When Should Married Couples File Separately?

Wedding-cake

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys help individuals analyze their options when it comes to their tax-filing status. For example, when filing their taxes, married couples have the option to either file jointly or separately, and must weigh the pros and cons of each. While most married couples file their returns jointly, there are instances when filing separately may be advantageous based on the taxpayer’s situation.

Joint and Several Liability

    For starters, taxpayers who file joint tax returns are jointly and severally liable for liabilities arising from mistakes or omissions on that joint return. Imposition of joint and several liability means that each taxpayer is legally responsible for the entire liability—unless the taxpayer qualifies for innocent spouse relief. This means that the IRS can proceed against either spouse—or both—to resolve the tax liability. IRC §6013(d)(3). For this reason, a taxpayer may want to consider filing separately if they have an untrustworthy spouse or suspect that their spouse is not complying with their tax obligations. A spouse should also consider filing separately if one or both spouses own a business—and that business is a pass-through entity—and the spouses is not involved in the day-to-day activities of the business. We say this because if a business owner spouse is not paying or properly reporting the business’s tax liability to the government, the innocent spouse may also be liable, since the entity’s profit and loss would be reported on the couple’s income tax return.

Nardone Limited Comment: Taxpayers should be aware that qualifying for innocent spouse relief is very time consuming and difficult to achieve. Generally, it is tough for the petitioning spouse to prove that they did not know or have reason to know of the tax deficiency, since they did in fact sign the income tax return. For more information on innocent spouse relief, see our previous blog, “Tax Relief for Innocent Spouses.”

Additional Considerations

    A spouse may also choose to file separately if at least one spouse has significant itemized deductions that are limited to adjusted gross income (“AGI”), or one or both spouses qualify for head of household status because the couple is living apart or separated. Common itemized deductions limited by AGI are medical expenses, personal casualty losses, miscellaneous itemized expenses, and charitable contributions. Taxpayers should also be advised that, to qualify for head of household status: (i) you and your spouse cannot have lived together during the last six months of the year; (ii) the spouse’s home must have been at least one of the children’s primary residence for more than half of the year; and (iii) the spouse filing for head of household status must have paid more than half the cost of keeping up the home for the year. IRS Pub. 501 (2018).

    In sum, before a taxpayer decides to file a joint return or a married filing separate return, the taxpayer should work with their tax return preparer or attorney to better understand the intended and unintended consequences of that filing. If a married couple’s goal is to simply limit their tax liability, it may be helpful to prepare the tax return both ways. That way, the couple can see which filing status would give them the biggest tax savings.

Contact Nardone Limited

    The tax attorneys at Nardone Limited have experience in advising taxpayers when it comes to deciding how to file their taxes, as well as preparing requests for innocent spouse relief. If you are married and are unsure whether you should file your taxes jointly or separately, then you should contact one of our experienced attorneys. We will thoroughly review your case and determine the most advantageous option based on your specific circumstances.

December 28, 2018

Tax Cuts and Jobs Act-Impact on Charitable Giving

Tax cuts and jobs act

The tax attorneys at Nardone Limited, in Columbus, Ohio, assist businesses and taxpayers with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys advise taxpayers of the affects and consequences of changes to federal tax law. The recently enacted Tax Cuts and Jobs Act (“TCJA”) will affect charitable contributions made by taxpayers, as well as how taxpayers will strategize their contributions to ensure they are receiving the maximum benefits.

More Taxpayers May Choose
Standard Deduction Over Itemizing

During this time of year, many taxpayers consider making charitable contributions because those who itemize their deductions are entitled to deduct the amount of contributions made to qualified charitable organizations from their taxable income. Qualified charitable organizations are those that exist exclusively for the advancement of religious, charitable, or educational purposes. Congress allows taxpayers to deduct charitable contributions from their taxable income because it believes that a robust charitable sector is vital to the U.S. economy. The recent increase in the standard deduction, as a result of the TCJA, however may negatively affect Congress’ efforts to incentivize taxpayers to donate to charities going forward.

