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Audits of S Corporations

  • July 15th, 2010
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The IRS has begun targeting small corporations, LLC’s and partnerships who have made the S Corporation election for tax filing purposes.  Briefly, the difference between filing as a “C Corp” and an “S Corp” is as follows.  A C Corporation files a tax return in which a profit or loss is shown, and if it shows a profit, the corporation pays the tax.

Audits of “S” Corporations – Continued

  • July 15th, 2010
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In my last blog, I mentioned several ways that “S” corporations incorrectly report expenses on their tax return.  Let’s look a little more closely at these and see how these mistakes occur and why the IRS is targeting these mistakes.   The main reason, of course, is that these mistakes benefit the taxpayer 80% of the time!  Remember that I use the term corporation here to represent any kind of legal entity that files as an “S” corporation for tax purposes.

IRS Penalty and Interest Abatements

  • July 15th, 2010
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Let me first address interest abatement.  There is only one instance when the IRS will abate interest.  That is when the IRS has either charged a tax it should not have or miscalculated the amount due on a tax.  In other words, interest will only be abated when the IRS has made a mistake in assessing the tax.

Tax Freedom Day 2010

  • July 15th, 2010
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Did you ever wonder how many days you have to work each year just to pay your taxes?  The day that you have earned enough money to do so is called Tax Freedom Day.  This is the day when Americans have earned enough money to pay this year’s tax obligations at the federal, state and local levels.

Effective Tax Administration Offer In Compromise

  • July 15th, 2010
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There are three ways to request an Offer In Compromise from the IRS.  The first is Doubt as to Collectability.  This is by far the most common type of Offer. The second is Doubt as to Liability, which is not used very often.  The third (and newest) method under which you can submit an Offer is Effective Tax Administration.  This doctrine has been effect for several years and, even now, the parameters of the doctrine are still being determined by attorneys and Revenue Officers in the field.

Employee or Independent Contractor – How To Decide

  • July 15th, 2010
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Unfortunately, a business cannot just arbitrarily decide how to pay its workers.  Whether or not a worker is classified as an “employee” from whom taxes must be withheld by the employer or an “independent contractor” whom the employer pays his full pay is determined by IRS regulations.  As a general rule, the more control an employer has over the worker’s time and method of doing his job, the more likely it is that the IRS will call him an employee.

Audits of Cash Intensive Businesses

  • July 15th, 2010
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When a tax examiner audits a cash intensive business, she is primarily looking to see if the taxpayer is reporting all of his income since there is no paper trail, such as a check, at the point of sale.  An IRS Audit Technique Guide lists several indicators which the tax examiner can explore to see if all income is being reported.

Partition of Real Estate – One owner wants to sell; the other doesn’t

  • July 15th, 2010
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What happens when two or more people own real property and one wants to sell but the others do not?  The law does provide a way out of this dilemma.  It is called a Partition Action.  One must file a suit in Circuit Court to partition the property, naming the other owners as defendant(s).  A hearing will be held, usually before the Master In Equity.  It is a non-jury proceeding.

Non-Deductible Business Losses – the Hobby Loss

  • July 15th, 2010
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As you know, business losses are deductible on a corporate tax return or on schedule C of a personal tax return.  However the IRS looks closely at losses, especially on Schedule C, and may determine them to be “hobby losses” under certain conditions thereby denying the losses as a deduction.

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