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What Is This IRS Notice of Deficiency? | Tax Court Petition | 90-Day Letter | United States Tax Court | Letter 3219 | Letter 531-T | What Happens After Audit? December 16, 2012

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What is a “notice of deficiency,” and why did I just get one in the mail?

A notice of deficiency is your formal notice that the IRS has determined you owe more taxes than what you have paid for a period.  The notice will inform you of the amount of the tax deficiency and of applicable penalties and interest.  If you receive this notice in the mail, consider it your 90-day warning that you will owe the amounts stated in the letter unless you timely challenge the IRS’ determinations.

What if I disagree with the notice of deficiency?

If you disagree with the IRS’ determination you owe taxes or dispute the amount assessed, you must file a petition with the US Tax Court.  Your petition must list the reasons what parts of the notice you disagree with, and you must provide facts or reasons why you disagree.  Generally, your petition will be due within 90 calendar days of the mailing date on your notice of deficiency.  It is essential that you properly file a petition within this time frame to have your case heard.

What happens if I don’t go to Tax Court?

Filing a petition with the Tax Court is your only chance to challenge the assessment of the underlying liability before you are forced to pay the tax, penalties, and interest in your notice.  If you don’t timely file a petition, you should expect the IRS to assess and begin collecting the tax once after that petition deadline passes.

Insight Law offers free consultations to local Washington taxpayers.  If you are facing a looming petition deadline, call (206) 397-4780 or visit the “Tax Attorney” link below to visit our firm website.

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Audited By Washington State Department of Revenue DOR | Sales Tax Audit | Business and Occupation B&O Tax Audit | Excise Tax Audit December 2, 2012

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The Washington State Department of Revenue collects numerous taxes, including two which are likely to be paid by most businesses in the state: the business and occupation (B&O tax) and local sales tax.

The B&O tax is imposed on all parties doing business within the state.  Even service providers, non-profit, and tax-exempt organizations are responsible for B&O taxes.  These taxes are based on your total revenue – not your profit.  This means state expects you to be reporting and paying taxes on your revenue regardless of whether the revenue is sufficient to cover all of your expenses.  The rate of your B&O tax varies depending on the classification of your business activities.  Thus, it’s important to not only report your revenue from business activities but also to classify it properly.

In addition to B&O tax, nearly all sellers of tangible goods are required to collect sales tax.  There are some limited exceptions.  For example, businesses making sales to out-of-state customers, conducting certain wholesale sales, or providing services may be exempt from collecting and remitting sales tax.

What To Expect

The scope and size of your audit can vary.  At a minimum, your auditor will want to verify all of your income was reported and properly classified on your tax returns.  Expect a request for all of your business bank account statements throughout the audit period.  Your auditor will also want to substantiate the amounts of any deductions and/or exemptions you claimed.  Don’t expect your auditor to “take your word” during the audit.  Substantiation is almost always required, and your auditor may not be forthcoming as to what documentation may or may not be acceptable.

I’ve Never “Cheated” On My Taxes, So I’m Safe, Right?

Not necessarily.  Many taxpayers may still see discrepancies arise during the audit phase.  It’s important to act quickly when these discrepancies arise, so that you can correct any issues with the auditor before you are assessed a balance.

For example, are there any deposits in your bank account that are not revenue?  Your auditor will probably take the position that all income passing through your bank account is revenue subject to B&O tax.  If you disagree, it will be up to you to gather substantiation showing exactly why some deposits are revenue and some deposits aren’t revenue.

Or, are some of your activities exempt from sales tax?  While most retail sales are subject to sales tax, there are some exceptions.  If you conduct a mix of activities, the Department might presume the revenue of your business is subject to sales tax until you prove otherwise.

In addition to these issues, you may find the Department intends to assess large penalties against you and charge interest on the balance.

After The Audit Ends, Collection Begins.

Once your audit has concluded and balances have been assessed, the Department can (and often does) act fast to collect the balance.  If you can’t pay the balance, the Department may decide to file a tax warrant against you in court.  Once filed, this warrant enables the Department to seize money and other property to satisfy the liability.  Worse yet, if the liability still remains unpaid, the Department can hold a hearing to revoke your tax registration number, leaving you unable to continue operating your business.  Additionally, business owners can be held personally liable for some outstanding taxes.  In those cases, the Department can (and likely will) continue to pursue the tax debt against individual business owners even after a business is forced to close down.

How Can An Attorney Help?

As the above suggests, timing is key.  The best chance to address issues in your audit is early on in the audit.  Misclassified revenue, unresolved disputes over the substantiation for your deduction, and related penalties can leave you with a large tax liability that can threaten your business and you personally.