Nardone Limited Comment: Taxpayers should be aware that there are rules for substantiating different types of charitable donations. If audited or examined by the IRS, taxpayers must be familiar with the types of documentation required by the IRS. For more information on documentation requirements, as it relates to charitable contributions, see our blog article titled, “IRS Documentation Requirements Concerning Charitable Contributions.”

The TCJA increases the standard deduction for individuals from $6,350 to $12,000, and from $12,000 to $24,000 for married couples. Generally, if a taxpayer itemizes their deductions rather than taking the standard deduction, the tax deduction for charitable contributions helps to reduce the taxpayer’s taxable income. But, due to the increase in the standard deduction, it is much more difficult for itemizing taxpayers to meet the threshold of the standard deduction in order to benefit from itemizing their deductions. Professionals, however, suggest a strategy called “bunching” in order for taxpayers to still benefit from charitable giving. This strategy suggests that, rather than giving a smaller amount to charity every year, the taxpayer gives every other year instead. This way taxpayers are in a better position to get their itemized deductions over the standard deduction amount, and thus benefit from the charitable giving.

Nardone Limited Comment: The TCJA also increases the charitable contribution-base percentage (the taxpayer’s adjusted gross income) for deductions of cash contributions, for individuals, from 50% of the taxpayer’s contribution-base to 60%. Note, that cash contributions taken into account for purposes of applying the 60% limit are not taken into account again in applying the 50% limit for non-cash contributions.

Contact Nardone Limited

The tax attorneys at Nardone Limited have vast experience representing taxpayers involved in IRS audits and examinations. To the extent that you have questions regarding the effects of the TCJA or charitable tax deductions and substantiations, you should contact one of the experienced attorneys at Nardone Limited.

December 14, 2018

IRS Criminal Investigation releases Fiscal Year 2018 Annual Report

Irs_criminal_investigations

As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists individuals and businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys keep individuals and businesses informed about new information and guidance provided by the IRS.

Updates regarding Criminal Tax Enforcement

The Internal Revenue Service recently released the Criminal Investigation Division’s (CI) annual report reflecting significant accomplishments and criminal enforcement actions taken in fiscal year 2018. According to the IRS:

“This report shows that as financial crime has evolved and proliferated around the world, so have IRS Criminal Investigation special agents and their abilities to track the proceeds of financial crime,” said IRS Commissioner Chuck Rettig. “CI uses cutting-edge technology combined with sophisticated investigative work to bring the most impactful cases that affect tax administration. I am extremely proud of our special agents and professional staff and their work serving the nation.”

In prior years, CI would involve itself with violent crime-type matters, like drug cases and criminal organizations. But, from our perspective, that is not the best use of their time. Thus, it was good to see that a major focus of CI in fiscal 2018 was traditional tax cases, including international tax enforcement, employment tax, refund fraud and tax-related identity theft. Other areas of emphasis included public corruption, cybercrime, terrorist financing and money laundering.

Criminal Tax Enforcement Statistics

Again, according to the IRS:

“We prioritized the use of data in our investigations in fiscal 2018,” said Don Fort, Chief of CI. “The future for CI must involve leveraging the vast amount of data we have to help drive case selection and make us more efficient in the critical work that we do. Data analytics is a powerful tool for identifying areas of tax non-compliance.”

CI initiated 2,886 cases in fiscal 2018, with traditional tax cases accounting for 73 percent of the total. The number of CI special agents dipped below 2,100 by the end of fiscal 2018, which is the lowest level since the early 1970’s. Consequently, CI turned to data analytics to assist in finding the most impactful cases.

CI is the only federal law enforcement agency with jurisdiction over federal tax crimes. CI achieved a conviction rate of 91.7 percent in fiscal 2018, which is among the highest of all federal law enforcement agencies. According to commentators, which we would agree with, the high conviction rate reflects the thoroughness of CI investigations and the high quality of CI agents. CI is routinely called upon by prosecutors across the country to lead financial investigations on a wide variety of financial crimes.

