an interview at a time early in the investigation when it is likely to catch the taxpayer off guard.
They are well aware that a taxpayer who is interviewed before he or she as sought the advice of counsel may make incriminating statements despite being given Miranda type warnings. Taxpayers will frequently make damaging admissions, or statements that will destroy what would otherwise be a viable defense.
As soon as a taxpayer learns that a special agent has been assigned to investigate him or her, prudence mandates that an experienced tax attorney be retained.
Tax Tips: Pasadena Tax Attorney & CPA – IRS Tax Debt Relief
It can be a very stressful situation for a taxpayer to owe taxes to the IRS or the Franchise Tax Board (for California income taxes). They are big with nearly unlimited resources to track you down and make you pay. It is your legal right to arrange your affairs to pay the least amount of taxes. In fact the government offers many incentives to help you reduce your taxes such as retirement funds, interest on your home loan and student savings accounts. However, if you have been assessed taxes resulting in a balance owing, the IRS will come after you in short order. Here you need the help of a tax professional—a tax attorney or CPA.
These are some of the options:
• Payment Plans. This is a negotiated plan with the IRS and/or the Franchise Tax Board. Basically a monthly payment plan is arranged for the outstanding balance. The taxpayer makes the monthly payments until the tax debt is paid off. During the payment plan period (which can last several years), the taxpayer must pay their current taxes due in a timely manner. For corporations or those who are self employed that means making the quarterly payments on time.
• Offer in Compromise. An offer in compromise could be an option providing the taxpayer qualifies. If the offer in compromise is accepted by the IRS, it could substantially reduce the amount of the taxes owing, in the expectation that the smaller balance is paid. One of the conditions is that the taxpayer guarantees that they will pay their taxes for the next five years. Despite the hype on the TV ads, a taxpayer must qualify for this IRS tax debt reduction program. To qualify the taxpayer must demonstrate an inability to pay the outstanding balance due to exceptional circumstances such as a death in the family, divorce or long term unemployment.
• Wage Garnishment. The IRS has the authority to lien your assets or garnishee your wages. An employer cannot discriminate against you if a garnishee notice is issued—but may not think highly of you. Basically the garnishee order requires the employer to make an additional payroll deduction off the taxpayer’s wages and pay the IRS directly. A tax professional can get the garnishee lifted by working out alternate resolution to the tax owing.
IRS Tax Debt Relief is available but the taxpayer must take action or the collection action will accelerate quickly.
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, have the proven knowledge to effectively deal with the IRS and the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
Tax Tips – Accountants Have to Tell All to the IRS
Taxpayers should realize that accountants have to disclose all to the IRS. The rules are different for a CPA as compared to a tax attorney. If a taxpayer is trying to solve a tax problem they should take this into account.
Tax preparers, who erroneously prepare tax returns, take indefensible positions on their client tax returns, promote baseless tax shelters or other similar tactics, not only subject themselves to sanctions, but place their clients in jeopardy with the IRS.
Uncle Sam does not care what the preparer did or didn’t do on the tax return when it comes to subjecting the taxpayer to penalties. It is the taxpayer who signs the return under penalty of perjury. The remedy for an injured taxpayer against his or her tax preparer is a civil law suit and the IRS knows it. Claiming ignorance is not a valid defense in the eyes of the IRS during an audit or worse, a criminal investigation. Accountants who engage in such behavior are in conflict with their client’s best interests.
In a perfect world, a client would consult a tax attorney:
• Before engaging in any transaction that might have significant tax consequences and would then attempt to implement the transaction in accordance with the lawyer’s advice
• A client filing returns and other documents would seek advice where appropriate in advance and would file in accordance with the advice received, on a timely basis and without perjuring him or herself
• A client advised by counsel not to enter a dubious tax shelter transaction would not do so
• A client advised of a material error in a prior communication to, or filing with, the Service or in testimony before a tribunal would agree to correct the error or at least consult with independent counsel about whether to do so.
But this is not a perfect world. Clients sometimes ignore the advice of their tax attorneys. They engage in transactions without following their lawyers’ advice or without getting advice at all. They file forms that contain inaccuracies, both unintentional and intentional. Sometimes they tell their lawyers of their intention to do so in advance of filing.
Clients refuse, or are at least reluctant, to correct misstatements in communications or filings with the service or tribunals, even in situations where the errors are material. They erroneously believe that the tax preparer is ultimately libel for misstatements of facts or incorrect application of the law.
Therein lies one of the biggest differences between the tax attorney and tax preparer.
An issue of great significance to the tax practitioner is the applicability of the attorney-client privilege to accountants. Other than the legislatively created limited privilege found at IRC Section 7525, there is no accountant-client privilege recognized in the federal courts. However, when a communication is made to an accountant who is assisting the attorney in rendering legal (not accounting) services to the client, the communication is within the attorney-client privilege.
The attorney-client privilege protects the confidentiality not only of disclosures made directly to the attorney, but also of those made to “one employed to assist the lawyer in the rendition of legal services,” and also protects communications between such a person and the attorney.
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, have the proven knowledge to effectively deal with the IRS and the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.
