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The IRS is cracking down on what it considers to be abusive tax shelters. Many of them are being marketed to small business owners by insurance professionals, financial planners and even accountants and attorneys. I speak at numerous conventions, for both business owners and accountants. And after I speak, I am always approached by many people who have questions about tax reduction plans that they have heard about. Below are the most common.
419 tax reduction insurance plans
These come in various versions, and most of them have or will get the participant audited and the salesman sued. They purportedly allow the business owner to make a large tax-deductible contribution, and some or all of the contribution pays for a life insurance product. The IRS has been disallowing most versions of these plans for years, yet they continue to be sold. After everyone gets into trouble and the insurance agents get sued, the promoters of the abusive versions sometimes change the name of their company and call the plan something else. The insurance companies whose policies are sold are legitimate companies. What usually is not legitimate is the way that most of the plans are operated. There can also be a $200,000 IRS fine facing the insurance agent who sold the plan if Form 8918 has not been properly filed. I've reviewed hundreds of these forms for agents and have yet to see one that was filled out correctly.
When the IRS audits a participant in one of these plans, the tax deductions are lost. There is also the interest and large penalties to consider. The business owner can also be facing a $200,000-a-year fine if he did not properly file Form 8886. Most of these forms have been filled out improperly. In my talks with the IRS, I was told that the IRS considers not filling out Form 8886 properly almost the same as not filing at all.
412(i) retirement plans
The IRS has been auditing participants in these types of retirement plans. While there is generally nothing wrong with many of the newer plans, the IRS considered most of the older abusive plans. Forms 8918 and 8886 are also required for abusive 412(i) plans.
I have been an expert witness in a lot of these 419 and 412(i) lawsuits and I have not lost one of them. If you sold one or more of these plans, get someone who really knows what they are doing to help you immediately. Many advisors will take your money and claim to be able to help you. Make sure they have experience helping agents that have sold these types of plans. Don't let them learn on the job, with your career and money at stake.
Do not wait for IRS to come and get you, or for your client to sue you. Time is of the essence. Most insurance professionals need help to correct their improperly completed Form 8918 or to fill it out properly in the first place. If you have not previously filled out the form it is late, and therefore you should immediately seek assistance. There are plenty of legitimate tax reduction insurance plans out there. Just make sure that you know the history of the people with whom you conduct business.
...Remember, if something looks too good to be true, it usually is. Be careful.
Showing posts with label irs audits. Show all posts
Showing posts with label irs audits. Show all posts
Help with Common IRS Problems
Help with Common IRS Problems
There are many problems you can run into with the IRS. The following is an overview and helpful information on some of these confusing issues.
· IRS Penalties
· Unfiled Tax Returns
· IRS Liens
· IRS Audits
· Payroll Tax Problems
· IRS Levies
· IRS Seizures
· Wage Garnishments
IRS Penalties
The penalizes millions of taxpayers each year. They have so many penalties that it's hard to understand which penalty they are hitting you with.
The most common penalties are Failure to File and Failure to Pay. Both of these penalties can substantially increase the amount you owe the IRS in a very short period of time.
To make matters worse the IRS charges you interest on penalties. Many tax-payers often find out about IRS problems many years after they have occurred. This causes the amount owed the IRS to be substantially greater due to penalties and the accumulated interest on those penalties.
Some IRS penalties can be as high as 75%-100% of the original taxes owed. Often taxpayers can afford to pay the taxes owed, however, the extra penalties make it impossible to pay off the entire balance.
The original goal of the IRS imposing penalties was to punish taxpayers in order to keep them in line. Unfortunately, the penalties have turned into additional sources of income for the IRS. So they are happy to add whatever penalties they can and to pile interest on top of those penalties. Your loss is their gain.
Under certain circumstances the IRS does abate, or forgive, penalties. Therefore before you pay the IRS any penalty amounts, you may want to consider requesting that the IRS abate your penalties.
Unfiled Tax Returns
Many taxpayers fail to file required tax returns for many reasons. What you must understand is that failure to file tax returns may be construed as a criminal act by the IRS. This type of criminal act is punishable by one year in jail for each year not filed.
Needless to say, its one thing to owe the IRS money but another thing to potentially lose your freedom for failure to file a tax return.
The IRS may file “SFR” (Substitute For Return) Tax Returns for you. This is the IRS's version of an unfiled tax return. Because SFR Tax Returns are filed in the best interest of the government, the only deductions you'll see are standard deductions and one personal exemption.