Nardone Limited Comment: The takeaway for our individual and business clients is, seek the appropriate tax advice and tax professionals to ensure that integrity, fairness, and respect for our voluntary tax system.  We want to make sure that you are not put in a position where you have intentionally crossed the line or inadvertently crossed the line by following the advice of your tax professional.  These statistics make it pretty clear that the IRS, once they have placed their focus and efforts on your particular case, it will be difficult to cause CI to redirect their focus.  Rather, at that point, it becomes more of an effort of minimizing the potential disruption or punishment, versus all-together avoiding it.

Contact Nardone Limited

Nardone Limited frequently represents individuals and businesses in federal, state, and local civil tax matters.  If you or your business have been contacted by the IRS, or are struggling with tax liabilities, you should contact one of our tax attorneys today. We will thoroughly review your case to determine what options and alternatives are available to you.

 

Tax Attorney Vince Nardone Speaks at Day Two of the 2018 Mega Tax Conference

Ohio society of cpas

    On December 11, 2018, tax attorney Vince Nardone spoke on day two of The Ohio Society of CPAs Mega Tax Conference. Vince discussed the various voluntary disclosure programs to a group, consisting mostly of CPAs and accountants from across the state of Ohio. The presentation focused on the most common voluntary disclosure programs at both the federal and state levels. We spent a good bit of time discussing the IRS’ closure of the 2014 Offshore Voluntary Disclosure Program, and the Streamlined Filing Compliance Procedure submission program.  Nardone also discussed the benefits and strategies available in each voluntary disclosure, while avoiding pitfalls. 

    The Ohio Society of CPAs is the #1 provider of CPE for Ohio CPAs year after year, and the 2018 Mega Tax Conference was a great opportunity for CPAs to learn about the latest advancements on a variety of important topics in the industry.  We appreciate and thank The Ohio Society of CPAs’ accounting learning manager, Amber McAuliffe, for inviting us and allowing us to participate. 

December 12, 2018

Tax Attorney Vince Nardone Speaks at the 2018 Mega Tax Conference

Ohio society of cpas

    On December 10, 2018, tax attorney Vince Nardone spoke at The Ohio Society of CPAs Mega Tax Conference. Vince presented “Ethics in Tax Practice” to a group, consisting mostly of CPAs and accountants from across the state of Ohio. The presentation focused on reviewing Circular 230 and other federal and state laws impacting CPAs, as well as Board of Accountancy rules governing the conduct of CPAs performing tax services in Ohio.  Nardone spent a lot of time discussing best practices in terms of tax return preparation, interacting with clients and the tax authorities, and the important aspects of protecting their own businesses and livelihood.

    The Ohio Society of CPAs is the #1 provider of CPE for Ohio CPAs year after year, and the 2018 Mega Tax Conference was a great opportunity for CPAs to learn about the latest advancements on a variety of important topics in the industry.  We appreciate and thank The Ohio Society of CPAs’ accounting learning manager, Amber McAuliffe, for inviting us and allowing us to participate. 

 

November 29, 2018

IRS Private Debt Collection Program

Tax_debt

    The tax attorneys at Nardone Limited, in Columbus, Ohio, routinely advise taxpayers who have been contacted by an Internal Revenue Service (“IRS”) revenue officer. If a taxpayer fails to make a payment on a federal tax liability, the IRS has broad authority and tools available to collect delinquent tax from individuals and businesses. One of the tools the IRS has recently utilized is the use of private debt collection agencies. The private debt collection program allows certain designated companies to collect tax debts on the IRS’s behalf.

    The program is authorized under the Fixing America’s Surface Transportation Act (“FAST Act”) and requires the IRS to use private collection agencies once the IRS is no longer actively working on the taxpayer’s case. The IRS will only use a third party for certain accounts, such as older overdue accounts that have been removed from the IRS’s active list due to lack of resources. The IRS, however, has provided a list of accounts that it will not assign to private collection agencies. The following is a list of account types the IRS will not assign to a private collection agency:

  1. The taxpayer is deceased or under the age of 18;
  2. Taxpayers in a designated combat zone;
  3. Taxpayers that are victims of tax-related identity theft;
  4. Taxpayers under examination, litigation, criminal investigation or levy;
  5. Accounts subject to pending or active offers in compromise;
  6. Accounts subject to an installment agreement;
  7. Accounts subject to a right of appeal;
  8. The case is classified as an innocent spouse case; and
  9. Taxpayers in a disaster area.

