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Tax Audit Entertainment Industry

They’ve just done it again! The IRS has targeted the entertainment industry for tax audits. If you’re an actor, director, producer, entertainer, composer, writer, film star, rock star, producer, recording artist, musician, publisher, manager or in any other way related to the music entertainment, film or related industry, you can or probably should suspect that you will be a target for the IRS examination of your tax returns.


This October, the IRS has released its Entertainment Audit Technique Guide as guidance to assist IRS auditors in the audit of individuals and businesses involved the entertainment industry.  The audit technique guides were developed as part of a Market Segment Specialization Program to target certain industries in which the IRS will generally apply additional scrutiny or consideration in enforcing compliance with tax reporting.


On the income side, the IRS will review residuals, royalties, licensing fees, fringe benefits, advances and more to ensure that all applicable revenues are fully reported. On the expense side, the IRS will scrutinize your record keeping, reporting compliance, the failure to capitalize, depreciate and amortize expenses, employment taxes, home office deductions and more to ensure that deductions actually exist, are not “personal” in nature and are fully supported in accordance with the strict reporting requirements of travel, meals and entertainment deductions required by law.


Remember that an audit of this year’s targeted tax industries may not hit you until around two years from now unless your returns are specifically targeted for other reasons. That does not mean you have nothing to worry about for two years. What that means is that THIS year’s return may not be audited for another two years, but by that time its highly likely that your audit will include this year’s returns, next year’s returns and possibly the year after that — all at one time and all with the same audit issues. So the time to get your affairs in order is NOW so you don’t get killed on your tax audit later.


Many of the tax strategies previously overlooked are being specifically targeted as “suspect” from the write-off of entertainment expenses, equipment leasing contracts, reimbursements, fringe benefits, income characterization, home office deductions and more. On the up side, we can make certain affirmative elections to allow you to take expenses, or a portion thereof, currently, rather than capitalize and amortize up front costs over a much longer period of time that would otherwise be required by law.


Whatever the case may be, the key in successful tax negotiations lies in the planning – the early identification of tax issues, strategies and the implementation of those strategies early in the game to help achieve the most optimal success.




IRS Adopts “Taxpayer Bill of Rights” – Taxpayer Rights

The Internal Revenue Service (IRS) this week announced the adoption of the Taxpayer Bill of Rights. For the most part, there’s really nothing new here. The IRS does not necessarily have the “final word”. The Taxpayer Bill of Rights gives taxpayers certain taxpayer rights to challenge the decisions made by the IRS that impact their tax obligations and payment of those taxes.

The Taxpayer Bill of Rights simply takes the existing rights and restates them into 10 broad categories; making them more visible and easier for taxpayers to find. Perhaps the most frequently asked questions regarding taxpayer’s rights concern the rights of appeal and challenge to IRS decisions and the right to retain representation in tax matters.

The Right to Challenge the IRS’s Position and Be Heard provides taxpayers with the right to object and provide additional information not previously considered in response to adverse IRS actions. In those cases that a taxpayer disagrees with an IRS position and can provide additional information that may benefit the taxpayer, taxpayers have the right to present additional information to be considerate and expect a prompt response to their objections even if the IRS does not agree with their position.

The Right to Appeal an IRS Decision in an Independent Forum gives taxpayers the right to a fair and impartial administrative appeal of most IRS decisions, and in less frequent cases, the right to take their tax cases to court. The right to appeals offers taxpayers a “fresh look” at their case by a new and impartial IRS representative where taxpayers were properly wronged or that new additional information was not considered.

Perhaps a taxpayer’s most important right is the Right to Retain Representation before the IRS, giving gives taxpayers the right to retain the services of a knowledgeable, licensed tax attorney, certified public accountant (CPA) or enrolled preparer to represent their interests. Navigating through complex tax law and IRS procedure (in the case of tax problem representation before the IRS) often requires professional guidance to gain the maximum benefits available to a taxpayer. The IRS is not independent; having a contrary position to that sought by taxpayers to seek the assessment and collection of federal income taxes. It is not the obligation of the IRS to provide taxpayers with the maximum tax relief benefits that are available.

The Taxpayer Bill of Rights has been redefined in the following 10 categories:

The Right to be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’s Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
The Right to Retain Representation
The Right to A Fair and Just Tax System

If you, or someone you know, has a tax problem and needs professional assistance with dealing with the IRS, contact us for additional information to see how we can help you.