You will not get credit for deductions which you may be entitled to, such as exemptions for a spouse or children, interest and taxes on your home, cost of any stock or real estate sales, business expenses, etc.
Regardless of what you have heard, you have the right to file your original tax return, no matter how late its filed.
IRS Liens
The IRS can make your life miserable by filing Federal Tax Liens. Federal Tax Liens are public records that indicate you owe the IRS various taxes. They are filed with the County Clerk in the county from which you or your business operates.
Because they are public records, they will show up on your credit report. This often makes it difficult for a taxpayer to obtain any financing on an automobile or a home. Federal Tax Liens also can tie up your personal property, you cannot sell or transfer that property without a clear title.
Often taxpayers find themselves in a Catch-22 where hey have property that they would like to borrow against, but because of the Federal Tax Lien, they cannot get a loan. We can work toward getting the Tax Lien lifted so that you can borrow money on your property.
IRS Audits
The IRS can audit you by mail, in their offices, or in your office or home. The location of your audit is a good indication of the severity of the audit.
Typically, Correspondence Audits are for missing documents in your tax return that IRS computers have tried to find. These usually include W-2's and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation.
The IRS Office Audit is usually with a Tax Examiner who will request numerous documents and explanations of various deductions. This type of audit may also require you to produce all bank records for a period of time so that the IRS can check for unreported income.
The IRS Home or Office Audit should be taken more seriously because the IRS auditor is a Revenue Agent. Revenue Agents receive more training and learn more auditing techniques than a typical Tax Examiner.
The IRS audits should be taken seriously because they often lead to other tax years and other tax problems not originally stated in the audit letter.
Payroll Tax Problems
The IRS is very aggressive in their collection attempts for past due payroll taxes. The penalties assessed on delinquent payroll tax deposits or filings can dramatically increase the total amount you owe in just a matter of months.
I believe that it is critical for a taxpayer to have an attorney for a representation in these situations. How you answer the first five IRS questions may determine whether you stay in business or are liquidated by the IRS. We always advise clients to avoid meeting with any IRS representatives regarding payroll taxes until you have met with a professional to discuss you options.
IRS Levy
An IRS Levy is the action taken by the IRS to collect taxes. For example, the IRS can issue a Bank Levy to obtain your cash in savings and checking accounts. Or the IRS can levy your wages or accounts receivable. The person, company, or institution that is served with the levy must comply or face their own IRS problems.
The additional paperwork this person, company, or institution, is faced with to comply with the IRS Levy often causes the taxpayers relationship with that person to suffer. Levies should be avoided at all costs and are usually the result of poor or no communication with the IRS.
When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. The bank is required to remove whatever amount of money is in your account that day (up to the amount of the IRS Levy) and send it to the IRS within 21 days unless notified otherwise by the IRS. This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Levy.
An IRS Wage Levy is difficult. Wage Levies are filed with your employer and remain in effect until the IRS notifies the employer that the Wage Levy has been released. Most Wage Levies take so much money from the taxpayer's paycheck that the taxpayer doesn’t even have enough money to live on.
IRS Seizures
The IRS has extensive powers when it comes to Seizures of Assets. These powers allow them to seize personal and business assets to pay off outstanding tax liabilities. This occurs when taxpayers have been avoiding the IRS.
This is one of the IRS's ultimate weapons. They can seize cars, television sets, jewelry, computers, collectibles, business equipment, or anything with value which can be sold in order to acquire the money the IRS wants to pay off tax debts. If you are facing a seizure, you have a serious problem.
Wage Garnishments
The IRS Wage Garnishment is a very powerful tool used to collect taxes owed through your employer. Once a Wage Garnishment is filed with an employer. Once a Wage Garnishment is filed with an employer, the employer is required to collect a large percentage of each paycheck. The paycheck that would have otherwise been paid to the employee will then be paid to the IRS.
The Wage Garnishment stays in effect until the IRS is fully paid or until the IRS agrees to release the garnishment. Having wages garnished can create other debt problems because the amount left over after the IRS takes its cut is often small, so you may have difficulty with bills and other financial obligations.
