Restructuring Your Business? Part Two

In the first part of this series we looked at some of the changes your business can go through without being required to file for a new Employer Identification Number (EIN). Now we will look at some changes that your business can go through that WILL require you to file for a new EIN.

If you are a Sole Proprietor, you will need to file for a new EIN if any of the following relate to your business restructuring changes:

• You are subject to a bankruptcy proceeding.
• You incorporate.
• You take in partners and operate as a partnership.
• You purchase or inherit an existing business that you operate as a sole proprietorship.

Make sure you are following the guidelines set forth by the IRS with regard to making sure your business changes don't interrupt your business. If you stay on top of this from the start it can save you a lot of tie and money trying to correct the problem later. Next week we will look at Corporations and what restructuring aspects can affect your business.

IRS Secret Agent

Quote of the Week:

"Unquestionably, there is progress. The average American now pays out twice as much in taxes as he formerly got in wages."

-Henry Louis Mencken

The IRS Knows Who You Are!

To say being in compliance with filing your tax returns is important is a gross understatement. A good number of taxpayers do not file returns for specific years because they owe money to the IRS and cannot afford to pay the balance due. While it is true that owing money to the IRS can be a very stressful and embarrassing experience -- you can find yourself in a much worse position by not filing the returns. You can be prosecuted criminally for unfiled returns as many people are finding out across the country. In 2007 there were 516 investigations initiated and 300 of these had prosecution recommended for not filing tax returns. Of the 300 cases recommended for prosecution, 278 were sentenced (an 80.6% incarceration rate) with the average time served being 38 months. That is over 3 years in a federal prison because someone decided they either willfully did not want to follow the laws regarding filing taxes or maybe they thought (as so many people do) they could not afford to pay the taxes so I will wait and file the returns when I can pay. Take my advice FILE YOUR TAX RETURNS!!! It is better to have the IRS forcing monthly payments on you in order to pay the balance of your tax liability over time than to actually "do time." Ask yourself - would I rather pay for 5-10 years or be in jail for 5-10 years? I think this is an obvious answer.

Here are few examples of people who made the wrong decision:

• Indiana Man Sentenced for Failing to File Individual Income Tax Return
  On April 17, 2007, in Indianapolis, IN, Patrick D. Bogan was sentenced to 12 months imprisonment, fined $4,000 and ordered to cooperate with the IRS after pleading guilty to willful failure to file an individual income tax return. Bogan admitted that he failed to file a 2001 individual income tax return. Bogan had taxable income in 2001 totaling approximately $280,389 resulting in an unpaid tax liability of approximately $99,551.
  
• Defendant Sentenced to 21 Months in Prison for Failure to File Three Years of Income Tax Returns
  On May 30, 2007, in New Orleans, LA, Michael P. Nance, a Riverboat Pilot who worked for the New Orleans-Baton Rouge Steamship Pilots Association (NOBRA), was sentenced to 21 months in prison to be followed by one year of supervised release. According to the Information filed in the court in October 2006, Nance received gross income of $292,762 in calendar year 2000; gross income of $316,026 in calendar year 2001; and gross income of $296,134 in calendar year 2002. On December 13, 2006, he pleaded guilty to failing to file his personal federal income tax returns for the years 2000, 2001 and 2002.


• Dallas Businessman Sentenced to Two Years in Prison for Failing to File Income Tax Returns
  On March 2, 2007, in Dallas, TX, John Hayden LaRue, Jr., a Dallas businessman, was sentenced to 24 months in prison for failing to file an income tax return. As part of his plea agreement with the government, LaRue paid $1.8 million in restitution to the Internal Revenue Service. LaRue owns Medical Contracting Services, Inc., (MCS) in Dallas. He admitted that he knew he was required to file a federal income tax return and that he voluntarily and intentionally failed to do so.
  

These are a few examples taken from an article on the IRS website from the year 2007. You can view others from 2006, 2007 & 2008 for additional proof. If you are behind on your tax filings don't think the IRS doesn't know where to find you or they won't come after you for the money. Please seek professional help in order to get into compliance and resolve your debt in a manner that is financially beneficial to you before it is removed involuntarily without your best interest in mind.

Restructuring Your Business? Part One

So your business is changing. Maybe you are undergoing a simple change in ownership. You may need a new Employer Identification Number (EIN). If you are looking to incorporate a sole proprietorship or form a partnership you MUST get a new EIN. However, if you only change the following aspects of your business you will not need a new EIN.

• Simply change the name ONLY of your business.
• A partnership or corporation declares bankruptcy.
• A corporation chooses to be taxed as an S-Corporation.
• You changed locations or added locations.
• You elected on Form 8832 to change the way the entity is taxed.

Make sure you do your due diligence on this matter before you make any changes. Not filing for a new EIN if one is needed can lead to major complications later when filing your tax returns. In the second part of this article (next week) we will look at some of the specific changes in your business restructure that will require you to apply for a new EIN. If you find yourself in the situation where complications have come about for your business because you did not follow (or know about) the procedures you can get help from a certified tax resolution professional.

IRS Tax Relief

Quote of the week:
"How much money did you make last year? Mail it in. (suggestion for a simplified tax form)"
-Stanton Delaplane

Don't Wait to Collect Your Refund!

So you haven't filed your tax returns yet but you're not worried because the IRS owes you a refund. You can always go back and file to get your money when you need it right? WRONG! You do have the ability to file a late tax return and claim any refunds due to you from the IRS but pay attention: THERE IS A TIME LIMIT!