Nardone Limited Comment: On February 14, 2018, United States Senators Elizabeth Warren, Ben Cardin, and Sherrod Brown introduced legislation to repeal authority from the IRS to contract with private debt collection agencies. The bill, however is still in the “introduced” phase. For more information, or to track the bill, click here

How Will You Know it is a Designated 

Private Collection Agency?

    First, the IRS has listed the following companies as those authorized to collect on its behalf: CBE Group, Conserve, Performant, and Pioneer. But, before assigning a taxpayer’s account to a third party, the IRS will send the taxpayer and the taxpayer’s representative a notice indicating that their account is being transferred. The IRS will then send a second letter confirming the transfer. If one of the collection agencies listed above contacts you, they will not ask for payment on any prepaid card, such as a gift card or prepaid debit card.  Any payments for unpaid taxes should be sent directly to the IRS, not the private collection agency.

    Further, the collection agencies authorized to collect on the IRS’s behalf are required to follow the Fair Debt Collection Practices Act (the “Act”). This means that the collection agency may not contact a taxpayer: (i) before 8:00 A.M. or after 9:00 P.M.; (ii) without permission from the taxpayer’s attorney (if the debt collector knows the taxpayer is represented); or (iv) at the taxpayer’s place of employment. Fair Debt Collection Practices Act §805. The Act also prohibits the collector from threatening or harassing the taxpayer. Id at §806. Taxpayers may file a complaint about a private collection agency or report misconduct by contacting the Treasury Inspector General for Tax Administration.

Nardone Limited Comment: If a taxpayer or business is contact by an IRS revenue officer or private collection agency, it is important to understand the various collection alternatives available to taxpayers to resolve federal tax liabilities. Some collection alternatives include: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. For more information about collection alternatives, see our previous blog articles “Bankruptcy as a Collection Alternative for Tax Liabilities” and “Offers-In-Compromise Under our Current Administration.”

Contact Nardone Limited

    If you or your business have been contacted by the IRS or a private collection agency regarding outstanding tax liabilities, it is important to consult with a legal professional who is experienced in communicating with IRS revenue officers and private debt collection agencies. The tax attorneys at Nardone Limited have vast experience representing clients before the IRS. Contact us today for a consultation to discuss your case.

November 16, 2018

Tax Relief for Innocent Spouses

Innocent-spouse-relief

    The tax attorneys at Nardone Limited, in Columbus, Ohio, have extensive experience representing taxpayers who are involved in various stages of Internal Revenue Service (“IRS”) collection processes. We specialize in working with IRS revenue officers, and guiding clients through tax collection alternatives, including offers-in-compromise, installment agreements, discharges in bankruptcy and innocent spouse relief. Generally, taxpayers who file a joint tax return are jointly and severally liable for liabilities arising from mistakes and omissions on that tax return. Imposition of joint and several liability means that each taxpayer is legally responsible for the entire liability. This means that the IRS can proceed against either taxpayer—or both—to resolve the tax liability. IRC §6013(d)(3). But, there is an exception to the general rule if a spouse is innocent. IRC §6015. Petitioning taxpayers may be able to persuade the IRS that joint and several liability should not apply, in consideration of the facts and circumstances surrounding preparation of the return. The IRS’s review of innocent spouse relief is fact-intensive, with no one factor being determinative.

Request for Innocent Spouse Relief

    Taxpayers can request innocent spouse relief in three forms: (i) relief from liability for additional tax owed where the spouse or former spouse failed to correctly report income or claim deductions; (ii) relief in the form of separation of the liability attributable to the taxpayer and liability attributable to the taxpayer’s estranged or former spouse; and (iii) relief where the taxpayer does not otherwise qualify for innocent spouse relief, however holding the taxpayer liable for the tax deficiency would be inequitable. A taxpayer requesting innocent spouse relief must generally do so within two years of the tax liability assessment.