After your tax is assessed, your appeal periods have passed, and your tax warrant has been issued, you have very limited options…

If you are being audited by the Washington State Department of Revenue for unpaid sales and/or B&O taxes, call Insight Law today for a confidential and free consultation. Remember: there are many more options at the beginning of the process than there are later.

Insight Law handles State of Washington Department of Revenue Audits in Snohomish County, King County, and Pierce County. For a free consultation, call (206) 397-4780 or visit the Tax Attorney links below to visit our firm website.

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Property Tax Appeals | King County | Pierce County | Snohomish County | Property Assessor | Challenge of Property Value November 22, 2012

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Tips for Appealing Your Property Valuation before the Board of Equalization

Most property owners are accustomed to receiving an annual notice from the county informing them of their property’s “value” and corresponding property taxes due for the following year. What happens when you don’t like what you receive? Below are our top tips on some of the next steps to take when you don’t agree with the numbers in your notice.

1. Make sure you actually disagree with the valuation of your property.

Property taxes in Washington are a function of your property’s value and your local property tax rate. Since this local rate can change year to year, you may find your property taxes have increased while the value of your property has remained the same or decreased. Before rushing to file an appeal of your new property tax bill, make sure it’s the value of your property you disagree with.

2. File a petition, and file it on time.

If you are certain you disagree about the valuation of your property, your next step is to file a written petition to challenge the valuation. Generally, your petition is due to your local county’s board of equalization within sixty (60) days of the date on your change of value notice. You can supplement your petition with additional evidence later, so don’t delay submitting your petition in order to gather up more material upfront. If you miss this filing deadline, you’re probably also going to miss out on your ability to challenge the valuation entirely. In short, don’t miss this deadline! If you’re sending it by mail, send it certified and maintain your proof of mailing.

3. Don’t be afraid to contact the assessor’s office and attempt a resolution before hearing.

After you file a petition, a hearing before the county board of equalization will be scheduled to address your valuation. At the hearing, the board will consider evidence from you and the assessor’s office to reach its determination. Your hearing will most likely be scheduled several months after you filed your petition. In the meantime, don’t hesitate to contact your local assessor’s office.
You might learn the assessor’s office simply has incorrect information about your property, and correcting their records may resolve your dispute. Request the records they utilized to value your property, and review the records carefully to understand how they arrived at their valuation. Let the assessor know why you disagree, offer to provide the evidence that supports your arguments, and see if you are able to agree on a new valuation. Even if you don’t reach a resolution with the assessor’s office, communicating with the office before your hearing will help you understand what arguments the assessor’s office plans to present to the board at your hearing.

4. Supplement your petition with extra evidence before your hearing.

The assessor’s office has one big advantage at these hearings: their valuation is presumed to be correct. That means it’s up to you to establish why the assessor’s office is not correct and that your property is actually worth less than the assessor claims. You’ll need evidence to back up your claims. To ensure your evidence is considered by the board, submit copies to the board and the assessor’s office at least two weeks before your hearing.

5. Don’t miss your hearing date.

You’ve made it this far – why give up now? If you can’t make your hearing date, contact the board as soon as possible to make alternate arrangements.

6. Pay your disputed taxes until you win, and follow up for a refund.

You may discover your hearing does not take place until your property taxes are already due. No matter how confident you are about your chances of success, it’s wise to pay your taxes in full. You can face interest and penalties for failing to pay your taxes on time, even if you have a petition pending before the board. If you do win your case after paying your taxes, follow up with your county’s treasurer’s office to see when you can expect your refund check.
Insight Law handles residential and commercial property tax appeals in Snohomish County, King County, and Pierce County. For a free consultation, call (206) 397-4780 or visit the Tax Attorney links below to visit our firm website.

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IRS Extension To File | Due Date For Filing With Extension | Penalty For Filing After Extension Deadline | Tax Attorney October 15, 2012

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October 15 – marks the return deadline for taxpayers who requested and received a six-month extension to file their 2011 tax returns. Individual taxpayers may request an extension in April by submitting a request for an extension of time to file, which includes an estimate of the taxpayers’ tax liabilities for the year.

Submitting an extension does not stop the accrual of interest or late payment penalties on any unpaid taxes. However, filing the extension does allow taxpayers to avoid the “late-filing” penalty, which would usually be assessed against the taxpayer at a rate of 5% of any unpaid balance per month!

Thus, even a taxpayer can’t afford to pay taxes in full by the extended October 15 deadline, filing the return without full payment can still save the taxpayer from additional penalties. Taxpayers who are unable to repay liabilities should explore entering into an installment agreement to repay their tax liabilities over time or proposing an offer in compromise to settle their debt with the IRS.