Handling the Payroll Tax Audit and Back Taxes

Did you get a payroll tax audit letter or IRS notice of back payroll taxes you owe? Does your Company owe back taxes? Payroll tax audits are no fun and usually open up lots of tax problems for examination by the IRS. IRS audits can be costly to represent and time consuming. If you have a payroll tax problem you may need IRS representation right away.

Not Paying Payroll Taxes

When times are tough and you need the cash, it’s tempting to pay your payroll taxes to the IRS later and use the cash now. Not only are tax penalties quite harsh, but these problems have a way of snowballing from one period to the next and never get paid; which is what gets you in really big trouble.

Not paying your income taxes is one thing, but not paying your payroll taxes is much worse. Not paying your payroll taxes is a crime and you can be held both criminally and civilly liable. This is because the IRS gives special treatment to payroll taxes as it is viewed as not your money. Not paying your payroll taxes is viewed as not paying the IRS amounts that belong to your employees – not yours.

Steps to Solve Payroll Tax Problems

Well, the first thing you do is simply pay the taxes you owe. Unfortunately, if that’s all there was to it, you probably wouldn’t be here right now. So what’s your next option?

Your second step is to stop the bleeding. So you made a mistake, you needed the money and you used the payroll taxes to pay your bills. The problem is you probably have done this over and over again. This is what the IRS calls “cascading”. You need to show the IRS that the problem won’t happen again. How do you do this? You pay the most recent payroll taxes first. That’s right! Not the oldest taxes you owe, but the most recent. And you keep on paying your payroll taxes going forward on time.

Your third step is to deal with paying the old taxes. You can usually pay this through an installment agreement, or payment plan to pay your taxes over time. How much you need to pay and when will depend on how much cash you have available to pay your taxes going forward. A tax problem resolution specialist can help you complete the calculations and remit all the paperwork you’re going to need.

Strategies for Paying Back Taxes

As you can see, there are back tax payment strategies that can help you. There are other strategies of which taxes to pay and when to pay them as well. Now, don’t look to the IRS to help you – they won’t. It’s not in their best interest. But an experienced tax problem resolution specialist can. You just need to find the right tax problem specialist to help you and foot the bill.

How the IRS Collects the Tax Debt

Payroll taxes have a special place in the heart of the IRS. As previously stated, the IRS gives special treatment to payroll taxes as it is viewed as not your money. Accordingly, the IRS will hold business owners and other responsible persons personally liable for these taxes.

This means that if the IRS can’t get at the money because the business doesn’t have it, it will go after your personal bank accounts. If one owner doesn’t have the money either, it will go after the other, and so on until they find someone to pay it. It doesn’t even have to be the owner of the Company – it can be an employee, the bookkeeper, manager or accountant or just about any other “responsible person”.

If you think it’s unfair that the IRS is coming after you, or you work in a Company that’s not paying its payroll taxes and you have certain control over payroll, seek immediate professional help.

IRS Audit Tax and Payroll Tax Problems

At IRS Audit Tax you can get experienced, quality IRS representation to help you solve your tax problems and back taxes at a great price. Call today to find out more.


IRS Red Flags 2013 – 18 Red Flags You Need to Know

Have you ever known someone who had an income tax audit by the IRS or state taxing authority? They’ll tell you that once was enough and in most all cases, will do everything not to have that sort of problem ever again. It’s important to know how an audit is triggered and what you can do to prevent one from happening to you. Here are some of the more common audit red flags you should know. Continue reading

What To Do In An IRS Audit

Knowing exactly what to do if you get audited will depend on the nature of the audit examination. Correspondence audits are handled much differently that field examinations or office visits.
Correspondence Audits
Most IRS audits are correspondence audits where you’ll receive a letter explaining what problems may exist and the IRS determination of what the corrections will be and the taxes you may owe.  You may be able to simply read the letter and determine if you agree with the proposed changes.
  • If you agree with the proposed changes, simply sign and date the proposed changes and include your check for any amounts owed.
  • If you don’t agree with the proposed changes, you may simply reply that you don’t agree and provide information in support of your position. However if the issues are complex, you’re almost always better off to request a face-to-face meeting with an IRS examiner.
Field Examinations and Office Visits
Other audits require an office visit (where you are instructed to call to schedule an appointment with the IRS to discuss your return) or a field examination (where the IRS will visit you) to review your tax return(s).  Recommended steps are to:
  • Consider hiring a tax professional to represent your interests;
  • Call to delay the audit to allow you additional time to gather your records;
  • Refigure your tax return by comparing the information reported to your records;
  • Look for other deductions you may have missed;
  • Research any tax or legal issues that you were unsure of, or were questionable;
  • Assess your tax risk on each of these issues
Often many taxpayers incorrectly believe that if they’re good, honest, people, they can somehow befriend the tax examiner and everything will be all right.  This is just simply not true.
The IRS tax examiner is simply doing his job. His job is to protect the government’s interests and collect additional taxes from you that you may owe. Tax examiners are skilled and experience in their techniques and will strive to collect information that can be used against you.

