Taxpayer's Guide to Tax Problems
The United States has one of the most complicated tax codes of any country in the world. And taxpayers don’t just have to deal with the IRS. They also must deal with their state, county, and municipal tax agencies. This multi-layered, rule-laden environment can create the perfect storm for all kinds of tax problems, and they’re not always easy to solve — unless you have the right help in your corner.
At McLaud Law, P.C., we have extensive experience helping individuals and businesses in New York and other areas solve their IRS and state tax problems, and we look forward to helping you. Here are some of the most common tax problems addressed by our practice. Check out the links for more information, or contact us today for a free consultation.
It’s easy to get behind on filing personal and business tax returns, and unfortunately, once you’re behind, catching up can feel like an insurmountable task. Failure to file tax returns can lead to penalties and other consequences, and in extreme cases, it can be cause for criminal tax evasion charges.
Unpaid Taxes
If you don’t pay your taxes, the IRS or NY State will impose penalties and interest against you. They can also attempt to collect the tax involuntarily through liens, levies, or other assets. Luckily, there are a myriad of solutions for unpaid taxes, with options to fit nearly every budget and scenario, including payment plans, offers in compromise, innocent spouse relief, penalty abatement, and currently not collectible status.
Generally, if you have unpaid taxes, the IRS takes a while to start the collection process, but once the agency decides to go after the taxes, it can use any tool at its disposal to collect including the following:
- Tax liens: Federal tax liens attach to all of your current and future assets. If you sell the asset, the lien allows the IRS to take the proceeds of the sale up to the amount of your tax debt plus interest and penalties. You’re at greater risk of a lien when you owe the IRS over $25,000.
- Warrants: The NYS DTF issues warrants instead of liens. Tax warrants work just like liens. They secure the state’s interest in your property.
- Tax levies: A levy is when the IRS or NYS DTF takes your assets. This includes bank levies, wage garnishments, and the seizure of real estate and personal property.
To avoid collection actions, set up payments or get hardship status as soon as possible. Once the IRS proposes collection actions, you have a very limited amount of time to dispute the action and suggest alternatives.
The IRS uses many different notices to communicate with taxpayers about their problems. Pay very close attention to any correspondence that you receive, and make sure that it’s correct. If you see any issues with the tax debt due, penalties assessed, or your personal details, reach out to the IRS immediately. It’s always easier to correct mistakes earlier, rather than later.
If you don’t pay your tax bill, the IRS will send you a notice of the balance due. Then, the agency will send a demand for payment. This gets followed by a number of increasingly serious collection notices, with the most serious being the Final Notice of Intent to Levy and Your Right to a Hearing. Once you receive this notice, you have 30 days to pay or request a hearing, or the IRS will levy your assets.The IRS assesses penalties for paying and filing late. Each of these penalties can get up to 25% of your balance due, making the total penalty 50% of your tax bill. In other words, if you owe $100,000, these penalties can get up to $50,000. Interest stacks on top of that amount.
There are also penalties for failing audits including accuracy-related penalties, fraud penalties, and under-reporting penalties. The IRS assesses very severe penalties for people who don’t file a report of foreign bank accounts (FBAR) or who fail to report specified foreign assets. Additionally, there are business-specific penalties such as failure to deposit payroll taxes or the Trust Fund Recovery Penalty.
The good news is that there is penalty relief, but it depends on the situation. While the IRS is almost always willing to abate late penalties for first-time offenders, for example, it hardly ever agrees to waive Trust Fund Recovery penalties for people who have intentionally avoided paying trust fund payroll taxes.
The phrase “tax audit” puts most people in a panic, and the process can be grueling, especially if you don’t have well-organized records or the IRS decides to dispute the details on your tax return. If the IRS or the NYS DTF selects you for an audit, you will get an audit notice in the mail. Then, you have a limited amount of time to reply and start the audit.
The auditor may want to see supporting documents for every detail on your tax return, or they may just want you to back up a few details. You must provide them with the documents they request, but if you’re unsure of anything, you may want to work with a tax professional.
An attorney who provides audit representation can help you deal with the back-and-forth between you and the auditor. They can also help you appeal if you disagree with the results of the audit. Finally, if the audit leads to an unexpected tax liability, they can help you set up payments or make other arrangements.
Business Tax Problems
Businesses face all kinds of unique tax problems. Like individuals, they may also deal with unfiled tax returns, unpaid taxes, penalties, and audits. However, if a business doesn’t deal with these issues effectively, they may end up losing their business. Common business tax issues include:
- Payroll tax issues — As an employer, you must withhold payroll taxes from your employees’ pay and remit them to the government. Filing mistakes, failure to deposit, and forgetting to file payroll returns can all lead to problems.
- Employee misclassification — Labeling employees as independent contractors can lead to penalties and delayed tax bills, but with the rise of the freelance culture, classification isn’t as straightforward as it used to be.
- Personal Liability for Business Taxes – The NY DTF may be able to pierce the corporate veil can hold individuals liable for unpaid sales tax. The IRS can hold individuals liable for the Trust Fund Recovery Penalty. If you’re dealing with personal liability for business tax problems, you need an attorney experienced in this area.
When you get help for business tax problems, look for someone who has experience with your specific concern. But then, also consider talking with them about tax planning. The right preparation can help you deal with your current problems and make plans to avoid issues in the future.
If you are charged with a tax crime, you can face severe penalties including imprisonment and excessive fines. Although tax crimes are relatively rare, a few hundred people go to jail each year for tax fraud or evasion. Additionally, the majority of people who are convicted face jail time. That’s why it’s critical to hire an attorney who has experience with criminal tax litigation if you want to protect yourself.
If you cannot resolve your tax problem through the appeals process, you may need to go to Tax Court. This can happen if you’re disputing a finding in an audit or a tax assessment. Again, skilled representation is critical for your success.
Running a cannabis business in New York or any other state with medical or recreational cannabis is a tricky endeavor. You have to deal with all of the usual challenges of running a business, but the IRS doesn’t let you take any deductions except for the cost of goods sold. This can lead to incredibly high (no pun intended) tax bills, and the complicated tax code around this industry creates a significant risk for errors.
Get Help With Your Tax Problems
Dealing with individual or personal tax problems? Tired of getting threatening letters from the IRS or the New York DTF? Then, you need experienced tax help. At McLaud Law, PC, we are focused on tax-related legal issues. We can help you solve any tax problem, big or small. Don’t wait contact us today for a free consultation.
This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.