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Why Retain a Sales Tax Attorney for your Collections Matter?

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Why I Believe You Should Retain a Sales Tax Attorney for Your Board of Equalization Collections Matter?

Although I am generally a big proponent of self-help legal solutions, I am also cognizant of the situations that require the assistance of an experienced sales tax attorney. One of the areas where I feel sales tax attorney representation is essential, not just an option, in the in areas of sales tax collection matters. Given the difficulty that I have encountered in practice when taxpayers try to handle their own Board of Equalization collection matters and the rigidity of the Board of Equalization, I would recommend hiring a sales tax attorney for the following general reasons.

Key Takeaways

  • Although I am generally a big proponent of self-help legal solutions, I am also cognizant of the situations that require the assistance of an experienced sales tax attorney.
  • There are two sides to a sales tax collections matter: the assessment phase and the collections phase.
  • On the other end of the spectrum, when it comes to collections, Board of Equalization collections officers have a reputation for being the most inflexible and the most aggressive when it comes to taking action against a past due account.

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Sales Tax Audit: An Overview

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An Overview of a Sales Tax Audit

A sales tax audit has key differences from a regular audit. First, the scope of the audit looks at a business’s gross receipts and various ways of measuring gross receipts. The businesses that are most frequently subject to sales tax audit include bars, restaurants, retail stores, manufacturers, wholesalers, services businesses that sell goods, and a variety of others.

Key Takeaways

  • A sales tax audit has key differences from a regular audit. First, the scope of the audit looks at a business’s gross receipts and various ways of measuring gross receipts.
  • Throughout their years of practice, sales tax auditors have developed ways of determining gross receipts that are innovative and industry specific.
  • The Board of Equalization sometimes feels that these methods are more telling than a standard gross receipts test.

Throughout their years of practice, sales tax auditors have developed ways of determining gross receipts that are innovative and industry specific. For example, if the business audited were a coin-operated laundromat, the Board of Equalization may measure water consumption levels for the business against the number of washing machines it has. Pour tests are common for restaurant and bars (the amount of alcohol used to make each drink) and inventory audits are common for other types of businesses.

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What Types of Matters Should You Retain IRS Attorneys For?

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Continued From Part One

3) Independent Contractor Issues

This category piggybacks off of technical tax matters, as matters that involve independent contractors can often be the most costly and the most difficult for taxpayers to resolve. For example, even IRS attorneys can be heavily tested in an independent contactor audit. When performing an independent contractor audit, the IRS and many state revenue agencies will use a multi-factor test with as many as twenty different variables. The variable (pardon the pun) nature of an independent contractor audit is something that overwhelms many practitioners, let alone an individual taxpayer. Most IRS attorneys are extremely familiar with this multi-factor test and can help you strategize in an audit. In addition, both independent contractor audits and IRS collection issues are often high dollar cases if they involve multiple attorneys and multiple years. It is best to not leave anything to chance and to retain an IRS attorney to represent you in your independent contractor matter.

Key Takeaways

  • 3) Independent Contractor Issues
  • 4) Foreign Tax Matters
  • 5) Collections Matters that Concern Going Corporations and Businesses

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What Types of Matters Should You Retain an IRS Attorney for?

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The decision to hire an IRS attorney is one that should not be taken lightly. Attorneys can be extremely cost prohibitive and complicate matters unnecessarily when they can be resolved relatively easily. In general, I am a big proponent of self-help legal solutions, especially given the variety of informational material that can be found online (including much of what I have published on the subject of taxation). However, there are certain types of matters where I believe an IRS attorney is not only a benefit, but much of the time is an absolute necessity. Here is a quick checklist of the matters that I believe that an IRS attorney should be hired for.

Key Takeaways

  • The decision to hire an IRS attorney is one that should not be taken lightly. Attorneys can be extremely cost prohibitive and complicate matters unnecessarily when they can be resolved relatively easily.
  • Let’s be entirely honest for a second. Criminal charges and criminal investigations can destroy lives and carry very serious consequences.
  • There are many parts of an IRS attorney’s job that are seemingly routine. Most collection matters are handled in roughly the same way (even though each taxpayer’s circumstances and goals are different).

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What is Reasonable Compensation?

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One of the recent hot topics with respect to the IRS audits has to do with auditing S corporations[1] (and those taxed like an S, such an LLC) for not paying their employee/owners “reasonable compensation. According to the IRS “S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee” (IRS.gov, “S Corporation Compensation and Medical Insurance Issues,” 8/31/2013).