    Requesting innocent spouse relief in any of the forms described above requires filing IRS Form 8857, Request for Innocent Spouse Relief. To qualify for liability relief, a petitioning taxpayer must demonstrate: (i) that they filed a joint tax return with an understatement of tax due to reporting of their then-spouse’s erroneous items; (ii) that at the time of signing the return the taxpayer did not know or have reason to know about the understatement of tax; and (iii) that it would be unfair, after considering the facts and circumstances, to hold the innocent spouse liable. IRC §6015. To qualify for separation of liability relief, a petitioning taxpayer must demonstrate that: (i) the taxpayer is no longer married to or is legally separated from the spouse with whom the taxpayer filed the joint return; and (ii) the taxpayer was not a member of the same household as the other spouse on the joint tax return for the 12-month period preceding the request for relief.

Knowledge or Reason to Know of the Misstatement

    It is often difficult for the petitioning spouse to prove that they did not know or have reason to know of the deficiency. After all, the petitioner did sign the return. Further, even if the petitioning spouse had actual knowledge of only a portion of the erroneous items, the IRS will not grant relief. The IRS will argue that the petitioner should have known about the deficiency if the petitioner benefited from the understatement of tax or the return represented an unqualified departure from the couple’s prior returns. The presumption when an individual affixes their signature to a document is endorsement of its contents. But, a petitioner may satisfy the lack of knowledge element even in certain conditions where a petitioner was given the opportunity to review the return. For example, if the petitioner’s spouse was hiding an income source, then it would be reasonable for the petitioner, having reviewed the return, to be ignorant of the understatement of income. In other situations, the disparity in education between the petitioner and the other person named on the return may be so great as to impede the petitioner’s meaningful review. Our previous blog article illustrates an example of the IRS denying a spouse relief for failure to prove she did not know, or have reason to know of the understatement of tax.

    Satisfaction of the above elements require the petitioning taxpayer to be familiar with tax law. To fill out Form 8857 the taxpayer must be equip with detailed and relevant information in order successfully plead their case to the IRS. Form 8857 includes questions about the petitioner’s marriage, educational background, health problems, involvement with the couple’s finances and current financial status. Petitioners may have to conduct extensive investigation into past financials and proffer documentation about sensitive private topics. Thus, preparing to request innocent spouse relief can be difficult, especially while facing persistent IRS revenue officers during the collections process.

Contact Nardone Limited

    The tax attorneys at Nardone Limited have experience preparing requests for innocent spouse relief and guiding clients through other tax collection alternatives. The IRS recognizes certain situations where it would be inappropriate to impose joint and severable liability, however, it is up to the petitioner to prove the elements for entitlement to innocent spouse relief. A taxpayer’s review or non-review of her joint tax return will not prelude innocent spouse relief. The tax attorneys at Nardone Limited have vast expertise in representing taxpayers in all stages of IRS tax collections processes. If you have questions regarding your tax liability, or communications you have received from an IRS revenue officer, please contact Nardone Limited.

November 09, 2018

IRS Publishes New Guidance on TCJA and Tips for Filing

Tax-cuts-and-jobs-act

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys keep individuals and businesses informed about new information and guidance provided by the IRS. As a follow-up to our prior blog article on posted non October 19, 2018, this article explores how to properly prepare for the new tax changes as a result of The Tax Cuts and Jobs Act (“TCJA”).

Publication 5307

    On October 30, 2018, the IRS published a news release informing taxpayers that it published new information—IRS Publication 5307 (the “Publication”)—that will help taxpayers learn how the tax reform affects their taxes, as well as tips for filing their 2018 tax returns. IR-2018-209. This news release is part of a series of information provided by the IRS regarding the effects of the TCJA. The Publication contains information about (i) increasing the standard deduction, (ii) suspending personal exemptions, (iii) increasing the child tax credit, and (iv) limiting or discounting certain deductions. In addition to the Publication, the IRS also indicated that it recently updated a special page on its website dedicated to helping taxpayers understand the tax changes. This page highlights information taxpayers should be aware of and provides tips to taxpayers before they file their 2018 tax returns.