Washington taxpayers may schedule a free consultation to discuss their options with Insight Law by calling (206) 397-4780 or visiting our website at the link below to speak with a tax lawyer

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“Innocent Spouses” – IRS Introduces New Guidelines for Tax Relief | New Rules Innocent Spouse | Innocent Spouse Relief August 12, 2012

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There are multiple sections under which taxpayers may seek to eliminate tax liabilities attributable to their spouses or former spouses.  However, for many taxpayers, seeking “equitable relief” under IRC § 6015(f) becomes their only option due to the stricter time limitations of other sections.

In determining whether to grant equitable relief under this section, the IRS considers each individual’s facts and circumstances and then determines whether it would be inequitable to hold the requesting taxpayer liable for the tax deficiency.

Taxpayers seeking relief pursuant to this section now are likely to see major benefits under proposed revisions to the Internal Revenue Service procedures used to grant and deny these requests.

New Threshold Requirements

A requesting taxpayer must meet some threshold requirements to receive relief under this section.  Specifically, the taxpayer must demonstrate each of the following facts:

(1) The taxpayer filed a joint return for the tax year at issue;

(2) The taxpayer is ineligible to seek innocent spouse relief under § 6015(b) or 6015(c);

(3) The taxpayer has timely filed a claim for relief;

(4) The taxpayer has not transferred assets with his/her spouse pursuant to a fraudulent scheme;

(5) The taxpayer did not receive “disqualified assets” from his/her spouse;

(6) The taxpayer did not knowingly participate in filing a fraudulent return with the IRS; and

(7) The taxpayer seeks relief from liability that arose from a tax attributable to an understatement or underpayment of the spouse’s income.

New “Streamlined” Determinations after Initial Administrative Review

Under the newly released guidelines, Taxpayers seeking relief may be granted a streamlined determination in their favor if they meet the threshold requirements above and all of the following circumstances are met:

(1) The taxpayer is no longer married to the other spouse;

(2) The taxpayer would suffer economic hardship if relief was not granted; and

(3) The taxpayer either did not know or have reason to know that his/her former spouse made an understatement on their joint tax return or would not or could not pay any tax deficiencies, OR the taxpayer was unable to challenge his/her former spouse due to abuse or financial control of the former spouse.

Clarification of Equitable Factors 

For taxpayers who do not meet the requirements to be granted a streamlined decision in their favor, the IRS will evaluate requests based on a number of equitable factors.  Several factors will continue to be considered, including: marital status of the taxpayer, economic hardship faced by the taxpayer if relief isn’t granted, the taxpayer’s knowledge of an underpayment or understatement, any legal obligations of the taxpayer or other spouse to repay the deficiency, any significant benefits the taxpayer received from the deficiency, and the taxpayer’s compliance with income tax laws.  Specific considerations revised or clarified by the new revenue procedures include:

  • WEIGHING OF FACTORS: Any number of additional factors may be considered, and no single factor a combination of factors alone may control the determination.  The IRS may grant relief even when several factors weigh against relief, or, conversely deny relief even when several factors weigh in favor of relief.
  • KNOWLEDGE & ABUSE:  Knowledge of an understatement or underpayment will not weigh more heavily than any other factor.  Additionally, in cases involving abuse or financial control, this factor may weigh in favor of relief despite a taxpayer’s knowledge of an understatement or underpayment.
  • USE OF FACTORS: The “marital status” and “economic hardship” factors can only help eligible taxpayers and not harm other taxpayers.  The factors will weigh in favor of      relief for divorced/separated taxpayers and taxpayers facing economic hardship but will remain neutral for other taxpayers.  Other factors, including “compliance with income tax laws” may continue to be used to help or hurt a taxpayer’s case.

The new guidelines above are among the many proposed revisions introduced by the IRS this year and will be in place until the IRS publishes final new regulations on the subject.

Taxpayers interested in pursuing a request for innocent spouse relief under § 6015(f) should discuss the effect of these changes on their arguments with a local tax attorney.

Free Consultation with Tax Attorneys in Bellevue, Burien, Everett, and Seattle

Washington taxpayers may schedule a free consultation to discuss their options with Insight Law by calling (206) 397-4780 or visit our website link below to speak with a tax attorney.

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IRS Wage Garnishment – What You Need to Know| IRS Wage Levy | Unpaid Taxes | Insight Law June 20, 2012

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Can the IRS garnish my wages or take my property to repay my tax debts?

