The Law Offices of Steven D. Rubin, APC
 
Table of Contents
Death and Taxes
Failure to File and Failure to Pay: Don't Confuse the Two
My Life in Tax Law: The Offer in Compromise - If It Were That Easy Everyone Would Do It
What to Expect When Your Corporation is Expecting an Examination (Audit)
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Featured In This Issue

(Death and Taxes) 
  
 
 
In this issue is an article that discusses the Death and Taxes and what they have in common.   
  
  
Rubin Tax Law eNews Reporter
THE ELECTRONIC TAX NEWSLETTER OF THE LAW OFFICES OF STEVEN D. RUBIN, APC
 
December 2013
  
The Law Offices of Steven D. Rubin, APC
1912 Broadway, Suite 105
Santa Monica, CA 90404
Tel (310) 453-7812/ Fax (310) 496-1686
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Dear Clients, Colleagues and Friends,
  
Welcome to the December 2013 issue of the
Rubin Tax Law eNews Reporter. This electronic tax newsletter intends to address tax topics that our clients, colleagues and friends have made known to us to be of interest and importance to them. The Rubin Tax Law eNews Reporter does not attempt to offer solutions to individual problems but rather to provide information about current developments in those areas of the law encompassed by our law practice. Readers in need of legal assistance should retain the services of competent counsel.
   

Death and Taxes

 

  

By Steven Rubin
  
Vintage Guitar   
 
 

This is my first Rubin Tax Law eNews Reporter. I thought I would start with a little bit of reflection. They say only two things in life are certain: death and taxes. Here is my take on what these two items have in common.

 

One happens on the 15th of April every year. Mercifully we usually do not know when the other takes place. One requires a specific form be filed with the government every year. The other requires no forms at all. One requires that we keep all sorts of records in case we are called on to substantiate the information provided to the government. The other may involve medical records, death certificates, autopsy records, police records, and other interesting records, but the deceased is never called on to substantiate this information. Both are subject to examination. For one we call this an audit. For the other, we call it an autopsy. An autopsy is an "examination of a dead body to discover the cause of death." An audit is "an examination of financial records" just because. Death brings an end to life. An audit at times makes one feel like ending his or her life. Death is often met with a celebration of the deceased's life by the deceased's family and friends. Audits rarely end with any celebration. And finally, one comes with a "Code" and interpreting "Regulations" approaching 30 or 40 thousand pages of 6 point type that are supposed to "explain," but that just as often only serve to confuse. The other not so much as a pamphlet.

 

So what does this tell us? I haven't a clue. Death and taxes appear to have very little in common. But I can tell you what I am learning. Live in the moment. It is all we have.

 

That said, this eNewsletter will be dedicated to exploring that above mentioned 30 or 40 thousand pages of 6 point type in all of its splendid ambiguity.

 

Oh, and don't forget to breathe ...

 

 

 

 

 

 

 

 

Failure to File and Failure to Pay: Don't Confuse the Two

  
By Steven Rubin
  
 
 

 

 

In the course of my practice I repeatedly meet clients who have failed to file their income taxes because of their inability to pay (or full pay) their income taxes. In my experience, this is always a big mistake. This is because when a non-filer finally makes the decision to get back into "compliance," (i. e., to get current in his or her tax filings and payments), the IRS invariably is far more hostile, demanding and uncooperative with a non-filer than with a taxpayer who has filed, but simply not paid (or full paid) their income tax debt. What accounts for the difference? The non-filer has failed in his or her most fundamental responsibility: to file a tax return. To the IRS, the inability to pay (or full pay) your tax is absolutely no excuse for the failure to file a tax return. No ifs, ands or buts.

Internal Revenue Code (IRC) Section 6011(a) reads as follows: "When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations."

If you notice, the ability to pay (or full pay) the tax is nowhere mentioned. If you are LIABLE for any tax you SHALL make a return. The IRC provides further evidence that in the mind of the IRS, not only are filing and paying separate and distinct concepts, but of the IRS's relative emphasis on the importance of filing over paying. IRC Section 6651 reads in pertinent part as follows:

"IRC 6651(a) Addition To The Tax

In case of failure-

6651(a)(1)  

to FILE any return on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate;    

6651(a)(2)  

to PAY the amount shown as tax on any return specified in paragraph (1) on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate[.]"

