Areas of Practice
Prior Year Tax Filings
If clients wish to bring themselves back into compliance with the IRS or other taxing agencies – by filing prior year tax returns – The Tax Practice can prepare delinquent filings with little or no records. Due to successful taxpayer challenge which resulted in the Cohan Rule, clients may estimate or reconstruct most business expenses. Reported income may be based on corroborated third party records or wage and tax withholding transcripts available from government information return programs. If prior year filings are less than three years old (four within the state of California), clients may be entitled to tax refunds.
Audit & Collection Representation
The Tax Practice has over 30 years experience representing clients in all tax matters before Internal Revenue Examination and Appeals Divisions. Both Harris Willner and Thao Ha, Enrolled Agents, offer representation services for non-filers and innocent or injured spouse liabilities, lifestyle audits, and employment and payroll tax cases that, if left unattended, may result in the assessment of substantial federal and state employment taxes and penalties along with seizure of assets.
Our clients benefit from a “cultivated” understanding of IRS case objectives and hard-points, professional guidance, and a systematic strategy toward developing and achieving favorable taxpayer results. Mr. Willner and Ms. Ha serve as the client’s representative, therefore all communications between the taxing agency and client is conducted through The Tax Practice.
Divorce Taxation
The Tax Practice offers consultation, and representation on behalf of clients with property settlement proceedings. Many tax-related issues arise during the development of a post nuptial agreement. Among the most common and overlooked are the impacts of liquidating a client’s equity in the family home, the transfer of stock purchased through an employer incentive stock option plan, distinction given to property settlements and spousal support, and the child dependency exemption.
If the client is “buying-out” his or her spouse’s share of the family home, consideration should be paid to potential capital gains tax. This obstacle can be resolved by normalizing the settlement for capital gains tax or by satisfying regulations allowing for a capital gains tax exemption.
With the transfer of stock purchased through an incentive stock option plan, the recipient receives the stock’s cost basis and retains the holding period or original purchase date. When AMT tax is prepaid at initial stock acquisition, the transferred stock is taxed a second time – upon sale – unless arrangements are agreed upon to transfer the tax credit i.e., reimburse the transferor for the prepaid tax, or place the stock in a Constructive Trust for administering the stock sale and reimbursement to transferor. Too often, clients transfer stock only to find they are reopening settlement negotiations months or years later.
In 2004 Internal Revenue reversed their position to tax employee-spouses upon exercising non-qualified options transferred incident to divorce. Now, Revenue Ruling 2004-60 places responsibility for social security (FICA) and income tax withholdings with the receiving spouse. However, due to inequitable FICA tax requirements, spouses should realign property settlements to normalize FICA tax benefits.
An issue – the potential for spousal payment recapture (deduction loss) for high-income taxpayers; payment structure during the first three years after the commencement of payments must avoid excessive “front-loading”. Otherwise, the government may disallow the deduction.
State law determines the character of property transfers, alimony, and child support. To ensure compliance with federal regulations, The Tax Practice recommends review of client settlement agreements prior to acceptance.
IRS Tax Penalty and Interest Adjustments
One of the most publicized topics of IRS indiscretion and abuse is the incorrect application and assessment of interest and penalties. Due to complexities surrounding exceptions, exemptions and application of penalty and interest charges, the IRS admits overcharging interest on 40% of the accounts reviewed during an internal audit, according to an Inspector General report (2002-30-042) released in December 2001.
To protect client interests, The Tax Practice recommends review of all penalty and interest notices to ensure proper application of the tax code. Such reviews have led to the successful recovery of thousands of dollars in erroneous charges emanating from government math errors or misapplication of the law.
The Tax Practice has successfully reduced or eliminated client penalties due to mitigating circumstances or what the government refers to as reasonable cause. The government may refund, abate or reduce late payment or filing penalties if you find yourself unable to pay or file your income or payroll taxes due to circumstances beyond your control. To qualify, you must have been a victim of embezzlement or theft, fire, flood, windstorm, or other disaster.
Additional circumstances qualifying for abatement include:
Reliance on incompetent tax advice
Reliance on incorrect written advice from Internal Revenue
Lost or destroyed records
Death of a taxpayer or family member
Debilitating health problem (taxpayer or family member)
Divorce impacting financial and/or mental stability
Drug and/or alcohol problem (taxpayer or family member)
Offer-in-Compromise
The Internal Revenue Service along with a host of state taxing agencies namely the California Franchise Tax Board, Employment Development Department, and State Board of Equalization allow taxpayers to settle delinquent tax liabilities (based on ability to pay). Settlements are generally much less than the original debt. In some instances, offers may reflect a small fraction of the original liability. Acceptable offers allow for a fresh start, permanently eliminate the past due tax, and may permit a lump sum and or monthly installment payment settlement. All federal tax settlements require clients to remain current on their income tax payments for five years following the year of compromise. Breaching this requirement allows the IRS to revoke the compromise, assess penalties, accrued interest, and the original compromised liability.
Offer-in-compromise programs mitigate virtually any personal, estate or business tax. This includes personal and corporate income taxes, estate taxes, payroll taxes, and penalties/interest assessments. Oftentimes the penalties and interest can be greater than the original tax liability. The offer process may take as little as three months or as much as three years, depending on the taxing agency. When evaluating offers for acceptance or rejection, each agency relies on its own set of local or national standards for measuring necessary living expenses and assets.
Past Due Tax Payments & IRS Installment Agreements
The Tax Practice has successfully removed levies and garnishments, subordinated liens, and negotiated hundreds of installment agreements. If you owe taxes from prior years and are paying the debt through a garnishment and/or bank levy, The Tax Practice can eliminate the enforced collection and establish a manageable installment agreement.
The IRS added a new type of installment agreement option, making it easier for clients to settle their obligation without the burden and expense of the traditional Offer-in-Compromise process.
Under the new Partial Payment Installment Agreement (PPIA), clients may be relieved of part of their debt, based on inability to pay. To establish a PPIA, the years that can be paid in full must be determined before the expiration of their respective collection windows. Those years that cannot be fully paid will be closed as uncollectible. Under previous regulations, clients unable to fully pay their liabilities could not enter into an installment agreement, effecting a forced offer-in-compromise. This plan is well suited for clients owing large amounts for prior periods. It also benefits clients with volatile cash flows – as monthly payments may be adjusted without penalty.