Brotman Law Featured in Inc. Magazine - Fastest Growing Law Firm in California

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How Do You Beat IRS Collections at Its Own Game?

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Okay so with IRS collections, here’s the thing to keep in mind. IRS collections is really about what’s the best end result for the client. How much can the client afford to pay? How much does the client want to pay? And what is the IRS going to come back with based on those inputs. So the easy thing about collections is you know exactly the direction it’s going to go. With collections for example, you know how they’re going to do financial analysis, you know the way that they’re going to look at certain items of income, you know the way they’re going to look at certain business expenses, so it’s very easy to understand. It’s very easy to take your client’s circumstances or take your own circumstances and to go through and audit your financials and line them up on a financial statement and say this is what the auditor’s going to look at. So anybody can really fill out a financial statement. There are some traps on that financial statement, there’s probably some information you don’t want to give out but at least you’ve got a baseline for where your financials are and where they might need to be in order to hit your desired results. The best thing that you have in the course of an IRS collections case is time, especially for the ability to control some of the inputs on your bank statements. So for example when we’re negotiating an IRS collection resolution and we have a period of time that passes, we will instruct

Key Takeaways

  • Okay so with IRS collections, here’s the thing to keep in mind. IRS collections is really about what’s the best end result for the client. How much can the client afford to pay? How much does the client want to pay.
  • the client to limit the amount of fun that they’re having over three months. Why do we limit the amount of fun.

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Why Are Multi State Tax Issues a Problem for Companies?

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Key Takeaways

  • So imagine that you’re a company and you’re based in Texas and you go to work every day in Texas.
  • Your employees are in Texas, sure you sell products outside of Texas but a lot of companies sell products outside of Texas, and over time as your business grows and scales you begin to have more an…
  • Maybe you have clients in Oklahoma or California or Florida.

So imagine that you’re a company and you’re based in Texas and you go to work every day in Texas. Your employees are in Texas, sure you sell products outside of Texas but a lot of companies sell products outside of Texas, and over time as your business grows and scales you begin to have more and more contacts with other states. Maybe you have clients in Oklahoma or California or Florida. Maybe you sell something that requires installation and so you have to send either employees or independent contractors to various states to help install products. Maybe you offer complimentary services. You sell software, you need somebody to help train your clients or to teach them things. Maybe you send salespeople to two different locations. Maybe you have an employee and she’s been with you for ten years and she gets a job offer and she wants to move to San Diego. The problem that we see with a lot of businesses in this digital age and in the age of routine domestic airline flights and the ease of travel is companies start to develop more and more of an interstate web and for a company that’s been based in Texas, that has ownership that’s been based in Texas their entire lives,

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Why Do You Describe Multi State Sales Tax Compliance as the Ticking Time Bomb for Companies?

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Well the reason I do is because the issue has often been ignored. What happens in the course of a company, even in particularly large companies, is you get a group of executives together – you get a controller, you get a CFO, the whole financial team, etc. – and you’re chugging along but nobody actively realizes what the consequences are and what the nexus activities are in other states. A company can go along and organically create nexus for itself by just a few simple activities in other states. A company moves into a different state, you get some sales people that go there, you go visit a client a couple times a year and suddenly you have engaged nexus creating activities in that state depending on the individual laws and the jurisdiction of that state. Now the problem is is that once you’ve created nexus, it’s not like you can take it back. you’re either pregnant or you’re not pregnant. So when you have a nexus creating activity there, you’ve touched that state and so the big issue is

Key Takeaways

  • Well the reason I do is because the issue has often been ignored. What happens in the course of a company, even in particularly large companies, is you get a group of executives together – you get a controller, you get a CFO, the whole financial team, etc.
  • that because most companies don’t realize this, because they’ve triggered nexus in some way shape or form either through a customer relationship or through an employee relationship or any another channel partner, they have created a liability for themselves.

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Business in Multiple States and Have Not Filed a Sales and Use Tax and/or a State Income Tax Return

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Key Takeaways

  • In those states, well this is the hole rule.
  • The rule when you’re in a hole is number one, stop digging and number two, measure the hole so that you can dig your way out of it.
  • So the easiest thing for companies to do is to look at their exposure in the multiple states that they’ve potentially created nexus in and try and peg the date that Nexus was created.


In those states, well this is the hole rule. The rule when you’re in a hole is number one, stop digging and number two, measure the hole so that you can dig your way out of it. So the easiest thing for companies to do is to look at their exposure in the multiple states that they’ve potentially created nexus in and try and peg the date that Nexus was created. This can be a little difficult but the good news is in California, for example, California is one of the more aggressive states when it comes to multi-state tax issues. The reason is California figured out it could tick off a lot of people who are out of state by trying to collect tax from them and those people don’t vote so there’s no harm but the reality of the situation is if California doesn’t have cameras on its borders, it’s not tracking your cell phone movements. For the most part, it’s not really going to have any record of your Nexus creating activity in most cases so the good news is this isn’t about what you’ve done. It’s partially about what California knows and how likely it is that you’re going to get caught. So number one is to measure your exposure. Number two is to measure the likelihood that you’re going to get caught and where companies really start having issues is when interacting with other companies. So for example, if you’re going out and doing a bunch of prospecting and none of those potential clients sign up with you,

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What Are the Opportunities That Are Available for Multi State Tax Planning?