Hiring a IRS Tax Professional

You have certain taxpayer rights to protect your interests.  Most importantly, you have the right to professional representation. Hiring a professional is no admission of guilt – its simply a sound business practice. Most seasoned IRS examiners would prefer to deal with a licensed professional anyway – one that understands your reporting obligations and will not get emotional when errors are found.
The IRS tax examiner is simply doing his job. His job is to protect the government’s interests and collect additional taxes from you that you may owe. Tax examiners are skilled and experience in their techniques and will strive to collect information that can be used against you.

IRS Audits On the Rise For International and High Net Worth Taxpayers

The enforcement of tax laws is a chief component of IRS effort to enhance voluntary compliance. Recently, the IRS Commissioner outlined IRS intentions to focus on tax evasion as it relates to international taxes in the forthcoming year with an increased emphasis on high-net worth taxpayers [IR-2010-122, December 9, 2010].

In 2009, IRS examinations were directed to international taxpayers, high-net worth individuals and non-filers.  Overall, IRS examinations have increased by approximately 3% over the prior year and are expected to increase consistently hereafter.  Of particular significance are audits of high-wealth individuals, which have increased 11.2%. Large corporation audits have also increased by approximately 3%.

If you maintain assets off shore, the IRS has not only put increased pressure on disclosure by foreign banks, but has put in place initiatives to form cooperative, joint agreements with foreign countries to share information and raise tax revenues.

With regards to corporations, new legislation includes the Foreign Account Tax Compliance Act (FATCA).  FATCA provides the IRS with better transparency and additional tools that we need to crack down on Americans hiding assets overseas. FATCA will increase information reporting by U.S. taxpayers holding financial assets outside the United States and impose stiff penalties for failure to comply. It will also require reporting of U.S. persons who hold accounts in foreign financial institutions or who own large interests in foreign entities that hold such accounts.

The IRS has placed a series of extremely harsh penalties on taxpayers who fail to report foreign holdings and transactions.  Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions. Continued non-compliance by flagrant or repeat non-filers could result in additional penalties and/or criminal prosecution. Voluntary disclosure of offshore accounts may be a taxpayer’s best defense for mitigating damages that may arise.

New IRS Employer Examinations

The Internal Revenue Service (IRS) has recently begun a 3-year National Research Program to randomly select and intensely audit approximately 6,000 companies to focus on employment tax issues to include review of independent contractor status, executive compensation, fringe benefits and other employment tax issues.  This is a first attempt (in approximately 25 years) where the IRS National Research Program has targeted employment tax. The goal of the IRS is to identify areas of noncompliance across industry sizes and sectors including nonprofits and governmental entities, with an ultimate goal of revenue collection.
The employment tax examination issues will include independent contractor/worker classification issues, including executives rehired as consultants, dual status employees and employee leasing arrangements.
Fringe benefits reimbursements examination for “personal use” including not only income tax but backup withholding of an additional 28% (including cell phone use, credit cards and other non-cash benefits).  Executive compensation and fringe benefits include use of company cars, planes, executive retirement contracts, golden parachutes, stock options, etc.

Independent Contractor v. Employee

Perhaps the most common area of concern of small businesses is the classification of workers as independent contractors (not employees). This classification generally results in a decreased economic burden of the business to avoid payroll taxes and other economic costs associated with employees.
The determination of employment status is generally based on 20 factor common law test (not statutorily defined).  Be advised that the IRS will almost always reclassify all workers as employees. These factors are designed to determine the degree of “control” of the paying entity and the elements of “economic risks” of the payee. Factors to be included in analysis by employers include:
  1. Compliance with instructions
  2. Training provided
  3. Integration with business activities
  4. Personal rendition of service
  5. Hiring, supervising and payment of assistants
  6. Existence of a continuing relationship
  7. Set hours of work
  8. Exclusivity
  9. Working on the employer’s premises
  10. Sequence of work done
  11. Reports recruited
  12. Payment by hour, week or month (not as a percentage of collections)
  13. Expense accounts
  14. Tools and materials supplied
  15. Facilities furnished
  16. Risk of loss to worker
  17. Number of “employers”
  18. Availability to general public
  19. Power to fire
  20. Termination damages
Generally, the greater the control of the payer; the greater the risk that it will be determined to be an employer. The use of a worker agreement in which the person acknowledges being an independent worker is irrelevant.

