RESOLVING TAX DISPUTES WITH THE IRS: WHAT ARE MY OPTIONS?

by | Mar 17, 2015 | Tax Planning, Uncategorized

The IRS has some significant collection tools it can use to collect federal taxes. The IRS can lien assets such as your home, seize cash in bank accounts and garnish wages. Although the IRS does have these significant collection tools, there are also numerous tax payer protections available during the tax collections process. The process of tax collection from the IRS can be long and “taxing” and the IRS has ten (10) years from the date when your tax liability was assessed to collect on the taxes. During this collection process, it is important that you are proactive in dealing with an outstanding tax liability. Below is a list of options that are available to taxpayers. I would note that none of these options resolve around settling for pennies on the dollar.

1. Appeals Process. If you disagree with the decision of an IRS employee at any time during the collection process, you may ask that employee’s manager to review your case. If you disagree with the manager’s decision, you have the right to file a written appeal under the Collection Appeals Program. You can appeal collection actions such as liens, levy’s of bank accounts or garnishment of wages. You are also entitled to a Collection Due Process Hearing where you can challenge the IRS’s determination of tax owed.

2. Tax Court. If you are unsuccessful in the IRS appeals process you may file a petition in the U.S. Tax Court to challenge the amount due. This appeals process is far more difficult to understand and usually requires the assistance of an attorney.

3. Installment Agreement. If you have tax owed which you do not dispute but cannot afford to pay you may set up an installment agreement with the IRS to re-pay the tax owed. Under an installment agreement the IRS does charge interest on the amount owed but will cease collection activity and will allow you to pay the tax over time. If you owe $50,000 or less then you don’t have to complete an extensive financial statement and the process can be done on-line or by phone with the IRS. If, however, you owe over $50,000, then you must complete IRS form 9465 which outlines your assets, income, and debts to the IRS.

4. Offer in Compromise. You may make a deal with the IRS under what is called an offer-in-compromise. Under an Offer in Compromise you agree to pay a certain amount to the IRS as a settlement for all amounts they have assessed as due. There are three grounds under which the IRS will accept and Offer in Compromise. First, if there is a doubt as to whether you are truly liable for the tax. Second, if there is doubt as to whether you are actually able to pay the IRS back. Lastly, an offer may be accepted if the offer promotes efficient tax administration due to an economic hardship or special circumstance of the taxpayer.

5. Office of Taxpayer Advocate. At any time in the collection process where the IRS office has been unresponsive to taxpayer requests, a taxpayer may receive the assistance of the Office of The Taxpayer Advocate. The Taxpayer Advocate is an independent office within the IRS but it is their responsibility to assist the taxpayer in dealing with other offices within the IRS. Only the IRS would have such an office. The Taxpayer Advocate can help give you advice on how to resolve your tax problem. We have used the Office of the Taxpayer Advocate in many instances and while they are within the IRS office they can be helpful in getting responses to requests for information and in obtaining decisions on Offer in Compromises and Appeals.

Many CPA’s and Attorney’s are familiar with tax collection and it is crucial that a taxpayer facing collection actions be aware of the procedural options available to them. We have helped numerous clients in our office resolve difficult tax situations by using some of the procedures above. The key is to be proactive in your case to ensure that you don’t miss deadlines and other opportunities to resolve your tax problem.

By: Mathew Sorensen, Attorney and Author of The Self Directed IRA Handbook

Do I Need Foreign Corporation Registration?

by | May 7, 2013 | Tax Planning, Uncategorized

Many business owners and investors doing business in multiple states often ask the question of whether their company, that is set up in one state needs to be registered into the other state(s) where they are doing business. This registration from your state of incorporation/organization into another state where you do business is called a foreign registration. For example, let’s say I’m a real estate investor in Arizona and end up buying a rental property in Florida. Do I need to register my Arizona LLC that I use to hold my real estate investments into Florida to take ownership of this property? The answer is generally yes, but after reviewing a few states laws on the subject I decided to outline the details of when you need to register your LLC or Corporation into another state where you are not incorporated/organized. (Please note that the issue of whether state taxes are owed outside of your home state when doing business in multiple states is a different analysis).

