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Los Angeles Tax Law Blog

Recent tax rules cause wealth flight in California

Some wealthy earners are leaving the Golden State. According to a recent report, high-income earners in California are moving to places where the tax burden isn’t as high.

Part of the reason may be due to provisions in the Tax Cut and Jobs Act that capped state and local tax (SALT) deductions at $10,000. This move has been especially burdensome for wealthy earners in less tax-friendly states. That's because many are now facing substantial difficulties when it comes to protecting their assets.

Protesting a California FTB tax audit assessment

The state of California is notoriously Scroogelike when it comes to taxes. The Franchise Tax Board (FTB) is more than willing to audit individuals, and hit them with a Notice of Proposed Assessment (NPA) claiming the individual owes far more in taxes than they had paid.

As a taxpayer, you can push back against the conclusion of an audit. . To do so, you have to play by the state’s rules. Here are four things to keep in mind with FTB audit protests.

IRS claims 91% conviction rate for 2019 tax crimes

The Internal Revenue Service (IRS) released its annual report in January, saying the agency achieved convictions in 91.2% of all cases it prosecuted in 2019.

The IRS report emphasized the agency’s aggressive enforcement activities, but officials also stated the goal is to keep improving their conviction rate.

Could proposing bankruptcy improve an IRS offer in compromise?

Owing federal taxes is not uncommon. Internal Revenue Service (IRS) data shows that in 2017, about 14 million people owed an estimated $131 billion total in taxes, penalties and interest. When faced with a difficult financial period, paying off that tax debt in full can be near impossible.

There are ways to resolve the issue, however, and settle that tax debt. While a few options exist, we’re going to focus on two here, bankruptcy and offers in compromise, and look at how one can impact the other.

When clients sue accountants for contractor misclassification

The California public and legislators have classification of workers on their minds. Employers who violate the separate rules for independent contractors and employees can face stiff penalties and big bills for unpaid taxes and interest.

In times like these, clients might increasingly sue accountants, alleging malpractice for recommending the wrong classification. Unlike a client’s books, the court system is ordinarily public making a malpractice lawsuit seem especially threatening.

Trust Fund Recovery Penalty: Can business owners be responsible?

Owning a business that is not performing can be overwhelming. If the business is not generating enough income you may fall behind on required payments.

Falling behind on your payroll taxes, however, can have negative consequences for both your business and you personally. The IRS can use the Trust Fund Recovery Penalty (TFRP), sometimes called the 100% penalty, to recoup these taxes that you collect and hold on the government's behalf. As the business owner or officer, you may be individually liable for any fines or unpaid taxes as well.

Why are the least wealthy the most audited?

Chances are that you look forward to your tax refund every spring. Maybe you use that money to use as a down payment on a new car or take your family on a vacation. You may even anticipate your employer to issue your W-2 to take to your accountant to get the process started.

However, those in the middle and lower classes have faced tax challenges in recent years. It’s often these people, rather than the wealthiest Americans, who have their taxes most closely scrutinized.

Your rights as a taxpayer: appealing an audit

The Internal Revenue Service (IRS) conducts audits to ensure that your reported tax amount is correct. But just because you face an audit does not necessarily mean there was a problem with your tax return. Many audits are conducted at random by a statistical formula to compare your tax return with similar returns.

However, if you don’t agree with the results of the audit, you have the right to appeal it.

Can you discharge tax debt in bankruptcy?

Many people struggle with overwhelming debt, and bankruptcy can be a good way to recover from it. It offers people a way to pay down or outright discharge remaining financial obligations. Bankruptcy can provide a way to start over and get life back on track.

Unfortunately, it won't always negate debt owed to the IRS when filing for personal bankruptcy with Chapter 7 or Chapter 13. You will not be able to discharge any penalties accrued by attempting to evade taxes or file fraudulent returns. Tax debt is handled differently depending on what chapter you file for.

Former executive claims Walmart illegally avoided taxes

When you prepare taxes for your business, you try to avoid paying as much tax as possible. Sometimes doing so puts your business at risk of committing acts that the IRS may not think is legal.

Walmart recently came under scrutiny for allegedly avoiding the payment of $2.6 billion in taxes. According to documents by a former Walmart executive, the company used a Chinese entity to avoid paying billions of dollars in taxes over the course of three years.

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