Lance Wallach speaks at more than 20 conventions annually and writes for more than fifty publications about tax reduction ideas, abusive welfare benefit and retirement plans, captive insurance companies, cash balance plans, life settlements, premium finance, etc. He is a course developer and instructor for the American Institute of Certified Public Accountants and a prolific author. He has written or collaborated on numerous books, including, The Team Approach to Tax and Financial Planning; Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hotspots; Alternatives to Commonly Misused Tax Strategies: Ensuring Your Clients Future, all published by the American Institute of CPAs. The CPA’s Guide to Life Insurance, and The CPA’s Guide to Trusts and Estates, both published by Bisk Education, and his latest book, Protecting Clients from Fraud, Incompetence, and Scams, published by Wiley. In addition, Mr. Wallach writes for various national business associations that sell his books to their members and others. He has been an expert witness on some of the above issues, and to date his side has never lost a case. Contact lanwalla@aol.com or visit reportabletransaction.com/IRSHelp.html
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
There are many problems you can run into with the IRS. The following is an overview and helpful information on some of these confusing issues.
· IRS Penalties
· Unfiled Tax Returns
· IRS Liens
· IRS Audits
· Payroll Tax Problems
· IRS Levies
· IRS Seizures
· Wage Garnishments
IRS Penalties
The penalizes millions of taxpayers each year. They have so many penalties that it's hard to understand which penalty they are hitting you with.
The most common penalties are Failure to File and Failure to Pay. Both of these penalties can substantially increase the amount you owe the IRS in a very short period of time.
To make matters worse the IRS charges you interest on penalties. Many tax-payers often find out about IRS problems many years after they have occurred. This causes the amount owed the IRS to be substantially greater due to penalties and the accumulated interest on those penalties.
Some IRS penalties can be as high as 75%-100% of the original taxes owed. Often taxpayers can afford to pay the taxes owed, however, the extra penalties make it impossible to pay off the entire balance.
The original goal of the IRS imposing penalties was to punish taxpayers in order to keep them in line. Unfortunately, the penalties have turned into additional sources of income for the IRS. So they are happy to add whatever penalties they can and to pile interest on top of those penalties. Your loss is their gain.
Under certain circumstances the IRS does abate, or forgive, penalties. Therefore before you pay the IRS any penalty amounts, you may want to consider requesting that the IRS abate your penalties.
Unfiled Tax Returns
Many taxpayers fail to file required tax returns for many reasons. What you must understand is that failure to file tax returns may be construed as a criminal act by the IRS. This type of criminal act is punishable by one year in jail for each year not filed.
Needless to say, its one thing to owe the IRS money but another thing to potentially lose your freedom for failure to file a tax return.
The IRS may file “SFR” (Substitute For Return) Tax Returns for you. This is the IRS's version of an unfiled tax return. Because SFR Tax Returns are filed in the best interest of the government, the only deductions you'll see are standard deductions and one personal exemption.
You will not get credit for deductions which you may be entitled to, such as exemptions for a spouse or children, interest and taxes on your home, cost of any stock or real estate sales, business expenses, etc.
Regardless of what you have heard, you have the right to file your original tax return, no matter how late its filed.
IRS Liens
The IRS can make your life miserable by filing Federal Tax Liens. Federal Tax Liens are public records that indicate you owe the IRS various taxes. They are filed with the County Clerk in the county from which you or your business operates.
Because they are public records, they will show up on your credit report. This often makes it difficult for a taxpayer to obtain any financing on an automobile or a home. Federal Tax Liens also can tie up your personal property, you cannot sell or transfer that property without a clear title.
Often taxpayers find themselves in a Catch-22 where hey have property that they would like to borrow against, but because of the Federal Tax Lien, they cannot get a loan. We can work toward getting the Tax Lien lifted so that you can borrow money on your property.
IRS Audits
The IRS can audit you by mail, in their offices, or in your office or home. The location of your audit is a good indication of the severity of the audit.
Typically, Correspondence Audits are for missing documents in your tax return that IRS computers have tried to find. These usually include W-2's and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation.
The IRS Office Audit is usually with a Tax Examiner who will request numerous documents and explanations of various deductions. This type of audit may also require you to produce all bank records for a period of time so that the IRS can check for unreported income.
The IRS Home or Office Audit should be taken more seriously because the IRS auditor is a Revenue Agent. Revenue Agents receive more training and learn more auditing techniques than a typical Tax Examiner.
The IRS audits should be taken seriously because they often lead to other tax years and other tax problems not originally stated in the audit letter.
Payroll Tax Problems
The IRS is very aggressive in their collection attempts for past due payroll taxes. The penalties assessed on delinquent payroll tax deposits or filings can dramatically increase the total amount you owe in just a matter of months.
