Articles

How We Successfully Defended Against IRS Worker Reclassification Claims The Wilson Firm's client was audited by the IRS regarding its payroll tax obligations from 2017 to 2021. The core issue was the classification of its workers: whether they should be considered employees or independent contractors. The Wilson Firm appealed the IRS's initial decision. After nearly a year of advocating for the client, IRS Appeals issued its ruling on May 16, 2024. Appeals determined that none of our client’s workers should be reclassified as employees. This decision not only saved our client over $1.1 million in potential payroll tax liabilities but also prevented the need to reclassify these workers as employees going forward, which would have forced our client to close their business permanently. This case was a huge win for our client, and a significant milestone for our firm. It underscored the importance of clear contractual relationships and the autonomy of...

How We Successfully Negotiated a Drastic Reduction in ESRP Penalties The Wilson Firm recently navigated a significant victory in Employer Shared Responsibility Payment (ESRP) penalty negotiation, dramatically reducing a client's ESRP penalty from $465,000 to just $9,000. In this case, The Wilson Firm adeptly demonstrated to the IRS that the company satisfied the "minimum essential coverage" and "minimum value" standards, thereby ensuring that Section 4980H(a) penalties were not applicable. Instead, only the stipulations of Section 4980H(b) were relevant to the client's situation. This strategic approach allowed The Wilson Firm to bypass the more complex and potentially costly "affordability" defense, which could have led to higher expenses and prolonged resolution times without a guaranteed positive result. If your business is facing ESRP penalties, there's no need to feel overwhelmed. Reach out to the tax professionals at The Wilson Firm, and let us devise a tailored, cost-efficient strategy to address your specific case.

How We Helped Reduce Offshore Tax Penalties by 87% Client worked for an international oil and gas company based in Europe, where the employees had the equivalent of a European 401k. The client was given erroneous advice and never reported this foreign account when filing their tax returns. Before coming to The Wilson Firm, the client was looking at paying approximately $100k with the combined amounts of tax and penalties owed. This amount could have been increased by an additional $70k if the client’s actions were determined to be "willful," and they were assessed penalties for this. Instead, with the help of our firm, our client paid less than 13% of the potential amount owed by allowing us to guide them through the Streamlined Domestic Offshore Disclosure Process. Facing Offshore Account Reporting Issues? If you have undisclosed foreign accounts or concerns about offshore tax compliance, don’t wait for penalties to escalate....

How We Secured a $1.1 Million Property Tax Reduction for Our Client The Wilson Firm recently achieved a significant victory for its client, a subsidiary of a Fortune 100 company. The case involved a dispute with Montgomery Central Appraisal District over the value of approximately 30 acres of commercial property located in The Woodlands, Texas. The Wilson Firm sued Montgomery Central Appraisal District in September 2019 over the appraised value of the client’s property after attempting to resolve the matter with the Montgomery County Appraisal Review Board. While the lawsuit was pending, the Appraisal District continued to over-appraise the value of the property in successive years, expanding the lawsuit to include 2020, 2021, and 2022 tax years. Specifically, the Appraisal District’s expert witness took the position that the client’s property should be appraised at nearly $14 million per year – or 72.2% - more than the client’s expert believed it should...

Choosing the Best IRS Payment Plan for Your Tax Debt Two of the most common payment options for delinquent tax debts are installment agreements and offers in compromise. Let’s discuss theses options below, along with the key considerations for choosing which route might be best in a taxpayer’s particular case. If you owe the IRS, and are considering how to pay off the debt, contact The Wilson Firm. We have both the experience and expertise to make the right decision. IRS Installment Agreement: An installment agreement allows taxpayers the opportunity to pay their debts in smaller, more manageable amounts. Installment agreements typically consist of equal monthly payments. The number of monthly installments and the amount to be paid is based on the total amount owed by the taxpayer and the taxpayer’s ability to pay. Although installment agreements are not limited to a certain dollar amount, if you are an individual, owe...

Understanding the IRS Collection Statute Expiration Date (CSED) and Your Rights The Collection Statute Expiration Date, often referred to as the “CSED”, is the maximum time period the IRS will look back to collect unpaid taxes. Similar to a statute of limitation, where anything beyond that date is off-limits, the CSED is 10 years from the date the tax was originally assessed. For example, if you filed a tax return for the 2018 tax year on or before April 15, 2019 and owed tax with that return, those taxes were deemed to have been assessed on April 15, 2020. The CSED date on any unpaid amounts would be April 15, 2029. During that 10-year period, the IRS has many tools at its disposal to collect these unpaid taxes. For instance, the IRS can garnish a taxpayer’s wages, or levy their bank accounts. In some cases, however, the CSED can be extended...

How Innocent Spouse Relief Can Protect You from Tax Liability When filing a joint tax return, married taxpayers are often privy to certain tax benefits. Generally, married taxpayers take advantage of a higher standard deduction and a lower tax rate when filing their taxes together. However, as a result of a joint filing, both taxpayers are equally responsible for the possible liability that comes with joint filing status. But what if one spouse wasn’t exactly honest about their income when filing the tax return, and the other spouse didn’t know? By requesting Innocent Spouse Relief, a spouse can be relieved of the responsibility for paying tax, interest, and penalties if the other spouse did something wrong on their tax return. In order to qualify for Innocent Spouse Relief, you must meet all of the following conditions: You filed a joint return which has an understatement of tax due to erroneous items;...