Analyzing the Need for Foreign Registration

In analyzing whether you need to register your out of state company into a state where you do business or own property it is helpful to understand two things: First, what does the state I’m looking to do business in require of out of state companies; and Second, what is the penalty for failure to comply.

State Requirements for Businesses

First, a survey of a few state statutes on foreign registration of out of state companies shows that the typical requirement for when an out of state company must register foreign into another state is when the out of state company is deemed to be “transacting business” into the other state. So, the next question is what constitutes “transacting business”. The state laws vary on this but here are some examples of what constitutes “transacting business” for purposes of foreign registration filings.

  1. Employees or storefront located in the foreign registration state.
  2. Ownership of real property that is leased in the foreign registration state. Note that some states (e.g. Florida) state that ownership of property by an out of state LLC does not by itself require a foreign registration (e.g. a second home or maybe land) but if that property was rented then foreign registration is required.

Here is an example of what does not typically constitute “transacting business” for foreign registration requirements.

  1. Maintaining a bank account in the state in question.
  2. Holding a meeting of the owners or management in the state in question.

So, in summary, the general rule is that transacting business for foreign registration requirements occurs when you make a physical presence in the state that results in commerce. Ask, do I have employees or real property in the state in question that generates income for my company? If so, you probably need to register. If not, you probably don’t need to register foreign. Note that there are some nuances between states and I’ve tried to generalize what constitutes transacting business so check with your attorney or particular state laws when in question.

Failure to File Foreign Registration

Second, what is the penalty and consequence for failing to file a foreign registration when one was required? This issue had a few common characteristics amongst the states surveyed. Many company owners fear that they could lose the liability protection of the LLC or corporation for failing to file a foreign registration when they should have but most states have a provision in their laws that states something like the following, “A member [owner] of a foreign limited liability company is not liable for the debts and obligations of the foreign limited liability company solely by reason of its having transacted business in this state without registration.” A similar provision to this language was found in Arizona, California and Florida, but this provision is not found in all states that I surveyed. This language is good for business owners since it keeps the principal asset protection benefits of the company in tact in the event that you fail to register foreign.  On the other hand, many states have some other negative consequences to companies that fail to register foreign. Here is a summary of some of those consequences.

  1. The out of state company won’t be recognized in courts to sue or bring legal action in the state where the business should be registered as a foreign company.
  2. Penalty of $20 per day that the company was “transacting business” in the state when it should have been registered foreign into the state but wasn’t. This penalty maxes out at $10,000 in California. Florida’s penalty is a minimum of $500 and a maximum of $1,000 per year of violation. Some states such as Arizona and Texas do not charge a penalty fee for failure to file.
  3. The State where you should have registered as a foreign company becomes the registered agent for your company and receives legal notices on behalf of your company. This is really problematic because it means you don’t get notice to legal actions or proceedings affecting your company and it allows Plaintiff’s to sue your company and to send notice to the state without being required to send notice to your company. Now, presumably, the state will try to get notice to your company but what steps the states actually takes and how much time that takes is something I couldn’t find. With twenty to thirty day deadlines to respond in most legal actions I wouldn’t put much trust in a state government agency to get me legal notice in a timely manner nor am I even certain that they would even try.
  4. In addition to the statutory issues written into law there are some practical issues you will face if your out of state company is not registered into a state where you transact business. For example, some county recorders won’t allow title to transfer into your out of state company unless the LLC or corporation is registered foreign into the state where the property is located. It is also common to run into insurance and banking issues for your company until you register foreign into the state where the income generating property, employee, or storefront is located.

In summary, you should register your company as a foreign company in every state where you are transacting business. Transacting business occurs when you have a storefront in the foreign state, employees in the foreign state, or property that produces income in the foreign state. Failure to file varies amongst the states but can result in penalties from $1,000 to $10,000 a year and failure to receive legal notices and/or be recognized in court proceedings. Bottom line, if you are transacting business outside of your state of incorporation/organization you should register as a foreign entity in the other state(s) to ensure proper legal protections in court and to avoid costly penalties for non-compliance.