Safe Harbors or Exceptions

Fortunately, certain safe harbors are available (IRS Sec. 530).  The main classifications of this exception include:
  1. Judicial precedents, published IRS rulings, technical advice memorandum or private letter ruling or determination ruling
  2. A log standing recognized practice of a significant segment of the industry in which the taxpayer is engaged (Industry segment should be 25% or more);
  3. Statute allows the taxpayer to demonstrate “reasonable basis” for its treatment of workers is some other manner
However, even if you satisfy one of the requirements of IRC Sec. 530 you must meet other requirements:
  1. Taxpayer must not have previously treated the individuals as employees;
  2. Taxpayer must have all required informational returns;
  3. Consistency requirement in how payees are treated
The burden of proof is on the IRS once the TP establishes a prima facie case (meet factors of IRC Sec. 530 and other requirements).

Consequences of a Payroll Examination

There are unfortunately various consequences to taxpayers that may be asserted by the IRS.
  1. The Company may be subject to backup withholding – current rate of 28%;
  2. There may be a disallowance of income tax deductions not paid pursuant to an accountable plan;
  3. There may be additional income taxes imposed upon recipients of employee benefits that are deemed to be wages or taxable income;
  4. There may be asserted negligence penalties of 20% on additional tax obligations;
  5. There may be asserted penalties for failure to provide Forms 1099 or W-2

What to Do

If selected for a payroll tax examination don’t panic — just get professional help.  Review your current employment arrangements with your advisor and determine your degree of exposure, if any.  Review the 20 factor test, see to what extent the safe harbor provisions apply and gather the necessary documentation in support of your positions.  In summary, be prepared, hire professional advisors and take the necessary steps to reduce your exposure that you haven’t already.

IRS Tax Problem Help

Do you have an IRS tax problem and need immediate professional help? You’re not alone. Its estimated that one in every six taxpayers has a tax problem or unresolved tax debt at this time.

Get your best possible settlement and fastest solution to solve your tax problem. Tax audits, back taxes, tax settlements, penalty relief – you’ve come to the right place.
Solving tax problems is what we do – every day. Dealing with the IRS requires specialized knowledge, training and experience. Your tax preparer is probably not your best option.
Finding knowledgeable, experienced taxpayer problem resolution experts can often SAVE you thousands, if not tens of thousands of dollars, time and frustration.
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New IRS Efforts to Help Struggling Taxpayers

In its latest effort to help struggling taxpayers, the Internal Revenue Service today announced a series of new steps to help people get a fresh start with their tax liabilities.  The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.


“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.” The changes include:
  • Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
  • Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
  • Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
  • Creating easier access to Installment Agreements for more struggling small businesses.
  • Expanding a streamlined Offer in Compromise program to cover more taxpayers.
Tax Lien Thresholds
The IRS will significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances.
A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money. A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and any acquired thereafter. A lien can affect a taxpayer’s credit rating, so it is critical to arrange the payment of taxes as quickly as possible.
“Raising the lien threshold keeps pace with inflation and makes sense for the tax system,” Shulman said. “These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government.”
Tax Lien Withdrawals
The IRS will also modify procedures that will make it easier for taxpayers to obtain lien withdrawals. Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. The IRS has determined that this approach is in the best interest of the government. In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens.
Direct Debit Installment Agreements and Liens
The IRS is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
  • Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
  • The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
  • The IRS will also withdraw liens on existing Direct Debit Installment greements upon taxpayer request.
Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. In addition, this lowers user fees and saves the government money from mailing monthly payment notices. Taxpayers can use the Online Payment Agreement application on to set-up with Direct Debit Installment Agreements.
“We are trying to minimize burden on taxpayers while collecting the proper amount of tax,” Shulman said. “We believe taking away taxpayer burden makes sense when a taxpayer has taken the proactive step of entering a direct debit agreement.”
Installment Agreements and Small Businesses
The IRS will also make streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate.
Small businesses with $25,000 or less in unpaid tax can participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses will have 24 months to pay.
The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less. Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.
“Small businesses are an important part of the nation’s economy, and the IRS should help them when we can,” Shulman said. “By expanding payment options, we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations.”
Offers in Compromise
The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.
This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less. OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.