Insight Law - Seattle Tax Law Attorneys
FEDERAL TAX SERVICES-
Tax preparation can be a complicated matter, especially for businesses and moderate to high wealth individuals. Having a return prepared by someone that cannot properly research hard to categorize transactions can be the kiss of death because of interest and penalties assessed by the IRS. Many times, the IRS just adds the penalties and forces the taxpayer to prove the penalties do not apply. Due to the fact that audits often take place many years after the transactions being scrutinized, the best defense is the offense of a properly prepared tax return.
If the treatment of a particular transaction is not clear under the current tax code or regulations, Insight Law can help you obtain a letter ruling from the IRS for future protection. The tax code is ever changing, and many situations are not yet properly addressed. The problem with this, is that the risk is entirely on the taxpayer that the IRS will later determine that the taxpayer's treatment is improper. This can create significant penalties and interest for the taxpayer, as well as turn what seemed like an excellent business from a tax perspective into a dog. Insight Law will fight hard to get you the tax treatment you need to remain competitive.
Audits(IRS and State and Local)
When the IRS sends an audit notice, time is of the essence. A taxpayer should never meet alone with the IRS. This can result in the taxpayer making statements that are misconstrued by the auditors. Many taxpayers depend on the accountant that prepared the return without understanding that many accountants that perform this function do not specialize in the process of substantiating a transaction after the fact. It is important that the taxpayer understands their rights at this stage, especially if the IRS intends to conduct the audit at the taxpayer's business. The taxpayer must produce the documentation to support the transaction, but must not provide more than is required. The taxpayer runs the risk of opening the audit to the examination of other transactions. It is vital in an audit to quickly and efficiently resolve the issue without allowing the scope of the audit to grow. You should not give the IRS the impression that they are dealing with a party that has no knowledge of the law. If the matter cannot be disposed of at the audit phase, litigation in the United State Tax Court could be required to substantiate the taxpayer's position.
IRS Appeals becomes involved if the IRS and taxpayer cannot come to an agreement during an audit. The taxpayer will often be sent a letter giving 30 days to respond for an appeals conference. An appeal can be complicated to prepare and should never be prepared by a taxpayer acting alone. But despite the fact that an appeal is not mandatory, this "30 day notice" as it is referred to, should never be ignored as it gives the taxpayer one more opportunity to argue their evidence. Also, statutes that allow for the taxpayer to recover legal fees based on the IRS taking an unreasonable position, require that the taxpayer use the IRS appeals process if it is made available. If this notice is ignored, or the taxpayer loses their appeal, a Notice of Deficiency is issued by the IRS.
Tax Court and Petition
Once a Notice of Deficiency is issued, the taxpayer has 90 days to respond or they will lose the right to argue the merits of whether or not they owe the tax due. A response requires a petition to the United Stated Tax Court. It is very important that all arguments be included in this document, and that they not be stated improperly. I cannot stress enough, that this is the portion of the process where it becomes very important to have legal representation. There will be one more short period to work out a deal with appeals before trial, but then the matter will have to be argued in tax court. A taxpayer must have a representative that understands the rules and procedures relating to evidence and submission of documents in tax court. The lawyers representing the government DO NOT represent you, and can only do so much to help you. You can expect roughly as much help as a defendant would expect from a prosecutor in a criminal trial. This is the last opportunity the taxpayer has by legal right to argue the amount of the liability. If the taxpayer loses in Tax Court, or does not respond to the Notice of Deficiency within 90 days, the tax liability will be assessed, and collection will soon commence.
Collection Actions by the IRS
Once a taxpayer has lost in Tax Court, or missed the 90 day window to file a petition, the IRS begins collection action. This starts with a letter stating the tax is owed. These letters slowly ramp up in their threatening nature until the taxpayer's case is assigned to a Revenue Officer. Depending on the amount owed, a Revenue Officer can become a taxpayer's worst nightmare, and become very intrusive in their attempts to find out information about the taxpayer's assets. They can call business associates, or even worse. The levy process starts in earnest with a Notice of Intent to Levy. This notice gives the taxpayer 30 days to request a Collection Due Process hearing. While a taxpayer is not allowed to argue the merits of the tax owed, or the amount owed, it is important that this time be used to figure out a resolution to the tax problem. If this 30 day notice is ignored, the taxpayer has very little further legal protection of their assets against seizure. Bank accounts can be emptied, and garnishments put in place on current income streams. It is much easier to stop a levy before it has occurred than it is to recover the levied amounts after they have been seized. A lien also comes into effect at this point automatically if the taxpayer owes more than $10,000. The lien covers all property owned by the taxpayer with few exceptions, and these can cause major problems for business and personal credit, as well as hamper your ability to conduct your business.