The addition to tax for failing to FILE a return is 5% (five percent) of the amount of the tax each month, up to a maximum of 25%. The addition to tax for failing to PAY is 0.5% (one-half percent) of the amount of the tax, up to a maximum of 25%. While the same 25% limit applies in each case, the failure to FILE penalty grows at a rate ten times faster that the penalty for the failure to PAY. Got the message?

I have been assisting clients get into compliance for some 23 years now. Virtually without exception, the attitude of the IRS is aggressive, sometimes hostile, and uncooperative until the taxpayer gets into FULL compliance. So if you have not filed your returns for 10 years, this means filing the delinquent returns for ALL TEN YEARS, not 9, not 8 ... but for all ten. Once all delinquent returns are filed, and the focal point of the case turns to collection of any unpaid tax, the attitude of the IRS noticeably changes for the better. Furthermore, once the taxpayer is in full compliance (and not before), the taxpayer can start to engage in negotiations and discussions with the IRS for monthly payments or even the highly sought after "Offer in Compromise" whereby entire delinquent tax debts are paid off at a discount.

So file those delinquent returns, enjoy a more cordial relationship with the IRS, and who knows, you may even be eligible for an Offer in Compromise.

 

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My Life in Tax Law: The Offer in Compromise - If It Were That Easy Everyone Would Do It

  
By Steven Rubin
   

 

    

I fall asleep late. I am not an insomniac thank goodness, but I do fall asleep late. Late enough to see the television commercials from all those outfits that promise me that if I just call the number on my television screen, their team of top-notch former IRS attorneys and accountants will get the IRS off my back. Some even have "testimonials" from people who claim their IRS tax debt has been settled for as little as pennies on the dollar ... and the sun is shining again.

 

Well, let's start with the obvious: It is called an "Offer" in Compromise for a reason. The IRS is not obligated to accept your offer and far more often than not the IRS rejects Offers in Compromise. But don't take my word for it. For you "show me" state types I refer you the page 41 of the Internal Revenue Service Data Book, 2012. On page 41 is Table 16, Delinquent Collection Activities, Fiscal Years 2011 and 2012. In the middle of the page you will find the following statistics issued by the IRS: In 2012 64,000 Offers in Compromise (OIC's) were received by the IRS while 24,000 were accepted. Yup, that's right. Roughly 38% of the OIC's were accepted meaning roughly 62% of the OIC's were rejected. How are those top-notch former IRS attorneys and accountants looking now? What's up with this?

 

Well here is my two cents. I have been doing this for 23 years. I have engineered many a successful OIC and they all have one thing in common ... they are really hard to do. I have never had an OIC where we just send in the form 656 Offer in Compromise, and the forms 433-A/B/F and then a few months later get the good news ... the offer is accepted!! Nope. The IRS usually takes a few weeks just to acknowledge receipt of your OIC. Then you get a letter that your OIC has been assigned to an IRS representative and that you will hear back within a few months. When you finally hear from the representative, he or she will most likely want to review the information you put on your aforementioned forms and want to discuss what sort documentation he or she needs you to send to SUBSTANTIATE the information. After you send the documentation the IRS representative will most likely want to discuss this with you and often will request additional documentation to substantiate your assets and income. For those of you who are married, be prepared for the IRS representative to inquire into the assets and income of your spouse - not necessarily to establish liability, but to give a more complete picture of what assets and income might be available to the taxpayer submitting the OIC. As I often tell my clients, if your spouse is Oprah, don't expect much of a discount.

 

This last part can take the taxpayer by surprise. "Are they (meaning the IRS) allowed to request my wife's financial information," I am asked. You bet. See above ... you are making an "Offer." They are not required to accept your Offer. If you want something from the IRS that they are not required to give you, then you better be prepared to give them something that you may not otherwise be required to give them. Give and take.

 

Now, if you jump through all the hoops, and you can substantiate your lack of assets and income, and you make a "reasonable" offer, you just might find yourself in the 38% (to use 2012's numbers) of OIC's that are accepted! What is "reasonable" you might ask. That is the "$64,000" question to be sure. Well every case will be different and I can only speak for myself. Pennies on the dollar? Not likely. In my experience the IRS often starts "listening" at roughly 30 cents on the dollar. As you fall below this level, be prepared to SUBSTANTIATE your lack of income, resources, and prospects. I have never had one of those "pennies on the dollar" offers. My impression is that to achieve such a settlement, your situation must be so dire that your tax debt is often the least of your problems ... if you can imagine that.

