Payroll Tax Audits

Dennis Brager Published on Bankrate.com

May 15, 2020 | by Dennis N. Brager

Recently, Dennis was interviewed by Bankrate.com on his thoughts on tax implications of a cash-out mortgage refinance. Below is an excerpt of the quote:

“Capital improvements must substantially improve your home,” explains Dennis Brager, a certified tax specialist with Los Angeles-based Brager Tax Law Group. “Kitchen and bathroom remodels, room additions, modifications for an elderly parent would all qualify…” This is in regards to answering how to use your cash-out refinance money so it’s tax-deductible

Read full article here

Not Just Another Covid-19 Announcement (Part II)

March 19, 2020 | by Dennis N. Brager

On Tuesday evening our tax lawyers sent out an announcement discussing some of the tax filing and payment implications of the Covid-19 virus. We indicated that Secretary of Treasury Mnuchin had announced payment and filing extensions for the 2019 income tax returns.

Mnuchin was quoted as saying “We encourage those Americans who can file their taxes to continue to file their taxes on April 15,” Mnuchin said. “Because for many Americans, you will get tax refunds.”

We took that to mean that the filing deadline as well as the payment deadline was extended. This is the problem with tax guidance by Tweet and press conference. On Wednesday morning the IRS issued an announcement which states that there is no filing extension.

Not Just Another Covid-19 Announcement

March 17, 2020 | by Dennis N. Brager

Some of you may be concerned about the impact of the Coronavirus aka Covid-19 outbreak on your taxes, and those of your clients. The news from the IRS has been slow in coming. On Friday of last week President Trump declared a National Emergency. At the same time, he directed Treasury Secretary Mnuchin to provide relief from “tax deadlines” to Americans who are adversely impacted by the emergency. This allows the IRS to extend various deadlines for up to a one-year period. This authority is not, however, self-executing. That is, the IRS must specify exactly which due dates, and for how long they are being extended.

Prior to President Trump’s announcement Secretary Mnuchin had told reporters that most deadlines would be extended for “small businesses” and most individuals other than the “super rich.” Our tax lawyers couldn’t find a definition of super rich anywhere in the Internal Revenue Code. Finally, this morning, Tuesday March 17^th, after partnership and certain LLC returns were already due, Mnuchin stated in a press conference that the filing deadline for the 2019 income tax return would be extended by 90 days. For individuals that would mean July 14^th. Presumably, the IRS will actually extend the date to July 15^th just to make things a touch easier. Individuals living overseas already have an extension to June 15^th so presumably they would have until September 15^th to file.

In addition to stating that the income tax filing deadline would be extended, Mnuchin also stated that the 2019 payment deadline for income taxes owed of less than $1 million dollars for individuals or $10 million for corporations. This would be an interest and penalty free extension. For those who are over the thresholds it is unclear whether the entire amount due would be subject to interest and penalties or just that amount over the threshold. It is also not clear whether the filing extension would apply to those who owe taxes in excess of the cut-off amount.

IRS Continues Its Tax Enforcement Crackdown on S Corporations

April 21, 2015 | by Dennis N. Brager

The 2007 financial crisis and its aftermath fundamentally changed how Americans think about risk and business. Another effect of the financial crisis was creating a renewed urgency regarding balancing the federal government’s finances. While many in Congress focus on reducing expenditures, the IRS has continued its efforts to increase tax revenues through better identification of tax fraud and tax avoidance even with a decreased budget.

As has been seen in the context of offshore accounts, coming forward voluntarily, making a complete disclosure and taking steps to correct tax problems before the IRS identifies you leads to better outcomes in the majority of situations. If you are concerned that you may have taken overly aggressive positions to minimize taxes that passes through an S Corporation, an experienced lawyer can review your situation and provide peace of mind. If he or she does identify a problem, you can begin taking steps to correct it before being faced with an IRS audit or criminal tax investigation.

What are the tax differences between an S Corp and a C Corp?

Rushing through Your Taxes Can Increase the Odds of an IRS Audit

April 6, 2015 | by Dennis N. Brager

It is not uncommon for many people to want to get done with their taxes as quickly as possible and not devote a moment beyond what they have to. If they complete their own taxes using computer software or an online program, they may rush through the process and fail to read and understand what is being asked. This can lead to failure to make required disclosures, submitting erroneous information to the IRS, and other tax problems. Even if you work with a tax preparer, rushing through the process can still land you in a difficult situation should you fail to disclose all sources of income, submit incomplete tax documents, or fail to provide the tax preparer with all of the information he or she will need to complete your taxes accurately. These failure can result in a tax audit which may reveal further noncompliance with the US Tax Code and additional penalties.

At the Brager Tax Law Group, one of our goals is to provide taxpayers with the information they need to avoid preventable mistakes. Because our practice is focused on helping clients through difficult tax problems we have seen some of the common mistakes filers make because they are rushing through the return or otherwise fail to provide complete and accurate information.

You did not include all sources of income

Tax Preparers Beware! 6th Circuit Court of Appeals Affirms Dismissal of Tax Refund Suit Due to Inability to Prove Timely Filing of Amended Return

April 11, 2013 | by Dennis N. Brager

The 6th Circuit recently taught an expensive lesson to a Michigan couple about carefully following procedure when dealing with tax problems and subsequent loss of their $64,000 refund occurred because of a seeming minor error. Following an IRS tax dispute began, as the IRS’ records stated that the envelope containing the Stockers’ amended 2003 return was postmarked four days late. Compounding the Stockers’ tax problems, the IRS failed to retain the postmarked envelope in question. Seeking help in their tax dispute the Stockers brought suit, but the District Court granted the IRS’ motion to dismiss for lack of jurisdiction due to the suit being barred as past the three-year period for filing a claim for a tax refund. On appeal, the 6th Circuit affirmed.