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Well the reality of the situation is there are tremendous opportunities and the opportunities exist because most people aren’t doing this correctly. What we’ve seen at our firm is we’ve seen a huge lapse in the number of CPAs that are catching these issues when they’re filing companies’ normal federal income tax returns. Everybody is focused on the federal and compliance in the state that they’re in and nobody is concerned about potential planning opportunities that exist outside of that state’s borders. So we deal with this a lot in California, because here we’ve got a nice high over 13 percent tax rate for state income and everybody is trying to get out of paying that level of income tax either on the corporate level or on the individual level. So the reality of the situation is for companies in California, they want to try and bifurcate as much of their sales outside the state of California as they can. California makes it really tough for a variety of reasons but the reality of the situation is that most entities have presence in different states in one way or the other so particularly for large organizations with either multiple offices that are spread out, manufacturers with maybe a manufacturing plant, people that are storing inventory in various locations or a variety of ways that people touch different states you might have an argument.

Key Takeaways

  • Well the reality of the situation is there are tremendous opportunities and the opportunities exist because most people aren’t doing this correctly.
  • The Nexus of your company goes beyond your state’s borders and there’s a variety of planning opportunities just based on an arbitrage of your state tax rate instead of paying 13 percent. What if we paid a blended tax rate of 7%.

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Out of Compliance for a Multi State Sales and Use Tax or Multi State Income Tax Issue

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if I Discover I’m out of Compliance for a Multi-State sales and Use Tax or Multi State Income Tax Issue? Should I pursue a voluntary compliance program? The answer to this question is maybe and what drove me crazy your back when wayfarer was a huge issue and when companies were scrambling to try and deal with this his everybody was talking about let’s enter into a voluntary disclosure program as quickly as possible the reality of those programs is they were great deal from the states because they were raising revenue and collecting all sorts of taxes but they were bad news for most businesses just because you do business in multiple states doesn’t mean you have all this free cash flow to support paying a whole bunch of back tax liability but a bunch of people panicked a bunch of people registered for these voluntary compliance programs in these states in order to avoid penalties and maybe get a potato production of the interest rate but to what effect so the more practical and concern is is rather than whether.

Key Takeaways

  • if I Discover I’m out of Compliance for a Multi-State sales and Use Tax or Multi State Income Tax Issue?
  • Should I pursue a voluntary compliance program?

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Doing Business in a State I Have Not Filed Returns and I Am Contacted for Audit

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Key Takeaways

  • Okay so the first thing that you do is not panic.
  • I know it’s a big issue, I know there’s potentially a lot of liability on the table but the important thing is let’s not go crazy.
  • So the most important thing that you can do is cut off communications with the company to the auditor meaning the company should not be communicating with the auditor directly.

Okay so the first thing that you do is not panic. I know it’s a big issue, I know there’s potentially a lot of liability on the table but the important thing is let’s not go crazy. So the most important thing that you can do is cut off communications with the company to the auditor meaning the company should not be communicating with the auditor directly. The more information that the company provides the auditor, the more likely that the auditor will issue an assessment not in the company’s favor. This is particularly true for companies that have historical Nexus in a state for multiple years and that have maintained some sort of presence there via the activities of their employees or holding inventory or whatever. So you need a third party representative because a third party representative, specifically an attorney, will be able to deflect the questions of the auditor and be able to mitigate any immediate danger. The first thing that I would tell an auditor in the situation where I have a client that’s not in compliance is going through an audit is hold off while we assess the situation. This gives the company enough time to breathe, gives enough us enough time to investigate the data and going back to the whole rule, how big is the hole, how do we measure it, and then it allows us to put a plan in place to strategize how we’re going to control

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What Does AB5 Mean From a Tax Perspective in California?

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So in January of 2020, California Legislature passed AB5 which governed the relationship between companies and their workers. Basically what AB5 states is that unless a hiring entity can prove that a worker is truly independent according to three specific factors, that worker will be deemed to be an employee of the company itself. The factors are number one, the company must not have in any condition of control over the work. Number two the worker services must be outside the core business or the hiring entity and number three the worker must maintain their own separate and independent business. So this was all raised with much fanfare and rightly so was called the death of independent contractors in California because unless you qualify for one of the exemptions that’s under the statute, pretty much all workers fall within an AB5 framework and they can be deemed employees. It’s only those that are providing true outside services like they have bookkeeper or CPA or law firm or videographer that really qualify outside the scope of AB5. The statute really is meant to pull as many people as possible into the employee relationship however from a tax perspective despite all the fanfare on the labor side, it doesn’t really have any impact. The reality of the situation is that the EDD has been using an AB5 framework for quite some time. So what I mean by that, well the reality is that when you go through an employment tax audit, EDD is already looking at control. Control was a previous factor under the old past and now really

Key Takeaways

  • So in January of 2020, California Legislature passed AB5 which governed the relationship between companies and their workers.
  • what the EDD is focused on is is the worker integral to the revenue generation function of the particular business.

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Brotman Law Featured in Inc. Magazine - Fastest Growing Law Firm in California