The Risks of Fraudulent Employee Retention Credit Claims A wise man once said, “Fool me once, shame on you; fool me twice, shame on me.” Whoever this so-called wise man was, he had never encountered the IRS. If he had, the corrected quote would be something like this: “Fool the IRS once, go straight to jail.” When it comes to trying to defraud the Internal Revenue Service, just don’t. At worse you end up in prison, at best, you end up looking over your shoulder for the rest of your life. As we get closer to the April 18, 2023 filing deadline, and the economy gets worse, it can become more tempting to resort to illegal measures to get money. This is exactly what is happening right before us with fraudulent customers luring unscrupulous consumers into obtaining fraudulent Employee Retention Credit (ERC). Because of the ease of abuse of the ERC,...

Understanding IRS Debt and Community Property Laws in Texas Are you engaged to someone with significant IRS debt? Learn how community property laws in Texas might affect your earnings and property, and explore options to protect your financial interests. When Your Fiancé/Fiancée Owes Money to the IRS. Assume that A is engaged to marry B. They live in Texas. B owes the IRS over $100,000. A has income from her personal earnings and income-producing property (e.g., rental property). Should a be concerned that the IRS could come after her income to satisfy B’s federal income tax liability? Should B be concerned that, if B tries to apply for an installment agreement or an offer in compromise, the IRS will consider A’s income, which will be detrimental to resolving B’s IRS debt? Answer: Yes, and yes. Because Texas is a community property state, all income during marriage is generally community property unless...

Overview of the Voluntary Disclosure Program The IRS Voluntary Disclosure Program (“VDP”) provides taxpayers who have willfully failed to report income, assets, or other tax-related information an avenue to resolve their noncompliance with the IRS. In order to be eligible, taxpayers must have willfully violated the tax law and must make a disclosure before the IRS initiates a civil or criminal examination. The program offers two key benefits: Limiting criminal exposure related to past noncompliance Taxpayers who enter into the VDP are rarely referred to IRS Criminal Investigation (“CI”). Reduced penalty framework Through the VDP, failure-to-file and failure-to-pay penalties are waived. Instead, the program applies a 75% civil fraud penalty on one tax year, typically the year with the highest balance owed. In extraordinary cases, the IRS will apply an alternative penalty at the request of the taxpayer based on the facts and circumstances of the case. To begin the process...

Significant Relief for Taxpayers Reporting Foreign Gifts and Inheritances At the urging of the Taxpayer Advocate Service and practitioners, the IRS has ended its practice of automatically assessing penalties at the time of filing for late-filed Forms 3520 to report foreign gifts and inheritances. Also, by the end of the year, the IRS will begin reviewing any reasonable cause statements attached to late-filed Forms 3520 and 3520-A for the trust portion of the form BEFORE assessing any penalty. The IRS previous practice was to automatically assess penalties, even when a reasonable cause statement was attached. The burden was on the taxpayer to raise the reasonable cause argument AFTER the assessment. Read more about this here: https://www.taxpayeradvocate.irs.gov/news/nta-blog/irs-hears-concerns-from-tas-and-practitioners-makes-favorable-changes-to-foreign-gifts-and-inheritance-filing-penalties/2024/10/ The penalties imposed on U.S. persons for failure to file international information returns are severe: 1. The penalty for willfully failing to file Form TD F 90-22.1 (commonly known as an “FBAR”) to report direct...

Written by Jack Naranjo Understanding IRS Penalties for Late or Unfiled Foreign Asset Reports At the urging of the Taxpayer Advocate Service and practitioners, the IRS has ended its practice of automatically assessing penalties at the time of filing for late-filed Forms 3520 to report foreign gifts and inheritances. Also, by the end of the year, the IRS will begin reviewing any reasonable cause statements attached to late-filed Forms 3520 and 3520-A for the trust portion of the form BEFORE assessing any penalty. The IRS previous practice was to automatically assess penalties, even when a reasonable cause statement was attached. The burden was on the taxpayer to raise the reasonable cause argument AFTER the assessment. Read more about this The penalties imposed on U.S. persons for failure to file international information returns are severe: 1. The penalty for willfully failing to file Form TD F 90-22.1 (commonly known as an “FBAR”)...

Understanding IRS Levies and Your Rights Tax levies are scary and are extremely debilitating for all taxpayers. Levies involve the actual seizure of property to satisfy a tax debt. Under Internal Revenue Code (“IRC”) 6331(a), the IRS has the right to seize and sell “all property and rights to property.” This means real or personal property and tangible or intangible property, including items such as a personal vehicle and residence, as well as wages, investment assets, receivables, and bank accounts. When the IRS first levies a taxpayer, the agency will follow a set process: 1. The tax must first be assessed; 2. The taxpayer will be sent a “Notice and Demand for Payment”; 3. The taxpayer failed to pay the assessed tax; and 4. The taxpayer received a “Final Notice of Intent to Levy.” In the case of an individual, the taxpayer will generally receive two notices of intent to levy....

