Legal Issue: Disputed Income on Individual Tax Return

Category: Income Tax

Referred by: CPA Firm

Services:  IRS proposed over $1 million deficiency as a result of disallowed substantiation and fraudulently omitted income on the individual taxpayer’s Schedule C and Schedule E. We petitioned the U.S. Tax Court and were referred to IRS Appeals for settlement consideration.

End Result:  The Appeals Officer accepted our substantiation, substantially reduced the omitted income adjustment and abated the fraud penalty.  Our efforts reduced the ultimate deficiency by over 96% to approximately $35,000.

Legal Issue: IRC 280A and Regulations- Disallowance of expenses related to business use of a personal residence.  IRC 6662- Negligence Penalty

Referred by:  CPA Firm

Services Performed: Client owned properties with multiple dwelling areas in two separate states, living in part of one of the properties and his son lived in part of the other property for five months in one of the years in question. The client rented out the remainder of the properties. The IRS disallowed all the rental expenses and losses and asserted penalties. In addition, the client’s original accountant became incapacitated and lost much of the client’s documentation.  We worked in conjunction with a new CPA firm in preparing schedules reflecting the actual business use of the properties and properly allocating expenses under IRC 280A, so that the records were clear to the IRS.  Finally, we analyzed and uncovered multiple mistakes made by the IRS in their initial computations.

End Result: We reached a very agreeable settlement with IRS Appeals saving the client over $25,000. Additionally, the CPA firm retained the client for future tax return preparation.

Legal Issue: Improper application of Sales Tax to nontaxable items

Category: Sales Tax

Services:  New York State assessed a sales tax liability against a food vendor on amounts that included, inter alia, payments from other vendors for rent, royalties, and paper products that are not subject to taxation.

End Result:  We obtained a courtesy conference to reopen the audit and successfully reduced the assessed amount by over $100,000.

Legal Issue: Client Schedule C Deductions were disallowed.

Category: Income Tax

Services Performed: Represented individual client with substantial Schedule C income before office audit. The IRS adjustments increased the client’s income by approximately $200,000 prior to our representation.

End Result:  Once we were involved, we were able to work with the IRS examiner to ensure proper credit was given for all expenses.  We were able to reduce the adjustments by almost $100,000.

Legal Issue: Non US Citizen failure to pay US taxes

Referred by: CPA.

Services Performed: This non-citizen performed consulting work in the U.S., thereby generating taxable income which was left unpaid.  Client no longer lived or worked in the U.S., but wanted to address his IRS debt.  We submitted an Offer in Compromise based largely on the client’s assets and income in his home country.  The Offer was denied as the Specialist believed that the client had the financial means to pay in full.  We took the matter to the IRS Office of Appeals, and demonstrated how a bankruptcy in the U.S. would potentially eliminate and/or reduced the tax debt, as well as how the IRS’ collection options were limited.

End Result: The end result was the Offer being accepted at its original amount, thereby saving the client over $166,000.

Legal Issue:  Failure to file Tax Returns / Offer in Compromise executed

Referred By:  CPA Firm.

Services Performed: Taxpayers, a couple with two minor children failed to file income tax returns for several years.  They worked with an accountant to file back returns which resulted in IRS liabilities exceeding $729,000. Our clients had been unemployed for a period of time and were unable to make any payments, and their house was the subject of a foreclosure action. The husband died suddenly, leaving the wife a young widow facing a large tax obligation and a home foreclosure.  Shortly thereafter, she began working in her field of expertise but at an entry level salary which only covered a fraction of her day to day expenses.

End Result: We prepared and submitted a federal Offer in Compromise, contesting the amount owed based on our client’s current income, limited assets, and dire circumstances. We were able to reduce the amount owed to the IRS by over 98% resulting in an accepted offer amount to the Taxpayer of only $9,750.00.  We were also able help resolve the foreclosure action.

Legal Issue:  Chapter 7 Bankruptcy / Offer in Compromise executed

Referred By:  CPA Firm.

Services Performed: Our client was a retired skilled tradesman.  He had IRS tax debt in excess of $150,000.  His home was in a foreclosure action and he also had state income tax debt. Substituted tax returns were filed by the IRS for two of the years involved, amounting to approximately $140,000 of liability, with about another $15,000 in liability for returns which were filed by our client.

End Result: We filed Chapter 7 bankruptcy for our client.  His state income tax debt and the approximate $15,000 in federal taxes (for filed returns) met the requirements for dischargeability and were discharged in the bankruptcy action. The larger amount, due to substituted tax returns filed by the IRS was not discharged in the bankruptcy. Our client did not want to save his house from the foreclosure but the bankruptcy prevented the possibility of any deficiency in the action from being assessed to our client as income for income tax purposes and also prevented the foreclosing lender from seeking payment on the likely deficiency which would have resulted from the foreclosure.

