Income & Estate Tax Audits

Most people have some anxiety about the possibility of having their tax returns audited.  And while less than 2 percent of taxpayers are actually audited each year, those who are can be inconvenienced, if not offended, by the intrusive nature of audits. 

Most of those who are audited do not understand their rights, and thus rely exclusively on the IRS to guide them through the audit. By taking the time to fully understand their rights, however, taxpayers are more likely to receive the fair treatment they deserve. 

While each audit has its own set of unique circumstances, and taxpayers need to fully explore their possibilities, taxpayers generally have the following rights at a minimum:

  • Taxpayers can have their audit recorded which stops the IRS from changing rules partially through the audit.
  • Taxpayers can limit the scope of their audit to prevent needless time and energy expenditures.
  • Taxpayers can schedule the audit at a time and place which is convenient for them.

Payroll Tax Audits

Withholding taxes are the income and social security taxes an employer withholds from the wages of its employees.  The employer may have additional withholding responsibilities, particularly when payment is to a non-U.S. citizen or resident.

Failure to withhold and pay over the taxes to the IRS can result in significant fines and penalties, including a Trust Fund Recovery Penalty, which the IRS can assess against any individual taxpayer responsible for withholding and paying over the tax. 

The Trust Fund Recovery Penalty is equal to 100 percent of the unpaid tax amount and is assessed in addition to all other available fines and penalties.

If your business has been selected for a payroll reporting and withholding audit, call a tax attorney today.

Transaction Privilege

The Arizona transaction privilege tax is commonly referred to as a sales tax. Yet, the tax is on the privilege of doing business in Arizona and is not a true sales tax. Although the transaction privilege tax is usually passed on to the consumer, it is actually a tax on the vendor.

Arizona transaction privilege taxes are imposed on persons engaged in certain business classifications, including retail sales. What this means is that various business activities are subject to state, county and/or city transaction privilege tax.

Property Tax

Arizona provides several ways to appeal property tax issues, including valuation. First, an appeal can be filed with the County Assessor’s office within 60 days from the date of mailing of the valuation notice or may be filed with the State Board of Equalization within twenty-five days of receiving the notice.

If you are unsatisfied with the Assessor’s appeal decision, it can be appealed to the County Board of Equalization but it must be filed within twenty-five days after the mailing of the Assessor’s appeal decision. If no County Board of Equalization has been organized, you can appeal directly to the State Board of Equalization within twenty-five days of the Assessor’s appeal decision.

Lastly, a taxpayer who filed an appeal with the County Assessor may file a further appeal with the Tax Court within 60 days of the latest decision by the County Assessor. Direct appeals to the Tax Court must be filed on or before December 15th of the year of assessment. Court appeals from State Board of Equalization decisions must be filed within 60 days after the decision.

Past Due Tax Returns

Delinquent tax returns can mean big trouble for taxpayers. Taxpayers who have not filed past-due tax returns are at serious risk. If you did not file a tax return, you need to take action now and contact a qualified Arizona Tax Attorney before the IRS contacts you. The penalties and interest the IRS assess can increase if they have to bring a delinquent tax return to your attention.

While the IRS trusts taxpayers to file their returns every year, they will also pursue the noncompliant tirelessly and punish them by making them pay additional moneys in interest and penalties.

Tax Debt Resolution Services

Unpaid taxes can raise a host of problems for taxpayers. In some instances, taxpayers can even have their bank accounts levied upon. This, of course, leads to countless other problems as funds that were counted on are used to pay for back taxes. 

A knowledgeable professional can assist taxpayers find a solution that fits their specific circumstances. When it comes to settling tax debts, our services fall into two areas.

1. Consulting with and representing clients before the IRS with respect to technical tax issues. Often, a technical issue or potential tax liability may arise from an audit or other activity initiated by the IRS.

2. After technical issues have been determined, the taxpayer enters into a collection process if he or she doesn’t immediately pay the tax liability. There are a variety of procedural protections that are provided to taxpayers during the collection process. With respect to tax debt resolution services, typically, our clients typically employ one of four solutions.

