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Fort Worth Tax Law Blog

What should you do when you get an IRS letter?

The IRS sends out tens of thousands of notices annually to individual and business taxpayers. The reasons for these vary, but can include requests for additional information, payment reminders, audit or investigation notices, refund checks and more.

Most of these are fairly basic and straightforward. A simple response, an additional receipt or W-2, a signature inadvertently left off a form could all possibly resolve the entire matter. Sometimes, additional steps are required, but not always.

IRS and cryptocurrency: Is it property or currency?

The Internal Revenue Service (IRS) has a reputation for making tax matters difficult. Filling out tax forms is not an easy matter, but the agency has made matters even more difficult when it comes to cryptocurrency.

Why are tax matters for cryptocurrency so difficult? The biggest issue is the agency’s failure to clearly state if cryptocurrency is property or currency. The distinction is more than one of simple semantics. The classification as property or currency has direct tax implications. An owner of property in a foreign country, for example, generally does not need to report this property to the IRS. An owner of currency, in contrast, may need to report the asset.

Another massive leak brings attention to use of offshore accounts

Offshore accounts are in the news again. Another massive data leak, this one referred to as the Paradise Papers, has resulted in the disclosure of the identity of a number of people and businesses that use these accounts. So what have we discovered from this most recent leak? Basically, we are coming to realize that these accounts are fairly common.

What is an offshore account? Although it is fairly rare in the legal or financial worlds, in this case the definition of the term is self evident. An offshore account is one in a country other than one’s residence. For citizens of the United States, this would include accounts in Canada, Mexico, India, England, etc. 

Is EITC return preparer compliance program enough?

The IRS is not the only one to conduct audits. The Treasury Inspector General for Tax Administration (TIGTA) provides IRS oversight and occasionally audits how IRS procedures are working. Recently, it suggested improvements to address erroneous Earned Income Tax claims and persistently noncompliant return preparers.

We have been following the topic of EITC return preparer audits over the past year. The issue continues to draw significant attention, because the IRS estimates in 2016 it paid $16.8 billion in improper EITC payments. TIGTA review of 3,547 return preparers found 30 percent of the returns had some characteristic that indicted a potential error in claiming the EITC. This does not necessarily indicate fraud, but better follow up with return preparers has been recommended.

Two lessons about shell corporations from the Manafort case

Shell corporations get a bad rap. There are situations when a shell corporation is not just legal, but makes good financial sense. Navigating through the legal intricacies that distinguish the legitimate use of a shell corporation from the illegal can be difficult. A recent case provides an example of an individual that allegedly failed to make this distinction.

The case involves President Donald Trump’s former campaign chairman, Paul Manafort. He is accused of using shell corporations in Cyprus, Seychelles, St. Vincent and the Grenadines to conceal assets from the Internal Revenue Service (IRS) and avoid tax obligations in the United States. 

Don't forget to report side job income to the IRS

America is now, at least in part, a so-called "side gig" economy. An estimated 25 percent of us now have side jobs to generate additional income. Such things as driving for a ride-share service like Uber or Lyft, dog-walking, renting out a residence part-time through Air BNB or Home Away, and being a freelance digital personal assistant can provide enough extra money to cover expenses, save for a big purchase or pay down debt. These so-called "side hustles" add billions of dollars in income to the national economy each year.

If you are one of the millions working side jobs, it is vitally important to keep this in mind: that additional income from jobs and hobbies must be reported to the IRS and to state taxing authorities. Many Americans, particularly the "Millennials," aren't doing this, leaving themselves vulnerable to audits, penalties, and even criminal tax crime charges. An estimated $214 billion in side job earnings go unreported (and thus untaxed) each year.

IRS settles class action lawsuits alleging discrimination

The Internal Revenue Service (IRS) recently settled class action lawsuits representing over 400 conservative groups that state they were “improperly” delayed tax-exempt status, according to a recent report by USA Today. It appears the federal agency singled out hundreds of groups due to their ideological stances. These groups underwent additional questioning which led to delays.

Small businesses: Watch for these two pieces of tax reform

The current administration has pushed for tax reform, touting the need to reduce taxes and remove barriers to economic growth. In theory, this sounds great. In reality, it could cause problems for small businesses.

The many problems are outlined in various news sources. A piece out of the USA Today Network focused specifically on small businesses. Two specific notes from the piece that are areas for small business owners to watch within the current tax reform proposal include:

Forest Whitaker case a cautionary tale about tax withholding

Actor and director Forest Whitaker recently made the news not for a new movie or television project, but instead for the resolution of a years-long tax collection case brought against him by the Internal Revenue Service (IRS). 

Procedural history, complete with taxpayer missteps

Underreporting business income can lead to prison time

Fraudulent business tax returns can come with prison time. That is the message the Internal Revenue Service (IRS) is trying to send with two recent cases. The federal agency recently sentenced three different individuals to imprisonment for errors on their corporate tax returns.

How did corporate tax errors lead to prison time? The first case involves a man out of California who pled guilty to filing false corporate tax returns. A piece in Forbes discusses the case, explaining that the man was a sole shareholder and president of a company providing transportation services to disabled individuals. The man allegedly underreported income by over $4.6 million in 2009 and 2010. This resulted in a tax loss of over $1.5 million. 

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