How to Avoid Unfair Tax Liability in Community Property States In Texas and eight other states, community property laws govern the interests of spouses in property and income acquired or earned during their marriage. In general, community property laws affect how a couple will figure their income on their federal income tax returns if they are married, yet file separate returns. While there are benefits to filing a single tax return – married filing jointly – sometimes it can be to the couple’s advantage to file separate returns. Ultimately, however, filing of separate returns can result in one spouse having to disproportionately pay taxes. Under Internal Revenue Code (“IRC”) § 66, this liability may be avoided. This article is directed at married taxpayers who live in one of the following community property states: Arizona; California; Idaho; Louisiana; Nevada; New Mexico; Texas; Washington; and Wisconsin. Generally, in a community property state, the...

How the IRS Determines if Your Side Business is a Hobby With the COVID-19 pandemic, many taxpayers had the luxury of working from home. Companies have since changed their in-office policies to allow employees the continued ability to work remotely. Some employers have even altered their policies entirely, allowing employees to permanently work remotely. With all the extra time no longer spent in traffic or at the water cooler, some people have seized the opportunity to chase their dreams and take on new hobbies or open a side business. It is important to understand the tax consequences of these side businesses. According to Internal Revenue Code (“IRC”) § 162, ordinary and necessary business expenses are generally deductible if they result from a trade or business. Similarly, under IRC § 212, expenses relating to the production of income or to investment activities are also generally deductible. Importantly, expenses or deductions allowed by...

How to Qualify for and Request IRS Penalty Relief So, you failed to file or failed to pay your taxes for the first time in your life and now the Internal Revenue Service is hitting you with a penalty. Guess what? With the First-Time Penalty Abatement waiver, this mishap may be forgiven. History of the First-Time Penalty Abatement Waiver Back in 2001, the IRS introduced the First-Time Penalty Abatement waiver (“FTA”) to assist taxpayers dealing with federal tax issues. The purpose of FTA is to ensure compliance for typically responsible taxpayers by providing a one-time waiver; however, FTA can only abate three types of penalties: Failure to Pay (IRC § 6651(a)(2), (3)); Failure to File (IRC §§ 6651(a)(1), 6698(a)(1), or 6699(A)(1)); and Failure to Deposit (IRC § 6656). To qualify for FTA, the taxpayer must not only have been assessed one of the aforementioned penalties, but also must have at least...

What Cryptocurrency Holders Need to Know About IRS Compliance Notices The IRS started sending out letters mid-July to taxpayers who have participated in virtual currency transactions. The letters consist of three different versions: Letter 6174, Letter 6174-A, and Letter 6173. Each letter's intention, according to the IRS, is to "strive to help taxpayers understand their tax and filing obligations and how to correct past errors." But each letter sends a different message. While Letters 6174 and 6174-A can be considered "soft" notices, Letter 6173 alleges noncompliance by stating that you "may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency..." IRS Commissioner Chuck Rettig recently stated: "Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties. The IRS is expanding our efforts involving virtual currency, including increased use of data...

The Risks of Failing to File Your Tax Return and How to Address It It's much more common than you might think. We have countless clients walk through our doors, asking what they should do when they haven't filed a tax return in several years (and in some cases, MANY years). Many are shocked to learn that their only concern isn't the amount that will be due and payable to the IRS after the accountants prepare and file these returns. A much bigger concern in some cases is the potential criminal liability that attaches when taxpayers purposefully don't file a tax return. Under I.R.C. section 7203, willfully failing to file a tax return is a crime punishable by both heavy fines and possible prison time (maximums of $25,000 and 1 year in prison for each year for individual taxpayers), in addition to having to pay the appropriate tax, penalties, and interest....

Why Public Perception of the IRS Varies and What It Means for Taxpayers Pretty interesting article from Jeff Simpson of taxprotoday.com outlining the various reasons different people either hate, fear, or just simply try to avoid the Internal Revenue Service. What may surprise some is that one particular study demonstrates that an individual's political party affiliation seems to correlate pretty well with their overall opinion of the agency. Click here to take a look. As a practitioner that has dealt with the agency and its employees for years now, there's no doubt the massive budget cuts and personnel reductions over the last few years have certainly had an impact on the IRS' handling of its administrative functions, including in the tax audit and appeals arena where we deal with them the most. The early returns, at least from our perspective, is that the increased caseload that IRS Field Agents and Appeals...

Key Situations Where CPAs Should Consult a Tax Attorney Now that tax season is over and many CPAs are "relaxing" by getting back to their regular 10-12 hour days (or hopefully taking some well-deserved vacation), I thought it was a great time to share an article published in the Journal of Accountancy entitled "10 situations when a CPA should call "timeout" that essentially lays out a list of instances when CPAs might be in situation where calling in legal counsel is in their (and more importantly their client's) best interest. It's a well-written but somewhat long article, and it was published on April 13th, so I feel pretty confident that most CPAs didn't even notice it then because they were pretty busy to put it lightly. Click here to see the article. For those who click on it and decide its length is still an issue even now, I thought I'd...