When collection action has commenced, a taxpayer has a few options. The IRS has 10 years from the date of assessment to collect the liability in full, or they lose what remains uncollected at that time. Despite the fact that the notices sent by the IRS imply that the amount must be paid in full, this is simply not true. The taxpayer may also choose to:
1. Do an Audit Reconsideration to Eliminate Tax Owed
An audit reconsideration allows a taxpayer to submit an argument that they do not owe the tax in questions. However, the granting of an audit reconsideration is not a right. The audit reconsideration must be prepared properly if it is to be successful. All information and arguments must be included, or the IRS will simply deny the reconsideration. This is generally the most effective route if the taxpayer did not timely file a Tax Court petition. If the matter has been argued in Tax Court and the taxpayer did not prevail, audit reconsideration is less of an option. Audit reconsiderations do not stop collection action while they are being reviewed, which can often take months.
2. Currently Not Collectible Status
The IRS will allow certain taxpayers to stop paying due to low current income. This is determined by the income of the taxpayer, as well as the standard expenses allowed by the IRS. If a taxpayer earns less than their expenses, this type of relief might be possible. Currently Not Collectible stops collection action by the IRS, but only once it has been accepted.
3. Offer in Compromise
An Offer in Compromise is possible when the taxpayer does not have the current income level, or enough equity in their assets to satisfy a tax liability in full. A calculation is made to determine the offer amount, which is then reviewed and accepted if accurate. It must be accurate with all relevant documents included. Furthermore, it should be determined if the taxpayer has the means to make the Offer in Compromise payments. Despite the fact that the offer might reduce the overall amount owed, it must generally be paid within a maximum of 24 months. This can cause a major acceleration in payments. Once received, an Offer in Compromise stops collection action until it is reviewed and subsequently accepted or denied.
4. Innocent Spouse Relief
This can be available if the source of the tax liability is associated entirely with a taxpayer's spouse, and the only reason the taxpayer is being attributed the liability is because they filed a joint return with the spouse. It is important that this remedy be pursued soon after collection action begins before the two year period to seek relief passes. A request for innocent spouse relief stops collection action until it is reviewed and subsequently accepted or denied.
This is generally a last resort and is only used if the conditions are correct. Many people have a misconception that a tax liability cannot be discharged through bankruptcy. This is simply not true. However, there are definite rules to which liabilities can and cannot be discharged through bankruptcy. And once the IRS applies a tax lien, this can cause complications as well, as the government becomes a secured creditor. Often times, even if the taxpayer does eventually claim bankruptcy, there is a great benefit in reducing the amount owed through the processes provided in the Internal Revenue Code, before commencing bankruptcy. Bankruptcy stops all collection action, but also extends the 10 year collection period for any period in which the collection action was stopped due to the bankruptcy proceeding.
6. Reduced/Partial Payment Plan
A taxpayer may be able to get on a reduced payment plan if their current income level does not allow for full payment by the end of the 10 year collection period, and their income level is too high to qualify for Currently Not Collectible. This depends on the taxpayer's income, expenses, and asset equity. If a reduced or partial payment plan is not possible, it leaves a full payment plan as the only option. If the taxpayer's income later increases, the taxpayer can be required to increase their payment amount in order to pay the liability in full by the end of the 10 year collection period.
7. Penalty Abatement
This does not address the collection issue, but it can be used to reduce significant amounts of tax liability. Penalties can easily add up to 25-50% of the total tax liability. Once it is determined that you do owe the underlying tax, it is a good idea to have all possible penalties abated to reduce the total cost. A penalty abatement does not stop the collection of the underlying tax.