Tips for Filing 2018 Tax Returns

    Because taxpayers are adjusting and responding to the TCJA for the first time, it is important for taxpayers to prepare in advance before filing their 2018 tax returns. The IRS warns taxpayers that refunds may be different in 2019 than in previous years, and that some taxpayers may even owe money this year. In order to avoid surprises or delays as it relates to filing tax returns for 2018, the IRS offers the following advice to taxpayers.

  1. IRS Withholding Calculator. If taxpayers are unsure or concerned that they may have a tax bill after filing their 2018 tax returns, they should perform a “paycheck checkup.” Taxpayers can use the IRS Withholding Calculator located on the IRS website. This tool will provide taxpayers guidance on whether they need to adjust their withholding or make estimated or early payments.
  1. Documents. Before filing their taxes, taxpayers should ensure that they have all of the necessary documents, and that all of those documents are complete. Filing before the taxpayer has gathered all of the necessary documents could result in the taxpayer having to file an amended return, which could significantly delay the taxpayer in receiving a tax return.
  1. E-File. Electronic filing is the most efficient and easiest way to avoid errors. The IRS indicated that it has been working with tax preparers to ensure that the new tax law changes are incorporated into the tax filing systems.
  1. Direct Deposit. In order to avoid delays in receiving tax refunds, the IRS suggests having the refund directly deposited into the taxpayer’s bank account, as opposed to having it sent via mail. This, in conjunction with electronically filing, is the fastest way for the taxpayer to get their refund.
  1. Renewing ITIN’s. Taxpayers who file using an expired Individual Taxpayer Identification Number (“ITIN”) are likely to experience processing delays. ITIN’s may expire in two ways: (i) the taxpayer has not used their ITIN on any tax return for years 2015, 2016, or 2017; or (ii) the ITIN has a middle digit of 73, 74, 75, 76, 77, 81, or 82. To avoid delays, expired ITIN’s should be renewed before the end of the year.

    Taxpayers should already be considering how the TCJA will affect their 2018 tax returns. Ensuring that you are up to date on the latest details and guidance regarding issues that may affect you or your business are necessary in order to avoid penalties or delays. If you or your business need guidance on navigating the TCJA and its affects, it is important that you seek guidance from a legal professional experienced in tax matters.

Contact Nardone Limited

    Nardone Limited represents employers with federal tax issues, including changes as a result of the TCJA. If you are unsure how the TCJA will affect you or your business, you should contact an experienced tax attorney before filing your taxes. Nardone Limited’s tax attorneys and professionals are well experienced with representing businesses regarding federal tax issues. Contact us today for a consultation to discuss your case.

October 30, 2018

Worker Misclassification Audits

Business_audit

    The experienced tax attorneys at Nardone Limited, located in Columbus, Ohio, frequently advise taxpayers throughout the Internal Revenue Service (“IRS”) audit and examination process. This includes providing guidance to employers on worker misclassification concerns. Misclassifying a worker can come with significant penalties to a business if audited by the IRS. For more information on penalties for misclassifying a worker, see our prior tax blog article posted on October 10, 2018. If an employer is concerned that an audit may reveal that they have misclassified a worker, it is helpful for the employer to understand how an audit can originate. Worker misclassification typically comes to light in two ways: (i) a worker files a complaint with the IRS seeking determination of their status; or (ii) the IRS conducts an audit of the business.

Background Regarding Worker-Reported Audits

    If a worker believes they have been misclassified and reports their suspicion to the IRS, both the worker and the firm are required to fill out Form SS-8. For purposes of Form SS-8, “firm” means any individual, business enterprise, organization, state, or other entity for which a worker has performed services. The purpose of Form SS-8 is to help the IRS determine the status of a worker under common law rules. Generally, under the common law rules, the worker is an employee if the firm “has the right to control what will be done and how it will be done.” IRS Instructions for Form SS-8. The questions on Form SS-8 contemplate behavioral control, financial control, and the relationship between the worker and the firm. Behavioral control considers who decides how the work must be performed; while financial control considers the pay structure for the particular worker. The IRS then reviews the forms to render a decision. The decision may either be a formal determination or an information letter. Formal determinations bind the IRS in all future cases with the same facts, while information letters are only advisory. But, for the worker and the firm, either are binding. IRS Instructions for Form SS-8.

