Checking the mail box each day often involves sifting through significant amounts of junk mail to locate anything important. Miss a couple days and the pile of mail grows quickly.
Understandably, the news about tax law has been dominated in recent weeks by the nation's struggle to avoid the Fiscal Cliff. The bill that passed yesterday was hardly a comprehensive "grand bargain." But it averted the cliff by blocking immediate income tax increases for most Americans and postponing painful spending cuts.
Last month, we posted about the record-setting $104 million award given to a whistleblower for providing detailed information about UBS's offshore tax evasion practices. Other whistleblowers in California and around the country may be tempted to come forward and report alleged instances of criminal tax activity in the hopes that they too could earn their own, albeit smaller, reward.
An offer in compromise is one method for taxpayers in California to pay delinquent tax debts to the Internal Revenue Service. The IRS will accept an OIC on a handful of grounds, including doubt as to collectability, where the taxpayer does not have the income or assets to satisfy the debt. Because an OIC settles the tax liability for less than the total amount owed, the IRS wants to make absolutely sure that the taxpayer cannot pay the debt in full.
There is a current division among states over whether to create an independent state tax court system. Such courts hear tax disputes exclusively, replacing the administrative review process, which is the method used in California and 20 other states. Twenty-seven states currently have an independent tax court, although nine of those do not require employees to be experts in tax law.
Last week we discussed the fact that sometimes business expenses are characterized as hobby losses by the IRS. The line between business expenses and hobby losses is sometimes thin, especially in the context of new businesses.
This is the year that many Orange County residents will follow their passions and start their own businesses. The current economic climate has shown many Californians that being an employee of someone else is not as risk-free as it once was, which is why increasing amounts of Californians are going into business for themselves while still employed. Normally, businesses can deduct expenses but the deduction of business expenses may not be as straightforward for many upstart businesses.
In our last post we discussed the importance of calling a California tax law attorney when the IRS sends a notice of deficiency. A notice of deficiency is also called a 90-day letter because it states that a taxpayer has 90 days to either submit a Form 1040 tax return, consent to the IRS' deficiency assessment, or explain why the taxpayer is not required to file taxes.
The IRS' collection procedures can be unfair and complicated. When the IRS decides that an Orange County resident owes money, it can simply take the money it feels entitled to. A California tax law attorney can help those who face levies and other collection actions fight against the harsh collection practices of the IRS.
Last week we discussed the tax court case of one California couple that was audited for deducting losses for their rental properties. Rental activity is typically considered a "passive activity" under the tax code and is therefore subjected to a limit. California taxpayers with rental properties can avoid this limit on losses if they qualify as "real estate professionals" that materially participated in the rental of a given property. We discussed particular requirements of the "real estate professional test" in last week's post.