Uncollectable Debt

First, for those clients with minimal assets who are able to demonstrate sufficient financial hardship, the IRS may designate an account as uncollectable.

Installment Agreements

For those who cannot resolve their tax debt immediately, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts. Keep in mind that these payments may include interest and penalty charges.

Sometimes the Internal Revenue Service will compromise some portion of these extra charges. You should consult with a knowledgeable tax attorney first, as they may be able to negotiate the tax debt and assist you in receiving lower payments.

Offers in Compromise

The IRS Offer in Compromise (OIC) program was established by the U.S. Congress to help taxpayers who have experienced significant financial problems to get a fresh start, if they qualify. Back tax liabilities, penalties and interest can be settled. All federal tax liens can be released once the IRS accepts the OIC and the negotiated settlement amount is paid.

Bankruptcy

Sometimes a bankruptcy filing can help solve tax debt. For bankruptcy to be a successful solution, tax returns generally must have been filed at least two years prior to the bankruptcy filing.

Also, it is important to note that some tax liabilities cannot be discharged. In particular, taxes withheld from employers referred to trust fund taxes, may be assessed against those responsible to withhold and pay those taxes to the federal government.

Such liabilities cannot be discharged in bankruptcy. You must satisfy a variety of technical rules in order to use bankruptcy to eliminate tax debt.

IRS Administrative Disputes & Appeals

Tax disputes can get expensive and time consuming for the government if taken to trial.  As such, many tax disputes can be resolved at the administrative level. However, to successfully win an administrative appeal, taxpayers must be informed and willing to act. 

Taxpayers generally appeal a tax ruling after completing a tax audit in which the ruling was unfavorable to them. With the assistance of a professional, these taxpayers can appeal the decision by submitting a protest letter proposing an adjustment. 

The protest letter should demonstrate why litigating the issue would be costly to government resources by detailing the facts and legal arguments of the case. If sufficiently persuasive, the issue can be resolved at the administrative level, thereby saving the taxpayer and the government alike valuable resources.

Litigation Tax Issues in the Courts

The government is not always right.  In our system of tax self-reporting, taxpayers have the primary responsibility to determine the tax consequences of transaction structure they have chosen, and to accurately report the liability. 

Sometimes, the government disagrees with the taxpayer’s characterization of his or her liability and litigation ensues.  Such cases typically follow an administrative process within the Internal Revenue Service, and then may move into the courts. In general, if a taxpayer cannot agree with the Internal Revenue Service, the Internal Revenue Service will issue a notice of deficiency or 90-day letter. 

That document initiates the time within which the taxpayer may file a petition in federal tax court for a review of the case, without paying the assessed tax liability. If the taxpayer misses that deadline, he or she may seek relief in federal district court, but must pay the tax liability and sue for a refund. 

Taxpayers’ reporting positions must be supported by substantial authority in order to avoid certain penalties. The assistance of a qualified attorney is critical both in the administrative phase and the court litigation phase of any tax-related case in order to ensure that all available evidence is organized and provided to support the taxpayer’s position.

Employee Classification Disputes

For federal and state tax purposes, there are two classifications of workers. A worker is either an employee or an independent contractor. The distinction between independent contractor and employee is an important one because it impacts the tax responsibilities of both the business and the workers.

Recently, the government announced it plans to increase enforcement efforts in the area of worker misclassification by businesses. The Internal Revenue Service announced it will be paying more attention to worker classification issues as the number of workers being classified as independent contractors is steadily increasing.

Businesses that have misclassified workers as independent contractors rather than employees may be subject to significant back taxes and penalties and even criminal prosecution.  Attorney Otto S Shill, III is experience in the process the IRS and the courts use to determine whether a worker is appropriately classified as an employee or independent contractor for tax purposes.

Benefit Claims

Employee benefits are non-wage compensations, such as stock options, group insurance, retirement benefits, sick leave, and vacation provided to employees through an employee benefit plan in addition to their wages or salaries.