Nardone Limited Comment: Prior to completing Form SS-8 or any other questionnaire sent by the IRS, it is important for the employer to consult with an experienced tax controversy attorney who handles these matters on a routine basis. It is not a good idea to work with an attorney or accountant who is unfamiliar with employment tax audits or worker classification issues. Professionals who do not routinely handle these types of issues, will not have the appropriate perspective and background to know when to respond and how to respond to the IRS. We have seen too many situations where a response from a professional, who does not specifically specialize in tax controversy matters, has hurt the client’s position rather than helped it.

IRS-Initiated Audits and Examinations

    If the IRS initiates and performs an audit or examination, the IRS considers several factors, such as: the use of a large number of independent contractors, Form 1099-MISC with large reporting of nonemployee compensation, and mismatches where workers with identical or near-identical jobs are classified differently. The identical jobs issue frequently arises with temp-to-hire workers, who are initially classified as independent contractors.  But, upon hire, there is no meaningful change in their job duties or right of control. If the IRS decides to conduct an audit, it will contact the business by mail. An audit can either be done in person—such as at the business location—or by mail. The audit process may involve disclosing company documents such as: contracts, payroll information, and email correspondences to the IRS. Information considered by the IRS will be analyzed to determine whether there should be a change in tax liability. An audit can conclude in three ways: (i) no change; (ii) agreed; or (iii) disagreed. A “no change” determination is made if the business substantiates all of the items being reviewed. An “agreed” or disagreed” conclusion means that either the business agrees with the IRS’ proposed changes or it disagrees with the proposed changes. If a business wishes to challenge the IRS’ decision, the business has 30 days from the date of the determination letter, to appeal to Office of Appeals.

    It is important to recognize, as the employer, that the submission of a Form SS-8 may trigger a number of unintended consequences. Thus, recognizing the legal framework of the worker classification issue as it relates to independent contractors versus employees, is really important. It is equally as important to understand the employer’s options as it relates to responding to the Form SS-8 and the potential response from the IRS. With that said, sitting down with someone and investing some time and money to properly understand the overall circumstances regarding the Form SS-8 is prudent under the circumstances. We also have to understand and recognize that there may be some ulterior motives as it relates to the submission of the Form SS-8 by the worker, as well as the impact the submission may have with other federal and state agencies, including the U.S. Department of Labor and the unemployment compensation agency within the particular state. 

Contact Nardone Limited

    Nardone Limited represents businesses with federal tax issues, including preparing for IRS audits and examinations regarding worker classification issues. If you have workers who may be improperly classified, or think you may need to update your classification procedures, you should contact an experienced tax attorney. Nardone Limited’s tax attorneys and professionals are experienced with representing clients before the IRS. Contact us today for a consultation to discuss your case.

October 19, 2018

IRS Urges Business Owners to Consider New Tax Law Changes

Tax cuts and jobs act

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists businesses with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys advise businesses of the effects of new and emerging changes to federal tax law. The Tax Cuts and Jobs Act (“TCJA”) that was passed in December 2017, is the most recent and substantial change in federal tax law, and will affect how nearly all businesses file their 2018 tax returns.

The Tax Cuts and Jobs Act to Affect Small Businesses

    On October 9, 2018, the IRS published a news release urging small business owners to familiarize themselves with the new tax changes as a result of the TCJA before the end of the year. IR-2018-197. According to the IRS, the TCJA will affect almost all business owners when it comes to tax rates, quarterly estimated tax payments, and allowed deductions and credits. The IRS indicated that it will continue to provide resources to help ensure small businesses and self-employed taxpayers meet their tax responsibilities. The IRS, however, has already provided taxpayers with significant guidance regarding the TCJA on its website. The amount of information and awareness being provided by the IRS should be a signal to taxpayers that come time to file their tax returns, the IRS will expect businesses to be knowledgeable of their tax obligations.  