Yes!  The IRS has broad authority to collect amounts owed by taxpayers.  Wage-earners should expect the IRS will garnish their paychecks in order to repay the delinquent amounts.  The IRS may also seize and sell your property, including physical assets you have like your car or land you own and other assets like the contents of checking and savings accounts that belong to you.

What is the IRS’ procedure for issuing a tax levy to garnish my wages or seize my property?

Before issuing a levy, the IRS will send you notices regarding the amount of tax owed, requests for payment, and a warning of the intent to levy.  It is important to keep your mailing address with the IRS current so that you receive these notices.  You may also receive phone calls from IRS employees warning of possible levy action.  Unlike traditional creditors, the IRS does not have to go to court before it begins levying your assets and income to collect from you.

Is there anything I can do to stop an IRS levy?

Yes, there are several avenues a taxpayer can take to stop a levy, including a wage garnishment.  These options include:

(1) Requesting a collection due process hearing (or “CDP” hearing) or an equivalent hearing.  In most circumstances, the IRS cannot collect outstanding tax liabilities while a CDP hearing is pending.  These hearings must be requested in a timely manner after receipt of IRS communications regarding an anticipated levy.  If you have missed deadlines to file a request for a CDP hearing, you may also request an equivalent hearing, and the IRS may choose to stop a levy but is not required to do so.

(2) Entering into an installment agreement to repay your delinquent tax liabilities.  Taxpayers with relatively low liabilities (under $50,000) may qualify for a streamlined installment agreement under which they may repay their liabilities without filing the more detailed financial disclosures required to request a traditional installment agreement.

(3) Filing a request for innocent spouse relief addressing the periods with delinquent liabilities.

(4) Proposing an offer in compromise in which you and the IRS agree to settle a tax debt for less than what is owed.

(5) Demonstrating your inability to repay your delinquent tax debts so that you may be placed in currently not collectible status.

(6) Filing for bankruptcy protection, which will suspend collection activity from the IRS and other creditors.

Taxpayers considering seeking relief through any one of the options discussed above, because each contains unique requirements a taxpayer must meet to qualify for relief.  For example, to qualify for an installment agreement, innocent spouse relief, or an offer in compromise,  you must prepare and submit any unfiled returns for all prior tax years.

What if I need more help in addressing an IRS levy or IRS wage garnishment?

To further explore what options are available to stop the IRS from levying your assets or wages, contact a local tax attorney.  Insight Law offers taxpayers in Washington free consultations with a local attorney at (206) 397-4780, or visit our website link below to speak with a tax attorney.

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Insight Law Firm | South King County Tax Attorney Blog | Renton Tax Attorney | Kent Tax Attorney | Auburn Tax Attorney | Maple Valley Tax Attorney | Covington Tax Attorney | Bonney Lake Tax Attorney | wa | IRS June 9, 2012

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Insight Law – Kent, Auburn, Maple Valley And Renton Tax Attorney

Dedicated  Tax Law Attorney Firm Representing Businesses And Individuals Throughout Washington State. We provide top quality service and client centric communication for a great value.  Four Locations For Your convenience. Call Today For a Free Consultation. If we cannot effectively resolve your tax issue, you will owe us nothing.

Click “Home” To Read Our Blog. Click “About” To Learn More About Our Firm. Click the Tax Attorney link below to visit our firm website.

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May 2012 Changes To IRS Offer In Compromise | Tax Debt Settlement | IRS Tax Settlement | IRS Compromise | IRS Offer | Cannot Pay Taxes | Insight Law Firm May 31, 2012

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In May 2012, the IRS published new guidelines for taxpayers interested in pursuing an offer in compromise to settle outstanding tax liabilities.  An offer in compromise is an agreement between a taxpayer and the IRS under which the IRS accepts a lesser amount of money than what is owed to satisfy past tax debts.   

Under the new guidelines, an offer in compromise is likely to become a more attractive option for many taxpayers unable to pay outstanding liabilities.  Two particularly noteworthy changes include new formulas to calculate future income and expenses:

  • Future income will be calculated for 12 or 24 months instead of 48 months or 60 months.  Previously, the IRS assessed its collection potential by calculating the future income of taxpayers over a period of four years for offers that were paid in five months or less and five years for any other offers.  Now, the IRS will consider taxpayers’ income only for a one year period for offers paid in five months or less and two years for any other offers. 
  • Student loans and minimum credit card payments may be calculated as a miscellaneous expense.  The IRS has also changed the parameters of the miscellaneous expenses taxpayers can claim when proposing an offer.  The expenses claimed by taxpayers in an offer in compromise are evaluated against national expense standards for those basic living expenses.  Now, taxpayers can include new expenses, including bank fees, bank charges, credit card payments, and student loan payments within the miscellaneous expense category.