Qualified Plan Compliance Issues

Qualified retirement plans and other plans designed to defer employee compensation or to provide health and welfare benefits are governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including provisions of the Internal Revenue Code. 

These statutes contains complex rules related to the reporting and disclosure requirements that employers must satisfy with respect to plans they maintain. 

Employers also must provide summary plan descriptions and other documents to employees who participate in the plans.  Failure to properly comply with these rules and obligations can result in taxes and penalties for companies and their employees, and substantial liability for the companies acting as plan fiduciaries of their own plans.

Overtime Audits & Claims

The U.S. Department of Labor (DOL) has estimated that more than one-half of employers have incorrectly classified employees under the Fair Labor Standards Act (FLSA). The number of audits conducted by the DOL on employers’ wage and hour practices is increasing by the day. In fact, in 2003 DOL wage and hour settlements added up to $212 million.

If you have just one employee who feels he or she was incorrectly classified as exempt and should have received overtime for any hours worked in excess of 40, the DOL may be looking to audit you.

When do audits occur? Audits are usually triggered either when a current or former employee files a complaint with the DOL or when the DOL targets a specific industry for investigation.

With the proposed FLSA regulations in the news on a regular basis, employees are increasingly knowledgeable about their rights under the FLSA. Employees know they will be heard if they knock on the DOL’s door.

So, proactive employers are addressing any incorrect classifications that might exist now, rather than waiting for that knock on the door or even for the new proposed FLSA regulations to be finalized.

What are the steps of a DOL audit? If the DOL decides it is going to audit your company, DOL representative will visit your facility to conduct interviews, make sure the required posters are hung, and possibly examine the time clocks.

The DOL will then review up to three years worth of your wage and hours records and investigate your wage and hour practices. This will include a review of your pay records, so you must make sure the records are accurate and organized.

The DOL will also interview employees to reveal any complaints your employees may have about the company’s wage and hour practices.

After the review is complete, the DOL will let you know that there are either no violations, some borderline cases, or will set up a meeting to discuss any violations they did find during the audit process. You then have the choice of settling or litigating.

National Labor Relations Board Complaints

Employees, union representatives and employers who believe that their rights under the National Labor Relations Act have been violated may file charges alleging unfair labor practices at their nearest NLRB regional office.

Every charge is investigated by Board agents, who often take affidavits from parties and witnesses, and gather documents and other evidence. Their findings are evaluated by the Regional Director, who ultimately decides whether or not there is probable cause to issue a complaint. The time from charge to decision is typically 7 to 12 weeks.

During this period, many charges are withdrawn by the charging party or dismissed by the Regional Director.

When the NLRB investigation finds that a charge has probable merit, every effort is made to facilitate a settlement between the parties. In recent years, the Agency’s settlement rate has been above 85 percent of meritorious cases.

If no settlement can be reached, the Regional Director will issue a complaint, which usually leads to a hearing before an NLRB Administrative Law Judge.

The majority of parties voluntarily comply with orders of the Board. When they do not, the Agency’s General Counsel must seek enforcement in the U.S. Courts of Appeals. Parties to cases also may seek review of unfavorable decisions in the federal courts.

In reviewing cases, the Circuit Courts evaluate the factual and legal basis for the Board’s Order and decide, after briefing or oral argument, whether to enter a judicial decree commanding obedience to the Order. The Court may also enter an Order on the grounds that the responding party failed to oppose or had no legal basis to oppose the Board’s action.

OSHA Investigations & Defense

JacksonWhite represents employers in all phases of OSHA investigations and will help guide clients through the procedural and technical pitfalls that can sometimes doom them. We can prepare a response to any citation that is issued and try to reduce, or eliminate, any penalties that employers may face.

Employers that know they are under investigation by OSHA, or that have already received citations, should immediately take steps to address the issue and having an attorney guiding the process is the best way to assure that your business is protected.

If your organization is involved in a conflict with OSHA, contact an Arizona Human Resources Planning and Litigation Attorney today.

 

Call JacksonWhite at (480) 464-1111 to discuss your case today.

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