Generally, you may claim a refund only within three years from the time period the tax was paid or withheld from wages. There are some exceptions to this rule (of course) so you want to review the guidelines on the IRS website order to make sure you are within your rights to file a claim for a refund. The bottom line is file your tax returns on time...especially if you are due a refund. Once your time limit has expired your money will now be a tax donation to the IRS...without the benefit of the write-off for charitable contributions. Don't miss the opportunity to collect your money! If you don't know how to claim it or don't know if you qualify please consult a professional tax consultant.

Why am I Responsible for my Spouse's Tax Debt?

So the IRS sent you a letter informing you that you owe them $50,000 in taxes. This must be wrong. Besides, you paid your taxes through your company who withheld taxes directly from your paycheck. You paid your taxes and then some. In fact, the IRS owes you a refund. Why then are you receiving notices for payment on taxes you don't owe? You filed your return as "Married & Joint" and your spouse worked as an independent contractor for a company who did not take any taxes out of her paycheck. She owes money on her taxes even though you don't. Can you be held accountable for her debt? In a word -- ABSOLUTELY!

There is a category you may want to check into however. It is called "Innocent Spouse" and it is designed for those who are being held accountable for debt for which they had no control. To find out if you are eligible for this status check out the qualifications in the IRS tax code. Some of the questions you need to answer are as follows:

• Are the taxes owed from your spouse or ex-spouse?
• You did not significantly benefit (above normal support) from the unpaid taxes?
• You suffered abuse in your marriage?

If you can answer "yes" to any or all of the above questions you may be able to qualify for this unique designation. You will need to file a Form 8857 with the IRS to be granted a formal determination. One thing to keep in mind, however, you must have documented proof of the above factors. All of the above are hard to prove and if you filed your return for the year in question as "married and joint" you will have a hard time proving you are an innocent spouse. The obligation for accurate tax reporting ultimately comes down the taxpayer and once you sign your return you are responsible for the information on it.

IRS Secret Agent

Quote of the Week:

"Taxes are the price we pay for civilization."

-Oliver Wendell Holmes Jr.

Mileage Rate Increased

Tired of paying rising gas prices everywhere you go? Are you going through lifestyle changes in order to fight the rising cost of fuel? Is your business or job being suffocated by the financial crunch of keeping vehicles on the road in order to continue business as usual? There is some help on the horizon.

The IRS just raised the mileage rate for the 2008 tax year beginning in July. The rate for January 1, 2008 until June 30, 2008 is 50.5 cents per mile. As of July 1st the rate is increased to 58.5 cents per mile for the remainder of the year.

"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers." This statement coming from a recent article on the IRS website posted June 23, 2008.

I don't have any money -- EXTENSION!!!!

Every day I come across taxpayers who have not filed their income tax returns for one simple reason.

"I didn't have the money to pay my taxes."

Most of these taxpayers tell me it's OK because I filed for an extension. However, no payments were made when they filed for this extension. They all say, "If I had money to pay the taxes...I wouldn't have filed for an extension." But filing for an extension is NOT an extension to pay your taxes...it is an extension to file your return. You are still required to mail in an estimated tax payment with your request for extension.

You now, however, have three ways to file for an extension. You can file online with Form 4868 by using a credit card to pay an estimated tax payment. You can file through the mail using Form 4868 and mailing your extension with a check for your estimated taxes. Finally, you can simply pay all or part of your estimated tax payment though an outside service provider provided on Form 4868. There is a separate process you must go through if you are serving in the military in a combat zone or hazardous area.

Just remember one thing...you must pay your taxes when you file for an extension or it is like you never filed them at all. The IRS wants the money due to them. Paying an estimated amount of taxes with an extension will allow you more time without further penalties.

IRS Secret Agent

Quote of the Week:

"A person doesn't know how much he has to be thankful for until he has to pay taxes on it."

-Author Unknown

"Lien-ing Tower of Taxes"

Got a tax lien filed against you by the IRS? You are in the same boat as thousands of taxpayers every year. In fact, if you owe $25,000 or more in taxes there is an "implied lien" against you whether it has been filed at the courthouse or not. This is becoming more popular these days and a recent article on Yahoo Finance further solidifies that the IRS is cracking down on taxpayers and liens are going to be a bigger part of their arsenal.
You will have this lien until it is paid in full or it expires which is 10 years from the date the lien is placed. There are some things that CAN extend this period however, such as submitting an Offer in Compromise, Bankruptcy, an Audit, and a collection due process hearing, just to name a few. This will affect your ability to finance a home, automobile or get most types of loans from a lending institution.

Sound pretty bad? Before you answer, there is one more type of lien that you need to be aware of.

This is called a Statutory Lien or "Silent Lien." This occurs when a lien is filed on a taxpayer and in later years the taxpayer incurs additional debt. Even though the initial lien is filed for the original liability amount the payoff for that lien will include ALL the liability owed to the IRS. For example, if you got a lien filed for $10,000 against you in 2004 but in 2007 you could not pay the $11,000 you owed for that year, your tax lien will still say "$10,000" at the courthouse. But the $11,000 from 2007 is what is known as a "Silent Lien" and your payoff will include both amounts for a total of $21,000 plus penalties and interest.

Can this tough situation be avoided? Yes! File your taxes on time and if you cannot pay the amount owed please consult a professional tax resolution company.