 


 

 

What to Expect When Your Corporation is Expecting an Examination (Audit)

 

  

 

 

 

  
By Steven Rubin
  

  

 

Well it's your not so lucky day. You've received a letter from the IRS that your corporation has been selected for an examination. You call the designated IRS representative to discuss the letter and possibly to schedule a date for your "appointment." You select a date sufficiently in the future to allow you to "gather" the books, records and other items that you will need to make available for the examining Revenue Officer.

 

A few days later you receive a letter from the Revenue Officer (the "RO"). The letter sets forth the location (often it is your office), date and time for the appointment. Invariably, the aforementioned letter includes the following sentence or words to this effect: "Please have the items listed on the attached Form 4564, Information Document Request, available at our first meeting." You look at the attached form 4564 Information Document Request (I will call it the "IDR"). Here is what you see ....

 

"Please have the following records available at our appointment. These items are needed, but are not intended to be all inclusive; additional items may be required at a later time.

 

Corporation's Books and Records

  1. Corporate Minute Book
  2. Stock Record Book
  3. Chart of Accounts including account name, number and type of account
  4. General Ledger with detail transactions and general ledger trial balance for the beginning and ending **** tax year
  5. Journals/Ledgers - Sales, Accounts Receivable, Cash Receipts, Purchases, Accounts Payable and Cash Disbursement
  6. Check Registers
  7. Bank Statements and Cancelled Checks for ***** [tax year]
  8. Profit and Loss Report
  9. Vendor Report including the names EINs and if Form 1099's were sent
  10. Customer List
  11. Copy of Pension Plan

 

Corporation's Tax Return Information

  1. Copy for inspection of **** (if filed) year 1120 tax returns
  2. 940, 941's payroll tax returns for ****
  3. W-2's, W-3, and 1099's filed for ****
  4. W-4's for the current calendar **** year

 

Accountant's Workpapers

  1. Copy of year-end trial balance reconciling books to returns
  2. Adjusting journal entries and year-end
  3. Bank reconciliations at year-end
  4. Copy of financial statements/audit reports
  5. Detailed listings of accounts receivable and accounts payable at year-end
  6. Detailed depreciation schedule.

 

Officer's/Shareholder's Tax Return Information

  1. Copies of shareholder's individual income tax return

 

Specific items to be verified:

  1. Gross Receipts - please provide the source documents used to arrive at the gross receipts reported on the return
  2. Other Deductions - please provide the source documents used to arrive at the amount reported on the return

 

ADDITIONAL INFORMATION MAY BE REQUESTED AT A LATER DATE"

 

You have one thought ... Holy mackerel! Yes, it is very intimidating. Just do your best to gather the requested information. Yes, the IRS is entitled to review all this information. In my experience, the best corporate audits are the one's where the client pays mostly for audit preparation so that the audit itself (I'm sorry, I mean the "appointment") goes very smoothly and ends quickly. That said, there is no guarantee how an audit will go. The audit related to the above IDR was over in four hours. Furthermore, the audit did not spread into multiple tax years and other related taxpayers. This was a big concern of the corporate taxpayer than was the subject of the audit.

 

A word to the wise: I had a client that had been under audit for several tax years and multiple entities and related individuals. The audit was initially handled by another representative. As far as I could tell, the "relationship" between the prior representative and the Revenue Officer conducting the audit was very contentious and involved name-calling, bad language and yelling. Why on earth the prior representatitve would engage in such a course of conduct is beyond me. You gain nothing by such a course of conduct. I think the prior representative (who I understand was also the preparer of the subject tax returns) thought he could intimidate the Revenue Officer to "back off." Unfortunately, this course of action only invited greater scrutiny, expanded the audit, brought in the Revenue Officer's supervisor (who came along with the Revenue Officer to my office on one of the days of the three day visit), and made darn sure that "cooperation" was at an absolute minimum.

 

Don't kid yourself. These are the people that brought down Al Capone. You don't intimidate the IRS. It's hard enough to deal with the "800 pound gorilla" when he is in a good mood.

 

    

 

 
Copyright 2013 by The Law Offices of Steven D. Rubin, A Professional Corporation. To request addition to or removal from our mailing list contact Steven Rubin at The Law Offices of Steven D. Rubin, A Professional Corporation, 1912 Broadway, Suite 105, Santa Monica, CA 90404, phone (310) 453-7812. The Rubin Tax Law eNews Reporter does not attempt to offer solutions to individual problems, but rather to provide information about current developments in those areas of the law encompassed by our law practice. Readers in need of legal assistance should retain the services of competent counsel.