How Will the TCJA Affect the Bottom Line?

    As a follow-up to the October 9, 2018 publication, the IRS issued yet another news publication that provided guidance to businesses on the effects of the TCJA. On October 16, 2018, the IRS offered several examples on how the TCJA may affect the bottom line of many businesses. IR-2018-203. The IRS provided the following examples:

1. The Qualified Business Income Deduction. Under IRC §199A, sole proprietors, partnerships, trusts and S corporations may now deduct 20 percent of their qualified business income.

2. The 100 Percent Depreciation Deduction. The TCJA made several amendments to the allowance for additional first year depreciation deductions in IRC §168(k)—such as increasing the additional first year depreciation deduction percentage from 50% to 100%—for qualified property placed in service after September 27, 2017, and before January 1, 2027.

3. Fringe Benefits. The TCJA has changed what business may deduct for certain fringe benefit expenses. This includes business expenses for things such as, meals and entertainment, transportation, moving, and employee achievement awards. For example, before the TCJA, IRC §274(n)(2) allowed businesses a 100% deduction for de minimis meal expenses, however, the TCJA modified the statute to only allow a 50% deduction for de minimis meal expenses. The TCJA takes it a step further for deductions related to entertainment expenses, by eliminating business deductions for entertainment expenses altogether, regardless if the expense is directly related to, or associated with the business. IRC §274(a). For more information on deducting certain fringe benefits such as, transportation, lodging, and meal expenses, see our previous blog article.

4. Estimated Taxes. Due to the numerous changes to the Internal Revenue Code (the “IRC”), the IRS suggests that individuals, including sole proprietors, partners, and S corporation shareholders, consider paying quarterly installments of estimated tax—unless the taxpayer owes less than $1,000 when they file their tax returns or if they had no liability in the prior year. IR-2018-203. According to the IRS, the number of taxpayers who are subject to penalties for underpayment of taxes, continues to increase. For example, the IRS saw a 40% increase in penalties between 2010 and 2015.

    This list serves only as an example of the types of changes the TCJA has made to the IRC. Before filing their 2018 taxes, businesses are responsible for doing their due diligence to understand how the TCJA may affect their particular business. Because the TCJA is long, nuanced, and is affecting taxpayers for the first time, it is important to seek guidance from a legal professional.

Contact Nardone Limited

    Nardone Limited represents employers with federal tax issues, including changes as a result of the TCJA. If you are unsure how the TCJA will affect your business, you should contact an experienced tax attorney before filing your taxes. Nardone Limited’s tax attorneys and professionals are well experienced with representing businesses regarding federal tax issues. Contact us today for a consultation to discuss your case.

Tax Attorney Vince Nardone Speaks at the 2018 Cleveland Accounting Show

    On October 18, 2018, tax attorney Vince Nardone spoke at The Ohio Society of CPAs (OSCPA) Cleveland Accounting Show at the I-X Center. Mr. Nardone presented the topic “When Tragedy Strikes: How to Navigate Client Issues” to a large group, consisting mostly of CPAs and accountants from the Cleveland area. The discussion was geared towards the necessity of business succession planning and having the necessary system and structure in place to allow for that proper transition, including a buy/sell agreement or practice continuation agreement.

    The Ohio Society of CPAs is the #1 provider of CPE for Ohio CPAs year after year, and the 2018 Cincinnati Accounting Show was a great opportunity for CPAs to learn about the latest advancements on a variety of important topics in the industry. We appreciate and thank The Ohio Society of CPAs’ accounting learning manager, Amber McAuliffe, for inviting us and allowing us to participate.

    After the presentation, Mr. Nardone and Caitlin Davies, Nardone Limited’s client relations coordinator, stopped by the new Fat Head’s Brewery in Middleburg Heights. Highly recommend stopping there if you are ever in the area. The food, drinks, and service were fantastic!

 

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