We also had to resolve the IRS taxes which survived the bankruptcy, and we drafted and submitted an Offer in Compromise.  The Offer of $14,200 on approximately $140,000 of tax liability was accepted by the IRS.

Legal Issue: Penalties for untimely filing

Referred by: CPA Firm

Services:  The IRS imposed automatic $10,000 penalties against a corporate taxpayer with foreign owners for untimely filing Forms 5472 for three consecutive years.  Our office submitted a reasonable cause letter arguing, inter alia, that the death of the founder of the family-owned corporation, along with a storm that destroyed documentation needed to prepare the returns, warranted an abatement of the penalties.

End Result:  We successfully resolved the matter with IRS Appeals for a single $2,000 penalty over the three-year period.

Legal Issue: Aggressive Collection Efforts by IRS

Referred by: Attorney

Services Performed: We represented a couple in a Chapter 7 bankruptcy to help curtail aggressive collection efforts by the IRS.  The Bankruptcy Trustee believed the filing was abusive on several grounds, primarily a high monthly “disposable” income of the clients.  We successfully rebutted this argument on the basis of the Bankruptcy Code’s “means test” protocol.  The Trustee also believed the filing was in “bad faith” and not deserving of a discharge. We provided a detailed accounting, and also successfully argued that the Debtor could seek to discharge other debts in order to devote resources to his non-dischargeable criminal restitution.  The Trustee backed off of any further objections.

End Result: Both Debtors were allowed to receive discharges, and their personal obligation on over $80,000 in Federal tax debt was eliminated.  In addition, the IRS did not seek post-discharge enforcement of its lien, resulting in Debtors maintaining significant equity in theirassets.

Legal Issue: IRS Refund taxability in Chapter 7 Bankruptcy

Referred by: Attorney

Services Performed: We represented an individual in a Chapter 7 bankruptcy for the purpose of eliminating non-priority tax debt.  The Debtor received a large pre-petition tax refund which he claimed as exempt, thereby allowing him to shield it from being turned over to the Trustee.  Unfortunately, shortly after receiving his discharge, the Debtor’s father died.  Under the Bankruptcy Code, any non-exempt amounts payable to the Debtor under his father’s estate becomes property of the Chapter 7 estate.  As his large refund was offset against priority tax debt by the IRS, the Debtor sought to re-allocate his exemptions to amounts payable under his father estate.  The Trustee objected to this endeavor. We argued that a refund issued in the face of prior tax debt isn’t actually an asset.  That is, an overpayment doesn’t actually become a “refund” until the IRS deems it to be.  Therefore, the refund was not an asset subject to turnover to the Trustee.  

End Result: This argument proved beneficial as we were able to settle with the Trustee to give the Debtor a larger exemption in amounts payable from his father’s estate, enabling him to keep close to $10,000 from his father’s estate, when he was initially entitled to a much smaller portion.

Legal Issue: Client failed to file Sales Tax returns

Referred by: CPA.

Services Performed: Represented small business making a voluntary disclosure of several years of non-filing and non-payment of sales tax returns.

End Result:  Were able to assist in closing the matter with no penalties and resolving the matter with an Installment payment agreement allowing the business to become current with tax obligations without impacting the business’ ability to operate.

Legal Issue: Client failed to remit Payroll Taxes

Referred by:  CPA

Services Performed: Represented foreign entity with a US presence. The entity worked with a payroll service to meet its US payroll requirements. The payroll service stopped filing and making the payroll tax payments, without the knowledge of the proper representative of the client.  We represented the client before IRS collections and IRS Appeals with respect to the resulting penalties for the late filing and payment.

End Result:  Argued for and received full abatement at IRS Appeals of approximately $120,000 of payroll tax penalty assessments.

Legal Issue:  Create an estate plan that would distribute client assets in a specific way, and protect assets to the greatest extent possible.

Referred by:  Financial Advisor

Services Performed:  Designed and implemented a unique estate plan that achieved client goals.  Working directly with the client’s financial advisor, we helped to diversify investments without paying unnecessary taxes and penalties, and assigned beneficiaries such that they would pass by operation of law, avoiding unnecessary probate costs and delays.  We also drafted parallel Charitable Remainder Unitrusts enabling the protection of a large portion of the assets from potential creditors and Medicaid.

End Result:  Our team was able to provide the client with a unique, custom estate plan that not only accomplished all dispositive goals, but also saved close to $100,000 while safely protecting assets going forward.  We were also able to accommodate our referral partner by facilitating a transfer of assets from an annuity earning a small annual yield to a diversified investment account managed by the referring financial advisor while avoiding the taxes normally generated by that type of asset maneuver.