8. Full Payment Plan / Installment Agreement
An installment agreement is the last resort if no options exist to reduce or remove the tax liability. The benefit of this option is that it will stop all levies and garnishments. Making a monthly payment is a less than favorable outcome, but it is much better than finding your bank account levied upon unexpectedly, or only receiving $500 of your paycheck due to garnishment. The collection techniques of the IRS are intended to have maximum effect on the taxpayer's finances, and thus eventually force them to set up an installment agreement. Once this process starts, it can quickly start a financial death spiral as the taxpayer no longer has the financial ability to retain a tax attorney due to the levy, but cannot stop the levy because they cannot afford to retain a tax lawyer. It can be of great benefit to get on an installment agreement until there is a more permanent solution. This is especially true with audit reconsiderations or penalty abatements, which do not stop collection action.
Washington State Tax Services-
Property Taxes – If your property has been improperly assessed by the county, you can challenge this by filing an administrative appeal with the Washington State Board of Tax Appeal. Insight Law can prepare an appeal for you or your business that is intended to achieve maximum results.
Excise Taxes – If you are having an issue with any Washington State excise tax, including retail sales tax, use tax, business and occupation tax, or similar taxes administered by the Department of Revenue, Insight Law can prepare an appeal to the Washington State Board of Appeals to reduce these taxes in many cases. The procedure to file an appeal is different than the process for filing an appeal with the Internal Revenue Service. It is important to retain a tax attorney with experience in the Washington State excise tax appeal procedures.
Apportionment Issues – If you are paying tax on more than 100% of your business revenue due to the fact that you are operating in multiple jurisdictions, you could be improperly apportioning revenue between the jurisdictions. States and municipalities will often attempt to tax the greatest percentage of business revenue they possibly can. Over time, this can create a situation where multiple jurisdictions tax the same revenue streams. Even when apportionment is properly established, the factors that determine proper apportionment can change over time, and must be adjusted to reflect changes in the business, and changes in the various state taxing regimes. Let Insight law help your business create an apportionment scheme that minimizes state and local tax, and prevents the double dipping that often occurs, especially in times of government budget deficit. In some cases, a portion of state taxes can be eliminated altogether.
Tax Exemption – If you need to substantiate a tax exemption for property tax purposes, Insight Law can file an appeal to establish your exempt status with the State of Washington. Losing your property tax exempt status can be costly.
Local and Municipal Taxes – If your business has been overcharged by a local or municipal tax authority, or they are imposing an apportionment scheme that attempts to tax business revenue from other jurisdictions, let Insight Law file an appeal on your behalf. The rules can vary greatly depending on the municipality or jurisdiction, so call today to find out if relief is available for your particular matter.
Penalties – Unlike the Internal Revenue Service, Washington State and its municipalities depend almost entirely on tax revenues for funding. The federal government can print and cheaply borrow money, but the state governments cannot. Therefore, especially in times of budget deficit, the individual states, including Washington, become less willing to reduce penalties. It is very important to have a good legal argument prepared to obtain such relief, or at the very least, stop such penalties from accruing.
Non-Controversy Tax Issues
Entity Planning and Formation
If you are planning a business, or currently operate a business, Insight Law can help you determine the most advantageous business structure from a tax and personal liability perspective. The benefits available with each entity vary based on many factors which are unique to the taxpayer. Let Insight Law determine your individual tax picture, and build an entity that provides the most advantages for your business.
Formation and Compliance for Tax Exempt Orgs
The formation of a tax exempt organization can be very complicated compared to other entity types. Unless the planned entity is a church, the taxpayer must obtain tax exempt status. Once a tax exempt entity is formed, there are strict rules as to what the entity can and cannot do. Let Insight Law help you form your tax exempt organization, and maintain compliance with the evolving nature of this particular area of law.
Much tax planning for individuals happens on April 15th of the following year, but by the time April 15th comes around, the transactions have already happened and must be merely categorized correctly. Most opportunities have been lost to reduce the taxes of cash basis taxpayers. Have Insight Law keep an eye on the ever changing tax regulatory structure so that you can focus on what you do best. Don't miss out on potentially large individual and business tax incentives because you simply don't have time to keep track of it all. At Insight Law, we understand that knowing tax law is a full time job in itself. Instead of trying to keep track of every facet of tax law, leverage our knowledge to increase the profitability of the businesses you do know well.
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Seattle Tax Attorneys Serving Queen Anne, Capitol Hill, Wallingford, Fremont, Ravenna, Green Lake, Beacon Hill, Magnolia, and All of Greater Seattle