Washington taxpayers interested in learning how these changes may affect their ability to settle their outstanding tax liabilities with an offer in compromise can call Insight Law for a free consultation at (206) 397-4780, or visit our website link below to speak with a tax attorney.

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Why You Need to File Your Unfiled Returns | Unfiled Returns | IRS Says I Owe But Never Filed | Insight Law Firm May 20, 2012

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When you don’t prepare and file your own return, the IRS will file one for you.  This is called a substitute for return (SFR) and is created based on data reported from your W-2s and other income statements.  Once the IRS has prepared this substitute return, it can then proceed with collection activities against you to collect the amount of back tax it has assessed you.  You will also be subject to additional interest and penalties.

Even if the IRS has already prepared a substitute return for you, it is wise to file your own back returns.   The substitute for return will not include all of the deductions and credits you could qualify for by filing your own return.  Therefore, you will likely wind up owing more back taxes, more interest, and more penalties when the IRS prepares your return.  By filing your own returns, you can substantially reduce your overall tax liability and also reduce the corresponding interest and penalties.

If you have unfiled returns or are facing collection issues for tax debts arising from a substitute for return, consider contacting a local tax attorney for help.  Insight Law offers free consultations to Washington State taxpayers at (206) 397-4780, or click the Tax Attorney link below to visit our website.

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IRS Penalty Abatement | Can I Reduce Or Remove IRS Penalties? | IRS Penalties Attorney May 14, 2012

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Why did the IRS issue me a penalty?
 
The IRS may impose penalties on taxpayers for several reasons.  Some of the more common penalties taxpayers face include:
  • Penalty for failure to timely file return.  The IRS may impose a penalty on you if you fail to file your tax return on or before the due date.  The amount imposed as a penalty will vary from taxpayer to taxpayer, because it is based on the amount of tax on your return and how late your taxes were filed.  There is a heightened penalty if the IRS considers your failure to file fraudulent – that is, if you are purposefully not filing returns in order to avoid paying taxes.
  • Penalty for failure to timely pay.  The IRS may also impose a penalty if you timely file your taxes but fail to pay any outstanding taxes on or before the due date.   You could also be assessed a failure to pay penalty if the IRS determines you owe more taxes than what was calculated on your return, and you fail to pay the new amount of the tax the IRS has assessed by the due date.  As with the failure to file penalty, the amount of the failure to pay penalty will vary from taxpayer to taxpayer based on the amount owed. 
  • Penalty for accuracy-related issues.  The IRS also imposes penalties against taxpayers for issues that will render a taxpayer’s return inaccurate, including:
    • Negligence or disregard of rules and regulations;
    • Substantial understatement of income tax;
    • Substantial valuation misstatement;
    • Substantial overstatement of pension liabilities; and
    • Substantial estate or gift tax valuation understatement.
  • Trust Fund Recovery Penalty.  This is a penalty imposed against payers required to collect, account, and deposit quarterly employment taxes.  If you are responsible for these tasks and willfully fail to perform them, the IRS will impose a penalty under IRC Section 6672. 
Can the IRS remove a penalty that I was assessed?
 
Yes, the IRS may remove or reduce a penalty you have been assessed.  This is referred to as a penalty abatement.  A taxpayer seeking this relief should be prepared to demonstrate to the IRS that a penalty abatement is proper given the facts and circumstances of the taxpayer’s case. 
When are penalties abated or removed?
 
The requirements for abatement differ depending on which penalty was imposed. 
 
For example, for failure to file and failure to pay penalties,  a taxpayer must demonstrate his/her failure had a reasonable cause and was not the result of willful neglect.  Medical problems, financial difficulties, and other emergencies may qualify.  While each taxpayer’s case is different, common factors the IRS may consider include:
  • The presence of a specific incident or event that prevented the taxpayer from complying with the rules;
  • How long the taxpayer waited to comply with the rules and any efforts made to comply with the rules; and
  • The taxpayer’s past history of compliance.
 
In the case of accuracy-related penalties, the taxpayer may challenge the underlying penalty by showing there was reasonable cause for his/her position and that the taxpayer was acting in good faith.  
 
For trust fund penalties, a taxpayer may challenge the penalty by demonstrating he/she is not a “responsible person” for tax responsibilitiesor did not “willfully” fail to perform the responsibilities.
 Discussing penalty abatement or removal with a local attorney…
 

If you are a Washington taxpayer and would like to discuss whether a penalty abatement may be a good option for you to pursue, contact Insight Law for a free consultation with a local tax attorney.  Call (206) 397-4780, or click the Tax Attorney link below to visit our website.

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