Key Takeaways

  • The reason for the increasing prevalence of S corporation reasonable compensation audits is because a number of taxpayers were forming S corporations to avoid the self-employment tax that would be otherwise charged on their net income.
  • The IRS bases their authority to audit S corporations for reasonable compensation on multiple federal court cases.
  • Determining reasonable compensation must first be established by evaluating what the shareholder-employee did for the S corporation. To best understand the role of the shareholder-employee, the IRS examines the source of the S corporation’s gross receipts.

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How to Audit-Proof Your Tax Return (almost)

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Full disclosure here, the IRS does not reveal the exact criteria that it uses to audit a tax return. However, this closely guarded statistic is not so much of a secret anymore. Not surprisingly, the government uses statistics to analyze tax returns and to determine which taxpayers it selects for IRS audits. Shameless self-promotion alert: I have also written a pretty comprehensive list of the factors that the IRS that are known by tax attorneys as “audit red flags.” However, in this post, I want to discuss perhaps the most important factor in avoiding an IRS audit: essentially making it bulletproof from the scrutiny of the IRS.

Key Takeaways

  • Full disclosure here, the IRS does not reveal the exact criteria that it uses to audit a tax return. However, this closely guarded statistic is not so much of a secret anymore.
  • Here’s a quick recap about how IRS audits work. All tax returns are processed into a computer, where they are assigned two scores: a DIF score (assessing the potential changes on a tax return [i.e.
  • The fact of the matter is that the IRS can only conduct a certain amount of IRS audits per year, so it selects the tax returns that are most likely to yield revenue or that contain the greatest potential for error for additional review.

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How to Fight a Wage Levy

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Fighting a wage levy involves taking the steps necessary to ensure your assets are protected. However, when there is an outstanding tax liability for which you are responsible and when you do not satisfy the debt, the IRS will pursue action that may involve attaching an interest in your paycheck. With this in mind, a wage levy is a legal seizure of property to satisfy a debt. If you do not pay your taxes, the IRS may seize and sell any type of property belonging to you to satisfy the tax liability.

Key Takeaways

  • Fighting a wage levy involves taking the steps necessary to ensure your assets are protected.
  • The process for attaching an interest to your wages is three-part.
  • With all of this in mind, when it comes to wage levies, the most important strategy for avoiding the levy is to pay the taxes owed. When the IRS sends a Notice and Demand for Payment, respond to that notice with a payment.

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Circular 230: An Overview

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Overview Of Irs Audits Banner

Circular 230[1] is a publication of the U.S. Treasury regulations that include the rules that govern the practice of licensed professionals before the Internal Revenue Service.[2] These rules apply to those qualified and licensed to prepare tax returns and provide legal advice to do certain things within the boundaries of the field, including this San Diego tax attorney. The rules both encourage and prohibit certain conduct. Penalties are assessed when an admitted member is found to be non-compliant. With this in mind, rules of Circular 230 apply to attorneys, certified public accountants, enrolled agents, enrolled actuaries, appraisers, and enrolled retirement plan agents.

Key Takeaways

  • Only attorneys, CPAs, enrolled agents, enrolled actuaries, and/or enrolled retirement plan agents are allowed to represent their clients in proceedings before the Internal Revenue Service.
  • An individual preparing tax returns or giving tax advice must adhere to certain rules that govern both conduct and disclosure requirements.
  • Circular 230 also provides rules governing professional conduct in preparing tax returns. Any person preparing a tax return must take a position on a tax return. Submitting a frivolous tax return is prohibited. In addition, unreasonable delays are prohibited.

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IRS Form 1099: Informational Returns – Part One

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Information returns are tax documents that businesses are required to file to report certain business transactions. Businesses are required to file these reports to the Internal Revenue Service. The requirement to file information returns is mandated by IRS and related regulations. “Any person, including a corporation, partnership, individual, estate, and trust, who make reportable transactions during the calendar year must file information returns to report those transactions to the IRS” (IRS.gov, “Information Returns by Form,” 8/31/2013). Persons required to file one or more information returns will also be required to furnish statements to their respective recipients (IRS.gov, “Information Returns by Form,” 8/31/2013). Filers with 250 or more recipients must file their returns electronically.

Key Takeaways

  • IRS Form 1099-A
  • IRS Form 1099-B
  • IRS Form 1099-C
  • IRS Form 1099-CAP
  • IRS Form 1099-DIV

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