Tax Blog/Blawg

When the IRS audits a tax return involving a business, its agents invariably get involved in questions of recordkeeping and how transactions are conducted and recorded.  All too often, an IRS Examiner will suggest that a taxpayer's records are not "adequate," or that in some fashion the taxpayer is not operating in "a businesslike manner."  This most often occurs in situations where the taxpayer is attempting to operate a ranch and has incurred losses, or claims that shareholder advances to the company should be recognized as bona fide loans rather than an investment of capital.

This ...

Your writer has been dealing with tax disputes for over 40 years, and believes that the two most important developments for taxpayers were the passage of the 1998 IRS Restructuring and Reform Act, and the creation of the Taxpayer Advocate Service ("TAS," formerly known as the "Problem Resolution Office" and the "Ombudsman").  The Advocate created to assist taxpayers where, for lack of a better term, the system simply was not working properly, and for most of its existence has done a wonderful job.

Well, that organization's health now appears to be in peril.  IRS Commissioner Shulman has ...

On May 5, 2011, the Treasury Inspector General for Tax Administration (TIGTA) issued a report that is not going to please anybody.  It concluded that IRS employees are provided with ample information about their tax responsibilities to enable them to comply, but some do not, and the agency needs to do more to address the problem.

This is not the first report on the subject, following up on an Employee Tax Compliance program (ETC) initiated in calendar year 1995 “to insure that employees are held to a high standard of compliance.”  In a December 2009 IRS Report, more than 97,000 Federal ...

In IRS examinations, many practitioners encounter situations where the Internal Revenue Service seems to conjure up a set of facts that is divorced from reality.  On the collection side, strange as it may sound, the IRS sometimes does this too, by treating the taxpayer as if he has assets he really doesn't.

When a taxpayer is unable to pay his tax in full, he is entitled to request a “collection alternative” from the IRS, usually an Installment Agreement but sometimes an Offer in Compromise.  This process involves submitting a variety of financial statements to the IRS – most often ...

For the last several years, the Internal Revenue Service has been increasing the number of "correspondence" audits that it conducts. There seems to be an assumption that it costs less and requires less manpower than field or in-person audits, and that assumption is doubtless true. However, there is a real question about the quality of such examinations and in particular IRS follow-up.

Since no later than 2007, various groups have been complaining to the IRS that correspondence audits were not being administered professionally. The principal complaint was that the IRS was issuing ...

Guest Post by Heather Pesikoff

Careful consideration must be given to the new rules established by section 9003 of the Patient Protection and Affordable Care Act enacted March 23, 2010 (the "Act")(Pub. L. No. 111-148). Cafeteria plans should be reviewed and, in some instances, may need to be amended to conform to the new over-the-counter medicine and drug requirements. The failure to do so may result in noncompliance including potential tax liabilities, penalties and interest.

Guest Post by Heather Pesikoff

In a unanimous decision, the Supreme Court recently ended the multi-decade debate over whether medical residents are eligible for the student FICA exception. It ruled that the exception is not applicable, medical residents are employees and therefore subject to Federal Insurance Contributions Act (FICA) taxes.

Student FICA Exception

The IRC section 312(b)(10) student exemption excepts employers from withholding and paying FICA taxes on services performed in the employ of a school, college or university if those services are performed by a ...

Anyone who has been through an IRS examination knows that the principal focus is often on the Taxpayer’s "records," and whether they are complete and accurate.  If they are not, a victim runs the risk that the IRS will propose additional tax liabilities with respect to expenses that are not proven to the satisfaction of the IRS auditor, that various receipts which may come from inactive sources are treated as income, that a 20% negligence penalty will be applied on top of the tax, and that the IRS auditor will deliver to the taxpayer an "inadequate records notice."  It is important for a business to know exactly where it has been, as well as where it is, and those reasons alone should be enough to warrant keeping complete and accurate records, but the possibility of IRS adverse action offers several more.

Given this IRS’ fixation on the quality of taxpayer's records, how good do you think the IRS' own records of its activities are?  Would you assume that they are every bit as good as they expect a taxpayer's records to be?  The answer is "not exactly."

There are a number of things that frustrate the Internal Revenue Service, ranging from not filing tax returns on time, not paying taxes when due, not providing sufficient estimated taxes, business failure to pay its employment taxes, entering into a "listed transaction," and generally saying bad things about the Agency.  Every year, IRC §6702 requires the IRS to publish a list to identify positions that it views as "frivolous" and subject to a penalty.  This year's list has been issued, and you may find it interesting.  We will try to cover the more interesting ones.

Some of my clients would tell you that there never was such a thing as a “kinder, gentler” Internal Revenue Service, but over the years different attitudes have prevailed in that organization and yes, I can attest that there was an unquestionably kinder as well as gentler organization not long ago.  For a brief time in the late 1980s, when Lawrence Gibbs was Commissioner, he encouraged IRS employees to look upon taxpayers as their “clients.”  He left the position before he had been able to transform the attitude of the organization to something along those lines.  Following the passage of the IRS Restructuring and Reform Act of 1998, as well as a reorganization, the IRS once again went on a “charm offensive,” including regularly scheduled taxpayer service days to try to help taxpayers resolve problems that didn’t seem to be working out on their own.