I believe that it is critical for a taxpayer to have an attorney for a representation in these situations. How you answer the first five IRS questions may determine whether you stay in business or are liquidated by the IRS. We always advise clients to avoid meeting with any IRS representatives regarding payroll taxes until you have met with a professional to discuss you options.
IRS Levy
An IRS Levy is the action taken by the IRS to collect taxes. For example, the IRS can issue a Bank Levy to obtain your cash in savings and checking accounts. Or the IRS can levy your wages or accounts receivable. The person, company, or institution that is served with the levy must comply or face their own IRS problems.
The additional paperwork this person, company, or institution, is faced with to comply with the IRS Levy often causes the taxpayers relationship with that person to suffer. Levies should be avoided at all costs and are usually the result of poor or no communication with the IRS.
When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. The bank is required to remove whatever amount of money is in your account that day (up to the amount of the IRS Levy) and send it to the IRS within 21 days unless notified otherwise by the IRS. This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Levy.
An IRS Wage Levy is difficult. Wage Levies are filed with your employer and remain in effect until the IRS notifies the employer that the Wage Levy has been released. Most Wage Levies take so much money from the taxpayer's paycheck that the taxpayer doesn’t even have enough money to live on.
IRS Seizures
The IRS has extensive powers when it comes to Seizures of Assets. These powers allow them to seize personal and business assets to pay off outstanding tax liabilities. This occurs when taxpayers have been avoiding the IRS.
This is one of the IRS's ultimate weapons. They can seize cars, television sets, jewelry, computers, collectibles, business equipment, or anything with value which can be sold in order to acquire the money the IRS wants to pay off tax debts. If you are facing a seizure, you have a serious problem.
Wage Garnishments
The IRS Wage Garnishment is a very powerful tool used to collect taxes owed through your employer. Once a Wage Garnishment is filed with an employer. Once a Wage Garnishment is filed with an employer, the employer is required to collect a large percentage of each paycheck. The paycheck that would have otherwise been paid to the employee will then be paid to the IRS.
The Wage Garnishment stays in effect until the IRS is fully paid or until the IRS agrees to release the garnishment. Having wages garnished can create other debt problems because the amount left over after the IRS takes its cut is often small, so you may have difficulty with bills and other financial obligations.
Lance Wallach speaks at more than 20 conventions annually and writes for more than fifty publications about tax reduction ideas, abusive welfare benefit and retirement plans, captive insurance companies, cash balance plans, life settlements, premium finance, etc. He is a course developer and instructor for the American Institute of Certified Public Accountants and a prolific author. He has written or collaborated on numerous books, including, The Team Approach to Tax and Financial Planning; Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hotspots; Alternatives to Commonly Misused Tax Strategies: Ensuring Your Clients Future, all published by the American Institute of CPAs. The CPA’s Guide to Life Insurance, and The CPA’s Guide to Trusts and Estates, both published by Bisk Education, and his latest book, Protecting Clients from Fraud, Incompetence, and Scams, published by Wiley. In addition, Mr. Wallach writes for various national business associations that sell his books to their members and others. He has been an expert witness on some of the above issues, and to date his side has never lost a case. Contact lanwalla@aol.com or visit reportabletransaction.com/IRSHelp.html
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Avoiding, or at least winning, an IRS challenge
Lance Wallach
Of course, a Captive insurance company can be extremely beneficial in many aspects, as
insurance profits are kept within the group and tax benefits may be obtained. As is true with any
business planning, however, the Captive must be a legitimate business entity and be in
compliance with the law. There are opportunities for the Service to challenge Captive insurance
companies; therefore, proper formation and ongoing administration is essential. The Service may
have given up on the economic family doctrine, but the Service specifically stated in Rev. Rul.
2001-31 that it may continue to challenge Captives based on the facts and circumstances of each
case.
Legitimate business reason. As is true with any business planning, a Captive must possess a
legitimate business reason to avoid being characterized as a sham by the Service. Some
legitimate business reasons are as follows:
(1) To obtain coverage where insurers are unwilling to do so.
(2) To reduce premium payments.
(3) To control risk.
(4) To increase cash-flow.
(5) To gain access to the reinsurance market
(6) To create diversification.
(7) To balance coverage.
Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He is an American Institute of CPA’s course developer and instructor and has authored numerous bestselling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications. For more information and additional articles on these subjects, visit www.vebaplan.com, www.taxlibrary.us, lawyer4audits.com or call 516-938-5007.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
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