The 6th Circuit was unmoved by the Stockers’ attempts to prove the mailing date of their return through means other than those set forth in IRC Section 7502. As the IRS’ records indicated that the returns were postmarked four days late, the Stockers could not prove timely delivery under IRC Sec. 7502(a)(1), which states that the postmark of the returns establishes the date of mailing. Additionally, Mr. Stocker’s failure to obtain the certified mail receipt precluded the use of IRC section 7502(c)(1), which states that the “date of registration shall be deemed the postmark date”. The court rebuffed the Stockers’ attempts to prove timely delivery through circumstantial evidence; rather, the Court stated that its own precedent prevented any other method of proof. Finally, the court held that the District Court had not abused its discretion in refusing to draw the inference that the Stockers had timely filed their returns because of the IRS’ failure to retain the postmarked envelope in violation of internal policy.

Despite the seemingly minor nature of the Stockers’ mistakes, the 6th Circuit was highly unsympathetic to their plight. Ultimately, the court reiterated that only certain procedures are available to prove timely filing, and the Stockers’ own mistakes precluded them from receiving relief, despite their innocent nature. While calling it “unfortunate” that the Stockers could not prove the timeliness of their return, the court sent a strong message to taxpayers that it was unwilling to make exceptions for even the most innocent of mistakes.
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Payroll Tax Problems Cannot be Solved by Payment after Criminal Tax Charges Filed

March 9, 2011 | by Dennis N. Brager

A Kansas woman will still face federal criminal tax charges for failure to pay payroll taxes after a federal court ruled the charges should not be dismissed simply because the taxes have since been paid.

As tax litigation attorneys we frequently hear from clients who have been contacted by the IRS criminal investigation division. Their first reaction is, “I will get the taxes paid can you get the IRS to drop the charges?” Unfortunately at that point simply paying the taxes will rarely solve the problem by itself. Payroll taxes cases usually turn criminal because the tax problem has been ignored for far too long.

In this case, the employer was charged with seven counts of failing to pay over trust fund taxes (income taxes and FICA), which had been withheld from employees’ pay. The tax violations allegedly occurred between 2003 and 2005. She submitted evidence in 2010 that she had turned over to the Internal Revenue Service all unpaid taxes. She argued the charges should be dismissed since the taxes had been paid.

The government argued payment did not “cure” her of the violations or immunize her from prosecution. It was a novel legal question not addressed in case law. Section 7202 of U.S. tax law states: “Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall . . . be guilty of a felony. . . .”

The defendant noted the law makes no reference to a “due date” or other time frame. Section 7203 does make reference to a time frame when it states “at the time or times required by law or regulations.”

The court ruled that the statute’s wording “failure to pay over” necessarily encompasses late payments by any common sense standard. Additionally, the court ruled the defendant’s interpretation of the law would make it the only area of criminal law in which a crime could be undone at any time until conviction.

The defendant was also charged with two counts of failure to pay individual income taxes, which were not addressed in the court decision.
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Payroll Tax Problems best Handled by Experienced Business Tax Attorney

January 28, 2011 | by Dennis N. Brager

Our tax attorneys continue to see businesses struggle with payroll tax problems. Whether you have 3 employees or 300, or whether you have downsized in response to the struggling economy, payroll tax audits can cause serious legal and financial problems that can threaten the survival of a business.

The U.S. Department of Justice reports a recent case out of northern Virginia, in which a business owner was sentenced to 19 months in prison for failing to collect, account for, and pay to the Internal Revenue Service more than $200,000 in employee withholding taxes.

He was also ordered to pay $88,826.79 in restitution to the IRS.

The defendant was president of a computer software company. According to the government’s allegations, he failed to pay to the government employees’ withholdings for Social Security, Medicare and federal income taxes from December 2004 to June 2008.

The case was handled by the Justice Department’s Tax Division, the U.S. Attorney for the Eastern District of Virginia, and the Internal Revenue Service.
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Part-Time Bookkeeper Not an Independent Contractor

April 14, 2010 | by Dennis N. Brager

In a recent worker classification ruling SS8 2010030006 the IRS held that a part-time bookkeeper/general office worker was an employee and not an independent contractor. Generally the existence of an independent contractor relationship is based upon a 20 factor common law test set forth in Rev. Rul. 87-41, 1987-1 CB 298. Some of the factors the IRS took into account were:

The worker performed services at the payor’s place of business as well as her own home The payer provided all office supplies including telephone, fax machine etc., although the worker provided her own computer, and accounting software.

The bookkeeper was paid hourly The worker did not receive any benefits

Tax Fraud Results in 22 Years and $181 Million

June 9, 2009 | by Dennis N. Brager

Frank L. Amodeo has serious criminal tax problems. The U.S. Department of Justice announced that he has been convicted in one of the biggest employment tax fraud cases in Internal Revenue Service (IRS) history. The penalties for these criminal tax charges exceed 22 years and he will be required to pay a judgment of $181 million dollars.

Amodeo collected federal withholding taxes through his numerous payroll tax companies, and then knowingly neglected to forward this tax money to the IRS. Consequently, he was charged and convicted with five felonies: willful tax evasion (totaling $181 million); obstructing an agency proceeding (by intentionally defrauding the IRS in their attempt to collect payroll tax); and conspiring to commit wire fraud, to obstruct an agency investigation, and to impede the IRS. Amodeo was forced to surrender more than $1 million cash, three homes, several luxury automobiles, commercial real estate, a Lear Jet, and his corporations in attempt to fulfill his outstanding tax debt.

While this may have been one of the larger tax fraud cases on record, people have gone to jail for tax evasion for much smaller cases.